The first half of the year ended during the weekend. Year-to-date, things have not been rosy in the markets. In the cryptocurrencies scene, all currencies ended the first half of the year in bear territory. Bitcoin has dropped by more than 50%. Other cryptocurrencies projects have fallen further as well. Global stocks have had their ups and downs. S&P has gained by less than a percentage, while DAX, Dow, and FTSE have dropped by 4.3%, 2.2%, and 0.15%. All this is in contrast to the massive gains we saw a tear ago. The following will be the key themes to watch out in the next half of the year.
Traders will continue to watch out for the ongoing trade conflict between the United States and its top trading partners. On Friday, Canada retaliated against the US with tariffs worth billions of dollars. Investors hate uncertainty and so, the stocks could continue to be volatile during this half of the year.
In recent months, the yield curve has been flattening and there are chances that the yield curve could invert during this half. If the ongoing trade crisis continues, there are high chances that the yield could invert. If it does, stocks could see a major correction.
Crude oil is often referred to as liquid gold. This weekend, Donald Trump asked the Saudi Arabia king to increase production. Just a week ago, OPEC members and Russia agreed to increase daily production, albeit slowly. YTD, crude has been one of the best-performing commodities rising by more than 20%. This half, we could see some stabilization of crude oil as the markets interprets the demand and supply issue.
In this half of the year, there are chances that Robert Mueller will release his findings. He has been investigating whether Donald Trump’s campaign colluded with Russia during the campaign. He is also investigating whether the president obstructed justice by firing James Comey, then FBI director. If a report comes this year, it will likely come in August or September before the mid-term elections.
In the United States, the residents will go to the mid-term elections in November. Today, Republicans hold the senate and the house of representatives. Historically, the president in power tends to lose the majority during the mid-terms. Traders will be watching closely whether the Republicans will hold the seats they hold or even expand. If Democrats take over, it will be difficult for Donald Trump to pass his agenda.
Traders will also focus on the central bankers. The Fed and the ECB will be the most important ones. On the Fed, traders will see whether they will do the promised two more hikes. On Friday, a senior economic advisor to the president asked the Fed to slow on the rate increases. On the ECB, traders will wait to see whether the officials will wind up the QE as promised.
In recent months, Theresa May has faced a major challenge on Brexit. She has been unable to find consensus within her cabinet. Traders will wait to see whether the country’s leaders will do a deal on Brexit. Failure to reach a deal will mean dire consequences for the UK.
The European Union has continued to face major challenges with the rise of populism. Many young leaders have taken power with the promise to slash immigration. Angela Merkel has been under a lot of pressure and her coalition is facing challenges. Traders will wait to see whether the EU will remain intact.