Financial markets are fast moving into a turbulent year-end

With year-end approaching grave issues remain affecting the World financial markets and it seems that the year will end with high volatility. Christmas and the New Year will come quickly but with ECB TLTRO program and Japan election on 11th & 14th December respectively- the markets will go into the year-end not sure about next years prospects.

 

All that means that there is likely to be a bit of a pull-back for the US dollar -but not much since the ECB is expected to come up with its QE programs and the Bank of England is likely to show that it will not boost rates until well into 2015.

On the political front there is plenty of event risk to think about.

  • In the US, the newly constituted US Congress is a total wild card with no concise idea about what the Solons on the Hill or the Obama administration will do.
  • In the UK, elections are scheduled for May. The slightly softer economy and uncertainty over who will win the upcoming elections should keep the markets on edge. If PM David Cameron wins another term his promise to exit the European Union should create significant uncertainty and negatively affect the Pound.
  • In Japan, the decision by PM Shinzo Abe to hold elections within weeks is certain to bring the Yen lower and cause considerable consternation among the other Asian countries. The Yen, meanwhile, will be moving closer to the USD/JPY 120 level as the year comes to a close.
  • The sharp decline of the Japanese Yen will significantly impact the Chinese Yuan and the Korean Won. The other Asian currencies will also feel the impact, both in terms of contagion risk and slowing trade.

It is widely hoped that 2015 will be a better year than 2014 was. Yet the list of problem areas does not assure much improvement.