Syrian Conflict at the Forefront of World News
Key political figures in the US are backing President Barack Obama’s push to strike Syria. The US has accused President Bashar Assad of deploying chemical weapons against the Syrian rebels. The deployment killed over 1,000 people. Assad, along with Russia and Iran, declared the regime did not use the weapons. America has been warned against striking Syria. Its allies were included in the warning.
Obama has hinted at a light strike on Syria while evidence looms that a strike on Syria could be the beginning of a domino effect to World War III. America faces opposition from Syria allies, but US political figures are standing behind Obama. Secretary of State John Kerry said the chemical weapons were indeed used. Samples from blood and hair of the injured inside Syria suggest sarin was the culprit. Sarin a powerful nerve agent.
Kerry said the evidence would gain support from Capitol Hill and European allies for the U.S. Votes on if military action is needed in Syria will be held during the week beginning Monday, Sept. 9. Obama’s administration has been pitching their case to lawmakers, and this week Kerry and Secretary of Defense Chuck Hagel were scheduled to testify at a public hearing Tuesday and Wednesday, respectively.
Meanwhile, a Tennessee senator is calling for the administration to explain why America should strike Syria and how the action will be limited to prevent America from becoming more involved in the conflict.
How the Syrian Conflict Impacts Investors
Investors will also be watching to see if Obama receives the go-ahead from Congress. Chances are, they’re already paying close attention. Major events like these shake up the market and subsequently individual portfolios. America’s involvement could lead to more turmoil in other countries, such as Iran and Israel. The United States does not have the backing of at least two countries, and it well known Iran does not agree with the U.S. on foreign policy.
Obama may or may not have Saudi Arabia’s support. That country is in favor of forcing Assad out of business, however, admitting it publicly is another story. Obama said Assad must be punished for the shelling of Eastern Ghouta, which is a suburb of Damascus, at approximately 2 a.m. Aug. 21. Residents there suffered convulsions and choking before they died. Hospitals were makeshift and rapidly filled up as volunteers had to pour water on the injured to prevent contamination. The death toll was at 457 and climbed as high as 1,300. As many as 3,600 people were treated.
All of these factors must also be taken into account when thinking of the market’s future. There are available alternatives.
Alternatives for a Healthy Portfolio – CFDs
Amidst the uncertainty, traders are looking towards other options. One such option is the Contract for Difference (CFD). This is a method of trading shares and other instruments. Investors simply purchase or sell a contract of the underlying market using a quoted price. The contract covers the financial instrument in the underlying market and operates according to the value of the instrument at the time of the contract’s opening and closing. The exchange made is the difference between opening and closing times.
In other words, investors select their market and open a CFD instead of making a full purchase. The contract will reflect profit and loss of the purchase or sale. For example, an investor wants to purchase 1,000 BP shares. The investor supplies a margin deposit in case of loss, and purchases the shares in CFDs. They may sell their shares at a bid price if they go short. Investors who want to hedge portfolios select CFDs, which are also used in the foreign exchange market and energy contracts.
Before looking into using CFDs as a hedge, investors need to research the risk to fully understand how CFDs work.
On the most basic level, CFD trading is the buying of one asset and the selling of another. Strategies are much like the common angles investors use on the stock market. Investors call purchasing an asset the long position under the expectation it will rise in value during the investment contract’s time. Short positions are taken when investors feel the asset will fall during the contract’s life.
Alternatives for a Healthy Portfolio – Spread Betting
An easy and tax-free method of building portfolios is spread betting, or predicting how points will move in the underlying market. In spread betting, spread means the price a financial instrument is sold for and the price it is bought for. Investors do not buy shares or futures with spread betting. Instead, they wager on which path their chosen markets will take. Many wager just one dollar on each point, which moves in between the buy and ask prices on the live or estimated future underlying market.
If the market falls, and investors predicted it would fall, investors make a profit. Likewise if the market rises and it was predicted to rise by investors. Investors will have to account for losses because the market could move opposite of their predictions. One way to manage losses is through stop loss, which is a previously determined stop point investors put into place.
An Example of Spread Betting
If the underlying market FTSE 100 index is currently at 5341.6 and the sell price is 5341.1 with the buy price at 5342.1, the spread is one point. Investors predict if the FTSE will rise or fall. If it falls, investors should sell at 5341.1. If it rises, investors should buy at 5342.1. The two predictions are called the down bet (for falling) and the up bet (for rising).
If the market falls, investors could decide to realize their profit. Say the FTSE 100 is at 5218.6 and the quote is 5218.1 to 5219.1. Investors would have to purchase 5219.1 to close their original sell bet. The profit from the purchase reads like this: 5341.1 – 5219.1 = 122 x £5 to equal a profit of £610. If the market rises above the level the investor sold, a running loss will be incurred. The calculation is the same as the profit.
Investors determine how to apply spread betting through trends, breakouts, reversals or, as in the case of the Syrian conflict, news. The news trading strategy requires investors to understand macro-economics and how to accurately interpret news headlines. News trading has the potential to pay off large for investors if it is applied correctly.
Author’s Bio: Brett Chatz was born in Johannesburg, Gauteng, South Africa. He attended the internationally accredited University of South Africa, where he completed the prestigious Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes his expertise and knowledge for the leading UK spread betting and CFD trading provider, InterTrader.com.
Cryptocurrencies: the new gold?
By Gerald Moser, Chief Market Strategist, Barclays Private Bank
Time to add to a portfolio?
There has been a lot of talk about bitcoin, and cryptocurrencies in general, being a “digital” gold. Similar to gold, there is a finite amount, it is not backed by any sovereign and no single-entity controls its production. But for bitcoin to be considered in a portfolio and to become an investable asset, similar to gold, the asset would need to improve the risk/return profile of that portfolio. This seems a tall order.
While it is nigh on impossible to forecast an expected return for bitcoin, its volatility makes the asset almost “uninvestable” from a portfolio perspective. With spikes in volatility that are multiples of that typically experienced by risk assets such as equities or oil, many would probably throw the cryptocurrency out of any portfolio in a typical mean-variance optimisation.
And while bitcoin’s correlation measures are relatively supportive, it seems to falter when diversification is most needed, such as during sharp downturns in financial markets. Looking at weekly return correlations since 2016 shows that bitcoin is not strongly correlated with any assets (see below). It is however only second to US high yield in its correlation with equities. US Treasuries, gold and US investment grade were better diversifiers than bitcoin when it comes to equities.
Furthermore, looking at global equity corrections since 2015 (see below), it is noticeable that bitcoin has performed even worse than equities over the last three corrections. And while gold and fixed income provided some relief during those corrections, bitcoin compounded the loss that investors would have incurred from equities exposure.
The fact that cryptocurrencies also fluctuate alongside equities suggests that investment in bitcoin is more akin to a bubble phenomenon rather than a rational, long-term investment decision. The performance of the cryptocurrency has been mostly driven by retail investors joining a seemingly unsustainable rally rather than institutional money investing on a long-term basis.
Several studies around market structure have shown that emerging markets with high retail/low institutional participation are more unstable and more likely subject to financial bubbles than mature markets with institutional participation. And while more leading financial houses seem to be taking an interest in cryptocurrencies, the market’s behaviour suggests that the level of institutional involvement is still limited. Another issue is around its concentration: about 2% of bitcoin accounts control 95% of all bitcoins.
In summary, difficulty to forecast return, lack of diversification and high volatility makes it hard to consider bitcoin as a standalone asset in a diversified portfolio for long-term investors.
An inflation hedge?
Another point widely quoted in favour of cryptocurrencies is that they provide an inflation hedge. This might be a valid point, if inflation stems from fiat currency debasement. As mentioned above, a currency’s worth comes from the trust economic agents have in it. If unsustainable amounts of debt and large money creation shatter belief in sovereign-backed currencies through spiralling inflation, cryptocurrencies could be seen as an alternative.
Regardless of its price, bitcoin’s production is set on a precise schedule and cannot be changed. If oil or copper prices go up, there is an incentive to produce more. This is not the case for cryptocurrencies. In a very specific and highly hypothetical scenario of all fiat currency collapsing, this could be positive. But other real assets such as precious metals, inflation-linked bonds or real estate usually provide a hedge against inflation.
Bitcoin’s technology should theoretically make it extremely secure. As there is no intermediary, each transaction is reviewed by a large number of participants which can all certify the transaction. However, there have been frauds and thefts from exchanges. Another point to consider is the risk of “losing” bitcoins. According to the cryptocurrency data firm Chainanalysis, around 20% of the existing 18.5m bitcoins are lost or stranded in wallets, with no mean of being recovered. As there is no intermediary, there is no backup for a lost bitcoin.
From a sustainability point of view, adding cryptocurrencies to a portfolio will make it less green. Mining and exchanging them is highly energy intensive. According to estimates published by Alex de Vries, data scientist at the Dutch Central Bank, the bitcoin mining network possibly consumed as much in 2018 as the electricity consumed by a country like Switzerland. This translates to an average carbon footprint per transaction in the range of 230-360kg of CO2. In comparison, the average carbon footprint of a VISA transaction is 0.4g of CO2.
Beyond energy use, the mining process generates a large amount of electronic waste (e-waste). As mining requires a growing amount of computational power, the study estimates that mining equipment becomes obsolete every 18 months. The study suggests that the bitcoin industry generates an annual amount of e-waste similar to a country like Luxembourg.
Cryptocurrencies are here to stay
Innovation in digital assets continues rapidly and will likely drive increased participation, both from retail and institutional investors. The underlying blockchain technology behind bitcoin was meant to disrupt a few different industries. While results have not lived up to the initial hype, more sectors are investigating the use of the technology.
And with Facebook announcing a stablecoin, or a cryptocurrency pegged to a basket of different fiat currencies, central banks have accelerated the movement towards central bank digital currencies. Those could improve payment systems resilience and facilitate cross-border payments.
Energy stocks drag down FTSE 100, IG Group slides
By Shivani Kumaresan
(Reuters) – London’s FTSE 100 slipped on Thursday, weighed down by falls in energy stocks as oil prices slid after a surprise increase in U.S. crude inventories, while IG Group tumbled on plans to buy U.S. trading platform tastytrade for $1 billion.
The blue-chip FTSE 100 index lost 0.4%, while the domestically focussed mid-cap FTSE 250 index also slid 0.4%.
Energy majors BP and Royal Dutch Shell fell 3.2% and 2.5%, respectively, and were the biggest drags on the FTSE-100 index. [O/R]
“What is holding back the UK is a lack of tech stocks to capture the ‘rotation’ back into tech seen since Netflix results,” said Chris Beauchamp, chief market analyst at IG.
“Stock markets overall are much quieter today, looking so far in vain for a new catalyst for further upside.”
The FTSE 100 shed 14.3% in value last year, its worst performance since a 31% plunge in 2008 and underperforming its European peers by a wide margin, as pandemic-driven lockdowns battered the economy and led to mass layoffs.
British Prime Minister Boris Johnson said it was too early to say when the national coronavirus lockdown in England would end, as daily deaths from COVID-19 reach new highs and hospitals become increasingly stretched.
IG Group tumbled 8.5% after announcing plans to buy tastytrade, venturing into North America after a stellar year for the new breed of retail investment brokerages.
Ibstock jumped 7.3% to the top of the FTSE 250 after the company said fourth-quarter activity benefited from better-than-expected demand for new houses and repairs.
Pets at Home Group Plc rose 2.2% after reporting an 18% jump in third-quarter revenue, boosted by higher demand for its accessories and veterinary services as more people adopted pets during lockdowns.
(Reporting by Shivani Kumaresan in Bengaluru; editing by Uttaresh.V and Mark Potter)
Wall Street bounce, upbeat earnings lift European stocks
By Amal S and Sruthi Shankar
(Reuters) – European stocks rose on Wednesday after Dutch chip equipment maker ASML and Swiss luxury group Richemont gave encouraging earnings updates, while investors hoped for a large U.S. stimulus plan as Joe Biden was sworn in as president.
The pan-European STOXX 600 index closed 0.7% higher, getting an extra boost as Wall Street marked record highs.
All eyes were on Biden’s inauguration as the 46th U.S. President, with traders betting on a bigger pandemic relief plan and higher infrastructure spending under the new administration to boost the pandemic-stricken economy.
Tech stocks rallied to a two-decade peak in Europe after ASML Holding NV rose 3.0% to all-time highs on better-than-expected quarterly sales and a strong order intake for 2021.
Meanwhile, Richemont rose 2.8%, after posting a 5% increase in quarterly sales as Chinese splashed out on Cartier, its flagship jewellery brand.
Britain’s Burberry jumped 3.9% after it stuck to its full-year goals, saying higher full-price sales would boost annual margins, while Asian demand remained strong.
The pair boosted European luxury goods makers that are heavily reliant on China, with LVMH and Kering gaining between 1% and 3%.
“Any sign that retail spending is picking up in China is going to be a boost to the Western markets and those heavily exposed to it,” said Connor Campbell, financial analyst at SpreadEx.
The European Central Bank is set to meet on Thursday. While no policy changes are expected, the bank could face more questions about an increasingly challenging outlook only a month after it unleashed fresh stimulus to bolster the euro zone economy.
“With the new round of easing measures fully in place and no new forecasts to be presented tomorrow, it should be a fairly uneventful day for the euro,” ING analysts said in a note.
Italy’s FTSE MIB gained 0.9% and lenders rose 1.6% after Prime Minister Giuseppe Conte won a confidence vote in the upper house Senate and averted a government collapse.
Conte narrowly secured the vote on Tuesday, allowing him to remain in office after a junior partner quit his coalition last week in the midst of the COVID-19 pandemic.
Daimler AG jumped 4.2% after its Mercedes-Benz brand unveiled a new electric compact SUV, the EQA, as part of plans to take on rival Tesla Inc.
Germany’s Hugo Boss added 4.4% after Mike Ashley-led Frasers said it boosted its stake in the company.
(Reporting by Sruthi Shankar and Amal S in Bengaluru; Editing by Shailesh Kuber and Arun Koyyur and Kirsten Donovan)
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