Author: Stavros Lambouris, CEO, HYCM International
As CEO of the well-established, global brand HYCM International, Stavros Lambouris leads a firm with offices in the world’s leading financial centres, providing forex and CFD trading via a group of individual entities in different jurisdictions. Boasting access to over 45 years’ cumulative operational experience, the group is known as one of the most reputable and trusted experts in the industry, with its UK entity being regulated by the FCA since 1998. Lambouris spoke to World Finance about the state of the US economy, the impact of the recent banking crisis and the prospects for the cryptocurrency market in the wake of the collapse of FTX.
What has been the dominant theme in the markets this year and how is HYCM positioned to serve traders as these themes change?
In the first quarter of 2023 we saw a reversal of last year’s equity story, which was big tech down and energy stocks up. This year, tech is the best performing sector to date with almost 90 percent of the gains in US equities coming from the top 10 stocks. Meanwhile, the energy sector is trading roughly where it was back at the beginning of the year.
This is all taking place against a backdrop of uncertainty regarding whether the US is sliding into a recession. We are also much closer to the end of the Fed’s tightening cycle, which is why the question of hard-landing, soft-landing or no-landing has been so prevalent in recent months.
Inflation is still high; the Federal Reserve is indicating that it plans to stay the course, but market expectations have become disconnected from this reality. Markets not only appear to expect a pause but a pivot to looser monetary policy before the year is out. This uncertainty can be seen in the outperformance of technology stocks but also in the price action of assets like gold, oil and bitcoin.
HYCM aims to be a single trusted venue for investors to gain exposure to all the markets they require. The recent launch of our mobile app, HYCM Trader, is a step in this direction as now our products and services are accessible through a modern, easy-to-use mobile interface.
What do you make of the recent banking crisis, and how has it figured in the market trends you describe?
Recent banking turmoil has heightened fears that monetary policy has become too tight. While these fears have eased recently, there is still concern that the Fed will overtighten, causing something else to break, and then have to quickly reverse policy as it has done in the past.
Tech stocks seem to be anticipating lower rates ahead. Oil appears to be pricing in a reduction in economic activity with OPEC’s recent output cut, perhaps in an attempt to keep prices from sliding lower. Bitcoin surged as regional US banks were failing, which is unsurprising considering it was created as a hedge against the existing banking system. Also, appetites for gold at this time are being driven by this uncertainty, having recently attracted capital both as inflation hedge and safe-haven play. HYCM’s investors appear to have anticipated this dynamic, with gold having been one of our most traded symbols in 2022.
Generally, if 2022 was about markets adapting to the reality of higher rates, then 2023’s narrative has yet to properly emerge because there’s still so much uncertainty regarding the path ahead.
However, I will say that technology is a big theme running through the recent banking turmoil.
Fintech developments over the past decade or so have put us in a completely different world. The speed at which capital can move nowadays is just a few taps on a screen. This appears to have come as a surprise to the US banking system when it came under stress recently. Also, recall that bitcoin hardly existed during the 2008 financial crisis, and today it’s a $500bn alternative.
At HYCM, we are very conscious of being a big part of this movement towards the democratisation of financial access, and the frictionless movement of capital. But we’re also very aware of the risks involved, so it is very important to choose a trusted and regulated provider.
What are your thoughts regarding the possibility of a US recession, and how does this affect HYCM’s plans going forward?
A fight against inflation is also a fight against economic activity. Federal Reserve chair Jerome Powell has probably been the most clear about this fact among his central banking peers. The goal may not explicitly be to cause a recession, but it’s certainly one of the possible outcomes of the fight against inflation. And while inflation remains elevated, the data do suggest some signs that the US economy is deteriorating.
We have recently seen the third biggest miss on record for job openings, according to the US Bureau of Labour Statistics. Unemployment claims have surprised to the upside, and both services and manufacturing PMIs are in contraction, having surprised to the downside. This is all occurring as lending standards tighten, which Powell has acknowledged as effectively a form of tightening in its own right. You also have OPEC’s recent actions, which are inflationary, and likely to make the central bank’s job even harder. It’s important to pay attention to whether the Fed remains resolute regarding inflation as its primary concern, or whether its priorities appear to shift in the coming months.
The upcoming earnings season should also provide more clarity. If there is to be a repricing of equities lower, then disappointing earnings, as well as forward guidance from CEOs to prepare investors for slower growth ahead, could be a catalyst for recession.
At HYCM, we plan to expand our product portfolio and add the possibility of trading stocks with zero commission. This will allow investors to trade within the broader stock market trend by gaining access to individual companies from a diversity of sectors. It also comes at the perfect time: with stocks off their highs, there’s more of an opportunity for our investors to do their research and allocate to the right sectors in advance of the next trend change.
What are your thoughts on the prospects of cryptocurrency markets, and does crypto feature in HYCM’s plans?
Crypto was probably the worst performing asset class of 2022, punished by its correlation to risk assets in a higher rate environment. It also suffered a great deal of negative publicity following the collapse of FTX. Recent activity does suggest that sentiment among crypto investors is warming, but it’s uncertain whether this can be sustained in the current market environment.
Recent rallies have been underwhelming in terms of volumes, suggesting that not much new capital is currently entering the space. Despite bitcoin’s recent performance, it’s difficult to imagine a scenario where US equities make new lows, while cryptocurrency prices remain elevated. This is especially the case given how tightly correlated the two asset classes have been. So it appears that the Fed is in the driving seat here too.
The excesses of the previous bull market, which include several prominent failures including the FTX scandal, have also put the asset class under the spotlight of regulators. The current US administration has generally taken a hostile stance towards the entire market, which will act as a ceiling on its potential growth, at least in the short-to-medium term.
HYCM’s strategy regarding crypto has been to offer exposure to a select group of names that we have vetted. The sheer size of the market in terms of individual symbols makes such an approach necessary. As the cryptocurrency market grows and continues to evolve, we will continue adding standout names to our crypto offering that are sufficiently liquid to suit the preferences of our investors.
We also understand that appetites for crypto derivatives are growing, and that CFD providers like HYCM could be uniquely positioned to provide this access in a secure environment.
Finally, how do you view the prospects of the online trading industry as a whole?
We’re in a new world since the pandemic: a more financially literate general public and more demanding demographics. The goal we have always had, of making investing a lifestyle product that’s available to everyone, is closer to being a reality than ever before.
Our aim now is to continue building HYCM as a trusted single point of access for the world’s markets in a safe and regulated way. We are also focusing on innovation, ensuring that however the global macro picture develops, modern investors can have the right technology and products to position themselves appropriately in the market with a reliable provider that is here to support them. n
Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71 percent of retail investor accounts lose money when trading CFDs with this provider. Cryptocurrencies and zero-commission stocks are not available for trading under HYCM (Europe) Limited and HYCM Capital Markets (UK) Ltd.