Luis Urquiza’s market snapshot: What are the hot assets for 2016? – A detailed analysis

Eloquent and charismatic introducing broker and CEO of FinancialFX Luis Urquiza is recognized among trading circles as a FX industry professional whose market analysis is well researched and comes as a result of his international banking background.

Making the break from his initial career in which he was a TV and movie director and classical guitarist, his music notes have been superseded by bank notes, and other assets that are the talk of the time on trading platforms.

Mr. Urquiza today spoke to FinanceFeeds in order to provide insight into what he considers will be the prevailing market sentiment and movements in the new year.

“I do think most indexes will end up down, and within this I include the SP500, Dow Jones and Nasdaq listed instruments” – Luis Urquiza, CEO, FinancialFX

“Taking a closer look at the SP500 and Dow Jones, technically speaking, the indexes have failed to achieve new highs, and volatility has been quite above normal in 2015” continued Mr. Urquiza.

“Also, P/E ratios are way above historical average (currently at 22 vs an historical of 15). Industrial manufacturing has shown contraction, and the FED target of a 2% inflation has not been achieved although the interest rate has been almost 0% for almost 10 years” – Luis Urquiza, CEO, FinancialFX.

Mr. Urquiza considers that when considering the presence of a stronger dollar, the outlook for equities doesn´t seem so positive for 2016.

Elaborating further on Euro indexes, Mr. Urquiza said “The ECB has been engaged in devaluating the euro during 2015, which up to some extent has worked. We can expect further measures to devalue the currency and flood the market with extra money, which (same as in the US) will fuel an artificial rally.”

“Euro indexes might experience a gain, depending on what Mario Draghi says or does in the initial part of the year, however precious metals should see a bottom next year, before a rally begins.”

This is a very interesting observation, as many retail FX firms which have not invested in going the multi-asset platform route had added precious metals to their MetaTrader 4 trading platform during the course of 2015, especially in the aftermath of the Swiss National Bank’s removal of the 1.20 peg on the EURCHF pair.

“On the supply side, mining output is expected to remain the same. However, most of the silver in the market comes from recycled silver from electronic devices. Each year, the amount of silver coming from the “recycling” part is diminishing, as smaller electronic devices make it difficult for recyclers to “save” the silver from those appliances” said Mr. Urquiza.

“On the demand side, Solar panels use silver for the panels. With demand for cleaner energy coming from lobbies in the  US and Europe, we will see more solar farms being built in 2016” he explained.

He continued to predict that “The real pressure will come from China, as China wants to have 100GW of installed solar power capacity by 2020 (28 GW of currently installed capacity at this moment) in ounces, this represents a need of 100 million silver ounces per year of demand which is about 10% of total supply nowadays so that will put pressure on silver prices towards the upward side. Considering this, we will see gold go up as well.”

Having held a senior position at GDF SUEZ, one of the world’s largest utilities providers, where he was responsible for the business development of financial derviatives linked to the energy sector, Mr. Urquiza certainly understands these dynamics at a structured level.

Currencies – It is all about China – here’s why!

As far as currency is concerned, Mr. Urquiza considers that many traders will look East. “The Yuan will be more and more used in trade. The Chineese will probably enter into more swap agreements with more countries to bypass the US dollar directly such as what they´ve done in Russia already, however, the US Dollar will remain strong at least during the first half of 2016.”

“With regard to the Yuan, more trade will be conducted in the Chinese currency as a consequence of two main actions.

“Firstly , the creation of The China International Payment System (CIPS), a clearing system established by China’s Central Bank, has started a global payment system that provides cross-border transactions in yuan which is directly competing with SWIFT, a must for every transfer in us dollars (and recently a political tool, as we have seen that the US blocked Iran out of SWIFT at some point).”

“Secondly, due to swap agreements with 21 countries, such as Russia, Switzerland, UK, Japan, South Korean (among others). This means that trade can be directly done between the yuan and those countries currencies without the use of the dollar” – Luis Urquiza, CEO, FinancialFX.

This is certainly a prediction that FinanceFeeds concurs with, on the basis that the interbank FX sector in London (RBS, HSBC, Barclays) is looking toward moving away from its traditional roots in the Square Mile and Canary Wharf, and has its sights set firmly on Hong Kong and Singapore, therefore the yuan/USD influence could amplify at retail and institutional level.

US Dollar strength

“This brings me to US dollar strength. This comes more from a fact that other currencies are weaker, not that the US economy is really doing well. The Euro is being debased by its Central Bank, Japan intends to add further QE measures to debase the Yen, and this is the same with the GBP” said Mr. Urquiza, very much aligning with FinanceFeeds analysis yesterday with regard to Euro and GBP versus Dollar.