Author: Lior Alkalay

How The OPEC Deal Impacts The FX Arena

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor - Forex


The much-anticipated OPEC deal to cut oil production has finally been reached. Brent and WTI Oil futures were not too late to react and jumped more than 7% with Brent Oil futures surpassing the $50 mark. And if momentum continues we could very well be looking at $60, perhaps rather soon. If that is the case, this can change the picture, not only for Oil futures and Oil companies but for currencies of Oil exporting countries, many of which were hit hard when Oil prices took a nose dive and could benefit now that oil prices are taking off.

The question is how exactly would an Oil rally play in petro-currencies in the current macro environment? Is it a good opportunity to buy into the battered Ruble? Or maybe a Norwegian Krona rally against the Euro? The options are numerous, but once we delve into the economic dynamics of each currency, the options narrow fast. Continue reading "How The OPEC Deal Impacts The FX Arena" →

Euro: No Longer a One-Way Bet

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor - Forex


It’s been barely five months since the Brexit referendum and yet here we are again, another European referendum, another political battle. This time around, it is Italy’s future in the balance and the Euro’s integrity at stake.

This upcoming referendum, due on Sunday, is a vote for constitutional reform that will abolish Italy’s dual parliamentarian system. Currently, Italy’s Parliament has two chambers, the Senate and the Chamber of Deputies. And, peculiar as it may sound, both have the same powers, but rather than balance they simply paralyze one another.

Why It Matters For The Euro

So, that begs the question, why is a referendum in Italy so important for the Euro? In one word: Banks. In the past few months, the Eurozone economy has started to show some signs of life. Among the data releases, Eurozone Manufacturing PMI rose to 53.7, retail sales in Germany has their strongest monthly gain in five years, and the Eurozone trade balance surplus rose by 37.8% over last year. Even in Italy, the Manufacturing PMI is holding above the 50 level, signaling expansion. All of which is "courtesy of a low Euro” that benefits European exporters. And yet, core inflation in the Eurozone is incredibly low at 0.8% and credit activity is weak, with the M3 level turning stagnant. Even the ECB’s €80 billion in monthly liquidity operations have thus far been insufficient to revive credit growth which is essential for the Euro recovery. At the heart of the problem is Europe’s banking system and its need to capitalize. Continue reading "Euro: No Longer a One-Way Bet" →

Trumponomics, Bonds And The Dollar

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor - Forex


President-elect Donald Trump’s inauguration won’t take place for two more months and yet his proposed economic plan is already sending ripples through markets. Treasury notes and bonds are tanking, stocks are rallying and the Dollar Index has surged to highs not seen in more than 10 years. All of which is in utter contrast to what analysts had expected to occur post-Trump’s election, and which seemingly presents a paradox of sorts. Trump’s two economic focal points are aggressive tax cuts and massive infrastructure investment. Both are expected, according to The Office of Management and Budget, to push the US debt burden by roughly 25% of GDP by 2020. And yet, in conjunction with those expectations, the Dollar is gaining.

Naturally, the most obvious reason would be that higher deficits will lead to inflation and, consequently, would force the Federal Reserve to raise interest rates. But that is a consequence rather than a reason. The real reason is that both the US economy and the US banking system have been ripe for higher rates for a while, and Trump’s plans for the economy, or “Trumponomics” as we like to call it, is merely a catalyst for an already strong economy. Continue reading "Trumponomics, Bonds And The Dollar" →

Will China Drop The Ball?

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor - Forex


Chinese policymakers are in the midst of a very delicate maneuver. With a hyped housing market and an unloved stock market, China’s policymakers want the “hot money” from real estate investment to be funneled away from housing and into the stock market. The problem? It won’t be easy and may require sacrificing economic growth, just at the point when growth has begun to stabilize.

The Bubble Returns

For some time now, Beijing has been well aware of the bubbly housing market. In fact, China has experienced two housing slumps in past decade, back in 2011-2012 and in 2014-2015, in both cases, the slump was largely due to the government’s efforts to curb prices in the preceding years. Those efforts were primarily through the implementation of new housing regulations and by clamping down on shadow lending. More importantly, the Chinese government put to good use its main monetary tool, the Yuan. By allowing the Yuan to strengthen, credit became more expensive and, as a result, the hype ended. But the price tag was dear because tightening efforts also resulted in a sharp slowdown in the Chinese economy and a meltdown in the Chinese stock market.

In 2015, the crisis was so severe, in fact, that Chinese policymakers had no choice but to drastically reverse policy by cutting lending rates, intervening in the stock market and, yes, as you might have surmised, devaluing the Yuan. But ironically, just when the easing measures have started to make a real impact, the housing market has once again become overheated and has turned bubbly. Continue reading "Will China Drop The Ball?" →

Sterling Close To A Turnaround?

Posted on by Lior Alkalay

Lior Alkalay - INO.com Contributor - Forex


Ever since the surprise leave vote in the UK, investors have braced for a financial tsunami that could overwhelm the UK economy. Thus far, there has only been one real casualty—the Pound Sterling. All the while, the UK economy has surprised forecasters. The UK Manufacturing PMI already bounced back to an impressive 55.4; retail sales were surprisingly resilient and, most puzzling to economists, UK 3rd quarter GDP grew at a healthy clip of 2.3% Q3 year-over-year. So, what is really going on? Continue reading "Sterling Close To A Turnaround?" →