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The Psychological effect behind the Stock Markets’ Most Volatile Month. Generally, the volatility in October has been well-above average, and this does have a psychological effect on investors’ minds. The biggest market crashes – Black Monday/Tuesday and other turmoil had occurred in October making it the “Jinx Month”.

The sharp and sudden drop that occurred last week shows that October is living up to its reputation of being the Stock Market Most Volatile Month. It could be investors being superstitious, but so far, there are not known drivers only some theories which include: The return from summer vacations The federal government’s fiscal year which begins on the first of October The third-quarter corporate earnings. On average, more daily moves above 1% are recorded in October.

The S&P500 recorded three more than 1% daily moves already which kind of justified the belief. World Equity Indices (% Change) – Month-to-date Source: Bloomberg Terminal Besides the myth, rising yields are set to be the challenge for this quarter and appear to be the primary driver behind the recent surge in volatility. The prospect of more instability is high and quite alarming given that the US stock markets are already inflated.

The actions by the Fed have also put the stock markets in a dangerous bubble. Are the markets prone to more volatility? Alternatively, does the recent fluctuations signal a bear market?

The recent weeks of volatility are evidence that trading equity will likely remain choppy in the short-term. At this stage, it is difficult to recognise whether the bull market has reached the top and investors need to get out before the bear market or whether investors should stay away from the “buy the dip” strategy in the emerging and Asian equity markets. All in all, short-term investors might find it hard to catch the rhythm of the stock markets, but if investors were to maintain a long-term view, it might be worth listening to Warren Buffet advice: “Buy, Hold and Don’t watch too closely when the market sells off.”

Hawkish and Dovish are two crucial words widely used in our industry whenever there are central bank speeches or talks about monetary policies. But what does it mean? Central banks are more transparent than ever and forex analysts or traders try to dissect the overall tone and language used when central bankers speak to see: How the economy is flaring How interest Rate will change or foresee How the monetary policy will develop over time and affect the value of a country’s currency A hawkish tone means that a central bank is seeing the economy growing too fast and is warning the markets of excessive inflation.

Therefore, to curb inflation and slow economic growth, central banks might increase interest rate which will be positive for the domestic currency. A dovish tone is a complete opposite – The economy is not growing and the central bank is warning against deflation. In other words, there might be interest rate cuts to stimulate the economy which is negative for the domestic Currency.

Put simply, when there is a Hawkish tone, there are talks about tightening monetary policy which will probably lead to interest rate hikes. On the other side, a dovish central bank will use easing or accommodative monetary policy which will result in interest rate cuts. Recently, Major Central Banks of Key economies have turned dovish due to slowing global growth and this week the Reserve Bank of New Zealand joined the dovish chorus as well.

This article is written by a GO Markets Analyst and is based on their independent analysis. They remain fully responsible for the views expressed as well as any remaining error or omissions. Trading Forex and Derivatives carries a high level of risk.

Fundamental Analysis: Macro Factors The rapidly growing global interconnectedness means that the health of one country's economy can impact the world markets. As a result, traders generally follow the economic calendar to ensure that they do not miss out on any relevant indicators that may signal a move in the financial markets. In this article, we are going to review some major macroeconomic factors.

Economic Growth It is essential to understand how an economy grows to recognize the current economic environment in which an individual is investing and to predict how the market will move. In broad terms, economic growth is mainly driven by: Consumer Spending Business Investment Economic Growth is widely measured by Gross Domestic Product (GDP) which is defined as the total value of goods and services provided in a country during one year. If the health of the economy is robust, individuals and investors feel confident about the economy, which will likely boost consumer spending and business investment.

If the economy is weak, individuals would most probably save rather than spending to prepare for difficult situations. Similarly, investors will be more cautious and show some reluctance in investing in riskier assets. They will also likely seek safety with safe-haven assets.

Recently, we saw that as and when economic indicators fueled the fears of a global economic slowdown, investors seek safety with gold or other safe-havens. Employment Another significant economic data release is the Labour report. Every month, investors look at the three main components of the employment report to gauge the strength of the economy: Jobs creation: The number of new jobs created helps to assess whether the economy is growing.

Generally, a large number of new jobs is positive and is a sign that the economy is flourishing. When the numbers begin to fall, it can signal a slowing economy. Unemployment rate: Rather than the actual monthly figure, analysts normally will observe the trend in the rate to see if the labour market is contracting or expanding.

Unemployment rate helps to determine the inflationary and interest rate expectations. For example, any figure below the Non-Accelerating Inflation Rate of Unemployment (NAIRU) level will force the markets to begin to factor in a higher inflation rate. Wage Growth: Wages are the biggest indicator of consumer spending but do also have a flipside.

It can be a significant cost for a business, but it is also a source of spending and consequently means revenue and profit for a business. Even though analysing its effect on the economy can be complexed, traders tend to monitor wage growth to gauge future interest rate expectations. Inflation Inflation is an important economic concept.

It is a sustained rise in overall price levels. For trading purposes, we will try to keep it simple. The rate of inflation is important as it depicts the rate at which the real value of an investment is eroded and the loss in spending or purchasing power over time.

High inflation normally signals that the economy is overheating, while moderate inflation is often associated with economic growth as it means businesses and consumers are spending more money on goods and services. Consumer Price Index (CPI) and Producer Price Index (PPI) are the most followed indicators aside from other inflationary pressures widely monitored by traders. Interest Rates Interest rates can have a rippling effect on the economy, which is why investors generally focused on forecasting any changes in interest rate to make better financial decisions.

Any changes in interest rate can cause an immediate reaction in the financial markets even though it may take time to see the actual effects on the economy. To understand the various economic impacts, we will analyze the effects of raising interest rates in relation to consumer spending and investment. Higher interest rates mean: Higher borrowing costs Higher mortgage repayments More incentive to save than to spend Reduced consumer and business confidence.

Both consumers and investors are less willing to spend and invest in riskier assets. All in all, a rise in interest rate will reduce consumer spending and investment. Inflation and economic growth will, therefore, tend to be lower.

Hence, central banks will use the interest rate as a tool to curb or boost inflation to reach the desired level of economic growth. Investors are keen to monitor and analyze economic indicators to foresee the next move by Central banks as any changes in interest rate can create investment opportunities.

An oil price war and the pandemic struck the crude oil market at a time where the industry was already faced with a simultaneous demand and supply shock. Put simply, crude oil prices were already under pressure due to a flood of supply at a moment of diminishing demand. A Supply Glut which is mainly driven by US shale producers and a Weak Oil Demand Growth driven by the structural shift in the market! 2020 was set to be the confirmation of a new era for climate change.

As we entered a new decade, the extreme weather conditions around the world have forced leaders of many countries to reassess their actions over climate change and transform the global energy system. In the face of stronger climate action, the energy landscape is changing with the rise of renewables and the increased engagement on climate change, but there are still much debates about the pace of the transition and the extent of disruption. The Pandemic As the world grapples with the ongoing pandemic, different forms of lockdowns across the globe have severely impacted key industries of consumers of oil.

Global activities have slowed down on a massive scale with empty roads, grounded aircraft, plunging car sales and disrupted supply chains abruptly sapping oil demand. The extent of the disruptions in the energy market caused by the pandemic might leave a lasting impact on the oil market which may take years to overcome. Overall, it might still be too early to see that the pandemic could be the reason that either accelerate the pace in using renewables or delay that process.

Below $50 The coronavirus outbreak has caused crude oil prices to fall to its lowest level in more than a year and tumbled below a key $50 level. In a desperate attempt to stabilise oil prices, the world’s biggest oil producers have agreed to slash the world’s oil production to lower supply to counter the steep fall in demand. Source: Bloomberg Terminal Oil Demand Outlook While weekly crude oil inventory reports might provide some relief from time to time to the oil market, traders are mostly concerned with the ongoing uncertainty on the demand outlook.

The Oil Market Report October 2020 and the World Energy Outlook 2020 released this week provided some clarity on the energy market. In its October report, the International Energy Administration (IEA) reported that volumes of crude oil held in floating storage fell sharply by 70 mb (2.33 mb/d) to 139.1 mb in September. The IEA also predicted a significant stock draw in the fourth quarter which provided some support to crude oil prices.

However, the World Energy Outlook 2020 report released earlier this week reiterates the struggles of the energy market in the coming years. The organisation identified four main scenarios to analyse key uncertainties ranging from an energy world in lockdown to mapping out and building a sustainable recovery: The Stated Policies Scenario (STEPS) The COVID-19 pandemic has caused more disruption to the energy sector than any other event in recent history, leaving impacts that will be felt for years to come. In this scenario, COVID-19 is brought under control in 2021 and the global economy returns to pre-crises levels the same year.

The Delayed Recovery Scenario (DRS) In this scenario, the shadow of the pandemic looms large - Global energy demand rebounds to its pre-crisis level in early 2023 in the STEPS, but this is delayed until 2025 in the event of a prolonged pandemic and deeper slump, as in the DRS. In the Sustainable Development Scenario (SDS), a surge in clean energy policies and investment puts the energy system on track to achieve sustainable energy objectives in full, including the Paris Agreement, energy access and air quality goals. The new Net Zero Emissions by 2050 case (NZE2050) extends the SDS analysis.

A rising number of countries and companies are targeting net-zero emissions, typically by mid-century. Given the forecasts on the demand side, there is also increasing pressure from OPEC members and its allies to balance the supply side and avoiding flooding the oil market with extra supply. Crude oil prices have remained stuck within a range below the $50 mark as oil traders struggled to push prices higher dragged by the dire demand outlook.

The energy sector is among the worst-performing sector in the stock market as investors are also shifting their investment towards green energy. As lockdown eased, traders will likely eye the consumption of oil in emerging and developing countries rather than developed countries which are taking more steps towards climate change. The US election outcome might also be a driver of crude oil prices in the next couple of weeks as it will depend on the stance of the government towards climate change policies.

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Major Indices took a breather last week, with US equity markets closing down more than 1% after posting record highs the week prior. In economic news, the incoming US administration announced a $1.9 USD trillion fiscal-stimulus plan that aims to counter the effects of COVID-19 and support markets as recent weak economic figures are indicating they are under some stress. COVID-19 With reported deaths in Norway of patients who were recently administered the Pfizer vaccine, US vaccine distribution falling well short of expectations and new coronavirus strains being detected, investors are concerned that economic lockdowns could be longer than hoped.

Equity Markets US markets are closed on Monday for the MLK holiday. After that, the earnings season will kick off with big names like Intel, IBM, Netflix, Intel, Goldman Sachs and Proctor and Gamble reporting this week. These bellwether companies should give an indication of how the US economy has weathered the COVID storm.

Cryptos With impressive rallies the week before, Major Cryptocurrencies pulled back last week but still remained well bid on any significant drop. A strengthening US dollar and comments from ECB President Lagarde regarding the need to regulate Bitcoin could be headwinds going forward for these assets. FX Markets After declining for 3 months straight the US dollar Index bounced off support and rallied close to 1% for the week.

This meant a decline in USD pairs with AUDUSD finishing near the 0.77 big figure. This US dollar strength also weighed on USD denominated commodities, with both Oil and Gold declining for the week. Key events ahead Monday Chinese GDP (AUDUSD, CHINA50, USDCNH) Thursday Bank of Canada rate statement (USDCAD) Australian Employment change and unemployment rate (AUDUSD, ASX200)bank of Japan Monetary policy statement (USDJPY, JP225) ECB Monetary policy statement and press conference (EURUSD.

Euro Indices) Friday Bank of England Governor Bailey speaks (GBPUSD, UK100) New Zealand CPI q/q (NZDUSD) German Manufacturing and services (EURUSD, DAX30) Tuesday, 19 January 2021 Indicative Index Dividends Dividends are in Points ASX200 WS30 US500 US2000 NDX100 CAC40 STOXX50 0 6.777 0.143 0.022 0 0.829 0.257 ESP35 ITA40 FTSE100 DAX30 HK50 JP225 INDIA50 0 0 0 0 0 0 0