The Market Corner: the month in review
Written by Filippo Lecchini, Vice President at Phillip Capital
2017 was undoubtedly the time when cryptocurrencies became part of everyday conversation. Everyone bought in or knew somebody who was investing and had made a big return, not just in Bitcoin but also in Ethereum, Litecoin, and a number of altcoins. 2018 has been a rude awakening so far.
After a prodigious rally, particularly toward the end of last year, a number of crashes and temporary recoveries followed, certainly affecting the interest cryptocurrencies had come to generate.
The technologies behind the coins remain valuable and are seeing increased adoption because of efficiency gains, improved safety, and cost effectiveness in moving funds, compared to traditional banking. Other questions however still linger: are cryptocurrencies on the way to becoming actual currencies and be used in day to day transactions? Are they a viable reserve of value and able to compete with traditional ones, like gold for example? Not sure we are any closer to answering these questions and the market reversals certainly didn’t help with wide adoption, but at the same time cryptocurrencies should not be dismissed. The whole sector is going to evolve over time and new currencies and technologies will take center stage as the quest for more efficient and decentralized options seems to have just begun.
A few months ago, we discussed the price action in the crude oil market where prices have seen pretty dramatic swings over the last few years.
Oil reaching $70 per barrel and higher quickly triggered the reaction of producers that significantly increased supply. In part because of political pressure, in part because of the expectation of new sanctions against Iran, Opec’s production in August spiked to a nine-month high. Behind the scenes, the cuts decided in 2016 are being renegotiated and all seems to suggest that the rally might pause, at least for now. To what extent crude oil will get out of a range, however, remains to be seen. The producers don’t want to curb demand with a persistent rally but, at the same time, the lows of 2016 threatened business as well as producing countries‘ economies. The goal seems to be controlling prices but that is generally difficult to accomplish, not to mention that any geopolitical developments might quickly change the landscape.
The International Energy Agency is forecasting demand for both this year and next to be flat, so any change on the supply-side is expected to quickly reflect on prices.
The FED meets on September 25th – 26th and a new rates hike is widely expected. September 30th is also the end of the US Government’s fiscal year and will be interesting to see if the deadline for a budget approval will be met. While other issues are drawing most of the attention (e.g., Supreme Court confirmation and Midterm Elections), the usually fairly complex budget negotiations might reclaim priority. This is especially likely as the budget deadline approaches (to avoid a Government shutdown).
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