The major moves of 2014

The major moves of 2014

Coming into the end of the year it is always interesting to take a look back and see which of the major financial markets moved the most throughout the prior 12 months. Overall, 2014 was a year that started off relatively quiet, however this period of low volatility gave way to several major trends over the last 4-6 months. 

We start by taking a look at the commodity sector, which as a whole sold off strongly throughout 2014, with the CRB Commodity Index currently trading 15% lower than where it started on 1 January.

Two markets of note are Iron Ore (Chart 1) and WTI Crude Oil (Chart 2), both of which are currently trading around 50% lower than their respective highs of US$135.27 a tonne and US$107.73 a barrel.

For Iron Ore, prices have been under pressure for the entire year, albeit subject to two minor bounces in March and July, while crude oil actually rallied from January into the July peak before selling off aggressively over the ensuing six months. 

Despite both price charts now heavily oversold, there is little evidence of a reversal at this stage. 

Chart 1: Iron ore prices fell 48.69% from the yearly high

Source: eSignal, extracted 18 December 2014

Chart 2: Crude oil prices fell over 50% in just 6 months

Source: eSignal, extracted 19 December 2014 

When we look at some of the biggest moves across currencies, it is not surprising that those countries with large commodity export sectors have seen weakening currencies over the past six months. Chart 3 is of the Russian Ruble (USDRUB), which, given market convention, shows the US dollar quoted against the Russian Ruble, meaning a move from a price of 35 to the current level of 60.62 shows the Ruble weakening against the USD. In other words, it now takes over 60 Rubles to purchase 1 US dollar, compared to just 35 earlier in the year. As shown on the chart, the RUB has recently peaked at 79.52, before retracing back towards 60. 

Russia is not only dealing with falling oil and natural gas prices, which make up a large chunk of the countries exports, but also political sanctions due to their involvement in the Ukraine conflict. 

Chart 3: The RUB halved in value against the USD in just 3 months

Source: eSignal, extracted 19 December 2014

Closer to home, and the Aussie dollar (AUD/USD) has also weakened considerably in the later half of 2014, currently trading just above 80 US cents after topping out at over 95 US cents in June. 

Chart 4: The Aussie dollar (AUD/USD) also weakened considerably in the later half of 2014

Source: eSignal, extracted 19 December 2014

Of the equity markets, the Shanghai Composite (China) has posted the largest return, with prices up over 40% since August. As shown on the chart below, this follows a relatively quiet start to the year whereby prices traded within a band, marked by resistance at 2177 and support at 1974.

‚ÄčChart 5: Shanghai Composite Index went up over 40% since August

Source: eSignal, extracted 18 December 2014

To conclude, some major shifts in commodity markets and global economic trends have occurred in 2014, and this means that the world has to get used to the practical outcomes of these shifts, such as adjusting to new raw materials prices and exchange rates, which are markedly different to where they were this time in 2013. This may bring about change in trends, with money moving between sectors and asset classes based on where investors anticipate unearthing brighter areas of the market.

On a positive note the world has adjusted well to three recent major dynamics outside of the falls in oil and iron ore: falling forecast growth in China; a base case for rising 2015 interest rates in the US; and a European Union that is paralysed by its awkward clash between the will of its central bank and the disparity between its members' fiscal prudence.

The year 2015 will no doubt bring about some challenges due to this rapidly changing environment, but so long as markets are moving, traders with global market exposure will seek out positive and negative trends as and when they present themselves.

Complex product warning

This article contains information about foreign exchange contracts, which are considered complex financial products. Please click here to read ASIC's foreign exchange trading article before considering an investment in foreign exchange contracts. 
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