In the first quarter of 2018, crude oil prices around the globe saw a four-fold increase in the past 4 years. And while experts were still analyzing as to why this happened, the prices suddenly dropped by more than 30 USD in the coming months. With these data in mind, experts and industrialists around the globe are predicting that 2019 will be a tumultuous year for crude oil prices around the globe.
What industry experts are saying?
The major reason, experts around the world are citing for this sudden rise and again downfall of crude oil prices is oversupply and demand worries. But other than this, there are several more power dynamics that are at play here. OPEC’s Viennese waltz in early December is a perfect example for this shifting dynamics where Rusia signed a deal to reduce their produce in the year 2019 and bear the reins with the former global leader, Saudi Arabia. But although this move by Russia and Saudi Arabia was widely accepted and acclaimed on a global stage, President Donald Trump’s tweets, demanding lower oil prices and US manufacturers pumping unprecedented volumes of crude oil into the market is a major threat to all the hard work, Russia and Saudi Arabia have done over the years.
In an interview with the International Energy Agency, the station chief Neil Atkinson said that there are “major uncertainties” and “even more hazardous than usual” predictions for 2019’s crude oil prices.
Another reason that major leaders in the crude oil industry are worried about is geopolitical uncertainties which can seriously set prices off track and even create a shortage in the market.
Global Leaders’ Excerpts
LiveMint which is a business news website reached out to industrialists and people of knowledge across the industry and asked for a comment on the rising oil prices and their opinions on what might be the state of oil prices in 2019. The common answer that all of them had to this issue is that there might be a demand and supply struggle in the coming months of 2019.
Some of the major industry leaders LiveMint interviewed were Ryan Lance, CEO of ConocoPhillips, Greg Sharenow, portfolio manager, Pimco, David Lebovitz, VP and global market strategist, JPMorgan, Neil Atkinson, IEA’s head of oil markets and all of their comments were along the same line.
A significant takeaway from the interviews was the fact that the market is predicted to operate smoothly and volatility like that of 2018 is not expected. Since the price per barrel of oil is at a stable rate as of now, leaders are saying that this is a sign from both the consumers as well as producers perspective.
Conclusion
While the tension keeps on rising around industrialists and manufacturers from around the globe, whose businesses are centred or partly depend on global oil prices, predictions about the market seem to be correct for now. With time, we will realize how this will affect us on a larger scale and thus the best we can right now is wait and watch.
Tag: Capital Market
SBI Share Sale of 1.4 Billion USD
Being an Indian, we have all heard of SBI at least once in our lifetime and in the best predictability, we have at least one bank account with the nation’s largest lender. SBI which is an acronym for the State Bank of India is an entity completely run and managed by the Government and is a conglomeration of various different financial institutions.
Onwards from 2016, SBI has been on a run to acquire and merge various of its subsidiaries like State Bank of Mysore, Hyderabad etc. and even merged with financial institutions outside of its brand name. But this year in 2019, SBI announced a sale of its stocks for around 1.4 billion USD for its holdings in various financial institutions.
In this strategic move by the country’s largest lender, SBI has chosen underwriters whose sale can raise as much as 1.4 billion USD. As of now, the official announcement for this deal has only been made public on the official PR release by the bank. In its statement, SBI announced that it has chosen Bank of America Corp., CLSA Ltd. and HSBC Holdings Plc as the main organizers of the sale. Other financial institutions that were chosen include Kotak Mahindra Bank Ltd. and SBI Capital Markets Ltd. which have been chosen to work on this massive deal.
Market experts from around India are predicting that this move is an attempt to bolster SBI’s capital buffers as it plans to churn out loans at a faster pace in the upcoming years. If we take a close at the credit market, it is easy to understand that it has been growing at the fastest pace since the past 5 years, after a slight recession to shadow money lenders.
Once the sale goes through, it is set to add 11.5 Billion USD into the Indian economy as per the data gathered by Bloomberg India. As of now, the finer details of the sale have not been made public and the fundraising target could change in the upcoming days.
US Yield Curve's Moving Into The Red
The yield curve rightly predicted the previous seven US recessions. And it is about to wave the red flag again. Though stock markets may indicate record price highs the yield curve prediction of a recession should be considered more stable and accurate.
What Does The Yield Curve Indicate?
The plot of the yield curve tracks the short term bond rates, for
example, the 2-yr Treasury yields versus the ten-year rates. The current 10-yr
yield is at 2.98% lagging the 2-yr rates of 2.62% by a mere whisker of 0.36%.
Such narrow differences have never been noticed
for over a decade.
When the yield curve inverts, it spells huge problems as it indicates the short term
bond rates are better than the long-term rates. It is this change that marks a
recession and has been the precursor of the last seven US recessions. With the
gap nearing inversion it could only spell a recession
in a year’s time as has occurred in all
seven instances before.
How Will It Impact The Bonds?
Ideally, a healthy economy is indicated when the long-term bonds yield more than short-term bonds. The bonus of a higher rate for savings and investments in the long-term Treasury bonds means lack of access to funds for more extended periods of time and this is made up for by offering higher yield rates. Both the investors and the Treasury are in a win-win situation with liquidity for the treasury and a better yield for the investor.
When the yield curve is moving towards inversion investors, have no impetus for saving in long-term Treasury bonds because of the falling interest rates. It is quite reasonable that during a recession period interest rates will fall. Factors like less competition for borrowed money, weak business environment, fewer home buyers and fewer industries investing in machinery and equipment also contribute for such fall in yield prices.
It is not the contribution of the financial markets alone that has led to this situation. The Federal Government has added to the woes of the current situation by hiking the yields on short-term bonds twice in the fiscal year. Thereby the government hopes to curb inflation. But Wall Street and the bearish financial markets have held-down the rates of the long-term bonds due to weak growth on the economic front. Working in tandem, the two-dimensionally opposite actions has led to a flat curve which will lead to the inversion of the curve if the Federal Government hikes the short-term rates twice more in this year as anticipated.
How Will It Impact The Stock Market?
The yield curve is yet to invert. In reality, the flatter curve is
a prediction of the slowing down of economic growth. A recent study by
BMO-Capital-Markets showed that when the rate difference fell to below 0.5% and
the yield curve did not actually invert
there was no major impact on the stock
markets. It also showed that stocks bettered their performance during the flat phase rather than when the rates drew
apart steeply, and the curve rose to
indicate the same.
What Can You Do?
Check your risk levels in your portfolio and ensure your bond-to-stock ratio is a balanced risk. Don’t worry about the recession. Cut your losses with a better 50 to 50 spread over bonds and stocks. It is a red flag and caution is advised. Though hopefully, the recession will not be as bad or severe as the previous one. Wait it out and play safe.
Fall In Oil Prices
The most traded and valuable commodity in the world is crude oil. The oil prices impact the global and U.S. economy. Each citizen is affected with an influence on spending patterns, affecting of investment decisions, and slowing of the nation’s economy. There is no doubt at all that the falling oil prices expose the economy’s financial imbalance.
Customer impact:
The common view that prices of oil in the US were stable caught almost all investors, consumers and economists by surprise during the last US recession. A fall in gasoline prices in the US is viewed as a cut in taxes. Lower oil prices mean more money to the customers and less to the oil companies and oil producers. One man’s gain is truly another’s loss in the game of oil prices. And there is no common ground to even it out!
Recent research found that the continuous fall in oil- prices over a few months increased the consumer buying and spending patterns to a whopping 125 billion dollars on other items like clothing, eating in restaurants etc. in the next fiscal year. That is startling since the US economy is bolstered 75% by customer spending.
Impact on oil producers:
Looking at the other side of the coin, a large number of employment opportunities created by the expansion of industries in oil production and exploration in the US, over the last decade, seems to be hanging by a thread. The exploration and oil industry will have to close down when such areas become unviable, and a sizable population will be rendered jobless and unemployed.
The tethering on the brink of a disaster is clearly indicated in the slipping bond and stock prices of oil production and exploration companies. The high yielding market for junk bonds where the oil companies in oil production and exploration hold sway with about 20% of the issued bonds, are rapidly reaching critical levels. This does not augur well for the domestic oil industry that appears to be in the throes of a crisis with no saving grace on the horizon.
Global impact:
Global finance is another impacted area. Currently, all oil is transacted and priced in U.S. dollars. Irrespective of who is selling and who is buying, the prices and transactions have been and continue to be in US dollars. For various reasons, the US dollar prices have risen versus other currencies in the last few months. The net effect is that the US shows a net gain with it buying and importing a huge amount of 800 thousand barrels oil each day.
European and Japanese markets are sluggish and slow moving. The oil prices are linked to supply and demand indices. A quick fall in prices can only be read as economic recession and fall in demand somewhere globally, causing an imbalance in the supply-demand positions.
Conclusion:
The fall in oil prices is the customer’s delight. True. However, a
slowing economy impacted by the oil crisis pushes the economy to the brink of
collapse. The on-paper gains are very short-term and are bound to impact the US economy negatively in a large way. The cracks in the global balance of economies are showing widening cracks and the fall in prices will eventually result
in pushing the prices of other items upwards. There really appears to be no way out of this spiraling disaster affecting the US economy badly in the coming
year.
Stock Facts: Small & Medium Business IPOs on a Record Run
The gloomy market conditions in this year have made most investors cautious. The trend has seemingly been downward in major sectors like oil, pharma, and technology. The good news is, in this current market, investor trust towards small and medium-sized businesses has ballooned. This year has seen major players struggle, but small and medium enterprises or SMEs have seen a rapid rise in investment and market performance.
This boost to SME investment has seen 133 companies raise over INR 22 Billion in 2018 through IPOs or initial public offerings. A further boost to investors is that the number of companies has remained the same as the previous year. The rise of SMEs are an opportunity for you, the investor to invest small and buy out big through these IPOs, this, however, does run a risk.
The stability of SMEs can be much more of a risk than established players in any sector. This means you could be investing in the next Apple, but you could also run the risk of losing your investment entirely. This is why it is recommended that you invest in SMEs through the backing of QIBs or qualified institutional buyers while also recognising that your investment runs a risk.
2018 has seen the Bombay stock exchange or the BSE and the National stock exchange or the NSE bolstering trade of small and medium business IPOs by 30%, this rise in investor trust is great news for those of you looking to start or expand your investment portfolio. The trends suggest that the record rise of IPOs for SMEs will continue to surge to highs that haven’t been seen in the market since 2012.
The increase in customer appetite among high net-worth investors for a winning stock in the lesser known names has seen an increase in startup investment. This increase in the willingness of the customer to take a risk works in favor of you as a new investor as well, this trend of investment has boosted more SMEs to offer their IPOs on the open market. In August 2018, the initial IPOs that hit the market were only 5, after investor sentiment started looking positive, a further 30 IPOs hit the open market in September 2018. This means you can both diversify your portfolio as an investor while having the ability to shop around various sectors of the market.
Most SME investments have sporadic growth patterns, this indicates a patient investment approach, while the rarest of IPOs hit the ground running and this year has seen a record-breaking run. It is recommended that you invest with a long-term buyout in mind while investing in the smaller IPOs at low rate purchases, remember that selling quickly and at a 10% increase will hinder your profit opportunities. Look for IPOs with at least 20-25% growth potential before selling the stocks. If current market trends continue, you can expect a further rise in SMEs throughout the spectrum of the market in every sector.
Careers In Capital Markets
The field of investment banking deals with various financial aspects of a company or a firm. These may range from financial analysis, underwriting of securities, mergers and acquisitions, financial modeling and more. Generally, every investment bank has a capital market division, which basically deals with the financial products (securities), before they are available for trading in the market. Any capital market dealing in securities has both private as well government players. There are two verticals in herein, one which basically deals with the creation of new securities, which are commissioned by the government. The other section basically deals with the trading of these new securities, also known as over-the-counter market or the exchange market.
When it comes to the capital markets, the most distinguished position a person can hold, is in the sales and trading departments. These careers basically entail undertaking of various types of financial transactions including bonds, currency and securities. The one thing that these jobs demand, is a great knowledge in the field of markets, a finger on the pulse of human psychology and the perfect way to use your firm’s financial instruments. On a wider scale, careers in Capital Markets, require a professional to possess great analytical skills, have lightening fast reflexes, quick yet sure footing in the playing field (the trading market) and strong bargaining skills.
Under the umbrella of Capital Markets, come various verticals which deal with stocks, bonds and equities. Sales and trading is considered to be the distribution sector of any investment bank. Professionals in this field are basically supposed to act as a link, between the sellers and they buyers of bonds, securities, equities and more. There are also research jobs herein, where professionals conduct both quantitative and economic research as well as research of individual companies. Private wealth management and asset management are some other options in the field of capital markets. Any professional is supposed to possess exemplary people skills, as they are expected to deal with either high-net-worth individuals, or companies. Individuals in this field have the responsibility, to ensure that their company maintains long-standing relations with all its investors and is able to reiterate its financial stand in the market, in keeping with the financial status of its rival companies.
Investment Banking jobs are quite popular and many people aspire to work in these capital market jobs. If you are looking for a career in capital markets, a background in commerce, accounting, or chartered accountancy is a requisite. Apart from this, various master’s programs, which make a very stable base for careers in investment banks as well as capital markets. Today, there are many institutes that offer short-term programs in specific verticals in the field of finance. Imarticus Learning is a leading education institute, which offers courses both in the classroom and online format. The thing that sets this institute apart from the others, is that they offer industry-driven courses with great career assistance in the field of finance, wealth management, capital markets and more.
Role of Capital Market in Growth of Economy
Capital Market is one of the most confronted sectors of the financial services industry. The dynamics of the changing global industry, including new regulations and business models have laid impact on the performance of the capital market and its instruments. Capital markets basically focus on wealth management and are engaged in cash management, asset management, protection, credit, retirement and estate planning, fixed income, equities, and financial and credit derivatives.
Indeed, capital market firms target customers with a range of products as solutions to individual wealth management needs. Apart from managing wealth products, capital market plays an important role by contributing to the growth of the country’s economy.
- Provides several avenues for investment opportunities that encourage a thrift culture beneficial in increasing country’s savings and investment ratios that are essential for rapid industrialization.
- In order to enhance economic productivity, it encourages the participation of private sector in productive investments by promoting public-private sector partnerships.
- Improves the efficiency of capital allocation through competitive pricing mechanism for better utilization of scarce resources for increased economic growth.
- It encourages equity capital investment and infrastructure development while complementing its effort in financing essential socio-economic development, through raising long-term project-based capital.
- It helps in diffusing stresses on the banking system by matching long-term investments with long-term capital.
‘Imarticus Learning offers well-recognized Capital Market Course which will give you an edge on Capital Markets in today’s highly competitive finance industry.