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Forums > Commercial Zone > Third Party Market Analytics > LCG: FINANCIAL MARKET RESEARCH AND ANALYSIS
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03 May 2018 8:53 AM
Analysis of the Dollar Breakout

In mid-April, the US dollar began what has been – at least through the end of the month – a dramatic and relentless move to the upside against virtually all the other major currencies. A one-year chart of the US dollar index (DXY) shows the rally at least sufficient to break above a downtrend line one could draw on the chart, and having moved significantly above the 91.00 level where an earlier rally, in March, faltered.

The US dollar rally began with strong fundamental news on April 17th of a higher than expected rise in U.S. industrial production for the month of March. February had already shown strong industrial production numbers, so the March number of up 0.5% may have been taken by the market as a confirming indication of an overall strengthening U.S. economy.


Good news for the U.S. economy was compounded by bad news for the Eurozone, as expectations for linchpin Germany’s economy fell to their lowest level in six years.

While those were two of the major immediate catalysts for the US dollar rally, what lies more firmly and fundamentally at the back of it is simply a steadily strengthening U.S. economy. March, 2018 sees U.S. unemployment at 4.1%, an attractively low level that hasn’t been seen in the previous decade. Job growth has been accompanied by increasing wages. Real US GDP growth in 2017 approached 3%, and the yield on 10-year Treasury bonds is higher than 3% for the first time in almost five years.

Additionally, US Federal Reserve Chairman, Jerome Powell, has indicated a significant policy shift from the days of chairpersons Bernanke and Yellen. During the Bernanke and Yellen years, even the slightest hiccup in the stock markets was sufficient to cause the Fed Chair to abandon planned rate increases and go scurrying back toward quantitative easing. Not so with Powell, who didn’t so much as bat an eye over a substantial and volatile downside correction of over 10% in the S&P 500 Index earlier this year.

Technical Outlook – Eur/Usd

An examination of the daily chart in Eur/Usd shows price levels significantly below both the 20-period and 50-period moving averages for the first time in 2018. The pair has also dropped below the 20-period moving average on the weekly chart.

With Eur/Usd currently trading around the 1.2050 level - having declined sharply from a trading range of approximately 1.2250 to 1.2400 that had been appearing as a possible support level – the next major support area appears to be down around the 1.1500 to 1.1700 level. Below that, 1.0500 beckons.

To return any hope to bulls, Eur/Usd would first have to get back above the major moving averages (currently around 1.2250). A longer term uptrend would only see confirmation with a daily close above 1.2500, which would then target the 1.3900-1.4000 level not seen since early 2014.


Technical Outlook – Gbp/Usd

Despite continuing anxiety in some quarters over the UK economy post-Brexit, Gbp/Usd had been enjoying a sustained uptrend since late 2017. In fact, of all the major currencies, Gbp has been the strongest against the US dollar - that is, up until the last 11 trading days. Over that time frame, Gbp/Usd has plummeted from a recent high around 1.4250, down to near 1.3750 – a decline of approximately 500 pips in just a bit more than two weeks.

The 50-period and 100-period moving averages on the daily time frame offered vitally no support. The next level for testing support is the previous pullback low of 1.3710. Should the 200-period moving average, which lies around the 1.3600 price level, give way as easily as the 50- and 100-day moving averages did, that could definitely create a “death cross” situation.

If Gbp/Usd manages to weather the bearish storm, the long-term bullish outlook includes eventually moving up to test the critical 1.5000 price level.


Technical Outlook – Usd/Jpy

The dollar rally has extended into Usd/Jpy, which is trading above the 20-day, 50-day, and 100-day moving averages for the first time since early January. Price is currently just below the 200-day moving average, and in the 109.50-110.00 trading range that has previously acted as a significant support/resistance level. A breakthrough above 110.00 could turn that price level into strong support and open the door for a rally into the 112.00 to 115.00 area.

Conclusion

The US dollar is also rallying strongly against other major currencies, including the Australian and Singapore dollars. While nothing is certain in today’s rapidly changing, global economy, it’s possible that, supported by a strengthening U.S. economic outlook, 2018 may mark the beginning of a significant, long-term uptrend in the relative value of the US dollar.

03 May 2018 8:57 AM
Dollar higher, stocks weaker following Fed

The Dow closed at session lows after the Fed hinted that higher inflation was coming. US inflation fears have spread globally and Europe looks set for a lower open on Thursday. The Federal Reserve kept rates on hold, as expected, and said that it expects inflation to run near to the 2% target over the medium term. The fact that the Fed were not so bold about a June rate hike initially disappointed the market, pulling the dollar lower. However, it quickly recovered pushing the dollar back up almost to pre FOMC levels whilst higher yields weighed on US equities.

 

The dollar had been trading up at a 2018 high in anticipation of a more aggressive pace of hiking from the Fed, and after the initial sell off, the bulls are pushing the greenback higher once more. Meanwhile stocks were out of favour as investors fear higher interest rates will increase corporate borrowing costs.


GBP/USD sub $1.36

The pound initially rebounded following the Fed statement although failed to retake session highs. However, as the dollar strengthened GBP/USD sunk once again . Investors will now look ahead to the UK service sector pmi which is expected to have picked up in April after falling close to stagnation in March. The service sector pmi is expected to print at 53.5 up from 51.7 in March. A stronger service sector reading could help lift the pound but it certainly won’t convince anyone that the Bank of England is about to hike rates anytime soon. This would be a case if too little too late. After a month of weaker than forecast data, any tightening of monetary policy by the BoE has been pushed firmly back into the Autumn in the eyes of the markets.


EUR/USD to $1.18 on EZ inflation?

EUR/USD could see $1.18 come into target if eurozone inflation fails to impress. In the previous session we saw that eurozone economic growth slowed as expected to 2.5%, confirming fears of a slowdown in the bloc. Inflation is also expected to have slowed to just 0.9%, further away from the ECB target of 2%. Slowing economic growth, combined with weakening inflation in the eurozone is a recipe for a more dovish central bank. This increases the divergence between the US central bank and the ECB which will weigh heavily on the EUR/USD.


Strong earning season overshadowed 

Apple gained an impressive 4.4% after market reacted to better than forecast earnings. Higher iPhone sales reassured investors, putting fears over flagging smartphone demand to bed, at least for the time being. Other earnings on Wednesday also surprised to the upside, with Estée Lauder and CVS Health also impressing. However, the good news from strong earnings is failing to lift the market implying that much of it is already priced in. Concerns over higher interest rates and trade wars are overshadowing a strong earnings season.

 

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.

08 May 2018 3:28 AM
Europe points higher ahead of NFP

Wall Street recovers from heavy early losses: Europe points higher

A moderating of growth in the US service sector, concerns of no easy win in the Chinese US trade talks and a few disappointing corporate updates was enough to send Wall Street lower on Thursday. However, the US indices picked up later in the session, closing well off the day’s lows, with the Dow actually managing to rally 400 points off the low to eke out a positive close.

 

Attention will be on Eurozone retail sales early on. Retail sales are expected to have increased slightly from 1.8% in March to 1.9% in April. Given the weak inflation data in the previous session investors will be particularly keen to see whether retail sales manage to hold up, at least offering some support to the sluggish inflation.

Dollar to push higher post NFP?

There is little doubt over what today’s main risk event is. Whilst the Fed informed the market on Wednesday that it will continue to hike rates gradually, there is nothing like NFP numbers to stir up the market.

 

Non-farm payrolls so far this year have caught investors off guard on more than one occasion; be that a blowout headline figure and weak earnings numbers, or vice versa. Today the April Labour Department report is expected to show a rebound in the number of jobs created, from a disappointing 103,000 in March to a much more acceptable 193,000 in April, in line with the average over the past 12 months. Data points this week such as a better than forecast number of private sector jobs added, plus weekly filings for unemployment benefits close to the lowest level in half a century, suggest that March’s soft figure could quite easily just be a blip in the road.

 

A stronger than forecast headline number could boost trader’s expectations that the Fed will step forward with their plans to hike rates gradually, potentially lifting the dollar to fresh four-month highs. Meanwhile unemployment could tick down to 4% after six straight months at 4.1% . Given that the Fed considered 4.5% to be full employment, anything below this should technically encourage higher wages and a raising of the interest rates. Finally, average earnings are expected to remain constant at 2.7% y/y. Keep in mind we don’t want any big shocks here, just think back to the beginning of the year when wages jumped higher, US treasury yields soared causing a sell off in equities in to correction territory. Any earnings jumps need to be gradual to prevent a shock to the market

Dollar index to 93.00?

Moving into the NFP report, the dollar was seen just easing back slightly from Wednesday’s high of $92.82. Whilst on the whole, data for the US has been very promising, the slightly softer than forecast non-ISM figures on Thursday, against a backdrop of trade tensions made sure any dollar gains were capped. A solid NFP could see the dollar target 93.00 versus a basket of currencies.


The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.



08 May 2018 3:30 AM
WTI crude retakes $70. Air France KLM crash landing

With London markets closed for a bank holiday, European shares rose in below-average volumes. A rally in the US dollar entering its fourth week has come to the aid of the shares of European exporters that benefit from a weaker euro. Equity investors are brushing aside concern over the longevity of the Iran nuclear deal, instead focusing on the benefit of higher oil prices for energy firms.

 

WTI crude oil rose back above $70 per barrel for the first time since November 2014 in reaction to the possibility of lower oil exports from Iran. We think a majority of the oil price gain during the last month hinges on the Iran deal. All the latest reports seem to indicate Donald Trump, supported by Israel, wants to can the current arrangement with Iran. We tend to think the deal is dead in its current form- but a renegotiation of sorts is still possible. Any talk of an Iran nuclear deal 2.0 could put a top in the oil price.

 

Another round of soft Eurozone data, this time a surprise decline in German factory orders for March, saw the euro drop against most major currencies CFTC data has shown positioning is still very bullish euro despite the recent declines. If shorts still have not been squeezed, this dollar rally might have only just gotten started.


France’s CAC-40 underperformed as shares of Air-France-KLM dropped 10% upon the news of the resignation of the airline’s CEO. Unions rejecting his pay deal means Jean-Marc Janaillac has failed to get the job done on soothing labour relations. And as he promised he has stepped aside to give somebody else a shot. We are not hopeful his successor will have much more luck. The choice is binary for the airline’s next boss; pay higher wages or face more revenue-destroying strikes and flight cancellations.

 

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.

08 May 2018 3:32 AM
Dollar Eases Slightly Ahead of Busy Week

Wall Street ended Friday over 300 points higher as investors shrugged off a poor US jobs report, focusing instead on a rally in Apple, lifting it to fresh all-time highs. Yet Wall Street’s strong session on Friday was unable to prevent the Dow and the S&P posting a second straight week of losses. The Nasdaq bucked the trend ending 1.7% up on the day and 1.4% up on the week, supported by Apple which rallied 13.9% across the week, hitting an all-time high of $183.89.

The US jobs report failed to hit expectations on the headline figure or on wages. It was the unemployment rate falling below 4% that grabbed all the attention. Overall this wasn’t a hugely exciting jobs report, yes it missed forecast but not by enough to change the course of direction of the Fed; a rate hike in June is still widely expected.


Dollar rallies for three straight weeks

Dollar strength has been a big story over the past few weeks, with the dollar hitting its highest level since December on Friday at $92.60. Not even the lacklustre non-farm payroll report was enough to dampen the rally in the dollar, which extended for a third straight week.

Dollar strength and pound weakness ensured that GBP/USD was one of the worst performing currencies last week. The pair hit a 4-month low, sub $1.35 as pound traders reassessed the likelihood of the BoE hiking rates when they meet this week following a flurry of weak data. Whilst the Fed raised interest rates in April and looks set to do so again in June, the BoE meet this week and the outcome is not expected to be as pound-beneficial as was being priced in just one month ago. BoE England Governor Mark Carney took the opportunity in an interview to lower expectations of an imminent rate hike, which combined with a strong dollar, pulled GBP/USD dramatically lower.


BoE in focus ahead of Super Thursday

The pound set off on the front foot versus the dollar at the beginning of the new week, taking the pair north of $1.35. Yet the move could be short lived if Mark Carney continues to sound as dovish as he has recently. A more cautious BoE would increase the divergence in policy between the BoE and the Fed, weighing on sentiment for  GBP/USD.

 

Emerging markets in for more pain?

Emerging market traders are bracing themselves for further turbulence ahead as a stronger dollar has prompted a wave of selling of emerging market currencies, stocks and bonds, in a move which could still have more to come. Argentina, amid high inflation and a crippling deficit, responded to the hit on the peso by hiking rates three-time from 27.5% to 40% within the week. If the stronger dollar turns out to be a more permanent fixture on the boards then we could expect to see a more sustained, longer lasting sell off in emerging markets.

 

Europe points higher, FTSE closed

Friday’s positivity on Wall Street spread into Europe over the weekend and is looking to lift European bourse on the open. Whilst the FTSE will remain closed for the public holiday, markets across the rest of Europe and the US are due to open.


The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.

08 May 2018 3:34 AM
Oil Off 4 Year High Ahead Of Iranian Pact Decision

Whilst Wall Street closed higher on the day, the real action was in the oil markets. Oil extended gains from the European session into the start of the US session, easing back only after Trump announced a decision will be given tomorrow at 2pm EST over the Iranian nuclear pact.  

 

Oil has rallied hard on Venezuelan supply concerns and rising tensions between Iran and US. Repeated criticism from Tump over the US Iranian nuclear disarmament deal, has traders fearing that a withdrawal from Trump could see US sanctions being re-imposed on Iran. These sanctions would almost certainly include reductions to the country’s oil exports, jolting the oil market and lifting the price of oil in recent sessions.


Prior to Trump’s informative tweet, both oil and energy stocks were rallying hard with crude at a 4-year high and the Dow up some 200 points. However, the tweet stopped any rally firmly in its tracks, with oil easing back to $70 per barrel and energy stocks, which had been up by as much as 2.3% at one point, ending the session just 0.1% higher. The Dow and the S&P closed 0.4% higher, whilst the Nasdaq rallied 0.8%, as shares in Apple continued to cheer yesterday’s Buffet news, but overall optimism was waning with some scepticism setting in.

 

The tweet by Trump was rather unexpected, given that the US – Iran nuclear pact deadline runs until Saturday 12th May. Usually an earlier than expected announcement from negotiations could be considered a positive sign, but the markets are not so sure this time round, which may be wise given Trump’s unpredictability. That said, the sell off in oil could just be a sign of a spoked market that was caught off guard, longer than it intends to be with such a big risk event suddenly upon it.


Europe traces Asia & US higher

Traders in Asia have managed to trace US markets higher and Europe is also looking to a mixed start start out of the blocks. With just UK house price data due, we could see a relatively quiet start to the morning ahead of Trump’s speech.

 

Dollar steady ahead of Fed Chair Powell

Trading in the forex markets was rather lacklustre in the previous session. With UK traders away on a public holiday and a relatively sparse economic calendar, movements in the G10 space were limited. The dollar remains elevated over 92.50 versus a basket of currencies but market participants are holding steady ahead of Fed Chair Jerome Powell speaking this morning in Zurich.

 

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits

09 May 2018 8:45 AM
Five Stars and two elections. TSB fiasco could help Clydesdale

European markets never quite got off the ground on Tuesday. Traders were transfixed on finding out the fate of the Iran nuclear deal. US President Trump’s decision at 2pm local time means Europe will only react on Wednesday. A one-percent drop in the price of a barrel of oil meant the energy sector dragged major stock averages south.

 

The notable exception was Italy’s FTSE MIB, where political jitters triggered a spike in volatility. The Five Star movement rejecting the idea of a non-partisan prime minister means a second election could be here before the summer. Five Stars and two elections! We think a second election could see a swathe of the Italian electorate that either voted mainstream or sat on the sidelines switch to the populists.

 

The FTSE 100 was pushing up against the widely watched 7600 level on Tuesday. The level twice sent the index significantly lower in 2017.


Bid activity was keeping things interesting for UK mid-caps. Shares of Virgin Money jumped 8% after rival CYBG (owner of Clydesdale and Yorkshire Bank) made an all-cash takeover offer. Shareholders will probably hold out for a cash and shares offer. The fiasco at TSB could make Virgin Money more amenable to a deal. The idea for this transaction likely pre-dates the IT issues at TSB but the crises has put the spotlight on challenger banks. The challengers have seen impressive revenue growth but have made relatively small inroads into taking market share from the Big Six. Meanwhile, shares of First Group sunk 10% after buyout group Apollo ruled out another offer.

 

It looks like King dollar is back. The US dollar continued its broad rally, gaining against major and emerging currencies and sending precious metal prices lower. The Federal Reserve chair Jerome Powell used his speech on Wednesday to voice his plans to stay the course on monetary policy. Powell said that even though the Fed has raised the benchmark rate 6 times since December 2015, US financial conditions have grown looser. Powell’s message is that stocks and bonds have not dropped enough yet for financial conditions to tighten and prevent the Fed from hiking rates further.

 

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.

09 May 2018 8:47 AM
NVidia earnings could see shares recover self-driving car concerns

NVidia Corp. is a semi-conductor and graphical computing company based in Santa Clara, California. The company operates through two segments, producing processors for gaming along with big data as well as, a second segment that produces automotive computers, and SHIELD set-top boxes.

Forging New Ground in Gaming

The company has made some significant strides in 2018 in the gaming space. According to reports NVDA announced at the 2018 Game Developers Conference its new the NVida RTX a ray-tracing technology that attempt to bring cinematic quality renderings to game developers. According to reports, gaming designers demonstrated how raytracing can provide life-like capabilities in future games.


Shares sideways since Uber accident

Ahead of earnings the company shares have been moving sideways as short-sellers attempt to push the stock lower.  Nvidia's shares peaked in mid-March and experienced sharp selloff after the company announced that it was halting its self-driving automobile road test out of respect for the victim of an Uber self-driving vehicle that occurred on March 18, 2018.




In early February, market volatility kicked in generating choppy price action for NVDA shares. Despite these conditions, NVDA has outperformed the broader SOX semi-conductor index by 13% during 2018. This can be seen in the chart above which reflects the ratio of NVDA shares over the SOX semi-conductor index. The ratio reflects the relative performance of one asset divided by another.

Cash is King

The company continues to experience significant cash flow from operations. In the fiscal FY of 2018 the company saw $3.50 billion cash flow which was twice the cash flow that NVDA experienced during FY 2017. Cash flow from operations was $1.67 billion in FY17, compared to $1.18 billion in FY16 and $905 million in FY15.

Company Guidance

During its Q4 fiscal earnings report the company provided guidance on revenues of 2.9 billion give or take 2%.  Gross margins are forecast to come in at 62.7%.  The company is expected to receive a substantial benefit from the new tax law expecting their GAAP and non-GAAP tax rate to drop to 12% from 17%. 

Earnings Estimates

Over the past 3-months, the average Q1 forecast has increased by 49%, and over the past 60-days the average forecast has increased 1%. Over the past 90-days, the FY19 consensus estimates have increased by 33% rising to $1.45 per share. The range of 22-analyst estimate is from $1.66 to $0.98 per share. This compares to $0.79 per share for the same quarter last year. The average revenue estimate for the quarter is $2.89 billion, with a range from $2.47 billion to $3.03 billion. This reflects the views of 27-analysts. Revenue a year ago was $1.94 billion, which would put sales growth at 49.30% if NVDA actual revenue meets the median estimate. Growth estimates for the current quarter are 83.5% and for the following quarter are 60.9%.

The robust improvement in estimates ahead of the release means NVDA will likely need to beat on both the top line and bottom line as well as provide positive guidance to have the best chance at pushing the share price to new all-time highs.

 

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.

09 May 2018 8:49 AM
Markets Shrug Off US Withdrawal From Iran Deal; Oil Back Over $70

US President Trump’s withdrawal from the Iran nuclear treaty had little impact on US equities overnight but did manage to jolt the oil markets and encourage a brief flight into safe haven currencies. Despite a big build up to the announcement the markets have pretty much shrugged off the news, with Europe pointing to a rather lacklustre start.

 

The US pulling out of the agreement, will now almost certainly see Trump reimpose sanctions aimed at Iran’s oil industry, despite pleas from allies in Europe to preserve the deal. Oil markets experienced a roller coaster session in the lead up to the announcement amid rumours and second guessing as to what Trump’s decision would be. After falling 3% on false reports that Trump was looking to remain in the deal, crude rallied hard across the rest of the session, paring earlier losses and charging over into positive territory, above $70 per barrel once again. With Venezuela still firmly in crisis and now Iran potentially facing sanctions, we could easily find that plus $70 per barrel becomes the new norm in a market which has already been tightened by OPEC,


Flow Into Safe Havens Short Lived

Oil stole the show overnight but there was also a brief pick up of flows into safe have assets. Concerns over how Iran will respond to Trump’ provocation and the impact that the move will have on stability in the Middle East was sufficient to see investors jump into the yen, pulling USD/JPY down before dollar bulls and higher US 10-year yields drove the pair sharply northwards in the Asian session, targeting 110.00.


Hard hand towards North Korea?

The move by Trump is a fresh blow to allies in Europe who had been trying to convince the US President to stay in the Iran deal and comes hot on the heels of the steel tariff issues with the EU. Trump is certainly leaving his mark as his US protectionist policies leave him driving a hard bargain. Most likely the same hard approach that we will see him take with North Korea when he meets Kim Jong-un.


Dollar Rally Continues

Amid all the drama the dollar remained well supported, dipping to 93.00 on optimism of Trump remaining in the deal, before charging to 93.2 overnight and looking to retest the earlier 4 ½ month high of 93.28. The stronger dollar and a sparse economic calendar have ensured that the pound and the euro continue to trade around multi month lows, although the pound bears have been unable to break $1.35 suggesting that the recent bear run could be losing steam.

 

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to

10 May 2018 3:38 AM
Will the GBPUSD crash end after the UK rate decision?

A hawkish hold from the BoE?

The Bank of England will give its rate decision at the conclusion of the two-day Monetary Policy Meeting on Thursday at 12:00. Just one month ago investors were pricing in an almost 90% probability of the BoE hiking rates in May, yet after a month of weak data and a dovish sounding BoE Governor rates are widely expected to be kept on hold.

 

Data turned particularly sour across the month of April.  Inflation ticked lower to 2.5% as it continues to move towards the central bank’s target 2%. Whilst on one hand falling inflation means the BoE will be more cautious about hiking, on the other it theoretically means that the squeeze on the consumer is easing. Wage growth remained constant at 2.8%, less than expected but still ahead of inflation, pointing to a theoretically less pressurised consumer. However, the reality has been slowing retails sales, a deteriorating high street and a quarter with the weakest economic growth since 2012 suggesting that the economy is far from in recovery mode.

As a result, odds for a rate hike at this months meeting have tumbled and are now sitting at less than 10%. Therefore, it is not what the BoE does on Thursday, but what they will say that will dominate headlines and determine the fate of the pound.

 

The pound has been displaying a very all or nothing attitude towards BoE monetary policy suggesting that investors are looking for much more clarity from the central bank. Sterling reached $1.43 last month on optimism of a May hike; Currently the pound appears to be pricing in a dovish inflation report and a weak GDP outlook with little prospect for further hikes this year; as a result, the pound was languishing at $1.35 ahead of Super Thursday, after wiping out all of its gains versus the dollar this year.


Pound to $1.36?

The pounds reaction will depend on whether the BoE delivers a hawkish hold or whether it suggests that the recent souring economic data is the beginning of a longer term down trend. Whilst the GDP data was hugely disappointing growing just 0.1% quarter on quarter, a good deal of the data and modelled data are linked to unseasonable cold weather supporting the idea that the weak prints were likely to be one off’s rather than a more serious structural change in the economy. If so, there is a good chance that the pound has overcooked the sell off. Investors will be looking for signs from of the BoE playing down any recent weakness in the economy.

 

Markets will be watching the inflation report for clues. Whilst labour data has remained strong with solid earnings growth, rising oil prices will be offset with a stronger pound. Therefore, we expect the inflation forecast to remain roughly constant.

Investors are pricing in a 60% probability of an August hike. If the central banks suggests that the tightening cycle is still on track then we could see GBP/USD look to take back $1.36.

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to

10 May 2018 3:40 AM
Pound steady ahead of BoE’s Super Thursday

Energy Rally Lifts Wall Street

A fifth straight positive close for the Dow suggests that traders are not expecting a huge fallout from Trump quitting the Iran nuclear pact. Risk on was firmly in play as Wall Street booked further gains overnight, boosted by a jump in energy stocks tracing the price of oil higher, financials and technology stocks.

 

Oil continued to rally for a second straight session following Trump’s announcement on Tuesday and his promise of powerful new sanctions on Iran, expected to target the country’s oil industry, tightening global supply. News that US crude stock piles also fell by more than expected gave traders another reason to buy into oil, sending crude to an overnight high of $71.50 per barrel and Brent to $77.50 per barrel (at the time of writing).

 

Heavyweight oil stocks lifted the FTSE in the previous session, pushing it to a three-month high. With oil on the rise once again overnight, oil majors such as BP and Shell could be in for another bumper day today. The pound could potentially cap the FTSE’s rally, should the Bank of England point towards a hawkish hold.


Hawkish hold from BoE to send GBP/USD to $1.36?

The pound has traded flat versus the dollar in the previous session and overnight as investors await the BoE’s super Thursday. No change in policy is expected, meaning that what the BoE says rather than does will drive trading in the pound. As long as the central bank keeps a rate hike on the table, potentially for August, then the pound could stage a recovery back towards $1.36.

 

US Inflation to stoke expectations of 4 rate rises?

The dollar paused for breath, trading close to 93.1 versus a basket of currencies for much of the previous session. The dollar pulled back from a fresh 5 month high of 93.4 in response to a subdued PPI report, causing investors to scale back their expectations for today’s CPI release. Whilst the CPI report is not the Fed’s preferred measure of inflation it will still be closely watched.

 

CPI is expected to reach its highest level since February 2017 at 2.5% in April, up from 2.4% the month previous. Core inflation, which excludes more volatile items such as food and fuel is expected to tick up to 2.2% from 2.1% in March. A surprise to the upside could stoke expectations for four rate hikes across the year, which would push the dollar higher along on its impressive rally. However, with the lower than forecast PPI, CPI could struggle to hit forecasts, weighed down by falling input prices. This scenario could leave the dollar vulnerable to profit taking ahead of the weekend.

 

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice.

11 May 2018 4:13 AM
Europe higher before Draghi State of the Union. Apple All Time High

Dow Reaches 6 Day Winning Streak, Apple Hits All Time High

US stocks rallied across the session and into the close with lower interest rate expectations and a fresh all time high from Apple lifting the Dow to rack up its 6th straight win, its longest winning streak since February.

Apple rockets

Apple has had a phenomenal week and a half, in which it has gained over 17%, putting it on track for a record breaking winning streak. The rally, which started just prior to Apple reporting quarterly earnings and a $100 billion share buyback has also been propped up by comments from Warren Buffet as his firm Berkshire Hathaway brought up another 75 million shares in Apple. Should Apple continue in the current form, we could soon be looking at the first listed firm to achieve a $1 trillion market cap.

US Inflation falls short

US inflation at wholesale level missed forecasts earlier in the week; inflation at consumer level also fell short of forecasts in the previous session, which was sufficient for investors to ease back on their inflation and future interest rate expectations. At the prospect of a slightly less aggressive Fed, treasury yields eased pulling the dollar away from its 2018 high and US stocks rallied. The Dow’s gains of 0.8% brought it to 24,739 whilst the S&P closed 0.9% higher and the Nasdaq gained 0.8%.

Sentiment in the US has improved considerably over a short space of time. The markets are now moving ahead in a more seamless fashion, as previous geopolitical concerns fade; the US Steel and Aluminium tariff issues and China trade concerns already seem a long way in the distance and the markets have so far shrugged off President Trump’s withdrawal from the Iran nuclear deal. However, this quick change in sentiment begs the question whether the stability can last. So far, the back drop doesn’t look to be one that will harvest the next bull run.

Pound Claws Back BoE Losses

The strong session on Wall Street is expected to wash over into Europe with futures pointing to a higher start. After the packed UK economic calendar on Thursday, Friday is in danger of looking a little dull. There is no influential UK data for pound traders to digest, which given the recent spout of dire data, could be a good thing. GBP/USD has clawed its way back after a sharp BoE inspired sell off and it currently targeting $1.3550.

Draghi at EU State of the Union address

The most inspiring event in the European session could be an appearance by ECB Chief Mario Draghi, when he speaks at the EU State of the Union address in Florence. Draghi is expected to talk up the eurozone economy, despite economic data starting to prelude to a slowdown in momentum. Yet even if the message is talking up the economy we expect him to do so in a cautious tone. His overriding message will most likely support the idea that stimulus in the bloc is set to continue for a while.

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. 


14 May 2018 3:29 AM
Euro Higher Despite Populist Party Coalition In Italy

As forex markets open on Sunday, there has so far been no reaction to significant progress in talks between Italy’s 2 anti-establishment party leaders. The leader of the Eurosceptic party- 5 Star Movement, Luigi Di Maio and far right leader of the League, Matteo Salvini, are attempting to create a functioning coalition government to fill the political vacuum which Italy has experienced since the Italian election in March. The popularist parties are expected to announce their decision on Monday. Should their negotiations, be going well, as reports suggest, and they agree upon a Prime Minister who is accepted by the Italian President, they will be the first anti-establishment government in Italy and in Western Europe.

 

There is the clear positive to an end of over 2 months of political gridlock; however, there is a glaring negative in that such a coalition could impact on Italy’s relationship with the European Union, potentially throwing Italy’s slowly recovering economy into disarray. Anticipated measures include renegotiations of EU accords with a tougher stance, although a full-blown withdrawal from the European Union does not appear to be on the cards, which goes some way to explaining the inexistent response from the euro. Meanwhile, a weaker dollar is also keeping the euro buoyant.


Dollar in correction mode

Despite hitting a four and a half month high during the previous week, the dollar was looking tired by the end and actually finished the week flat versus most of its peers. A slightly soft CPI reading and Fed Chair Jerome Powell sticking to the script sent the dollar into correction mode, which it is seen extending into the new week. External factors could reignite the dollar rally in the coming days, especially as CPI and GDP data from both Japan and the eurozone are expected to produce weak readings.

 

FTSE’s to open lower on stronger pound

The BoE didn’t raise rates on Thursday, sending the pound lower. The weaker pound lifted the FTSE which hit 7728, its highest level since January. The currency correlation between the FTSE and the pound has been notably strong over the last week. Given the pound is already up 0.2% in early trade, the FTSE is expected to struggle on the open, lagging behind its European peers.

 

More upside for oil?

After the solid rally in WTI and Brent last week, traders will be looking out across this week wondering whether there is still further upside to go? Whilst the Iran issue and Middle Eastern tensions have certainly prompted the most recent move higher, attention is expected to swing back to simple fundamentals of supply and demand. OPEC tightening, fresh sanctions on Iran and ongoing issues in Venezuela are meaning that supply has been reduced, whilst the strengthening global economy means that demand is now much stronger.


The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. 

15 May 2018 7:15 AM
UK Jobs Data Could Revive Rate Rise Hopes

Wall Street charged higher in early trade on improving prospects of a China - US trade deal. Yet with no follow through news to keep optimism elevated, the US indices eased back to close off sessions highs. The S&P ended the session just 0.08% higher, the Nasdaq 0.1% higher, whilst the Dow booked its 8th straight winning session following Trump’s offer of an olive branch to China and a lifeline to China’s ZTE Corp.

 

Whilst US stocks managed to keep their head above water thanks to an apparent easing in US – Chinese trade tensions, Asian stocks were experiencing a mixed session, whilst Europe looks set to open lower. After a quiet start to the week on the economic calendar on Monday, releases ramp up a gear on Tuesday. Today sees the release of high impacting data from the UK by way of the labour report, the eurozone GDP report and retail sales from the US and that’s not mentioning the German GDP and ZEW confidence survey.


GBP/USD back to $1.37 on UK jobs report?

Heading into the UK jobs report the pound is languishing around $1.3560, just close to 90 points off its recent 4 month low and some 900 points lower than where it had been little over one month earlier. The pound has been hammered over the last month after a streak of weak economic data and a dovish BoE quarterly inflation report, resulting in the central bank opting to sit on the side-lines and wait for more data to see whether the UK’s recent soft patch was temporary or a more concerning structural problem.

 

The UK jobs report come against a back drop of weak data and a dovish BoE. Whilst the report is expected to show unemployment remained at multi decade lows of 4.2%, the main focus will be on wages growth with mixed results expected. Wages excluding bonuses, the key number for the BoE, is forecast to show a tick higher to 2.9% in the three months to March, up from 2.8% in February. Given that inflation in March was 2.5%, wages growth of 2.9% or higher would be an encouraging sign that domestic inflation will slowly start to pick up, potentially reviving the possibility of a BoE rate rise later in the year and pushing sterling back towards $1.37.

US Retail sales to tick lower

US retails sales will grab the spotlight in the afternoon. After a slightly weak CPI read last week, investors will be hoping that retail sales have performed better. Expectations are for an increase of 0.3%, down from 0.6% in March. Whilst weaker inflation dampened hopes of four rate rises across the year, investors will be keen to see that US citizens were out spending their tax cuts in the shops, although judging by forecast this could be a little optimistic. A weaker print could see dollar weakness extend as it pauses for breath after its recent, hard rally.

 

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.

16 May 2018 5:56 AM
Rising interest rate expectations weigh on Wall Street & boost the buck

The Dow snapped an 8-day winning streak after interest rate expectations surged. An inline retail sales reading was sufficient to trigger a sharp move higher in 10-year treasury yields, dampening demand for US equities whilst lifting the dollar to a 5 month high versus a basket of currencies.

 

Whilst the Dow closed over 190 points lower, the S&P shed 0.6% and the Nasdaq headed 0.8% lower as concerns over higher future corporate borrowing rates painted equities in an unattractive light. Traders are not looking at the bigger picture right now, the fundamentals say that the economy is strong which is why the Fed could be considering a more aggressive path to hiking; the irony is this is triggering a selling mentality in traders as the era of cheap money appears to be well and truly over.

Whilst Wall Street moved lower on rising interest rate expectations, the mood was solemn in Asia after North Korea suspended talks with South Koreas and as Japanese economic growth suffered its first contraction since 2011, according to a preliminary reading. Japan’s economy experienced an annualised contraction of -0.6% in the first quarter, well short of expectations of a -0.1% contraction.


Burberry reports

Europe is pointing to a marginally higher start with embattled retailers expected to be in focus as Burberry reports. No fireworks are anticipated in Chief executive Marco Gobbetti first full year results, with almost flat annual revenue but a steady growth in comparable sales forecast.  The results comes amid a big change of names at the top and following news of the richest man in Belgium selling his 6.6% stake.

 

Gold Below $1300

Bond yields hitting the highest level in 7 years and the strengthening US dollar sparked a major sell off in gold, which finished the previous session 1.8% lower. Gold hit a low of $1288.3 and continues to languish at these levels. The next moves for gold are closely tied to where treasury yields, and the dollar go from here. Belief that the Fed will continue to tighten with more that three hikes this year has been a significant factor in Gold’s recent decline. Strong US data will further fan the flames of optimism for 4 hikes, which could see gold fall steeply lower.


A tale of two central banks

The euro has been a noticeable victim of recent dollar strength, as the common currency hit a 5-month low versus the dollar in the previous session. As expectations of a more hawkish Fed grow, the ECB is looking particularly dovish in contrast. Inflation data and a speech ECB President Draghi this morning could serve to highlight the glaring and growing differences in monetary policy between the two central banks. Should Draghi mention the poor data coming from the eurozone since the beginning of the year, he could exasperate selling pressure on the euro pushing it below $1.182, before it targets $1.17.

 

The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.

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