Hello, dear participants of WellMax international system, clients, partners and investors of International Financial Community!

We continue to inform you about the results of our work and the IFC specialists' vision of the processes in the world and regional economies.

In March 2017, the assets value of the WellMax investment portfolio increased by 1.03% in USD and EUR that equals to 12.36% per annum. There was a 13.56% yield per annum in rubles, a 12.72% yield - in yuans.

The assets value of the WellMax Premium investment portfolio decreased by 6.72% over the period from March 10, 2017 to April 10, 2017.

A relatively low volatility in the second half of March provoked a slight sagging of the assets value of the WellMax Premium investment portfolio. However, this period might have been a lull before possible strong changes in financial markets.    

It was the U.S. who have stirred discord in the power balance of world politics (relatively conventional during the last months), after the U.S. Navy carried out a massive missile strike on Syria’s Shayrat government forces airbase in the early morning (Syrian time) on April 7 in Homs Governorate. The strike has become a significant turning point in international relations.

Now it is difficult to estimate all possible consequences of US President Donald Trump’s decision. However, they will certainly throw into question a bridge building between Moscow and Washington associated in Russia with the new administration in office. At the same time, the EU leaders along with some of the EU countries’ heads have embraced the US strikes. The EU countries’ heads have also hardened their statements towards Moscow, since the latter supports Bashar Assad’s regime, when he is suspected to have used chemical weapon against civilian population of his country. Besides, once again there is another falling-out between Russia and Turkey, as the nations’ leaderships have treated the US actions in Syria in different ways.

The strike on Syrian government positions has been unexpected for most analysts and observers, showing the new White House’s head being unpredictable once again. According to sources close to the President’s Administration, the decision was rather emotional and influenced by the President’s daughter Ivanka Trump. However, the US President might have had some pragmatic ideas to be led by, while making the decision.

As we mentioned in the previous economic review, despite the fact that the new President’s Cabinet is practically formed (Secretary of Agriculture and Secretary of Labor are the only offices, which have not been appointed yet), there is no clear political line in the new Administration’s actions. For almost three months followed the inauguration, Trump has brought into limelight nothing but several loud statements and controversial decrees including the failed scandalous anti-immigration one. All this relatively influenced Trump’s approval rating, which dropped to its lowest level of 35% in late March according to Gallup poll, while Trump’s unfavorable rating soared to its highest level of 59% that is demonstrated in the chart below.     

However, Trump’s strident statement towards Damascus, which followed the information about chemical attack in Idlib, has made the President’s approval rating soar to 42%. CBS polls in its turn showed that 57% of Americans would embrace Trump’s strike on Syria. According to the Gallup data, the President’s rating has settled above 40% after the missile strike. This proves Trump’s operation to be success in terms of domestic policy.

New similar strikes on both Syria and other problem regions cannot be excluded, considering the encouraging reactions to the missile attack in the U.S. and the NATO countries. An increasingly toughen tone of U.S. officials towards Syria and its allies along with the information about the USA’s possible preventive strike on North Korea and an alleged plan to overthrow North Korea’s leader serve to prove this idea.  

At the same time, Russia’s leadership also need diplomatic victories on the international stage, as the presidential elections are coming. Thus, one cannot exclude escalation of tension between Moscow and Washington now.  

In the last month the oil market has been characterized by strong price movements. Up to late March the Brent barrel price had been under pressure, in a way testing the psychologically important level of $50 p/b a few times (mentioned in our previous review). However, on March 28, 2017, soaring quotes replaced a slow downward trend. The main reason of the explosive growth was several sudden failures in oil deliveries from Libya and Canada.

Thus, on March 28, media provided information on crude oil cut in output in Libya by 252 thousand barrels per day after halted production at Western Lybya’s Sharara and Wafa fields due to armed protests in the region. On the same day Iran’s Prime Minister Bijan Namdar Zangeneh announced to journalists possible prolongation of the global agreement on oil output cut that supported oil quotes either.       

Later, on April 4, there was information on supply problems from Canada. Thus, in April the market is going to lose 490 thousand barrels of crude oil per day due to a fire at the oil sands production facility. The fire at Syncrude’s Mildred Lake oil production plant forced the company to halt oil output from the Athabasca oil sands in total volume of 350 thousand barrels per day. ConocoPhilips also cuts oil output by 140 thousand barrels per day due to Syncrude shutdown since the former used light synthetic oil to produce a mixture of heavy oil.  

Due to this accident Canada’s oil output is going to decrease by 490 thousand barrels per day in April which is equivalent to one-eighth of Canada’s total oil output.

In order to stimulate a rally in oil market prices arisen from abovementioned force majeure events, on April 11, Saudi Arabia used verbal interventions in the market. In front of the OPEC official representatives the country announced itself being interested in prolongation of the oil output halt agreement for six months more. 

The market responded to these statements in a quite moderate way halting the price growth that follows from oil price dynamics. Neither the report published by OPEC on April 12 led to further growth of oil prices. According to the information, the cartel cut oil output by 153 thousand barrels per day in March, producing 31.928 million barrels per day. The market’s reaction might have resulted from the skepticism of its participants towards the published data and/or the methodology used for counting.

At the same time, the US have been increasing oil output, which accounted to 9.252 million barrels per day according to the last data. This is the highest record since August 2015. The oil output dynamics and number of working oil-drilling rigs in the US are shown in the chart below.

US commercial oil stocks also have been staying at the same record high levels despite a decrease by 3.2 million barrels for the last fortnight from March 31 to April 14 placed on record by US Department of Energy.  

According to the speeches of OPEC members’ official representatives, the organization aimed at 60 USD per barrel and more. However, oil prices are going to struggle in order to overcome this psychologically important point. As we mentioned above, the main reason of the leaping prices in late March/early April were shortages in oil deliveries from Canada and Libya brought about by force majeure. They are likely to be of temporary nature since the fire consequences at the plant in Canada are going to be handled in the coming weeks and the lost 490 thousand barrels per day will have been back to the market not later than in early May. Besides, Libya tends to get back on track with oil output despite controversial information coming from this African country. At the same time, an unstoppable growth of output in the US will put pressure on the price of “black gold”, either.       

It is most possible that oil prices will be under pressure for the coming few weeks. Significant price movements can be expected by May 25, when Vienna holds an OPEC meeting where they will discuss future oil cut deals.   

A strengthening of U.S. dollar which is expected in the mid- and long-term future can cause some extra pressure on oil prices. Increasing Federal Funds Rate is one of the main reasons for a strengthening of the U.S. currency. As it was mentioned in the previous economic review, it is highly possible that in the current year the Federal Funds Rate will be raised by the Federal Reserve at least two more times.   

Besides, the reduction of the Federal Reserve’s balance sheet expected to be carried out by the end of this year will provide additional support for dollar. 

The Federal Reserve’s balance sheet has accumulated assets of about $4.5 trillion, because of three steps’ policy of quantitative easing conducted by the Federal Reserve to handle the consequences of financial slowdown that is demonstrated in the chart below

As rapid reduction in the Federal Reserve’s balance sheet may cause turmoil in financial markets including reducing liquidity there, it is most probably that the balance sheet reduction will be carried out gradually.    

When it is time to redeem its portfolio securities, the Federal Reserve usually reinvests maturing securities purchasing new mortgage-backed securities and treasuries. Analysts and investors expect the Federal Reserve to cut reinvestments for gradually reducing securities on its balance sheet.

About one-third of the securities on the Federal Reserve’s balance sheet are in Treasuries having maturities of no more than 5 years. According to Morgan Stanley, if the Federal Reserve does not reinvest, the Treasuries portfolio will decrease by $600 billion during the first two years. It means that this amount of money will be withdrawn from market, thus leading to both, the strengthening dollar and increasing yield of Treasuries along with the funds trickling from the U.S. stock market into them.

Besides, both, a gradually rising Federal Funds Rate and its slowly reducing balance sheet may enhance flow of funds from developing economies including Russia in the mid- and long-term future. The ruble has strengthened in a way since publication of the previous review, and has settled lower than 56.5 rubles per $1 for a few times. However, noteworthy is that the oil price has surged by more than 10% since March 28, while the Russian national currency has hardly responded to it and continued being traded within the limits of the above-mentioned 56.5 rubles per $1 level.

One of the reasons for the weakening ruble is a conflict escalation in Syria. However, in mid-term future, the ruble may be even more influenced by slumping demand for federal loan bonds and other Russian assets from foreign investors using a carry trade strategy.

Carry trade investors’ particular interest was related to the strengthening ruble of the last five months that allowed them to earn from both, the interest rate differential and currency. 

It is highly possible that foreign capital interest for Russian securities will be diminishing under the conditions of an anticipated increase in the U.S. rates along with a gradual decrease in the Russian key rate, escalating global tension and an exhausted ruble.   

In its turn, the Russian currency will be dramatically influenced by this loss and, according to our forecast, the ruble may go down by 10% and more by the end of the present year, if the oil output cut agreement is not prolonged for one more year.

Over the past period of time strong price movements have been characteristic for the cocoa market, which was mentioned it in the previous review. Cocoa prices having been strengthened starting March 1, 2017, dropped to the previous level in late March. First of all this is related to the pound which has been going strong from the midst of March until today, as a significant part of cocoa beans trade is conducted in pounds. At the same time, we are holding our forecast about the increasing cocoa quotes and we expect cocoa prices to bounce over multi-year lows in the mid-term future.

As we have mentioned earlier in this review, the past period may have been a lull before possible market changes. Donald Trump’s unpredictable policy, a risk of conflict escalation in Syria and North Korea, uncertain outcome of a run-off election in France where Marine Le Pen still has a chance at winning despite the appeal of the defeated first round candidates to vote for Macron, all this can result in a rather turbulent period of increased volatility. A period, which requires of market participants to take quick investment decisions based on deep and accurate analysis, i.e. the competences which have always been the advantages of IFC’s team.