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What Can The US Govt Do To Help The Stock Market?

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Unless you live under a rock, you will know the stock market has plunged this past week. ‘Plunged’ may be an understatement as the Dow fell by 1,500 points, a new intraday record. But, there is no room for congratulations on laying this new ground, not even for the Trump administration. Remember, this is a government that waxed lyrical about the state of the Dow Jones hours before the slide.

Although the White House is now nothing if not unpredictable, top members of the cabinet will be looking to strike back. The economy is Trump’s ace in the hole, and it seems to be tanking hard. But, the stock market isn’t a leaky faucet which you can tighten in a couple of seconds. So, what can the WH do to ease the drop?

Here is a selection of tools at their disposal, and a wrench isn’t one.

Do Nothing

Absolutely nothing if the past behavior of the Trump government is any indication. But, this isn’t out of sheer laziness or lack of understanding this time. It’s because the slide is, in part, due to a lack of confidence in the market. Investors expect interest rates and inflation to play a massive role in the not-too-distant future and are pulling out. So, doing nothing may be the key to the door for the White House. At least, it’s what Joe LaVorgna, chief economist for the Americas as Natixis, believes. Speaking to CNBC, he thinks it’s a move against the Fed because it isn’t aggressive enough, which has led to a sell-off. And, one pertinent thing to remember is that there wasn’t a single piece of info that led to the exodus. Even though it resembles the 2010 Crash, the details aren’t the same.

Speak To The Fed

Trump is by no means an advocate of government intervention unless it involves scandal. However, he may change his mind in this instance when a simple solution is at hand. As LaVorgna said, there are lots of investors that think this slump is down to the Fed and that it isn’t doing its job. Why? It’s because they are doing nothing to allay people’s’ fears. Interest rates, as well as inflation, are the big issues as the money-makers dread the increasing regulation. After all, reports suggest hourly earnings rose by 2.9% last Friday before the incident. Simply asking the bank to calm the situation could be the easiest and cleanest route for everyone. But, don’t cross your fingers because the Trump WH doesn’t do straightforward.

Point To The Facts

No one likes to side with this government unless they are sycophants, but the stats are there for everyone to see. The market spiraled out of control as investor confidence hit an all-time low, yet there wasn’t much evidence to suggest why. After all, bond yields on the day were lower than before, which should have eased fears. Plus, there is the position of the S&P. Although it isn’t as reputable as before 2010, it’s still a decent indicator and it is trading as normal. In January, the moves were almost identical to the ones made in December. In layman’s terms, it means the market isn’t going to have to analyze a year of returns. The govt doesn’t have the credibility to point to the facts after its assault on the truth, but they can gesture to the likes of Michael Yoshikami.

Confidence Boost

The White House will undoubtedly act as if nothing is wrong, and they may be right. However, even if this is just a recalibration, there is a mental element. Trading and investing require strong-minded people to spot patterns and take calculated risks. No one is going to do that while the Dow swings up and down like a yo-yo. His only option is to instill confidence back into the system that he dearly treasures. Again, speaking to the Reserve would be a start as it may prevent it from tightening the belt. But, there are other options too. One which experts agree on is the element of AI-led investment software. Currently, the rise of technology means there’s a gap in trading which is being exploited by these programs. As a result, the anomalies are leading to drops such as the storm that is currently hitting the market. Only 10% of stocks are traded by individuals, and that is a problem because computers are aggressive.

Increase Transparency

You may have noticed that there is a Mexican standoff between investors and the government. Stood there with their guns in hand, no one wants to shoot first. The reason is simple: a lack of communication. All of the above has happened because of a perceived hike in interest rates and inflation, but there are no guarantees. As in 2008, the barriers surrounding the stock market are preventing people from making informed decisions. ‘Make America Great Again’ is the slogan, but Trump may want to look to Europe for help. MiFID II Trading Solutions is an EU regulation that tries to make markets open, transparent and resilient. Regulation isn’t the government’s strong point, especially as the rise in the Dow as a result of market freedom. However, a lucid program could make the situation clearer for all parties.

Close Down The Shutdown

If you aren’t aware, again, where have you been living? The US government shutdown for the second time this year on Friday morning, and is a huge problem. The men and women that have to work out how to deal with a national problem work in the Capitol building. Without them doing their jobs, there isn’t going to be a quick fix. And, it isn’t as if Trump himself burns the midnight oil according to reports detailing his daily schedule. The US needs all areas of government up and running and working together if it is going to get out of this mess with any credibility. While the shutdown is still in process, the odds get longer and longer.

What are your views? Is this a big deal or is it just a flash in the pan?

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Student @ Advanced Digital Sciences Center, Singapore. Travelled to 30+ countries, passion for basketball.

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Economy

How to Trade Shares for Beginners

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Although expectations had been modest for 2019, the stock markets around the world had been active in 2019 and the positive returns seen so far have exceeded even the most optimistic expectations. Supported by easy monetary policies around the world, as well as by positive economic expectations for 2020, stocks continue to move, which makes a significant number of people deciding to start investing. Since stock trading is much harder than most of them think, let’s see some of the most important things beginners must consider in order to accelerate their learning curve.

Stick with the most liquid shares

Finding “the next big thing” is one of the illusions that seduces most of the beginners. They spend a significant amount of time looking for those companies that will have huge returns over the next months of years. Not even the most-skilled stock traders are able to do that, so why do you think you will?

Instead of looking for those shares, stick with the companies that already have a leading position in the industry. Google, Facebook, Microsoft, Apple, and Boeing are just some of the names that are popular at the time of writing, and looking at their performance in the long run, so far, they’ve managed to impress.

Study educational materials

Beginners fail to understand that share trading is a skill-based endeavor and study is one of the most important parts of the process. Study as many educational materials as you can and gain as much knowledge as possible because you’ll definitely need it. This guide and other similar ones will introduce you to share trading and help you understand the basic concepts. Remember this axiom: “Around 90% of the traders lose 90% of their capital in their first 90 days of trading”. Education is one of the main factors why beginners stumble into the same mistakes over and over again. You don’t want to be in the same position as most of the people who don’t learn and spend time to sharpen their skills.

Build a portfolio

Closely linked to our first tip, building a portfolio of uncorrelated assets is one of the most important things to consider, if you want to limit the damages of your mistakes. No matter how good you are, in trading, you won’t make money all the time. Diversification will help you minimize the effects of some losing trades. Don’t concentrate all the risk in a single stock and instead pick at least three or four names that might perform positively in the near-term.

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Economy

Saudi Arabia halves oil production: How long will it last, and will it affect oil prices?

Saudi Arabia announces it will halt 50% of its oil production. This Vestle news article will explore the possible financial impact.

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saudi halves oil production

Since recent drone airstrikes crippled Saudi Arabia’s Aramco oil processing facility in mid-September, the country – the world’s No. 1 exporter of oil* – has been forced to close half the plant while reconstruction takes place. While no casualties resulted from the attack, the real harm is finally coming to light, as the impact on Saudi Arabia’s oil industry is becoming clearer. This Vestle news article explores this important topic.

Aramco estimates that the closure will affect almost 5.7 million barrels of crude oil per day, which amounts to roughly 5% of the world’s daily oil production. To help you put that into perspective, consider that Saudi Arabia produced 9.85 million barrels a day in August 2019. And it’s not just oil production that will suffer. Saudi Energy Minister Abdulaziz bin Salman also indicated that the closure has forced a temporary halt in gas production, limiting the supply of ethane and natural gas by 50% as well.

One particular detail that those with an eye on the financial markets might find interesting is that the attacks took place at a time when Saudi Arabia continues to progress toward taking Saudi Aramco public – a first for the kingdom’s global-reach energy sector. How much money are we talking? As the world’s most profitable oil company, it’s estimated to be valued at around $1.5 trillion.**

Will this affect oil prices?

The short answer, according to some people, is probably yes. With Saudi oil output expected to dip below 50%, the outages present “an extreme risk situation for oil,” according to Paul Sankey, managing director for Mizuho Securities. However, measures have already been put into place. Depending on how long it takes for Saudi Arabia to recover the damaged facility, OPEC (the Organization of Petroleum Exporting Countries) is aiming to suspend production cuts to help temper the impact of the ongoing crisis. On the trading side, the International Energy Agency is expected to release strategic oil stocks, and US President Donald Trump has already authorized the release of oil from the US petroleum reserve.***

In the weeks just after the drone strikes, the price of WTI Oil on the Vestle platform showed a 13% increase, followed by a 12% decrease over the following two weeks. Also during that time, Bloomberg reported that the spread between WTI and Brent widened to 37%, which could be an indication that the oil spike might affect global prices more than other oil giants, such as the United States. Furthermore, a representative from Goldman Sachs estimates that the global benchmark for Brent Oil could rise above $75 a barrel if the plant shutdown lasts for more than six weeks.****

Will it get any worse?

Some people fear the Aramco incident represents the potential for a broader regional conflict that could escalate to the point that it affects Gulf oil production as a whole. CFRA Research oil analyst Steward Glickman said, “Oil prices are now likely to bake in a much higher geopolitical risk premium than had been absent in much of 2019.” With the recent bombing in June of oil tankers in the Gulf of Hormuz not so distant, it’s no wonder some analysts like Glickman like are raising their eyebrows. ***

Considering all the different factors that play into this situation—the global, financial and geopolitical—there’s no telling what kind of turns it will take. The only thing to do is keep an eye on the news for the political side of it, and financial sites like Vestle to see what kind of ripples such an event is making in the financial markets.

Oil prices and the financial markets

Volatility such as that recently experienced by both WTI Oil and Brent Oil can present both opportunities and risks for informed traders, such as those who invest in Contracts for Difference or CFDs, which essentially means trading on the price movement of a particular instrument without owning the underlying asset. At Vestle, you’ll find hundreds of tradable CFD instruments, from commodities like oil and natural gas to popular stocks, indices, ETFs and crypto. And thanks to a selection of trading signals, market indicators and our economic calendar, access to important financial info for global situations like this is right at your fingertips.

 Sources

*https://edition.cnn.com/2019/09/12/investing/us-oil-exports-saudi-arabia/index.html

**https://www.cnbc.com/2019/09/14/saudi-arabia-is-shutting-down-half-of-its-oil-production-after-drone-attack-wsj-says.html

***https://eu.usatoday.com/story/money/2019/09/16/saudi-arabia-oil-attack/2341141001/

****https://www.bloomberg.com/news/articles/2019-09-15/oil-prices-jump-19-after-attack-cuts-saudi-arabian-supplies

Vestle (formerly known as ‘iFOREX’) is the trading name of iCFD Limited, licensed and regulated by the Cyprus Securities and Exchange Commission (CySEC) under license # 143/11. The materials contained on this document have been created in cooperation with Vestle and should not in any way be construed, either explicitly or implicitly, directly or indirectly, as investment advice, recommendation or suggestion of an investment strategy with respect to a financial instrument, in any manner whatsoever. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83.7% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Any indication of past performance or simulated past performance included in this document is not a reliable indicator of future results. Full disclaimer: https://www.vestle.com/legal/analysis-disclaimer.html

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Economy

Fears of a 2019 European Economic Slowdown Loom

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EU flag

Although the spotlight is on the trade war between the United States and China, one aspect that is currently ignored by the media is represented by signs of weakness in the European continent.

Germany slows down

After posting a -0.3% GDP contraction in the third quarter of 2018, the economic indicators released from Germany in 2019 cannot support a positive economic picture. The manufacturing sectors continue to show signs of weakening, with the Markit PMI Composite now at 51.6, down from 52.3.

Industrial Production had been contraction by 1.9% in November, and both imports and exports had been down by 1.6% and 0.4%, respectively. DAX trading had also suggested there is growing concerns among investors and the main German stock index peaked out in July 2018, being now down by 15%.

Germany relies mostly on exports, being the third exporter in the world, only surpassed by the United States and China. That is why the weakness we see in Germany is actually a symptom of what’s happening in other European countries as well.

Italy and France not too encouraging

The new populist government in Italy, formed by La Lega and The Five Star Movement faced a serious challenge to get the EU’s approval for the 2019 budget, as the already high debt-to-GDP ratio (currently at 131.8%) raises concerns on whether the country will be able to meet its debt obligations in the future.

There are also serious concerns about the banking sector, which despite mergers and acquisitions, and huge capital available from the ECB, were unable to solve their problems which emerged after the 2008 financial crisis. The future of Italy is very uncertain, and analysts predict that the new government will not be able to meet their economic promises, given that we are at the end of a business cycle.

Speaking of France, the problems are social at the present time. President Macron was unable to stop the “Yellow Vests” protests, despite promises to increase the minimum wage and the overall standard of living for the very poor. France’s debt-to-GDP ratio currently stands at 97%, but given the latest promises, there are concerns whether the country will manage to keep the budget deficit below 3% in 2019, as the European treaties demand.

Although there’s a single currency in Europe, in terms of fiscal policy things were very fragmented, which is why the economic recovery had been very slow and the reason why investors predict Europe will face the greatest challenges to solve its economic, political, and social problems.

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