Weekly Newsletter #4/2015

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The financial markets consist for a bigger part of expectations, no matter if it are stock prices, interest rates, commodity prices or foreign exchange rates. And it is pretty hard to foresee expectations or the change of them respectively. The tricky thing is, that all of those expectation are somehow interconnected, so that it makes it even more difficult to have an expectation on the expectations.

Last week a lot of expectations were crushed with the Swiss SNB giving up the defendance of the Swiss Francs minimum exchange rate to the Euro. This was more than just a surprise, it was a shock for the market and the reaction was accordingly. But it was a good example, that expectations are not for real, no matter how good they can be argumented or how clear the case is from a fundamental standpoint. So an investor always has to consider that there is a risk in regard of his investment (case) even if he thinks that there is no risk. This is even more important in an environment, where risk-free yield hardly does exist anymore and is constantly replaced by yield free risk. The USD seems to be the next scene with strong expectations and a relatively clear investment case.

The US economy shows a relatively strong picture and nearly everyone expects the FED to raise the benchmark rate from zero to 0.25% in one of its next meetings. Rising interest rates mean a stronger currency, what would support or explain the strength of the US-Dollar. But what would happen, if the FED takes more time than expected to raise the interest rates.

Bank of Canada recently surprised investors with a rate cut, a step nobody expected. If the current low in oil prices (also see an Interview with Mr. Lasshofer on our webpage http://www.innovatis-suisse.ch/out-of-energy/) shows its negative effects on the US economy and the growth does not look good enough for (further) interest rate increases, this could be really a big surprise from nowadays point of view. It is not said, that the US Dollar does not stay this strong for a while, especially as the market’s expectations regarding US interest rates have been relativised at the beginning of 2015. But overall that does neither mean, that the US Dollar is a safe haven for investors.

 Chart of the Day