11.10 - what is going to happen to Iranian economy?
Markets are looking down today.
When we left our offices yesterday the situation in the markets seemed quite calm and pretty acceptable for the level of strain that is present in the markets today. But overnight the situation has changed radically, sending a lot of traders into panic. Bear market has come.
Selloff, faced by American and Asian stocks and indices is the biggest we have seen since February. Some of Indices dropped as much as up to 4 percent. And it seems that it is only just the beginning for bear market. American tech stocks are looking very uncertain and sooner or later it may implode. And it all is happening simultaneously with a lot of uncertainties in the international trade picture with trade war and sanctions being thrown around.
Although it is natural for bullish and bear market to exchange places and it seem that a trading day like this was to come pretty soon. We haven’t seen a selloff like that in almost a year and while it all seems very dangerous and scary it is normal for a stage like that to come in trading. although we can feel a slight panic, coming from traders it is not nearly as big as it could be with the losses that we see today.
So, what can we understand from the whole situation? Well, for starters those, who follow the market’s movement every day will be able to say that there was no imputation for a fall like that. There was no sameness by either of the sides, involved in the trade war. There were no rapid movements by the crudes and there are no unexpected geo-political changes in the picture. So, the fall came upon us as it would have by itself – just because it was time for a fall like that.
The drop feels and looks extremely damaging only due to the that trading was pretty reliable in the past few months. Of course there were falls and drops, but nothing this radical. We simply got relaxed and in the moment we lost our attention, bear market struck.
What can we do in the situation like that? Well, as we already said, after the fall the rise will inevitably come. It might take it sometime and it might be not as rapid as we would want it to be. But sooner or later we are going to see a rise in the numbers. Right now it might be a good time to buy, with prices dropping drastically.
We also have to get used to the thought that trading and all of the affected trade instruments are going to be extremely fragile in the nearest future. even oil that has been climbing and gaining more or less stable position as dropped, which means it is going to take us some time to gain trust to the assets again.
In the last couple of weeks oil has been a real joy for us. The prices have been surging higher than the level of 4 years ago. We only wanted to see further growth and nothing more. And we all know why the prices were growing. For starters, there were several different conditions for gains like that. OPEC countries increasing the output is the first one and American sanctions towards Iran and the countries that buy oil from Iran is the second one.
But we never looked at the receiving end of these changes – Iran. With Chinese example we can see how really devastating and ruining the changes like that can be. And China is the second largest and strongest economy in the world. Hits, taken by it were bad in the long run can be fatal to the country. And what is going to happen with the country, economy of which hasn’t even recovered from the previous package of sanctions when it was hit by the new one. And it was hit where it really hurt.
Although Iranian economy can’t really offer much for traders around the world except for oil. And as we know lack of the cruse from Iran will only help us get a more expensive crude. But this doesn’t mean that the country has nothing else to offer us.
With weakened national currency, trading in the region is going to slow its pace as the government of Iran is probably going to have to put the stream of the assets in order to fix the deficit, created by American sanctions. That is only going to lead to people getting poorer and infrastructure getting destroyed. With Iran we have a good opportunity to see what American sanctions, imposed by Trump can do to a country with weak economy.
And we are guessing that the picture is not going to be pretty. Our best guess is that the situation is going to look like the one in Turkey, but possibly a little bit worse. For us as traders it means that we have to be on the lookout for another tumble in the region. And for another climb in the oil prices. Both of them are equally ruining to thaw economy of the world and can be equally stimulating towards economies of the emerging markets with traders going back to them in search for stability.
In reality we will only be able to see the rea; outcome of the situation when American sanctions are in full swing and Iranian economy is under real hit.
Political tension between Russia and the rest of the world are hard to deny. Ever since Russian annexation of Crimea the world society was trying to influence the biggest country in the world and its leader in order for them to behave. But as we can see Russians were ready to sacrifice their own economy in order to get geographical and political shift in the region. And the sacrifice was pretty unnecessary as well as no one else has suffered from it besides the Russians themselves.
Of course, there was that huge dip in ruble that for sure sent a lot of traders into losses, but ever since then ruble was fairly easy to predict. Russian economy is fully dependent on oil prices, so latest market numbers have been a lot on favor of Russia. Stable economy has let Russians forget about the threat of sanctions as well as their devastating effect and they began displaying their aggressive international policies again.
Tensions between Russia and United States are only growing even though a lot of people think that Russia meddled in American elections in order for Trump to be elected to help Russia in the world arena. Just days ago Russians reminded the United States that their country is a nuclear one and that in case there are no friendly feelings between the countries it can be used.
Threat like that can hardly be an impulse for friendship growth, but it does bright us to the question – does Russia have no economic levers? After Crimea a lot of economic privileges were cut for Russia. Its gas and oil were cut from the market for some time – a perfect way of punishment for Russia. But Europe and America had a lot of levers to pull on their Eastern opponent.
Russia in its turn has absolutely no counter actions besides a nuclear weapon. That shows us only one thing – its economy is in the worst state than we thought. We draw this conclusion from several facts.
First, there are not much countries that want to trade with Russia. And, while the country is still a part of several economic alliances, as well as OPEC country, it doesn’t really benefit from the high oil prices, as all of the dividends are aimed for the budget deficit fix-up.
Plus, gas and oil are not really in the deficit state right now. supply numbers are merely scared on the shortage which leads to the high price for the crude. Right now deficit is an empty word – that means that Russia cannot really threaten with pulling their gas and oil from the market, which would also never happen.
All and all those, involved in ruble trading are advised to pull out of it.
- by Anna K.