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Forums > Commercial Zone > Third Party Market Analytics > LCG: FINANCIAL MARKET RESEARCH AND ANALYSIS
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17 May 2018 3:25 AM
Wall Street Takes Rising Rates In Its Stride

Wall Street managed a positive close overnight in cautious trade as investors mulled over North Korea’s threats to cancel the planned summit with the US and as traders contemplated a more hawkish Fed. In contrast to trading on Tuesday when high yields dampened demand for stocks; last night’s high yields went hand in hand with a positive close, we suspect, finding support from the stronger than forecast industrial production numbers which signalled that the US economy could be strong enough to sustain the expected faster path of tightening.

What Geopolitics?

The markets shrugged off increasing complications over the North Korea - US summit due to be held 12 June. North Korea threatening to pull out of the summit unless the US stops with the denuclearisation rhetoric had almost no impact on the market or President Trump. When compared to the hot-headed exchanges that we saw between the two leaders last summer, the market appears confident tht progress is being made.

 

The euro could face an uphill battle again today, after tumbling to a 5-month low on political concerns in Italy. There was a strong focus on the euro and the Italian MIB as rumours circulated that the 5 Star / League could request a huge debt write off from the EU and could also aim to leave the euro. Panic sent the euro to $1.1760 whilst the FTSE MIB closed over 2.3% lower. With the initial knee jerk reaction over, the euro has since regained $1.18, whilst the FTSE MIB is on track for a positive open.


Soft Brexit?

A report in the Telegraph was responsible for sending the pound higher, after it suggested tht the UK was prepared to tell Brussels that it will stay in the customs union beyond 2021. A potential soft Brexit has lifted the pound 0.4% higher in trading overnight, wiping all of the losses from the previous session. Should the report be confirmed as true then this rally could have a lot further to go, but right now traders are awaiting some form of confirmation.

 

Whilst European bourses are pointing to a mildly stronger start, the FTSE is expected to lag behind its peers owing to the stronger pound. Full year earnings from Mothercare will keep attention on the battered high street, whilst Royal Mail will also be posting its last full year results under outgoing Moya Greene, expect the focus to be on forward guidance for 2019.

 

US Sanctions to pull Total from Iran

Oil was trading higher overnight, recovering from losses early in the previous session. Oil climbed over 1% in the previous session, an impressive feat given that EIA data showed US oil exports climbed and that the EIA warned of waning global demand for oil following the recent its price spike. The rise in oil price comes as French oil producer Total, the largest foreign investor in Iran’s energy sector, will pull out of Iran unless they can guarantee protection from US penalties. This is a blow to the EU’s plans to keep the nuclear agreement running. Cleary there is no easy solution here and although the US have said waivers can be applied for by companies, the bottom line is they want to hit Iran where it hurts so leniency is unlikely to feature strongly.

 

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.

18 May 2018 4:00 AM
Trade War Fears Overshadow Oil at $80

Wall Street failed to catch onto the enthusiasm which had washed across European markets in the previous session. The Dow ended lower overnight, as renewed trade war concerns and good, but not great earnings from Walmart and Cisco overshadowed oil hitting $80 the barrel.  

 

The rally in oil has been relentless over the past two weeks, surging over 10%, before striking $80 per barrel; a 260% rally from its nadir back in 2016. With supply shortages from crisis hit Venezuela only likely to worsen, Iran sanctions just kicking in and US oil supplies drastically lower, this rally has potential to go higher. The only major constraint on the price of oil right now is US oil production. After last week’s Baker Hughes report saw 10 new rigs added taking the total to the highest level since 2015, traders will be watching today’s rig count carefully to assess whether the recent steeper rise in price is translating into a ramping up of domestic output. Energy stocks were unsurprisingly the best performer sector in the broader US market.

 

With a light economic calendar, the markets were particularly sensitive to any news flow. Comments from Trump that China is “very spoiled on trade” did little to calm anxieties as US representatives meet with those from China for trade talks. Asian stocks moved cautiously higher as, so far, some sort of trade arrangement looks more likely than these talks actually falling through, and this would be good for overall market sentiment.


Soft Brexit hopes buoy the pound

The pound managed to squeeze out a positive close versus the ever stronger dollar, as soft Brexit hopes were revived once again. PM Theresa May quickly stamped out the earlier rumours that the UK would be looking to stay in the customs union after 2021. Instead reports have claimed that the UK government will use remaining in the customs union as a backstop to prevent a hard borer in Ireland should the Irish border issue remain unresolved. Whilst the prospect of a last resort softer Brexit offered some support to the pound, these recent reports have also brought Brexit back to the foreground after being out of focus for some months.


FTSE easing back from all time high

A streak of weak data, a dovish BoE and fears of a slowing labour market have dragged the pound lower over the past six weeks. The FTSE however, has been a clear beneficiary. A combination of a softer pound and rallying heavyweight oil stocks helped lift the FTSE to a fresh closing high on Thursday. After starting the year in pretty bade shape, falling sharply for the first two months, the FTSE has just got on with what it needed to do, slowly clawing back the lost ground.

With metals trading lower across the board overnight, commodity stocks plus a marginally stronger pound and a marginally stronger could set traders up for profit taking into 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. The information provided is believed to be accurate at the date the information is produced. Losses can exceed deposits.

21 May 2018 4:42 AM
Markets Rally As US – China Trade War Threat Eases

US and China stepping back from the brink of a trade war has lifted sentiment, boosting equity indices, putting the FTSE on track for a fresh record high. Despite a lower close for the broader US markets on Friday, Asian equities have bounced and Europe points to a higher start, as Trump’s administration halts plans to impose trade tariffs on China, whilst China promises to significantly increase its purchase of US farm exports and energy. This is by no means the end of the matter, especially given the huge gap that remains between the two sides, as highlighted by the lack of any real detail in the announcement. However, this was the encouraging start to talks that traders were after.

 

US treasury yields remain elevated over 3%, keeping the dollar on higher ground, in a rally which looks set for an extension should Wednesday’s FOMC minutes confirm an increasingly hawkish Fed.  The dollar rallied to 5-month highs in the previous week as the expected path of rate hikes in 2019 steepened.


Commodities Struggle Under Stronger Dollar; Oil Higher Following Venezuelan Elections

After shedding over 2% over the previous week, gold is once again on the back foot, under the weight of the mightily dollar. The precious metal is trading just $3 short of its recent 4 month low. Iron ore was another noticeable casualty of recent dollar strength, which combined with softer Chinese data in April has seen Iron ore drop over 2% in early trade – a move which could impact UK miners on the open.  Meanwhile oil was on the rise following a sham of an election in Venezuela, which could open the doors to sanctions from the US aimed at the oil industry there; an industry which is already showing serious signs of collapse amid years of economic and political crisis.


Euro Declines As Concerns Over Italy’s New Government Grow

Fears over a slowing eurozone economy combined with concern over the Eurosceptic direction of the new Italian coalition government plus a stronger dollar sent the euro to a five-month nadir last week versus the buck. This was the fifth straight week of declines and a close below the crucial 55 week moving average suggesting more pain could be just around the corner for the common currency.

 

As the populist 5 Star Movement and the League agree on a Prime Minister, ending the 11-week political vacuum in Italy, markets are showing signs of unease. Outlines of the new governments’ spending plans, rejection of the European Union rules and the creation of a euro opt out mechanism paint a picture of headstrong and unpredictable government which is likely to limit any upside to the euro, at least until there further clarification on the new governments intentions.

 

Whilst the FTSE MIB dropped over 3% across the previous week, the weaker euro has been providing a boost for other eurozone equity indices such as the Dax. The Dax has rallied for the past 2 months with just one minor pull back on the way and the chart shows no more major resistance levels to overcome before targeting the record high of 13600. This under no circumstances means that the Dax will rise to this level, but it suggests that the bullish stance should be given the benefit of the doubt.


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.


Edited:21 May 2018 4:42 AM
23 May 2018 3:22 AM
Pound Softer Ahead of Mark Carney In The Hot Seat

Optimism over the US – China trade truce sent US stocks sharply higher overnight with industrials leading the charge. Supported by the likes of General Electric, Boeing and Caterpillar, the Dow charged through 25,000 for the first time since March, whilst the S&P and Nasdaq closed 0.7% % and 0.5 % higher respectively.

 

Whilst relations between US and China have shown signs of progress, the same cannot be said for Iran US relations. Iran flatly refusing the “very basic requirements” put forward by the US is raising tensions in the middle east and weighed on sentiment in Asia overnight; Asian stocks are lower, and Europe is pointing to a mixed start.


Dollar Pauses On Dovish Fed speak

The dollar initially climbed higher in the previous session, also boosted by easing US – Chinese tensions, before unexpectedly dovish comments from Fed speaker Harker put breaks on the recent dollar rally, giving a dose of reality to runaway interest rate expectations. Harker’s belief that there are no signs of a rapid acceleration in inflation or even a precursor to it, sent treasury yields lower, whilst pulling the dollar from 94.05, its highest-level year to date, back to 93.50.


Will BoE Carney and CPI Send Pound Down To $1.33?

The weaker dollar gave cable a respite, with the pound picking up from session lows of $1.339, back above $1.343. Over the past few sessions a lack of influential data has left the pound vulnerable to Brexit uncertainties and dollar strength; today the economic calendar starts to fill up with BoE Governor Mark Carney taking the hot seat before the Treasury Select Committee for a grilling on the May Inflation Report. The dovish report downgraded both inflation and GDP outlooks for the coming years, removing pressure from the BoE to hike rates in an aggressive fashion. Given the dovish nature of the Inflation report it wouldn’t be surprising to hear more dovish language from the BoE Governor, Carney. There may also be some questions raised about Carney’s latest ‘switcheroo’ in forward guidance. Expectations of a rate hike went from almost fully baked in to nearly completely priced out in the 2 weeks leading up to the last Bank of England decision.

 

Hot on the heels of Carny’s appearance, CPI figures are due on Wednesday. Whilst the headline number is expected to have remained constant at 2.5%, the core CPI is forecast to have dropped further, from 2.3% in March to 2.2% in April. Currently the markets are pricing in a 40% probability of an August hike by the BoE, should these odds drop following a dovish Carney and weak inflation reading, the pound could find itself targeting $1.33 before it even considers the GDP release on Friday.


Euro Could Struggle Following Italian Coalition’s PM Candidate Proposal

The euro capitalised on the weaker dollar, rebounding off fresh monthly lows before heading towards its first daily gain in 5 days. Any gains in the euro are likely to be limited, as Italian politics remain a clear headwind. Concerns have been rife that the new Eurosceptic, populist coalition will tear up the EU rule book, potentially putting Italy’s membership to the bloc at risk. The coalition’s choice of PM candidate Giuseppe Conte has also caused some fright, given his lack of political experience. As a result, the Italian bond market and equities traded lower again on Monday.

 

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.

23 May 2018 3:24 AM
GBP/USD Steady Ahead of UK CPI Data and FOMC minutes

Trump pouring cold water over US - Chinese trade war truce optimism and raising doubts over the US - North Korea summit going ahead, sent US equities indices tumbling lower overnight. Trump’s expression of disappointment over the progress of the US Chinese trade talks, not only led investors to sell out of US equities, giving back some of the gains from the previous day, but also raised questions over the mixed messages coming from Trump’s administration.

 

The Dow fell 178 points, following a rally of 300 points on trade war truce optimism on Monday, whilst the S&P and the Nasdaq closed 0.3% and 0.2% respectively.

Following the double dose of US foreign relations disappointments, with China and North Korea, Asian equities headed lower over overnight, whilst the FTSE stands poised to ease back from the previous session’s record high.


GBP/USD to $1.33 on inflation data?

Not even optimism from BoE Governor Mark Carney over the outlook for the UK economy, plus the suggestion of 6 rate rises between now and 2021 from policy maker Vlieghe, was sufficient to meaningfully lift the pound in the previous session. Traders will now look for inspiration from today’s inflation figures. Last month inflation unexpectedly fell to 2.5% igniting a selloff in the pound as investors slashed the odds of the BoE hiking rates at the May meeting. Whilst CPI is expected to remain constant in April at 2.5%, core inflation which removes the more volatile items, such as food and fuel is expected to tick lower to 2.2% from 2.3% in March.

 

Should we see another undershoot by inflation this month, optimism of a late summer rate hike would be dented, pulling the pound lower towards $1.33. Given the pound’s inverse relationship with the FTSE, a weaker pound could help the FTSE on its way to fresh unchartered territory on target to 8000.

On the contrary, a surprise to the upside could be enough to boost the pound back towards $1.36, which would bring the FTSE back from its current lofty levels and record highs.


FOMC Minutes to boost dollar bulls?

Any impact from UK CPI data on cable could be short lived, as the FOMC minutes from the May meeting come into the spotlight.

The big debate for dollar traders over recent months has been two more hikes or three, this year? Currently there are two more hikes across the year fully priced into the market. The third hike is only 35% priced in, so any clues from the minutes of a more hawkish or dovish Fed could move the dollar. Traders will be particularly looking out for signs as to whether the Fed is willing to tolerate inflation pushing past the 2% target; indications that they are willing to see the 2% target breached could see the dollar decline as the possibility for three hikes is pushed lower. Meanwhile an indicated intolerance of inflation above 2% could lift the dollar, as this would up the odds for a third hike.


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.

24 May 2018 5:50 AM
A Dovish Fed Boosts US Equities, Trump Eyes Automobile Industry

The Fed, as good as confirming a June rate hike successfully took trader’s attention away from trade; boosting the dollar as well as US equities, which had been languishing range bound in the red. The minutes from the May meeting were about as equity friendly as they are going to get from a Fed hiking rates - the Fed want to hike, but not so much that they strangle economic growth. Following the release, the Dow turned higher closing 52 points up, whilst the S&P closed 0.3% higher.

For dollar traders, the minutes had an element of dovishness, which caused the greenback to fall away from session highs. Whilst the Fed gave big hints over its intention to hike when it meets in June, the central bank failed to give the necessary clues that the markets looked-for over H2.


Fresh Trade War Concerns Hit Car Industry 
The Fed touching on trade concerns did little to spook anyone. Instead, Trump single handily put trade risk firmly back on the table, as he lined up the next target of his America First policy. Before trade issues with China are even close to being resolved, Trump launching an investigation into the US automobile industry, similar to that of the Steel & Aluminium industry, is understandably unnerving the markets.  Shares in Japanese and South Korean car makers are seen dropping heavily overnight, with the likes of Nissan and Toyota down 1.2% and 2.3% respectively, in a move which is likely to be mirrored in Europe on the open. With fresh trade fear wars circulating we are not expecting European bourses to make much head way in clawing back heavy losses from the previous session.

The pound was able to capitalise on dollar weakness following the Fed minutes, enabling GBP/USD to climb from the depths of $1.3305 hit on softer than forecast UK inflation, to a marginally more respectable $1.3363. Whether sterling will be able to maintain this level will depend greatly on this morning’s retail sales figures.


UK Retail Sales to rebound?

Following yesterday’s unexpected fall in headline UK inflation, traders will be looking at the retail sales figures with intrigue. Whilst retail sales are forecast to have declined on an annual basis in April on negative inflation adjusted wages and the timing of the Easter holiday; they are expected to have ticked higher on a monthly basis to 0.4%, recovering from March’s heavy fall. So whilst we know that wage growth has been outpacing inflation for a couple of months now, it is still too early for consumers to be feeling any real difference and too early for this to be portrayed in an increase in retail sales, particularly non-essential items.

After Wednesday’s surprise decline in headline inflation illustrated a return to the goldilocks (not too hot, not too cold) economy, it will take a decent surprise to the upside in today’s retail sales to even come close to convincing some pound traders that August’s hike remains a possibility. Should the data beat the pound could comfortably find itself through $1.34, whilst a disappointing read could quickly send the pound back to test $1.33.


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.
25 May 2018 3:46 AM
The Lira is tumbling out of Control, What can Turkish Officials Do?

Since bottoming in 2015, the Turkish Lira has weakened against the euro, and soaring inflation as well as concerns regarding funding of the country’s current account have accelerated the weakness.  To attract investors back to Turkey, the central bank announced an emergency hike in overnight interest rates, increasing the cost to borrow by 3% to 16.5%, which they hoped would attract investors.  The emergency rate hike was initially positively received, but comments from Turkey’s president generated a mixed message which led to a further selloff in the Turkish Lira.

How did Turkey Enter a Currency Crisis?

The Turkish Lira has declined nearly 25% versus the Euro since the beginning of 2018.  The acceleration in negative sentiment took years but has now reached crisis levels.  In the wake of the global financial crisis, as credit concerns eased, money flowed into Turkey, and growth soared to 7.4% in 2016. The increase in GDP came with rising inflation, which has made it difficult for consumers to purchase everyday goods.

From the beginning of 2016 to the end of 2017, the Turkish Lira dropped more than 33% against the Euro reflecting concerns related to rising inflation.  Historically, to curb inflation a central bank will increase interest rates, reducing growth and spending.  As it became clear that the U.S. would begin the normalization process of increasing interest rates, concerns grew that Turkey’s heavily indebted corporate sector would come under attack.  Turkey has 295 billion in foreign currency debt and as the Lira declines the funding expense grows.

Why Did the Central Banks Tactics Initially Fail?

Generally when a central bank raises rates in an emergency fashion, the markets understand that the country is under the gun.  A rate increase makes it painful to be short the Turkish Lira especially against the Euro where overnight rates are negative.  The issue stems from comments from President Recep Tayyip Erdogan’s who vehemently objected to an increase in interest rates.  Erdogan seems to have studied a new breed of economics where higher rates generate elevated levels of inflation as opposed to curbing it.

By trying to say that Turkey is not in crisis mode, the President is leading investors down an uncertain path.  The significant decline in the Lira is likely to lead to soaring inflation, as Turkey’s depressed currency makes imports much more expensive. 

With inflation in Turkey running at 11%, Erdogan wants to immediately tackle the problem after the elections which are scheduled for June 24, 2018.  The President also wants to reduce the issues Turkey has faced with a widening current account, which has increased dramatically making Turkey dependent on outside capital.


What Can Be Done to Reverse the Decline in the Turkish Lira?

The biggest issue Turkey faces is that authorities are not on the same page.  Many do not believe that the central bank’s autonomy will remain following snap elections.  A clear message to investors that the Turkish bank is independent would go a long way in calming the markets.  Additionally, further rates hikes will also discourage short-term investors from continuing to sell the Lira.  Rates in excess of 20%, would make it very difficult for investors to attempt to continue to short the Lira as the carry costs would be astronomical. 

The emergency rate hike generated a 50 big figure rally in the Lira, but investors were not convince Erdogan was on board, which led to further selling pushing the Lira back to the 5.6 region versus the Euro. Further rate increases and a cohesive message are the best short term solution for Turkey. If they are able to get the Lira under control, they can then begin to reduce rates, and outside funding, which might eventually lead to a stable Lira.

 

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.

30 May 2018 5:00 AM
Euro & European Bourses Hit Hard By Rising Political Risk

European bourses and the euro are at risk of further losses, as political instability in two of the eurozone’s largest economies sends jitters through the markets. Italy’s President frustrating the two populist Eurosceptic parties forming a coalition, plus a potential vote of no confidence in Spain as soon as Friday has sent the euro to an almost 7-month low versus the dollar.

 

Whilst Italian President Sergio Mattarella vetoing the League’s & the 5 Star Movement’s choice of anti-euro, Finance Minister Paolo Savona, might be good for the euro in the short term, euro traders were already looking ahead to the potential for a fresh round of elections in the Autumn. The most likely outcome is a higher following for the Eurosceptic, populist parties that were unable to build an administration this time round. In short, bad news for the euro.

 

In Spain, as investors focus on political uncertainty ahead of the second vote of no confidence in under a year, the IBEX dipped to a 1 month low. We are not expecting a strong rebound from either the IBEX or the euro until there is more certainty over Prime Minister Rajoy’s position this Friday. Rajoy has survived a vote before, there is a possibility that he can do so again, although the markets are showing signs of waning confidence after dozens of corruption convictions for people closely linked to his party.


The overriding problem for investors is that these are two of the largest, most important economies in the eurozone. Euro traders are aware that the potential fallout from Italy mainly, but also this Spanish headache, dwarfs the fallout which could have been following the Greek debt saga and as a result the euro has fallen heavily out of favour and has continued to decline overnight. With potential elections just around the corner in both Spain and Italy, a summer of volatility now seems almost a given.

Dollar King Ahead of Busy Week

Dollar strength is doing little to ease the pain of the falling euro. Whilst US was closed for an extended weekend break on Monday, the economic calendar quickly ramps up with high impact releases every day culminating in the non-farm payroll figures on Friday. Market participants will be watching the data closely, beginning with Consumer Confidence today, for confirmation of the rate hike in June, which is 87.5% priced in. Consumer confidence is expected to have eased slightly given recent geopolitical tensions and potential trade wars; however, it remains close to 5-year highs.

 

Oil Mixed As Production Cut Easing Unlikley to Be Agreed In June Meeting 
Oil prices were mixed overnight, after shedding a further 1.4% in the previous session in an extension of the 2.6% losses from the previous week. Concerns that Russia and OPEC are on the brink of easing current supply production cuts has pulled oil quickly away from recent 4-year highs; however, suggestions that nothing would be agreed at June the OPEC meeting is keeping the price buoyant at $75 per barrel.

 

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.

30 May 2018 5:02 AM
Italian Political Fears Become A Global Theme

The Italian political crisis continued to spook investors well after the European session ended on Tuesday as fears over the unfolding political turmoil jumped across the Atlantic for the first time. Big banks dropped the hardest, struck by a double whammy of investors trying to suss out which lenders are capable of surviving a fresh eurozone storm; in addition to being hit by lower US bond yields as investors brought into safe haven treasuries. A lower yield environment is considered less profitable for the banks, a sector which dived as the US 10-year bond enjoyed its biggest rally since the Brexit referendum in 2016, sending yields 15 basis points lower to 2.78. The latest action has put the recent 4 year high of 3.08% 10yr yields into the history books, at least for the time being.

The S&P closed 1.2% lower whilst the financial sector shed 3.4%, as the likes of Citibank, JP Morgan, Bank of America and Morgan Stanley closed 4% lower.

Italy ‘s political turmoil on a global stage 

The interim Italian Prime Minister Carlos Cattarelli failing to present a finalised list of ministers to the Head of State Sergio Mattarella doesn’t bode well, nor does the warning from the Italian central bank chief that Italy could be on the brink of losing investors trust, both moves that sent jitters through the markets. The heavy sell offs on Wall Street spilled over into Asia overnight and is expected to land once again on the shores of Europe as trading begins on Wednesday. The FTSE MIB is set to extend its 2.6% losses from the previous session, putting it inline for a weekly loss so far of 4.6% and a monthly loss of almost 11%.

Hope now rests with a late-night twist from the populist 5 Star Leader, Di Maio who looked to revive talks with the League in a new attempt to form a government and avoid a rushed return to the polls. If the markets consider this to be a credible move, then we could see the sell off start to bottom out.

EUR/USD Sub $1.15 on US PCE & GDP Data?
The euro has taken a beating, diving to a 10-month low of $1.151 whilst Italian treasury yields soared the most in a single session, since records began in 1996 on Tuesday. Today investors will remain wary of any further developments in Italy, however an eye will also be cast towards the busy economic calendar. German Inflation data could help lift the common currency in early trade, whilst attention will turn towards the US GDP and PCE reading in the afternoon.

Today’s figures are expected to confirm robust economic growth and a PCE index that is firmly above 2%, keeping the Fed anchored on the gradual interest rate rise path. The probability of a June rate hike has eased slightly, moving back from almost a dead cert a few weeks earlier. A surprise to the upside, combined with further political turmoil in Italy could see the euro slip below $1.15 on its next attempt.

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.
31 May 2018 3:52 AM
EZ & US Inflation In Focus As Italian Political Fears Ease

Optimism that Italy could avoid a destabilising re-election helped global equities rebound on Wednesday. Whilst European bourses closed firmly higher in the previous session, renewed efforts from the League and the 5 Star Movement to form a coalition government also lifted Wall Street and Asian markets overnight. Whilst aiding Europe to a second consecutive positive start, Italy and Spain included, although the rally is showing signs of fatigue with indices due to start just a few points higher on the open

EUR/USD To Extend Rally On Eurozone CPI Data?
Italian political fears abating boosted the euro over 1% back above $1.1660 in the previous session. The euro has been under significant pressure over the past few weeks as concerns of a slowing momentum in the eurozone economy, increased political uncertainty in both Italy and Spain, and a more cautious ECB have weighed on sentiment for the common currency. Traders will now turn their attention to today’s inflation figures in the hope of some reprieve.

Wednesday’s rally in the euro could find fresh legs today as investors focus on Eurozone CPI figures. Whilst headline inflation is expected to pick up to 1.6% year on year in May, up from 1.2% in April; core inflation, is forecast to increase to 1% in May, up from 0.7% the previous month.

Forecasts point to a strong increase in headline inflation, mainly thanks to higher energy prices – the price of oil has risen some 50% since May last year. Better than expected German inflation figures also suggest that the eurozone could be in for a strong headline CPI reading this month. However, other price gauges were not so upbeat with the Composite PMI survey showing that average prices for goods and services rose at the slowest rate in 8 months in May.

Even if we see a surprise to the upside from eurozone headline inflation, it is unlikely to encourage the ECB to take a radically more hawkish position, unless we see a significant uplift in core inflation as well, which strips out more volatile items such as fuel. Even then, this is more likely to boost speculation of a winding down of asset purchases rather create hopes for any rate rises.

US Inflation To Tick Lower in April?
The dollar eased back from its recent 6 month high, weighed down by revived trade war fears and a slew of weaker than forecast data.  Traders will now look to US Core PCE data for confirmation of a rate hike in June. Core PCE, the Fed’s preferred measure of inflation is expected to have ticked lower in April to 1.8%, down from 1.9% in March. A rate hike in June is currently 91% priced in. Even if inflation surprises slightly to the downside, it is unlikely to prevent the Fed from hiking when it meets in two weeks’ time. However, signs of softening inflation in the US could impact on the outlook for the implied path of hiking across the second half of the year, leaving the dollar vulnerable to a further sell off.

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.

01 Jun 2018 4:28 AM

Response to US Trade Tariffs Milder Than Anticipated, For Now

Politics continued to drive trading overnight, pulling Wall Street and Asian markets lower. Whilst political fears receded in Italy with the formation and approval of a populist coalition government, these were quickly replaced by ramped up trade war fears. The Trump administration placing tariffs on steel and aluminium imports for its closest allies hit sentiment pulling the Dow over 1% lower.

The expected tit for tat response from the EU, Mexico and Canada is setting the scene for a trade war, which is not conducive to global growth. However, the losses have not been as large as we would have expected just a few months ago. The market is becoming more familiar with this administrations’ negotiating tactics and as a result, rather than seeing a move straight into risk off trading, we are seeing some investors take a wait and see approach. The traditional safe haven Japanese yen moved lower versus the dollar, as did gold and European bourses are pointing to a stronger start on the open.

NFP to boost the dollar?

After such a strong influence from politics on trading over the past few days, investors will be relieved to have the focus switch back to economic data, with the release of the US non-farm payroll figures. A solid report is expected and if delivered could cement expectations for a rate hike in June when the Fed meets in less than two weeks.

188k jobs are expected to have been created in May, up from April’s disappointing 164k. Meanwhile, unemployment rate is expected to remain steady at a multi decade low of 3.9%.

Consistent with previous reports the wage growth figure is expected to be a central focus of today’s NFP report and is expected to show an increase of 2.8% year on year, up from 2.6% in April. Whilst concerns over low inflation in the US have eased slightly over recent weeks, soft earnings growth continues to be an enigma for the Fed amid a tightening labour market. The theory that a tighter labour market leads to workers being able to demand higher wages hasn’t played out to the extent that the Fed has been expecting. Given that higher wages point to higher inflation down the road, its clear why the Fed and the markets are so focused on the earnings element of the report.

It would take a seriously disappointing report to prevent the Fed from hiking in June, a move which is 85% priced into the market. Traders will pay more attention to what might be coming up in the second half of the year. Talks of 3 more hikes across 2018 have all but disappeared, but the prospect of 2 more is still up for debate. A strong reading today would support the argument for two more hikes, lifting the dollar whilst pushing GBP/USD back towards $1.32.

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.

Edited:01 Jun 2018 4:29 AM
04 Jun 2018 4:38 AM

Markets cool in face of breakdown of US – Chinese trade talks

Wall Street ended the previous week on a positive footing, lifted by a better than expected US jobs report; 223k jobs created in May vs. expectations of 200k, unemployment unexpectedly fell to an 18 year low of 3.8% and wages managed to creep up to 2.7%, better than the 2.6% forecast and a 4-month high. The solid jobs report overshadowed any trade war concerns which had been brewing and lifted the S&P over 1%.

Asian equities have started the new week in demand, with European and US futures also pointing to a stronger start. Markets remain surprisingly sanguine despite trade war fears ramping up. Trade tariffs had already been confirmed against the EU, Mexico and Canada prior to the weekend. The third round of US – Chinese trade talks breaking down over the weekend indicate that a $100 billion trade war between the two powers could begin as soon as this month. Yet the markets are reacting with the same indifference with which they responded to the tariffs being levied on the US’s closest allies last week, in a sign that traders are becoming increasingly accustomed to Trump’s heavy-handed negotiating tactics.

Continued flows out of safe havens
There remains a certain level of optimism that this aggressive posture from Trump is a positioning that will quickly blow over, rather than result in the actual application of US tariffs and the application of threatened retaliatory measures from the targeted countries. Proving the point traditional safe haven gold remains firmly below $1300, whilst the Japanese yen was also 0.1% lower versus the dollar.

With a slow down in high impacting economic data this week, trade developments are expected to remain a central topic for traders. Signs of the latest threats being more serious than a negotiating tactic could see traders take risk off the table quickly; however, until then continued trader indifference could be on the cards.

UK Construction PMI
Whilst US index futures remain upbeat, the dollar is showing some signs of strain, dropping 0.1% overnight. The softer dollar is helping the pound claw back lost ground as it pulls $1.34 into sight. Pound traders looking towards the construction pmi this morning, may be disappointed. The rebound in April following a particularly weak March is set to ease in May, with the pmi easing back to 52 from 52.5. A softer than forecast reading could see the pound aim back down towards $1.33 and pull house builder shares lower.


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.


Edited:04 Jun 2018 4:39 AM
05 Jun 2018 4:16 AM

Pound in Focus Ahead of UK Service Sector PMI & Brexit Negotiations

US equity indices gained ground overnight, lifted by strong demand for tech stocks. M&A activity boosted sentiment with Microsoft taking a $7.5 billion bet on code-sharing site GitHub, whilst Apple and Amazon posted record breaking highs. The Dow closed 178 points higher, whilst the S&P added 0.8% and the Nasdaq 0.7% Despite a tech inspired rally on Wall Street, the focus switched back to fundamentals causing Asian markets to dip overnight, creating a drag on European futures, which were pointing lower on Tuesday.

A hat-trick of better than expected PMI’s?
Whilst both the manufacturing and the construction pmi headline figures have been better than expected, scratching beneath the surface of both data sets painted a less rosy picture. Today is the turn of the service sector. Investors will want to see signs that the service sector continued to rebound in May after harsh weather kept consumers inside earlier in the year. If the BRC retail sales figures and the Barclaycard figures are anything to go by then we could be in for a bumper month.
The BRC data showed that total retail sales values jumped by 4.1% in May, its biggest rise in over 4 years, whilst Barclaycard figures showed consumer spending increased by 5.1% year on year in May; its biggest jump in over a year. Both surveys showed that spending on non-essential items increased, which could be the first signs of pressure easing on squeezed households, as wage growth tentatively outpaces inflation for the second straight month.

BoE unsure of timing of next rate rise
The service sector pmi is forecast to show a slight up tick in May to 53 from 52.8 in April. A surprise to the upside could help restore some optimism in the path of rate hikes across the year, after BoE policy maker Tenreyro raised doubts over the timing of the next rate hike, saying it was still an open question. A strong reading could help lift the pound back towards resistance at $1.3380, after it fell sharply in the previous session.

Brexit back in focus
Concerns over Brexit, added to the pounds woes in the previous session, Brexit is back on the menu at the beginning of a crucial fortnight of Brexit negotiations in an attempt to end the current stalemate. Clarity on Theresa May’s Brexit plans and a breakthrough over the pressing Irish border issue are now essential if a solution is to be approved by EU leaders at the European Council summit at the end of this month. A sharp selloff in the pound on Monday suggests that traders are not expecting things to go that well. Negative Brexit headlines could wipe out any positivity from a forecasted increase in service sector activity.

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.

06 Jun 2018 5:38 AM

Trade Tensions & Italian Headlines Still Grabbing The Market’s Attention

Tech stock were once again responsible for any excitement on Wall Street. Netflix and Amazon jumping 1.9% and 1.1% respectively boosted the Nasdaq to close at a record high at 7637. This is the second straight session where tech stocks have been under the spotlight and we are seeing a lot of positive news surrounding the sector, Microsoft buying GitHub, Apple pushing new software and Amazon sales flying, when everything else in the market is looking a little drab

Whilst the Nasdaq bounded higher for the second straight session. The broader US market was noticeably less buoyant as trade war concerns weighed on sentiment. The Dow closed 0.05% lower and the S&P 1 point higher. A rather disappointing end given strong ISM non-manufacturing figures and news that the US -North Korean Summit is reportedly back on for 12th June.

Higher start expected in Europe
With the exception of the shining tech sector lifting the Nasdaq, a broadly uninspiring end to trading overnight in Wall Street led to a mixed session in Asia. A slightly livelier looking start to trading in Europe is expected led by the FTSE MIB which is on track to claw back a chunk of the 1.1% sell off from Tuesday.

Italy still a cause for concern
Whilst Italy is over the worst politically speaking, economically the picture is far from rosy. Italy’s new Prime Minister Giuseppe Conte vowing to put in place economic policies which could add to the nations heavy debt load sent investors into panic mode, searching for safe haven government debt, such as US treasuries, pulling yields lower.

The euro appears to have found an unexpected ally in Giuseppe Conte, who revealed that the new Italian government had no plans to leave the euro zone. This, in conjunction with reports that the ECB will have a live debate on QE exit at its June 14th meeting saw the euro continue to pick up from recent 10-month lows versus the dollar to hit a session high of $1.1732.

Loonie rallies on exemption optimism, Mex pesos dives on retaliation news 
Whilst the Lonnie popped higher on hopes of an exemption for Canada from the steel and aluminium tariffs, a retaliation from Mexico in a sharp escalation in the tit for tat trade war over tariffs and an increasingly elusive NAFTA agreement sent the peso to a 15 month low. Mexico responded to the US metal tariffs, with retaliatory tariffs on a wide range of US agricultural products including pork, cheese and apples. The moves are expected to ramp up trade tensions making any agreement on NAFTA unlikely before the Mexican election this summer.


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.

07 Jun 2018 4:42 AM

Risk On Surges Through Wall Street; Euro Extends ECB Inspired Rally

Whilst the previous session in Europe had been rather restrained, risk on sentiment surged through the US session. Banking and tech stocks sealed another rally on Wall Street overnight, with the Dow surging over 25,000 for the first time since March and the Nasdaq hitting another record high – the third in a row.

Tech stocks managed to put in another impressive performance despite Brussels preparing to slap a fine on Google parent Alphabet, for abusing its dominance through the Android operating system. Whilst traded volume in Alphabet was over 7 times greater than Tuesday, the share price showed impressive resistance falling just 0.2%. Clearly investors aren’t overly concerned about the most significant regulatory move against Google’s business model.

Risk on in Wall Street, transferred to a solid session in Asia and is seen lifting European markets into the opening bell. Despite talks of retaliation measures from US allies on trade tariffs, which in the words of the World Bank, risks sending the global economy back to a state similar to that 10 years ago, global equity markets continue bounding higher.

Oil pushes higher; still on track for weekly loss 
Crude oi prices are expected to be under the spotlight, as they remain on track for the third straight losing week. After a sharp decline in the previous session, oil was clawing back some of the losses overnight, supported by news overnight of plunging Venezuelan exports. Troubles over supply from Venezuela come at a time when OPEC is considering easing supply cuts which have been in place since 2017 and were implemented to support the price. The big question for oil is whether or not OPEC decides to ease the production cuts, with the meeting still some 2 weeks away, oil traders could be in for an increased bout of volatility.

EUR/USD hits $1.18 on ECB Taper Talk
The euro extended its ECB inspired rally overnight hitting a high of €1.18. ECB policymaker Peter Praet, saying that the ECB will need to assess at next week’s meeting whether to unwind the QE programme, as good as confirmed earlier reports that the ECB were willing to discuss what has been the elephant in the room for most of this year.

Yet just because the ECB are ready to talk about a subject which they have remained tight lipped on all year, doesn’t mean that that follow through action will be speedy or in any way rushed. A winding down is almost guaranteed, but will that be a winding into the scheduled September end date, or a winding as from September. The euro is by no means out if the woods yet. With bond buying set to wind down and the stronger euro of the past 10 month potentially weighing on price growth, the winding down of QE by no means is a direct move onto rate hiking; given these headwinds we still envisage a significant ride to the 2% target.

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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