What should we expect from financial markets in the next six months?

| October 1, 2013 | 0 Comments

Financial Market

Since the turn of the year, global markets have soared and this has provided plenty of opportunities for traders to secure significant gains. In fact, if you’ve been learning to spread bet (find out how here), there’s really never been a better time to do so than in 2013.

But don’t worry if you’re thinking you’ve missed out on the perfect opportunity, as all indicators point to the fact that this situation is likely to continue through to the end of the year at least.

Between the new year and mid-May, markets advanced as a result of the accommodative policy adopted towards the end of 2012 by the US Federal Reserve, which included introducing a third round of quantitative easing (QE).

This QE programme sees the central bank make asset purchases totalling $85 billion per month, which increases the amount of money in commercial bank reserves and general circulation in an effort to aid economic recovery.

As the world’s largest economy, domestic policies such as this affect markets far wider than just those within the US and the impact of QE can be felt in forex trading, commodities and equities across the globe.

Traders were able to take long spread betting positions and make profits from the surge in markets in the early months of 2013. However, minutes from a meeting of the Fed’s policy setting committee released in mid-May indicated that the US central bank may be preparing to bring its QE programme to an end and this caused markets to wobble.

London’s FTSE 100 fell back from 13-year highs around the 6,875 points mark, while Japan’s Nikkei 225 index dropped by more than seven per cent in a single session.

This highlights the need for those who are spread betting on financial markets to effectively use stop losses to limit their exposure on any unexpected movements, but those who were swift enough to act during the decline will have managed to take short positions and make profits – one of the major benefits of spread betting.

Following this decline – prior to which the Nikkei had been trading up by 80 per cent and the FTSE 22 per cent since the implementation of the Fed’s QE – traders have focused closely on announcements from the US central bank and its chairman Ben Bernanke, as the timeframe for the exit of QE is likely to have a significant impact.

In recent weeks, Mr Bernanke has confirmed that the Fed is looking to begin to “taper” or reduce its asset purchases in the near future, with many analysts predicting that QE will begin to be scaled back before the end of the year.

Speaking on July 17th, Mr Bernanke said that the central bank had not decided on a “preset course” for the tapering process, insisting rather that it will remain dependant on data releases indicating strength in the US economy.

This means that data relating to the country – and in particular its labour market – will be eyed intently at every available opportunity and one of the events that has the biggest impact on global markets is the monthly non-farm payrolls (NFP) reports.

Usually released on the first Friday of each month, NFP reports detail the number of new jobs that were added in the US in the previous month, excluding agricultural workers. This is considered to be the most reliable indicator of the economy’s strength and so the headline figure has a significant impact on a wide range of markets, particularly forex, the FTSE 100, the Nikkei 225 and the S&P 500.

With analysts so sure QE tapering will begin before the end of the year, NFP reports offer prime opportunities to secure profits on a number of trading instruments as markets react to the figure, regardless of whether it is above or below estimate.


Category: Currency Trading

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