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Forums > Commercial Zone > Third Party Market Analytics > LCG: FINANCIAL MARKET RESEARCH AND ANALYSIS
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28 Jun 2018 6:45 AM

 Finally, Markets Have Something Other Than Trade Wars To Focus On

Despite an early burst higher for the Dow following Trump’s turnaround on Chinese restrictions, the index surrendered its biggest daily gain in 4 months to close 165 points in the red. A selloff in tech stocks & financials overshadowing a rally in the energy sector.

Asian markets took their cues from the US, heading southwards overnight. China, which technically entered bear market territory in the previous session after dropping 20% from its January peak, continued to grind lower, as trade war concerns and a slowing of momentum in the economy have sent investors running.

 

Tracing losses in the US & Asia, Europe is on track for a negative start. Despite Trump’s turnaround on Chinese restrictions, and oil attempting to hold its gains, the global trade outlook still remains extremely murky. The lack of certainty over what could happen next is weighing on sentiment, even in the absence of fresh headlines. This drags on risk appetite pulling the equity indices lower whilst boosting traditional safe havens such as the yen. USD/JPY trade 0.2% higher overnight.

 

As trade war headline fatigue sets in, partially caused by the recent lull in the economic calendar, traders will be pleased to wake up to a slightly fuller economic diary, with German inflation figures and the final revision of US GDP data due for release, in addition to the EU Summit to capture the markets’ attention.

 

No Brexit Progress Expected At EU Summit 
This EU Summit had been earmarked as an important date in Brexit negotiations; however, with the UK dragging its feet over the publication of its paper on the UK – EU post- Brexit relationship, which is now not expected until July, no progress is expected on any major issues surround the UK exiting the EU at this meeting. Instead the EU are expected to giver a stern and fierce warning to the UK over its lack of progress on major issues, such as the Irish border policy. With the clock ticking a no deal Brexit is looking increasingly more likely, which makes it almost impossible for the pound to make any serious headway.

A speech by Andy Haldane BoE Chief Economist and more recently, rate hike voter, could offer some short-term relief to the pound when he speaks at 13:30. Investors will be listening closely for his reasons for shifting his voting allegiance.

 

Merkel & Migration In Focus

With the euro languishing at around 11-month lows versus the dollar, investors will have plenty to watch today. Whilst German inflation is expected to remain constant in June at 2.2% year on year, any shortfall could pull the euro lower.

Traders will also be keeping a close eye on discussions covering the migrant crisis at the EU Summit. Whilst migration isn’t usually a theme that influences the markets, Angela Merkel is under increasing pressure both at home and abroad to resolve the issue or face the collapse of her fragile coalition government after just 3 months; a move which could pull the euro sub $1.15.

 

US GDP 2.2% Exp.

The final version of US GDP is forecast to be 2.2% in Q1, which although slower than Q2, Q3 and Q4 2017, is still a very respectable figure. The reading will provide a good distraction from current trade war headlines, although to really rock the dollars boat we would need to see a print below 2% or over 2.5%.

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.

29 Jun 2018 4:24 AM

Risk Trends Stabilise, Traders Look to Data

Whilst European markets sunk lower in the previous session, Wall Street, managed to pull off a positive close, helped higher by financials and tech stocks. US markets shrugged off weaker than expected GDP data to advance 0.5%, a sharp contrast to the 1.4% decline experienced by the Dax.

 

There was a slight increase in optimism across the US session, and whilst risk trends stabilised, they are far from being at encouraging levels. With fragility on the markets running high the slight pick up in sentiment on Wall Street failed to transfer comfortably across to Asia overnight, where some Asian indices continued to languish at 9-month lows. Trade frictions were once again responsible for the sell off. A move in China to reduce restrictions on foreign investment and open up the market helped to lift the index 1.8% after it plunged into bear market territory early this week. European bourses are also pointing comfortably higher.

 

EU Migration Deal Approved, Euro Rallies 
After consolidating close to 11-month lows the euro rallied 0.4% on news that the EU had agreed a migrant deal. The migrant crisis in Europe threatened German Chancellor Angela Merkel’s fragile coalition, which was in danger of collapsing if she left the summit without a deal. The euro picked up from €1.157 to €1.162 in the space of a few short minutes,

 

Inflation data this morning could help boost the common currency. Eurozone CPI is expected to tick higher in June to 2% y/y, which is mainly energy price driven. Regardless, this would still support the case of further tightening and be an encouraging sign after the dovish ECB comments at the June policy meeting. Should this be the case then we could see the euro look to regain the  €1.18 handle.

 

US PCE to boost the dollar?

Later in the session US core PCE for May will be released, the Fed’s preferred measure of inflation. The core PCE is expected to have ticked 0.2% higher in May, the same progresion as April. This would take the year on year reading to 1.9%, just shy of the Fed’s 2% target. Looking back to the FOMC the Fed indicated that here would be two more rate rises across the remainder of the year, taking the total to 4. The market has yet to convincingly price in a fourth and final rate hike, with the probability at just 28% for the final hike to go ahead. A strong inflation reading could go some way to lifting the probability of a total of 4 rate hikes across the year and could therefore boost the dollar.

03 Jul 2018 5:33 AM

Can PMI’S distract from growing trade frictions?

Once again, the previous week saw traders focused on the unfolding developments of the global trade war. Whilst a slowing of trade war headlines at the end of the week enabled equities to pick up, it was a matter of too little too late, resulting in weekly losses for the majority of major indices.

 

A ramping up of trade war headlines over the weekend, such as a strong warning of retaliation from the EU and a potential currency war with China (US), will ensure that the fear of an all out global trade war is central in trader’s mind, as the session begins on Monday. Markets have a tendency to normalise risk events that hang around long enough, which could explain the fairly limited moves on the market so far this morning.

Asian markets were subdued on the open, and European bourses are pointing to a lower start. Whilst a weaker pound will offer some support to the FTSE, a decline in the price of oil as Saudi Arabia comes under pressure to up production, combined with an expected fall in mining stocks on the back of weaker Chinese manufacturing data, means the FTSE could struggle to go anywhere but southwards.

 

Fortunately, there is a packed economic calendar this week which may go some way to distracting the markets from the growing friction between the US and the rest of the world and the damage that it could do to global trade and the relevant country’s economies.

 

UK Manufacturing PMI to send GBP/USD to $1.31?

The previous manufacturing PMI indicated a slight acceleration of activity, bouncing back in May to 54.4, after dipping to 53.9 in April. However, given the increase was principally down to inventory building, rather than a response to new demand a surprise to the upside this month is looking unlikely. Expectations are for the pmi to have dipped to 54. With manufacturing in April showing its biggest slowdown in 5 years, we are not holding our breath for an impressive figure this morning.

The pound is already under pressure at the start of the week; soft pmi data could send sterling back towards $1.31.

 

Merkel’s Deal or No deal?

The euro has kicked off the new week on the back foot, declining versus the dollar in early trade, as concerns in Germany have surfaced over the acceptance of the EU Summit’s immigration deal. Whilst on Friday the deal looked like a life line to Merkel, who was under significant domestic pressure to find a solution to the migrant crisis; by Sunday evening this lifeline had been whipped away and elevated political risk ensued. The German Interior Minister and Chair of the CSU (the party whose support is needed by Merkel in her fragile coalition government), not only rejecting the deal, but then also offering to step down has added an additional layer of uncertainty to the already fragile German coalition.

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.

03 Jul 2018 5:33 AM

China Plunges As Alarm Bells Ring

Wall Street didn’t follow in Europe’s footsteps on Monday and avoided dismal losses, instead eking out a positive close overnight. Despite the higher finish in the US, trade jitters still rattled the market and limited any gains. Furthermore, the Dow managing three consecutive positive closes has not been sufficient to universally lift Asian markets overnight whilst European bourses are on track for a nudge higher after the starting bell.

Chinese markets were in for another rough session on Tuesday down a further 1%, despite support from Chinese state media. With the start of the US imposed tariffs now just days away and China expected to retaliate, alarm bells are starting to ring, sending the Shanghai bourse plunging to a two and a half year low on Monday, whilst the yuan also fell. Trade war fears are sending traders out of riskier assets, compounding the problem for China as an ermerging market. The timing of the tariffs comes just as the Chinese economy is taking its foot off the pedal; quite the opposite to the US, where the economy appears to be going at full throttle.

UK Construction sector to remain constant?
The UK construction sector will be in focus today as investors look towards the construction pmi. After rebounding strongly in May, activity in the construction sector is expected to have remained constant in June. A surprise to the upside could lift the construction sector however, the pound might be a tougher nut to crack. As we saw from the previous session, where even a better than expected manufacturing pmi was insufficient to boost sterling in the face of Brexit concerns and trade war fears. The pound hit a peak of $1.3150, however it could still struggle to push much beyond here until after the heavier hitting service sector pmi later on Wednesday.

Dax & Euro rally as Germany averts coalition collapsing 
The euro staged a recovery late on Monday, as political risk in Germany eased dramatically. An 11th hour agreement between the clashing leaders of the German coalition government parties, Angela Merkel of the CDU and Mr Seehofer of the CSU, has meant that the fragile coalition has narrowly averted collapse; with Merkel once again showing her extraordinary ability to negotiate herself out of many a tight spot.

News that Merkel is safe and the fragile German coalition will live to see another day has encouraged traders back into the Dax, which had been suffering at the hands of investor anxiety about new snap elections. The Dax is on track to claw back all of its losses from the previous session, popping higher on the open. Meanwhile the euro has yet to push convincingly through $1.1650. With eurozone retail sales expected to dip lower in May, the common currency could struggle to catch a bid.


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.

05 Jul 2018 4:10 AM

Markets Jittery as Clock Is Ticking Until Friday’s Trade War Threats Become a Reality

With just two days to go until the US-Sino trade war threats start to take effect, relations between the US and China remain hostile, rattling investors.  Further blocks and red tape this time on the likes of Micron Technology and China Mobile, highlighted the likelihood of increased friction between the 2 nations, as we move towards Friday’s US-imposed deadline. Tech stocks naturally came under significant selling pressure overnight, pulling the Dow & the S&P away from early energy inspired gains and into negative territory.

European markets rallied on Tuesday, with the FTSE and the Dax up 0.6% and 0.9% respectively. However, given the current tense global climate, any move higher is likely to be short-lived. The lower close on Wall Street overnight inspired a sea of red in Asian markets, which is leading to a lower start in Europe this morning. Volatility and volume could be lower on global indices as US markets are closed for a public holiday.

 

BRC shop price declines ease in June

The pound extended Tuesday’s gains overnight, breaking back through $1.32 as the BRC shop prices index declined again in June, but less sharply than in May. Prices fell by -0.5% rather the -1.1% the previous month, in a sign that pressure on the consumer continues to ease, albeit at a more moderate pace. Traders cheered the slowing rate by which inflation eased before refocusing their attention on the service sector PMI this morning.

 

Service sector PMI to lift GBP/USD to $1.33?

Service sector activity is expected to remain constant at 54 in June after rebounding in April and May from a notably weak March. Whilst 54 is below the average reading for 2017, it is still expected to be sufficient to give the Q2 GDP a decent enough boost of around 0.3%.

Stroger than expected manufacturing and construction PMI’s bode well for today’s figure. A surprise to the upside, making it a hattrick of stronger PMI prints, combined with last week’s better than forecast GDP reading could be enough to persuade the BoE that the UK economy can sustain a rate rise in August. In this scenario, the pound could target $1.33.

 

Theresa May summons her Ministers to the Chequers

Even if service sector activity is stronger than forecast, it may fail to capture investors’ attention for any significant amount of time. Brexit will be firmly back on the agenda, with the Prime Minister due to hold talks at the Chequers residence this weekend, in the hope of finding a solution to the customs partnership with the EU post-Brexit. Theresa May has made a series of pleas to her bickering party to sort out their differences and to the EU, not to decline the third proposal.

With the clock ticking until the Brexit deal October deadline and still a mind-boggling amount of uncertainties to resolve, the pound could find any service sector PMI inspired rally drastically limited by the lack of Brexit progress. Alternatively, a weaker than forecast services PMI print could see the pound plunge sharply lower, with Brexit uncertainty and concerns over the UK economy being too much for the pound to cope with, sending it back towards $1.31.


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.

05 Jul 2018 4:11 AM

Traders on The Side-Lines as Trade Uncertainty Grows

With just one day to go until trade tariffs are expected to kick in, the markets were showing signs of anxiety overnight.  Wall Street was closed for Independence Day on 4th July, meaning Asian markets were short on incentive, causing them to wobble overnight. Major currencies remained unusually static, except for the dollar which lost ground

Both the US and China stand ready to impose the threatened tariffs on Friday, although China has also stated that it will not fire the opening shot in this trade war. The US must implement their threatened tariffs before China will respond in kind.

With the continued uncertainty as to what the actual next move will be, from either power, traders were opting to sit on the sidelines. European equity markets are pointing to a lower but uninspiring open.

The euro managed to hold onto its earlier gains after hopes for a rate rise before the end of 2019, lifted the common currency. However, thin volumes and fears over Trump's trade frictions kept any upside limited overnight, despite the weaker dollar.

 

Look ahead:

Moving into the last part of the week volatility in the dollar could pick up. Not only are the minutes from the June FOMC to be released followed by the US non-farm payrolls on Friday, but also trade tariffs on $34 billion dollars’ worth of Chinese imports are expected to begin, in addition to Chinese countermeasures of roughly the same amount. Whilst the dollar was moving lower overnight, gold has picked up in recent sessions, a reflection of growing unease with the trade friction.

 

FOMC to talk trade wars?

Later this evening the Fed will release the minutes to its June policy meeting; a meeting where they lifted interest rates and revised the expected path of interest rates higher as well. Now signalling a total of 4 hikes as opposed to 3, we can comfortably expect the discussions surrounding the economy to be upbeat. Any discussions over trade war concerns could also attract significant attention.

Whilst at the June meeting Fed Chair Jerome Powell didn’t seem particularly concerned over a potential US-Sino trade war, his comments a few days later suggested that he was. Therefore, investors will be keen to see if the Fed are in danger of turning more dovish in the case that a trade war should kick off. With the WTO already saying that signs of trade tensions are starting to affect the global economy, dollar traders will be nervous that the fourth-rate hike could disappear from view as quickly as it appeared.


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 Jul 2018 5:06 AM

Trade Wars to Trump NFP?

Wall Street experiencing its strongest session in well over a month, higher shares in Asia and Europe pointing to an upbeat Friday is normal enough. But given that trade tariffs are due to kick in today, we would have expected to see more anxiety in the markets. Still, there was plenty to distract traders with hawkish Fed minutes and strong US economic data.

 

US NFP

Today’s non-farm payroll figures come on the same day that Trump is due to begin imposing tariffs on $34 billion of Chinese imports. The usually highly anticipated report comes as trade tensions intensify between the US and Chinese and are about to step up a gear, so the US labour department’s report may not attract as much attention as normal. However, this does not mean that the report will be less likely to cause volatility in the dollar.

Expectations are for 195k new jobs to have been created in June, a solid number after May’s impressive 223k. Given the historically low levels of unemployment, which is expected to remain constant at 3.8% in June, a miss on the headline job creation number is not going to cause too much distress, whilst a surprise to the upside would highlight the strength of the US economy.

As with previous reports, the average wage growth figure is more important here, particularly given that the path of expected hikes was lifted to 4 across the year, up from 3, when the Fed met in June. Furthermore, the fact that the market isn’t convincingly pricing in 4 hikes, means that a bigger than expected increase in wage growth could help shift market sentiment, especially as inflation in the US is already at the 2% target set by the Fed. With averages wage growth expected to increase by 0.3% month on month or 2.8% across the year, a surprise to the upside could see the dollar recoup some of the losses from the previous session. On the other hand, disappointing wages figures could see the dollar extend loses from Thursday into the weekend.

 

Trade War Unknowns

The dollar may well find that the bigger news today will be from the increasing trade tensions, rather than the non-farm payrolls. With trade tariffs due to start today, investors will be listening carefully for any fresh rhetoric aggravating the situation or indeed any sign of either country, US or China stepping down, which seems incredibly unlikely at this late stage, but with Trump at the helm, you never know! Increased friction and the tariffs beginning could result in a selloff in global indices. Not only will a trade war hit both economies and global trade, but it also creates a level of uncertainty as to how far this will go. The dollar, as it has done in previous trade war fear-dominated sessions, could be expected to move higher, benefiting from its safe-haven appeal.


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 Jul 2018 4:09 AM

Market’s Sanguine Reaction to Tariffs

Markets across the board kicked the week off on the front foot, following a positive end to Friday’s session on Wall Street; a rally which was not necessarily expected. US indices pushed higher at the end of the last week, despite the firing of the trade war gun, as US trade tariffs on Chinese imports got underway and Beijing, promptly retaliated announcing tit for tat measures.

Whilst fears over a trade war were being fanned, actual data showed the US economy was soaring with a healthy labour market; the number of jobs created in June beat expectations paving the way for further gradual rate hikes by the Fed and giving plenty for traders to be distracted by.

Just because US equities didn’t experience a sell-off on Friday, it doesn’t mean that a trade war is already fully priced in. The actual trade tariffs are nothing new, the market has been aware of them for over a month, and for now, conditions are still supportive of financial growth, allowing markets to move higher.

Sentiment could remain resilient until we see solid evidence of these trade tensions feed through to softer economic data, particularly in China. For the time being, relief continues to fuel the rally which has seen China jump over 2%, Nikkei over 1% and the FTSE futures climbed 0.6% despite the slight uptick in the pound.

 

Can Theresa May Ride Out This Latest Challenge?

The pound jumped higher, to $1.3319 at the start of trading as investors continued to digest the softer Brexit stance pushed through by Theresa May, on Friday, at a crunch meeting with her waring Brexit cabinet. 3 resignations since, by hard-line Brexiteers including Brexit Secretary David Davis, has cast some doubt on May’s ability to ride this one out, pulling the pound lower shortly after the initial, softer Brexit inspired a jump.

Today and the next few days will be key for Theresa May’s survival and the buoyancy of the pound. The pound has fallen away from its opening high versus the US dollar, but not actually swung lower on the day, suggesting that investors believe she will keep hold of the reins.

Yet, even if Theresa May does manage to ride the course of this latest Brexit upheaval and remain at the helm with a united party behind her, the big task is to convince the EU that they should progress with negotiations on this latest proposal. So, whilst Friday’s developments are certainly a step in the right direction for the pound, any sterling gains will be capped until there is more clarity from the EU over the viability of the option, which will only come once the white paper has been published later this week.

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.



10 Jul 2018 5:21 AM

Global Sentiment Boosted Despite UK Political Disarray

A pause in trade war rhetoric at the start of the week gave traders the opportunity to focus back on fundamentals and more specifically on the upcoming US earnings season. Enthusiasm for earnings in Q2 drove Wall Street to post its third straight session of gains. Taking cues from the US, Asian markets extended their gains overnight, which is translating into another positive start for Europe.

The FTSE, which rallied over 0.9% in the previous session, outperformed its peers largely thanks to a significantly weaker pound. The index could find itself trading more in line with its European peers today as the pound attempts to stabilise.

 

Pound Stabilises as May Remains and Boris Leaves

Theresa May defiantly stood her ground on Monday; with threats of a vote of no confidence unfounded, she lives to fight another day as PM. As Theresa May’s position stabilised, the pound managed to pick itself up off its lows and ended Monday just 0.3% lower.

 

UK Manufacturing, industrial production & monthly GDP

In the absence of any further Brexit headlines or domestic political disarray, investors will look towards manufacturing and industrial production data due this morning. Both sets of figures are expected to rebound convincingly in May after heavy falls in March and April thanks to unseasonably harsh weather conditions. Manufacturing is expected to have increased 0.9% month on month whilst industrial production is expected to have picked up 0.5% month on month, up from a contraction of 0.8% in April.

As from this month, the Office of National Statistics will also begin publishing a monthly GDP report providing policymakers with more frequent data on the growth of the economy as a whole. UK GDP is expected to have increased at 0.3% month on month n May, with the 3-month average forecast to be 0.2%, reflecting the slower growth from the earlier months.

Stronger data is expected to lift the pound, particularly a solid figure from the monthly GDP release, which could help boost the case at the BoE for a rate rise when policymakers meet in 3 weeks’ time. Any evidence that points to the UK economy recovering from its sluggish start to the year could lift rate hike hopes, helping put domestic political woes in the rear-view mirror (for the moment) and boosting the pound back towards $1.33.

 

German & EZ ZEW Confidence Data

The euro continues to recover lost ground in July after suffering from trade war fears and Italian political concerns which saw it plummet over 5% across April, May and June. However, the recovery may hit a sticky patch today on the release of German ZEW economic sentiment data. Economic sentiment hit its lowest level last month since 2012 and is expected to show further deterioration on this month. Should this be the case we could see EUR/USD target $1.1720, on the other hand, a surprise to the upside could see the euro extend its gains, pulling $1.18 back into focus.

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.

11 Jul 2018 6:40 AM

Stocks Dive as US Ups the Stakes in The Trade War

Overnight, that unnerving trade war silence from the White House, which allowed stocks across the globe to charge higher in recent sessions, was broken. The US upped the stakes in the trade war with China, sending equity markets tumbling, as risk-off prevails.

The Trump administration announced tariffs on a further $200 billion-dollar worth of Chinese imports after the US closing bell overnight. Asian markets fell heavily, with China, unsurprisingly, taking the biggest hit, down over 2% at one point; US and European futures are indicating that investors will sell out shares on the open. In the forex markets, the dollar pushed higher versus most of its peers except for the safe-haven yen, which experienced a surge in demand.

Up until now, Trump’s administration had carefully selected products to tariff in order to avoid the US consumer being directly impacted. With this now broad-based, untargeted approach it will be almost impossible for the US households not to be affected, as tax increases will be felt on everyday products. Perhaps this will be the saving grace of the trade war? With midterm elections in four months, political pressure could ramp up on Trump should the wider public start to feel the pinch from the higher prices.

In the meantime, this second move by Trump proves that he is committed to this trade war. The markets have, so far, been relatively tame in their reaction. This move by Trump could change that, in which case traders will start to be much more selective over which markets to buy into, choosing on the basis of which markets are potential winners and losers from this trade war. The recent complacency is expected to disappear.

 

Dr. Copper indicating a turning point?

Commodities are taking a hit from the increased trade tensions. Oil is off by over 1% overnight, meaning oil majors can be expected to take hit on the European open. Copper also plummeted over 3%, on demand concerns in light of increased trade tensions, hitting its lowest level in almost a year; if Dr. Copper is to be believed then we have struck a turning point in the global economy.

 

A more hawkish Draghi to lift the euro?

Trade wars aside, ECB President Mario Draghi will be watched closely by traders. Eurozone data is finally on the upswing again after a slow start to the year. Furthermore, at the June ECB meeting, Draghi suggested that the ECB could look to hike rates as soon as summer 2019. Traders will look for Draghi to add more flesh to this bone, a dovish sounding Draghi is not expected today. Whilst Draghi could offer a boost to the euro, it could still prove to be insignificant compared to the dollar’s safe-haven appeal.

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.

12 Jul 2018 8:27 AM

Q2 US Earning Season to Overcome Political Risk?

In the previous earning season, Q1 2018, earnings reached the highest level in over 7 years at 24.6% on an 8.7% revenue gain. A solid economic backdrop and a boost from Trump’s tax cuts supported corporate America. 

Expectations
Expectations are running high once again for Q2 with momentum expected to continue and with recently released economic data adding to investor confidence. Q2 S&P 500 earnings as a whole are expected to increase 20% from the same period last year, on 8.1% higher revenues. This might provide some relief to investors as they continue to grapple with threats ranging from higher interest rates to escalating trade tensions between the US and China. 

Whilst first quarter financial results were a triumph they didn’t translate well into increased traction in stocks during the course of earning season. This was down to two factors, firstly, concerns over President Trump’s trade war policy and secondly concerns over increased borrowing costs. Neither of these issues has been resolved. The question is whether a strong earning season can do what it failed to do last time. This is, change market movement back into being earnings driven and fundamentals focused rather than reactive to political headlines.

Sectors to watch
The S&P climbed some 4% since the end of Q1 earnings finding support from tech stocks and energy stocks, whilst the Nasdaq has rallied close to 9% on tech fever. The Dow managed to rally 1000 points, however has since given these gains up thanks to lower industrials in light of the trade war.

All 11 sectors on the S&P are expected to report year on year growth with 7 sectors expected to report double digit earnings. The energy sector is expected to perform particularly well, hardly surprising given the recent rally in oil, across the second quarter. Tech stocks have also outperformed, driving the Nasdaq to multiple record highs over the past three months and are expected to see another bumper earnings season. 

With corporate tax benefits, a strong US economy and solid consumer confidence, corporate earnings are likely to get another boost this Q2 season, which could go some way to offset headwinds from trade war fears and rising interest rate concerns. A strong set of results could support the fragile rally in equity indices, which has faltered over recent weeks on rising US – Sino trade tensions.

Earnings vs. Political Risk
The markets have rebounded quickly from the most recent escalation in trade war stakes, suggesting that traders are still optimistic. This is key to earnings being able to distract market participants. Strong earnings numbers could capture the eye of traders and lift equity indices higher. 

On the other hand, given the current strains on the markets, any short comings in earnings could hit market sentiment hard. Politics is already putting pressure on risk appetite, keeping demand for stocks limited and investors jittery. Disappointing earnings figures could be the straw that breaks the camels’ back. That could pull 24,000 back into target for the Dow.

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.

12 Jul 2018 8:27 AM

Three companies that could benefit from England’s World Cup semi-final

England sadly came off second best against Croatia in the World Cup semi-final. However, not all is lost. The England national team’s unexpected success at the 2018 World Cup is likely to provide a significant boost to the bottom line of some firms. With World Cup fever gripping the nation over the past few weeks, millions of fans have spent heavily on items such as new TVs and sportswear, as well as on food and drink.  With that in mind, here is a look at three UK companies that could profit from England’s success at this year’s World Cup.  

Greene King

With millions of people flocking to the nation’s pubs to support England during the tournament, pub operator Greene King (LON: GNK) looks set to benefit. According to data from Barclaycard, total pub expenditure increased by 9.5% in June, compared to June 2017. 

During England’s match against Panama, Greene King sold an extra half a million pints, and the team’s progress past the group stage of the tournament is likely to provide a significant boost to the company’s bottom line. 

Greene King shares have fallen heavily over the last two-and-a-half years, as profitability has been impacted negatively by higher wage bills, higher taxes and the cold weather earlier this year. For the year ended 29 April 2018, adjusted earnings per share fell 11%. 

However, looking ahead, the outlook for Greene King looks more promising as England’s success at the World Cup, along with the recent heatwave, could provide the company with a material boost to sales for the year. The shares currently trade on a low P/E ratio of just 9, so could potentially offer upside from here. 

Sports Direct 

With England’s success at the World Cup capturing the imagination of millions of people, demand for England replica kits and other sportswear is likely to have been strong during the tournament and could potentially remain elevated in the near term. One company that looks set to benefit here is Sports Direct (LON: SPD), which operates over 750 sports stores across the UK and internationally. 

It’s worth noting that during the 2010 World Cup, when England faced the USA in the group stage of the tournament, Sports Direct posted its strongest trading day on record, as consumers rushed to buy football-related sportswear. This year’s World Cup, in which England has progressed further than in 2010, could therefore also provide a sizeable boost to sales. 

Sports Direct shares aren't without their risks, and with the unpredictable Mike Ashley at the helm, the company is never too far away from controversy. Debt has also increased recently, as the company has invested for future growth. Yet, with sales likely to receive a boost from England’s World Cup success, and the company aiming to become the “Selfridges of sport” in the future, now could be a good time to take a closer look at the shares. 

ITV

Lastly, broadcaster ITV (LON: ITV) could also receive a boost from the World Cup. ITV is one of the two channels that has been screening the World Cup here in the UK, and is set to benefit from colossal viewer numbers, and higher advertising revenues, as a result of the tournament. 

Last week, 24.4 million viewers tuned into ITV to watch England’s penalty shootout against Colombia, with a further 3.3 million people watching the game on the ITV hub. And last night’s semi-final against Croatia is likely to have generated more big viewer numbers, enabling the FTSE 100 company to charge vast sums for advertising slots. 

ITV shares have been sold down heavily over the last two years on concerns over the UK economy and the weak advertising market. These issues certainly add risk to the investment case. However, with the group set to benefit from the World Cup, as well as the success of other shows such as Love Island, the outlook may not be as poor as many believe. Trading on a low P/E ratio of just 11.1, the stock could offer appeal from a contrarian perspective.

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.

12 Jul 2018 8:28 AM

Stock Markets Recover; Eyes to US Inflation Figures

Equity markets tumbled across the globe on Wednesday, as investors digested a stepping up in trade tensions following threats from the White House of tariffs on an additional $200 billion worth on Chinese imports. Industrial stocks which are most prominent in the Dax and the Dow were hardest hit, leaving the Dax nursing losses of 1.5% on Wednesday and the Dow off by 0.9% overnight.

Risk appetite was low, with extensive flows into US 10-year Treasuries, pushing the yield down to 2.84%, whilst boosting the dollar versus its peers. Commodity currencies were also deeply lower, supporting the greenback, so much so, that the dollar moved higher versus traditional safe haven the Japanese yen, whilst the stronger dollar also outweighed the haven appeal of gold, pushing the metal lower, not what we would necessarily expect given the risk off environment.

Commodities have been hit harder than equities in this latest raising of the stakes; base metals moved lower on demand concerns, copper suffered a 3% blow in the previous session and was off a further 0.6% overnight.

 

Oil Sinks 6%

What started as a slide in oil ended up as a 6% rout. It was the biggest one-day loss in 2 years for crude, as demand concerns combined with increased supply rocked the price. Given that China and the US together account for about a third of global oil demand, any slowdown in these economies on the back of a trade war would logically impact demand for oil and therefore its price, this is a rational fear and one that could see Brent take out support at $72.50 on news of a retaliation by China.

 

Optimism in Trading Patterns

Asian markets ignored the declines on Wall Street overnight, consolidating losses before moving higher, whilst Europe is following suit. The pattern that we’ve seen over the past 24 hours of losses, consolidation, followed by solid moves higher is the same that was witnessed following previous tariff announcements and one we are likely to see when China retaliates. The pattern points to a level of optimism in traders that trade tensions will ease through negotiations going forward.

Any retaliation by China will be a principal driving force in the markets today, potentially pulling commodities lower still whilst boosting the dollar.

 

US Inflation to Push Dollar to 95.00?

The dollar held firm overnight, keeping hold of its gains from the previous session, as investors switch their attention to US CPI data. Inflation in the US is expected to have increased in June to 2.9% year on year to a 6 1/2 year high, whilst core inflation is expected to have increased 2.3%-year on year firmly above the Fed’s target. Whilst this is not the Fed’s preferred measure of inflation, it will still be closely watched following a miss on average wages on the jobs report. A higher than forecast inflation print could see the dollar index take on 95.00. Meanwhile, a surprise to the downside could see the runaway dollar back under control.

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 Jul 2018 6:50 AM

Gold at a 6 month low, Sellers in control

High market volatility and uncertainty surrounding the global trade war doesn’t seem to be helping Gold, whose demand usually increases in times of economic and geopolitical uncertainty. Rather, Gold prices seem to be driven more by the changes in the value of the U.S. Dollar.

Factors pushing the Dollar higher
The Dollar remains strong despite increasing trade tensions and general uncertainty. Recent Trump policies have been quite abrupt, which suggests that his views on tariffs on China could quickly change – consider his rapidly alternating stances on North Korea.

Expectations of further U.S. rate hikes also support the rise of the Dollar, while also pushing bond yields up – especially now that monetary policies are diverging among other major economies. The FED is expected to increase interest rates, while many other central banks, such as the BoJ and the ECB, are taking more dovish stances.

USD expected to continue rising, Gold expected to continue falling
Why? Because both assets are negatively correlated, which means that they tend to evolve in opposite directions. As Gold is priced in USD, any changes in its value (which acts as the world’s reserve currency) impacts the value of the currency that foreign buyers hold, increasing or decreasing demand for Gold, thus affecting prices. 

Rising Dollar possibly seen as commodity buying opportunity
As recent weakness has brought prices back to significant support levels, some buyers might be waiting to enter the commodity market to take advantage of a rebound, creating a short-term upward movement. Any future lower-than-expected figures on the American economy and inflation could support the price of Gold, provided that these statistics change the forecast of the Federal Reserve, thus influencing its members about interest rate changes.

Future Gold demand 
If geopolitical turmoil escalates further - with more aggressive rhetoric and further decision-making driven by protectionism - market volatility and higher uncertainty could lead investors to remove money from risky assets to seek safer options, such as Gold. This is a financial market phenomenon called flight-to-quality, which is often seen in times of uncertainty.

As Gold doesn’t offer any yield, investors prefer to invest in fixed-income products that yield a fixed income, or more risky, but more profitable, assets. Over the long term, the demand for Gold as an investment should then remain low, but buying Gold for its decorative value (especially from China and India) should at least somewhat support prices. Indeed, India is one of Gold’s largest sources of demand, annually accounting for 25% of total global sales, especially during the festive and wedding 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.
16 Jul 2018 6:51 AM

Pound Drops as Softer Brexit Plans Make US Trade Deal Look Unlikely

The timing of US President Trump landing on British soil couldn’t have been worse for Prime Minister Theresa May. The same day that she publishes her whitepaper outlining the post-Brexit UK-EU relationship, as a softer version of Brexit, Trump a known supporter of a hard Brexit grabs the spotlight.

Trump’s declaration that this softer version of Brexit would mean that a trade deal with the US was “probably” off the table, was a blow to both host Theresa May and the pound, sending sterling tumbling overnight. Let’s not forget that the hope of a quick trade deal with the US was a significant factor in Theresa May’s decision to invite Trump in the first place. Another embarrassment that May could have done without.

Trump’s words of no deal have confirmed the fears of Brexiteers and will have stoked the fire in the hard Brexit camp, making Theresa May’s future in charge look doubtful once more. This fear was reflected in the pound as it dropped sharply in late night trading.  With no high impact UK economic data due for release today, pound traders will continue to watch political developments. Trump and May are expected to hold a joint press conference after lunch where they will both be pressed for trade comments. In the absence of any encouraging trade comments, gains in the pound going forward could be limited, and a meaningful move over $1.32 could be doubtful.

 

Tech Stock Rally Lifted Nasdaq to Record High

Once again, a lull in trade war talk saw risk appetite rebound and Wall Street posted some impressive gains overnight, in anticipation of earnings season unofficially kicking off today. Tech stocks were standout performers with the Nasdaq hitting a fresh record high overnight, as the likes of Amazon, Alphabet and Facebook and Microsoft all reached all-time highs as well.

The lack of a tit for tat response from China following Trump’s announcement of tariffs on a further $200 billion of Chinese imports sparked a rally in equities. The bullish moment from Wall Street transferred into Asian markets overnight and is set to carry through to European bourses this morning.

 

Expectations Running High for US Earnings Season

With the US earning season starting and expectations running high, traders have effortlessly switched their focus back onto fundamental drivers of the market and away from political headlines. The robust US economy, high consumer confidence and low borrowing rates provide a solid backdrop for some impressive figures, and that is before we draw in the benefits of the Trumps tax cuts. Wells Fargo and Citi are first up.

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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