On Monday, Asian shares declined to their lowest in four years as China again became an epicenter of unease. Earlier, the Chinese People’s Bank guided the yuan slightly higher for a second straight session, in a move that only added to market confusion over Beijing’s financial policy.
In the meantime oil markets continues to be oversupplied with oil prices falling to 12 year lows. Michael Ingram, a Market Strategist at the BGC partners group, told Radio Sputnik that there is a definite possibility that things may only worsen.
“There are big economic questions that are unanswered yet. It is possible that this is a short term fix. The traders may keep sending the currency down and if you look back I said it earlier that China would eventually seek to devalue its currency to bolster its economic competitiveness.”
Talking about when he thinks these economic jitters will stabilize Ingram said that it will continue for several months.
“One thing that is contributing to this uncertainty is the erratic policy response of China. There is very little transparency to what the PDOC is doing. On the other hand we still got the Federal Reserve in the US which is quite insistent that it probably wants to see some four quarter points rise this year and the markets certainly don’t agree with that.”
Talking about the Chinese People’s Bank policy the strategist noted that China has let its currency flip over the course of December and into this year, it has brought China in the central focus.
In regard to who will be most affected by this situation Ingram said that, “emerging markets will suffer and that will cause currency weakness in many jurisdictions. Russia and countries that are highly exposed to commodities have been hit doubly. Right now the environment is extremely unfavorable and there is a very realistic possibility that we might see the crude price well into a $20 which is pretty catastrophic,” the strategist said.
This scenario is possible because supply and demand are not balanced. Supply has been increased unabatedly. “The demand side to the equation hasn’t been given enough hearing. As growth momentum weakens that becomes a very important factor as well.”
“The $20 scenario can also occur because we are physically running out of space to store the surplus oil, we know that the space is declining, and the date is being pushed further away but sometime soon it may end up at $20,” Ingram noted.
The strategist said that he hoped there would soon be more clarity, but the next few months will remain tricky from an investment perspective.
