Year 2016 will unquestionably unfold a lot of events but at the outset, some prevailing market dynamics will play a crucial role going forward. What are the major forces that will drive the markets in 2015?
The Fed: According to broking firm Religare, the U.S Fed will continue holding the baton of global growth and the recent rate hike, a signal of economic vigor, implies that the inflation is back on track, unemployment is sliding and GDP growth is picking pace.
While higher rates act as a drag on real demand, it is also a pointer suggesting the U.S economy is in ound health and is gearing to grow swiftly.
Though in short run, digesting higher rates may be difficult for commodity market, but historically risky assets have typically benefited by rate cuts or even gradual rate hikes. The market will however take cues from the pace of rate hikes in 2016.
Production Cuts in Metals: Major producers of the base metals have started announcing production cuts, which should ease out the pressure on metals’ prices. However, producers are yet to take onus as everyone is waiting for someone else to take the lead.
Chinese Economy: China’s overall growth trajectory along with any stimulus measures by the central bank & production cuts by major smelters will play a crucial role in deciding the outlook for base metals.
OPEC: OPEC may continue cutting the cords connecting demand and supply and may keep holding the trump card for oil price movement going forward. Though it is unlikely that OPEC would budge from its current stand of maintaining market share, but non-OPEC production may turn down at lower prices, playing a pivotal role in price movements.
Other Factors: From liquidity injections in the Eurozone to geopolitical conditions emerging globally and diverging monetary policies from the East to West along with U.S Presidential elections may continue offering cues to commodities in the year to come. Fundamental factors supporting the demand for commodities will continue receiving attention, while supply-side factors will hold the key. – Neal Bhai Reports