Oil Prices to Affect Monetary Policy

West Texas Intermediate Crude Oil fell $70 per barrel, from $107 in June 2014 to $37 in August 2015. What has caused this shift, and what affect does it have on global monetary policy stances?

Price has since partially recovered and, after ranging sideways for all of September, has broken out to the upside, currently tapping on $50 per barrel. WTI has rallied $12 since late August, representing a retracement of less than 20% of the aforementioned decline. Whether the oil price continues to the upside or resumes its bearish trend is a question on many traders’ minds. Regardless of whether the price trends higher or lower, the effect on monetary policy will be significant given this current climate of low inflation in which headline CPI is highly susceptible to moves in the oil price.

The direction of oil, as with any commodity, is determined by two factors; supply and demand. The latest report from US Energy Information Administration showed output decreased for September yet inventories rose. Most analysts are expecting supply to increase over the near term and claim that any rallies in oil will be short-lived. Expectations are that the current oversupply will remain until at least next year and could be exacerbated by further increases in output.  

On the demand side, slowing growth in China has a large impact on demand for oil. Indeed slowing growth in China has precipitated a fall in all commodities, especially resources. In addition to China, slowing growth globally will put downward pressure on oil; should we see falls in GDP forecasts for other behemoth economies such as Europe, the US and Japan, then demand for energy will likely decline.  

On the supply side, OPEC – namely, Saudi Arabia – have refrained from cutting supply, this has significantly helped the oil price fall. OPEC now see little growth in non-OPEC supply in 2016 which should help support prices. In early October the International Energy Agency said that upstream investment saw its greatest drop in history. This is another factor that may indicate some near-term upside in oil.

On the other face of the supply coin, if sanctions are lifted on Iran, the market may see another 500,000 barrels per day in supply. Meanwhile Russia’s oil output reached a new record high for the post-Soviet era, pumping out over 10 million barrels per for September.

Clearly, there are a myriad of factors on both the demand and supply side which will affect the price of crude over coming months. How these play out is largely uncertain, however what is more of a surety is that central banks will need to manage their monetary policy in accordance with developments in oil.

A further recovery in oil will greatly relieve central banks such as the Fed, BOE, ECB and BOJ, all of whom have stated that the current low inflation environment is due to transitory factors and that once the decline in oil fades from CPI, their targets will be approached. If oil heads back up towards $60 per barrel then speculation of further easing from the BOJ and ECB will be greatly dampened, meanwhile the Fed and BOE will see it as green light to fulfil their intentions to tighten monetary policy as they become confident in inflation rising.

The key beneficiaries of a rally in oil will be the CAD, AUD and NZD, with the Canadian dollar the most correlated. After cutting rates twice in 2015, the BOC will likely remain on hold so long as WTI is not making fresh lows.

Conversely, a further decline in oil, namely a break of the lows at $37.91 made on August 24 will see the opposite occur. A new wave on downward pressure on inflation will cause a headache for central bankers; the BOJ and ECB will be more likely to increase easing to combat another period of falling prices meanwhile the Fed and BOE will have to delay their tightening cycles. 

Samuel Cher (SMIF Founder) on How the UWABS Changed My Life

Hi, my name is Samuel Cher. I completed my Bachelor of Commerce majoring in Accounting and Finance last year, and am currently pursuing an Honours degree in Finance at The University of Western Australia Business School.

I first arrived in Perth as an international student from Singapore back in 2013 after serving two years of National Service in the Singapore Armed Forces. I was alone in Perth and had no friends or family here, but that has changed since my first day at the University of Western Australia (UWA). UWA is a vibrant campus with a plethora of student support services, engaging events and a dynamic student population which means that there is always something fun and new to do every day. After two years in the army, I was clueless and overwhelmed by the large number of career paths I could choose from as a Business student. Fortunately, there are many student clubs at the Business School such as Bloom, Consulting Society, ECOMS and FAWA that run a series of informational events throughout the year to help guide and introduce students to the professional working world.

In 2014, due to my passion for investing and trading in the financial markets, I founded a brand new professional student club at the Business School – The UWA Student Managed Investment Fund (www.uwasmif.com), and the club has grown from strength to strength. In 2014, we clinched the Best New Club award, and in 2015, we received a A$20,000 investment from a local private equity firm – Viburnum Funds to start up Australia’s first ever live Student Managed Investment Fund. We have also secured sponsorship agreements with several global Investment Banks, Private Equity firms and Stockbroking firms. These could not have been made possible without the incredible support and advice from the Dean of the Business School, Professor Phillip Dolan, the academic staff as well as the admin staff. I am extremely delighted that I am able to contribute in such a way to enhance the Business School experience for other students.

There are times when as an international student, I start to feel home-sick and no amount of skyping with family and friends who are back in Singapore can help. This year was a significant year for my home country, Singapore, as we celebrated our 50th year of independence (dubbed SG50) but I was unable to be in Singapore to celebrate National Day. I was pleasantly surprised when I found out that the Business School was going to host SG50 celebrations for the large population of Singaporean students who study at UWA. There was a live stream of the National Day parade, some local delicacies from home and a vibrant atmosphere which made it feel like home. I am very appreciative of the effort and initiative taken by the Business School staff, who have gone the extra mile to make the event a huge success.

Next year, as I start work as an Investment Banking Analyst at UBS in Singapore, it is without a doubt that I will miss Perth, UWA and the Business School, along with all the friendships that I have forged over the past three years. It has truly been a memorable experience and I definitely recommend any prospective students to consider UWA as your university.

Originally published in the UWABS Blog;
https://blog.biz.uwa.edu.au/how-the-uwa-business-school-changed-my-life/

High Frequency Trading Snapshot

Michael Lewis’ controversial ‘Flash Boys’, controversially began a conversation about ‘High Frequency Trading’ and the impact on financial markets. Although HFT has existed ever since the US stock market first allowed electronic exchanges in 1998, the speed at which trades are executed have increased from seconds to nanoseconds.

But what even is this form of trading that everyone keeps talking about?

High frequency trading refers to trading platforms using algorithms analysing various markets and executing orders based on set market conditions. The development of powerful computers has resulted in the ability to execute thousands of orders per second. This provides a huge opportunity for those that have access to the technology.

So what impact does it have on us?

The rapid and high volume of trades has an affect on daily trading volumes and therefore liquidity, benefiting investors. However there is debate over the fairness of HFTs and the legitimacy of their advantage is questioned due to its impact on retail traders not being able to access particular opportunities.

Fair or not, there is nothing illegal about HFT as long as it does not conflict with relevant ASIC market integrity rules and the Corporations Act. Keep an eye out on ASIC media releases for upcoming changes in legislation.

For more information about this new form of trading, read here:

https://www.moneysmart.gov.au/investing/shares/how-to-buy-and-sell-shares/high-frequency-trading

Online Tax Return, Does the Government Owe You Money?

Filing taxes can be cumbersome but the penalties are severe for those that undertake tax evasion. Although they might seem trivial for a lot of students who don't earn the minimum threshold of $18,200, getting into the habit now will put you in great stead for the long run. Effective tax measures such as negative gearing and franking credits on dividends can be taken advantage of when paying taxes under the Australian system. Overall, the social benefit of taxes is substantial and allows citizens to engage in a higher quality of living, at least in Australia.

If you’ve already got a MyGov Account and an online ATO account, skip to step 8!

1)   Click on https://my.gov.au/LoginServices/main/login?execution=e2s1

2)   Follow through to creating a profile if you haven’t already, it’ll ask for your basic information as well as creating three questions which you will need to write the answers to (as a backup)

3)   The MyGov username will now be emailed to you on the email you listed in the form

4)   After logging in, there will be a screen to display all the myGov Services

5)   Click on the ATO link, it should be the second one on the list

6)   If you have an online ATO account, you can just type in your TFN to log in

7)   If not, you’ll have to select the “No” option which will lead you to create an online ATO account. Apart from asking basic information, you’ll also need to have ready a PAYG payment summary, a super account statement, a dividend statement or a bank account statement. Questions will be asked from 2 of these statements

8)    So after linking your MyTax with the MyGov account as above and subsequently logging into MyTax, you’ll first be asked to confirm your contact details

9)    Then there are a series of questions regarding income, investments, government payments and deductions. Some may already be filled by other agencies, which is the entire point of doing the returns online. A lot of the payments and deductions will have been pre-inputted into the system just waiting for your reconfirmation

10)                   Once you’ve ticked all the boxes, it’ll generate a return

11)                   You can then lodge this return or edit it by adding deductions, and there are numerous categories from which to choose those deductions from.

12)                   The return takes about 15-20 minutes to go through; it depends on the level of your income complexity at the end of the day

13)                   If it’s too complex, the system will generate an error message letting you know of this and will suggest alternative arrangements

14)                   Last date for generating a return is 31st of October!

The Paradox of Trading

Early in my trading journey I was lucky enough to have stumbled upon one of the great trading minds of all – this itself is a feat worth noting as many new traders out there fall for and got lost in the plethora of trading books, courses and the worse one of all, trading forums. This discovery helped shaped my mindset and my understanding of the psychology of trading before it could be “polluted” by others.

One of the most important lesson I learnt is this idea known as the Paradox of Trading – The paradox being, how can someone produce consistent results from an events that has an uncertain probabilistic outcome? This is an idea that most people who are new to the trading world fail grasp and leads to, I would say 85% of their trading frustration and eventual capitulation. Mind you, this is an idea that is just not confined in the trading world only, in fact it is also employed, most profitably in casinos around the world.

What new aspiring traders should first understand is a particular nature of probability that each individual event is statistically independent of every other events. In other words each trading setup or opportunity will not be affected by past setups or affect futures setups – Each setup has a random outcome. However once we understand that, we can use it to our advantage and similarly how casinos use it to their advantage. If you can get the odds in your favour and there is a large enough sample size of events, events that produces random outcomes can produce consistent results.

What beginners tend to do is that they put too much expectation (or hope sometimes!) on a single trade that will make them their millions and this is exactly the kind of mindset that will make your trading journey a living hell – we have to learnt that there is no such thing as a sure trade, no matter how good the setup is. However I don’t blame them for thinking that way, thinking in probabilities is hard, our “Hunter gatherer 1.0” brain is not used to believing two contradictory beliefs. On one level we have to believe in the uncertainty and unpredictability of the outcome of each individual event yet on the other we have to believe that the outcome over a series of events is relatively certain and predictable. This is the Paradox of Trading.

Dedicated to one of the greatest trading minds of all - Mark Douglas
May you rest in peace.

The Art of a Handshake - How to Network Properly

Learning how to create long lasting connections at networking events can be a valuable tool in an individual’s private and professional life. With nearly 60% of job openings being advertised in-house, it is even more crucial to network effectively. Although it sounds simple, efficient networking can be a difficult art. Here are a few tips to make sure your new professional relationships get off to a roaring start.

1. At a networking event, first and foremost, try to relax. Think of it as a chance to make new friends, so try to smile and be yourself and people should be drawn to you accordingly.

2. If you see someone standing alone, go up and introduce yourself. Many others will feel just as nervous as you do so a welcoming smile and “Hello” will not go astray.

3. Ask yourself what you would like to get out of the networking meeting. Remember to be open-minded and take a long-term view. Some meetings are based more on learning or gaining inspiration rather than on career opportunities and openings alone. Remember it is better to make 3 good contacts than 20 rushed ones.

4. Develop a ten to twenty second elevator pitch. This is essentially a short summary of who you are and what you do that should be able to be delivered within the time span of an elevator ride. Be able to describe who you are professionally and the benefits you might bring. Intend for this to be captive and value-adding, with the hope to attract interest for the conversation to continue or further dealings.

5. Remember that networking is not supposed to be aggressive. Just as you can’t stand an overbearing sales person nagging at you, be wary that you aren’t bombarding others. A pushy attitude may drive networkers away for good.

6. Ask Questions. This is your chance to learn as much as you can so take advantage of the opportunity - you will only get out what you put in. Have some questions ready to ask – for instance – What do you see as the main issues for your industry right now? What would you tell someone thinking of entering this profession?

7. Be a good listener. Encourage others to participate in the conversation and make sure that you are alert throughout their responses. Act as a sponge and attempt to soak in everything that is being said. You will be thankful later when you try to recall what you have learnt!

8. Vary the networking events you attend. This way you are able to mingle with a wide spectrum of individuals and gain knowledge from various sectors and professions.

9. Follow-up is the key. If you say that you’ll call or be in touch in anyway, make it your priority to do so promptly.

10. Ensure that your online profile is always up-to-date. Recruiters often use social media mediums to probe potential candidates, and even check out your skills and experience.

Originally published on;
 https://careerservices.business.uq.edu.au/top-10-tips-successful-networking