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As Predicted, It’s Greener on this Side

PRINT / 0 COMMENTS / Mar, 03, 16

Dow Jones Index

In the last instalment of my Market Update, I predicted that the January 2016 correction was a temporary one and that with announcements soon to be made by several countries that the markets would stabilize. The Dow Jones has climbed back above 17,000, the Shanghai composite index is back to its mid-January levels and other markets have stabilized as well. Looking forward to the next three quarters investors in Oil, real estate, currency and the stock markets can expect more of the same.

EU Finds a Stimulus

The European Union has finally, after seven years decided that a large stimulus for its economy is what is needed to finally help the region climb out of the persistent recessionary tendencies it has had since the 2008 financial crisis. The U.S. was almost immediate with its stimulus package and now is in a healthy financial position and is raising interest rates.

The EU is reducing its interest rate to zero with certain countries such as Sweden even going into negative interest rate territory in order to spur the economy of the region. Although it is several years overdue, it is the right move for the economic region. The European Central Bank’s stimulus package includes expanding its asset-buying program and increasing its monthly bond purchasing from 60 billion euros to 80 billion. Much bolder than expected it will finally provide the needed boost to the region within the next two quarters and will help spur further global growth.

The Chinese Find their Footing

After a very rocky 2015 and start to 2016, it is truly the Chinese markets that are becoming the stock markets to drive calm or fear in worldwide markets. The Chinese market meltdown in the summer of 2015 proved to the government in China just how important market regulations and certain controls are. The new head of the China Securities Regulatory Commission Chairman Liu Shiyu is confident that the fall of the market last year and the more recent ‘circuit breaker failed launch’ can be corrected and that the Chinese government will be quick to step in if such calamitous events happen in their markets again.

The fact that the entire Asian region depends on the Chinese market and that other commodity based economies like Australia, Canada and New Zealand all rely on healthy market growth in China means that its market is being much more closely watched than at any time in the past. This has led to better controls and regulations that will help avoid market crashes. China’s GDP predictions of 7% coupled with these new regulations have worked to calm world markets and provide a better sense of stability.

In a side note, the Japanese have announced negative interest rates and have lowered their interest rates to -0.10% from zero which was held for the last 15 years. In addition a stimulus package is expected to provide much needed economic boosts for the economy in 2016.

Dichotomy of U.S. vs Canada

As the U.S. continue their march forward for market growth, the Canadian market will remain lacklustre this year.

“I predict the U.S. Dow Jones to move past the 20,000 point level by the end of 2016.”

As an election year in the U.S., its recent increase in interest rates and its stable growth rate the U.S. will remain a strong economy throughout 2016. It will not increase its interest rate on pressure from the IMF and China.

Whereas in Canada the markets have moved back to 2015 levels, there will be sectors of growth but with oil prices remaining relatively flat in 2016 there will be less growth available for the market. In Canada you can expect a zero interest rate to happen by the end of the year and potentially a negative interest rate in 2017 in order to spur manufacturing growth in the country and prop up the market being dragged down by commodities. Minor corrections and consolidations within both markets are possible but will be temporary and short-lived.

Oil & Real Estate

Oil prices will remain relatively flat throughout 2016 with increases and decreases within a $2-$3 range, staying within $35 to $45 USD per barrel. The markets are used to the volatility in the oil market and it is not as big a fear for investors as it once was, meaning its effect on markets will not be the traditional huge shocks.

The Canadian real estate market will remain bullish in 2016 with foreign investors interested in the quality of real estate available in Canada at a discount because of the depreciated Canadian currency. The U.S. will experience a stable real estate market as well but the value is not as strong because of the strength of the U.S. dollar.

However, the Dubai real estate market has gone through a large price correction over the previous 18 months due to oversupply and under demand. Although some predict the market is set to stop declining, I feel international buyers have moved on from the still-over-priced market and many developers are sitting with large inventories necessitating a further, but minor price correction.

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