The Impact of Dollar On Crude Prices

oil-newOil reached $50 per barrel for the first time since November 2015. Investors had expected a positive outcome from the OPEC meeting in Vienna. However, market analysts believe the event is meaningless. Nothing of consequence came out of the meeting.

Saudi Arabia and Iran did not make any progress during OPEC’s meeting. Hence, no significant announcement regarding a freeze or a cut in June was made.

It is considered that OPEC is not a cartel anymore (a cartel having influence over the supply and prices of oil). Therefore, the market has turned its attention to the Fed as a critical aspect regarding the oil price.

Higher rates of interest along with less easy money are expected to complicate the oil business.

Experts believe that those who carefully monitor the dollar movement have the maximum impact on the direction of crude prices.

An assessment of oil trading daily would reveal that everything is front-end loaded. Traders and not refiners have the major control over oil prices.

However, the exclusion for a producer with a critical impact lies with Saudi Arabia. The reason for this being the kingdom could adopt a very aggressive tactic when it comes to production in 2016.

The government in Saudi Arabia is becoming much more entrepreneurial. The policymakers are engaging in several offshore drilling joint ventures. The market is closely watching the Saudi government’s next move.

In order to offset the production from Saudi Arabia, analysts believe cheap prices are assisting to ensure the global demand is up.

There is greater balance with regard to the global oil supply. The issue is expected to aggravate around August when there would be sufficient oil to get through the period.

A surplus oil inventory could drag oil prices downward since most of the supplementary demand in the US for gasoline in 2016 is front-end loaded for July.

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The Demand for Bonds May Backfire

gold-bars-public-domainThe developed market bond yields moved lower in June 2016 as the market focused on the exit by the UK from the European Union.

The bond markets are taking into account the safe-haven demand. The underlying market risk continues to persist and is not expected to fade in the short-term.

The global markets have become extremely volatile in recent times as opinion polls in the UK have indicated that the “leave camp” would prevail in the June 23rd, 2016 referendum.

An exit would signify leaving the 28-nation EU, and solving an array of complex trade agreements that connect the country to the European bloc. The agreements were not easy to create, and they would be extremely difficult to renegotiate.

Uncertainty regarding what the U.K. would have to give up in terms of its access to the continent’s single market has bothered the markets.

Some analysts noted that even if the U.K. votes to continue in the EU, that volatility isn’t likely to pass over easily. The factors around the Brexit are going to remain for some time: the issues around trade & overregulation, the concerns around immigration, and the problems around income inequality.

A Brexit is estimated to hit the U.K. gross domestic product (GDP) by about 2 percent as it weakened the pound, increased inflation and stimulated a housing market correction. That would dent global GDP by nearly 0.1 percent.

The markets are concerned about their incapability to measure the big picture. For e.g., the very survival of Euro.

However, there are other factors that are weighing on bond yields and driving them lower. The Fed’s hiking cycle is expected to be very gradual over the next couple years.

According to Chris Weston, chief market strategist at spreadbettor IG, “A more dovish Fed is not the positive it once was and investors are saying ‘if the Fed are worried then perhaps we should be as well.”

A Japanese Government Bond (JGB) auction on June 16th, 2016 also weighed on yields. Bond prices change inversely to yields.

Declines in oil prices were also impacting bond yields. Lower oil prices result in lower bond yields since oil prices have robust correlations with inflation expectations.

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Integrating Bank Brokerage

featimage-300x300Several financial institutions differentiate between brokerage, trust, and private banking when providing service to clients. However, experts believe banks and credit unions would stand to gain by adopting an integrated service method to augment the client experience.

An extensive study has confirmed that customers prefer seamless service in a way that enables quick access to accounts.

Firms’ must overcome changing technology, consumer demands, regulatory needs and operational contingencies. Legacy systems and ineffective processes also create problems.

Active investors, as well as, active traders provide a significant opportunity for firms with aggressive growth rates in the future. There has been a substantial increase in importance for bank-brokerage integration in response to the growth in the segment.

The progress for a greater incorporated bank/brokerage model is steered basically by the evolution of the investor in the US.

The development has been slow, interrupted by internal/external factors like budget, resource and technology restrictions. The acquisition of Merrill Lynch by Bank of America led to an integration of the bank and brokerage, which resulted in the launch of Merrill Edge.

This was a distinctive milestone and implied a process towards the integration of the bank-brokerage for the institution and other stakeholders in the sector.

Modifications in existing technology in recent times have resulted in the bank-brokerage consolidation for channel growth. Consolidating online banking with online brokerage could be a technical process, which would often include modifications to sales, customer service, branding, and products among others.

However, the existing customers must not be impacted by any service disruption. The complete integration must provide a seamless option to expand the current relationship and any deviations at the time of the transition could impact the customer experience.

Bank-brokerages would focus on integrating services with a specific emphasis on distinct sign-on, real-time money transaction, and the capability to access holdings covering various accounts.

Any more assimilation would focus on integrated banking and brokerage performance metrics, pre-filled account data for easier account opening, and integrated banking-brokerage mobile apps.

Clients would prefer access to the banking and investment data expeditiously from multiple locations. The digital concept impacts many technologies, devices and channels like social media, mobile, tablets and online.

As far as online brokering is concerned, mobile trades through mobile apps have increased 100% in the recent past. For brokers providing banking and brokerage services, there is a distinct opportunity for differentiation in the mobile channel by facilitating the integration of mobile banking and mobile brokerage.

In order to be competitive, firms seeking the bank-brokerage model would have to focus on augmenting the trading platforms. Huge trading volumes and the utilization of complicated trading strategies ensure the active investor/trader is profitable across segments.

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Falling Sector Correlations – Positive News for Investors

93356036The correlations among S&P 500 sectors have dropped to the lowest level since the global financial meltdown. Though correlations may seem complicated, the development is actually excellent news for most investors.

An analysis of the last 60 trading sessions would reveal that the average correlation between the day-to-day moves of two S&P 500 sectors is around 0.47, and it was as low as 0.45 in the 60 sessions ending on June 9th, 2016.

That is significantly lower than the number’s median reading of 0.69 over the last five years and is a drastic drop from the 0.83 witnessed in October 2015. Both active and passive investors must be happy with this silent market trend.

For the active investors, who believe they can create value by overweighting certain sectors and underweighting other sectors, such results begin to make sense. For e.g., a portfolio that consists of several consumer discretionary stocks and some utilities stocks has a greater chance of performing differently in comparison to the S&P 500 in a low-correlation scenario.

The passive investors could also benefit. As correlations decrease, the advantage of variation increases since greater correlations convert into a lower degree of volatility without essentially decreasing the projected gain.

In a low-correlation environment, there’s a lesser risk that each stock one holds decreases together. Again, there’s also a lesser chance that each stock increases together, but since most investors do not like losses and like gains more, a reduced chance of the volatility that takes the portfolio higher is a useful trade-off.

According to chief market strategist Nicholas Colas, Convergex, “Five years ago the stock market went up together and everything went up together, or it went down together and everything went down together. And that was really unhealthy because it meant there was no value in diversification.”

At present, it is no longer the case. The alleged risk-on/risk-off dynamic seems to have fragmented, with a few discrete forces now affecting stocks. The main ones are the reach for yield amid dropping bond rates, the commodity comeback, and the current weakness in the U.S. dollar.

If investors select the correct force, they would be able to outperform the total market by a significant margin because of the correlation decline.

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China’s Accumulation of Debt Could Impact the Global Economy

debt-debt-trapConcerns about China, which have already triggered the global market disorder this year, have not gone away and its debt pile continues to pose risks to the global economy.

China’s overall debt touched a record 237 percent of gross domestic product (GDP) in the first quarter of 2016, an increase from 148 percent at the end of 2007.

The Chinese debt could seriously impact the Asian economies as well as the European economies. That could result in a probable negative trend, which could continue for a longer-term.

Some experts believed that any significant accumulating debt was good news for the European economies in a cyclical slowdown. However, it would be bad news for the key emerging market economies of China and Russia.

The debt was the main reason for the global financial crisis of 2007-08 and has since increased globally in relation to gross domestic product (GDP).

The Bank for International Settlements warned that any spiralling debt could have disastrous consequences for the overall health of the global economy.

Global debt surpassed $135 trillion towards the end of 2015, an increase from under $110 trillion towards the end of 2007.

In the developed economies at the centre of the crisis, certain private-sector deleveraging has happened, although public-sector debt has increased gradually.

But the most disturbing development has been the sharp rise in private-sector debt in other places, particularly in many emerging market economies, including the biggest, the main engines of international growth post-crisis.

Several economists believe that China’s debt pile was the one that posted the most risk to the global economy.

However, market experts struck a positive note on global debt. Defaults and crises are part of a business cycle. There would be more crisis going forward, but they would be addressed and resolved.

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Types of Insurance You Need

wiki-financial-planning-insurance-and-types-of-insuranceLife is full of challenges and throws various unexpected situation on us. Protecting us from those challenges is the most important step that helps in creating a strong financial security as well. The best way to protect the future’s uncertainty is through insurance. Getting the right kind of insurance will go a long way toward helping you to protect your family, income and your assets. It also safeguards you against the perils of the unknown and help you financially, if you’re unable to pay from your pocket to overcome the loss, such as the medical costs of a serious illness, an accident, or damage through natural disasters.

Insurance is a complex business. Choosing the right kind according to your need may be difficult. There are a number of insurance available and with so many options, it can be difficult to decide which insurance policy you really require. Getting the right insurance policy done always depends upon your present specific situation. Aspects like health condition, family income, lifestyle, children, etc. are a few points to consider when purchasing the insurance portfolio. There are though, five types of insurances that most industry experts recommend: life, health, property, auto and long-term disability. Each one is very important to your financial future security and covers a specific facet of your life.

Life Insurance: This is one of the most important type of insurance policy, if you have a family that is financially dependent on you. If your children, spouse, or parents would face financial hardship after you, life insurance policy will protect them. Think about how much money you earn each year and buy a policy that will replace that money. As per most of the industry experts, a life insurance policy should cover atleast 5 – 10 times of your total annual income to cover all the living expenses, such as child care, education, taxes, loans, etc.

Health Insurance: The increasing expense of medical care is a good reason, enough to purchase a health insurance policy. Even a normal health check-up can result in heavy bills. More serious health issues that require a hospital stay, and a surgery or an operation can increase your financial burden. Especially, in today’s time, where new diseases are emerging and demands expensive treatment, it becomes a must to take a health insurance plan. If you are in the service industry, always check with your employer, whether they are providing the family health insurance coverage or not. If not, it’s must to get one today itself.

Property Insurance: Whether you own a house, have a home loan or a renter’s, you must maintain some type of property insurance that protects your possessions in case of burglary, fire, or any natural disaster. This will save you from the expense of repairing the damage that are too costly or impossible to pay from your pocket. Many people don’t give it much importance, but trust, it’s must. A property policy is hardly $15 – $20 per month and is easily affordable.

Auto Insurance: This insurance is another a must-have. In fact, it is illegal to drive without some form of auto coverage. Accidents can’t be predicted and can result in heavy bills. Having no auto insurance could possibly cost you everything you own, to repair your own damage, to cover against other events like theft, accident or other problems. Purchase an auto insurance plan depending on the value of your vehicle and your region’s or state’s requirement.

Long-term Disability Insurance: This is the one insurance most people do not think about, and hence, rarely purchased. However, according to the Social Security Administration, 3 in 10 labour’s entering the workforce will be unable to work, or will become disabled before they reach the retirement age. This insurance helps when you hurt yourself and are unable to work for an extended period of time or never. It supports the income you would have earned. This type of insurance is mainly depending on your job profile. For example, if you have a kind of administrative or desk job, the insurance premium would be really low. But, if you are in the manufacturing or construction sector, the insurance coverage would be highly expensive.

The five options listed above are all insurances that are essential and everyone should own these insurances. Though getting an insurance policy is costly and certainly takes a lot of your money, but being without it could lead to financial disaster. These policies usually come in a wide variety of forms and sizes and have many different benefits, features, and prices. Purchase them carefully, take expert advice, talk to the agent and read the policies to ensure that you understand the cost and the coverage. Make sure the insurance plan that you take are suitable or meeting your requirements and protects you and the people around you or close to you.

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Banks Do Not Have to Eliminate Legacy Systems

imagesThe big firms of the digital world are accomplishing excellent outcomes on flexible architectures, but banks are falling behind with regard to their legacy systems.

Legacy systems are one of the biggest obstacles preventing banks from replicating the digital experiences provided by firms such as Apple, Google, and Amazon. The competition among these companies is steering the digital world in a direction of real-time.

When it comes to executing digital transformation, traditional banks must answer several questions:

  • What are the crucial business preferences?
  • What are the correct technologies to use?
  • Will they be in a position to execute changes at the necessary speed?
  • Will the IT personnel be able to handle an increasing workload?

The risks are high and mistakes could be expensive.

According to a report from McKinsey & Company in 2015, “investment in fintechs by venture capitalist firms rose to $12.2 billion in 2014 from $4 billion in 2013. There are more than 12,000 fintech companies moving into every banking activity and market, and up to 60% of traditional bank profits and revenues could go to these fintech companies in the next 10 years.”

Established firms, unlike digital startups, have to deal with a significant number of legacy systems and processes that prevent them from innovating.

Even if a bank manages to reduce the number of internal legacy systems and processes substantially, the remaining legacy systems would still keep most of the staff busy overseeing maintenance and resolving crises instead of engaging in digital transformation activities.

Increasing the problem, the bank’s transformation has also been impacted by a culture clash between established personnel and those willing to facilitate change.

Hence, traditional banks are not able to match the agility of a fintech start-up. However, it does not mean that everything is lost.

A bank can split its IT personnel into two separate groups. One group would be responsible for maintaining legacy systems with a task to decrease the number of systems and processes.

The second group would have to speed up digital transformation. This group must function autonomously and should be assessed based on its capability to introduce convenient products and solutions to the market. The organizational leadership must provide strong support to the second group for it to succeed.

This two-pronged strategy enables traditional banks to continue leveraging their actual strengths and achieve the agility and innovative offerings that the present financial consumer demands.

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