We are now in the last quarter of the year 2015, and by looking back to the previous 3 quarters that we had this year it is somewhat like the toughest ride on the waves that we have experience in the stock market. Some of us might have been in a situation of fear that they think that they might be losing all their hard earn income. Some may have been so anxious on the downward movement of the market.
Looking back of the last 3 quarters here are the factors that caused the world markets to move on a downtrend:
The Greek Financial Crisis
After the Greek election of January 2015, the Eurogroup granted a further four-month technical extension of its bailout programme to Greece; accepting the payment terms attached to its last tranche to be renegotiated with the new Greek government before the end of April 2015, so that the review and last financial transfer could be completed before the end of June. The new renegotiation deal was still pending at the end of May.
Faced by the threat of sovereign default, final attempts to reach a renegotiated bailout agreement were made by the Greek government in the first half and second half of June 2015. Default would inevitably entail enforcement of recessionary capital controls to avoid a collapse of the banking sector – and potentially could lead to exit from the eurozone, due to growing liquidity constraints making continued payment of public pension and salaries impossible in euro.
According to a statement by the Eurogroup, the Greek government unilaterally broke off negotiations late on June 26, diverting from their prior agreement to continue negotiating until a mutually acceptable compromise could be presented to the Eurogroup in the afternoon of 27 June. A few hours later, Alexis Tsipras announced on Greek national television that instead, a referendum would be held on July 5, 2015 to approve or reject the achieved preliminary negotiation result (the latest counter proposal submitted and offered by the Troika on 25 June) for a new set of updated terms ensuring completion of the second bailout agreement.
The Eurogroup clarified on June 27, that the only imaginable scenario in which the Eurogroup perhaps could offer Greece further flexibility through a new technical extension of its bailout program to pave the way for holding the proposed Greek bailout referendum on July 5, would be if the Greek government prior of 30 June settled a final renegotiated deal on a set of mutually agreed updated terms for program completion – subject to the final approval by its proposed bailout referendum on July 5. The reason for this firm stance was that the Eurogroup wanted the Greek government to take some ownership for the subsequent program’s completion at the new, updated terms, assuming that the referendum was held and resulted in approval.
As for the Greek authorities’ continued call in negotiations to be granted additional debt relief, the Eurogroup had signaled willingness to uphold their “November 2012 debt relief promise” after reaching agreement for updated terms for completion of the second program. This promise is a guarantee which holds that if Greece completes its second program and if Greece’s debt-to-GDP ratio subsequently gets forecast to be over 124% in 2020 or 110% in 2022 for any reason, then the Eurozone will implement a debt-relief large enough to ensure that these two targets will still be met.
On June 28, 2015, the referendum was approved by the Greek parliament, and ECB decided to maintain availability of its Emergency Liquidity Assistance to Greek banks at its current level, as it was still considered politically possible for Greece to ensure extension of its pre-required current bailout program (at least until 30 June). As many Greeks continued rapidly withdrawing cash from ATMs due to fear that capital controls would soon be invoked, the Greek central bank convened a meeting on Sunday evening, June 28, in order to decide how to handle the liquidity crisis during the upcoming week.
On July 5, 2015, a large majority of Greek citizens voted to reject the bailout terms (a 61% to 39% decision with 62.5% voter turnout). This caused indexes worldwide to tumble, as many are now uncertain about Greece’s future, fearing a potential exit from the European Union. Following the vote, Greece’s finance minister Yanis Varoufakis stepped down on July 6 and was replaced by Euclid Tsakalotos. Negotiations between Greece and other Eurozone members continued in the following days to try to procure funds from the European Central Bank in order to decide whether Greece should or should not remain a member of the Eurozone area. On July 13, after 17 hours of negotiations, Eurozone leaders reached a provisional agreement on a third bailout programme to save Greece from bankruptcy. But a final deal needs further negotiations, and requires ratification in several national parliaments. Source: wikipedia
The Chinese Yuan Devaluation
China’s president Xi Jinping has pledged the government’s commitment to reforming China’s economy in a more market-oriented direction ever since he first took office over two years ago. That and the fact that China is determined to be included in the IMF’s special drawing rights (SDR) basket of reserve currencies makes the POBC’s claim that the devaluation was the result of measures taken to allow the market to have a more instrumental role in determining the yuan’s value more believable. One professor at Cornell University indicated that the move should help China’s case for SDR reserve currency status and claimed that it was also consistent with China’s “slow but steady” market-oriented reforms.
The IMF re-evaluates the currency composition of its SDR basket every five years, the last time being in 2010. At that time the yuan was rejected on the basis that it was not “freely usable,” but the devaluation, supported by the claim that it was done in the name of market-oriented reforms is being welcomed by the IMF as it gets set to consider the yuan’s inclusion. But despite this welcomed response, the IMF has stressed that China will still have to do more and be willing to progress towards a “freely floating exchange rate.”
Many are skeptical of China’s commitment, arguing that the new exchange-rate policy really hasn’t changed and is still akin to a “managed float;” the devaluation is just another intervention and the yuan’s value will continue to be closely monitored and managed by the PBOC. The skeptics believe that the move was further evidence of China’s continued exchange-rate manipulation in order to boost its sputtering exports. Source: investopedia
The delayed Fed Rate Hike by the U.S
CHICAGO/ORLANDO, Fla. (Reuters) – Two Federal Reserve policymakers whose views are often at odds both suggested on Monday they could well support an interest rate hike in December, as long as the economic data does not disappoint and that rate hikes once begun are gradual.
While two does not make a crowd, their apparent agreement on the plausibility of a December rate increase came just a day after Fed Vice Chair Stanley Fischer said he too expects a 2015 hike.
Indeed a large majority of Fed officials believe it will be appropriate to raise rates this year, but after the Fed opted to keep rates near zero at their meeting last month, investors have been increasingly doubtful. Weaker-than-expected data on job creation since the Fed’s most recent meeting has fuelled their skepticism, along with few signs that the global economy is poised to pick up.
Traders see about a 40 percent chance the Fed will hike in December, and give about even odds for the January meeting. For October they see a less than one in 10 chance, though both Dennis Lockhart, the centrist chief of the Atlanta Fed, and Chicago Fed president Charles Evans, whose views are more dovish, sought to keep even October in the market’s sights.
“I think October is a live meeting, clearly there is the potential that the data coming in, in advance of the October meeting will be sufficient … we have a lot more in December,” Lockhart said in Orlando, Florida.
“There is wiggle room” on the timing of the rate hike, he told reporters after a speech, and the economy could probably even withstand a slightly steeper set of rate increases than he, personally, would view as optimal.
It is “way too early,” he said, to know whether a December rate hike, or even an October one, would be appropriate.
The Fed next meets Oct. 27-28. Source: yahoo finance
The rest of 2015 will still be favorable for a bargain hunting since of the latest update on the Fed rate hike which was again schedule in the late December.
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