For the (Persian) Gulf Cooperation Council member states, the focus entirely remains on oil revenues.
Ole Hansen, Head of Commodity Strategy at Denmark’s Saxo Bank says: “The loss of revenues from oil will, according to the IMF, trigger a 23% decline in (P)GCC exports from 2014 to 2015 and this impact is currently being felt across the region, bi-me reported.
But a stable oil price during the past couple of months has also brought a degree of calm back to the hydrocarbon-dependent economies of the Persian Gulf.”
OPEC’s expectations that demand will continue to rise over time, help remove the supply glut and trigger higher prices, has driven the region’s belief that a bounce back is coming, according to Ole Hansen.
”Such a bounce back, however, according to our expectations, is not going to be seen before well into 2016 as the potential for rising supplies from Iran and Libya will prolong the time it will take before the market balances itself.
Ole Hansen forecasts a return to $100+ is not expected for the foreseeable future and this should help the region to focus on attracting and building other sources of revenue.
”Large scale infrastructure spending across the region not least in Saudi Arabia is required to transform these countries into a connected and modern economy. The Middle East’s ideal location as a hub for trading between Asia, Africa and Europe needs also to be exploited to the fullest extent while Dubai’s ability to attract financial institutions from around the world, not least from emerging economies such as India and China, could further increase the region’s importance as a center for trade and finance.
Against this backdrop, Hensen, in his Q3 Outlook report published July 4, noted some key trading ideas:
* Commodities: Oil prices and gold have settled into a range lately. But oil bears are hoping that rising OPEC output and rising US inventories after the peak demand season will allow prices to move lower, while a rate hike in the US could be a buying opportunity for gold.
Hansen expects the third quarter will be when the Fed’s chair Janet Yellen begins to turn off the liquidity tap and maintains his call for gold to finish the year at $1,275/oz., somewhat above the current consensus.
* Macro: The US economy is slowly but steadily getting back on track after the Q1 doldrums and the question is no longer if the Fed will hike rates, but when. The market seems to stand on two legs, more or less split between September and December says Mads Koefoed, Saxo Bank’s Head of Macro Strategy.
Koefoed also considers Europe saying the European Central Bank president Mario Draghi also has a handful on his plate in Q3, but it is of a different nature as a Greek euro exit looms large while sovereign bond yields have surged with the German 10-year rising to more than 0.8% from less than 0.2% in Q2. He sees growth in the region staying robust in the second half of 2015 albeit without much pickup.
* FX: Head of Saxo Bank’s FX Strategy John Hardy says with the Eurozone still embroiled in difficulty, the American dollar may resume its upwards track–but this hinges on the numbers and whether the US recovery really is here to stay. After a quarter, mostly spent consolidating previous heady gains, the dollar will demand the market’s full attention in the third quarter of this year. It may rally afresh, provided US economic data and Federal Reserve rhetoric point towards a September rate move–in what would be the first rate hike in more than nine years.
* Fixed Income: Saxo Bank’s Head of Fixed Income Trading Simon Fasdal says the recent rise in global bond yields has already established itself as a major theme in financial markets. He also considers what could go wrong this quarter. Besides Greece, there are no real signs of any critical market triggers, and now with the holy trinity for Europe–a lower oil price, a weaker euro and ECB bond-buying–this should boost the economy and send inflation expectations and yields into an upwards spiral in Q3.
* Asia: There is a time for going on the attack in markets and there is a time for manning the defenses says Kay Van-Petersen, Asia Macro Strategist at Saxo Bank. A likely highly volatile trading environment in Q3 definitely marks this out as a protect-what-you-have three months.
Kay Van-Petersen says the markets are entering a very challenging time with the first rate hike potentially coming through from the US which would be the first hike since 2006. He notes that the global economy is experiencing increased dislocations as the US raises rates while most of the rest of the world has an easing bias.
