Markets are looking more optimistic as we head into the final stretch of the week with this probably being linked to a combination of indications such as the FOMC Minutes that US interest rates will be left unchanged for longer than expectations, optimism that a positive conclusion to a Greek deal will be reached and the Shanghai Composite Index attempting to recover what have become dramatic losses in recent weeks. Bearing in mind that the risks over a Grexit are at elevated levels and I personally do not think we have ever been closer to Greece leaving the Eurozone there are still possible risks to the market sentiment ahead.

Regarding the FOMC Minutes release from Wednesday evening - although the tone remains that the Fed are looking to raise interest rates later this year, international risks were highlighted and many are beginning to ease back their expectations of a US rate rise in September. These mentioned international risks intensifying further would likely encourage the Federal Reserve to leave monetary policy unchanged. While saying that, I still think the US economy is outperforming its peers and the US Federal Reserve continues to be in a positon to raise interest rates before the overwhelming majority of central banks could even begin contemplating the idea of a rate rise.   

When we speak about the health of the global economy, if I am being completely honest, we are probably in an even worse positon than we were this time last year. The pace of recovery in both Japan and Europe continues to be questioned, declining economic momentum in China is a running theme and the dramatic decline in the price of oil is hurting both those economies reliant on crude exports, and global inflation expectations. When you also consider that we have had a further two global economic downgrades very recently, the Federal Reserve raising interest rates in 2015 would provide the global economy with a much-needed vote of confidence. 

Who would benefit the most from the Federal Reserve leaving interest rates unchanged for longer? I would have to say at this moment Gold and emerging market currencies. The more downbeat comments from the FOMC has spared Gold’s blushes from further losses in the short-term and provided the platform for the yellow metal to recover some losses after encountering continuous downside pressure as of late. Emerging market currencies would also benefit from any breathing space after having to deal with recent history repeating itself once again over the past week. By this I mean the timely combination of a resumption of selling pressure in WTI, at the exact same time it appeared USD momentum was picking up speed. This was the exact same deadly combination that led to the emerging market currencies declining at a rapid rate in early 2015.

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