MARKETS 2014, short hints from our yearly January 2014 Report
“- The monetary policy of the major Western Countries and Japan should continue with the same orientation foreseen so far, and, despite possible reductions in securities purchases from the U.S. banking sector, out-and-out monetary restrictions are very unlikely. On the other hand, no dangerously inflationary trend should change the current expectations for the year, while continuing supporting markets and the financial component of the economy.
– Emerging economies are now in a more stable situation, after a sharp decline in economic activity (which still does not seem to be significantly recovering). Should this situation remain stable, creating the conditions for a gradual improvement in the economy, reflections on prices of raw materials will be perceived, though less strongly than in the past. In any case, however, we do not see a real recovery for emerging Countries, neither particularly rapid nor pronounced. We still prefer to be cautious on this issue”.
“- Cuts in production and restrictions intended at removing part of the offer from the market could still occur and contribute to the rise in metal prices. Protectionist trends seeking to maintain the internal situation of some Countries stable, are likely to condition the situation in this sense. In addition, the growing nationalistic tendencies (particularly in Africa), limiting the operations of foreign compagnie, may restrict the offer. In some South American Countries, however, the export quota policy and the taxation of foreign companies operating in the mining sector could worsen, with a consequent contraction of activities”.
“- The dollar trend should return to affect the performance of the commodities market again, especially in the second half of the year, after the recent period in which the correlation between the dollar and commodity prices had definitely loosened”.
“- China and , more generally, the BRICS countries are in a delicate phase of transition to new economic models less linked to production – export. Moreover, these countries will have to face the inevitable political changes resulting from changes in their societies, especially in the last decade. In this situation, in our opinion, the rates of double-digit growth recorded in the past will remain a memory and the economy in the emerging areas will not be of great help to the prices of commodities. We therefore believe that, in the absence of decisive support of the BRICS, the markets of the commodities most closely linked to the cycles of the economy, in 2014, should be less nervous and volatile and could go back to move accordingly to key fundamentals in the short term, rather than the expectations of the international economy future development. This applies if the economic situation in Asia remains at least stable”.
“- We recall again that the priority objectives of the 12th Five-Year Plan of China (2011-2015) are sustainable growth, improvement in industrial activity, promotion of domestic consumption. In the past and with great anticipation we have repeatedly pointed out how these factors would have been negative for commodity prices.
– The recent violent and rapid collapse (-40%) of the Baltic Dry Index, which measures the cost of shipping the most important bulk dry goods, indicates a clearly negative outlook for the economy and international trade in the near future, unlike the various economic data that in most countries, show a tendency to acceleration of the economy”.
” (…) we believe that there are no favorable conditions for an increase in oil prices that should remain roughly in the same area of last year’s quotes, unless possible geopolitical developments such as to influence the market, in the sense of a reduction in supply.
– There are still conditions that suggest excess supply of the more closely linked to economic cycles commodities, for 2014, even if the situation seems destined to a gradual improvement, especially for metals other than copper and aluminum. This also applies to oil and coal that do not seem destined to a particular price increase nor a particularly volatile market conditions”.
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