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Forums > Commercial Zone > Third Party Market Analytics > LCG: FINANCIAL MARKET RESEARCH AND ANALYSIS
Messages (133 Replies)
18 Apr 2018 4:40 AM
    Traders Navigate Calmer Water

    Investor sentiment has taken a clear turn for the better. With trade war fears easing and tensions with Russia thawing, traders on Wall Street were left free to focus on strong results from big corporates. More expectation beating results pushed the Dow to close sharply higher at 24,786, whilst the S&P gained 1.1% and the Nasdaq closed 1.7% higher helped along by a 9% lift in Netflix.


    The calmer sentiment in the market as investor concerns fade over military action in Syria and a potential US – Sino trade war, is being played out in the CBOE Volatility Index (VIX) also known as the fear gauge. The VIX which dropped over 8.5% in the previous session is trading below 15 for the first time since mid-March. This points to a calmer picture on the markets after a particularly rough past few months.

    With geopolitical tensions easing, at least for the time being, US earning season has filled the void, impressing investors, even though the bar has been set high. Netflix jumped just shy of 10% after as investors continued to react to better than forecast subscriber numbers, meanwhile UnitedHealth Group was also up 4% after results surprised to the upside.

    Will UK CPI push pound higher?

    The pound dropped below $1.43 again overnight as investors continued to digest the wages data. Wage growth in March at 2.8% met expectations for pound traders and was also above inflation for the same month. Markets will now look ahead to U.K. CPI data this morning for reassurance that inflation remains on the right track towards the central banks 2% target and there are no signs of it pushing back towards the elevated level of 3% where is stagnated at the end of last year.


    GBP/USD dropped from a post Brexit high of $1.4377 to $1.4283. Signs of inflation continuing to ease could lift sterling once again to fresh post Brexit highs, as optimism will grow over the health of the UK economy, boosting prospects of a Spring interest rate rise.

    Eurozone Inflation Data In Focus

    EUR/USD remained depressed in the previous session on weak German sentiment data and a buoyant dollar. The German ZEW sentiment indicator continued to freefall in April in response to concerns over a trade war impacting on German exports. Today’s inflation data from the eurozone could show signs of a pickup having been lacklustre for the past year. Whilst CPI is forecast to be 1.4% on an annualised basis, on a monthly basis an uptick to 1% from 0.2% is forecast. Should this be the case the EUR/USD could look to rebound back across $1.24 in early trade.


    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.

    19 Apr 2018 5:57 AM
    Commodity Rally To Lift the FTSE

    European bourses are pointing to a positive start at the open, despite a mixed finish on Wall Street from a lacklustre session. Whilst the S&P and the Nasdaq rose for a third straight session, the Dow closed 38 points lower dragged down by IBM, which tumbled over 7%. IBM posted better than expected results, however they were attributed to a one-off tax gain.

    Crude Hits Fresh 3 ½ year high

    The broader US market and trading in Asia overnight have been supported by a rally in commodities. Crude oil charged over 3.5% higher in the previous session, hitting a fresh 3 ½ year high after oil inventories dwindled and concerns of supply disruptions lingered. Traders are starting to get excited that the oil market is finally rebalancing with the global supply glut evaporating. Whilst it may be premature for the OPEC led group implementing supply cuts to cheer, the numbers are certainly pointing to a potential end in sight.


    The energy sector was the top performer in Tokyo and a standout performer on the Hang Seng; we are expecting to see a rally from the FTSE oil and gas sector on the open. Improved metal prices boosted miners & metal index in Australia taking it to a 3-month high; FTSE mining sector is also expected to race out of the blocks on the open, tracing metal prices higher. Given the heavyweight nature of commodity stocks on the FTSE,

    Pound Trading Cautiously at $1.42 Ahead of Retail Sales 
    Overnight the pound closed 0.6% lower versus the dollar, just managing to keep its head above $1.42 following a slide in inflation, which is causing traders a reassess the probability of a Spring rate hike by the BoE. This morning the pound remains at $1.42 as investors look cautiously ahead to UK retail sales figures. Retail sales are expected to have increased 1.4% year on year in March, up from 1% in February. After weaker than expected wage growth and inflation could we see a hattrick of disappointment for the pound?


    Despite the strong sell off in sterling following the miss on wage growth and inflation, the odds of a rate hike from the BoE are still elevated at 83% according to Bloomberg, down from 88% prior to the releases. There are still several factors supporting a rate hike which pound traders are opting not to focus on right now. The fact that wages are outpaced inflation in February points to a stronger consumer, any evidence that the stronger consumer was spending well in March could once again boost the odds of a rate hike.


    GBP/USD is currently at $1.42 in cautious trading ahead of the release. Disappointment could see the pair break through support at $1.4175, before heading towards $1.4130 and on to $1.4090. On the upside a positive read in retail sales could send GBP/USD back towards $1.43.


    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 Apr 2018 3:29 AM
    Will tech lead a recovery on Wall Street after earnings?

    After hitting a 15-year high in March of 2018, tech stocks have underperformed the broader market ahead of Q1 earnings season.  Many large cap tech shares have pulled back after a robust run up versus the broader market. The ratio between the Technology Select Sector SPDR ETF (XLK) and the S&P 500 SPDR ETF (SPY) has dropped nearly 4% since mid-March but a combination of strong earnings and robust seasonals will likely drive tech shares higher.

    The first quarter historically has been a solid quarter for the tech shares that make up the XLK. To determine the nature of how they perform, a seasonality test was run on the ratio of the XLK versus the SPY.

    What is Seasonality?

    Seasonality describes the performance of returns over a specific period of time. For example, you might assume that ahead of the kick-off of the summer driving season on Memorial Day, gasoline prices would move higher.  You can also run a seasonality study of one security versus another to determine the strength of the returns and which generally outperforms during a specific period.

    Chart showing relative performance of technology shares versus the S&P 500.


    In looking at the relative performance of the XLK versus the SPY you can see that over the past 10-years the XLK has outperformed the S&P 500 index ETF 80% of the time, with an average outperformance of 1% during the month of May. Technology shares, represented by the XLK are higher 80% of the time for an average gain of 1.1%, while the SPY is up 80% of the time but for an average gain of a meager 0.1%.

    The seasonal are even more convincing if you look at the past 5-years. During this period in the month of May, technology shares are up relative to the S&P 500 index 100% of the time for an average gain of 1.6%.

    Why Have Technology Shares Pulled Back?

    Technology shares have pulled back after hitting all-time highs in January along with the broader markets but have recently suffered given their strong outperformance over the last 12-months. As the markets face a deluge of concerns including trade tariffs, geo-political risks, and the risk that the White House will be stymied by a change of leadership in the House of Representatives, stocks have faced increased volatility.  Higher volatility has increased the risk of holding higher beta stocks and has led to profit taking amongst some of the best performing technology shares. Investors are waiting not only to see earnings results but to see if guidance by technology companies has been hampered by the onset of volatility.


    Over the past 5-weeks technology shares have underperformed the broader markets, ahead of earnings season. Historically technology shares have outperformed the broader markets in May following earnings, which can be analyzed using a seasonality study. Over the past 5-years, the XLK has outperformed the broader markets 100% of the time, notching up an average outperformance of 1.6%. Over the last 10-years the XLK has outperformed the SPY 80% of the time with an average outperformance of 1%. This would lead you to believe that technology shares are poised to outperform following earnings season.


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

    24 Apr 2018 3:30 AM
    Weaker pound to boost the FTSE

    Whilst Wall Street finished lower, dragged southwards by a weak tech sector and increasing fears over rising interest rates, the FTSE is looking to charge higher on the open, thanks to the significantly weaker pound.

    A disappointing forecast from a major Asian chipmaker sent jitters through tech stocks on Wall Street, pulling the likes of Apple down some 2%. Meanwhile investors were also keeping an eye on runaway US treasury yields, which sparked a correction in the US equity markets just a few months ago. With the 10-year yield once again approaching 2.9 nerves are starting to show, as a higher interest rate environment could dampen the positive outlooks being provided by firms in earnings season so far. The Dow closed 83 points lower, the S&P closed down 0.6% and the tech heavy Nasdaq 0.8% lower.

    Carney Sends Sterling sub $1.41

    A hattrick of softer than forecast UK economic data across the week saw the pound drop from post Brexit highs of $1.4377 to $1.4160. Surprises to the downside for wage growth, inflation and retail sales meant that traders spent the week debating whether the Bank of England’s Spring rate rise was still on the table. Last night BoE Governor Mark Carney put an end to the debate saying that markets should not bet on a May rate rise.


    Mark Carney’s comments that there are other central bank meetings where a rise could take place was more than a gentle reminder, this was a stern warning that markets had not been considering the recent economic data carefully enough. Markets have been running away with themselves whilst inflation is in actual fact moving back towards the BoE’s target rate of 2% and Brexit uncertainties could also delay any hikes.


    The pound ended Thursday 0.85% lower against the dollar, diving through $1.41 to current level of $1.4080. With no high impacting UK data due for release sterling will look towards BoE policy makers Michael Saunders for any further clues when he speaks at 09:30 this morning. However, Brexit developments could also create some volatility for sterling making $1.40 a realistic target.

    UK Irish Border Solutions Rejected

    The rejection by the EU of Teresa May’s alternative for a hard border with Ireland casts fresh doubts over whether the UK will be able to leave the customs union. The UK government will have to go back to the drawing board after all solutions put forward have been rubbished by the EU. May has repeatedly promised that there will be no hard border with Ireland, yet Brexit without leaving the customs union is also being considered a betrayal of the Brexit referendum. With time ticking, May’s options are looking increasingly limited, particularly in light of the defeat in the Lords earlier in the week over an amendment to the EU Withdrawal Bill.


    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 Apr 2018 3:32 AM
    A cloud of uncertainty over Facebook earnings

    The central bullish thesis for Facebook is that it remains the largest and most popular social networking website on the planet. The company has several revenue segments with most of the focus is on targeted advertising.

    Facebook’s targeted advertising model, which was firing on all cylinders, took a huge public relations hit in the wake of the Cambridge Analytica scandal.  Facebook users are waking up to the idea that they are the product Facebook is selling to its advertiser clients. Facebook partnering with application developers is now under scrutiny. These partnerships are integral to Facebook because they add the functionality that keeps users interested. The political fallout from the data scandal is likely to perpetuate for a few quarters at a minimum. How long it lasts beyond that may depend on how well management wrestles with changes that allow users to protect their personal information.

    Handling the Scandal

    The initial reaction by Facebook was silence, but it now appears that CEO Mark Zuckerberg is trying to get ahead of the curve. For stock owners, it could pay to head the words of the CEO that “actions taken to strengthen user privacy will weigh on the company's profitability”.

    This scandal has attracted the unwanted attention of Congress. Zuckerberg testified in front of the House and the Senate, and regulatory action will eventually come out of this situation. Facebook will continue to make compliance strides, but another large-scale breach could do serious damage to medium-term prospects. Recall, when Microsoft was sued by the EU, its stock price was stagnant for nearly 10-years.

    Zuckerberg has always preached that the satisfaction of the customer experience is the most important goal of the company.  For the moment, Facebook users believe him, but any meaningful defection of U.S. users could materially impact the company's business model. Increasingly of note, Facebook derives about 55% of its revenue from outside the U.S. and Canada where the regulatory screws are being tightened at a quicker pace.

    The price of Facebook shares have rebounded over 10% since hitting their April lows, but there is potentially still value to be found. The stock has significantly underperformed the ICE FANG index (an index created by the Intercontinental Exchange that includes 10 liquid stocks which include the top innovators in the technology, internet, and media space).

    The Numbers

    Facebook is scheduled to release its financial results on April 25, 2018. The company is expected to earn $1.36 a share, which is the average of the 36-analysts that cover the social media giant. The range of estimated EPS is $1.04 to $1.58. The company is expected to produce revenue of 11.41 billion. The range is $10.59 billion to $11.83 billion. Earnings estimates increased by approximately 9% over the past 90 days but are down slightly by less than 1% over the past 60 days.

    Even if it produces blow out numbers, it will be hard for Facebook to escape the cloud of uncertainty in the short-term.

    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 Apr 2018 3:34 AM
    Geopolitical Tensions Ease; Attention On Stock Performance & Central Banks

    An easing of geopolitical tensions is once again boosting sentiment as the new week begins pointing European bourses in the direction of a mildly stronger open. Signs that Washington will reach an agreement with Beijing has put US-Sino trade war fears on the back burner. Meanwhile, North Korea agreeing to suspend missile testing and closing a nuclear site has lifted sentiment, as the US North Korea summit looms. After weeks of pressing geopolitical issues taking centre stage, investors are starting to return their gaze to stock performance and central bank action.

    Eurozone PMIs to encourage more dovish ECB?

    An impressive Eurozone economic recovery was one of the big stories of 2017. This year so far has proved to be less encouraging and markets are concerned that eurozone growth is losing momentum at best or stopped altogether at worst. Today’s purchasing managers index (pmi) survey data should throw some light on the subject, showing whether or not the run of soft data is continuing after 18 months of uninterrupted growth.


    PMI’s are an important gauge of confidence, which climbed steadily across 2017. However, they have been sliding so far this year, dropping from December’s peak of 60 to a level of 57 in March, with a level of 50 separating expansion from contraction.

    Today’s pmi readings come ahead of the ECB rate decision on Thursday, where the ECB are expected to leave policy unchanged. Since the March ECB meeting eurozone economic data has worsened, inflation has been revised lower and a potential global trade war has surfaced, all of which point to an even more cautious tone expected from the ECB.


    EUR/USD peaked last week at $1.24 before ending the week at $1.2287. With weakness anticipated from today’s pmi’s and QE remaining in place following the ECB meeting on Thursday, we could see the euro come under pressure again this week. A move below $1.2250 could open the doors to $1.2215 prior to $1.2180. A solid bounce back in pmi’s could see EUR/USD target $1.2335 on its way to $1.24.

    Oil up despite Trump Tweet ahead of oil majors reporting 

    The price of oil remains elevated at just below $75, rallying 10% over the past 2 weeks and a 9% jump across the year. The focus on oil is expected to stay this week as European oil majors Shell, ENI and Total report earnings, in addition to US producers Exxon Mobil, Chevron and ConocoPhilips. The rally in oil price is expected to boost profits, however the price of oil is also nearing inflation boosting levels, making it fall onto President Trump’s radar. Yet even a tweet from the President that OPEC are keeping the price artificially high, hasn’t dragged the black stuff lower. Oil majors are expected to report bumper earnings and the highest cash flow in a year.
    24 Apr 2018 7:48 AM
    US Yields Ease; Europe Points To Higher Open

    Rising treasury yields and negative tech sector sentiment caused the Dow and the Nasdaq to finish lower on Monday as the S&P managed to eke out a flat close. Whilst the Dow skidded for the fourth straight session to a 7-week nadir, it, along with the broader US market finished off the lows as 10-year yields halted their ascent towards the psychologically important 3% level.


    Alphabet beats expectations

    Tech stocks were worst performing sector down 0.4%, dropping ahead of Google parent Alphabet’s reporting after the bell. Yet there was no need for investor nervousness ahead of the results, as Alphabet reminded the market why it is a top pick for any portfolio, reporting a surge in quarterly profits by 73%, thanks in part to gains in advertising revenue.

    Yields rising towards the highest level since 2013 has dampened demand for US equities, as higher interest rates push up corporate borrowing costs. However, we have not seen the markets dump to correction level, as they did earlier in early February when yields approached the 3% mark, and this is thanks in part to timing. We are in the middle of a solid earnings season, with 82% of the S&P 500 companies that have reported so far surpassing expectations, consistent with outperformance in previous quarters.

    A mixed session on Wall Street was followed by a mainly positive session in Asia overnight supported by the continued easing of geopolitical tensions and earnings optimism overshadowing tech sector concerns. European bourses are taking the lead from Asia, indicating a stronger start on the bell.

    Dollar boosted by yields overnight

    The dollar hit a 3-month high overnight, peaking at 91.08 versus a basket of currencies as US treasury yields looked to breach 3%. Yields have since ticked down to 2.96%, which has pulled the dollar a touch lower as we head towards the European open.


    GBP/USD hit 5 week low

    GBP/USD is seen edging marginally higher after dropping to a low 5 week low of $1.3918 overnight. With no high impacting data due and no news on the Brexit headline front, the pound could still struggle to capitalise on the softer dollar. Minor data prints will come in the form of government net borrowing and CBI business optimism figures.

    EUR/USD looks to IFO Sentiment data

    EUR/USD is also edging higher on the weaker US yields an ahead of German IFO Business sentiment data. The pair hit a 7.5 week low of $1.2185 overnight but has since recaptured $1.22. The pair still looks vulnerable with a potential downside break should IFO miss estimates, given that ZEW sentiment data surprised to the downside last week, the potential for disappointment is running high.


    Brent aiming for $75 per barrel

    Brent crude hit its highest level since 2014, supported by potential US sections on Iran. Aiming for $75 investors are pricing in a further tightening in supplies in addition to the OPEC led cuts. Higher oil prices are expected to boost the oil majors on the FTSE at the open.


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

    25 Apr 2018 10:32 AM
    Will the ECB and BOJ justify wide bond spreads and the dollar rally?

    The European Central Bank’s two-day policy meeting will conclude on Thursday with the release of the central bank’s interest rate decision and will be followed by a press conference with ECB President Mario Draghi.

    What to expect

    We don’t expect the Governing Council to make any changes to current policy, with interest rates forecast to remain frozen and the current quantitative easing programme to remain constant with purchases of €30 million per month.

    We expect the ECB to acknowledge that on the whole economic data has weakened since the last meeting. Inflation, which has been stagnant for most of the past year, missed expectations in March, printing at 1.3% rather than the 1.4% forecast. Inflation for the bloc remains stubbornly below the central bank’s 2% target. Geopolitical risks have also increased since the last meeting and whilst trade war fears have eased back from the brink, geopolitical tensions remain elevated.

    The combination of weaker economic data, softer inflation, and raised geopolitical tensions suggests that we could hear a slightly more cautious sounding statement from the ECB. However, comments from ECB policymakers this morning have been more optimistic regarding future inflation expectations throwing some doubt over a more cautious stance. Even so, we expect the majority of governing council members to continue to support a very gradual approach to tightening policy and no comments on how the quantitative easing programme will end.

    The reality is that the central bank will want more time to judge if the eurozone economy is overcoming the slowdown which has been prevalent in the first quarter. With this in mind, even the June meeting could be too soon for the ECB to say how they will end or taper the current bond-buying programme.

    EUR/USD to $1.21 post ECB meeting?

    EUR/USD is under pressure ahead of the ECB meeting, trading around $1.22 handle. US yields have been on the rise over the past week, hitting the psychological 3% mark overnight, as markets anticipate higher US inflation and a more aggressive path of tightening from the Fed. This week the gap between the US and German 10-year government bond yields have hit its widest in 29 years, as diverging inflation expectations and interest rate expectations are played out.

    A slightly more cautious sounding Draghi could see this divergence amplified, which would pull the EUR/USD to support seen at $1.2160 before opening the doors to $1.2100. On the contrary, a more hawkish ECB could lift the pair to $1.2270 prior to $1.23.

    USD/JPY to rally following BoJ meeting?

    Whilst investors will be looking closely to divergences between ECB and the Fed’s expected path of rate hikes, the BoJ could also amplify broad differences with other central banks when their two-day policy meeting concludes on Friday. The debut of a new dovish deputy could exasperate an ongoing rift in the BoJ over continued stimulus versus the costs involved. Whilst the new deputy is not expected to rock the boat at this meeting, his presence, in addition to the rising US bond yields is drawing in the market’s attention.

    The US – Japanese 10-year treasury yield spread is at its widest level in 11 years. USD/JPY is trading firmly above 109.00, with a dovish BoJ and a continued rally in US yields potentially sending the pair towards the 200 sma at 110.28 before key resistance at 112.44.

    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 Apr 2018 10:44 AM
    Equities Tumble As Rising US Bond Yields Unnerve Investors

    Wall Street tanked on Tuesday and Asian stocks tumbled overnight, whilst the dollar rallied to a four-month high after US 10-year treasury yields hit 3%, the highest level since 2014, spooking investors. The rally in yields was in part due to rising inflation concerns and expectations of a more aggressive Federal Reserve this year.


    The importance of 3%

    3% is a closely watched psychological level for US treasury yields and the fact is has been breached dampened demand for US equities. Higher interest rate expectations mean higher corporate borrowing costs, in turn making investments more expensive. There is also the added concern that the Fed could decide to hike rates more quickly, or even too quickly which could slam the breaks on economic growth. Rising yields combined with disappointing reports from Caterpillar and 3M pulled the Dow over 400 points lower, whilst the S&P plummeted 1.3% and the Nasdaq 1.7%.

    Equity market correction on the cards?

    3% yields have not come out of the blue; the Federal Reserve has pointed to rising inflation since the start of the year and has been preparing the market for hikes throughout the year. Added to that, yields came close to striking 3% back in February, causing a correction in US equity markets. Whilst we are seeing a reaction to the 3% being struck, we are not expecting February’s reaction. At first glance this looks like a repeat of February’s yield rise stock tanks pattern; however, the market’s reaction is decidedly more measured this time. Not only have stocks stayed out of the correction zone so far, flows into the yen (the risk off trade) are no where near levels seen two months ago.


    Dollar hits 4 month high

    Declining geopolitical tension, particularly decreasing trade war fears have enabled traders to focus their full attention on dollar boosting fundamentals such as higher yields, causing the dollar to rally hard across the week. The dollar once again extended gains overnight, hitting a 4-month peak of 91.06 versus a basket of currencies. USD/JPY also hit a 2-month high of 109.2 overnight whilst the EUR/USD also fell, although has remained above $1.22.

    Whilst the dollar has eased back in early trade, diverging interest rate expectations from the widening differentials for US and German or Japanese bond yields is expected to continue to support the dollar going forwards.


    Following the selloff in equities on Wall Street and Asia, nervous investors are expected to send European bourses lower on the open. With no high impacting economic data due to be released in UK or Europe, investors are likely to remain focused on US yields and the currency markets in early trade.


    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.


    26 Apr 2018 9:10 AM
    US Corporate Earnings Buoy Global Equities Despite 3% US Yields

    European bourses are pointing to a stronger start on the open following a late rally on Wall Street. The Dow snapped a 5-day losing streak late in the session, as strong earnings finally overshadowed US 10-year yields getting comfortable at multiyear highs.


    US 10 year yields at multiyear highs

    Yields touching 3.03% sent jitters through the markets as investors fear the impact of higher corporate borrowing costs on firms, after years of artificially low rates. And these jitters aren’t budging easily despite the strong earnings season, because investors have set the bar so high following the tax cut. It’s a rarity to see a stock such as Twitter post above expected earnings and still finish 2% lower on the day.

    On a positive note, Boeing shot up 4.2% after reporting earnings that blew through analyst expectations helping to lift the the Dow, which finished 59 points higher, whilst the S&P closed 0.2% up and the Nasdaq slipped 0.1% as tech stocks remained out of favour.

    Facebook smashes earnings expectations despite data scandal
    Facebook proved to be a bright spot, smashing earning expectations after the closing bell, with advertising revenue continuing to grow, despite the recent data scandal and privacy issues. Facebook's net income was up a massive 63% year on year and earning per share at $1.69 were 25% higher than analysts had expected. The figures showed that the recent controversy has not led users to leave the network, with Facebook actually proving to be more resilient than most were willing to give it credit for.


    GBP/USD aims for $1.3950 in quiet data session
    Despite the stronger US yields, the dollar has eased back from its 3 1/2 month high versus a  basket of currencies. GDP/USD is making attempts towards $1.3950, although on such a quiet economic calendar, pound traders are struggling to find reason to buy in. Traders will look ahead to tomorrow’s GDP data, which if disappointing, could be the final nail in the coffin for May rate rise optimism.


    EUR/USD cautiously higher ahead of ECB decision
    EUR/USD is trading marginally higher, although still below $1.22 ahead of the ECB monetary policy decision at midday. No changes are expected to policy with the rate remaining constant and bond buying at €30 billion per month. With the bond buying programme due to last until September, the weaker economic data for the bloc so far this year is casting doubt as to whether this is really an achievable objective or whether the programme will now be continued into the coming year, pushing any form of post QE rate rise well and truly into the distant future. Whilst the ECB will not change their forecasts yet, preferring more data to take any decisions, a slightly more dovish tone from Draghi could send the euro tanking.

    27 Apr 2018 7:41 AM
    FTSE higher as pound hovers close to 6 week low

    A solid finish in Wall Street thanks to an Amazon boosted tech sector, lifted Asian stocks overnight and looks set to work its magic on the open in Europe, as major bourses point to a positive start.


    The strong US finish from a rebounding tech sector was then capped off by Amazon surging 7% in after hours trading to an all time high. The move comes following Facebook, Advanced Micro Devices, VISA and PayPal surprising to the upside which snapped the S&P tech sectors 5 day losing streak.

    Busy end to the week

    Today looks set to be an actioned packed day to end the trading week, with results from RBS, housing price data which could impact on the House builders, first quarter GDP data and an appearance by BoE Governor Mark Carney, not to mention US GDP and a slew of lower impact eurozone stats.


    RBS under the spotlight

    RBS Q1 figures come following Barclays and Lloyd’s earlier in the week, neither of which inspired buying action. RBS Q4 figures came in below market expectations although the bank did report its first profit in 9 years in February. Investors will be watching carefully for updates on costs and the current restructuring plan. In short, we aren’t expecting any fireworks from RBS today and the current downtrend could be with us a while longer.

    UK GDP to kill off last remaining hopes of a rate rise?

    Last week the pound dropped hard against the dollar after investors digested a week of soft data, followed by a more dovish a Bank of England Governor Mark Carney. Hopes of a spring rate rise, which had been as high as 89%, have fallen dramatically. A weak UK GDP reading today could kill off any remaining optimism and subsequently keep the pound below $1.40.


    That said, there are several other events today, such as as an appearance by BoE Governor, which could still serve to boost or rein in investor hopes for that now not so likely May rate hike and US first quarter GDP release.


    US yields ease slightly overnight

    Dollar strength has been a major story across this week as US 10 year treasury yields have crossed the 3% psychological barrier for the first time in since January. Higher yields pushed the dollar northwards, touching 91.63 overnight, a 3 1/2month high versus a basket of currencies. Whilst yields pulled back slightly in early trade this morning, GBP/USD was showing its bruises, having fallen below $1.39 for the first time in 6 weeks, whilst EUR/USD remains close to $1.21 its lowest level since early January.

    Slowdown in US GDP expected to be temporary 
    Given the high inflation expectations, investors will be watching the release of the US GDP closely. Economic growth in the first quarter is forecast to have slowed to 2% on an annual basis, down from 2.9%, as consumers spending braked sharply. This is expected to more of a bump in the road rather than the start of a full on change in direction for the US economy, which remains supported by a tightening labour market and sizeable tax cut.


    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 Apr 2018 11:28 AM
    Slowing Smartphone Sales Could Undermine Apples Earnings

    Apple is the largest U.S. company by market cap, providing consumers around the globe with dozens of products including their benchmark iPhone.  The company is also very active in services which include Apple Music as well as Mac computers and iPads. The largest segment for Apple is iPhone sales, and recent comments by suppliers have seen analysts warn that Apple will lower guidance and forecast lower than expected future earnings.  Investor concerns have driven the share price down more than 10% from its highs in March ahead of its earnings release on May 1, 2018.

    iPhone X Expectations Where Too High

    Apple had a record performance in the second-half of 2017, but all the buzz surrounding the iPhone X and iPhone 8, have been clouded by calls from their supply chain that there is declining interest in chips.  It appears that there were unrealistic expectations for the demand of the iPhone X. During their recent earnings call, Taiwan Semiconductor said that smartphone sales weakness would negatively affect their sales during the Q2 of 2018.

    The Stock Price Has Underperformed Other Large Cap Technology Shares

    Apple shares have underperformed other large-cap technology shares during the second half of 2017 and the first 4-months of 2018.  The performance of Apple’s share price relative to the XLK technology ETF (which Apple is part of and the largest component) is down 11% since hitting a high on August of 2017, and down 6% so far in 2018. Apple shares are widely owned, and a further selloff in the share price will have a significant effect on the broader markets.

    The Numbers

    Apple is expected to earn $2.69 per share. The range of estimates places the high at $2.80 per share and the low is $2.51. Earnings per share a year ago were $2.10 which would put net profits up 28%. Revenues are expected to come in near $60.98 billion which is an increase of 15% in the fiscal Q2. This compares to 52.9 billion a year ago. The range of sales forecast sees the high at $62.37 billion and the low at $58.27 billion. For the quarter ending June 2018, expectations are for Apple to earn $2.16 per share on $52.04 billion in revenue up 15% year over year. Growth estimates are 28.1% for this quarter and 29.3% for next quarter.

    The trend in analyst’s forecasts is downward sloping.  EPS estimates have declined 7.5% over the past 90-days, and nearly 1% over the past 60 and 30-days. Apple is expected to update investors on its capital return plan when it releases its earnings. Expectations are for the company to increase its share buyback plan significantly as well as increase its dividend allocations.

    While earnings are likely to be strong, all eyes will be on guidance.  Expectations are already very low which gives the company an advantage. If Apple can dispute future declines in smart-phone sales and show that other segments are experiencing robust growth, the shares could rally from current levels.


    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 Apr 2018 11:30 AM
    Supermarket Merger Chat & A Weak Pound

    European bourses are pointing to a positive start, extending a positive session in Asia and despite a subdued close on Wall Street at the end of last week. Despite a flurry of strong earnings, the S&P eked out a close just 0.1% higher. The weaker pound and supermarket merger excitement is pushing the FTSE back towards its highest level since early February.


    Asda Sainsbury £15 billion merger announcement at 7am Traders will be bracing themselves for volatility in the retail sector and particularly in J Sainsbury when markets open this morning. Given that shorting retailers has been a huge trade over the past two years, news of potential tie up between Sainsbury, the UK’s 2nd biggest supermarket and 7th most shorted stock, and Walmart subsidiary Asda could see many caught on the wrong side of the bet in early trade on Monday.


    The timing of this deal is key. It comes potentially as a response to the Tesco and Bookers merger, which passed through the competitions agency without remedies and at a time when pressure from Amazon has stepped up following their purchase of high end supermarket Whole Foods. Given the more challenging outlook for the sector in the face of recent Tesco/Booker and Amazon/Whole foods tie up, Sainsbury and Asda were in danger of losing significant market share.

    This £15 billion deal, if agreed and approved by the Competition and Markets agency, potentially with just some disposals at local level, could change the landscape of the sector dramatically creating a more powerful rival to market leader Tesco.

    A further announcement is due this morning at 7am.


    GBP/USD remains sub $1.38

    GBP/USD saw an acceleration in recent losses as weak UK GDP data successfully killed off any last remaining hopes of a May interest rate rise from the BoE. The pound is trading quietly at the start of the new week around familiar territory of $1.3780 after plummeting 1.6% across the previous week and 4% since April’s peak of $1.4375.


    This week sees little potential for sterling bulls to take back control with no high impacting data due in the European session and just a scattering of PMI readings across the week. A continuation of weaker than forecast UK figures will see traders punish the pound, which could be a little shaky anyway on news of the resignation of the Home Secretary, Amber Rudd. US Personal Consumption Expenditure (PCE) the Fed’s preferred measure of inflation could derail the pound further when released at 13:30 BST.

    US PCE in focus ahead of busy week for the dollar After a good previous week for the dollar, there is plenty to keep traders focused on the greenback this week. First up Core PCE today is expected to have moved higher in March closer to the Fed’s 2% target at 1.9%, up from 1.6% in February. This reading comes ahead of the Fed rate decision and US non-farm payrolls later in the week.


    Widening US German yield keeps pressure on EUR/USD EUR/USD is having a quiet start to the week, continuing with a consolidative mood after the Asian session. Euro traders are looking ahead to fresh impetus from German inflation figures just prior to US PCE numbers, meaning EUR/USD could experience increased volatility around 13:00/13:30 BST.


    Also piling the pressure on EUR/USD is the widening of the US – German 10 year yield spread, which is at the widest level since 1989 on divergent central bank policy & inflation expectations. Strong US readings and a hawkish sounding Fed could widen the difference in yields further, piling pressure on the pair.


    A test of $1.2160 could be in line on the upside; support can be seen at $1.21 prior to $1.2060 and $1.2120.


    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 May 2018 9:34 AM
    Slow Start With Many Markets Closed For Labour Day

    US stocks markets gapped higher on the open, yet the positivity quickly evaporated, and US stocks moved steadily lower across the session. Not even a flurry of M&A activity was enough to keep Wall Street afloat as investors continued to fret over higher inflation expectations and a more aggressive Fed.

    Steel & Aluminium tariff deadline extended 
    Trump deciding to extend the deadline for his steel and aluminium tariffs helped lift Australian shares to a 7-week high overnight. This is encouraging news and supports the notion that the tariffs are just a negotiating stance by Trump, who in fact has no intention of implementing them. That said, there is still plenty of uncertainty over the US – China trading relations and the US - Iran nuclear deal to keep investors on edge.

    Many markets across the globe are closed for Labour Day so trading is expected to be a trickle out of the blocks rather than anything more high impacting. Commodities are expected to remain in focus with oil prices hovering around 3 ½ year highs as Trump threatens to pull out of the international nuclear deal with Iran, unless it is renegotiated by 12th May. Brent hit an overnight high of $74.84 per barrel, not far from last month’s peak of $75.47 per barrel, the highest level since 2014.

    Gold at 6 week  low

    Whilst energy is trading higher, elsewhere commodities are a mixed bag, with metals mainly in the red. Gold was a standout loser, dropping to a six-week low of $1311, trading at the lower of end the range for 2018 as the stronger dollar continues to grind prices lower.


    Apple to report

    The earnings reports from Apple later is set to attract significant market attention, particularly given the expectations for sluggish iPhone X sales at the world’s largest company by market cap. Earning season so far has produced some solid results, even the market leaders, the FAANGS (Facebook, Amazon, Apple, Netflix and Google parent Alphabet) of those that have reported, they have updated with robust numbers for both top and bottom lines. Yet instead of the solid earnings season giving bulls fresh reason to take the markets higher, the US equity indices haven’t benefited from such optimism.

    What is clear is that the markets no longer assume that solid Apple results are the given that they once were. Investors have been on edge that Apple might not live up to expectations. As long as Apple doesn’t give a downbeat guidance, the market should be able to take what Apple throws out. Given the negative bias to the markets, a downbeat guidance from Apple could prove too much.

    02 May 2018 5:09 AM
    FTSE To Follow Wall Street’s Broadly Higher Close

    The S&P and the Dow gapped lower on the open for the first time is 7 sessions as traders showed more concern than relief over the extension of the trade tariff reprieve for an additional month. This has been interpreted as yet another uncertainty which continues to loom over the markets rather than being any form of good news.

    Losses were clawed back throughout the session with the Nasdaq and the S&P closing in positive territory, lifted by a rally in tech stocks. However, overall, there was a distinct lack of enthusiasm, as investors remain troubled over the direction of the US – EU relationship in light of the trade tariffs, concerned over the Iranian nuclear deal and concerned over todays risk event – the Federal Reserve meeting and whether it will pull to the surface underlying concerns over future interest rate expectations.

    Apple Reassures

    After the bell Apple reassured the markets that demand for the iPhone was still alive and kicking even a decade after its first release. Apple reported resilient iPhone sales in the face of waning demand and $100 billion share buyback. Results beat Wall Street expectations, which had actually dropped ahead of the results given the increasing concern over iPhone sales. Apple’s outlook for the current quarter was also more optimistic than analysts’ driving shares up 3.6% in the after-hours trading.

    Suppliers across the globe had warned over demand weakness for smartphones which played into ongoing concerns over Apple reliance on the iPhone. Yet sales of 52.2 million iPhones, up from 50.7 million and just below expectations of 52.3 million has put those fears to bed, at least for the time being.

    Whilst the $100 billion share buyback and hike in dividend to 16% are certainly crowd pleasers, this is not driving future growth and the lack of enthusiasm for strategic investment is slightly concerning.

    FTSE pointing higher ahead of busy session 
    After Asian equities eased on Wednesday, the FTSE is set to follow the broader US market higher. With oil trading above $75 per barrel, Sainsbury’s reporting, UK construction pmi and Eurozone GDP data all before the Federal Reserve rate decision this afternoon, there is plenty for traders to focus on.


    UK Construction pmi

    After a dismal manufacturing pmi, investors are hoping for something more optimistic from the construction sector. March saw activity in the construction sector drop sharply lower into contraction territory. The expectation is for construction sector to have rebounded. Should this rebound not materialise, the pound could find itself sub $1.36 once again. House building stocks would also be expected to take a hit.

    FOMC in focus

    The dollar is trading close to 4-month highs ahead of the Fed rate decision. No hike is expected, given the increase last month, but we expect the Fed to start lifting expectations for hikes across the year with June set as the next target as inflation continues to tick higher and unemployment lower. The dollar index is just off slightly in early trade at 92.38 after rising to 92.5 overnight, it highest level since January.


    EUR/USD at $1.20 Ahead of EZ GDP

    The stronger dollar and weaker euro saw EUR/USD dive 0.75% on Tuesday, it is now holding steady around $1.20 with the both the eurozone GDP and the Fed rate decision to contend with. Eurozone GDP is forecast to have ticked lower to 2.5% from 2.7%. Fears over slowing momentum in the eurozone economy have been weighing on the euro over recent weeks, so a surprise to the downside could see the euro tumble lower. Slowing growth at around 2.5% seems slightly ironic, given that it is faster than US growth, and let’s not talk about the UK’s 1.4%. However, strong growth was one of the principal factors that drove the euro higher and if that eases, then so will the euro.

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