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Showing content with the highest reputation since 17/08/18 in Blog Entries

  1. 5 points
    What is the EOM indicator? An indicator that highlights the relationship between price and volume and is particularly useful when assessing the strength of a trend. As implied by its name, it is used to measure the ease of movement in price. It is a volume-based oscillator that fluctuates above and below the zero line. In general, when the oscillator is above zero, the price is advancing with relative ease. When the indicator is below zero, the prices are declining with relative ease. A wide range (difference between highs and lows) on low volume implies that price movement was relatively easy, as it did not take much volume to move prices. Alternatively, a small range and large volume indicates that price movement was difficult as there was a relatively small price movement on high volumes. Other important things to remember with EOM The closer the EMV line is to zero, the less ease of movement on that specific period. The bigger the spike in the EMV line, the more ease of price movement, either positive (if above the zero line) or negative (if below the zero line). The ease of movement indicator can also be used as an average, by adding together various single-period ease of movements and dividing them by the number of periods being considered. By smoothing out the indicator over time it can be used to identify trends and areas of convergence/divergence. A graphic example Let’s review the EOM indicator by using it in a real-life example which took place at the beginning of Dec ‘18. Using the Wall Street 30 min chart we can see a correlation between the EOM indicator and subsequent market movements at the opening of the session on Monday. Looking at the chart below you can see there is a positive spike in the EOM line which holds for a few periods before it starts declining. The cause for the spike is likely to have been the bullish (but cautious) reaction to a ceasefire between the US and China on trade tariffs. This could have meant that traders were holding Wall Street pushing the price higher, however maybe not as many people bought into the rally, therefore creating a big range on low volume. To summarise: After the initial positive reaction from the markets, traders could have become more sceptic about the viability of the ceasefire, and therefore a more bearish reaction comes in to play. This increases the range as lower lows appear maintaining the EOM at a high level. As more and more traders become sceptic, highs become lower, decreasing the range, which paired with a stable volume results in a declining EOM line. As you can see from the graph, the EOM line reacts before the actual price does, as a tightening range indicates that investors are becoming more bearish, which can eventually lead to a decline in price if it sustained over a period.
  2. 5 points
    I'm happy to announce that you can now add drawings to the indicator study area both on desktop and mobile of the IG charts. This new functionality has been developed on the back of client feedback submitted to Community, from within the dealing platform, and directly with our Trading Services and client facing teams. If you have any other requests, please add them in the comment section below and we'll make sure the charting dev team and product owners see them. You can now draw on indicators For instance, get more insight from your RSI indicator by drawing a trendline directly on the study area. The ability to draw on these indicators, such as MACD and volume, opens up a number of new options for technical analysis. Trends, for example, can add granular insight into market dynamics and can help improve the accuracy of your TA and strategy. But that's not all... We also; added the measure tool to the mobile charts and made it persistent on your screen so that it does not disappear when you tap or click away. improved the usability of the charts so that you cannot move your drawings by mistake when moving your charts sideways. To move a drawing, you would need to explicitly select it first. improved the general rendering performance of these drawings. Coming very soon! we've added the option to activate or deactivate the snapping on the candles. This should be rolled out around mid October. All the best and happy trading IG Community Moderator Team
  3. 2 points
    If you like to change between different intervals on the IG desktop charts (from 1 minute candlesticks to 5 or 10 minute candles, or to hours, days or months) then we've just made it easier with keyboard shortcuts. Whilst on a chart you can type any number from 1 to 5 on your keyboard to bring up a small 'interval' dialogue box, confirm your choice, and hit enter. For example: 1 minute intervals: type 1 then enter 5 minute intervals: type 5 then enter 1 hour intervals: type 1 h then enter 2 hour intervals: type 2 h then enter 1 week intervals: type 1 w then enter See crosshair data on future dates You can now place your cursor/crosshair on a future date and see the level and time/date where you are positioned. Whilst this is a very minor update which could be seen as a trivial feature, it can become quite handy if you're looking at a trend and want to know exact levels and the time they will be reached. Simply position your cursor in the future and you’ll see the corresponding information straight away. If you have any questions or feedback on this, please feel free to share in the Comment section below.
  4. 2 points
    In a similar manner to our position preview feature you can now see your working order shaping up on the charts as you start creating orders from the ticket. Simply input your order direction, size and level and you will be able to see a preview on the chart. You can then decide to drag you Stop and/or Limit from the chart to define their absolute level and see the related Risk/Reward Ratio. Once you are happy with this just place your order from the ticket et voila! If you have any comments, feedback, or questions on this please add your thoughts to the comment section below. Client feedback is a driving force behind platform improvements and all suggestions are forwarded to the appropriate project management and product ownership teams. NB: You will need to make sure 'position preview' is on - you can toggle this by right clicking on the charts and navigating to 'show'.
  5. 2 points
    In the Aftermath of the Fed The baton has been dropped. The Federal Reserve was by far the most aggressive major central bank through this past financial epoch (the last decade) to embrace ‘normalization’ of its monetary policy following its extraordinary infusion of support through rate cuts and quantitative easing (QE). Over the past three years, the central bank has raised its benchmark rate range 225 basis points and slowly began to reverse the tide of its enormous balance sheet. As of the conclusion of this past week’s two-day FOMC policy meeting, we have seen the dual efforts to level out extreme accommodation all but abandoned. A more dovish shifted was heavily expected given the statement in January’s meeting, the rhetoric of individual members as well as the state of the global markets and economic forecasts. Yet, what was realized proved more aggressive than the consensus had accounted for. No change to the benchmark rates was fully assumed, but the median forecast among the members accounted for a faster drop than the market likely thought practical. From the 50 bps of tightening projected in the last update in December, the median dropped to no further increases in 2019 and only one hike over the subsequent two years. Over the past three years, the central bank has raised its benchmark rate range 225 basis points and slowly began to reverse the tide of its enormous balance sheet. The Dollar responded abruptly Wednesday evening with a sharp tumble, but there was notably a lack of follow through where it counted – the DXY Dollar Index wouldn’t go the next step to slip below its 200-day moving average and break a ten-month rising trend channel (a hold that confounded those trading an presumed EURUSD breakout). Why did the Greenback hold – for now – when the move was clearly a dovish shift? Likely because the market is already affording for an even more dovish forecast as Fed Fund futures have set the probability of a 25bps cut from the Fed before the end of the year as high as 45 percent. What’s more, if you intend to trade the Dollar; it is important to recognize that even with a more dovish path ahead, the Dollar and US assets will maintain a hearty advantage over its major counterparts. That would particularly be the case should other groups extend their dovish views to more actively explore deeper trenches of monetary policy. Looking beyond the Dollar’s take, however, there are far more important considerations for the global financial system and sentiment. The Fed was the pioneer of sorts for massive stimulus programs designed to recharge growth and revive battered markets. It was also the first to start pulling back the extreme safety net when its effectiveness was facing deserved scrutiny by even the most ardent disciple of the complacency-backed risk-on run. In other words, its course change carries significantly more weight than any of its peers. The question ‘why is the Fed easing back and so quickly’ is being posed consistently whereas in the past market participants would have just indulged in the speculative benefits. The overwhelming amount of headline fodder – from trade wars to frequency of volatility in the capital markets – makes for a ready list of considerations. Yet, the group’s own economic forecasts brought the reality home far more forcefully. Though we have seen numerous economic participants downgrade the growth outlook (economists, investors through markets, the IMF, etc), to see the median GDP forecast in the SEP (Summary of Economic Projections) lowered from 2.3 percent to 2.1 percent for 2019 made the circumstances explicit. We’ve considered multiple times over previous months what happens if the market’s start to question the capability of the world’s largest central banks to keep the peace and fight off any re-emergences of financial instability. Now it seems this concern is being contemplated by the market-at-large. That doesn’t bode well for our future. A Sudden Fixed Income Interest When ‘Recession’ Warnings Take Hold Except for fixed income traders and economists, the yield curve is rarely mentioned in polite trader conversation or in the mainstream financial media. Its implications are too wonky for most as it can be difficult to draw impact to the average traders’ portfolio and given the considerable time lag between its movements and capital market response. Yet, when it comes to its most popular signal – that of a possible recession signal – the structure of duration risk suddenly becomes as commonplace a talking point as NFPs. On Friday, the headlines were plastered with the news that the US Treasury yield curve had inverted along with a quick take interpretation that such an occasion has accompanied recessions in the past. There have actually been a few parts of the US government debt curve that have inverted at various points over the past months, but this occasion was trumpeted much more loudly as it happened in the comparison to the 10-year and 3-month spread (what has been identified as a recession warning even by some of the Fed branches themselves). First, what is a ‘curve’? It is the comparison of how much investors demand in return (yield) to lend to the government (for Treasuries specifically) for a certain amount of time. Normally, the longer you tie up your money to any investment, the greater the risk that something unfavorable could happen and thereby you expect a greater rate of return. When the markets demand more for a short-term investment than a longer-term one in the same asset, there is something amiss. When the markets demand more return from a three-month loan to the US government than a 10-year loan, it seems something is very wrong. Historically, the inversion of these two maturities has predated a number of us the recessions in the United States – most recently the slumps in 2008, 2001 and 1990. When the markets demand more return from a three-month loan to the US government than a 10-year loan, it seems something is very wrong. First is the lead period the curve reversal has to economic contraction. The signal can precede a downturn in growth by months and even years. Preparation is good, but moving too early can ‘leave money on the table’ for the cautious or accumulate some serious losses for those trying to trade some imminent panic. Further, there are certain distortions that we have altered the course in normal capital market tributaries that could be doing the same for Treasuries and therefore this reading. More recently, the revived threat of the US government shutdown through December and the unresolved debt ceiling debate put pressure on the asset class. At the same time, though, few believe the US would do little more than allow for a short-term financial shock in order to make a political point. Far more complicating for the market and the signal is the activity of the US and global central banks. The Federal Reserve has purchased trillions in medium-dated government debt as part of its QE program. They only started to slowly to reduce holdings and push longer dated yields back up a few years after they began raising short term rates in earnest. Their recent policy reversal only adds to the complication. Now, all of this does not mean that I believe the US and global economies will avoid stalling out or even contracting in the near future. Between the dependence on capital markets and stimulus, the heavy toll of trade wars and nationalistic policies, and the pain for key players in the global web; there is a high probability that we will see an economic retrenchment in the next few years. That said, that wouldn’t make this particular signal a trigger (causation) or even correlated through the main forces that would bring on a recession. Nevertheless, yelling ‘fire’ in an a panicky crowd on foggy day can still yield volatile results. Brexit, Just Winging It Another week and another upheaval in Brexit expectations. Through much of the past year’s anxiety over the withdrawal of the United Kingdom form the European Union, there was at least some comfort to be found in the finality of the Brexit date (March 29th, 2019). While it could end in favorable circumstances for financial markets (a deal that allows considerable access for the UK) or acute uncertainty (a no-deal), at least it would be over. Well, that assurance is as clouded as the expected outcome from the negotiations themselves. Shortly after I wrote the Brexit update last week whereby there was a clear timeline for another meaningful vote on the Prime Minister’s proposals – after Parliament voted for an extension of negotiations – the Speaker to the House of Commons thwarted the effort when he said the scheme would not be reconsidered unless it was materially different. It is likely that see another significant change in this drama any times (and even multiple times) this week. At Prime Minister May’s request, the European Commission agreed to an extension of the discussions beyond the original Article 50 end date for this coming Friday. Yet, where the PM intreated a postponement out to the end of June, the EU agreed only to May 22nd – the day before European Parliamentary elections. Beyond that date, the UK would theoretically remain under the regulations and laws of the EU but would have no say in their direction which wouldn’t appeal to either side. So, now we are faced with another ‘fluid’ two months of critical deadlines. This week, it has been suggested the government will try to put up once again for a meaningful vote – though it is still not clear whether the proposal will be meaningfully different (the EU has offered no further concessions) or there has been a successful challenge against the Commons speaker. When this could be put up to vote is unclear, but it has been suggested between Monday and Wednesday. If the proposal is approved, the timeline to May 22nd will remain and we will start to see a genuine path form. If it is not, then the following week Parliament will have to indicate that “they have a way forward”. If they do not, an extension or no deal will likely be considered for April 12th – out to the previously mentioned May 22nd date. If we pass April 12th without a clear plan, the probabilities of a ‘no deal’ or ‘no Brexit’ will rise significantly. Those two scenarios are extreme and on the opposite end of the spectrum. From a Pound trader or global investor considering UK exposure, you can imagine what a situation where the probability of diametrically-opposed, market-moving outcomes are considered balanced would do to the markets. It will curb market liquidity and leverage uncertainty. That would translate into divestment, difficulty establishing trends and serious volatility. If that isn’t your cup of tea, it is best to seek opportunities elsewhere for the next few months until this is sorted.
  6. 2 points
    Market action proves it again: this market hinges on the Fed: The US Fed has proven itself as the most important game in town for traders. The FOMC met this morning, and lo-and-behold: the dovish Fed has proven more dovish than previously thought; the patient Fed has proven more patient that previously thought. Interest rates have remained on hold, but everyone knew that was to be the case today. It was about the dot-plots, the neutral-rate, the economic projections, and the balance sheet run-off. On all accounts, the Fed has downgraded their views on the outlook. And boy, have markets responded. The S&P500 has proven its major-sensitivity to FOMC policy and whipsawed alongside a fall in US Treasury yields, as traders price-in rate cuts from the Fed in the future. The US Dollar sends some asset classes into a tizz: The US Dollar has tumbled across the board consequently, pushing gold prices higher. The Australian Dollar, even for all its current unattractiveness, has burst higher, to be trading back toward the 0.7150 mark. Commodity prices, especially those of thriving industrial metals, have also rallied courtesy of the weaker greenback. Emerging market currencies are collectively stronger, too. This is all coming because traders are more-or-less betting that the Fed is at the end of its hiking cycle, and financial conditions will not be constricted by policy-maker intervention. Relatively cheap money will continue to flow, as yields remain depressed, and allow for the (sometimes wonton) risk-taking conditions that markets have grown used to in the past decade. Some risk being taken again, though somewhat nervously: The play into risk-assets makes everything sound quite rosy. There are caveats to this, however. And that relates to what’s been inferred about global growth from the Fed’s meeting this morning. Implicitly, at the very least, the Fed has acknowledged that growth in the US and world economy is all but certain to slow-down. It wasn’t said outright – a central banker would never want to be anything less than cautiously optimistic – but the tone of Fed Chair Powell at his presser suggests a Fed that is sufficiently concerned about the global economy that they will definitively reverse its policy “normalization” course. Positivity was maintained by the Fed about US economic conditions, outrightly. However, the market has read between the lines, and it doesn’t like what it sees. Interest rates are now expected to be on hold for this cycle: So: although swung around post release, the more important bond market is telling a clearer story. The yield on the US 10 Year Treasuries have tumbled nearly 8 points to 2.53 percent, and the yield on US 2 Year Treasuries has fallen 7 points to 2.39 per cent. More remarkably, the yield on Treasuries with 3, 5- and 7-year maturities have dropped over nine points, creating a yield curve with a very flat belly. Of most concern here is that all of these securities are trading just at, or well below, the Fed’s current effective overnight-cash-rate of 2.40 per cent. Traders are now pricing in a greater than 50 per cent chance the Fed will cut rates by early next year, on the basis of deteriorating economic conditions. It’s getting harder for the Fed to get the right balance: The tight rope is getting narrower. For market participants, as always: on one side of it sits the need for accommodative financial conditions, on the other the need for robust growth conditions. It’s the rudimentary in principle, though complicated in practice, interplay between the credit cycle and the business cycle. Out of this Fed meeting, the proverbial tight rope walker is nervously shifting her gaze down towards the economic growth outlook. Powell and his team have apparently not struck the necessary equilibrium in its approach to its policy and communications to the market. Yes (again), risk assets have rallied, but right now, not in such a way that suggests the bulls are significantly more confident in the investment environment being planted before them. Other stories also important, though not as much as the Fed: Some of this could be attributed to the overhang coming from some of the other significant economic stories yesterday. Sentiment has been dented by news that key EU figure Donald Tusk may demand that no Brexit extension is granted for the UK; it has also been liver-punched by a story suggesting US President Trump does not necessarily see a lifting of tariffs on China occurring in any US-Sino trade deal. Once more: it does appear that markets have seen the greatest gravitas in the Fed meeting, though. And traders’ nervousness is being betrayed by this: despite a dovish tact, corporate credit spreads have rallied, the VIX is off its multi-year lows, and US Break-evens are revealing greater inflation risk in the US economy. Australian markets to be defined by Fed and employment numbers: Fittingly, SPI Futures are suggesting the ASX200 will open somewhere between 5-and-10 points lower this morning. Speaking of markets and the growth outlook, not only will Australian trade be impacted by the fall-out from the Fed’s nervously dovish tilt, we also get some highly anticipated employment figures out this morning. The currency and rates markets will be what to watch for: the themes driving the ASX200 this week is the renewed push in iron ore prices, along with the rotation into yield-driven defensive sectors as Australian ACGB yields tumble. The RBA have hitched their hopes for the Australian economy on a tightening labour market and subsequent lift in wages growth and inflation. Watch therefore today for any major downside miss in employment numbers. Written by Kyle Rodda - IG Australia
  7. 2 points
    The IG web trading platform has several alert functions which can be used to notify you of potential trading opportunities and market volatility. We have different alerts for all types of traders, from the technical analyst to the long-term investor. Before we get into the different alert types it’s worth making sure your Notification Preferences on MyIG are set up correctly and notifications are turned on within your mobile settings area. The blog article on the right may be of help if you would like a walk through of turning on notifications. Setting up Price Change alerts A Price Change alert will notify you of either a percentage move or a points-based movement over a set time frame. These alerts are great for applying to assets in your open positions window, as well as markets you are looking to trade on. Percentage or points-based movement Variable time frame of 5 minutes, 1 hour or 1 day Add a message if you wish These will continually trigger until you remove them from the ‘Alerts’ fly out on the left-hand side. Therefore, if you set up an alert to be notified if Spot Gold moves by 1% in a day, and there are three days’ worth of 1% movements back to back, you’ll be alerted for each of these moves. Price Change alert ideas Set up a Price Change alert for a 2% move in a day for a major index such as the S&P or Wall Street. This sort of move in a single day would probably suggest a key market event has happened. Set up a Price Change alert for an x% move in a stock you have on your watch list. Maybe a significant move would present a swing trade opportunity. Setting up Price Level alerts A Price Level alert will notify you when a specific price point has been breached by the market. You can be notified if either the buy or sell price passes your desired threshold. Be alerted to a specific price movement, e.g. If the buy price of gold reaches 1290 Add a short message if you wish These are only triggered once Price Level alert ideas Set a Price Level alert on the VIX Volatility Index if the price reaches 17, 20, and 25. A VIX movement above 20 generally suggests market volatility and potentially opportunity to trade. Historically the median of the VIX is around 17, and anything below this suggests markets are likely to be a little flat. Setting up support and resistance levels but want to re-evaluate the markets when those price points are reached? Use a Price Level alert. Setting up Indicator alerts You can set up indicator alerts from the dealing platform under the alerts tab. You need to pick a resolution and price for the alert to look at, and then you can start adding indicators. Use indicator alerts to be notified of your criteria being hit from your technical analysis Choose to be alerted once, or multiple times Add up to 4 indicators from a choice of 11 to the same alert Add indicators on the charts by right clicking to get a rough idea of when/if your alert will trigger. Indicator alert ideas These alerts can be as simple or as complicated as you like. You can find a lot of information on technical analysis on IG.com, YouTube, or by searching for strategies related to ‘x’ indicator. For example; A crossover strategy: when two moving averages cross, for example the short term 50 MA moving above the 200 MA, it may indicate an upward price trend. Setting up macroeconomic alerts from the Economic Calendar You can access IGs Economic Calendar from within the dealing platform down the left hand fly out. Once the calendar has opened in a new tab select the date and use the ‘check’ tick column if you want to be notified about an event. Clicking the cog at the top of the column allows you to set the specific notification preferences for these alerts (for example, notify before or after the event, and how you want to be notified). Try it out by searching for the next Non-Farm Payroll (NFP) figure and set the alert to be notified 15 minutes before the event, as well as on the event. You should receive a notification with expectations, along with the actual results afterwards.
  8. 2 points
    I just wanted to update all Community members to let them know that we have recently reduced the minimum bet sizes on some key indices, commodities, and FX markets. This has been done for both UK spread betting accounts and European CFD accounts. What are the minimum bet sizes for indices, commodities and FX on IG? Correct as of 6th September 2018 but subject to change Continued feedback A key aim of Community is to keep a two way dialogue open between our client base and those on our trading services support team, core dealing and developer teams. The decision to reduce minimum bet sizes across these markets has in part been due to feedback received from a number of our clients and those on Community. A big thank you to those who have shared their thoughts on this over the last few weeks. Please feel free to continue to add feedback and suggestions on Community at any point. If you have any feedback on this specific change please feel free to add it below. All the best IG Community moderator team
  9. 2 points
    Hong Kong’s Hang Seng index pulled back last night with gambling shares having a bad time after falling revenues in Macau's casino region. US-Sino tensions rise as a US ship enters Chinese territory. Stay on top of currency markets as trade war tensions rise with #IGForexChat. The financial and healthcare sectors pushed the ASX lower whilst China remained closed for another public holiday. Bank of Australia holds cash rate at 1.5%. Japan’s Nikkei was the lone star in the Asian overnight session with a positive reading. USD/JPY climbs to 11 month high as speculators increase their short position on the yen. Euro looks to rebound following the Italian budget movement. Analysts suggest it may return to its previous trend, albeit a bearish one. Continued speculation for the conservative conference today with Theresa May expected to announce some concessions in her Brexit deal. Boris Johnson to speak later today. Yesterday saw a volatility spike in GBP/USD which we could see again today on the right type of news. Aston Martin has cut its maximum share price for its IPO from £22.50 down to £20 flat. The valuation toward the higher end of this downgrade should see the car manufacturer still slip into the FTSE 100 at £5bn, with the lowest constituent currently £4.7 in the existing index. Niche demand for high end luxury manufacturing by fund managers was the culprit. Expectations are still there for an IPO this week. Asian overnight: Japanese markets remained the one area of strength yet again overnight, as the ASX 200 and Hang Seng traded in the red once more. China remains on holiday and will be so for the rest of the week. The big overnight data point came in the form of the RBA rate decision, with the bank retaining rates at 1.5% as expected. The bank continues to see issues in the form of low household income growth, risks to consumption, and inflationary pressure from rising oil prices, pointing towards continued low rates for some time yet. LNG could be an interesting market to follow over winter... As public sentiment on pollution changes in China many are speculating on a repeat of last years movements in the liquefied natural gas market going into the colder months. Last year LNG imports were nearly 50% higher than the previous year. The key uncertainties for the market will be weather conditions (the colder the better for bullish traders), and whether or not the Chinese government has managed to maintain and hold onto its inventories and reserves (in which case the lower the better). LNG could be an interesting market to follow over winter as public sentiment on pollution hasn’t changed much from 12 months previous, and strong demand in Europe continues to buoy the price. You can blame that on an increase in carbon emission credit cost (boosting demand for cleaner fuels) and a colder start to the year. UK, US and Europe: Looking ahead, the UK construction PMI provides the centre point of European trade, with markets likely to continue looking towards any statements or rumours around Brexit for further GBP volatility. Keep an eye out for appearances from Fed member Quarles and Powell in the afternoon. South Africa: Equity markets are under pressure once again this morning, led by declines in European Futures. Markets are drawing concern from Italy's budget proposal, which the EU have said could invoke a Greek styled financial crisis. US Futures are trading mixed. In turn, we expect the Jse AllShare index to open up marginally lower this morning. Metal prices are trading slightly firmer this morning while oil prices continue to post significant gains in the wake of looming Iran sanctions and OPEC's suggested capacity constraints. Tencent Holdings is down 2.2% in Asia, suggestive of a weaker start for major holding company Naspers. BHP Billiton is trading 0.25% higher in Australia, suggestive of a marginally positive start for local diversified resource counters. Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 9.30am – UK construction PMI (September): expected to rise to 55 from 52.9. Market to watch: GBP crosses Corporate News, Upgrades and Downgrades Ferguson reported pre-tax profit for the year rose 16.6% to $1.19 billion, while revenue was up 7.6% to $20.75 billion. The dividend was raised by 21% to 189.3 cents per share. Ryanair said that volume rose 11% in September, though strike action caused the cancellation of 400 flights in the month. Revolution Bars said that pre-tax losses were £3.6 million, from a profit of £5.2 million a year earlier. Datatec has released a trading statement for 1H19 guiding that headline earnings per share is expected to be between 0.5 and 1 US cents (1H18 Reported: loss per share of 5.8 US cents). Group Five Ltd FY18 results showed a loss per share of 1334c which compares with a loss per share of 829c in the previous year. Credit Agricole raised to overweight at Morgan Stanley Metso upgraded to overweight at JPMorgan Atlas Mara downgraded to hold at Renaissance Capital Danske Bank cut to equal-weight at Morgan Stanley Royal Mail downgraded to underweight at JPMorgan Learning Technologies Group downgraded to add at Peel Hunt IGTV featured video Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  10. 2 points
    MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.3 percent, while Japan's Nikkei dropped 0.5. Global bond sell-off triggers the biggest decline in US equities in nearly four months. As 10-year treasury yields surge to the highest level since 2011, fears that current rates could restrain growth has hit stocks across the US, Europe and Asia. FTSE 100 posting its biggest drop since August yesterday. The Dow Jones drops more than 250 points as treasury yield rates surge, while the S&P 500 lost 0.82 percent and the Nasdaq Composite dropped 1.81 percent. In EM the Indian rupee has strengthened going into the RBI interest rate decision. After significant devaluation of the Turkish lira recently, it looks like the re-balancing of its economy is under way as the trade ministry report an increase in exports. This has been faster and stronger than expected. US non-farm payroll release today. US Labour department forecasts an increase of 185,000 in non-farm payrolls last month and the unemployment rate is expected to fall by 0.1% to 3.8% - an 18 year low. Asian overnight: Once again it is the Australian ASX 200 which provides the one outlier to a wider bearish story within Asia, where China remains the notable absence for the duration of the week. Data-wise, the Australian economy received a boost in the form of a stronger retail sales number, coming in at 0.3% as expected. Emerging market currencies have been under pressure this week, and the Indian Rupee is in focus today, the RBI expected to raise rates later in the morning. As always any USD cross will likely experience significant volatility around NFP UK, US and Europe: The US Treasury yield is making headlines and often seen as a ‘safe haven’ or risk free investment over periods of potential uncertainty. A rising curve is generally seen as negative across other asset types. Wall Street also took a hit as FANG stock drew blood as investors and speculators begin to price in a potential acceleration in inflation. Continued positives in jobless claims and factory orders out yesterday all painted a good picture for the US economy, nicely lining up the non farm payrolls figure due at 1.30pm BST. As always any USD cross will likely experience significant volatility around this time, along with most assets quoted in USD. Bond markets, oil, and inelastic soft commodities may also see fallout. A relatively quiet European session today sees very little in the way of major market moving events, where the German factory orders has already been released before the bell (up to 2% vs 0.7% expected). Following yesterday’s relative lull in data, today sees all eyes turn towards the US once more, with the jobs report due out alongside the Canadian version. The rise in yields off the back of strong US data on Wednesday is likely to come back into play for traders. Those following this trade should keep an eye on the jobs numbers, as a similar outperformance is expected to bring another surge. Meanwhile, coming off the back of the US-Canada trade deal, the Canadian dollar could receive another boost with markets expecting an improved employment change and unemployment rate today. Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 1.30pm – US non-farm payrolls (September), balance of trade (August): forecast to see 185K jobs created from a reading of 201K a month earlier. The unemployment rate is expected to fall to 3.8% from 3.9%, while average hourly earnings rise 0.2% MoM from 0.4%. Trade deficit to narrow to $50 billion from $50.1 billion. Markets to watch: US indices, USD crosses 1.30pm – Canada employment (September): 11,400 jobs expected from a drop of 51,600 a month earlier. Market to watch: CAD crosses Corporate News, Upgrades and Downgrades Lenovo shares drop 20% following report over alleged Chinese spy chips. Unilever withdraws proposal to simplify dual structure. Danske Bank confirmed yesterday that the US DoJ is investigating potential money laundering activity and that they’re received a ‘request for information’. Danish regulators have said they want the bank to increase their capital reserves, whilst Danske themselves recently confirmed they’re going to stop a share buy back program. Shares are down nearly 40% from the beginning of the year. Intu Properties faces a takeover by its largest investor, Peel Group, in a multi-billion pound deal. Toyota recalling over 2.4 million hybrid vehicles over battery faults. Centamin has lowered gold production guidance for the year, with output now expected to be around 480,000 ounces, below the 505-515K oz. However, Q3 production was up 27%. Intertek Upgraded to Buy at Berenberg Eutelsat Upgraded to Buy at Goldman Proximus Upgraded to Overweight at JPMorgan Helvetia Downgraded to Hold at Baader Helvea Antofagasta Downgraded to Sell at Goldman IGTV featured video Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  11. 2 points
    Theresa May declares to end austerity in the much anticipated Conservative party conference yesterday. Bloomberg has also reported this morning that the prime minister plans to rush her Brexit deal through parliament in a bid to stop the opposition voting down the treaty. The DOW hits record highs of 26,951.81 but stocks close with minimal change on the day as rising interest rates have made investors wary. The tension between the U.S. and China continues as China plans to sell $3bn worth of dollar bonds. In EM the Brazilian stock market is having it's strongest rally over the past two years, up more than 3%, as far-right candidate Jair Bolsonaro has extended his lead in the Brazilian election, according to opinion polls. European market regulators, ESMA, are drafting a number of bilateral agreements with the FCA in an effort to reduce market instability going into Brexit. A lack of political agreement is the main worry, which the second tier financial regulation helps to mitigate. The 10-year US treasury rose to a seven year high in response to yesterday’s impressive US data which also drove the likes of the Dow and S&P 500 to record highs. AUD has fallen steadily against the US dollar, coming in at the lowest since mid-September, initially fueled by the release of weaker than anticipated local building approvals data in Australia. Asian overnight: Yet another day of losses for Asian markets has seen Japanese and Hong Kong indices trading in the red, with Australia representing the one outlier to that story. China remains on holiday and will do so for the duration of the week. Data-wise, the Australian trade data saw an improvement to the overall balance following a rise in exports (1% from -1%) and flat imports (0%). UK, US and Europe: Looking ahead, we have precious few notable economic events to look out for, with US unemployment claims, factory orders, and the Canadian Ivey PMI numbers providing the only releases worth watching out for. This leaves markets to ponder ongoing themes, with Brexit (post-Conservative conference), Italian deficit (as coalition aim to produce budget) and the US-China trade war remaining key drivers of uncertainty. The recent rallying of oil prices seems to have come to an end as prices fell from four-year highs. Theresa May has called for party unity over her plan to divorce the UK from the EU or risk having "no Brexit at all". The cry for support comes after Boris Johnson's explosive speech on Tuesday, which the prime minister admits made her "cross". RBS Boss, Ross McEwan, is someone who is hoping that Brexit does not get to the stage of a no-deal, as he warns a bad Brexit could see the UK go into a recession. The recent rallying of oil prices seems to have come to an end as prices fell from four-year highs. This is the result of rising U.S. oil inventories and multiple sources reporting that Saudi Arabia and Russia struck a private deal in September to raise output without consulting other producers, including OPEC. South Africa: US Index Futures and Asian equity markets are suggesting a softer start for our local bourse (Jse All Share Index). A stronger than expected US private sector jobs report yesterday, has resulted in a strengthening dollar and higher treasury yields. In turn precious metal prices have come under pressure while the rand has softened against the greenback. Tencent Holdings is trading 2.5% lower in Asia, suggestive of a similar start for major holding company Naspers. BHP Billiton is up 0.9% in Australia, suggestive of a positive start for local diversified resource counters. Today's economic calendar is light in terms of scheduled news events, with perhaps FOMC member Quarles' public address at 3:15pm the most relevant to watch out for. Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 1.30pm – US initial jobless claims (w/e 29 September): claims forecast to fall to 206K from 214K. Markets to watch: US indices, USD crosses 3pm – Canada Ivey PMI (September, seasonally adjusted): expected to decline to 61.4 from 61.9. Market to watch: CAD crosses Corporate News, Upgrades and Downgrades Ted Baker said that revenue rose 3.5% to £306 million for the first half, but pre-tax profit dropped 3.2% to £24.5 million. Electrocomponents reported a 10% rise in like-for-like sales for the first half, and half-year adjusted pre-tax profit is expected to be around £100 million, up from £79 million. Aston Martin shares fell on it's first full day of trading, having opened at £19 the shares fell as low as £17.75 before closing for the day at £18.10. Another recent company that had an IPO in the UK, the Funding Circle, also saw their stock price dive as much as 24%. With both of the recent high-profile IPO's in the UK failing to live up to initial expectations, it will be interesting to see trader sentiment for upcoming IPO's. The disappointing debuts have put the spotlight on some of the biggest investment banks in the world who were involved in the IPO's, such as BoAML, JPM, Morgan Stanley and Goldman, as analysts suggest the newly-listed companies were not priced correctly. Barnes and Noble is up 20% as the board has initiated a review process which aims to evaluate strategic alternatives, which includes the sale of the company. Cannabis stock Tilray has fallen 12% in the extended session after the firm announced plans to offer $400 million in convertible notes to institutional Canadian investors, which can be converted into shares. Watch out for Constellation, Corona beer owner, who are reporting earnings later today at 15:30 UK time. The company made headlines earlier this year as they poured $4bn into Canopy Growth, Canada's top cannabis producer. Software companies Horton and Cloudera have announced a merger which saw both shares raise 19% and 18% respectively. Swisscom Raised to Equal-weight at Morgan Stanley Gecina Rated New Overweight at Barclays Shaftesbury Upgraded to Neutral at Kempen & Co Swedbank Downgraded to Neutral at JPMorgan Sunrise Cut to Underweight at Morgan Stanley IGTV featured video Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  12. 2 points
    The London Metal Exchange: LME The LME is one of the last pit traded venues in the world which has escaped the computerisation and digitalisation of the modern world. The iconic image of the 80's with men in brightly coloured suits has all but gone, however the live 'ring' as it's known is still the number one place in the world to trade a number of ferrous, non-ferrous, precious and minor metals. LME participants can trade and take or make delivery of aluminium, copper, tin, nickel, zinc, lead, aluminium alloy and NASAAC, as well as steel and scrap contracts, LME silver and LME gold, and other lesser known metals such as cobalt and molybdenum futures. We recently spent an afternoon at the venue and I managed to take the following video which I thought I would share with Community members. The LME is used for dealers and institutional trading houses who sometimes work on behalf of real world companies such as car manufacturers who need aluminium for delivery. A staggering 80% of the worlds industrial metal prices are set in this room. Everyone tends to wait until the end of the session, so the final few moments can be very exciting! It's only a minute or so long, but you can see the excitement as people can't even stay on their seats around the 30 second mark! Trade LME metals with IG As as exciting as this can be, I still think it's quite good that you can get exposure to all these same assets on the IG dealing dealing platform. Simply check out the Commodities section on the left hand fly out, and scroll to 'Base Metals'. You can also use the 'news' section on the left to search for specific news relating to these markets which may be lesser known to yourself.
  13. 2 points
    China trade war escalates as new tariffs kick in: U.S. economy set to slow from here on, damaged by trade war EM ASIA FX soften as dollar recovers after falling for six straight sessions Wall Street sets record for longest bull run in history; Key S&P 500 index passes landmark as it goes 3,453 days without major correction Brexit contingency plan papers released; Brexit could be good news for Britain's farmers Australian dollar drops as three government ministers quit Crude oil sees it's largest gains in two months on varying signs of ebbing supply Asian overnight: Another indecisive session overnight has seen weakness in Hong Kong and Australian stocks counteract the already unimpressive gains seen in Japan and China. The Australian dollar came under pressure after three main cabinet members resigned to switch allegiance to Peter Dutton, who aims to become the next Liberal leader and ultimately the next Prime Minister. The dollar also strengthened overnight following an optimistic outlook from the Fed, with yesterday’s minutes pointing towards a rate hike at the next meeting despite concerns over trade tensions. Trade talks in China continue into their second day today, yet with neither side likely to cede much ground, it seems likely we will see a positive resolution. UK, US and Europe: A very busy economic calendar sees the day kick off with a host of eurozone PMI readings from the likes of the French, German, and eurozone services and manufacturing sectors. This does carry into the afternoon, with the US manufacturing and services PMI surveys due for release. Also keep an eye out for the eurozone minutes, alongside consumer confidence data, which will both bring expectations of heightened volatility for the euro. Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 8am – 9am – French, German, eurozone mfg & services PMI (August, flash): German mfg PMI to fall to 55.5 from 56.9, while eurozone mfg PMI to fall to 54.6 from 55.1. Markets to watch: eurozone indices, EUR crosses 12.30pm – ECB meeting minutes: these could provide some support to a flagging euro if they reinforce the image of a bank moving towards tightening policy in the longer term. Markets to watch: eurozone indices, EUR crosses 1.30pm – US initial jobless claims (w/e 18 August): claims expected to rise to 217K from 212K. Markets to watch: US indices, USD crosses 2.45pm – US mfg & services PMI (August, flash): mfg PMI to fall to 55.2 from 55.3, while services PMI to fall to 54 from 56. Markets to watch: US indices, USD crosses 3pm – US new home sales (July): forecast to rise 0.6% MoM from -5.3%. Markets to watch: US indices, USD crosses 3pm – eurozone consumer confidence (August, flash): forecast to fall to -0.7 from -0.6. Markets to watch: eurozone indices, EUR crosses Corporate News, Upgrades and Downgrades CRH said that first-half profits rose 4.6% to €497 million, while sales were 1% higher at €11.9 billion. Performance was affected by weather disruption in Europe and North America, and currency headwinds. The dividend was raised by 2.1% to 19.6 cents per share. Premier Oil reported pre-tax profit of $98.4 million for the first half, up from $40.7 a year earlier, while cash flow fell to $276.6 million from $282.7 million. Net debt was cut to $2.65 billion from $2.72 billion a year earlier. OneSavings Bank has upgraded tis growth forecast thanks to a good start to 2018. Pre-tax profit in the first half rose 17% to £91.8 million, with the loan book up 11% to £8.1 billion. Growth is now expected to be in the ‘high teens’, from a previous ‘mid-teens’ forecast. BNP Paribas upgraded to buy at Bankhaus Lampe Masmovil upgraded to overweight at Barclays Sunrise upgraded to overweight at Barclays Zooplus upgraded to hold at Kepler Cheuvreux Deutsche Euroshop cut to hold at Berenberg Terveystalo cut to underweight at Morgan Stanley IGTV featured video Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  14. 1 point
    ECB Didn’t Live Up to Lofty Speculation, Will the Fed? There is a span of high-level rate decisions this coming week, but only one of these updates carries serious potential to not only move its domestic assets but further potential to generate reaction from the entire financial system: the FOMC. This past week, the European Central Bank offered us a look into how far the dovish reach of the largest central banks is currently stretching. Against heavy speculation that the group was going to clearly lay out the runway to further rate cuts and escalation of unorthodox policy, they instead offered a more reserved view of their plans. Fending off an approximate 40 percent probability of another 10 basis point rate cut, the ECB held rates and offered up language that said they expect to keep rates at their current level “or lower” through the first half of 2020. On a full swing back into stimulus – versus the half measure of the TLTRO – President Draghi said they were looking into options. There is complication in the ECB pushing ahead with further accommodation as new leadership is coming in a couple months. This seems to concern them more than the risks that their increasingly extreme measures risk degrading the efficacy of monetary policy all together, particularly risky in the event that we face another global slowdown or financial crisis. The swell in European investor fears about the prospects for the future may be soothed by an outside wind if it proves timely and fully supportive. According to the market, the Federal Reserve is certain to hike rates at its meeting on Wednesday. Fed Funds futures are forecasting a 100 percent change of a 25 basis point (bp) cut and is reaching further to an approximate 25 percent probability of a 50 bp move. That is unlikely. Under scrutiny from the President and the markets, the Fed is attempting to signal its consistency as it works to reinsure its credibility. In the June Summary of Economic Projections (SEP), the median forecast on yields was for no change to the benchmark this year. A 25 bp cut at this meeting would not deviate too far from their assessment as the dot plot showed at least 8 members expected at least one 25bp cut (1 anticipated two), so it was a close sway in majority. That said, 50 bp against a backdrop of data that has performed well and equity markets are records would send the wrong signal: either one of hostage to fear of volatility or a sense of panic that they are not sharing about the future. How much is the markets banking on the Fed to converge with its much lower yielding counterparts? That answer will likely spell how much volatility we should expect. Donald Trump Throws a Curve Ball on Trade Wars Fear over trade wars had receded recently as confusion seemed to replace the tangible pain of tactical threats. Between the US and China, headlines were more about the next round of talks that were being conducted at a high level in China while trouble over the status of Huawei and the retaliation that could bring was fading out of the news cycle. We almost cleared the week with a ‘no news is good news’ perspective when President Trump decided to weigh in on something the market had long suspected was a strategy but presumed would never be made certain by officials. In offhand remarks that suggest he does not appreciate the fear that can be easily sparked in speculative markets, Trump said China may not agree to any trade deal until after the Presidential elections in November 2020. That may very well be China’s strategy: wait it out until a more amenable administration potentially takes over. That said, the Chinese economy has already taken a significant blow from the standoff thus far. It is unlikely they would want to keep it up that long on the chance of turnover. This may also reflect a Trump administration tactic: refuse to compromise out to the election and use it as a campaign point that no other government would be able to close the deal. Either way, this is a concerning musing. And, in the meantime, don’t forget that there is pressure building up on other fronts. For the United States, the question of open trade war with Europe seems to be graining tangibility with the theorizing of explicit moves from both sides for a variety of perceived infringements including the Airbus-Boeing spat. The most costly threat though remains the potential that the US is considering a blanket 25 percent tariff on all autos and auto parts which could encompass many countries but carry the most pain for Germany, Japan and South Korea. Speaking of those latter two, there is an Asia-specific trade war burgeoning between Japan and South Korea with the former threatening the supply materials necessary for the latter to produce computer chips. And, though it isn’t often considered a ‘trade war’ front, the UK-EU divorce carries with it clear trade disruption implications that will compound a global figure in collective trade. Another Verse in Milestone Towards Currency Wars Most business leaders and financiers publicly project a confidence that the world faces little or no risk that a currency war could erupt between the largest economies in the world. Privately, they are very likely worrying over the pressure building up behind active measures to devalue currencies and setting off a chain reaction of financial instability. It isn’t a stretch to suggest certain major currencies are artificially deflated, but most instances are not this way intentionally (for the purpose of economic advantage over global counterparts) or have been implemented recently. The ECB deflated the Euro with direct threats of monetary policy back in 2014 when EURUSD was pressuring 1.4000. Japanese officials slipped up before that when they suggested they are pursuing their open-ended QE program in an effort to drive their currency lower to afford a trade advantage. They later back-tracked and now simply say their ceaseless JGB purchases are a bid to restart inflation, which has floundered for three decades. The Swiss Franc is faced with constant intervention threat by the SNB, but their efforts are tied to the Euro and ECB’s overwhelming stimulus drive. In most instances around the world, policy officials are attempting to account for missing their stated policy goals (such as inflation) or offset external pressures that are themselves the results of a collective unorthodox policy epoch. However, in this desperation, there is increasingly an assumption of malicious intent from trade partners. President Trump is certainly suspicious of global counterparts. He reiterated his concerns this past week in something of a different light. Seemingly facing pressure by advisers for his frequent lamenting of the strong Dollar being interpreted as a ‘weak Dollar’ policy, the President said the Greenback is still the currency of choice – which he supports – while the Euro wasn’t doing well and the Yuan was ‘very weak’. That still looks like intent. What is troubling were the reports that trade adviser – and noted extreme China hawk – Peter Navarro had presented a range of ideas to possibly devalue the Dollar to the administration. They rejected the ideas, but the fact that this is taking place at all certainly raises the threat level of a currency war extremely high.
  15. 1 point
    Other central bankers throw their weight around: After the US Fed exited the ring yesterday, some of the world’s other heavyweight central-bankers weighed-in on the global race-to-the-bottom for global interest rates. The BOJ met yesterday, and though they kept their policy entirely untouched, it Governor Haruhiko Kuroda affirmed his commitment to monetary stimulus if necessary. RBA Governor Philip Lowe also delivered a speech, in which he was explicit in his belief that lower interest rates were necessary to absorb “spare capacity” in the labour market”. And the Bank of England met last night, left interest rates on hold, but downgraded its forward-outlook, prompting increased bets of a rate-cut from the BOE this year. Notable price action: Risk assets rallied, while sovereign bond yields fell, the USD tumbled, and gold spiked as a result of the dynamic. The S&P500 touched all-time highs, and the ASX200 registered its own 11-year highs, as the prospect of easy-money the world-over whet investors risk-appetite – though SPI futures this morning a suggesting that enthusiasm will cool on the ASX, with ASX200 looking at a flat open. It wasn’t all smooth sailing it must be said. Nerves were rattled on news that Iran had shot down a US drone over the Straight Hormuz, causing a spike in oil prices on fears of conflict in the region. Rio saps some of the positivity from the market: The materials sector failed to capitalize fully on yesterday’s Fed induced bullishness. The responsibility for this laid at the feet of Rio Tinto, after the heavily-weighted mining-giant announced a paring-back of its iron ore output forecasts, owing to “mine operational challenges” being experienced by the company at a key mine in the Pilbara region. The news sent Rio shares down by over 4 per cent at stages yesterday; and, perhaps ironically, gave a little lift to iron ore prices, which had been showing signs of potential weakness, following the announcement by miner Vale that it would be re-opening one of its largest Brazilian mines. Australian rates keep falling: The increasing prospect of looser global monetary conditions, as well the dovish commentary from our own central bank Governor, worked its way into Australian rates markets yesterday. Bets for rate cuts from the RBA lifted modestly, with the implied probability of rate cuts for next month jumping to around 70 per cent, with 2-full cuts from the RBA before year-end priced in their entirety, right now. This sparked significant moves at the front end of the AGB yield curve: the rate-sensitive three-year note fell by another 4 basis points, to clock a fresh all-time low of 0.91 per cent. AUD pops courtesy of weaker USD: Despite this, the AUD tested life above the 0.6900-handle yesterday, as an even hastier fall in US Treasury yields enervated the US Dollar. An ominous milestone: the yield on the benchmark US 10 Year note fell below 2 per cent for the first time in more than two-and-a-half years, while the yield on the US 2 Year note dipped to around 1.73 percent. The fall in US yields at the front end of the curve narrowed the spread between US Treasuries and it Australian equivalent to around 78-basis points (briefly), and has underpinned the little rally witnessed in the Aussie Dollar in the last 24 hours. Gold hits new highs: Arguably, the greatest beneficiary of this week’s concertedly dovish stance from global central bankers has been gold. The price of the yellow-metal hit a 5-and-a-half year high yesterday, as the USD tipped-over, and global interest rates fell. Importantly, too, from a technical basis, the gold price punctured resistance around $US1360, and came close to hitting the key psychological level of $US1400.00. Though the broader narrative is supportive for gold, the price action is looking somewhat exuberant now: the daily RSI is giving an overbought signal, and the price is divorcing itself from fixed-income markets slightly, suggesting that speculative flow has seized control of the price. The latest readings on global growth: Attention will turn back to the global growth outlook today, ahead of tonight’s release of European Manufacturing PMI data. Markets are expecting another contractionary print in the key German and Europe-wide readings of the data, as the US-China trade-war, along with the continents ongoing structural issues, weigh on Europe’s economic activity. The Euro will be in focus around tonight’s data: markets are warming towards the prospect of rate-cuts from the ECB. A deteriorating outlook for the German and European economies could increase these bets, and sap the shared currency; while a better than expected print would likely fuel its recent pop higher. Written by Kyle Rodda - IG Australia
  16. 1 point
    The tariffs get hiked: The latest round of trade talks didn’t have the desired outcome. But nevertheless, the always forward-looking equity market closed last week on something of a high-note. It was a choppy day’s trade in Asia as the news filtered through that an agreement between the US and China in Washington wouldn’t be reached. Ultimately though, and just like the last time tariffs were hiked, financial markets handled the news with aplomb. The simplest explanation for why there wasn’t a huge reaction financial markets is roughly this: it “was buy the news and sell the fact” with markets having already discounted a trade-war escalation. Markets (probably) saw it coming: It’s an unhelpful cliché, that one. However, market-moves, ex-post or not, are often chalked up to such a dynamic. It’s one of those helpful mental models to make sense of the madness of financial markets day-to-day. Regardless, it’s ostensibly what financial markets have done in this instance; giving solace to the bulls and bolstering risk-appetite. Fundamentally, the global equity map was a rich-shade of green after the end of Friday’s trade. The S&P500, for one, closed 0.37 per cent higher, CSI300 lifted a remarkable 3.63 per cent, and SPI Futures are indicating a 29 point jump this morning. The future feels more uncertain: The question moves today to: where to from here? From a pure fundamentalists point of view, those folks probably just wait to see how new trade-barriers show up in the hard-data. That one is probably going to be a slow-burn. Recall, after the last round of tariffs were implemented, it took the better part of a quarter for them to show in the data, and vaguely reflect in market fundamentals. For the short-term sentiment watchers, an answer to that overriding question will be more immediate, however perhaps more gradual in its unfolding. Afterall, this is a headline driven market, and those headlines are still being produced. Trade will remain “headline-driven”: Hence, on the headline front, what was received over the weekend – after the market had closed – was probably not all that favourable for risk-sentiment. While Friday’s trade was buoyed by news that trade-talks were continuing and were “constructive”; trade at the very early stages of this week is being stifled by the harsh rhetoric from the Trump administration, towards the Chinese, over the weekend. Upping his binary “winner-and-losers” language, news has filtered through the wires that the US has delivered China an ultimatum: make-a-deal, or tariffs get applied to all Chinese goods going into the US in a month’s time. Higher trade-barriers to stifle global growth: The reliability of this story is somewhat questionable. Regardless, if tariffs are applied to all goods going into the US from China, and retaliatory tariffs are proportionately applied to all goods going into China from the US, then the global economy will almost certainly suffer. Speculation now in financial markets will probably centre in a big-way on trying to quantify the impact of this dynamic. This will take some time to actually materialize. But you can bet the quants and other data crunchers of the world will be adjusting their models to try and predict their impact now. US-China conflict possibly the “new-normal”: For traders not-so resource rich, the matter becomes less about predicting the numbers, and more about getting a rational grasp on whether the trade-war will continue to escalate. Given the current circumstances, a bitter spoonful of pessimism may well be the conclusion. That’s because the trade-war, as has been repeated ad nauseum in the punditry, is not an economic issue, but a strategic one. To borrow from the classics, it’s a case of Thucydides-trap. China does not wish to compromise its inexorable rise; while the US is trying to force China to rise within the restrictive confines of the world-order it, itself created. The consequences of this new order: The intractability of such an issue means that, at the very least intellectually, a true resolution to the trade-war in the short-term in unlikely. Tariffs may come and go, but financial markets will have to deal with a world in the future where its two biggest economies are “at each other’s throats”. This new reality will probably be internalized by markets, which will move-on over time, and trade according to the market-fundamentals, determined by economic and corporate strength. However, as the economic cycle continues towards its end, the interest will be in how weaker global-trade steepens its descent, and compromises the markets’ fundamentals. Written by Kyle Rodda - IG Australia
  17. 1 point
    A Return to Extreme Volatility and Realization It Won’t Stay This Quiet for Long Any way you cut it, the markets are experiencing extreme levels of inactivity. And, for those that are satisfied with the superficial and textbook interpretations of the mainstream measures, this seems like a cue to leverage exposure and commit to the decade-long bull trend which blossomed under the controlled conditions. Previously, traders would have been readily satisfied by the readings and thrown in with the assumptions. However, there is an unmistakable air of skepticism surrounding activity measures with indicators of exposure and uneven performance for ‘risk’ assets drawing focus back to the extreme bouts of volatility this past year. While market participants have shown a penchant for overlooking troubling fundamental backdrop and conveniently forgetting previous lurches in the financial system, the proximity and severity between the February-March and October-December storms were too prominent to simply slip quietly into afterthought. With that said, the question then must be raised as to what could trigger another wave of concern. While the best motivations for trend development in my opinion are systemic fundamental themes that can draw the largest swaths of market participants; during these periods of speculative interlude complacency can raise disputes over the urgency of otherwise serious themes. When we get into these self-sustaining periods of complacency, one of the best sparks to break clear of speculative opportunism borne of quiet is to see a uncomplicated slump across the capital markets. In other words, price-determined risk aversion. While the strongest indication that the markets are succumbing to their own fears is an intense deleveraging across all or most assets with a heavy dependency on speculative appetite, there can be fairly reliable precursors before we get to that undisputed scale. At present, one of my favorite leading indicators is the S&P 500. Representing the most ubiquitous asset class in the capital markets and in the largest economy, it is well placed at the center of focus. Further, its outperformance in this role has once again afforded it a position of carrying a heavy mantle of keeping the fires stoked in other assets and regions due to its approximate return to record highs over the past quarter. Most other preferred assets for the trading rank are significantly behind in their recovery efforts – rest of world equities measured by the VEU index is only now passing the midpoint of its 2018 losses. This attention isn’t just a benefit to the markets though. If the US indices were to falter in an overt and troubling way, it can spell disaster for other areas of the financial system that were considered far less resilient. A stall for the S&P 500 and Dow before overtaking a record high could certainly achieve this throttling for global sentiment, but a more complete obliteration of future efforts to recharge confidence would likely come from a scenario whereby the benchmarks overtake their respective highs, struggle briefly to mark new progress and then collapse. Currently, we find measures of volatility like the VIX back at lows last seen in October which is appropriate comparison. Yet, in other asset classes we find more incredible readings like FX implied volatility at levels that are only comparable to a few points in history (like the Summer of 2014). In historical terms, the Dollar’s range (an equally-weighted index) over the past 200-days is the smallest on records back to when the Euro started trading two decades ago. This misplaced association of confidence and lack of preparation sets up the market to be extremely exposed to a mere slump escalating into something more catastrophic. Trade with caution and diligence. China GDP Next Week’s Top Event – Could the World Survive Its Stall? In a holiday-shortened week with speculative focus blurred, the top event risk is unmistakable. The Chinese 1Q GDP reading will come along with a run of monthly readings for March that are influential in their own right. While the employment, retail sales, industrial production and other monthly data are worth taking stock of to establish direction for specific nodes of the broader economy – important for projecting where problems or resurgent growth could arise in the future – it is all superseded by the comprehensive growth report in the short term. The world’s second largest economy is expected to slow even further from a 6.4 percent annual pace to a fresh multi-decade low 6.3 percent. That will still sit comfortably within the growth target lowered from 6.5 percent to a range of 6.0 to 6.5 percent the last National Peoples’ Congress. Nevertheless, the international market’s more critical eye towards growth and unorthodox threats will disproportionately raise the risk for impact form a negative outcome. The implications for China and its markets are relative straightforward when it comes to the forecast for the soft landing that officials are trying to engineer against the backdrop of struggling global growth and amid a trade war. Though rhetoric around negotiations with the United States has improved, a year’s worth of economic pain has built up. The March trade balance offered a timely mixed picture this past week with a significant surplus for the month resulting from a distinct drop in imports (a poor reflection of domestic economic health). For the global economy, this particular economic update holds significant weight over assumptions for the future. As the world’s second largest economy and the stalwart through the Great Financial Crisis, a slide that seems to be picking up momentum outside the central authorities’ control will leverage serious concern about what the smaller economies with significant less control are facing. For countries that supply China with the many raw materials that it consumes for its unmatched manufacturing machine (Australia, New Zealand, etc), the restriction in export demand and likely drop in foreign investment flows will expose an unbalanced economy. For the rest of the world, the buffer China has maintained will mean the country’s demand for trade partners’ goods will not pose the greatest risk, but rather its carefully-controlled financial connections will represent the true destabilizing influence. Potential delay in impending efforts like the Belt and Road initiative and the tentative vow to ramp up purchase of US goods are tepid relative to the cascading exposure we would see if the country was forced to repatriate in order to shore up its own system which is heavily built upon leveraged and low-quality lending initiatives. The question I would pose is whether the world could survive a stall in Chinese growth – which would occur well above 0.0 percent GDP – given how troubled the globe’s future currently looks? I doubt it. Should China tip into a market-defined economic stagnation or contraction, it would infer one of the key players in the world’s stage has lost control over its reliable ability to plan and direct activity. The environment that would force that loss of control would be a serious threat to the rest of the world as the shock would eventually hit other shores like a financial tsunami. Brexit Delayed Six Months and Pound Range Trading Reinforced A sense of relief washed over the Pound this past week – though not that kind that can readily supply buoyancy to the battered currency. In an increasingly familiar story line in Europe, we have found the Brexit situation has resorted to the comfortable solution of punting an unsavory decision to a time significantly into the future. This is the same path we have seen taken when it comes to Europe’s monetary policy (ECB), political standoffs and external diplomatic issues. This is not to say everyone is simply defaulting to this delay. This results from serious impasse between parties that believe strongly in their solutions as well as the folly in crossing their red lines. At the direction of Parliament, UK Prime Minister Theresa May requested an extension from the European Union, with an initial suggestion of a hold out until June 30th. After a long summit, the EU-27 agreed to a six month delay that would move the cutoff date to October 31st. In the interim period, the UK is expected to participate in the EU Parliamentary elections which will take place starting May 23rd and for which some in May’s party and her own government are piqued. The question on most peoples’ minds are whether the additional time will offer the opportunity to overcome the impasse or whether it will just draw out the misery. According to the IMF, uncertainty will only accumulate greater economic deterioration over time – and given the state of data over the past year in particular, that is not difficult to understand. In terms of how that translates into the competitive position of the Sterling and UK-based assets, many would see this as a window for a speculative influx on discounted markets. In previous years when complacency was de rigueur, that is almost certainly what would have transpired. An appetite for even marginally underpriced assets would have triggered an avalanche of speculative influx which would have quickly sent GBPUSD above 1.3500 and the FTSE 100 rushing towards 7,900. However, as discussed above, there is a deeper sense of skepticism built into the system. As such, the sudden drop in implied volatility measured by currency options or the CME’s index is as likely to short circuit momentum as it is to prompt it. Whether you agree or not as to the potential in the Sterling moving forward, think it through to establish a bias and set criteria for when that view shifts. Having thought the situation through beforehand will better set your expectations for an event like the GBPUSD’s inevitable break from a wedge this past month with boundaries currently stationed at 1.3125 and 1.3050. If you think a more robust recovery is possible then you may see more intent on a bullish break – and be confounded by a move lower.
  18. 1 point
    Earnings optimism tempers the markets’ mood: Financial market participants curbed their enthusiasm yesterday. Friday’s brief excitement on Wall Street relating to a handful of earnings beats from some of the US’s big banks failed to translate into meaningful momentum to begin the new trading week. Such a dynamic was also evident throughout the Asian session. The ASX200 closed flat for the day, and Chinese stocks rallied and retraced all in the space of a few hours. The Nikkei was higher for the day; however, that was largely due to a markedly weaker Japanese Yen, with that currency unable to reclaim its losses after Friday’s risk-on move. Sluggish trade on Wall Street: The activity on Wall Street overnight was very much of the “let’s-now-wait-and-see” variety. The behaviour is sensible and based on a sound enough logic. Earnings seasons are a long-slog, with the possible arduousness of this reporting period even greater given the prevailing global economic backdrop. The return of thinner trade conditions, which of course were attributable in part to a level of Monday-itis, betrayed this cautiousness during the North American session. Volumes were below average, and market-breadth was meagre: 38.8 per cent of stocks were higher across Wall Street, with only 4 out of 11 sectors registering gains for the session. The next bullish impulse being sort out: If traders are unwilling to carry-through with their bullish bias, it bears questioning what presently stands in their way. The obvious answer is a general uncertainty as to whether US stocks will outperform their lowly Q1 earnings estimates; and whether an improvement in forward guidance is delivered by US corporates. But where might the substance of this answer be discovered? If last night’s trade is any indicator, it won’t be US bank stocks. After JP Morgan’s surprise beat on Friday night, the numbers released by the likes of Citi and Goldman Sachs, though solid, didn’t engender quite the same excitement. Markets wait for bellwether earnings: Instead, the meatier part of earnings season will come when market participants receive updates from the major tech-giants and big industrial companies. The rationale for this view is simple enough: the two key sticking points for the market at-the-moment pertains broadly to risk appetite and macroeconomic growth. As last year’s record run and violent correction will attest to, the US tech sector is the bellwether for what desire there is to punt big on growth-stocks. While the powerhouse American industrial companies will provide the ultimate read on what impact the slow-down in China and Europe is having on corporate profits. ASX likely to keep doing its own thing: The problem is market participants must wait a few days-to-weeks to receive clarity on these matters. For now, traders turn to the Asian session, and that of the ASX in particular, with few chunky leads to determine this region’s early fortunes. SPI Futures for one are pointing to a negative start for Australian equities, with that contract predicting a 16-point drop at the open. It backs up another day where the ASX traded seemingly according to its own will: a lift North American banks perhaps support our own somewhat, however the ASX200 experienced a meandering day, trading in a narrow 20-point range. RBA Minutes the key risk event today: Event risk during Asian trade today is relatively light from a global perspective. But for those with an interest in the Australian-macro landscape, RBA Minutes will be one to watch. Since the RBA’s monetary-policy-decision a fortnight ago, traders have moved gradually to temper their bets on the extent of rate cuts from the central bank in the year ahead. By way of virtue of diminishing fears about the state of health of the global economy, traders have reduced the number of implied interest rate cuts by the RBA from about 1-and-a-half to just over 1 before the end of 2019. Australian Dollar feeling the love: The restored confidence in the global macro-economic outlook has manifested in the Australian Dollar. Though its begun the week listless, the AUD has held onto its short-term trend, to be currently trading just below a few significant resistance level at the prices 200-day moving-average. Despite the yield story apparently unsupportive of the move in the currency, the climb in iron ore prices combined with speculation of further improvements in the global economic outlook is apparently underpinning Aussie Dollar strength. A break over the currency’s 200 day moving-average may well indicate a further run higher for it is afoot. Written by Kyle Rodda IG Australia
  19. 1 point
    US-China trade talks have restarted in Beijing as U.S. Treasury Secretary Steven Mnuchin said on Friday that he had a "productive working dinner" the previous night. Investors are hopeful that progress will be made to resolve the bitter trade dispute between the two largest global economies, amid growing concern of a slowing economy as the bond market signals a possible incoming recession. Theresa May is set to make a third attempt to pass a Brexit deal today, as the MPs are asked to vote for a "blindfold Brexit" on the day that Britain was originally due to exit the EU. The format for today's vote has been crucially changed to comply with Speaker John Bercow's recent ruling, so that MPs will vote only to approve the withdrawal treaty and not the 26-page political declaration that accompanies it. Huawei's revenue and profits soar, despite recent major political headwinds. The Chinese tech giant reported revenue of over $100 billion in 2018, a 19.5% year-on-year rise. Net profit also rose 25% compared to 2017. The Dow Jones rose 91.87 points to 25,717.46, whilst the S&P gained 0.4% and the Nasdaq advanced 0.3% to close at 7,669.17. Asian equities followed suit as the Shanghai Composite rose more than 3.1% and Japan's Nikkei climbed 0.8% on Friday. In the currency market, the pound regained 0.3% to $1.3077 after losing more than 1% the previous day. The euro stands steady at $1.1232 and the Turkish lira dropped 1%, after it had plunged 4% the day before. U.S. crude futures traded up 0.4% at $59.55 a barrel, recovering from Thursday's low of $58.20. Palladium dropped 0.4% after seeing declines of 6.6% yesterday. The precious metal has fallen from last week's peak on concerns that demand could be affected by an economic slowdown. Asian overnight: Chinese markets were the big outperformer in a widely bullish session, with the Shenzhen composite trading 3.7% higher amid hopes for a breakthrough in US-China trade talks. Yesterday’s comments out of the US point towards widespread progress for these talks, raising the prospect of an eventual deal. Overnight data all focused in on Japan, where a slightly weaker retail sales number marked the one blot on an otherwise impressive set of data. Improved housing starts, industrial production, and unemployment helped boost confidence in the economy. UK, US and Europe: Looking ahead, Theresa May gets a third bite of the cherry, with another meaningful vote taking place today. The failure to secure support from the DUP should consign this attempt to another loss, yet some believe that the decision to split the withdrawal agreement from the political declaration could help secure some extra votes. It is a busy morning otherwise for the pound, with final GDP, current account, net lending, mortgage approvals, and the Nationwide HPI all released at 9.30am. In the afternoon, keep an eye out for Canadian monthly GDP, alongside the US core PCE price index, personal spending, and Chicago PMI. Economic calendar - key events and forecast (times in GMT) Source: Daily FX Economic Calendar 8.55am – German unemployment (March): rate to hold at 5%. Markets to watch: EUR crosses 9.30am – UK GDP (Q4, final): growth expected to be 1.3% YoY and 0.2% QoQ. Markets to watch: GBP crosses 12.30pm – US personal income (February): forecast to grow 0.2% MoM. Markets to watch: US indices, USD crosses 1.45pm – Chicago PMI (March): expected to fall to 57 from 64.7. Markets to watch: US indices, USD crosses 2pm – US pending home sales (February): expected to rise 1.6% MoM. Markets to watch: USD crosses TBD - Parliament Brexit Vote Corporate News, Upgrades and Downgrades Renewi has cut 2020 guidance, and will also cut its dividend, after it was hit by new regulations in the Netherlands for soil treatment. Operating earnings for the year to March 2020 are expected to fall by €25 million. Travis Perkins said that its CEO John Carter would stand down in August. He will be replaced by Atkins CEO Nick Roberts. Bowleven has reported a drop in pre-tax losses for 2018, to $1.4 million, from $2.8 million a year earlier. Efforts to cut spending have borne fruit, helping to cut administration expenditure to $2.1 million from $3.6 million in the previous year. Wells Fargo shares jumped 2.6% in after hours trading on Thursday, following an announcement that CEO Tim Sloan will be retiring. AstraZeneza has struck a $6.9bn deal with Japan's Daiichi Sankyo to develop and sell a new cancer drug that is expected to treat breast and gastric cancers. Partners Group raised to overweight at Morgan Stanley Boskalis downgraded to add at AlphaValue Evraz downgraded to neutral at Citi Tele2 downgraded to hold at Berenberg Maersk downgraded to add at AlphaValue IGTV featured video Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  20. 1 point
    Coffee giant Starbucks announced that same-stores sales grew by 4% in its home US market, with overall revenue also beating expectations. Speaking about the results, CEO Kevin Johnson said that "Our streamline efforts over the past six quarters are paying off by allowing us to bring more focus and discipline to our three strategic priorities". Talks are continuing in the US as the Senate tries to reach an agreement to end the government shutdown, which is now in its 34th day. The White house is pushing for "large down payments" for Trump's wall, however the Senate has already rejected two proposals as a deal including wall money "is not a reasonable agreement between senators". CEO of Goldman Sachs, David Solomon, has warned that investment into the UK could take a hit due to a hard Brexit as he told the BBC that Goldman has stopped hiring in the UK over the last two years. Westminster is due to vote on the withdrawal agreement from the EU again next week. Asian equities rose due to a rally in the technology sector, despite the continued uncertainty over US-China trade talks. The Hang Seng increased by 1.3%, followed by a 1% rise in both the MSCI Asia Pacific Index and Japan's Topix. Brent crude futures jumped 1.2% to $61.80 followed by WTI crude which rose by 1.3% to $53.82 per barrel, as the US indicates that they may impose sanctions on Venezuela's oil exports due to the continued political turmoil within the country. Gold remained steady at $1,282.08 per ounce. UK, US and Europe: Airbus issued a warning yesterday over Brexit, the company indicated that they may shift future wing-building out of the Britain if the UK end up in a no-deal scenario. As stated above, Goldman Sachs support the view of Airbus both of whom employ a considerable number of people in the UK, with the aerospace group employing around 14,000 people alone. Despite the doom and gloom the pound is up around 1.8% since Monday, due to investors speculating that the UK will likely avoid a hard Brexit. Despite the doom and gloom the pound is up around 1.8% since Monday US markets continue to flounder, having essentially gone nowhere all week, as trade concerns remain at the forefront of investors' minds. One bright spot was the semiconductor index, which rose 5.7%, enjoying its best day since 26 December. Markets are still unable to establish a clear direction, although the lack of any renewed sell-off similar to what we saw in December is helping to calm nerves. The German IFO index is the one event of note today, with the week otherwise set to end on a quiet note. There seems no end in sight to the US government shutdown, with Monday's scheduled barrage of US data unlikely to take place unless a resolution is found over the weekend. South Africa: We expect a positive start to equity markets this morning as US Index Futures trade firmer, led by the Nasdaq, while Asian markets trade firmer led by the tech sector as well. Comments that US President Donald Trump is optimistic about the current trade negotiations have helped lift sentiment in the near term. However the US secretary of Commerce is less optimistic and has commented that US and China remain far away from reaching a trade deal. The US dollar has since weakened against a broad basket of currencies. In turn we see the rand gaining ground to trade at its best levels of the week. Tencent Holdings is up 3.27% in Asia suggestive of a strong start for major holding company Naspers. BHP Group is up 1.3% higher in Australia suggestive of a positive start for local resource counters. Economic calendar - key events and forecast (times in GMT) Source: Daily FX Economic Calendar 9am – German Ifo business climate index (January): expected to rise to 101.5, from 101. Market to watch: EUR crosses Corporate News, Upgrades and Downgrades Vodafone reported a 6.8% drop in revenue for the final three months of 2018, to €11 billion, but annual underlying organic adjusted earnings growth is still expected to be around 3%. AG Barr said that it expected full-year revenue to be up 5% over the year, thanks to strong performance across all brands. Indivior said that a US court had granted a temporary restraining order to prevent rival Alvogen from launching copycat drugs for its opioid addiction treatments. Deutsche Boerse Upgraded to Hold at Bankhaus Lampe Iberdrola Upgraded to Buy at HSBC NCC Upgraded to Buy at Citi AstraZeneca Upgraded to Buy at Shore Capita Swiss Life Downgraded to Neutral at MainFirst Intu Downgraded to Sell at Goldman Adecco Downgraded to Reduce at Oddo Fevertree Drinks Cut to Hold at Jefferie IGTV featured video Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  21. 1 point
    The pull-back is here: The pull-back markets were waiting for – the one we inevitably had to have – has arrived. It’s risk-off across financial markets and the optimism that drove global stocks off their December lows has subsided. Relatively speaking, it’s been a day of significant downside, but nothing yet to warrant tremendous fear. It should be common knowledge, but it bears repeating: proper validation that global equities have truly established a recovery ought to be judged not by the latest high, but by where markets form their next low. The retracement which is apparently upon market participants now hands a golden opportunity to judge this market for what it truly is – have the bulls reclaimed their dominance, or have the bears lulled them into a trap, and now stand poised to assert further downside? The market’s rationale: A greater look at this subject and Wall Street’s price action later. In relation to the overnight sell-off, the rationale was as feeble as the one that got stocks to their recent peaks in the first place. It’s been chalked up to reduced positivity towards the trade-war, and renewed concerns about global growth. To begin with, very little data throughout the past week has provided a clear and substantial picture on economic growth. The boost in sentiment has come from geopolitical or monetary policy developments that was assumed to be supportive of the growth outlook – at some point in the future. Some nice-noises made between the US and China in trade negotiations here, and a few dovish comments from a handful of US Fed speaker there, is what ignited the latest part of the risk-on rally. Awaiting confirmation: Hence, it was naturally the inverse of this situation that’s prompted the leg lower in global stocks. US Fed speakers have quietened down as markets prepare for the central bank’s next meeting at the end of the month. And a story-or-three about storm clouds looming on the horizon for the global economy has quashed the naïve hope that incremental improvements in the trade-war will lead to a renewal of the global growth story. Now, bullishness may yet return to markets, and quite soon at that: US reporting season hands the opportunity to be able to assess meatier, fundamental data, rather than shallow headlines. The issue now may prove the uncertainty in the lead-up to such information: we are a fortnight away from getting a complete picture on US corporate earnings. The overnight headlines: Sifting through the stories that mattered to markets in the last 24 hours, and one can understand why bullish sentiment has reached a lull. The downgrading by the IMF of its global growth forecasts established the context, but it was fresh fears of a major Chinese economic slowdown that really got traders edgy. They were piqued first by news that the US is sticking with its pursuit to have Huawei’s CFO extradited to the US; and then exacerbated by a speech delivered by Chinese President Xi Jinping about the deteriorating state of his country’s economy. The latter was especially unsettling: President Xi warned of potential social instability if China failed to regain control of its economy and deliver the growth required to keep satisfied the nation’s people. Brexit and UK data: Not that it registered as highly on trader’s macro-agenda last night, but the UK economy did share in the focus. Of course, the Brexit drama continues to unfold: Opposition leader Jeremy Corbyn made his play in the House, tabling a series of votes designed to avoid a no-deal Brexit. The news ought to be friendly to markets, and perhaps the Bremainer cause, but it didn’t do much to move UK markets. What did however, was the release of UK labour market figures overnight, which showed an increase in wages and a fall in the unemployment rate. The data, in the face of Brexit-uncertainty, pushed the Cable toward the 1.2980 mark, and lifted the implied probability that the Bank of England would lift interest rates at some point in 2019. A risk-off day: Looking forward to the day ahead and the economic calendar is fuller, but little jumps out as possessing the weight to turn the tide in sentiment. The Bank of Japan meet this afternoon, New Zealand’s CPI numbers are released this morning, and stories from the World Economic Forum in Davos will filter through throughout the day. Safe-havens will maintain their bid, one assumes: equities are being sold-off, the JPY is higher, gold has climbed, oil is retracing, and US Treasuries have rallied 4-to-5 basis points across the curve. The Australian Dollar, as its wont to do in these situations, has dipped, and looking as though its latest run higher is done-with. The local unit is presently just above 0.7100, as it eyes support at 0.7040. ASX test ahead: SPI Futures are suggesting a 31-point fall for the ASX200 at time of writing, in sympathy with Wall Street's sell-off. The ASX200 closed the day 0.5% lower yesterday, at 5858, led by a noteworthy enough tumble in the bank stocks. The short-term uptrend has now been broken, with support at 5800, 5700 then 5630 now in view. The RSI confirms a meaningful slowdown in momentum for the market, however unlike US markets, volume is well below the 100-day average still. The daily chart has established an apparent reversal pattern now and indicates a new high has been made. Just like its global counterparts, the market's essential strength will be tested, with the capacity to form another higher-low crucial to confirming a true bullish trend in the market. Written by Kyle Rodda - IG Australia
  22. 1 point
    Asian stocks fell as China's export data indicated a shock contraction, declining by 7.6% since July 2016. This points to deepening cracks in the world's second largest economy and increased fears of a significant slowdown in global growth and businesses. The CSI 300 was down 0.8%, falling from a 3 week high reached on Friday. The Hang Seng slipped 1.4% as both the financial and technology sectors took a hit. US equities ended Friday with marginal losses, however the S&P 500 maintained a weekly gain of 2.5%. The US Dollar Index was 0.1% lower after reaching a 3 month low last week, whilst the safe-haven Yen was 0.4% stronger at 108.09 to the dollar. The Australian dollar, sometimes viewed as a proxy for China's economic outlook, was down 0.4%. Oil prices also took a hit following disappointing China trade figures - one of the largest global importers of oil. Both Brent Crude and WTI was down 1.1%, at $59.83 and $51.03 a barrel respectively. Gold edged 0.3% higher to reach $1,290. With tomorrow’s UK parliamentary Brexit vote looming large, there is also likely to be some positioning ahead of that momentous occasion. Asian overnight: A bearish overnight session saw losses across China, Hong Kong and Australia, while the Japanese markets were closed to observe a bank holiday. Today is all about the Chinese trade data, with both imports and exports deteriorating sharply in December. However, with imports falling -7.6%, while exports hit -4.4%, the overall balance actually shifted further into surplus despite the disappointing figures. Interestingly, despite the imposition of tariffs on Chinese goods, the Chinese surplus has grown significantly, hitting the highest level since records began in 2006. UK, US and Europe: Theresa May is set to warn Eurosceptic MPs today that Brexit could be blocked by parliament if they fail to give their backing in tomorrow's historic "meaningful vote" on the withdrawal agreement. The agreement is strongly opposed by certain Conservative MPs due to the plan for a backstop to avoid a hard Irish border that involves the UK being in a customs union with the EU. Looking ahead, keep an eye out for eurozone industrial production in the morning, with precious few notable releases other than that. With tomorrow’s UK parliamentary Brexit vote looming large, there is also likely to be some positioning ahead of that momentous occasion. South Africa: Global markets are trading mostly weaker this morning with US Index futures down 0.81% and the Shanghai Composite down 0.78% today so far. Markets are trading cautiously ahead of US bank earnings releases this week as well as the all important parlimentary Brexit vote on Wednesday. Gold is trading 0.4% higher this morning while brent crude is 1.1% lower today. The rand has managed to maintain some short term strength having stabilised below the R14/$ mark. Tencent Holdings is down 2.9% in Asia, suggestive of a similar star for major holding company Naspers. BHP Billiton is down 0.25% in Australia, suggestive of a flat to softer start for local diversified resource counters. Economic calendar - key events and forecast (times in GMT) Source: Daily FX Economic Calendar 1.30pm – US trade balance (November): deficit to narrow to $54 billion. Market to watch: USD crosses 3pm – US new home sales (November): forecast to rise 2.9% MoM from an 8.9% fall a month earlier. Markets to watch: US indices, USD crosses Corporate News, Upgrades and Downgrades PageGroup expects annual performance to be in line with forecasts, as gross profit for the final three months of the year rose 15.4%, allowing gross profit for the full-year to rise 15.9% to £815 million. Restore said that it forecasts annual results to be in line with expectations, as strong trading in the records management division offsets weakness in the shredding unit. JD Sports expects profits to be at the upper end of forecasts, as weak growth in the UK is offset by a better performance by its international division. Like-for-like sales rose 5% for the cumulative 48 week period to 5 January. Michelmersh Brick said that it expects annual underlying revenue and profit to meet market expectations. Year-end debt will also be below forecasts due to strong cash generation. Brooks Macdonald upgraded to buy at Shore Capital Safilo upgraded to neutral at Mediobanca SpA Engie upgraded to buy at Berenberg Mowi upgraded to buy at Fearnley 3i Infra downgraded to hold at Jefferies Countryside cut to underweight at JPMorgan Heineken cut to underweight at Morgan Stanley Next downgraded to underperform at Credit Suisse IGTV featured video Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  23. 1 point
    Written by Kyle Rodda - IG Australia A pull-back amid interesting activity: Markets received their slingshot higher and continue to swing about in both directions. That’s the key takeaway from last night’s trade; of course, that’s all too general, though – akin to explaining a rally in the market to their being more buyers-than-sellers. Yes, it’s self-evidently true, however it does little to answer the question of “why?”. Overall, market activity in the last 24-hours has provided a much greater and more nuance picture than what we got from the one-way rally in US markets on Boxing Day. There are now burgeoning answers to some of the questions traders have been asking; like any complex phenomenon though, the answers only lead to more questions. As a trader, this is daunting, but reason for excitement: risk is everywhere, so volatility is higher – but opportunities abound. The real versus paper economy: It could be a far too grand a notion: the push and pull in financial markets at present is being driven by confusion regarding the current relationship between the “paper (or financial) economy”, and the “real economy”. The fact that such a distinction exists feels absurd. Shouldn’t proper functioning financial markets be the vessel to allocate capital efficiently throughout a (“real”) economy? In principle, that ought to be so. In this world, that axiom seems far from true. The battle being waged within markets at present – and this unfolded in a significant way overnight – is between economic policy makers (a la the US Federal Reserve) on one hand, and financial market participants on the other: the former says things are alright, while the latter is indicating everywhere that things are not okay. End of the cycle? It’s an obscure and distorted world, when it comes to the global economy and how it interacts with financial markets. It’s not necessarily the prevailing view, nor is it absolutely the truth, but times like these when there is such utter confusion in the financial world, it lends itself to the idea that markets have become dislocated from the economies they supposedly serve. Financial cycles (the concept goes) aren’t being driven by economic fundamentals. Instead, they are fuelled via credit cycles that drag real economic growth along with asset bubbles. (Ray Dalio recently discussed the matter in an article certainly worth “Googling”). In such a world, economic relations don’t dictate financial market behaviour, but the other way around – and, unfortunately, as an aside: to the benefit of a very few. The Fed’s part to play: Who to blame for that? It’s systemic, and structural and probably founded on some false-ideology. One big part of this system of thought however goes back to this “paper economy” and “real economy” binary. Analysing the rise of the term “real economy” and its usage over time, a spike in the phrase occurred around the early-1980s, around about the time the neo-liberal revolution and subsequent global financialization process began. Since then, policy makers (again, a la the US Federal Reserve) have rationalized away the emergence of massive, credit fuelled asset bubbles, seemingly exacerbating the already unstable underpinnings of the boom-and-bust cycle. That is: the booms and busts have become bigger as the response to each necessitates even more aggressive policy (i.e. monetary policy intervention) to keep the process going. Risk-off, anti-growth: This is all very abstract, to be sure. However, it is relevant in the context of last night and today’s trade because of the price action we’ve been handed. First-off, of course, the sell-off on Wall Street continued after the day prior’s historic rally. In saying this, the major Wall Street indices have rallied into the close, on lifted volumes, to add weight to the notion US equities have met their bottom. The real fascination ought to be directed to what has again happened in interest rate and bond markets overnight. Rates and yields have tumbled once more: interest rate traders have reduced their expectations of hikes from the US Fed to a measly 5 points in 2019 (at time of writing), while the yield on the US 2 and 10 Year notes has fallen by 4 basis points each. Soft US data: It reeks of the trouble markets find themselves in. The pull back in stocks had been on the cards all day, with US futures pricing that in throughout mixed Asian and European trade. The major driver of sentiment overnight though was the US consumer confidence print, which revealed consumer sentiment plunged last month. It piques concerns that the engine of the US economy – the almighty consumer – is sensing tough times ahead. Forget that the labour market is strong, and consumption has been hitherto solid, the everyday US punter thinks next year will provide them with less than what they have received in the recent past. It’s given the perma-bears the vindication they sought, who’ve once again wagged their finger at the Fed for being so naïve as to think the US economy could prosper without accommodative monetary policy. Australia macro and day ahead: Fortunately for Australian markets, we’ve not been forced to deal with such a struggle between markets and policy makers. We’ve yet to resort to extreme monetary policy measures to support our economy, and we’ve a simpler economic structure: at its core, if global (read: Chinese) growth prospers, so do we. There are risks there that may mean our economy will face headwinds in 2019, mostly in the form of the trade war. Tighter financial conditions will filter through to our markets, as well. Given the weightiness of the banks and miners in the ASX200, these variables pose reasonable downside risk for our market next year. So: today will be risk-off, in line with the lead passed to us from bearish traders in Europe and North America. Hence, SPI futures are indicating a 73-point drop at the open for the ASX200, on the back of a volume-light, but broad-based 1.88 per cent rally on the index yesterday. The market closed just below the significant 5600 level during yesterday’s trade – above which a cluster of resistance levels exists up towards 5630. The anti-risk, anti-growth feel to overnight trade has also harmed the Australian Dollar, which despite a sell-off in the USD, is testing support at around 0.7020, and eyes a break below the key psychological barrier at 0.7000.
  24. 1 point
    Written by Kyle Rodda - IG Australia 2018 reaches a climax this week: It’s effectively the last serious trading week of the year, and the economic calendar reflects that. Indeed, there’ll be a handful of days between Christmas and New Years to keep across, but with little news and thin trade, it’s tough to imagine anything coming out of them. The markets are still ailing, with the bears firmly in control of price action. There’s so many risk-events coming up this week, traders with a bearish bias are surely salivating. They did well to knock-off US equities in the final round of last week: the S&P500’s 1.9 per cent loss on Friday ensured another down-week for Wall Street. How this year is remembered and how next year will begin will in no small way be revealed in the next 5 days: if you’re a financial markets buff, it’s exciting stuff. Economic data: Concerns about future global economic growth tightened its grip on market participants last week. A slew of fundamental data was released across numerous geographies on Friday, and most of it was quite underwhelming. European PMIs undershot expectations, probably attributable in a big way to the impact of being caught in the middle of several domestic political crises and the US-China trade war. US Retail Sales data printed very slightly above expectations, to the relief of many, showing that the almighty US consumer is holding up well – at least for the time being. But it was a very soft set of Chinese numbers that had the pessimists tattling: the spate of economic indicators released out of China on Friday afternoon proved once more it’s an economy that is slowing down – and hardly in a negligible way. Recession chatter: Market commentary is continually focused on what prospect exists of a looming US recession. Financial markets, as distorted as they have become, do not necessarily possess strong predictive power of economic slow-downs. Nevertheless, your pundits and punters have taken a significant preoccupation with whether 2019 will contain a global recession. The signs are there, at least in some intuitive way. A google trends search on the term recession has spiked to its highest point 5 years, for one. Bond markets are still flashing amber signals: the yield curve is inverting, and US break evens are predicting lower inflation. Equities are still moving into correction mode, demonstrating early signs of a possible bear market. Credit spreads are trending wider, especially in junk bonds, as traders fret about the US corporate debt load. And commodities prices are falling overall, with even oil still suffering, on the belief that we are entering a period of lower global demand. Economic data: Concerns about future global economic growth tightened its grip on market participants last week. A slew of fundamental data was released across numerous geographies on Friday, and most of it was quite underwhelming. European PMIs undershot expectations, probably attributable in a big way to the impact of being caught in the middle of several domestic political crises and the US-China trade war. US Retail Sales data printed very slightly above expectations, to the relief of many, showing that the almighty US consumer is holding up well – at least for the time being. But it was a very soft set of Chinese numbers that had the pessimists tattling: the spate of economic indicators released out of China on Friday afternoon proved once more it’s an economy that is slowing down – and hardly in a negligible way. Recession chatter: Market commentary is continually focused on what prospect exists of a looming US recession. Financial markets, as distorted as they have become, do not necessarily possess strong predictive power of economic slow-downs. Nevertheless, your pundits and punters have taken a significant preoccupation with whether 2019 will contain a global recession. The signs are there, at least in some intuitive way. A google trends search on the term recession has spiked to its highest point 5 years, for one. Bond markets are still flashing amber signals: the yield curve is inverting, and US break evens are predicting lower inflation. Equities are still moving into correction mode, demonstrating early signs of a possible bear market. Credit spreads are trending wider, especially in junk bonds, as traders fret about the US corporate debt load. And commodities prices are falling overall, with even oil still suffering, on the belief that we are entering a period of lower global demand. ASX in the day ahead: There are signs a general risk aversion is clouding the ASX to begin the week. SPI futures are pricing a 32-point drop for the Australian market this morning, which if realized will take ASX200 index through last Tuesday’s closing price at 5576. There has been the tendency for the market to overshoot what’s been implied on the futures contract of late, as fear and volatility galvanizes the sellers in the market. This being so, a new test of last week’s low of 5549 could emerge today, opening-up the possibility for the market to register a fresh two-year low. On balance, the day ahead looks as though it may belong to the bears, with perhaps the best way to judge the session’s trade by assessing the conviction behind the selling. Although it appears the less likely outcome, a bounce today and hold above 5600 would signify demonstrable resilience in the market.
  25. 1 point
    Theresa May´s cabinet is set to meet today in order to try and find a solution to the Irish border crisis, the main headache for Brexit talks in the last few months. As a result of the uncertainty regarding a Brexit deal, the GBP weakened against its major pairs, falling by almost 1% against the US dollar and 0.2%against the Euro. The Dow Jones lost 2.32% on Monday falling by 602 points to close at 25,387.18, after Apple suffer another hit and worries over global trade continue. The Nasdaq re-enters correction territory as it lost 2.8% to close at 7,200.87. Goldman Sachs shares suffered their biggest loss in 7 years, leading the S&P 500 to drop 2% to close at 2,726.22. The fall comes after the Malaysian finance minister demands a full refund of the $600million fees they paid To GS in order to help set up the fraudulent state investment fund 1MDB. Cigarette shares dip on Monday as the US Food and Drug Administration (FDA) consider banning menthol cigarettes. The fall was led by British American Tobacco that lost almost 11% closing at 2.962,50 as investors fear over the future of the newly acquired US menthol brand Newport. A smaller than expected demand for vaping products has also led to the company´s revenues to miss targets for the year so far. Italy has reached its deadline to submit a revised budget draft to the EU but, despite pressure from Brussels, Italy shows little signs of altering its budget as it targets to boost government spending. Because of this, Italian bond years rose again on Monday, increasing between 1.3% and 3.5% across the curve. Asian markets start the day in the negative territory but seem to recover into the afternoon. The Hang Seng dipped to 25,092 at the open but has recovered in the afternoon trading above Monday's closing price. The Nikkei 225 has been trading at a 2% loss from the previous close whilst the ASX 200 is ending the day 1.8% lower. Airline stocks have been hurt after the OPEC cartel announce they are looking to stabilise oil prices by reducing supply after prices have fallen around 20% in the last month. International Consolidated Airlines (IAG) closed 0,9% lower on Monday at 637,60. Asian overnight: Asian markets followed their US counterparts lower overnight, with a sharp deterioration in Apple shares sending tech stocks lower in markets such as the Topix, ASX 200, and South Korean Kospi composite. This came after two of Apple’s suppliers cut their earnings forecasts, causing markets to worry whether iPhone sales had peaked UK, US and Europe: The Pound has had a tough start to the week as the markets start to factor in the possibility of a “no deal” Brexit. As it is becoming increasingly possible that Theresa May is not going to be able to pass a deal in Parliament before the deadline on March 29th, the pound is starting to come under pressure against major currencies such as the Euro and the US Dollar. We can expect the Pound to trade with increased volatility this week as key meetings will shape whether there is a possibility of a Brexit deal to fit all. The Brexit negotiations have come under heat as Theresa May has tried to create a UK customs union in order to avoid a hard border on the Island of Ireland. But the EU has rejected this idea by enforcing the backstop plans which lock in the UK in a relationship with the EU which cannot be ended without the EU´s permission. We can expect the Pound to trade with increased volatility this week as key meetings will shape whether there is a possibility of a Brexit deal to fit all. After the recovery from the 2008 financial crisis, the stock markets have been performing seemingly well keeping a consistent uptrend throughout the years but the trading activity of the last month have left investors worried over the health of the financial systems. As earnings have been consistently increasing and companies are performing well, there have been talks about how long this sustained growth can last, questioning if the markets have reached their boiling point. After October became one of the worst trading months in years, the month of November had seemed to bring some relief to stock markets, but after Monday's sharp decline it shows that the markets remain volatile. All it took was bad production figure for Apple and possible regulatory action against Goldman Sachs to send the stock market into a downfall. As the potential for a slow down in economic growth and earnings is starting to take place amid ongoing trade wars and rising interest rates, investors are advising clients to remain cautious and reduce the amount of risk by diversifying their portfolios in order to be prepared for the months to come. Looking ahead, UK jobs data provides a focus on the pound, with average earnings expected to rise sharply to a three-year high of 3%. Also keep an eye out for the German ZEW economic sentiment survey, coming in a week that is expected to see the German Q3 GDP reading hit negative territory. Economic calendar - key events and forecast (times in GMT) Source: Daily FX Economic Calendar 9.30am – UK employment data: claimant count to rise by 3200 from 18,500 in October, while unemployment rate holds at 4%, and average hourly earnings rise 2.6% in September. Market to watch: GBP crosses 10am – German ZEW (November): economic sentiment to rise to -12 from -24.7. Market to watch: EUR crosses 11.30pm – Australia Westpac consumer confidence (November): index to rise to 103 from 101.5. Market to watch: AUD crosses 11.50pm – Japan GDP (Q3, preliminary): forecast to be -0.3% QoQ from 0.7%. Market to watch: JPY crosses Corporate News, Upgrades and Downgrades Taylor Wimpey said that sales rates grew in the second half, up to 0.77 from 0.71 a year earlier. The current order book was up 9% over the year, to £2.4 billion. Vodafone suffered a loss of €7.83 billion for the first half, arising from the disposal of Vodafone India, higher financing costs and de-recognition of a deferred tax asset in Spain. Experian suffered a 5% drop in pre-tax profit to $470 million for the first half, while revenue rose 7% to $2.36 billion. Allied Minds upgraded to buy at Jefferies Anglo American raised to hold at Global Mining Research Zurich Airport upgraded to hold at Santander Total upgraded to buy at AlphaValue IP Group downgraded to hold at Jefferies ThyssenKrupp downgraded to hold at Bankhaus Lampe Orpea downgraded to neutral at Credit Suisse Sophos downgraded to hold at Shore Capital IGTV featured video Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  26. 1 point
    Written by Kyle Rodda - IG Australia The fallout: The US mid-terms have passed, and while there were signs throughout yesterday's trade that the vote would throw up a few curly situations, the outcome fell broadly in line with market expectations. The VIX has dropped and US equities, paced by the NASDAQ, have subsequently rallied, primarily on the knowledge that everything went according to plan -- proving the notion that the biggest drag in markets all-in-all is uncertainty. There are enumerable possibilities, all with various implications for traders, opened-up by yesterday's result, and one assumes that they'll be digested calmly by market participants in the times ahead. Ultimately, however, one major risk has been navigated through without much bloodshed, allowing traders to return their attention to arguably the more significant, fundamental issues at hand. Gridlock: The term that perhaps has been hurled around most since it was confirmed that the Republicans would hold the US Senate and the Democrats would nick the House of Representatives is "gridlock". In the so-called "age of bipartisanship", a split in power within congress all but assures the adversarial tone of the late-Obama era returns. In a representative democracy, in principle, that need not be cause for concern, but it does imply greater inertia in legislative action. That means Tax Cuts 2.0 (as they've been dubbed) are all but dead, buried and cremated, and that a push for fiscal restraint by the Democrats could complicate issues around budget policy and the national debt ceiling in the future. US bond markets: The possible dynamic has shown up in prices already. An analysis of the US Treasury yield curve reveals this. The fact yesterday's results ensure a possibly stagnant congress has been interpreted as a continuation of the status quo in the short term. The yield on interest rate sensitive US 2 Year Treasuries has ticked higher to 2.94 per cent over night on expectations that the current growth formula will go unchanged – and lead to a continuation of the US Federal Reserve's rate-tightening regime. Conversely, the yield on fiscal policy (read: debt and deficit) sensitive US 10 Treasuries has dipped slightly to 3.19 per cent, on the belief that a debt blow-out from Trump's planned tax cuts and infrastructure spending program will not go ahead. Currency markets: The consequence of this shift in expectations regarding US fiscal policy is the US Dollar has sold-off overnight. It appears the interplay of forces is the ideal recipe for a slower rise in the greenback: global growth remains supported in the short-term, benefitting riskier currencies, but lower long-term yields are making the USD relatively less attractive. The knock-on effect has seen the EUR and Pound rally above 1.1450 and 1.3140, supported by strong German industrial output figures last night; and commodity-bloc currencies such as our own Australian Dollar has definitively broken its downward trend to trade at 0.7280. The balance between a weaker greenback but greater risk appetite has kept the USD/JPY flat at 1.1340, while gold has also remained steady at $US1226 per ounce. What for the trade-war? The implications for the other major global macro-risk from yesterday's vote, the US-China trade war, has thus proven a touch unclear. China's equity markets closed lower for the day, the Yuan whipsawed, and prices in growth proxy commodities -- such as copper --fell, seemingly on the uncertainty of what a greater representation of Democrats in Congress means for US foreign policy. In principle, the philosophically liberal-internationalist Democrat party could lobby for greater multilateral engagement with China and other world powers, but in this new age of populism, old assumptions may no longer prove reliable. Futures markets are projecting a better day for the Asian region, however a flicker of greater volatility in Asian markets should be expected leading into the highly anticipated G20 summit at the end of the month. ASX200: SPI futures are indicating a 28-point jump at the open for the ASX200 this morning, as the local market looks to extend its solid gains this week. The day yesterday ended in a 0.4 per cent gain for Australian shares, on reasonably solid breadth of 64 per cent. Volume was below average owing to the major event risk of US mid-term elections once again, however a rotation away from defensive sectors and into growth stocks and cyclicals supported the narrative that the outcome of yesterday’s vote is positive for the equity bull market. The ASX200 now sits on the cusp of technically reversing the short-term trend brought about by October’s massive stock market correction, with a meaningful hold of around 5930 today the level to watch. Today’s major events: Amid all the news and analysis around US mid-terms, a quick refocusing on the week’s other risk-events will emerge in markets today. Of significance today: the RBNZ met this morning – in what is probably the key event for the Asian region – and kept interest rates on hold as expected. The tone struck by the RBNZ has thus far been judged as rather dovish, legging the Kiwi Dollar’s run higher above the 0.6800 handle. Turning attention to more pressing global event-risk, it comes no bigger than tonight’s meeting of the US Federal Reserve. The Fed won’t move rates, that much is known. The attention will be directed instead towards the Fed’s commentary about its flagged December interest rate hike, plus its views on further rate hikes into 2019.
  27. 1 point
    Global stocks rebound after worst month since 2012. Corporate earnings in the US and Europe have helped ease lingering worries over rising interest rates, trade tensions and a slowing global economy. The S&P 500 rose 1.1% and the Nasdaq Composite gained 2%. The Dow is currently trading flat after jumping more than 350 points at yesterday’s open. Asia-Pacific Indices mostly started November on a stronger footing. The Hang Seng was 1.8% higher and Taiwan’s Taiex gained 0.4%, however, Topix was down 0.5% whilst the ASX was roughly flat. The pound sterling rose by almost 0.7% following a report that Theresa May had negotiated an agreement for British financial services companies to maintain continued access to European markets after Brexit. Dominic Raab also predicts a Brexit deal to be made by November 21st. A series of UK economic releases are due today, including: the Manufacturing PMI, a summary of Monetary Policy, and the all important BOE Inflation Report, providing a projection of inflation and economic growth over the next 2 years. The AUD rose 0.95% against the USD after a better than expected trade surplus in September as exports rose and imports fell. AUD/USD currently at 0.714. Turkish Lira drops as the country’s finance minister announced tax cuts that led to doubts over the government’s pledge to take a more disciplined fiscal approach. Brent crude continues its decline, down 0.44% and currently trading at $74.74 a barrel, . Gold is up 0.71% at around $1224 an ounce. Asian overnight: Chinese stocks rose on Thursday on the back of a signalling of a new round of economic stimulus measures by Chinese Communist leaders, in hopes to shore up confidence as the country faces slower growth and the US-China trade war. This comes as an official gauge of Chinese factory output (PMI) weakened to its lowest level in more than two years in October, indicating pressure on the economy. BOE inflation report is set to provide an insight into the bank’s view of economic conditions and inflation... Japanese markets provided the one outlier to an overwhelmingly positive session in China, Hong Kong and Australia. Tax cuts and other stimulus from the Chinese helped boost confidence, while the bullish theme from US and European markets also helped. Rumours of a deal between the UK and EU that would see services firms throughout the UK retain access to European markets has helped provide a boost for the pound. Meanwhile, data-wise we have seen a massive jump in the Australian trade balance, which posted the largest surplus in 18-months. A sharp rise in commodity prices also helped boost Australian stocks and the Australian dollar. UK, US and Europe: There are a few key UK monetary and economic releases to watch out for today. The BOE inflation report is set to provide an insight into the bank’s view of economic conditions and inflation, an outlook for the country’s economic growth which will shape future monetary policy. Mark Carney is due to speak at a press conference at 1:30pm GMT regarding the report – expect volatility around this time. The BOE interest rate will also be released, with a forecast of 0.75%, unchanged from last month’s figure. In the afternoon, keep an eye out for the manufacturing PMI readings from both the US and Canada. On the corporate front, keep an eye out for earnings from Apple as the tech sector comes into focus once again. Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 9.30am – UK mfg PMI (October): activity expected to increase in the sector, with the inde rising to 54.6 from 53.8. Markets to watch: GBP crosses 12pm – BoE meeting & inflation report: no change on policy expected, but the inflation report may provide some clues and thus result in some GBP volatility. Markets to watch: GBP crosses 2pm – US ISM mfg PMI (October): index to fall to 59.6 from 59.8. Markets to watch: US indices, USD crosses Corporate News, Upgrades and Downgrades Just Eat has issued a profit warning, saying that earnings will be towards the bottom end of the £165 - £185 million range, due to investments in Latin America, although revenues will be towards the top end of the £740 – 770 million range. Carpetright reported ‘negative’ like-for-like sales for the half year to 31 October, hit by store closures and disruption arising from restructuring. Credit Suisse’s net income for Q3 comes in at 424 million CHF, vs. 449 million expected. Royal Dutch Shell reported an almost 40% rise in Q3 profits, making four-year highs but still short of forecasts. Japanese electronics giant Panasonic saw its share prices drop more than 8% after a report of a 4% fall in half yearly profit. HSBC upgraded to hold at DZ Bank Paradox Interactive raised to buy at SEB Equities Sanofi upgraded to equal-weight at Barclays Securitas upgraded to add at AlphaValue BNP Paribas cut to hold at Independent Research; GBL downgraded to hold at SocGen IMA downgraded to hold at Kepler Cheuvreux Outokumpu downgraded to neutral at Citi IGTV featured video Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  28. 1 point
    Cryptocurrencies have been going through a period of relative stability, which is almost unheard of for the asset class that gained notoriety for its volatile price movements. ...the support and resistance lines are expected to congregate by early November but a breakout can occur at any time... The stock market selloff that punished the tech sector in the first half of October coincided with Bitcoin losing 7.5% of its value in a single day. Does this correlation in market movements suggest that as Bitcoin and other cryptos have become more mainstream, and adoption by centralised financial institutions has risen, the price is now at the mercy of the same institutions and financial markets it was seeking to circumvent? Or could the selloff be more indicative of general investor sentiment at that time when confidence in the markets was low? One interpretation of the current market movement suggests that the correlation between the crypto class to the major indices are largely unrelated. This interpretation may be supported by the fact that as the more traditional markets have continued to fall through October (with tech having its worst month in a decade) bitcoin’s price action has remained stable, whilst simultaneously seeing a 17-month low volatility rate, even with yesterday’s 2% fall. Technical analysis of the price of Bitcoin shows that the coin was hitting its resistance line and the markets were already likely to turn bearish. The below chart illustrates a falling wedge formation with an almost horizontal support of $6000 that has developed since the February market sell off which shows bitcoins price consolidate and volatility reduce. The wedge shows that the support and resistance lines are expected to congregate by early November but it’s important to remember that a breakout can occur at any time as the price boundaries tighten as investors may take any breach of these lines as an indication of the future price of Bitcoin over the medium to long term. The fake-out of Monday the 10th suggests that investors are poised for any news that can drive price action. Coinciding with this November timeline is a deadline set by the SEC to allow the public to submit opinions on whether to allow Bitcoin ETF’s in the United States. The deadline, which has been moved from October 26th to November 5th follows the SEC’s original decision to reject the ETF’s citing a lack of compliance to prevent market manipulation. ...impending large technical and fundamental focal points implies we may be on the brink of a spike in volatility... This decision by the securities authority could fundamentally define how investors perceive the currency as a further integration into financial markets is either halted again or finally given the green light. The ability for this type of announcement to move prices should not be underestimated as bitcoin hit its all-time high just six days after the first Bitcoin futures contract was announced by the CBOE. Granted this happened during an upwards trending bull market, but it undeniably added to that movement. The announcement to review the initial decision just one day after rejecting the first application, as well as a published statement of official dissent by commissioner Pierce of the SEC, could indicate a potential swing in judgement from the SEC. However, this may not represent a full shift of opinion by the commission as it only takes one commissioner to open a review. Following the deadline, an official decision will not come from the SEC until they have had a chance to review the public submissions, but investors will be listening intently for any early indication of how the decision might go. More recently, reports that some of the concerns that the SEC have over introducing the ETF have been mitigated by the organisations producing the ETF’s have saw speculators expectations heighten for a prospect that at one point seemed rather unlikely. The concerns of the SEC include market liquidity, volatility, pricing and market manipulation. However, proponents have argued that the SEC’s demand for a ‘significant’ futures market allowed them to be non-committal as they have not defined what they classify as significant. The imminence of impending large technical and fundamental focal points implies we may be on the brink of a spike in volatility but what price can investors reasonably expect the currency to move to if the market were to shift? The previous decision by the SEC preceded a $400 dip in the price of the coin in one day and fell back down almost $2000 in the following two weeks to the previously mentioned support level of $6000. Speculators may be hoping a reversal in the decision could see Bitcoin return to $8000 or higher. It’s hard to predict how low the price could go as these prices haven’t been seen since before the all-time high but proponents of the technology wishing for continued stability will be hoping that the lack of a bitcoin ETF is already priced into the market.
  29. 1 point
    Written by Kyle Rodda - IG Australia More information, greater confidence: Markets have been awash with data over the last 24 hours – and traders love it. It’s a behavioural quirk in financial markets: whether good, bad, or otherwise, an inundation of information paints a full and colourful picture of the world and satisfies that innate human desire for (an illusion) of control and certainty. The phenomenon echoes lessons that were reinforced upon the world all the way back in 2008 by one of that years’ seminal cultural events. No, not the zenith of the Global Financial Crisis, but Christopher Nolan’s The Dark Knight and Heath Ledger’s inimitable portrayal of The Joker. In a scene that epitomizes the philosophy of the uber-anarchist Joker, the character ruminates during a monologue: “Nobody panics when things go according to plan. Even when the plan is horrifying… nobody panics. Because it’s all part of the plan.” Fundamentals unchanged: Why bring this up? Outside taking pause to remember a time before the ills of the GFC ailed the global economy, it sums-up quite well the attitude of market participants in times of turmoil. Yesterday saw the release of a swathe of economic and financial data, which assessed on balance, delivered unremarkable and mixed results. None of it fundamentally changed the outlook for the financial world, but the fact that it filled in some blanks and confirmed a few existing biases meant that everything, overall was judged to be ok. Herein lies the problem for now: the issues that ignited October’s sell-off have yet to disappear, meaning that markets remain just as liable to the extreme bouts of panic and volatility that last month delivered us. Adjustments still underway: The biggest problem here is that when assessing the balance of buyers and sellers, and their overall behaviour, not much has changed. The market was led higher yesterday by a drive into tech-stocks and other growth/momentum sectors – apparently based on a so-so earnings update from Facebook, and an anticipation for upcoming Apple results. If there is one thing that can be taken away from the market commentary in the last 2 weeks, the financial market pros out there – the big money managers, the institutional players, the stock brokers, and the like – believe it’s time to shift away from growth investing into value investing. Assuming they are to be trusted, the players controlling the ultimate fortunes of the market are shifting funds away from areas that have propped markets up this week. Same behaviour driving week’s recovery: Thus: here comes the fissure at the centre of it all: if traders are still chasing momentum flow in growth sectors, and the fundamental outlook for broader financial markets hasn’t changed yet, then October’s shake-out probably has further to run. Now, several factors will surely insulate punters from such extreme bouts of volatility. Oft-cited share buy backs will kick-off in a significant way now, plus seasonality suggests markets are entering a fruitful time of year. Moreover, earnings are still strong even if the medium-term outlook has changed, and economic growth (in the US, but to a lesser extent other geographies) is powering along. However, these factors paper over the cracks – and the truly structural factors – which means while financial calamity isn’t expected any time soon, greater adjustments (that is: more corrective action) in financial markets may well loom. Risk one: higher rates: The two biggest factors remain the prospect of higher global interest rates, and the possibility that markets have already reached peak growth. Regarding the former, it is conspicuous and questionable that traders have reduced their bets of a rate hike from the US Federal Reserve in December and lowered their expectations of the number of hikes in 2019. It appears a classic conflation by market participants that weakness on Wall Street necessitates weakness on main street. Though fortunes can quickly change, economic data continues to affirm that the US economy is in a strong position and price pressures are building – which will require a firmer hand and tighter policy from the US Federal reserve. US bond yields have fallen, and the USD has rallied of late, inviting investors back into equity markets. Last night’s trading session saw bond yields tick higher again, implying that the risks of rising rates haven’t been fully discounted, and sustained volatility on this basis persists. Risk two: slower growth: Secondary to tightening global monetary conditions, the other factor that precipitated October’s market rout remains – and was, in fact, reinforced yesterday. The prospect of weaker growth ex-US economy, due to the trade-war as much as any other cyclical causes, looms large on the horizon. Chinese PMI data yesterday undershot forecasts once more, with the Manufacturing component to that release inching closer to a sub-50 “contractionary” print, pushing the off-shore Yuan ever closer to 7.00; while the BOJ during its meeting yesterday downgraded it growth and inflation forecasts. The fears across Asia added to the nervousness catalysed by this week’s soft European growth numbers – although it must be said that the perception of European growth did receive a boost last night when it was reported that a Brexit deal may arrive as soon as November 21. Nevertheless, if the market correction October was in a big way foundered upon shakier global growth prospects, little revealed this week so far should be interpreted as diminishing that risk in the short-term. Today for the ASX200: SPI futures are indicating that, to start the new month, the ASX200 will participate in the relief rally sweeping markets and add 26 points at the open. Despite sluggishness throughout the day, the Australian market jumped just before the end of yesterday's session, courtesy of a buy-up in bank stocks following ANZ's better than expected results. A full turn around isn't yet underway for the ASX200, but the seeds are there to potentially break the corrective pattern hobbling the index -- with a break and hold above 5930 a definitive sign of this. Just like the rest of global equities, the risks and challenges remain, but yesterday's weak CPI print at least affirms that RBA policy will probably remain supportive of asset markets. The next two days of trade will be significant for the Australian market's nascent recovery, as NAB reports today, and macro watchers eye local retail sales figures tomorrow, and the more significant US Non-Farm Payrolls release on Friday night.
  30. 1 point
    Written by Kyle Rodda - IG Australia ASX200 yesterday: It was a tale of two halves for the ASX200 yesterday, dipping at the open before roaring back to close the day’s trade 1.3 per cent higher. The dour beginnings came on the back of reports from Bloomberg – now well known – that the Trump Administration would be seeking to slap tariffs on (in effect) all Chinese imports into the US, if a deal couldn’t be achieved between US President Donald Trump and Chinese President Xi Jinping at next month’s G20 Summit. In a testament to the jumpiness of financial markets the world over currently, the tone changed in global markets upon the release of news that, in an interview with Fox News, US President Trump believed there was a “great deal” in the works between the US and China. Sentiment in Asian trade: A highly ambiguous statement. Nevertheless, market participants – clinging onto every shred of hope – took the comments, bound them to their sense of optimism, and ran Asian equity indices generally higher. Breadth on the ASX200 was at a noteworthy 75 per cent, though on volumes slightly below last week’s average, with the major momentum/growth sectors topping the sectoral map. The financials, as is always required, did most of the heavy lifting, adding 30 points to the index, in part in preparation for upcoming company reports from the Big 4. The Australian market has now pulled itself out of oversold levels, to break-trend on the RSI, and in doing so, establishing the foundations for a challenge of a cluster of resistance levels between 5780 and 5880. Corrective bias remains: No doubt, it was a praise-worthy performance from the ASX200, but Australian investors are far from out of the woods yet. Putting aside the major global drivers dictating the fate of equity markets the world over, the simple price action on the ASX200 index doesn’t yet indicate an end to the recent bearish streak. If anything, at least as it currently presents, the technical indicators play into it. The push into oversold levels necessitates a recovery in the ASX, as bargain hunting buyers galvanize a bounce higher. There’s some way to go before a reversal in the recent short-term trend lower can be definitively considered finished. A clean break through 5930 and a solid hold above 5780 would be the categorical sign required before this can be stated. Until then, abandoning a bearish perception of the ASX may well be premature. ASX200 drivers: As if often stated, the overall activity in the ASX200 is determined by an oligopoly of banks, a slew of mining companies, a couple of supermarkets and a much-loved biotechnology firm. The banks have received a leg-up thus far this week, as investors ignore regulatory risk and a property to slowdown to buy in ahead of a series of bank earning’s reports. The miners are being slayed by increased concerns about the impacts of tariffs on global growth, though increased fiscal stimulus from the Chinese and its knock-on effects to iron ore prices could be their salvation. Woolworths and Wesfarmers are performing solidly, though not well enough to carry the entire market higher. While a diminishing appetite for growth/momentum stocks has led to losses of over 5 per cent for market darling CSL over the past 3 months. Global macro and share market trends: Reviewing the fundamental macro forces required to stimulate the market perhaps reinforces the notion that the ASX200 still has some correcting to do. Although equity markets have experienced a relatively strong start to the week, the risks that catalysed the recent correction in segments of the market have not disappeared. Much of the reversal can be attributed to a belief amongst investors that the recent share market volatility will force the US Federal Reserve to soften its hawkishness and increase US interest rates at a slower pace. US Treasury markets reflect this, with the yield on the rate-sensitive US Treasury note falling from +2.90 per cent to as low as 2.81 per cent this week, as traders decrease their bets on December Fed-hike to 70 per cent. Indeed, it remains a possibility that a “Powell-put” under the US (and therefore global) share market may emerge, but the remarkably strong fundamentals in the US economy still imply a need for the Fed to hike interest rates – a dynamic that, if it materialized, will sustain volatility and further equity market adjustment. Overnight in Europe and America: To lower the eyes and turn focus to the day ahead, SPI futures are presently indicating a 9-point drop at the open for the ASX200. Futures markets have pared losses late in US trade, following a late session run on Wall Street that has seen the Dow Jones climb an impressive 1.86 per cent, the S&P500 rally 1.26 per cent, and the NASDAQ jump 1.56 per cent – though the latter may find itself legged in afterhours trade as investors digest Facebook results. The rally in the North American session followed-on from a soft day in European shares, which were mired by news of a potential ratings downgrade of UK debt by S&P, along with mixed economic data releases across the Eurozone. The USD climbed because of this imbalance between European and American sentiment, pushing the EUR below 1.1350, the Pound into the 1.27 handle, and gold prices to US$1223 per ounce. Australian CPI data: The trading week hots-up from today onwards, in preparation for several important fundamental data releases. Domestically, none will come more significant than today’s Australian CPI print, from which market participants are forecasting a quarterly price growth figure of 0.5 per cent. That number, if realized, won’t be enough to crack the bottom of the RBA’s inflation target band of 2-3 per cent, and will, in effect, affirm the central bank’s soft inflation outlook and dovish rate bias. As always, a figure of extreme variance to either side of market consensus could shift the Australian Dollar and interest rate markets. Traders remained wedded to the idea that the RBA won’t hike interest rates until early 2020: an extreme upside surprise in today’s CPI could see this adjust and spark a run higher in the AUD/USD towards trend channels resistance at 0.7200 – though this outcome is highly unlikely.
  31. 1 point
    Deutsche Bank has kicked off the banking season in Europe today as the bank announced a net profit of €229 million, with analysts expecting a profit of €149 million, as the investment bank branch loses ground. Barclays has followed by beating expectations as net income came in at £1 billion vs. £723 million expected, Jes Staley announced he is "very pleased" with the Q3 results. The EU continues to mount pressure on the Italian government as Valdis Domborvskis, vice-president of the European Commission, has told Italy that it’s budget is “not sufficient” highlighting issues with further increasing debt in Italy. The Dow ended 126 points lower but recovered from the earlier 500-point loss during the day, as corporate results from Caterpillar and 3M disappointed. Nasdaq closed 0.4% lower whilst the S&P 500 slipped 0.6% Japanese manufacturing expanded to its fastest rate in six months In October a preliminary survey indicates PMI rising to 53.1, up from 52.5 in September. China's Shanghai Composite slipped 2.3% on Tuesday, counteracting the surge seen on Monday. China is in a state of doing "whatever it takes" to put an end to its stock market falling, as President Xi Jinping pledges to provide unwavering support for the Chinese private sector. Oil prices plunged more than 4% yesterday amid concerns amongst investors about increasing global tensions with Saudi Arabia and slowing global economic growth. Saudi Arabia's minister of energy has attempted to assure the markets that the Khashoggi scandal will not impact the supply of crude oil, with little success so far. Asian overnight: Asian stocks managed to arrest their recent slide, with markets throughout China, Japan and Hong Kong gaining ground overnight. The one outlier to this recovery came from the Australian ASX 200, which lost ground thanks to a sharp decline in the energy sector. With Saudi Arabia promising to keep the oil market well supplied, we saw a sharp decline in crude prices throughout the night despite an attempted rebound. Recent fears over the trade war impact on the Chinese economy have clearly shook stocks in Asia, and with the Italy-EU standoff looking set to rumble on, a risk-off sentiment is likely to stick around for some time yet. Trump's relationship with the Fed and China-US relations will be intriguing to follow over the coming days and how both factors impact trader sentiment UK, US and Europe: The US stock market is still in a sell-off state as the S&P 500 recorded its fifth straight decline, with all other major indices down at least 4.8% for the month of October. The driving force for the sell-off is the on-going trade tensions with China, which do not seem to be easing as Chinese government leaders indicate that they are not scared of a trade war with the US. Adding to this, Donald Trump continues his assault on the American central bank, when speaking to the Wall Street Journal he claimed that the Fed is the "biggest threat to the US economy", adding further scepticism around the US stock market. Trump's relationship with the Fed and China-US relations will be intriguing to follow over the coming days and how both factors impact trader sentiment in the US market. Looking ahead, we have a host of PMI releases from both Europe and the US. Preliminary eurozone PMI for France, Germany and the eurozone cover both services and manufacturing sectors, while the afternoon sees those same sectors covered by Markit for the US. The big release of the day comes from Canada, where the BoC is expected to raise rates once more. Keep an eye out for CAD volatility. Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 8.15am – 9am – French, German, eurozone mfg & services PMI (October, flash): eurozone mfg reading to rise to 54.4 and services to rise to 55.1. Market to watch: EUR crosses 2.45pm – US mfg services & mfg PMI (October, flash): mfg index to hold at 55.6, while services rises to 53.9. Markets to watch: US indices, USD crosses 3pm – Bank of Canada decision: rates expected to rise to 1.75% from 1.5%. Market to watch: CAD crosses 3pm – US new home sales (September): expected to rise 0.5% MoM. Market to watch: USD crosses 3.30pm – US EIA crude inventories (w/e 19 October): stockpiles to rise by 1.9 million barrels from 6.49 million a week earlier. Markets to watch: Brent, WTI Corporate News, Upgrades and Downgrades Barclays said Q3 profit fell to £3.12 billion from £3.45 billion, although excluding litigation and conduct charges group pre-tax profit was up 23% to £5.3 billion. Wells Fargo has been hit with a $65 million fine related into an investigation into statements made to investors regarding alleged fraudulent claims to "cross-sell" its business model. Caterpillar's disappointing results saw the stock closed 7.6% lower as the company highlights issues with increasing costs due to global trade conditions. Deutsche Bank report net profit of €229 million, a 65% fall in profits, in the third quarter amid the restructuring of the companies leadership. Analysts expected a sharper decrease than reported, a Reuters poll expected a net profit of €149 million. Another bank that has reported earnings today is Metro Bank, the company announced pre-tax profits of £39.2 million which is three times than the amount recorded in the same period of the previous year. Stobart saw a net loss of £17.5 million for the first half, compared to a profit of £111.9 million a year earlier. Revenue was up 21% to £151.3 million, while the dividend was raised 20% to 9p per share. Beer company Heineken has revealed impressive sales as volume grew by 9.2% and net profit increased to €1.606 million, fueled by warm weather in Europe. Shares in 3M slipped as much as 8.4% before recovering and trading at about 3.3% lower than its open, due to quarterly revenue missing expectations and adjusting its earnings perspective for 2018. Banco BPM upgraded to hold at Kepler Cheuvreux Datagroup upgraded to hold at Baader Helvea Salvatore Ferragamo raised to neutral at MainFirst Wartsila upgraded to buy at ABG Baader Bank downgraded to hold at HSBC Bayer downgraded to add at AlphaValue Cineworld downgraded to equal-weight at Barclays GAM Holding downgraded to neutral at MainFirst IGTV featured video Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  32. 1 point
    Chinese stock have rallied with the Shanghai Composite Index gaining more than 4% as officials attempt to support the market as GDP figures last week fell short of the 6.6% growth target by 0.1% The rest of the APAC region followed suit with all major indices apart from Australia's ASX 200 making gains. Dominic Raab has stated there may be some flexibility on the Irish border issue. The Brexit Secretary made the comment in an interview which may allow negotiations continue for a soft Brexit. Uncertainty over oil remains as the investigation over the Saudi journalist Jamal Khashoggi continues. Turkey have stated they will announce their findings tomorrow which could cause further volatility with oil if the announcements result in further international condemnation for Saudi Arabia. Italian bond yields have lowered as ratings agency Moody's has kept their outlook 'Stable' RyanAir profits fall 7% as their Chief Exec blames air traffic control disruptions. Asian overnight: This rally is likely to calm investor fears that China was heading towards an economic disaster with stock-backed loans as China’s Shanghai index was down 30% this year. Chinese markets have drawn attention recently with missed GDP estimates and the ever-present trade war uncertainty. Confidence is also weak in the yuan as it looms ever closer to the $7 level. Major concerns are beginning to emerge that this fall in Chinese share prices is causing a further sell off due to stock-backed loans. Many Chinese corporations have these loans secured on their shares which they must liquidate as part of the agreement to ensure they can fulfill their obligations. Following the major market sell off seen earlier this month which mainly hit tech, an important sector for China, it’s likely that further market drops could cause more firms to have to sell their shares which would cause their price to drop further. This recent rally is likely to placate investors temporarily but as 11% of the country’s market capitalisation is being held as collateral for loans investors will still fear that another market downturn could cause a landslide for Chinese share prices. ...11% of the country’s market capitalisation is being held as collateral... UK, US and Europe: The comment from Secretary Raab comes just a day after London saw a protest of approximately 700,000 people who were voicing their concerns over the final deal that the UK will ultimately make with the EU. Markets are likely to react positively to any news that furthers the negotiations between the UK and Brussels as it potentially avoids the possibility of a hard Brexit. The west has remained sceptical as Saudia Arabia have changed their story regarding the reported death of journalist Jamal Khashoggi. As a growing number of leaders from some of the worlds largest corporations are pulling out of the investment conference 'Davos in the Desert', Saudia Arabia appear to be in damage control mode. The investment conference is an important part of the Saudi Prince Bin Salman's vision for the future of Saudi Arabia in which they intend to reduce their economic dependence on oil. The conference was set to garner investment support to develop other areas of the economy, something the Gulf state also intends to finance through the IPO of the state owned oil corporation Saudi Aramco. South Africa: The dollar has softened to assist gains in commodity prices which has an effect on the South African bourse. The rand is firmer this morning as well. Tencent Holdings is trading 2.91% higher in Asia, suggestive of a positive start for major holding company Naspers. BHP Billiton is up 0.2% in Australia, suggestive of a flat to marginally higher start for local resource counters. Today's economic calendar is light with no high impact data scheduled for today. Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 1.30pm – US Chicago Fed index (September): expected to fall to 0.15 from 0.18. Markets to watch: US indices, USD crosses Corporate News, Upgrades and Downgrades NMC Health has upgraded its annual revenue and earnings guidance. A stronger second half means that revenue is expected to rise 24%, from a previous 22% guidance, and EBITDA will now be $480 million instead of $465 million. Ryanair has suffered a 9% fall in pre-tax profit for the first half, while average fares were down 3%. Ryanair will close or downsize three bases and shrink its winter capacity, and it does not rule out further capacity cuts. Fiat Chrysler are set to announce the sale of their component maker to rival Calsonic Kansei for $7.1 billion Debenhams has announced it will continue with its store closures as well as unveiling a £100m savings plan Bankia upgraded to neutral at BPI Hunting upgraded to outperform at Macquarie Ophir Energy upgraded to buy at Jefferies Tullow upgraded to buy at Jefferies Cairn Energy cut to underperform at Jefferies Intu downgraded to hold at Berenberg Novartis downgraded to hold at Baader Helvea Publicis downgraded to hold at Liberum IGTV featured video Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  33. 1 point
    Trump announces that the Fed is his biggest threat as they are increasing rates ‘too quickly’ Theresa May is to visit Brussels for an EU summit today to agree on the terms of the UK-EU agreement, in order for a final decision to be made in November Netflix quarterly results show yet another rise in new subscribers, signing up 6.96 million customers in this quarter, totaling a global amount of 137.1 million Canada becomes the second country to legalise the use of Cannabis and Marijuana Spot Gold market trend starts to incline, breaking out of its previous month’s bearish position above $1210 to $1219. IMF had arranged to attend a conference in the Middle East for October 23rd to 25th, however has now postponed the trip with no further explanation given China’s holdings of US Treasury securities declined yet again for a third month, plummeting its holdings by around $6billion to $1.165trillion in comparison to last years at $1.2trillion US stocks rise rapidly as some of the largest US companies announced strong quarterly results, helping regain the downward fall shown last week. This includes the Dow Jones, which surged around 550 points/2.2% and the S&P increasing by over 1.9% Asian overnight: Asia Pacific markets managed to follow the US and European lead overnight, with Japanese and Australian markets in particular leading the way higher. Interestingly, Chinese and Hong Kong markets were relatively muted, highlighting the continued fears surrounding growth in the region after Trump threatened yet another round of tariffs on Sunday. The level of debt to GDP in China has hit ‘alarming levels’, as a great difference is seen between reported investments and actual off-balance sheet debt. It is reported at estimates of highs of 30 trillion to 40 trillion Yuan ($4.34trillion to $5.78 trillion). According to analysts, this is mainly caused due to local Chinese governments investing deeply in infrastructure and funding in order to encourage economic growth UK, US and Europe: The UK is back in focus today, with inflation data likely to build upon yesterday’s jobs numbers to build a picture of the pressures on the BoE. With average earnings on the rise, the predicted fall in inflation could actually provide a positive differential between wages and the cost of living, thus raising real wages. UK wages grow at their quickest pace in nearly 10 years. The level of pay rose by 3.1% from the three months prior to August and a fall of 47,000 to 1.36million in unemployment levels.The EU summit will shift the market mindset back to Brexit, with the EU having allowed Theresa May the opportunity to find a solution to break the deadlock. In the US, keep an eye out for housing data, with building permits and housing starts being released. However, the big release comes later on, with the Fed due to release their latest monetary policy minutes. Crude traders will also be keeping a keen eye on the Crude inventories data following substantial build-ups over the past two weeks. The Fed to release their latest monetary policy minutes later today Results from further investigation, in regards to the Saudi journalist Jamal Khashoggi, may show greater strain on how the US and Saudi Arabian relationship will be effected. This has caused three large banks including HSBC, Credit Suisse and Standard Chartered to pull out of Saudi’s Future Investment Initiative event in Riyadh. Among these, Google’s cloud division, Mastercard, JP Morgan and many others have also decided that they are not attending the event. South Africa: Upbeat US corporate earnings is seeing the tech sector leading gains in the worlds largest economy (the US). The dollar has however firmed up a bit, putting some pressure on commodity prices and the rand. BHP Billiton is down 0.7% in Australia, suggestive of a softer start for local diversified resource counters. Naspers, which has roughly a 20% weighting in the Top40 Index, is expected to open higher this morning in lieu of the improved sentiment surrounding tech sector stocks. Our local market will look to Retail Sales data at 1pm today for for guidance as to the health of South Africa's retail sector. Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 9.30am - UK CPI (September): CPI to rise 2.4% YoY and 0.5% MoM, from 2.7% and 0.7%, while core CPI rises 1.8% YoY and 2.1%. Market to watch: GBP crosses 10am – eurozone CPI (September): forecast to rise 0.2% MoM. Market to watch: EUR crosses 1.30pm – US housing starts & building permits (September): starts expected to fall by 3.5% YoY, and permits to rise 1.2%. Market to watch: USD crosses 3.30pm – US EIA crude inventories (w/e 12 October): forecast to see a 1 million barrel rise in inventories. Markets to watch: Brent, WTI 7pm – US FOMC minutes: the committee’s decision to raise rates will be revealed in more detail, providing volatility for the US dollar and equities. Markets to watch: US indices, USD crosses Corporate News, Upgrades and Downgrades Afrimat expects earnings per share and headline earnings per share, for the interim period to be between 92 cents and 97 cents per share (2017: EPS of 102.4 cents per share and HEPS of 102.2 cents per share), reflecting a decrease of between 5% and 11% on the previous period. Pearson said revenue was flat for the first nine months of the year, and the firm has reiterated its annual profit guidance. Barratt Developments has made a strong start to the year, with a 12.4% rise in forward sales, to £3.15 billion compared to £2.8 billion a year earlier. Mediclinic said that first-half revenue fell 1% to £1.4 billion, while adjusted EBITDA was down 8% to £21 million. Lyft has hired JP Morgan to lead its IPO for 2019, potentially increasing its value to over $15billion BlackRock’s stock falls by over 5% due to their third-quarter revenue results falling below expected results, totalling at $3.576billion in comparison to $3.648billion. Nevertheless, BlackRock published earnings per share at $7.52, in comparison to an expectation of $6.84 Audi to be fined £700million/$800million as an investigation occurred in relation to a diesel emission scandal Morgan Stanley increased more than 5% after the announcement of improved results in earnings. This led to earnings per share at $1.17 rather than the forecasted results of $1.01 Goldman Sachs had reached a higher level than estimates in profitability levels, resulting in $8.65billion of revenue from an estimated $8.4billion. This results in levels of $6.28 per share in earnings, from its estimates of $5.38. Volvo shares decline by 5% due to an announcement explaining potential emissions failure, with vehicles emitting illegal levels of nitrogen oxide Dollar Tree’s stock increased to highs of 7.1% after investor Carl Icahn had taken a stake in the company Uber targeting $120billion valuation for next year, as Wall Street banks advise that its worth more than three times the automaker Ford IBM revenue decline to $18.8billion in the third quarter, falling by 2.1% against expected results Shares of Tencent faces an extreme decline of 40% from January, eliminating more than $230billion in market value BillerudKorsnas upgraded to buy at SEB Equities Coca-Cola HBC raised to hold at Wood & Company Hellenic Petroleum raised to overweight at Pantelakis KPN upgraded to overweight at Barclays ConvaTec cut to underperform at Credit Suisse Handelsbanken downgraded to sell at DNB Markets Michelin downgraded to neutral at Goldman Safran downgraded to underperform at Jefferies IGTV featured video Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  34. 1 point
    Wall Street: It's still early days, but investors appear to have regained their nerve overnight. The Asian session was tepid, to be sure, however a rally in European and US equities reveal a market that has found its appetite for equities again. As the existing narrative would imply, much of this was underpinned by a fresh appetite for rate-sensitive US big tech stocks, which according to the NASDAQ, rallied almost 3 per cent overnight, leading both the Dow Jones and S&P in the realms of 2 per cent higher. Implied volatility fell, but remains relatively high at around 18, so of course it would be foolish to claim the recent sell-off is authoritatively through. In stating this, commentary has shifted away somewhat from risks from rates and tariffs, to anticipating the fruits of what is expected to be a bumper reporting season – particularly after the likes of Goldman Sachs and Morgan Stanley posted impressive results early this morning. Europe: Likely owing to being largely oversold to begin with, the strong activity in European equities come despite a mixed-news day for the region. Like much of the global-share-market following last week’s equity rout, valuations and dividend yields within European indices have become more attractive this week, apparently enough to attract buyers into European share markets, even against doubts regarding the strength of the region’s upcoming reporting season. UK data provided some impetus for the bulls last night, after labour market figures showed that the unemployment rate held at 4.0 per cent and average earning climbed by an above forecast 2.7 per cent. The GBP/USD pushed-up just below the 1.32 handle on the news, however rate markets were more-or-less steady, as traders ostensibly tie their BOE rate-hike bets to the outcome of souring Brexit negotiations. Macro-backdrop: The boost to investor sentiment has infused equity traders with glimmers of confidence, though the greater appetite for risk hasn’t necessarily flowed through to other asset classes. Yields on US Treasuries were flat the last 24 hours, and despite climbing back above the 112-handle against the Yen, the US Dollar has failed to catch a major bid. Risk proxies like the AUD and NZD are a skerrick higher, with the Aussie Dollar floating about 0.7140, but gold is still finding haven buying, holding above a support line at $US1224. Moreover, proving that last night’s rally isn’t on the firm basis of greater confidence in global growth prospects, the Bloomberg Commodity Index edged 0.1 per cent lower, even considering a sustained increase in oil prices amid fears of lower supply because of a potential rift between the US and Saudi Arabia. ASX: The strong overnight lead has SPI futures pointing a 28-point jump for the ASX200 at this morning's open, following a day in which the Australian share market popped modestly higher from its oversold levels. The pop was reflected primarily in the activity in bank stocks, which rallied-off its own oversold reading, to collectively climb 0.55 per cent for the session. It was the materials space though that led the index higher, courtesy of a 1.4 per cent rally, despite the limited price gains in commodity prices yesterday. The day's trade establishes an interesting dynamic for the ASX200 today: the index fought unsuccessfully throughout trade to re-enter last week's broken trend channel. Futures markets has this transpiring at the open - a positive sign for the Aussie market. Regional data: Despite leading to limited price action across the region, Asia was littered with fundamental data yesterday. It was kicked-off early morning our time, upon the release of key New Zealand CPI data, which revealed stronger than expected consumer price growth of 1.9 per cent annualized for that economy. The algo-traders seemed to kick-in post the event, pushing the NZD/USD to the significant 0.6600 handle, before human rationality took over the pair lower, primarily on the knowledge that the data wouldn’t change materially the RBNZ’s interest rate views. Chinese CPI data was also printed yesterday, revealing an-expectation figure of 2.5 per cent – up from the previous 2.3 per cent. Once again however, although inflation is proving to be running a little hotter in China, trader’s judged that the news wouldn’t shift the dial for policymakers and promptly moved on. RBA’s Minutes: Of domestic significance, the RBA released the minutes from their recent meeting, with very little novel information to glean: “members continued to agree that the next move in the cash rate was more likely to be an increase than a decrease. However, since progress on unemployment and inflation was likely to be gradual, they also agreed there was no strong case for a near-term adjustment in monetary policy”. The reaction in market was one of the more muted from an RBA release, registering barely a reaction across financial markets. There were some interesting points discussed from a purely academic perspective in the document – some substance for the economics-nerds – especially relating to hot global asset prices, but nothing in the way of potential policy approaches from the central bank. FOMC Minutes and Reporting Season: Approaching the half-way mark for the trading-week, investors prepare for its pointier end. The major event will transpire tomorrow morning local time, in the form of the FOMC Minutes from the US Federal Reserve’s last monetary policy meeting. Of course, most of panic and volatility in global markets has come because of the Fed’s hawkishness in recent times, so market participants will peruse the details of tomorrow’s minutes for insights that confirm or deny fears about higher global rates. The broader market will also engross itself further in US reporting season, with Netflix (for one) posting what is being considered currently a better than forecast set of numbers, by way of virtue of a smashing of subscription growth estimates.
  35. 1 point
    Rout over? There are tentative signs that the global equity rout witnessed last week has subsided, at least for now. The tone shifted during Asian trade on Friday, and despite a weak day for European markets, Wall Street ended the week on a positive note, led by a bounce in the major tech stocks. It’s not to say that there isn’t the risk that this sell-off may not continue at some stage this week: in fact, futures markets are indicating a sluggish start for Asia today. More to the point, the fundamentals haven’t changed and the concerns that precipitated the tumble in share markets are still there. True, bond yields are now 10 points down off their highs and some positive news about the trade war and Chinese growth boosted sentiment on Friday. But neither of these issues have disappeared and will almost certainly rear their head again. Fundamentals haven’t changed: The crux of the matter is that, as has been repeated ad nauseum, interest rates in the US are going higher and that seems very unlikely to change. The growth story in the US is so strong that the Fed feels compelled to keep telling us so, as it apparently prepares markets for the inevitable end of the easy money era. If this is the case, then maybe the kind of wild bursts of volatility above 20-25% (if assessed against the VIX) sporadically is the new norm. Markets have seen two bouts of it this year already, largely due to the same structural factors, though it must be said that provided we’ve arrived at the end of this sell-off, the impacts were much smaller than February’s. Nevertheless, assuming continued strength in the fundamentals, a more turbulent journey on this bull-run could become the status quo. A sell-off, not a correction (yet): Once again: this assessment is entirely predicated on the belief that this pull-back has come to an end, which with a high-impact week ahead of market participants, is less than guaranteed. There may be an element of being at a cross-road now, though it’s almost always impossible to tell whilst moment whether this is so. Despite the opacity of the current market conditions, defining what’s so far been seen is appropriate, especially to provide perspective regarding the panic some have felt toward the notion of a “correction” in the market. Different geographies and individual indices must be judged differently, but if Australian and US markets are the yardsticks, neither are at a technical correction phase yet. A true correction is a sell-off of over 10 per cent from highs, something the major US indices nor the ASX has experienced yet. ASX: SPI futures are pointing to a soft start for the week for the ASX. The last price on that contract is indicating a 51-point drop at the open, furthering last week’s rather heavy losses. First glance suggests that the drop-in financials stocks on Wall Street, which fell by way of virtue of the pullback in US Treasury yields, and despite strong earnings updates from JP Morgan Chase & Co. and Citigroup Inc, will follow through to the Australian share market today. The boost to US tech stocks may bode well for the pockets of growth stocks in information technology and healthcare within our market, as too may the slight lift in industrial metals prices and oil over the weekend. However, even considering these modestly improved fundamentals and a solid lead from Wall Street, perhaps the break of a technical medium-term uptrend on Friday has tipped the balance of activity in favour of the sellers. China and greater Asia: Being a Monday, the Asian region is at risk of witnessing a lack of volume on the markets today, on the back of a US session Friday that experienced a 30 per cent lift in its average volume. That could make markets sputter a little, however several events and a general positioning for the week could turn that around. An impetus will need to come out of China to see noteworthy shift in sentiment, be that bullish or bearish, as traders attempt reform their views on the Chinese growth story. That narrative received a much-needed boost during last week’s final trading session, after the release of much better than expected Chinese Trade Balance data assayed some concerns relating to the impact the trade war is having on Chinese growth – a belief that will be tested throughout the week by a slew of Chinese fundamental data releases. Fundamental economic data: Fundamental data will be abundant in the week ahead for market participants, both domestically and abroad. Interest rate traders will be treated to insights from the RBA in tomorrow’s RBA Monetary Policy Minutes on Tuesday, FOMC Minutes on Thursday morning (AEDT), along with several speeches from central bankers throughout the week. Volatility in currency, money and credit markets was nowhere near the levels registered on share markets last week, although a safe-haven plays into US Treasuries, the Yen and Gold has emerged. Given the primary cause of Thursday’s major sell-off can be tied back to interest rate expectations and activity in US Treasuries, the FOMC’s minutes will probably be the most watched event. The yield on the benchmark US 10 Year Treasury note is down to 3.16 per cent currently, 10 points below the highs that ignited the stock market sell-off: an overly hawkish tone in the Fed’s minutes a risk of bringing a return to this dynamic. Political economy: Geopolitical risk will lurk in the background to the week’s trade, threatening to dull risk appetite above and beyond the uncertain fundamental outlook for markets. A Brexit deal could eventuate this week, in what could amount to the final round of talks between the UK Government and European bureaucrats. An eye on China and particularly its handling of the Yuan could be a hot-point, after the US Treasury department opted not to label the Chinese policymakers as currency manipulators, catalysing a rally in the Yuan, before the PBOC intervened and enacted another controlled devaluation on Friday. Finally, fears of disruption in the middle-east and therefore oil markets could flare-up, as relations deteriorate between Saudi Arabia and the global community on the increasing possibility that the Saudi’s brutally murdered a anti-establishment journalist within the Saudi Arabian embassy in Istanbul. Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  36. 1 point
    What happened? The sell-off continues, and despite a brief pause during Wall Street trade that opened hopes of an end to this rout, it was quickly dashed as investors went back to dumping stocks. The chaos that has ensued in the last 24 hours raised myriad of questions. But the first one is inevitably this: why did that happen? In short: there’s not a clear answer. That isn’t to say that there isn’t reasoning behind the sell-off; on the contrary, there’s plenty to explain it. Rather, it’s a matter of “why now?” – an explanation that has proven elusive for market participants. From some sort of academic perspective, it’s a matter that begs to be resolved, but for those with skin in the game and money on the line, it’s secondary to the fact that this is happening, and a rapid-response has been required. Higher rates: This being so, it warrants an examination on the state of play. US equities – the shining beacon atop the dimming global financial landscape – became hobbled about a fortnight ago after a slew of US Federal Reserve speakers came-out to implore that growth was so “extra-ordinary” that interest rates may not yet be near the “neutral rate”. Not only that, the US economy could run so hot that a move in rates above the “neutral rate” may be required, to lean on a booming US economy. Bond markets responded violently to the new information – as is well known – with traders demanding higher yields on US Treasuries, sending the US Dollar higher, stretching US stock valuations in certain segments of the markets to unattractive levels, and generally denting risk appetite. Slower growth? Though such structural challenges reared their head, the initial reactions from investors were on-balance positive: the Fed needs to raise rates because the US economy is just that strong. This is a positive thing, it was rationalized: fundamentals are good, so the bull-market should continue. This idea became challenge this week for US investors, as dark clouds started to brew on the eastern horizon: China looks as though it could be slowing, and the trade war could make this worse. A world of slower Chinese growth is a world without a strong economy; and that means, for the many US corporates exposed to the slings and arrows of China’s outrageous economic fortunes, lower profits and lower returns for their shareholders. Panic-stations: With this as the very simple fundamentals, momentum in the US equity market slowed-down, probably as flow-chasers exited the market, robbing equities of their bid and beginning the cascade in prices that we’ve witnessed the last 48 hours. Frenzy has of course ensued, as investors bank profits where they can and take advantage of the gains the mighty bull-run on Wall Street has delivered. The panic has naturally spread to equity markets throughout Asia and to Europe, sparking calls that the divergence in US markets and the rest of world – that has characterized months of trade – is coming to an end: the last bastion of strength in the post-GFC, easy-money-era bull run is falling. Trend reversals and new lows: Trend lines and support levels are being broken everywhere you look. The global recovery (good since March) following February’s massive correction has ended. Chinese and Hong Kong markets have hit new lows, on some indices ones not seen since 2014, even despite very attractive valuations. Japan’s Nikkei has tumbled from 27-year highs to wallow back around the low-22,000-mark. European shares are on the precipice of breaking-levels that would open downside to near-12-month lows. And the ASX is hugging an upward trendline resistance level established in early-2016, when the global growth story was barely a twinkle in the global economy’s eye. Here, the bears have begun to circle, waiting to profit from a massive, long term trend reversal that vindicates the widely held view that markets can’t possibly prosper without central bank support. Market psychology: Here, it’s time for a moment of pause. The whirlwind of panic-selling and confusion that has stripped market participants of their rational faculties has laid the fertile soil for the described narrative to flourish. It’s not that individual traders aren’t aware of this either – the hysteria is easy to see, and more importantly see through. But when your money is on the line, and precious profits are being eroded, why hold your position when you can’t be sure that everyone else isn’t crazy? Or even more appropriately: why hold your position when you can’t be sure that everyone else isn’t thinking that you are crazy, and that they aren’t about to dump their positions in anticipation of you dumping yours in some hysterical haste? Either way, as a rational, self-interest investor, it’s best not to risk it – sell now and take profit before the herd wipes it all away. Waiting for calm: So now markets get stuck in a death spiral, and though plenty of contrarians try to pick a bottom, most generally get swept aside by the wave of selling. The weekend couldn’t come sooner for markets now because a break from the madness is needed to regain some equanimity. A focus on the fundamentals is required, to assess where true value lies in the current market milieu. Price action on Wall Street last night indicated signs that perhaps this is beginning to manifest: the session saw another close in the realms of 1-2 per cent lower, but the extent of losses vacillated throughout the day. US tech, which with its high concentration of rate-sensitive stocks, demonstrated that investors still have appetite for growth stocks, with the NASDAQ registering the smallest losses of the major US indices. Day ahead: Risk appetite won’t be whetted by what happened on Wall Street (or Europe too, after credit spreads blew out again courtesy of new animosity between Rome and Brussels) overnight. Futures markets are pointing to another ugly Asian session, characterized by some rather aggressive selling. Buying into equities anyway (no-less in riskier Asian markets) at this time would be considered especially imprudent. Safe-havens will be in vogue today: the growth-versus-risk proxy, the AUD/JPY, remains wedded to the 79.00 handled, US Treasuries have climbed, with the yield on bench mark 10 Year note falling to 3.13 per cent (perhaps supported by last night’s soft US CPI print), while the US Dollar is being punished, driving funds into gold, which has torn above the $US1220 price. Australia: SPI futures point to a 47-point drop at the open for the ASX200, with IG pricing suggesting the market should land just above support at 5810. If this proves to be so, and a close below 5860 is registered, a 2-and-a-half-year trend will come to an end. Health care stocks may see some staunching of their falls, if the activity in US tech is anything to go by; but the energy sector and materials space will likely struggle, given the drop-in oil prices to $US80.00 last night, coupled with the general dip in commodity prices. The Australian Dollar is experiencing strength, but only because of a weaker USD, with the strength of our currency possibly hinging on how well the contained slide in the Yuan can be managed by the PBOC. All in all, the day shapes up as another challenging one, as Australian investors enter the final trading session of a week, that for many, couldn’t end sooner. Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  37. 1 point
    The U.S. and Canada agreed to a trade deal that would preserve a three-way bloc with Mexico, setting the stage for their leaders to sign the accord by the end of November. The new deal will be called the U.S.-Mexico-Canada Agreement, or USMCA. Mexican peso and Canadian dollar gains as uncertainty is lifted and greater stability takes hold of the Americas. The euro was hit by worries about a rise in Italy's fiscal deficit after the Italian government agreed to set a higher than expected budget deficit target that could put Rome on a collision course with Brussels. In the UK this week the Conservative party is holding its annual conference. Brexit talks are bound to be high on the agenda and could cause some volatility as the narrative continues to play out. Hammond could also add flavour to this years budget which could hint at trading opportunities to come. Tuesday sees a speech by Jay Powel. After the Feds interest rate rise last week speculators will be looking at any hints they have on monetary policy. Asian overnight: A somewhat mixed session overnight has seen the Japanese markets push into the green, while the Australian ASX 200 provided the opposite move in the absence of Chinese and Hong Kong markets due to national holidays. Weekend data from China did little to raise confidence for Australian stocks, with the manufacturing PMI and Caixin manufacturing PMI both declining. The non-manufacturing PMI survey did rise, yet Australian concerns are certainly focused on the manufacturing sector as a lead to how their exports markets will fare going forward. Finally, the Japanese Yen declined on the news of weaker figures for the Tankan manufacturing index, non-manufacturing index, and manufacturing PMI. ...we have a host of economic PMI releases from Europe, although for the most part they are final readings. UK, US and Europe: The euro was hit by worries about a rise in Italy's fiscal deficit after the Italian government agreed to set a higher than expected budget deficit target that could put Rome on a collision course with Brussels. Italian Finance Minister Giovanni Tria is certain to face questions about the nation’s 2019 spending plan even though it’s not on Monday’s Eurogroup agenda in Luxembourg. Theresa May faces the battle of her political life to retain control of the governing Conservative Party as top Tory politicians undermined her leadership. After arch rival Boris Johnson went for the jugular, Chancellor Philip Hammond swept in to defend her in an increasingly chaotic political scene. Looking ahead, we have a host of economic PMI releases from Europe, although for the most part they are final readings. That being said, the UK manufacturing PMI is one of the few figures that represents the first release for the month, with markets looking for a marginal decline. That PMI theme carries into the US session, with manufacturing figures from both Canada and the US. Given the breakthrough in NAFTA negotiations, expect to see continued volatility for the Canadian dollar and Mexican Peso. South Africa: The Jse Allshare Index is expected to open firmer amidst today's positive global equity market sentiment. Commodity prices are trading marginally lower and the rand slightly weaker as the dollar finds some short term strength. BHP Billiton is down 0.1% in Australia, suggestive of a flat to slightly lower start for local diversified resource counters. Today's economic calendar is light in terms of scheduled data releases, with UK and US manufacturing data perhaps the most relevant catalysts to look out for today. Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar 9.30am – UK mfg PMI (September): survey forecast to rise to 53.8 from 52.8. Market to watch: GBP crosses 3pm – US ISM mfg PMI (September): forecast to fall to 60.5 from 61.3. Markets to watch: US indices, USD crosses Corporate News, Upgrades and Downgrades Tesla likely to dominate headlines today as the SEC ruling that Elon Musk should stand down as chairman (but maintain his CEO position). Nielsen Interim CEO of Danske as Borgenfor relieved following money laundering scandal. Assura continued to grow during the first half of the year to 30 September 2018, completing the acquisition of 39 medical centres and two developments at a combined cost of £108.2 million. HNA Group Co. shrinks debt by $8.3 Billion. More needed to regain trust of investors. TMX Group earnings release above expectations. Barclays upgraded to buy at Berenberg Castings upgraded to buy at Peel Hunt Thomas Cook upgraded to hold at Berenberg Kaufman & Broad raised to hold at Kepler Cheuvreux AB InBev downgraded to hold at Jefferies EasyJet downgraded to underperform at Bernstein Sampo downgraded to neutral at JPMorgan Telecom Italia cut to underweight at Barclays IGTV featured video Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  38. 1 point
    The growth-versus-risk paradigm shifted further in favour of the latter in the last 24 hours, as a multitude of stories compounded the bearish sentiment mounting in global markets. Though Chinese markets were more stable yesterday, an IMF report downgrading global growth forecasts for the first time since 2016 reinforced the possible growth-sapping impacts of the unfolding US-China trade war. Risks in Europe piqued again, following renewed inflammation of tensions between the Italian government and European bureaucrats, weakening the EUR/USD and pushing European bond spreads wider. While the trade war story also dented the growth story, after news broke that the US Treasury Department may be poised to officially label China a currency manipulator. ASX200: SPI futures are indicating a 4-point drop for the ASX200, following another belting of Australian shares yesterday. Futures markets have unwound the projected falls at the open for the ASX200 throughout the North American session, courtesy of an overall lukewarm but stable night’s trading on global markets. Support levels were brushed aside in local trade yesterday, with 6100 and 6060 offering little inertia, squashing the index into its eventual closing price at 6040. Downside momentum has really taken hold of the ASX now, shaping the perception that a short-term downtrend is emerging for the market. The daily-RSI reading suggests the sell-off is somewhat overcooked, but the prospect of a complete and immediate recovery of this week’s losses appears remote. Risk factors: Tuesday’s trading provided much of the necessary insight, however, into what cascading set of influences is driving the Australian share market. There are more than enough risk factors percolating through markets now to fuel bearishness on the ASX, but as always, the interest is in determining what weight each variable carries for the success and failure of the index. The global growth story is one of those, tied into fears of a Chinese economic slow-down and the effects of the trade war on financial markets. Another is the numerous risks to local and international financial stability, taking the form of underperformance from bank stocks, possible fiscal crises in Europe, and a possible blow up in emerging markets. All those stories play their part to a build-up in downside risk, but market-activity yesterday suggests that the biggest issue plaguing the market is this: the global sell-off in equities in the face of higher global interest rates. Local market drivers: The sectoral map for the ASX200 yesterday handed the clearest insight into this dynamic. For one, the bank’s stock prices pulled back after their modest recovery last week, no longer exhibiting signs of upside from higher global long-term bond yields; and the materials and energy sector also faulted, even despite a modest tick-up in oil and metal prices, and the easing of selling-pressures in Chinese equity markets. Though the truth in the ASX’s fortunes will often lie within activity in any one of these three sectors, the lion’s share of market action yesterday was generated by the heavy 4.11 per cent loss of the health care sector, catalysed by a 4.5 per cent and 5.2 per cent dumping of market darlings CSL and Cochlear, respectively. Heath care stocks: The rout in health care stocks ties back into a theme manifesting the world over: that growth stocks are coming out of vogue as global discount rates increase. Much alike the tech giants in the US, Australia’s major healthcare stocks – again, the likes of CSL and Cochlear – have carried the Australian share market this year, collectively generating a YTD return of over 21 per cent. These companies, better defined as bio-tech firms, have traded with increasingly stretched valuations, and with naturally lower yields. The spike in global rates over the past week has put pressure on valuations, as well driven investors to chase returns in safer, higher yielding assets. It’s a phenomenon playing out at a fundamental level the world-over, causing drag across equity markets and consequently an overall bearish sentiment within them. Although no reason for alarm yet, with opportunities still ample ahead of projected strong earnings growth, the combination may portend bearishness for ASX200 traders moving forward into the back end of 2018 and start of 2019. Risk-off: The parameters dictating market sentiment presently is tipping markets away from riskier assets and into safe havens. The already described activity in equity markets evidences this, but less structural and more transient and nebulous concerns are materializing in other asset classes. The Japanese Yen, for one, has attracted flows this week, falling back below the 1.13 handle last night. The stronger currency and risk-off dynamic has quashed the Nikkei’s bullishness, pulling that index down from its recent 27-year highs. Paradoxically, the AUD/USD has climbed within this context, bouncing off the bottom of the pair’s trend channel back above the 0.7100; however, after the multiyear lows registered last week, this is probably reflective of some opportunistic profit taking from short-sellers, with the more accurate growth-versus-risk currency pair, the AUD/JPY, falling below the significant 80.00 handle last night. North America: The rotation out of growth stocks is afflicting Wall Street indices, however the thrust behind this process did ease last night. The reasoning for this was the settling in US Treasury yields, which fell throughout the day, after the benchmark US 10 Year Treasury clocked new 7 highs at 3.26 per cent during the early stages of the session. The NASDAQ was subsequently allowed to arrest its 3-day tumble, closing effectively flat, while the comprehensive S&P500 dipped 0.1 per cent. The far narrower Dow Jones lost 0.2 per cent for the day and demonstrated best the unfolding rotation into defensive strategies by investors: putting aside the jump in oil prices that led the rally in the energy sector, once more the conservative consumer staples, communication and health care stocks proved the leaders of the day’s trade. Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  39. 1 point
    Chinese stocks decline and the renminbi devalued overnight, despite the PBoC reducing requirements for capital reserves. China's central bank to cut down Reserve Requirement Ratio, releasing 1.2tn Yuan in liquidity, and putting 750bn Yuan ($109bn or £83bn) in cash into the financial system. CSI300 down 3.7%. The Australian ASX also saw sell offs moving the mining and finance centric index down 1.2%. US employment figures out on Friday caused a flurry of Treasury sell offs, however the coming weeks agenda is likely to remain dominated by bond market news. Brazilian Presidential Candidate Jair Bolsonaro wins first round of votes with 46% to Fernando Haddad with 29%. The second vote to be held on the 28th October. Oil drops as US considers granting some waivers on Iran crude sanctions. LME Week kicks off on the 08/10/2018 Spot gold was down 0.2% at $1,200.31 an ounce, with US gold futures falling 0.1% to $1,204.40 an ounce Cryptocurrencies continue their range bound movements, with bitcoin priced at $6550 and ether maintaining $225 Schroders in talks with Lloyds for wealth sector collaboration, with Lloyds putting £13bn into the new joint venture. Asian overnight: Chinese markets were the big mover over the weekend, with a decision from the PBoC to cut the reserve requirement ratios for banks driving the Shanghai and Shenzhen composite markets roughly 3% lower. This should raise the amount of free cash flowing around the economy, yet also highlights that the government expects to see further economic impact from the ongoing trade war with the US. We also saw losses in Australian and Hong Kong markets, with Japan closed due to a national holiday. UK, US and Europe: Looking ahead, it looks like a relatively stable start to the week, with holidays in the US and Canada meaning that volumes are likely to be relatively low. The one notable event from Europe has already occurred, with German industrial production falling unexpectedly to -0.3%, from -1.3%. Copper, a bellwether metal for global growth and a strong economy, has seen a 14% sell off whilst zinc sits at an even more significant 22%. LME Week kicks off today, with the exchange hosting a number of events for representatives of the supply side chain to discuss macro events and trends. Today sees a host of high profile speakers and an interactive discussion panel look at market trends and issues facing the metal industry today. It comes at an interesting time for the commodities industry as metal markets have been whipsawed by trade war tensions, an emerging markets sell off, and a strengthening US dollar. Copper, a bellwether metal for global growth and a strong economy, has seen a 14% sell off whilst zinc sits at an even more significant 22%. Those who are bullish on the broader asset class will be hoping the market focuses once more on true supply and demand fundamentals, agreement for which are still heavily weighted on the ‘strong demand’ side, rather than the political uncertainty. BMO Capital Markets stated “We have seen such disconnects before; [between fundamentals and price] however, they have tended to last only a few weeks. The current example has lasted several months, and every time it looks as though the macro headwinds have blown themselves out, they return once more.” South Africa: The dollar is firmer, commodity prices trade lower and the rand is weaker this morning. BHP Billiton is trading 2.8% lower, suggestive of an initial decline for locally listed resource counters. Tencent Holdings is down 1.3% in Asia, suggestive of a weak start for major holding company Naspers. Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar Corporate News, Upgrades and Downgrades Schroders has confirmed that it has been in discussions regarding a possible merger with Lloyds Banking Group. No further details were provided. Dechra Pharmaceuticals has said that it has acquired Caledonian Holdings for £4.4 million. Daily Mirror and Daily Star publisher Reach reported a 7% drop in like-for-like revenues for the third quarter, although revenue rose 21% overall. Axa upgraded to outperform at KBW Henkel upgraded to buy at Goldman Iliad upgraded to neutral at Macquarie Intu upgraded to buy at Citi Investec upgrade Vodacom to buy Investec upgrade Mediclinic to buy Boskalis downgraded to sell at ABN Amro Bank Ceconomy downgraded to add at AlphaValue IAG downgraded to neutral at Citi Tesco downgraded to add at AlphaValue IGTV featured video Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  40. 1 point
    It Can Be Difficult to Measure Complex Issues Like Trade Wars When dealing with a complex fundamental theme – without a binary outcome, numerous inputs and important to different investors for different reasons – it can be difficult to both analyze and trade the subject. Those are certainly criteria that would fit the ongoing trade war. It is proving exceptionally difficult to keep a clear bead on the progress of the economic conflict and the market has started to veer back into its comfortable habit of allowing complacency to take over. Drifting without accounting for clear and present danger is a recipe for eventual financial market seizures, and we would do well not to simply through caution to the wind as so many others have. That said, it does not do to simply position against the current presuming recognition will eventually dawn. To reconcile important but complicated themes with an appropriate trading approach, it is first crucial to keep accurate and as-quantitative-as-possible analysis on the matter as possible. In measuring trading wars, that can be a task. The trade figures like we have seen from the United States last week and are due from China next week are accurate but constrained and lagging updates. For those keeping track, this is a false sense of stability derived from the People’s Bank of China (PBoC) actively working to stabilize the rate. Simply referring to exchange rates or even capital markets alone does not give an accurate account either. From USDCNH (Dollar to Chinese Renminbi), we find the exchange rate has held to range for weeks after an initial surge. For those keeping track, this is a false sense of stability derived from the People’s Bank of China (PBoC) actively working to stabilize the rate. They are similarly acting to keep the Shanghai Composite and other equities propped up. Just as we learn from the Chinese index the government’s intent, we learn from the likes of the S&P 500 the extent of speculator’s complacency. But where do we see better measure as to the impact that the specific US-China trade war is having? I like AUDUSD. First and foremost, the cross liquid and un-manipulated. Further, Australia is heavily dependent on China for its own economic health thanks to its trade relationship (further solidified during the Great Financial Crisis). Other fronts of the US-led trade war can be even more difficult as they are not fully engaged. While the NAFTA replacement (USMCA) seems to on the path to being codified, the breakthrough has thus far had limited impact the Dollar, Peso and Loonie. Of the three, the Loonie was best suited to channel a response as it was the most at-risk in the final phase of negotiation with fewer competing fundamental themes. Meanwhile, the standoff the US has taken against the EU and Japan are in limbo. However, the temperament of the Trump administration and efforts to subvert the US’s efforts to reshape the global landscape (like the EU’s efforts to circumvent the United States’ sanctions on Iran) can readily revive these issues. Since President Trump made repeated threats to import European and Japanese autos before agreeing to the armistice, the health of the global vehicle production industry can be a good measure. I like the CARZ fund. In economic terms, it is also important to follow closely with sentiment figures. There are economic, consumer, business and investor surveys for various countries. Consumers tend not feel the impact of such economic efforts until later on when the costs trickle down and businesses outside of exports often initially see the upside before the full effect is registered. Investors and economists however, tend to evaluate on a wide basis with a significantly further projection. This may be a difficult issue to assess, but it is certainly important enough to make the effort. Dollar: Always Evaluate Alternative Scenarios Personally, I consider the best trades are those that I cannot come up with a viable reason as to why a market move will not happen. Such an approach puts us in a different frame of mind where we are inherently more critical of market conditions that could readily trip up trades. More often, the preferred method of trade evaluation is to filter all possible options and come to a decent – often people stop far short of the ‘best’ – option that can be pursued with the proper risk and money management. Find, and execute. However, when dive into the markets with such an intent, it often encourages us to tolerate shortcomings that are likely to trouble our positions as we simple want exposure to the market and unknowingly fall back on hope that the practical issues may not come to pass. It is generally not good to approach most things in life from a perspective of skepticism, but it most certainly prudent to evaluate our markets in this critical way when our money is on the line. It is generally not good to approach most things in life from a perspective of skepticism, but it most certainly prudent to evaluate our markets in this critical way when our money is on the line. With that said, I want to come back to the US Dollar. Over the past few weeks, I have weighed in on the Greenback owing to the turnover from the third into the final quarter of the year. My baseline forecast is a bearish one owing to: the lack of enthusiasm despite the Fed’s extreme disparity in pace, the role the currency now plays as a carry, the fact that the United States is the instigator of many different fronts of the ongoing trade war and the slow but destructive interest by the world’s wealth centers to diversify its exposure to the USD. Evaluating all of those themes, there is little potential in mind that these themes will ultimately turn out in favor of the currency. At best, they will be temporarily overlooked. However, there are ideal situations that can be considered that may ultimately afford favor to the Dollar, so it is worth enumerating them here for your consideration. First and most effective for supporting the Dollar would be a full-blown financial crisis. The currency has taken on a considerable carry status over the years and that can see it drop in the initial phases of risk aversion as weakly-held longs looking for carry in these low returns environs are shaken out. Yet, if the situation turns gangrenous, liquidity will be all that matters; and no other global asset is as revered for its haven status as US Treasuries and its most liquid money markets. Yet, in such circumstances, the opportunities will be endless – though most will likely be bearish, but panic tends to generate the faster moving markets. There has been suggestion that the US economy will continue to run at full speed aided by fiscal policies like tax cuts and benefits of trade wars. However, the US has not somehow found itself outside of the laws of market physics that maintain cycles nor is it so self-sufficient that a global pain will not wash up at its own shore. Further, if economic conditions stagnate and deteriorate, the Fed will have to slow its hikes preventing the speculative value from a growing monetary policy gap in the USD’s favor. A more recent, technical consideration has been proposed via the reduction in liquidity for US Dollars via policy and trade. This has shown some modest pressure, but if the Dollar were to continue to rise, President Trump has made clear his criticism of a higher currency as their debt load rises and trade war bites. If it is in his power to somehow arrest the currency’s climb – and he has avenues for it – he will prevent it. Correlation in Risk Assets – But for Government Bond Yields Some people like to draw their assessment of investor sentiment from indicators like the VIX volatility index or more simply from the performance of a ubiquitous asset like the S&P 500. Others will evaluate volume and open interest for participation, data like GDP, or pure sentiment surveys. I like to refer to correlation. In extreme conditions, what happens to markets in different countries or in different asset classes? They tend to move in concert. In a deep bear market or full financial panic, the market adage that ‘correlations go to one’ reflects on the fire sale mentality that cuts through any concept of which ‘mildly’ risky investment is worth holding when everything seems to be crashing down around us. In a boundless bull run where qualifying the risk that is assumed with high returns goes out the window. At the poles, we find the commonalities between these otherwise very different markets and their investors: the fundamental evaluation of risk and reward. That said, when we are not in an environment where animal spirits are running rampant or everyone is rushing for the exits, it can be difficult to see these undercurrent at work as individual catalysts promote a bid or unwind from the various assets. ...even with equities retreat[ing] this past week, the government rates kept rising. That is unusual. Yet, just because we are not in a panic or mania doesn’t mean that sentiment is nonexistent. Risk appetite can rise or fall with conviction in the middle of trends and with limited intent. Then, there are the periods where we are just gaining traction on a systemic move before it is obvious to everyone. This is why I like to reference the correlation between assets that are otherwise very different to each other: equities, junk bonds, carry trade, emerging markets – and for opposing relationship the likes of gold and government bond yields. Recently, we have seen the relationships between many of these markets tighten up. The US indices were unique for a while in that they have spent months forging higher until they returned to record highs while their global peers floundered and emerging market assets outright tumbled. That may be starting to firm up again as of this past week however. Another, persistent detractor from the global sentiment relationship are government bond yields. US Treasury yields have climbed alongside US equities, perhaps owing to the Fed’s influence; but even with equities retreat this past week, the government rates kept rising. That is unusual. If Fed forecasts are at play, hikes are a dubious course to set our time by, but consistent balance sheet reductions are more reasonable. The fact that other countries’ sovereign yields (Germany, UK, Japan, etc) were rising in tandem suggests there is something more systemic afoot. Is this evidence that global investors are now confident the central banks of the world will back out of their extreme accommodation either because they are confident or (more troubling to consider) they have run out of resources? If that is the case, beware the future for risk trends. The past decade of general bullish drift has been facilitated by the distortion of central banks affording speculative rampancy. If faith in monetary policy collapses, there is penance to pay.
  41. 1 point
    Economic data flow has been relatively light overnight, but activity on financial markets is especially rife. It’s begun with the bond market – not in Europe this time, but in the booming United States. There doesn’t appear to be a discernible flashpoint that’s sparked this, but nevertheless and for whatever reason, bond traders have hit the sell button on US Treasuries. The phenomenon can be witnessed across the curve, with US 2 Year Treasury yields climbing to levels not seen since 2008 at 2.86 per cent, the benchmark US 10 Year Treasury yield hitting levels not seen since 2011 at 3.15 percent, and US 30 Year Treasury Yields clocking-in levels not seen since 2014 at 3.31 per cent. As one can safely assume, the DXY has rallied on the developments, pushing to a 6-week high just shy of 95.80. It’s growth, not inflation: An explanation for the sudden frenzy in fixed income markets is being foraged for. The concern in these situations is that such a move could indicate strife: something tied back to fears uncontrollable inflation, or a reflection of a higher likelihood of US fiscal deterioration. To the relief of market participants however, the consensus regarding the moves overnight is an optimistic one: traders are buying into the Fed’s “growth, growth, growth” view expounded over the last week, and are as such pricing in the prospect of higher US rates. Although myriad of risks now emerges for other asset classes as a consequence to the (apparently) inexorable rise in yields, the underlying reasons should be cause for a calm and collected cheer. Wall Street: How the rally in bond yields, provided it continues, manifests in US equity markets will become the centre of concern, one would imagine, in coming days and weeks. US indices faded into the close last night as the Treasury sell-off took hold, with the benchmark S&P500 closing only a fraction higher for the day. Both the Dow Jones and NASDAQ put-in a better performance for the session, posting gains of 0.2 per cent and 0.3 per cent respectively – the former registering new all-time highs in the process – but pulled-away notably from intraday highs at the back end of the trading day. Interest rate sensitive and high growth sectors underscored the day’s volatility, as financial stocks climbed along with information technology and industrial stocks; while real estate and consumer sectors suffered under the assumption higher US rates will weigh on property markets and consumption. The Fed and the stock-market: An implied maxim of the US Federal Reserve that elegantly describes last night’s trading dynamic (the articulation of which is often attributed to Ex-Fed-Head Alan Greenspan) is that the role of Fed is to “take away the punchbowl when the party is getting started”. It was this abstraction that was philosophically behind this year’s stock market correction in February and caused investors to flee from equity assets. Markets appear more circumspect at the moment, galvanized by a booming US economy, and higher corporate profits buttressed by US President Trump’s stimulatory tax cuts. Consensus is still that the times won’t immediately change for the US stock market, with valuations forecast to tighten as earnings keep improving. Even still, as the US equity bull market charges forward, an anxiety that will hover over markets will be whether the Fed’s determination to “normalize” interest rates will sober investors’ euphoria. ASX: The lead set by the heavy activity on North American markets overnight has SPI futures indicating a 14-point jump for the ASX200 at market open. Australian shares managed to recover territory yesterday, led by a catch up by materials stocks to the global recovery in commodities prices, coupled with a more general recalibration across the index following Tuesday’s bank led sell-off. The fortunes of the financial sector will be of interest today given the tick-up in global bond yields: the circumstances should lead to a favourable view of future bank profitability, but with the Royal Commission still overhanging the industry, perhaps this will be ignored. The ASX200 closed the day at 6146 yesterday, bouncing off support at 6120: previous support at 6160 may prove formidable resistance here and should be watched closely by technical traders. Oil rallies, EUR stable: There were a variety of other stories occupying traders last night that are worth touching on briefly. US Crude Inventory data was released, showing a surprise increase in oil stock piles. Despite this, the price of oil maintained its upward momentum, driven by the belief that blips in inventory data won’t change the structural problems caused by low production and undersupply. The other unfolding story that is moving markets is the Italian fiscal battle, currently being waged between bureaucrats in Rome and Brussels. The tensions and fears cooled in the last 24 hours, following news that the Italian government had agreed to reduce its budget deficit to 2.0 per cent by 2021. The risks here are ongoing, but for the time being the EUR has settled as the spread between Italian government bonds and German Bunds have narrowed. Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  42. 1 point
    Macro-drivers: Global markets endured a night of mixed trading, sandwiched between several risk factors, and the waning optimism of the USMCA. US indices were generally lower, although the large-cap Dow Jones managed to register new all-time highs. European markets were held back by grief surrounding Italian fiscal sustainability, coupled with lingering concerns about the outcome of Brexit. The general sense of risk aversion led to an appreciating USD and climb in US Treasuries, pushing yields on the benchmark 10 Year Treasury note to 3.05 per cent. Oil cooled its run somewhat as commodity traders took a breather, as WTI and Brent Crude clocked gains above $US75.00 and $US85.00 per barrel, respectively. The overnight session establishes an uninspiring lead for the Asian markets in general, auguring a mixed day ahead. ASX: SPI futures are pointing to a slight uplift in the ASX200 this morning, backing up a day which saw the Australian share market shed 0.75 per cent. There were really no winners on the day, with the only sector coming-out in the green being the energy sector. The financials couldn’t halt their sell-off, declining another 1.12 per cent yesterday, while the losses were compounded by a reversal in the price of CSL, which led the health care sector 1.36 per cent lower on the day. The breadth of gainers for the session were low again at 23.5 per cent, and volume was robust, indicating the (on balance) bearishness of this market. Momentum hasn’t shifted dramatically to the downside yet, but yesterday’s break of support at 6160, and close just above support at 6120, suggests some sluggish times ahead for Aussie shares. RBA: The local session yesterday was bereft of truly impactful news, but of course attention was duly allocated to the afternoon’s meeting of the RBA. No surprises were what was expected, and no surprises is what traders got: there was a tip of the hat to the accuracy of the central bank’s growth forecasts of +3 per cent, a reiteration of only a gradual return of full employment and at-target inflation, and a very soft warning of how low wage growth and high private debt levels may hinder household consumption. The reaction in interest rate markets was dull, but slightly to the downside: bets of a hike from the RBA got pushed back to March 2020 as opposed to February 2020, according the ASX 30 Day Cash Futures markets. Aussie Dollar: The Australian Dollar came-off shortly after the meeting however, slipping from about 0.7230 to plunge beneath support at 0.7200. To the naked eye it would appear a reaction to what was (perhaps) a dovish RBA, but close inspection suggests the impetus lay somewhere else. Risk currencies sold-off in tandem at around 3.00PM (AEST), as news broke out of Europe about Euro-policy makers concerns about Italian fiscal policy and the possibility of an Italian default. The spread on Italian and German 10 Year bonds widened once more (to currently trade around 300 basis points) sending the EUR to 1.1540 as funds flowed into the safe-haven USD. Naturally, the AUD suffered as a result, to presently just shy of 0.7190. Italy and Europe: The Italian fiscal situation in looming as a major risk for the European economy. It is not getting quite as much local press as it deserves, though this is in a sense justifiable given the preoccupation with the grave implications of the US-China trade war. The crux of the issue in Europe relates to the ruling “populist” government in Italy, and its reluctance (or even refusal) to comply strictly with the Eurozone’s rules regarding sovereign budget deficits. The recent Italian budget has tested European bureaucrats’ patience, leading to a rebuke yesterday from European Commission President Jean-Claude Juncker, igniting a counter-response by key Italian “League” politician Claudio Borghi, who stated Italy could solve its problems if it controlled its own currency. The hostility swept through European bond markets, spurred a sell-off in equities and pushed the EUR well into the 1.15 handle. Greenback: The US Dollar was the inevitable beneficiary of Europe’s woes, climbing to a 6-week high, in DXY terms, to 95.50. The trading activity is a reminder of the two-pronged benefit of long USD positions at-the-moment: the US Fed’s determination to hike interest rates is attracting yield chasers, supporting the greenback, while the litany of global risks is pushing traders intermittently into safe havens, also supporting the greenback. The upward trend has cooled for the USD of late, leading to calls that the currency could be creeping towards a top. But with US Fed Chairperson overnight talking up the “extra-ordinary” times experienced by the US economy, as well as talking down the prospect of out of control inflation caused by tight labour markets and increases in global tariffs, the underlying bullish-trade remains well justified for the greenback. US Indices: A question raised by such bullishness from market participants and policy makers alike is, how much further can the US equity bull run last? It’s foolish to ever call tops on any market, especially one that is apparently founded on such strong fundamentals. The benchmark S&P500 and NASDAQ traded lower overnight, though both indices sit within reach of new all-time highs. The far narrower Dow Jones index, however, registered a new intraday high during the US session, climbing 0.46 per cent to close at 26773.94. A word of warning must be disclaimed with the Dow Jones as relatively high as it: though one wouldn’t want to call a marked sell-off, rallies for the Dow Jones that extend this far above the more comprehensive S&P500 often result in a pull back for the Dow Jones, as traders buy into the index in an attempt to enter-and-exit the market on the basis of rosy-sentiment. Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  43. 1 point
    ASX: SPI futures are indicating a 23-point drop at the open for the ASX200 this morning, effectively wiping Friday's solid gains. It comes as no surprise, really, with the lion's share of activity centring around the embattled financial sector. Bank stocks underpinned the rally on the ASX on Friday, led by CBA, in signs that the market believed the sector's recent trend lower was overdone. It may be a case of jumping the gun for traders on that one, as sentiment appears sour once more following the weekend's release of the Financial Services Royal Commission interim report. The materials and energy sector did its bit on Friday to carry the ASX higher, courtesy of a broad-based, though modest, uptick in commodity prices; while the health care sector continued to erode its market leading YTD gains, led by a near 2 per cent fall in the CSL shares, creating drag on the overall index. ASX technicals: The price action on the ASX200 was much livelier on Friday as compared to previous days last week, perhaps a sign of increased bullishness following days of anxiety leading into the Fed. An overarching theme is lacking for the ASX now, leading to a mixed sentiment across different sections of the market. Volume was high during Friday's session, especially as the index toyed with the 6230-mark, an important level of support/resistance in recent months. Considerable profit taking emerged at that level, pushing the market well in line with its recent (more-or-less sideways) trend. The pattern appears set to continue today, in the absence of a fundamental impetus or a strong external lead. China update: The strong possibility of thin liquidity may hinder the market today, and perhaps the rest of the week, thanks to the week-long Golden Week public holiday in China. The relationship has diminished somewhat of late, but Australian markets have taken the lead of its Chinese counterparts in recent months, as fears around China's economic activity feed through to Australia. Despite not being out of the woods yet, signs are looking more promising in Chinese equity indices now, which have managed to stick fat to key technical support levels in the past week. The interesting story for those invested in Chinese assets this week will be how the USD/CNH fares with Chinese traders out of action, with the Yuan looking vulnerable to the downside towards the very important level of 6.90, following the release of weaker Caixin PMI figures over the weekend. PMI data: Speaking of PMI data, one of the significant themes this week will be the release of a spate of PMI figures across several geographies. As a great leading indicator of economic strength, particularly considering the escalating trade war, PMI numbers have softened in recent months, presumably because of tighter trade conditions. The poor Chinese PMI print sets up the release of corresponding figures in Japan, the UK, and the US today, with traders of the industrial laden Dow Jones, Nikkei and DAX surely paying attention. Given a leitmotif in markets last week was the Fed's optimistic view on global growth into the next 12 months, the data dump of global PMI data provides the first opportunity to test this proposition, and subsequently form a position on this state of markets leading into the final calendar-quarter for the year. US indices: Wall Street (for one) will be entering into a curious and frenetic period as the new month rolls around, as traders prepare for what is typically the hottest period for US equity markets. The results for North American equities were lukewarm on Friday, with major US indices holding flat for the day. The so-so performance for US shares throughout last week was still enough to ensure the strongest quarter for US equities in 5 years and place those markets well in touch of all-time highs. The element of the present trade dynamic that may make-or-break the market this quarter is how it weathers upcoming US mid-terms: US shares typically stall in the month leading into such an event, notwithstanding that this round of elections appears a vote on the confidence, support and legitimacy of US President Trump. Europe and the DAX: European markets look to remain stuck in the middle of several local and international themes. Concerns lingered over the weekend regarding Italian fiscal policy, along with ongoing fears about a no-deal Brexit and the effects the US-China trade war will have on Europe’s fledgling economic recovery. The DAX has demonstrated the sentiment-sapping effects of these confluence of factors, remaining trapped in a downtrend since mid-June, even despite rallies higher in indices with comparable trading behaviour, like the Nikkei. The downward trendline currently at 12,430 will be a formidable barrier for traders, with a solid hold above support at 12,100 required to set the foundations of a swing in momentum and a trend reversal in the near-term. Oil: A status check of activity in the oil market should be undertaken to start the new week. The price of the black stuff continues to rise, on the back of greater concerns around production and supply on global markets. The US sanctions on Iran seem to be more impactful than first believed, exacerbated by the view that OPEC+ won’t be bullied nor cajoled by US President Trump to fill the gap in supply. The US President reportedly reached out personally to Saudi Arabia’s King Salman on the weekend to discuss the matter, highlighting the risks higher prices will have on global growth and market stability. No firm outcome was reported out of the interaction, as some more bullish commentators grow louder in their calls that no change to the present trade dynamic will see oil fly to $100USD in Brent Crude terms. Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  44. 1 point
    Trade Wars Update: It No Longer Matters? Seemingly a routine occurrence for the global financial markets, we saw the state of global trade deteriorate yet again through the past week. As expected, the United States went forward with tariffs on an additional $200 billion in Chinese goods. The terms are for a 10 percent rate on a range of imports that will increase to 25 percent by the end of the year. The standard, immediate response from China was quickly implemented, but only on $60 billion in US goods. It is not clear the strategy from China as they vowed a ****-for-tat response to what they have deemed unprovoked trade wars, but the country does not have much more room to tax imports from its major counterpart – and certainly not $200 billion worth of goods. This alone moves us into a new phase of a standoff of escalating cost for the US, China and the world. The S&P 500 is at a record high while the EEM Emerging Market ETF is only modestly off its multi-year low Will China ease off the pressure? Are they simply plotting an alternative course? Could this be an attempt to prevent President Trump from pursuing his threat to trigger the $267 billion in further duties in the event of a reprisal to the $200 billion? It isn’t clear. With the situation clearly under greater tension, the news over the weekend that plans for further talks had broken down ensures greater financial threat from this already-enormous burden. What is even more remarkable than the state of trade from these two economic leaders is the apparent state of obliviousness from the speculative markets. While certain assets show greater disregard to the threat than others (the S&P 500 is at a record high while the EEM Emerging Market ETF is only modestly off its multi-year low), they have all displayed a measure of neglect these past weeks as the tab has grown exponentially. To suggest that this situation simply doesn’t matter would be recklessly negligent. It isn’t impossible that speculators accustomed to complacency and FOMO, but it would nevertheless increase the scope of risk to stability through the future. Ignoring the dangerous wobble in a tire as you steadily accelerate down the freeway is not a reasonable state even if we can sustain it for the time being. If we continue to build up exposure until a severe economic or financial crisis arises, it will only amplify the eventual collapse. What is Eating the Dollar and How Long Does it Dine? The Dollar marked an important technical tumble this past week. Already under pressure over the past months, the DXY’s drop below 94.35 and EURUSD charge above 1.1700 represents the break of ‘necklines’ on head-and-shoulders patterns (the latter inverted). This is pressure not isolated to the trade-weighted aggregate or its heavily represented most liquid pairing. We can see the currency’s unique struggle intensifying distinctly across the spectrum over these past few weeks. But with this evidence of broad struggle, we should attempt to identify its source if we intend to establish the intent of follow through – whether persistent or near its conclusion. Reverting to an old textbook relationship, some are connecting the currency’s traditional safe haven role to the recent rebound in risk assets – including record highs for certain benchmark US indices. The Fed is expected to hike rates another 25 basis points to a range of 2.00-2.25 percent. That would be a tidy explanation, but is suspicious for its timing considering this haven function hasn’t played a significant role for months. Further reason to question this relationship is the explicit status for the Greenback as the highest yielding major currency. That advantage will likely increase this week as the Fed is expected to hike rates another 25 basis points to a range of 2.00-2.25 percent. It could be the case that the currency’s premium could be deflating under expectation that the central bank is planning to downgrade its pace of tightening at this meeting through the Summary of Economic Projections (SEP) and Chairman Powell’s press conference. Yet, we don’t see that anticipation in assets that more directly relate to such forecasts - overnight swaps and Fed Funds futures. Political risk will prove an increasingly prominent risk through media headlines in particular over the coming weeks, but there is little direct threat to economy or financial markets just yet. This slow reversal of a six-month old bull trend may also have developed in response to the longer-term concerns. Over enough time, the accumulated cost of engaging in a multi-front trade war while increasing the budget deficit during a healthy economic phase will erode the appeal of the United States’ currency’s principal status. It is possible that this long-term pressure is starting to set in; but if that is the motivation, it can readily be sidetracked by more intense short-term concerns (like next week’s FOMC decision). Political Risk Increasing as US Election Cycle Heats Ups Political risk is an abstract fundamental influence on the financial system. Certainly each trade has their political beliefs on policies ranging from economy to social causes; but more often than not, these views only cloud our assessment of the markets. It is generally-accepted market wisdom to remove emotions from our trading; and there are few things in life that more readily trigger emotion than politics. Practically-speaking, however, there is little in the way of policy that can readily translate into significant market movement in the short-term. That said, one of the few outlets with a direct link to financial health and stability is the state of international relations. And, on that front, the danger has grown visibly and exponentially. Perhaps one of the most obvious instances of this pressure on net global growth and capital rotations through trade comes from the United States. Poland and Hungary pose a threat to core EU beliefs – and have drawn criticism for such – owing to their nationalist governments’ policies. The Trump Administration has driven forward with hefty tariffs and economic sanctions on some of the largest economies in the world. Whether we personally view the policies as good or bad / right or wrong, the economic impact is straightforward. As time marches on, attention on politics will intensify with the mid-term elections approaching. While much of the high drama related to the balance of the Legislative branch, threats of Presidential impeachment and the Supreme Court pick has little to do with the kind of direct market implications that we should keep in the forefront; it can nevertheless bolster the appreciation of economic and financial connection by virtue of its mere presence in the headlines. What’s more, this is not a uniquely US concern. There is political pressure rising across the world. Reports of a possible election call in the United Kingdom have followed the failure of progress in the Brexit negotiations at the EU leaders summit in Salzburg. Mainland Europe is not immune to systemic risk via political pressures. Italy is still a massive concern to stability between its enormous debt and populist government. Poland and Hungary pose a threat to core EU beliefs – and have drawn criticism for such – owing to their nationalist governments’ policies. In Asia, financial pressure is starting to show subtle cracks in social contentedness while US sanctions have spilled over from Russia restrictions. Japanese Prime Minister Abe managed to keep his position this past week, but the economic and international diplomatic position or the country has not improved materially. The question investors should ask themselves is whether these relationships improve for compromise or rapidly intensify should economic or financial crisis start to emerge.
  45. 1 point
    Geopolitics is already shaping-up as the major driver of financial markets this week. Data is rather light, with the US Federal Reserve’s meeting on Thursday morning (AEST) the centrepiece of an economic calendar otherwise filled with a handful of central-bank-head speeches and a meeting of the RBNZ. Hence, traders will find themselves sucked into a vacuum that can only be filled by noise surround the global economy’s biggest contemporary international-political hot-points. The break-down in talks between the US and China was once again the most significant of these, but a shift in sentiment will also be underlined by increasingly frosty negotiations between the UK and Europe, along with tensions between the US and oil producing countries. The core matter for will be how these clear risk-off factors conspire with the US Federal Reserve’s meeting to impact traders, on the back of a week that was defined by a tangible relief-rally. China cancels talks: The Chinese formally cancelled trade talks with the US on Saturday afternoon. It was what markets had feared this time last week, and true to their word, China kept to its line that it would not negotiate with the US while under duress. Frankly, how markets react to this news will be curious today, given that global markets shrugged off-last week’s developments to jump into riskier-assets, pushing US indices to all-time highs. Will this escalation in the trade-war be taken in stride by markets, or does this amount to the flashpoint that traders have been long fearing? The truth – as always – will probably sit somewhere between these two poles, but what looks assured now is that this trade-war is a battle of attrition: China will not have the long-term vision for their country disrupted; while US President Trump will not stop until he can achieve what he considers victory. Brexit backwards step: Global geopolitical problems weren’t contained to just Asian over the weekend. In a noteworthy reversal of fortunes, Brexit negotiations deteriorated further, after UK Prime Minister Therese May delivered a hostile public address rebuking the EU’s treatment of her and her country at the latest summit in Salzburg. Markets didn’t like the UK Prime Minister’s approach, hitting the sell button on the Pound, sending that currency from a multi-week high around 1.33 before the news, back within the 1.30 handle (at time of writing). The greater hostility between the UK and EUR raised once more the spectre of a Brexit no-deal, which looks increasingly likely as the October/November deadline looms. Watch for activity in the EUR/USD this week, particularly considering the scheduled speech of ECB Mario Draghi tonight, for hints that a no-deal outcome is being priced into markets, as that pair shrugs off the weekend’s news to challenge three-month highs at about 1.18. Trump, Oil and OPEC: The politics of oil rounded off the weekend’s tripartite of geopolitical troubles. In response to a US President Trump Twitter-tirade last week regarding a spike in oil prices, OPEC+ defied the US President calls to boost oil production to lower oil prices, stating that the organisation was currently doing enough to meet demand. The commentary opens-up a possible push higher in oil prices above $US80 per barrel (in Brent Crude terms) – a mark that has been consistently threatened in the past month. That price point still appears the comfortable level for Brent Crude despite US President Trump’s protestations, amounting to the mid-point between its multi-year high and low prices. However, some degree of overshooting looks possible in the short term, with $US83.75 jumping out as the next significant technical level. ASX: SPI futures are indicating a 23-point drop at the open for the ASX200 against this backdrop, following on from a week where Australian equities showed tentative signs of strength, but appeared capped to the upside in the short-term. The pattern of higher lows continued to end last week’s trade, with resistance around 6190/6200 for the ASX200 holding firm to create an ever-tightening wedge pattern for the index. Though a sign of reluctance from traders to push the market higher, the trade dynamic does suggest a pent-up bullishness that may provide a pop to the upside provided the right circumstances. It will be a matter today -- and for the rest of the week – of whether such activity can occur in an environment of heightened geopolitical risks. Intuition says no, but too often have we seen the counter-intuitive play out in this market. Australian Dollar: The benefit for Australian traders is that we may not have to look any further than our own currency to get a gauge on this. The AUD/USD spiked higher last week, spurred by the greater risk appetite brought about by (at least the illusion) of greater certainty in financial markets. The local unit launched off support around ~0.7150, to trade towards the very top of its well-defined trend channel at (at the time) around 0.7300. It would take something remarkable to push the AUD above this trend channel this week, particularly considering the economic fundamentals underpinning the market. A certain amount of profit taking should be expected at these levels too, especially given the conspicuousness of the AUD/USD’s trend. The interest will be consequently in how well the currency holds itself at these levels: it will be the best measure of trader perceptions regarding the latest escalation in the trade war. Wall Street: The fortunes of Wall Street indices will be worth assessing in the next 24 hours as a result of the heightened trade war tensions. The industrial heavy Dow Jones traded in line with the strong activity in the DAX and Nikkei on Friday, to close trade at new all-time highs at 26,743, while a sell-off in tech shares contributed to a fall in the NASDAQ and S&P500 of 0.51% per cent and 0.04% respectively. The extent of China’s hostility, at least according to the perception of traders, will be revealed by activity in the major tech stocks, which have come under pressure in recent weeks due to fears that China may target tech-company’s supply chains. Furthermore, it may be in this sentiment that dictates whether US stocks can hit new all-time highs in the week ahead: growth in US tech stocks have been the core factor behind Wall Street’s trend higher, so flatness in the sector could see the benchmark S&P500 recede back within its firmly established trend channel. Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  46. 1 point
    Trump to impose an additional 10% tariff duty on China rising to 25% next year if no deal is reached. China's yuan down on the back of trade war talks, whilst a stimulus package helps support the equity market. Gold's typical 'safe haven' status isn't re enforced this time around, with flow seen into the USD over the precious metal. Nickel, aluminium and bellwether metal copper hit on the LME by the $200bn tariff. Oil drops on the same news. Mining shares also hit as a result and its likely we’ll see some FTSE and European shares gap down on the open.. In the EM space political uncertainty is driving down coffee prices, whilst the Indian rupee drops to near record lows despite PMs best efforts. Elon Musk's SpaceX has named a Japanese billionaire as its first tourist they’ll fly around the moon. Saudi Arabia’s sovereign wealth fund has invested $1bn in a Tesla rival, Lucid motors. Asian overnight: Asian markets performed remarkably well overnight, with the Hang Seng and ASX 200 providing the two sour notes on an otherwise resilient session. Chinese markets rose despite Trump implementing 10% tariffs on $200bn worth of Chinese goods which will will start on September 24. The decision comes in spite of China's warning that they would not engage in scheduled trade talks if the US implemented these tariffs. This would rise to 25% next year if no deal is reached, and the US has further warned that if China retaliates, it would pursue tariffs on another $267bn worth of imports from China. To an extent this largely writes off any hopes of a resolution in the near-term. To an extent this largely writes off any hopes of a resolution in the near-term and instead heightens the risk of Chinese retaliation. However it seems today’s news was largely baked into the price, thus muting the effect. While US markets were weaker overnight, US Index futures are trading marginally firmer this morning and Chinese equity markets significantly firmer today. Elsewhere, the RBA minutes pointed towards a bank which has no inclination to raise rates anytime soon. UK, US and Europe: Looking ahead, there are precious few notable economic releases of note, thus shifting the focus back onto the Chinese trade concerns alongside Brexit. South Africa: Commodity prices are under some pressure this morning while the rand has managed to claw back some further strength against the greenback. BHP Billiton is trading 0.4% lower in Australia suggestive of a weaker start for local diversified resource counters. Tencent Holdings is up 0.2% in Asia, suggestive of a marginally positive start for major holding company naspers. Economic calendar - key events and forecast (times in BST) Source: Daily FX Economic Calendar Corporate News, Upgrades and Downgrades Spire Healthcare said that pre-tax profit fell 7.9% for the first half, to £8.2 million, while revenue was down 1.1% to £475.6 million. Full-year guidance was also cut, to £120-£125 million. Ocado reported an 11.5% rise in retail revenue for Q3 to £349 million, while average orders per week rose 11.4% to 283,000. Centrica upgraded to buy at Goldman Fresnillo upgraded to top pick at RBC Merlin upgraded to buy at SocGen Polymetal upgraded to outperform at RBC Investec maintain buy on Barloworld with a target price of 14400c Investec upgrades Distell to buy with a target price of 15000c CYBG downgraded to hold at Berenberg NCC downgraded to hold at SEB Equities Vifor Pharma cut to neutral at JPMorgan Moody's has placed MTN on review for downgrade IGTV featured video Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  47. 1 point
    US President Trump’s administration has announced the next round of tariffs on $US200bn worth of Chinese imports. The tariffs will be at a rate of 10 per cent, increasing to 25 per cent by the end of the year. The tariffs will be implemented on the 24th of September. The Chinese have stated that they will not come to the negotiating table if this second round of tariffs were implemented. We will be awaiting their response in the coming days. The price action quoted below is evolving, but there is considerable risk-off behaviour and the day ahead is poised for heavy selling while market participants assess the possible impacts of the latest trade war escalation. ASX: SPI futures are pointing to a slight dip at the open for the ASX200 of about 5 points. In the face of a day of thin trading courtesy of it being a Monday, combined with a bank holiday in Japan, the Australian share market did well to avoid the sell-off that gripped Asian equities yesterday. Fears relating to slower global growth showed up in the commodity sensitive materials sector and the growth-stock-heavy health care space, but despite this, the broader Index managed to push higher to settle slight above last week's high of 6280. Given the geopolitical risks constricting market sentiment today, a further push above that mark seems unlikely. But if clear air can be found, the next test for the ASX and its budding recovery sits around 6205. US Markets: Wall Street has demonstrated weakness not witnessed for several weeks. Having bucked the global trend for some time, price action in US indices overnight displayed signs that traders are becoming wary of the consequences of heightened hostility between the US and China. Tech stocks led run lower overnight, resulting in 1.43 per cent tumble in the NASDAQ and a 0.56% fall in the S&P500. The benchmark S&P500, as a barometer for US equities, is still in a relatively strong position, remaining close to the top of its upward trend channel. However, according to IG data, sentiment is against the index, with 60 per cent of traders short on the market, exposing the 2870 support level as a noteworthy pivot point. Asia: Trade within the broader Asian region to start the week has proven a dour affair. The trade war has cast a shadow over Asian indices, with any counter arguments around attractive stock valuations, or planned intervention from policy makers doing little to staunch sell-offs in these markets. The CSI300 is primed to hit new lows, opening today's session 13 points above its 52-week low, and with futures markets indicating a near 1 per cent drop at the open. The Hang Seng is showing some resilience, following a day that saw that index unwind much of last week's recovery rally. The interesting one today will be the Nikkei, which comes back on line after a public holiday yesterday and is showing signs of a noteworthy jump at the open despite a safe-haven play into the Yen overnight. Emerging markets: The bearishness weighing-on major developed markets will keep pressure on vulnerable emerging markets. Fears that the Chinese economy may falter were behind the renewed sell-off, driving emerging market equities down 1.2 per cent yesterday. Losses in emerging market currencies were relatively contained considering this, but that was largely owing to a weaker greenback. India’s Rupee suffered a fresh bout of selling, after Indian policy makers efforts to stabilize the country’s financial markets failed to assay investors’ concerns about financial stability in the Indian economy, translating into increased selling pressure on currencies ranging all the way from the Philippine Peso to the Turkish Lira. Commodities and safe havens: The instability in emerging markets coupled with the effects on global growth of the US-China trade war has hit commodities and prompted a play into safe-haven assets. Copper prices maintained its downward trend to start the week, while oil prices also appeared to manifest demand-related concerns. The Bloomberg Commodity index was down 0.4 per cent at the end of the North American session, portending further losses to materials stocks today. Gold prices rallied back towards resistance at $US1207, as traders sold out of the US Dollar and avoided a play into US Treasuries, preferring to park safe-haven funds in the JPY, EUR and GBP. The trade dynamic led to a paradoxically steady AUD/USD overnight, trading at around 0.7180 for much of the North American session, though it must be noted the local unit slipped against most other major currencies. RBA Minutes: The major event today during the local session will be this morning’s release of the minutes from the RBA’s most recent meeting. Few surprises are expected from the minutes, with recent economic data doing most of the talking for the Australian economy of late. Interest traders have kept wedded to the idea that interest rates will remain on hold until early 2020, something the RBA has done little to contradict in recent months. As is always the case, today’s minutes will be perused by traders for fresh insights into the hot points relating to the domestic economy’s health: this time around, that will likely come in the form of discussion about out of cycle rate hikes from the major banks and concerns about the strength of Aussie households. A major response to today’s news looks unlikely but watch for moves in the Australian Dollar with the realms of support at 0.7150 and resistance at 0.7200. Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  48. 1 point
    Trump back introduction of tariffs on $200 billion worth of Chinese goods in ongoing trade dispute with China US president also threatens to withdraw the United States from the World Trade Organisation "if they don't shape up", claiming unfair treatment US & Canadian leaders optimistic in reaching revised NAFTA agreement by today's deadline Panasonic are set to move their European base outside of London to mitigate risk going into Brexit Argentinian government raises interest rates to 60% after slump in Peso Gold enters fifth straight month of decline; longest losing streak since 2013 Asian overnight: Yet again we have seen Donald Trump force the agenda on global markets, with his statement that the US could leave the WTO dampening sentiment throughout the overnight session. Losses throughout China, Hong Kong, and Australia were accompanied by marginal gains on the Nikkei and a flat Topix in Japan. The developing focus of late has shifted to Argentina following recent developments in Turkey and Venezuela. Despite the Argentine central bank ramping up rates to 60%, we still saw developing markets suffer, with the Turkish lira, Indonesian rupiah, and Indian rupee all losing ground overnight. Data-wise, the Chinese PMI surveys saw a stronger than expected reading for both the manufacturing and non-manufacturing sectors. However, with a potential $200 billion of US tariffs looming, Chinese traders has little to celebrate. UK, US and Europe: Looking ahead, the eurozone comes into view, with the release of unemployment and inflation data bringing expectations of a rise in euro volatility. The rise in eurozone CPI has seen the reading hit 2.1% last month; the highest level since 2012. Any further upside would no doubt put further pressure on the ECB. In the US, traders will be looking out for the Chicago PMI and Michigan consumer sentiment surveys. Economic calendar - key events and forecast (times in BST) 10am – eurozone unemployment rate (July), inflation (August): unemployment rate forecast to rise to 8.4% from 8.3%, while inflation forecast to be 2% YoY from 2.1%, and core inflation to be 1.2% from 1.1%. Market to watch: EUR crosses 2.45pm – Chicago PMI (August): forecast to fall to 63 from 65.5. Markets to watch: US indices, USD crosses Source: Daily FX Economic Calendar Corporate News, Upgrades and Downgrades John Laing Fund saw a rise in Net asset value to 130p, from 124p in the first six months of 2018. The total return of the fund now stands at 75%; 7.5% on an annualised compound basis. Profit before tax for the six-month period stands came in at £89.0 million compared with £34.7 million the same time last year. The 3.57p per share dividend announced in May 2018 is now joined by a 3.57p per share for the six months to 30 June 2018. Whitbread has agreed to sell Costa Coffee to The Coca-Cola company, in a deal worth £3.9 billion. That price represents 16.4 times the operating earnings of Costa in the 2018 financial year. IAG reinstated as Buy at Citi EasyJet rated new Buy at Citi Ryanair rated new Buy at Citi Lufthansa reinitiated as Sell with Citi IGTV featured video Information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
  49. 1 point
    A Habit of Cutting Down Progress Towards Ending Trade Wars This past week, optimism was dangled in front of the markets and violently snatched away before it became too established. We have been dealing with the escalation of explicit competition in trade policies for the since March, and each hint of progress in turning the major players back from economic stalemate has been consummately dashed. This past week, there were two fronts on which it seemed we were heading for an important breakthrough. The first upswing would come from the NAFTA negotiations. After US and Mexican officials seemed to come to an understanding on bilateral conditions, it was reported that Canada was coming back to the table to see if it could hash out its own understanding with the United States. With a soft ‘deadline’ presented for this past Friday it seemed there was the will and momentum to secure a trilateral agreement that could provide stability in the relationships between these major economies. Instead, Canada’s Foreign Minister announced they had not come to an agreement. In a now-familiar style of reaction, President Trump said the US was ready to go without Canada and said Congress should not interfere in the negotiation. The US President would also dash building confidence that the US and EU would head off a more threatening economic standoff between the two largest economies in the world. EU Trade Minister Malmstrom made remarks earlier in the week saying the Union could cut tariffs on US auto imports to zero if the US would do the same for European cars coming into their country. That was seemingly what the President was looking for in previous remarks, but rather than voice pleasure that talks had taken a favorable turn, Trump stated it was ‘not enough’. These developed world trade threats are ominous for global growth and the healthy flow of capital across the world’s financial centers. However, they are not as yet as intense as the impasse between the US and China. There was no material sign of improvement from which we could garner a fresh sense of disappointment this past week. The previous restart of talks between the two superpowers notably led to little traction according to US leaders. There has been little in the way of encouraging rhetoric from either side in the meantime. Furthermore, there are reports that President Trump is intent on pushing through the next, more onerous round of tariffs on the largest foreign holder of its sovereign debt. The open period for the public to weigh in on a proposed additional $200 billion in taxes on Chinese imports was original set for August 30, but was supposedly pushed back to September 5. Either way, the ultimate decision by the administration is likely soon – with some administrators believing news could come as soon as next week. This begs the question: at what level of total taxes or number of active trade war participants will global investors turn their fear over ill effects into action? What to Watch for as We Turn to Fall Trading Summer in the Northern Hemisphere doesn’t officially end until September 22; but for most intents and purposes, it came to a close this past Friday. Historically, August is the last month of the doldrums and the week preceding the US Labor Day holiday weekend is the final true week of passive drift. There is not a definitive flick of the switch from Friday August 31st to Tuesday September 4th where markets turn from listless chop back into full-fledged trend. That said, same seasonal factors the market abided by to overlook pressing issues such as trade wars, growing political risks and central bank commitment to normalize monetary policy will transition into active trade for a month that historically averages the only loss in the calendar year for the benchmark S&P 500 and is one of the top standings for volatility according to the VIX. It is possible that anticipation has been building up to this cyclical pivot and the weight of all of the aforementioned risks will come crashing down on the complacent market. More likely, we will see the ill-effects of eroding fundamentals slowly wear away at the speculative resolve that has promoted a situation where the S&P 500 is at record highs while the Vanguard’s World Index ex US fund (VEU) and Emerging Market ETF (EEM) are carving out multi-month bear trends. Important with monitoring the balance of the markets moving forward are the measures of general speculative activity and the relationship across favorite risk assets. Volume is almost certainly to increase over the coming month, and there is a long-standing correlation between turnover and volatility. For those keeping count, volatility has an inverse relationship with risk-leaning assets such as equities and carry trade. Open interest – essentially participation – will also be important to monitor. Are bulls significantly adding to the S&P 500 via cumulative shares, the SPY and eminis as it traverses new records or is stagnating (perhaps even declining)? As markets deepen and volatility increases, the discrepancy between risky assets (and typical havens) will demand reconciliation. If a broad appetite behind speculative benchmarks does not return, the incongruity will draw increasing unwanted attention from those looking to honestly evaluate the risks of their portfolios. Who is Devaluing their Currency and Why Not long ago, President Trump lobbed accusations against Chinese and European authorities for devaluing their respective currencies to afford unfair trade advantages. This was likely a means to add further justification for pursuing aggressive confrontational trade policies against these major economies that draw painful retaliations against American consumers and businesses in the process. It could also be the pretext for the US exacting its own FX policies that would categorically touch off a financial crisis as the market re-assesses pricing, reserves and economic relations wholesale (something we’ve discussed before). With big questions ahead of us, it is worth assessing who is utilizing policy currently that can fit classification of currency manipulation or may have in the recent past. The most frequently accused world player is China. And, there is obvious policy adopted just recently that qualifies it for the label. One of the country’s primary FX administrators (the People’s Bank of China or PBoC) announced a change to its pricing method that was clearly aimed at reducing volatility – and not so subtly meant to prevent the continued decline in the offshore Reminibi. That was a move that was likely taken in part to take the wind out of Trump’s manipulation claims sails as well as to head off concerns that there was a building wave of capital flight. These are moves that can be labeled efforts to curb political stress and prevent a financial crisis, but they are most definitely manipulation. And, distortions imposed long enough eventually lead to crises. As for the allegation directed at the Euro, the 2014 monetary policy connection the ECB made to EURUSD at 1.4000 was rather egregious. However, the application of rate cuts to zero and expansion of its balance sheet afterwards didn’t deviate far from many other large central banks – they were just late to the game and thereby less effective. Keeping up the argument recently finds much less weight as the Euro rallied in 2017 despite the Fed’s persistent hike pace while the European bank itself has signaled it plans to normalize in the foreseeable future. If the British Pound has purposefully been devalued to afford it trade advantage in this world of plateauing growth, using Brexit to afford this advantage would have to be the worst possible route. Japan has a long history of outright intervention on behalf of its currency owing to its dependence on trade, but both the Finance Ministry’s direct Yen selling and the Bank of Japan’s (BoJ) indirect monetary policy effort have seen their effectiveness fade after so many successive rounds. Both the RBA and RBNZ have attempted to ‘jawbone’ (talk down) their currencies, but that is something nearly every major central bank has done and it is just as ineffective for all. We could label the groups’ passive monetary policies as moving them out of favor as carry currencies, but that would be a poor plan as well as they will not attract foreign capital to help establish financial stability. The SNB clearly enacted a program meant to devalue its currency with negative rates and a hard EURCHF floor, but that effort failed spectacularly and the central bank now has to deal with the fallout from a lack of credibility. And, then there is the US Dollar. Was the Fed’s piloting the QE program after the financial crisis evidence of an effort to gain trade advantage? Perhaps expanding to a QE 2 and QE 3 even though the economy and financial system was no longer in crisis was the evidence? Or perhaps the Trump administration’s efforts to play down the long-held ‘Strong Dollar’ policy or the President’s ruminations over Fed policy and accusations against other trade partners? In some way, everyone is engaged.
  50. 1 point
    Three new crypto assets We are pleased to announce that you can now trade three new cryptocurrencies on our platform - EOS, Stellar and NEO. You should be able to see these on the CFD and spread betting leverage accounts under the 'Cryptocurrencies' header on the left hand side as well as on mobile. You can't trade these on a share dealing, ISA or smart portfolio account. Key contributors to the recent launch were IG Community members who participated in a poll and picked which new crypto assets they were most interested in. The results can be seen on the right, notably Stellar, EOS and NEO taking the lead, and whilst other factors were involved in the decision making process, I hope this helps show the importance of customer feedback. We have given a quick overview of EOS, Stellar and NEO below, but the Community moderation team just wanted to thank those on Community for continuing to share their feedback. Please feel free to help shape the future of IG by submitting your own thoughts and opinions - every feedback item is reviewed and where appropriate passed on to the correct developer team. Why trade EOS, Stellar and NEO with IG? New crypto assets can be traded throughout the week and over the weekend*. Go short as well as long on all crypto markets. Great liquidity with a reputable, regulated leverage provider you can trust where your funds are held in segregated bank accounts and protected by a variety of government schemes depending on your residency. EOS, NEO, and Stellar have a high position in China’s latest cryptocurrency ranking list. You can now trade this months top five most globally discussed alt-coin crypto assets with IG (as well as the grandfather of all cryptocurrencies bitcoin, it's fork bitcoin cash, and two crypto specific crosses ether/bitcoin and bitcoin cash/bitcoin). EOS Market cap (as of 21st Aug) - $4,400,000,000 USD Circulating supply (as of 21st Aug) - 906,245,118 EOS Total supply - 1,006,245,120 EOS EOS is a blockchain platform for the development of decentralised apps, similar to ethereum in function. EOS aims to combine the best features and promises of the various smart contract technologies (such as the security of Bitcoin and the computing support of ethereum) in a single simplified scalable platform. A key goal is to build a blockchain platform that can securely and easily scale to thousands of transactions per second. Recently Block.one announced that they are committed to investing over $1B into funds focused on the growth of the EOS in the blockchain economy. An interesting event in the Crypto-world is China’s blockchain ranking this month, which put EOS on top: The new ranking, created by two institutions funded by the Chinese government, is known for rating public blockchain networks based on their application and technology, and has chosen EOS as the current top performing blockchain network in the world, pushing back the previous leaders ethereum and bitcoin. Additionally, this month the ranking placed tokens and other major cryptocurrencies like NEO and Stellar ahead of the previously dominant cryptocurrencies. Stellar Market cap (as of 21st Aug) - $4,061,000,000 USD Circulating supply (as of 21st Aug) - 18,772,926,091 XLM Total supply - 104,224,393,646 XLM Stellar is open-source, distributed payments infrastructure - a platform, which aims to unite banks, payments systems, and users. In July, Stellar became a top performing crypto asset in its class with 40% gains. According to crypto analysts, Stellar is currently preparing for a wider adoption on top of its blockchain platform, described as “the best competitor to ethereum's platform aspirations” (SA, August 2018). It currently has several projects worth noting utilising its blockchain, including its flagship partner (and possible the reason for such significant gains in July), IBM. Additionally, it was the first blockchain to receive Sharia Certification. NEO Market cap (as of 21st Aug) - $1,168,000,000 USD Circulating supply (as of 21st Aug) - 65,000,000 NEO Total supply - 100,000,000 NEO NEO is a blockchain platform that facilitates the development of digital assets and smart contracts. As a cryptocurrency, it is designed to build a scalable network of decentralized applications. The base asset of the NEO blockchain is the non divisible NEO token which generates GAS tokens that can be used to pay for transaction fees generated by applications on the network. The main goal of NEO is to become a digital, decentralised and distributed platform for non-digital assets, through the use of “Smart Contracts.” This means that its goal is to become a digital alternative for asset transfers that are currently non-digital. An example, given by members of the NEO team, is paying rent using a smart contract, being automatically triggered once a month, instead of setting up a bank payment. Through a distributed network, NEO aims to create a "Smart Economy". Available now All three of these new crypto assets are now available on your trading platform and the charts are in the process of being respectively backdated. Please note that EOS and Stellar are quoted in cents, whilst NEO is quoted in dollars. You can see more information and all contract details on the Help and Support portal. Please visit your respective portal, however UK clients can see NEO, Stellar and EOS contract details here. *Markets close at 10pm on Friday night (UK time), then reopen on Saturday at 4am (UK time).
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