Entries Tagged 'predictions' ↓

In this post, we looked at what is meant by the commodity futures market

Often the best way to predict future economic data is to see what happened in the past. Last year saw rapid increases in the price of many commodities (despite low global inflation)

The price of many commodities increased, but, in particular commodities such as Gold, oil,  energy sources and soft commodities such as coffee and wheat.

Source: Bloomberg Commodity prices 

What will determine the price of Commodities in the next year?

Like any good, we can explain price changes and predict future price changes on the basis of supply and demand.

On the demand side we have seen strong economic growth in Asian countries such as China, India and to a lesser extent Europe. Fears of a US recession may lead to slower global growth, but growth from China and India may outweigh the slowdown in US growth. The US no longer dominates the world economy; strong demand will probably be maintained from other countries. Continue reading →

Predicting exchange rates is not as easy as some experts may suggest. There are many factors at work in determining exchange rates – economic fundamentals are only part of the equation. To predict future exchange rate movements we need to look at a variety of factors. The most important include:

Interest Rate Movements.

Interest rates have the biggest single effect in determining exchange rates. Higher interest rates make it more desirable to save money in that particular country. This causes an inflow of hot money which leads to an appreciation in the exchange rate. International hot money flows account for a high % of capital flows.

Economic Prospects

Linked to interest rates is the general economic prospects of an economy. If an economy is slowing down, due to say falling house prices, it is likely that interest rates will fall. This is because when the economy slows down, inflation falls allowing Central Banks to cut interest rates. E.g. slower growth in the US has caused expectations of interest rates to fall, this in turn has led to the devaluation of the dollar. Continue reading →

With all the interest in the US sub prime crisis and the rise of China’s economy, Japan often gets neglected. However, the Japanese economy remain the 3rd largest economy in terms of GDP ($4.22 trillion, 2006). It appears that tentatively, the Japanese economy has overcome its prolonged slump and deflation of the late nineties and early 2000s.

Prospects of growth in 2008, look reasonably good; buoyed by consumer spending growth is forecast to be 2%. With inflation under control the Japanese Monetary authorities are unlikely to change interest rates.  (interest rates are currently close to 0%)

Forecast Yen against the Dollar

The US economy appears to have more structural weaknesses than Japan. With US house prices still falling and further fallouts from the sub prime crises the American economy faces the prospect of recession. It is likely that the Fed will lower interest rates in the US, despite this further undermining the dollar. Therefore, the long term trend of Yen appreciation against the dollar is likely to continue

Graph of Yen against US $

  Continue reading →