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ArvinIG

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Blog Entries posted by ArvinIG

  1. ArvinIG
    The S&P 500 has plunged as much as 25% from its January’s peak, with a recent relief rally once again proving to be short-lived.

    Source: Bloomberg   Indices S&P 500 Valuation Risk Inflation Market liquidity   Brief overview
    The S&P 500 has plunged as much as 25% from its January’s peak, with a recent relief rally once again proving to be short-lived. As tightening of liquidity conditions continue, markets appear to have shifted from pricing for inflation risks to pricing for growth risks. This may be reflected with the continued fall in US breakeven inflation (hence, nominal Treasury yields), while commodities prices are also coming under some downward pressure. The Bloomberg Commodity Index is down close to 12% over the past month.
    What’s ahead for the S&P 500 in July?
    Volatility is set to persist into the month of July, as we look towards the several upcoming key risk events.
    1) Second-quarter earnings season
    The second-quarter earnings season will seek to provide a real test for companies. The positive correlation between S&P 500’s performance and its 12-month earnings per share (EPS) suggests that markets are already pricing for a decline in corporate earnings over the coming quarters. The still-elevated oil prices during the period measured will pose as a challenge to firms’ margins, while tighter liquidity conditions translate to a slower-growth environment. This may suggest that the risks of further re-rating in valuation and downgrades remains present at the moment. For quarter two (Q2) 2022, the estimated earnings growth rate for the S&P 500 stands at 4.3%, marking the lowest earnings growth rate reported by the index since quarter four (Q4) 2020.
     

    Source: Nasdaq  
    2) July’s FOMC meeting
    The next Federal Open Market Committee (FOMC) meeting will take place on 26 – 27 July 2022, with the upcoming meeting largely guided to be a selection between a 50 or a 75 basis-point (bp) hike. The Fed Fund futures suggests that market expectations are currently leaning towards the hawkish end of a 75 bp increase. Much may depend on how the Fed brings across its forward guidance because if the central bank is able to assure markets that the path of rate hikes will tone down from September onwards, markets may potentially look beyond the aggressive 75 bp hike enacted in July and seek for a relief rally.
    Where is S&P 500’s valuation at?
    While the 25% sell-off in the S&P 500 year-till-date has driven a downward revision in valuation, its price-to-sales ratio still hovers above its peak during the dot-com bubble period. Therefore, it may be difficult to say that overall valuation is ‘cheap’ after the heavy sell-off. The upcoming earnings season will provide a test for corporate earnings, where companies may face a daunting hurdle in having to defend its valuation amid higher cost pressures and slower demand. Amid the current risk-off environment, companies may have to outperform on all fronts such as delivering stable margins, earnings resilience and positive forward guidance in order to lift market confidence in taking on more risks for the longer term.
     

    Source: Nasdaq  
    What’s next for the S&P 500?
    The S&P 500 has been trading within a series of lower highs and lower lows since the start of the year, with the formation of a new lower high this week reinforcing the ongoing downward trend. A head-and-shoulder formation seems to be in place as well and the completion of the pattern points to the 3,500 level as a point where some dip buying sentiments may surface. The 3,500 level is measured by extending the distance between the head and the neckline onto the point of breakdown of its neckline. This level also marks a confluence of support, where a key 50% Fibonacci retracement rests in place, if drawn from its Covid-19 bottom to the stimulus-induced record peak at the start of the year.
     

    Source: IG charts
    Yeap Jun Rong | Market Strategist, Singapore
     01 July 2022
  2. ArvinIG
    Apart from Nvidia's share price falling 16% last week and experiencing worse-than-expected quarterly results, the US government has stepped in to restrict AI chip sales to China and Russia.

    Source: Bloomberg   Shares Nvidia United States China Integrated circuit Artificial intelligence   What happened to Nvidia?
    The end of August saw Nvidia state in an SEC filing that the US government is restricting the sale of its high-performance AI chips to China and Russia.
    The chips, created for the A100 and H100 servers, come from the company's fastest-growing sector, heralding $3.8 billion in sales last quarter, a 61% yearly growth. According to the recent preliminary financial results for the second quarter Fiscal 2023, Nvidia's total revenue of $6.7 billion was down 19% and only up 3% year-on-year.
    Based on the new export ban, Nvidia will lose $400 million in potential sales in China for the current quarter and more than one billion for the whole year. This loss further deteriorates the revenue outlook for the company.

    Source: Nvidia The main reason behind the US's sudden move is to prevent the world-leading graphics processors made by Nvidia and AMD to be used for China’s weapon development, facial recognition and other advanced military capabilities. The steps taken by the US are seen as an expected response to the recent rising tension between China and Taiwan.
    What to expect next?
    While it is not clear what actions the US government will take to restrict American businesses from exporting chips and other high-tech products, the message for Nvidia is clear: the company is caught in the cross-hairs between two global superpowers. The tricky political game will likely further complicate Nvidia's situation, leaving the company in uncertain territory.
    That said, even if the US government allows Nvidia to continue developing its H100 artificial intelligence chip in China, the damage has already been done. China will undoubtedly take this as a pre-warning sign of payback, meaning shareholders shouldn't expect the “tit-for-tat” to end anytime soon.
    Nvidia's technical analysis
    After last week’s nosedive, the stock price for Nvidia has fallen by over 50% this year and is 60% lower than its November peak. Given all the headwinds ahead including the slowdown in PC and gaming sales, inflation pressure, and the US restricting AI chip sales, it’s unlikely to expect a quick turnaround any time soon.
    However, for the long-term believer, Nvidia still enjoys market leadership in areas like the cloud gaming market, with the outlook to be worth $22 billion by 2030 to bolster the business’s sustainable growth in the long run.
    From a technical point of view, the stock price followed a steep descending track last week. The breach to the $144 level opened the floor from the yearly low and the current support sits around $135. If the price keeps moving below this level, the next support can be found at $125, not seen since March 2021.
    Meanwhile, a near-term breather might be at play if buyers take hints from the RSI indicator. Even so, traders must be aware that with the bears currently in control, any rebound from this level could leave the formation of a lower high on watch.
    Nvidia Corp daily chart

    Source: IG   Hebe Chen | Market Analyst, Melbourne
    06 September 2022
  3. ArvinIG
    The global oil market is hurtling into a new cycle of volatility with opposing catalysts feeding into a highly uncertain outlook. What will be impact after OPEC+ cut production and the G7’s planed price cap?

    Source: Bloomberg   Commodities Petroleum Price of oil OPEC Group of Seven Barrel   The price of oil: what happened?
    The global oil market is hurtling into a new cycle of volatility with opposing catalysts feeding into a highly uncertain outlook.
    On the geopolitical front, the Group of Seven (G7) countries plan to implement an oil price cap against Russian oil imports. The unprecedented move is designed to purchase Russian oil at a discount from prevailing market prices to limit Moscow’s profits to fund its war against Ukraine. According to a US Treasury official, the discounted rates could be regularly revised and calculated separately for crude oil and refined petroleum products.
    From the supply and demand perspective, the Organization of the Petroleum Exporting Countries Plus (OPEC+) met on Monday and agreed to a small production cut of 100,000 barrels per day to bolster prices. The group also decided they could meet any time in the following four weeks to adjust production before the next scheduled meeting on October 5.
    What will be the impact?
    Despite the fact that the oil price jumped after the OPEC+ decision, it's fair to say both moves are more symbolic than a fundamental shift.
    The proposed cap on the oil price may place some pressure on Russian export. However, the scale is limited. The G7 members that joined the new sanction include Britain, Canada, France, Germany, Italy, Japan, and the United States, all of whom have already limited or suspended their Russian petroleum purchases. But the most important export destinations for Russia's oil are China and India, which are unlikely to join.
    It is important to note that for the plan to be effective, the "discounted" price still needs to be above the cost of production to ensure incentive for its export. In other words, it's still profitable for Russia. Moreover, the trimmed margin to trade with G7 countries will accelerate flow to China and India, which will continue to benefit from a widening price gap.
    Similarly, the 100,000 barrels per day (BPD) reduction, which amounts to only 0.1% of global demand, is unlikely to reshape the demand and supply landscape in the oil space. Instead, it's more of a message with the intention to stabilize the price after retreating 20% in the past three months.
    Oil price technical analysis
    Brent Crude’s descent from mid-June seemly has reached its bottom with the price now moving above the previous trend line. Bolstered by the tailwind this week, the price is now heading towards a 20-day moving average and a 50% Fibonacci retreatment level at $96.73. Once breaking through this hurdle, buyers can expect the price to keep challenging the next resistance, the 50-day moving average sits at $98.36. On the flip side, a drop and daily chart close below the most recent low at $93.04 would engage the six-month low at $92.
    According to IG Client sentiment (September 6th data), 76.27% of traders are net-long with the ratio of traders long to short at 3.21 to 1. The number of traders net-long is 2.27% lower than yesterday and 32.29% higher than last week, while the number of traders net-short is 50.18% higher than yesterday and 41.05% lower than last week.
    Brent crude oil daily chart

    Source: IG
    Source: DailyFX

    Hebe Chen | Market Analyst, Melbourne
    06 September 2022
  4. ArvinIG
    We dig into the ASX-listed lithium miners to find out what’s driving demand and whether now’s the right time to invest.

      Australia is the world’s largest exporter of lithium - and miners of the mineral have popped up more and more on the ASX in the past decade as global demand has surged. In this week's Investor Spotlight, we charge into the lithium space to discuss what's driving demand for the mineral, which stocks to look at to get exposed to it, and whether it's a good time to invest.

    Source: IG What's driving lithium demand?
    In short: Lithium is the mineral of the future. Lithium is a core component in batteries, which as the move towards green energy gathers pace, has seen an almost exponential increase in demand. There’s scarcely a part of our modern lives that does not include lithium. Phones, laptops, watches, and medical devices all rely on batteries that contain lithium. Most important of all as the green revolution takes shape is electric vehicles.
    As business and government make strides in decarbonizing global energy sources, so too has the push toward electric vehicles and more complex batteries to power them. According to studies conducted by the US government, each electric vehicle contains 8 kilograms of lithium. Multiply that by the tens of millions of electric vehicles that will likely occupy the roads in the future, and the scale of demand is astronomical.
    Four ASX lithium stocks to watch
    Pilbara Minerals
     
    Pilbara Minerals is synonymous (for many) with Australian lithium, with the company boasting the world’s largest hard-rock lithium operation. It’s the largest lithium company on the ASX, with its $10.7B market capitalisation making it the sole large-cap play on the sector. Pilbara is the only lithium company to generate consistent profits; and has relatively extensive analyst coverage, with a consensus by rating and price target of $3.50.
    When looking at the charts, price action for Pilbara Minerals looks very constructive. The stock is in a long-term uptrend, with a recent rally pushing it towards fresh record highs. A break of resistance at $3.80 would be a very bullish signal. Demand appears strong around $2.50 and just below $2.00. Drops below the 20- and 50-week moving averages have proven strong buying opportunities.
    Pilbara Minerals weekly chart

    Source: IG Lake Resources
     
    Lake Resources explores and develops lithium brine projects - accumulations of saline groundwater that are enriched in dissolved lithium - with its operations based in Argentina, one of the world’s largest sources of lithium. Lake Resources is in the middle of lithium companies as far as size but has grown considerably in recent years, with a five-year return above 2000%. There’s less analyst coverage of the company; however, of the four that do, all recommend a buy, with a price target currently of $2.56.
    Although the long-term trend can be said to be to the upside, price momentum is pointing lower for Lake Resources shares. The weekly RSI is pointing lower, while the price is trading below the 20- and 50-week moving averages. Buying opportunities have emerged around the 100-week moving average, while support/resistance is around 0.50 per share.
    Lake Resources weekly chart

    Source: IG Core Lithium
     
    Core Lithium is a lithium exploration company, with the business positioning itself as one of Australia’s next largest lithium producers. It mines spodumene lithium - an ore in which lithium is extracted - and its main facility is located near Darwin Port. Core Lithium is one of ASX’s fastest growing Lithium plays, delivering a five-year return of 3130% to investors. The company is not yet profitable; and has limited analyst coverage, with only two brokers covering the stock. Both have a ‘buy’ rating, however, with a price target of $1.65.
    A look at the technicals shows a primary uptrend for Core Lithium; however, upside momentum has moderated, with the weekly RSI trending lower. Price has carved out a double top, with significant resistance just shy of $1.70 per share. Buying support has emerged in the past around the 20-week moving average and the 50-week moving average during deeper sell-offs. Technical support also appears at around $0.90.
    Core Lithium weekly chart

    Source: IG Sayona Mining
     
    Sayona Mining describes itself as an emerging lithium producer with operations in Quebec and Western Australia. Although it possesses a market cap of a mid-size company at over $2 billion, the company sits at the more speculative end of the market when it comes to lithium plays on the ASX. Sayona has delivered ample returns to shareholders, with the company increasing its value by more than 2520% in the past five-years. It’s not yet profitable, however, even despite strong revenue growth, and has no analyst coverage presently.
    Sayona shares are in a primary uptrend, but a failure to make new all-time highs points to slowing upside momentum for the stock. Price remains above all major moving averages. However, the weekly RSI is pointing lower, though is still above the 50-mark. Technical support could be around $0.20 while a major level of support and resistance is around $0.10.
    Sayona Mining weekly chart

    Source: IG Is now the time to buy lithium stocks?
    Getting exposure to lithium on the ASX is a play on a megatrend. As economies move to greener forms of energy and more advanced forms of energy storage - not to mention the shift to electric vehicles - the demand for lithium can only rise. Australia is arguably the best market to invest in lithium stocks, and there’s a spread of companies that an investor can choose to add lithium to their portfolio or create a wider portfolio of lithium investments.
    In the short-run, like any commodity exposed sector, lithium stocks are proving to be cyclical - and highly volatile due to the general immaturity of the market. Short-term plays on the lithium sector carry significant risk as a result, with a recent run-up in prices suggestive of unattractive entry points for a trade. The long-run trend is to the upside, and the decarbonization thematic is a powerful one. As long as the move towards greener energy continues, the outlook for lithium producers is bright.
    Kyle Rodda | Market Analyst, Australia
    06 September 2022
  5. ArvinIG

    Trade of the Week: Short German DAX

    By ArvinIG,


    Analyst article
    In this week’s Trade of the Week, IG market analyst Josh Mahony looks to go short the German DAX with a stop-loss at 13,390 and a downside target at 12,705. He also looks at last week’s trade, which was short EUR/CHF.

      Forex EUR/CHF
      Joshua Mahony | Senior Market Analyst, London
    31 August 2022
  6. ArvinIG

    Banking on it: Breaking down the Big Four

    By ArvinIG,


    Analyst article
    As we roll to the end of Aussie earnings season, we look at Big Four banks.

      Shares Bank Price Interest rate National Australia Bank     The Australian earnings season is all but done. For the most part, it proved a solid reporting period for corporates, belying some of the pessimism market participants had coming into results. As always, the banking sector was under the microscope, with the Commonwealth Bank of Australia delivering its full year results, and the NAB delivering a quarterly update. So, what did we learn about the sector and the Australian economy? In this article, we go through the fundamentals and outlook for Aussie banks and weigh up whether it’s a good time to buy the sector.
    Margins are squeezed and an uncertain outlook
    We are in a rising interest rate environment but for the major banks, the benefits haven’t flowed through to net interest margins yet. Both the CBA and NAB reported a sizable drop in margins for the reporting period, with a rock-bottom cash rate squeezing net interest margins. Management from each bank talked up the outlook for margins going forward, as the benefits of RBA hikes and increases to standard variable mortgage rates, not to mention a slow pass-through of rate hikes to depositors – take effect.
    The outlook for the Australian economy was somewhat mixed, however. CBA CEO Matt Comyn spoke of the ‘challenging time’ the economy faces but said that the bank is optimistic that ‘a path can be found to navigate through these economic conditions’ and that the ‘medium-term outlook for Australia is a positive one’. NAB CEO Ross McEwan proved more sanguine in his company’s update, expressing confidence that low unemployment and healthy business and household balance sheets will mitigate the impacts of inflation and higher interest rates.

    Source: Bloomberg CBA
    As the only company to lodge official results, most of the focus this reporting season was on the CBA’s FY22 earnings.
    The bank’s results proved stronger than analysts had expected, with the bank handing down full-year results showing a $24.9 billion topline, and net income of $9.96 billion. The final dividend was $2.10 taking the full-year dividend to $3.85.
    The record result came despite the squeeze in margins. The net interest margin dropped 18 points to 1.90%, ‘due to a large increase in low yielding liquid assets and lower home loan margins. CBA said it expects margins to increase in a rising interest rate environment.
    The share price response was soggy following the FY22 numbers. Investors appeared to hook onto the cloudy outlook for the bank, as concerns build about a weaker economic environment that may impact house prices and credit growth.
    Analysts have become increasingly bearish on CBA stock, with consensus favouring a sell rating, according to data compiled by Reuters. The current price target is $US91.29.
    A look at the charts suggests slowing upside momentum for CBA shares, with the price carving out a series of lower-highs. As the stock slips back below $100 per share, the next buy zone looks to be around support at $90. The 200 WMA, currently around $85, will be a significant level of support.

    Source: IG NAB
    NAB’s quarterly update showed modest strength for the bank over the course of the 3rd quarter. Unaudited cash earnings were $1.8 billion for the quarter, marking a 3% increase compared to the 1H22 quarterly average.
    Net interest margins declined slightly for the period but excluding markets and treasury it was higher. NAB management also flagged a pick-up in margins courtesy of a higher interest rate environment.
    The analyst community is mixed on the outlook for NAB stock. The consensus recommendation is a hold from 15 brokers, with eight suggesting that course of action, but six suggesting either a buy or strong buy. The consensus price target is at a premium to the current share price of $31.19.
    The charts convey a similar loss of upside momentum for NAB’s shares, with sellers taking control of the price above $30 per share. The stock is finding some support above the 20-week MA, with a key level of resistance around the 50-week MA.

    Source: IG WBC
    There were no results reported from Westpac this earnings season. The bank will hand down its full-year earnings on the 7th of November.
    At this stage, Reuters data suggests analysts are expecting profits of $5.4 billion, roughly flat on the previous year, and a slight increase in the dividend to $1.21.
    Analysts are mixed on Westpac shares, with the consensus rating a hold. However, the share price trades significantly below the consensus price target, which is $24.06.
    Technically speaking, WBC shares are in a long-term downtrend, with the stock looking as weak as any of the Big Four on the charts right now. Price remains below all key weekly moving averages, and the RSI shows bearish price momentum. $20 is a major level of technical support.

    Source: IG ANZ
    ANZ didn’t deliver an update this quarter, with the bank set to report its full-year results on the 27th of October.
    Analysts are forecasting an increase in revenues for FY22, but a slight drop in profits for the year from the ANZ to $6.27b. The bank is tipped to lift its full-year dividend to $1.42.
    Amongst analysts, the ANZ possesses a hold rating, but a price target well above the current market price at $25.43.
    From a technical standpoint, ANZ shares are marked by downward momentum, with the weekly RSI below 50 and price below the 20, 50, 100 and 200-day moving averages. Significant resistance appears to be around $24.40 while support can be found at $21.20.
    Source: IG Summary
    Despite the obvious benefits that ought to flow through to the banks from higher interest rates and larger net interest margins, the outlook for bank shares remains uncertain. Slowing growth, higher inflation, and those higher interest rates pose a risk to profits and dividends, with bank management casting concerns over the short-term outlook.
    The investment case would appear mixed for bank stocks right now. Analysts are relatively bearish, advocating for ‘holds’ or ‘sells’ even as the likes of Westpac and the ANZ are trading at significant discounts to consensus price targets. The charts are showing a general lack of momentum, signalling that buying banks here offer an unattractive risk/reward.
    Kyle Rodda | Market Analyst, Australia
    31 August 2022
  7. ArvinIG
    The share price for ASX payments company Splitit could rise on new partnerships across diverse sectors in the North American market. Splitit has also reduced funding costs despite rising interest rates.

    Source: Bloomberg   Shares Cloud computing Mobile virtual network operator Interest Interest rates Customer   ASX-listed fintech company Splitit could see its share price rise on partnerships to provide its instalment payments services to companies in the telecommunications and rental property sectors. The agreements have the potential to expand Splitit’s Installments-as-a-Service (IaaS) business model as a subset of the buy-now-pay-later (BNPL) market.
    Telispire integrates Splitit platformUS telecommunications company
    Telispire has announced that it is integrating Splitit’s IaaS platform into its PHOENIX back office and billing system. The move will enable Telispire’s Mobile Virtual Network Operator (MVNO) customers to conveniently provide instalment payment services to their subscribers.
    The Splitit platform will be embedded into existing purchase procedures and will give customers the flexibility of choosing which products and product categories feature instalment payments.
    Telispire enables MVNO customers to offer wireless products and services to customers using turnkey private label solutions. These products can include provisioning, billing, eCommerce, fulfilment and customer support.
    Telispire COO Craig Andrew explained what the adoption of Splitit’s IaaS model means for its customers.
    ‘Splitit’s white-label installments gives [sic] us a valuable tool to offer our resellers that puts them on a more equal footing with larger competitors without having to manage the technical integration’, Andrew said.
    ‘The growth of 5G has many looking to upgrade devices, giving MVNOs a simple option to offer subscribers a great way to pay over time without the complexity of traditional financing options.'
    Splitit CEO Nandan Sheth said the partnership will expand the fintech company’s access to retailers undergoing rapid growth.
    ‘Their clients will have zero implementation burden, and Splitit benefits from distribution to many fast-growing retailers through a single connection to PHOENIX.’
    Splitit brings IaaS model to property sector
    Splitit’s business model allows consumers to access instalment payment services using their existing credit cards. According to Splitit, this ‘white label’ payment solution sets it apart from other BNPL providers on the market.
    The flexibility of its payment solution has enabled the company to expand into a diverse range of industries. In addition to the telecommunications sector, Splitit is also offering its IaaS option to the property rental market.
    At the start of August, Splitit announced that Canadian fintech company letus (formerly known as RentMoola) had chosen to integrate Splitit’s IaaS platform into its service offerings.
    letus operates a cloud-based payments platform that caters specifically to the needs of the property sector. The platform streamlines both the payment of rent by tenants and the collection of rent by property managers.
    Jean-Francois Brissot, CEO of letus, said the partnership with Splitit would further enhance its services.
    ‘Splitit helps us reach our objective to bring innovative technology and tools to alleviate some of the biggest hurdles for tenants and property managers alike,’ Brissot said.
    'The ability to integrate Splitit’s white-label solution into our platform ensures a seamless and simple experience helping foster a stronger relationship between tenants and landlords.'
    Splitit achieves interest rate reduction
    Splitit has seen improvements to its funding conditions thanks to amendments to its agreement with bulge bracket Wall Street bank Goldman Sachs.
    On 2 August, Splitit announced that it had amended its existing $150 million receivables funding facility with Goldman Sachs to reduce the interest payable by Splitit in the range of 15% to 20%, on the condition of achieving certain volumes.
    Splitit said that the improved commercial terms would make it more competitive internationally and help to drive its global expansion, especially in an environment of rising interest rates.

    Marc Howe | Financial Writer
    30 August 2022
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  8. ArvinIG
    Crude oil prices have pushed higher with supply issues swirling; many oil producing nations face challenges or support cuts in output and a stronger US dollar couldn’t hold oil down but will WTI reclaim the high ground?

    Source: Bloomberg   Commodities Petroleum Price of oil OPEC Saudi Arabia WTI   Crude oil has recovered at the start of this week as supply issues continue to cause concern for energy reserves going into the Northern hemisphere autumn.
    This is despite a broadly stronger US Dollar in the aftermath of the Federal Reserve meeting last week that pointed toward higher rates for longer than the market had previously anticipated.
    Last week, Saudi Arabia and OPEC+ appeared to place floor on the price of oil. Saudi Energy Minister Prince Abdulaziz bin Salman said that production could be cut if it was deemed necessary.
    Then, Organization of Petroleum Exporting Countries (OPEC+) Secretary General Haitham Al-Ghais cited spare capacity as an ongoing issue for the oil market.
    On Monday, unconfirmed reports emerged that the United Arab Emirates, Oman and Congo support the views expressed by Saud Arabia last week, that being that production could be cut if prices fall.
    Compounding the problem, political unrest in Libya has flared up again and has the market guessing that their production may come under threat. Then there are reports of issues with Kazakhstan port facilities impacting exports of their oil.
    Additionally, hopes have been dashed of a prompt resolution in resurrecting the 2015 US-Iran nuclear accord.
    Exasperating oil price tension is the soaring costs of alternative energy, particularly for Europe, where Russia is pulling the strings on supply through the Nord Stream 1 pipeline.
    The lack of oil coming from Russia has seen natural gas prices rocket higher. The European benchmark Dutch Title Transfer Facility (TTF) natural gas futures contract has pulled back below 300 Euro per Mega Watt hour (MWh) after peaking just under 350 Euro per MWh. A welcome reprieve but still well above the June low of 80 Euro per MWh.
    This was due to the European Union getting close to meeting its gas storage filling target of 80% goal two months ahead of schedule, with reserves now at 79.4%. The structure of the oil market might support further gains with backwardation ticking up again while volatility remains subdued.
    WTI crude oil, backwardation and volatility (OVX)

    Source: TradingView   Daniel McCarthy | Strategist
    30 August 2022

    This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. 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.
  9. ArvinIG

    Best contrarian shares to buy in Q3

    By ArvinIG,


    Analyst article
    Which contrarian stock picks offer the best value?

    Source: Bloomberg   Forex Shares Contrarian investing International Airlines Group PayPal Investment   Ever looked at a major stock dip and thought it was an overreaction by the market? Have you been tempted to ignore the crowd and buy into it? Market sentiment is not always logical and often groups of investors overreact to negative or positive market news.
    Contrarian investors ignore the crowd and herd mentality and make their own investment decisions, based on which stocks could provide the best long-term value. Often they buy into shares that have experienced significant drops, but that still offer long-term instrinsic value and wait for things at the company to recover.
    However, this investment approach requires substantial research and patience, as it can often take several years for a company and its stock to turn around. It can also be high risk as some stock picks may not work out and investors will need to hold their nerve.
    Warren Buffett is probably the world’s greatest proponent of contrarian investing. Other famous contrarians include John Templeton, Benjamin Graham and Peter Lynch. IG has a useful article here on market sentiment and how to trade it.
    Here are three stocks which we think could be of interest this month to investors who prefer not to follow the herd.
    PayPal – looking oversold
    Tech stocks are firmly in the unpopular box at the moment as investors dump them in favour of more defensive sectors, such as tobacco, healthcare and consumer staples. Indeed, despite making a recovery this summer, the Nasdaq index is down over 20% this year.
    As such, the contrarian investor can pick up some bargains, as long as they are prepared to wait for the stocks to recover. Some US technology stocks, such as Meta – the owner of Facebook – and Paypal have more than halved this year. Shares in digital publisher Buzzfeed are down by as much as 94%.
    Contrarian investors could take a look at Paypal, which is currently trading at $92.70, having fallen in value by 66% this year. The fintech company, which provides online payment technology – most notably for eBay - has attracted the attentions of activist investor Elliott Management. The activist investment group has ploughed $2 billion into PayPal and persuaded management to return as much as $15 billion to investors.
    Jesse Cohn, managing partner at Elliott Investment Management, said at the second-quarter results he “strongly believes in the value proposition at PayPal [as it] has an unmatched and industry-leading footprint across its payments businesses and a right to win over the near- and long term.” He said steps were “underway… to help realize the significant value opportunity” at the company.
    Second-quarter results were solid, with net revenues up 9% to $6.8 billion, although the company made a net loss of $341 million due to an exceptional tax charge relating to intellectual property. Free cashflow increased by 22% to $1.3 billion during the period and $900 million of cost savings expected to be realised in 2022. However, operating margins fell 684 basis points to 11.2% during the period.
    For the full-year, PayPal expects net revenues to reach $27.85 billion, up more than 10% on a spot basis. Total payment volume (TPV) is also anticipated to grow to by around 12% on a spot basis, while sales excluding eBay are forecast to increase by approximately 13.5% on a spot basis.
    Analysts at Daiwa Capital recently upgraded the shares to outperform from neutral, setting a price target of $116, while those at Barclays think they could hit $131. The company is set to hold an investor day in early 2023, which could help boost the shares. Over the short term, a drop in consumer spending could hit revenues but over the longer term, prospects for PayPal look positive.

    Source: Bloomberg IAG – on the flightpath to recovery?
    Shares in International Consolidated Airlines Group (IAG) have lost nearly a third of their value this year, and are down 34% to 108.48p. The company behind British Airways and Aer Lingus had a difficult time during the pandemic and has struggled with flight delays and reduced capacity this year.
    However, it returned to profit in the second-quarter – for the first time since the Covid-19 pandemic - after seeing strong demand from passengers over the summer. It posted pre-tax profits of €133 million for the second-quarter compared with a loss of €981 million in the same period last year. Losses for the half-year were also cut to €654 million from €2 billion in the same period in 2021.
    Going forward, IAG expects operating profit before exceptional items to be “significantly improved” in the third-quarter and positive for the full-year. Net cash flow is also forecast to be “significantly positive for the year,” assuming no further issues from the Covid-19 pandemic. In the second-quarter, passenger capacity levels hit 78% of 2019 levels, while according to May figures from the International Air Transport Association, international air traffic is up 326% compared to last year.
    IAG has €11 billion of debt on its balance sheet and capacity restraints could continue, plus further Covid-19 lockdowns could hit the company hard. However, the recovery looks to be underway and analysts at UBS think the shares could hit 170p.
    Persimmon – is housing market as gloomy as painted?
    The prospects for the UK housing market look mixed with some experts saying that the bubble is set to burst. A perfect storm of the higher interest rates, spiralling inflation and the cost of living crisis is expected to hit demand and house prices.
    However, things may not be quite as gloomy as some commentators suggest. Supply still remains low and demand high. While Rightmove says that reduced affordability and increased housing stock could see prices fall slightly in the second-half, it expects prices to end the year 5% higher than in 2021.
    Rival Zoopla expects a smaller rise of 3%. Plus, while estate agents Savills forecasts that the property market will slow in 2023, it expects prices to drop by 1%, while Knight Frank anticipates an increase of 1%.
    Shares in Persimmon are down 48% this year to 1497.5p and could be a recovery play. The housebuilder recently posted encouraging half-year results. Although revenues were down 8% due to strong comparative figures, selling prices were higher at £245,597 (compared to £236,199 in the first-half of 2021). What’s more the company’s forward order book is 90% sold with forward sales of 10,542 homes worth £2.32 billion.
    A major issue besides a softening in the housing market is likely to be the ongoing issues around building cladding following the Grenfell Tower tragedy. However, the shares look oversold and could surprise on the upside. Analysts at Liberum Capital have a price target on the shares of 2630p, while those at Citigroup have a target of 1930p.
    Piper Terrett | Financial writer, London
    30 August 2022
  10. ArvinIG
    As inflation roars, reliable FTSE 100 dividend stocks are few and far between. But Legal & General, Persimmon, and Imperial Brands could fit the bill.

    Source: Bloomberg   Indices Shares Dividend FTSE 100 Investment Imperial Brands   In this new inflationary reality, the best FTSE 100 dividend stocks are not just those which are highest yielding, but also those which are most likely to continue to pay their dividends through what could become a severe recession.
    The FTSE 100 is by its nature defensive, down a mere 1% year-to-date. But with the downturn almost upon the UK, this could change rapidly.
    And with the base rate already at 1.75%, the markets are pricing in an increase to 4.1% by mid-2023. This automatically rules out FTSE 100 dividend stocks with high net debt levels and irregular cash flow, as their dividends could fast become unsustainable.
    FTSE 100 stocks: recessionary environment
    CPI inflation is now into double-digits at 10.1%. The Bank of England has already warned this figure will exceed 13% by winter, and Citi predicts it will strike 18.6% in the new year.
    The primary inflationary factor is of course energy. High energy prices affect everything in the economic supply chain; from manufacturing, to services, to consumer demand.
    From October, the UK’s average household’s annual energy bill will rise to £3,549 a year. Consultancy Auxilione has predicted this will rise to an unaffordable £7,700 by April. And this prediction keeps going up, as wholesale gas prices bound on with no upper limit.
    In addition, there is no price cap for businesses. Many smaller companies will collapse this winter unless there is government intervention on the scale of the covid-19 pandemic response.
    Interestingly, this could be a net positive for some FTSE 100 companies that will benefit from a larger market share without any additional investment.
    Best FTSE 100 dividend stocks
    1) Legal & General (LON: LGEN)
    Down 15% year-to-date, Legal & General shares now boast an enviable 9.2% dividend yield and price-to-earnings ratio of just 7.6.
    This level of correction could imply the blue-chip financier is simply being affected by wider negative market sentiment, rather than specific sell-off pressures, such as those affecting Aviva and Direct Line.
    L&G is a £15.5 billion titan, with £1.4 trillion of assets under management. It now focuses on four complementary sectors: retirement planning, investment management, capital investment, and insurance.
    This diversification is a highlight for dividend investors, as it provides dividend protection against headwinds in any one sector. For example, the new laws aimed at stopping insurers from overcharging renewal customers that are damaging its insurance arm leave the other three sectors unaffected.
    Encouragingly, it remains the UK’s most popular life insurance provider, a sector which is likely to grow as the population demographic continues to shift.
    In half-year results earlier this month, CEO Nigel Wilson noted ‘we have delivered for our institutional clients and retail customers, while generating good volumes and margins in a buoyant PRT market...our balance sheet is strong and highly resilient, with a solvency ratio of 212% and with 100% of cash flows received from our Direct Investments.’
    Moreover, the financial services giant saw operating profit rise by 8% to £1.16 billion, while cash generation increased by 22% year on year to £1 billion.
    However, L&G operates in a hypercompetitive marketplace, with competition from the likes of RSA Insurance Group and Aviva. This makes maintaining profit margins difficult, especially as consumers are keenly incentivised to switch providers amid the cost-of-living crisis.
    Key risk: Strong companies with sustainable dividends are few and far between in recessions. Beware overvaluations as investors flood to safety.

    Source: Bloomberg 2) Persimmon (LON: PSN)
    With its dividend yield now at 15.7%, Persimmon has remained the highest-yielding FTSE 100 dividend stock for months. Housebuilders more generally, including Taylor Wimpey and Barratt Developments, have dominated the top yielding FTSE 100 dividend stocks for years.
    The reason behind this is simple: there is too little domestic housing supply for available demand, and since the 2008 financial crisis, interest rates have been held down to near-zero levels. This means that in addition to sustained owner-occupier demand, buy-to-let has (until recent legal and monetary changes) been an excellent investment for portfolio diversification.
    This housebuilder dividend trend has been accelerated by the pandemic-induced ‘race for space,’ and exacerbated by the stamp duty holiday. The average UK house price now stands at £286,000, up 7.8% over the past year.
    The group delivered 6,652 homes in H1, down from 7,409 in H1 2021. But it says ‘demand across the UK remains strong,’ and is 75% forward sold for the full year.
    However, the housing market is cyclical. Persimmon is down 48% year-to-date, as institutional investment exits, implying that the dividend is not sustainable amid tightening monetary policy. And for earlier investors, any dividend gains have been wiped out by capital losses.
    Moreover, further share price falls are very possible. Persimmon could well be a future exemplar of the dividend trap. Of course, a 15.7% dividend yield is hard to resist.
    Key risk: Further share price falls, especially if rocketing inflation, rising interest rates, and the coming cessation of help-to-buy conspire to cause a housing market crash at the lower end of the market.
    3) Imperial Brands (LON: IMB)
    Up 14% year-to-date to 1,880p, Imperial Brands shares are delivering an 8.5% dividend for investors prepared to overlook the ethical issues associated with investing in tobacco stocks.
    Further, it has a price-to-earnings ratio of 8.8, compared to the FTSE 100 average of 15. On the fundamentals, it still represents value for money despite recent share price growth.
    Imperial Brands possesses a quality that is highly sought after in recessionary environments; inelastic demand. Tobacco is addictive, and users will sacrifice every other non-necessity to acquire it regardless of discretionary income or price. Accordingly, Imperial Brands’ strategy to increase prices in line with inflation is working.
    In May’s half-year results, CEO Stefan Bomhard enthused ‘we are now 18 months into our five-year strategy to build a more sustainable Imperial capable of consistent growth – and I am pleased with the progress we are making... during the first half of the year, we increased aggregate market share in the five priority markets which account for around 70 per cent of our operating profit.’
    Unlike competitor British American Tobacco, the company has reduced its ambition to expand its non-cigarette division, and has sold off its premium cigars business. Instead, Imperials Brands is focusing on increasing its market share for cigarettes in key growth countries.
    Of course, this could backfire. Regulation is already tight for tobacco, and further restrictions can be brought in at any time. For example, the 2007 UK smoking ban was unthinkable in the 1990s, but now the country plans to be ‘smokefree’ by 2030.
    However, in the near term, Imperial Brands could be an excellent source of dividend income in this time of severe financial stress.
    Key risk: Tobacco, very reasonably, is a key ingredient in many defensive stock portfolios. This can make tobacco stocks overvalued in recessionary environments, and at risk when capital eventually deserts for growth.

    Charles Archer | Financial Writer, London
    30 August 2022 06:55
  11. ArvinIG
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 22nd August 2022. These are projected dividends and likely to change. IG cannot be held responsible for any changes made.
    Dividends highlighted in red include a special dividend, therefore some or all of the amount will not be adjusted. Amount in brackets is the expected adjustment after special dividends excluded (where shown on major indices). Dividend adjustments due to be posted on a bank holiday will usually be posted on the previous working day. 
    If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video.
     

    NB: All dividend adjustments are forecasts and therefore speculative.
    A dividend adjustment is a cash neutral adjustment on your account.
     
    Special Dividends
            Index
    Bloomberg Code
    Effective Date
    Summary
    Dividend Amount
    UKX
    NWG LN
    30/08/2022
    Special Div
    16.8
       
    How do dividend adjustments work?  
    This 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. ArvinIG
    Despite recent recovery, NVIDIA’s share price is still down close to 40% year-to-date. Can its upcoming Q2 results perform up to expectations?

    Source: Bloomberg   Shares Nvidia United States Price Revenue Share price   When does NVIDIA report earnings?
    NVIDIA is set to release its quarter two (Q2) financial results on 24 August 2022, after the US market closes.
    Nvidia earnings – what to expect
    Recent preliminary results came with a negative shock to markets, with Nvidia’s revenue guidance for Q2 at just US$6.7 billion. This is a significant 17.3% downward revision in less than three months from the US$8.1 billion being guided back in late-May this year. Year-on-year (YoY) growth will translate to a mere 3%,and coming from a hot-favourite growth company which has consistently delivered 40-60% double-digit growth since quarter three (Q3) 2020, a near-flat increase in revenue suggests that economic conditions may be moderating much worse-than-expected.
    Its two core business segments, gaming and data centre, are being placed under scrutiny, with the segments accounting for 43.7% and 45.2% of revenue share respectively. The revenue miss was largely due to softer demand for its gaming graphics processing units (GPUs), with gaming revenue guided at US$2.04 billion. This is down 23.8% from its previous forecast of US$2.6 billion and a 33.4% decline from the previous year. With the flat revenue growth for Q2, it may suggest that the Covid-19 induced prime for NVIDIA is behind us and the company is entering into a downcycle. Further moderation in economic conditions ahead could drive risk of subsequent downward revisions in forecast. The largely downbeat tone in the cryptocurrency market remains a risk as well, dampening a source of demand for its GPUs.
    The relief for NVIDIA is that its guidance for Q2 data centre revenue seems resilient at US$3.81 billion, which will be a 61.0% growth from the previous year but nevertheless, still slightly down 3.4% from its previous forecast of US$3.9 billion.
     

    Source: Nvidia Corporation  
    Guidance for Q2 gross margins to be at its lowest since Q3 2011
    The preliminary guidance for Q2 margins also brought no relief, with the expected 46.1% gross margin (non-GAAP) marking its lowest since Q3 2011. This may come as a reflection of some easing in supply chains, along with moderating demand, potentially driving some loss in pricing power. The management believed that the long-term gross margin profile remains intact, but with economic conditions set to worsen, the timeline does not seem to be anytime in the near future. That could drive markets to still remain cautious on its outlook, with the 21% shave off its gross margins coming just three months from its previous forecast.
    Higher expectation hurdle for NVIDIA to cross ahead
    With the 40% plunge in NVIDIA’s share price year-to-date, its share price still stands at US$37.4, which towers above its peer average of around US$19.6. The premium suggests that much expectations are still being priced for NVIDIA to outperform over the coming quarters in order to justify its more-lofty valuation. Failure to do so could drive a further re-rating in share price to a fairer value. On the other hand, with its valuation being a stand-out among its peers, its share price could be more sensitive to any move higher in bond yields.
     

    Source: Nasdaq  
    Nvidia shares – technical analysis
    With the recovery in risk sentiments over the past month, there has been an attempt for NVIDIA’s share price to recover after plunging 38% year-to-date. Near-term, an ascending channel pattern seems to be in place, with the higher highs and higher lows providing an upward bias for now. That said, the flat-lined moving average convergence divergence (MACD) over the past few days suggests some ebbing momentum as the broader market struggles to find a direction. Its share price is currently retesting the US$188.30 resistance line, where a key 23.6% Fibonacci retracement stands in place. Overcoming it could draw further upside to retest the upper channel resistance next.
     

    Source: IG charts

    Yeap Jun Rong | Market Strategist, Singapore
    19 August 2022
  13. ArvinIG
    Dear IG Community,

    Please find below the changes of trading hours for Independence Day holiday (US)

    All times are UK Time and Central Time

    Monday 4th July
    Brent Crude and Gas Oil futures close early at 6.30pm (12.30pm CT). US index futures close early at 6pm (12pm CT). We’ll make an out-of-hours price on Wall Street, US 500, US Russell 2000, FANG Index and US Tech 100 from 6pm (12pm CT) until futures reopen at 11pm (5pm CT). US equities and soft commodities are closed. US interest rates close early at 6pm (12pm CT). US energies and metals close early at 7.30pm (1.30pm CT). The VIX closes early at 4.30pm (10.30am CT).  
    Thank you - Arvin
  14. ArvinIG
    BP shares have fallen sharply in recent days as the FTSE 100 oil major recalibrates its investments.

    Source: Bloomberg   Indices Shares Commodities BP Petroleum Price   BP's (LON: BP) share price has fallen by 9% in just five days. But while this steep fall appears worrying, BP shares are also up 19% over the past year. By comparison, the FTSE 100 has remained essentially flat.
    While this volatility is partially down to the sliding value of Brent Crude, and fears of an upcoming global recession, investors are also reassessing the FTSE 100 oil major’s prospects.
    BP share price: oil changes
    In November, CEO Bernard Looney famously proclaimed BP a ‘cash machine,’ at a time when Brent Crude was trading at $74. Accordingly, 2021 full-year profits struck an eight-year high of $12.8 billion, while Q1 2022 underlying profits more than doubled to $6.2 billion as Brent hit multi-year highs.
    Of course, oil prices are unlikely to remain this high forever. Longview Economics thinks that ‘if oil prices remain at current levels, there will be a significant supply response over the coming 12-18 months which will generate a global supply surplus /rising oil inventories in 2023.’
    But with bumper profits, BP plans to spend 60% of the excess on share buybacks while average energy bills are expected to close on £3,000 by autumn.
    Accordingly, Chancellor Rishi Sunak has announced an additional 25% ‘energy profits levy’ on North Sea gas and oil operators, until ‘normal’ prices return or until the end of 2025. However, he included a ‘super-deduction’ from this additional tax, worth 91p on every £1 of investments in the North Sea.
    Linda Cook, CEO of Harbour Energy, the biggest oil and gas producer in the North Sea, has criticised the windfall tax as ‘seriously flawed,’ as it is ‘disproportionately large compared with the projected impact on major oil companies such as BP and Shell.’
    But Looney has also been critical, arguing that it ‘is not for a one-off tax – it’s a multi-year proposal. Naturally, we will now need to look at the impact of both the new levy and the tax relief on our North Sea investment plans.’
    BP was planning to invest £18 billion into the UK over the next eight years, despite not having opened an exploratory well since 2018.

    Source: Bloomberg The FTSE 100 operator has also taken a $24.4 billion hit from exiting its 19.75% stake in Rosneft. A third of BP’s oil came from Russia last year, as well as a significant chunk of its income.
    BP has also quit the Canadian oil sands, after selling its 50% stake in the Sunrise project to Cenovus Energy in a $1 billion deal, which will also see BP receive acreage off the east coast of Canada to explore and develop new oil and gas fields.
    BP explained the deal ‘will shift its focus to future potential offshore growth,’ while Starlee Sykes, senior vice-president of the Gulf of Mexico and Canada, argues it ‘will position BP Canada for strong future growth.’
    Exploratory drilling will last until 2026, with strong demand likely from both Canada and the USA as Russian oil remains off the market.
    FTSE 100 stock: renewable plans
    While rapidly changing its oil-producing mix, BP has a long-term ambition to hit net zero by 2050. Accordingly, it’s agreed to buy a 40.5% stake in the 6,500 square kilometre Asian Renewable Energy Hub in Pilbara, Western Australia, for an undisclosed sum.
    The project, which will cost more than $30 billion to develop, counts Intercontinental Energy, CWP Global and Macquarie as partners. BP argues it has ‘the potential to be one of the largest renewables and green hydrogen hubs in the world,’ hoping to develop 26GW of solar and wind power and 1.6 million tonnes of green hydrogen a year.
    Executive vice-president of gas and low-carbon energy Anja-Isabel Dotzenrath contends that ‘AREH can be a cornerstone project for us in helping our local and global customers and partners in meeting their net zero and energy commitments.’
    And encouragingly, the VP expects it to represent ‘a material contribution’ to BP’s plans to corner 10% of the global hydrogen market. The FTSE 100 company projects that low-carbon hydrogen will make up 15% of the global energy mix by 2050, and will account for 40% of BP’s capital expenditure by 2030.
    The oil major will become the development’s operator from 1 July, subject to Australian regulatory approval.
    The FTSE 100 supermajor has also appointed veteran Felipe Arbelaez to lead its new hydrogen unit, which plans to take on 100 more employees through 2022.
    Arbelaez thinks ‘the desire to progress the hydrogen market is really accelerating across all nations and particularly in Europe, Asia and the United States,’ augmented by the wish for ‘security of supply of energy, particularly in the European context on the back of the Ukrainian conflict.’
    This leaves BP’s share price dip as a potential FTSE 100 buying opportunity.

    Charles Archer | Financial Writer, London
    23 June 2022
  15. ArvinIG
    Please see the expected dividend adjustment figures for a number of our major indices for the week commencing 4th July 2022. These are projected dividends and likely to change. IG cannot be held responsible for any changes made.
    Dividends highlighted in red include a special dividend, therefore some or all of the amount will not be adjusted. Amount in brackets is the expected adjustment after special dividends excluded (where shown on major indices). Dividend adjustments due to be posted on a bank holiday will usually be posted on the previous working day. 
    If you have any queries or questions on this please let us know in the comments section below. For further information regarding dividend adjustments, and how they affect  your positions, please take a look at the video.

    The Independence day holiday is observed in the US on 4th July – we therefore anticipate posting the below (*) on Friday 1st

    NB: All dividend adjustments are forecasts and therefore speculative.
    A dividend adjustment is a cash neutral adjustment on your account.
     
     
    Special Dividends
            Index
    Bloomberg Code
    Effective Date
    Summary
    Dividend Amount
    N/A
        Special Div
         
    How do dividend adjustments work?  
    This 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.
  16. ArvinIG
    Is the Walgreens share price likely to continue its slide as it halts the sale of Boots?

    Source: Bloomberg   Detrimental financial conditions made Walgreens pull the plug on its Boots sale
    Citing tougher financial conditions following the upheaval in credit markets, Walgreens Boots Alliance, the owner of the UK pharmacy and beauty group Boots, announced on Tuesday that it has abandoned its sale of Britain’s biggest chemist as recent bids didn’t meet its expectations.
    The US pharmacy company said on Tuesday that while there had been “significant interest” in the near 175-year-old business, it “has decided that it is in the best interests of shareholders to keep focusing on the further growth and profitability of the two businesses” and that an “unexpected and dramatic change” in the financial markets meant no offers had been received that reflected the potential value of Boots.
    Boots and its related No.7 beauty brand account for around five per cent of its parent’s $132 billion in annual sales. American pharmaceutical company, Walgreens has been looking to sell its UK Boots and No.7 beauty brand since the end of 2021, with a formal review of its options beginning in January of this year.
    However, Russia’s invasion of Ukraine, followed by rapidly rising interest rates in both the US and the UK, have made it very difficult for new issuers to operate within Europe’s high-yield credit market since financing any highly leveraged bids has become very costly.
    Walgreens had apparently been looking for as much as £10bn when it initially put Boots up for sale, as it sought to focus on its US businesses but after several failed bids, some apparently coming close to their valuation earlier this year, it finally pulled the plug on the Boots sale as the financial environment for bids worsened. “As a result of market instability severely impacting financing availability, no third party has been able to make an offer that adequately reflects the high potential value of Boots and No.7 Beauty Company”, the company stated.
    Walgreens insisted, however, that the abandoned sale of Boots should not reflect badly on the performance of the main UK chemist or the No.7 brand, saying they were continuing to grow and perform strongly.
    The US Boots owner also assured investors that it would continue to invest in the company, which has “exceeded expectations despite challenging conditions”.
    Despite halting the Boots sale at present, Walgreens’ chief executive, Rosalind Brewer, signalled that the company will “stay open to all opportunities to maximise shareholder value.”

    Source: ProRealTime Where to next for the Walgreens Boots Alliance share price?
    With the Walgreens share price down around 20% year-to-date and evolving in a clearly defined downtrend channel since the beginning of the year, and having this week topped out near its November 2021 low at $42.68 on the news that Boots is no longer up for sale, further downside looks to be in store.
    While the 55-day simple moving average (SMA) continues to cap the share price on a daily chart closing basis, as it has been doing since mid-February, the current June low at $39.15 remains in focus.
    If slid through, the late December 2020 low at $36.79 will be next in line, followed by the 78.6% Fibonacci retracement of the 2020-to-2021 advance at $36.15.

    Source: ProRealTime  
    Since one can clearly make out a series of lower highs and lower lows – the definition of a downtrend – the technical picture for Walgreens remains negative for now.
    For the downtrend to be broken and reversed at least two daily chart higher highs and higher lows would need to be seen and take the Walgreens share price to above not only this week’s high but also above the May and current June highs at $43.95 to $44.75. Only then could one envisage the 200-day SMA at $46.22 being back in sight.
    Below it the Walgreens stock is considered to be in bear market territory. Unless such a bullish reversal is seen in the days and weeks to come, further slides in the Walgreens share price are likely to ensue.
    Axel Rudolph | Market Analyst, London
    29 June 2022
  17. ArvinIG
    Risk-off sentiment has returned, and this has resulted in gains for the dollar at the expense of the euro, sterling and yen.
     

    Forex United States dollar Euro Japanese yen Pound sterling EUR/USD   EUR/USD
    EUR/USD returned to the 50-day simple moving average (SMA) this week ($1.0588), having rallied modestly from the lows of June, along with most risk assets. However, it looks like the hiatus from risk-off sentiment has come to an end once again, and a fresh move lower is in store.
    Further declines from here will bring $1.0384 and then $1.035 into view, as the pair heads back to retest recent lows seen over the past two months.
    A revival back above the 50-day SMA and then above $1.06 would be needed to suggest a resumption of the bounce, which then targets $1.0637 and higher.

    Source: ProRealTime GBP/USD struggles in early trading
    For GBP/USD as well it looks like a new drop is at hand, as the dollar strengthens again and the concerns about inflation and growth begin to build.
    The downtrend here looks to be in the process of reasserting itself, which suggests a resumption of the move back to $1.20 and lower. Below this there is not much evidence of support until the March 2020 lows of $1.15.
    Buyers will need to step in soon and push the price back above $1.2366 if they are to avoid this scenario, although a bounce back above $1.263 would be needed if it is to push on to create a higher high.

    Source: ProRealTime USD/JPY holds near highs
    USD/JPY has returned to the highs of last week, with the uptrend here just as firmly in place as the downtrends are for EUR/USD and GBP/USD.
    Now that the 2002 highs have been breached, the next step would be ¥146.75, the highs from 1998. Horizontal and trendline support come into view around ¥135.00, which may help support the price in the end of any drop in coming days.
    Below this the price would head towards the 50-day SMA at ¥131.00.

    Source: ProRealTime
      Chris Beauchamp | Chief Market Analyst, London
    29 June 2022
  18. ArvinIG
    Bitcoin falls alongside US equity markets as market sentiment deteriorates; retail sales data out of Japan and Australia eyed to assess APAC growth and BTC/USD nears critical test of support as bears advance for third day.

    Source: Bloomberg     Wednesday’s Asia-Pacific outlook
    Asia-Pacific traders face a risk-off open after a volatile session of losses in New York sent US equity indexes lower. Technology stocks underperformed the broader market, with the high-beta Nasdaq-100 Index (NDX) closing 3.09% lower, bringing the total loss for the index close to 8% on the month as July approaches. Chinese markets, however, are set to close out the month with gains after the economic powerhouse eased Covid-19 restrictions. Bitcoin prices fell amid the risk aversion. The cryptocurrency may trade higher if Asian equity markets buck the overnight weakness.
    Beijing slashed the period that international travelers need to spend in quarantine on Tuesday, the latest sign that policymakers are willing to pull back from the ‘Zero-Covid’ policy. Travelers from outside China are now only required to spend one week in quarantine. The same pent-up demand effect seen in Western economies, where restrictions were eased largely early this year and late last year, may be seen in China over the coming months, assuming restrictions continue to recede.
    Meanwhile, the Group of Seven (G7) is trying to nail down the details of a reported price cap on Russian oil. The move would limit the prices that outside entities can pay for Russia’s oil. The American Petroleum Institute’s report stated that US crude oil inventory fell by 3.8 million barrels for the week ending June 24, beating the 100k draw that analysts were expecting. The EIA’s report is expected to drop tonight after a two-week blackout due to technical issues on the agency’s servers.
    Today, Japan’s retail sales report for May is set to cross the wires. Analysts expect to see a 4.0% year-over-year rise, according to a Bloomberg survey. That would be a solid improvement from April’s 2.9% y/y increase, and a surprise above expectations may help drive some JPY strength. Australia’s preliminary retail sales report for May will follow the Japanese data. A 0.4% increase is expected to cross the wires, down from the prior 0.9% increase. Aussie dollar strength may follow if the report beats expectations.
    Notable events for June 29:
    Japan – Consumer Confidence (June) Singapore – Export Prices (May) South Korea – Business Confidence (June) BTC/USD technical forecast
    Bitcoin prices fell for a third day, with prices nearing the critical 20,000 level. A break below the psychological support level would likely see bears press the attack, potentially sending prices to test the June swing low set earlier this month. Alternatively, a rebound would aim to reverse early-week losses, with the falling 20-day Simple Moving Average (SMA) also a potential target.
    BTC/USD daily chart

    Source: TradingView This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. 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.

    Thomas Westwater | Analyst, DailyFX, New York City
    29 June 2022
  19. ArvinIG
    Nike shares are struggling to find momentum in all-sessions trading after finishing the session lower on Monday after fourth quarter earnings were released.

      Shares Nike, Inc. Revenue Severe acute respiratory syndrome coronavirus 2 Technical analysis Inflation   Nike Q4 earnings
    We've seen earnings out from NIKE Inc (All Sessions) last night, and despite posting better than expected numbers, the share was still down in extended hours after the release as the group has forecasted first quarter (Q1) revenue below estimates.
    Earnings came in at $0.19 per share on revenues of $12.23 billion. Analysts had expected earnings per share (EPS) of $0.81 and revenue of $12.07 billion.
    Nike: technical analysis
    Let's bring up the chart now to see how Nike is trading.
    Now, remember, this is an all-session share on the IG platform, which means you can trade it from 9 a.m. UK time prior to the US open later on this afternoon.
    And as you can see, the reaction yesterday selling off after the announcement there, coming down to end the session down about 4.8% on the day. So far today, we have opened pretty much unchanged, not much move, seeing a little bit of momentum to the upside, trying to recover some of that move, especially on those better-than-expected earnings.
    But if we're looking at the messaging around this, we saw chief financial officer, Matthew Friend, say that Nike is taking a cautious approach to greater China given the uncertainty around additional Covid disruptions and expect first quarter revenue to be flat to slightly up, below estimates of a 5.1% increase.
    So that's the outline there from the messaging from those earnings. As we know, markets have been focusing a lot lately on forward guidance, what's going to come, especially now that we've seen inflation and costs gearing up. A lot of focus now on what are they going to deliver in the upcoming few months.
    We've seen the message, still expecting to see a little bit of a gain there for Nike. But below expectations that we've seen so far, the share remains within this descending channel, you can see.
    But if we zoom out a little bit, just to get the greater picture here, you can see we're still very much within that higher trend compared to where we started prior to the Covid rally. This is the beginning of 2020 here, the beginning of the summer. You can see we're now nearing that area, an area that's potentially more sustainable. Now, undone most of that Covid rally coming to rest around that area here. The 100 area at the moment, it's likely that we see a bit more price instability along this area and also finding a bit more support from where we've seen those previous lows, helping the price, trying to push higher and break this descending channel.
    Daniela Sabin Hathorn | Presenter and Analyst, London
    28 June 2022
  20. ArvinIG
    Glencore’s share price is the FTSE 100’s star performer of 2022, up 17% to 453p year-to-date.

    Source: Bloomberg   Indices Shares Glencore FTSE 100 Stock Bribery   Glencore (LON: GLEN) shares haven’t just outperformed in 2022. They’re also up 46% over the past 12 months, and 58% over the past five years.
    The FTSE 100 stock’s stellar performance is all the more remarkable given the wider market rout, with the FTSE 100 down 3.4% in 2022, and multiple international index peers firmly trading within a bear market.
    Glencore share price: bribery guilt
    There is one fly in the ointment, however.
    One of Glencore’s British subsidiaries has pleaded guilty in a UK court to corruption charges brought by the Serious Fraud Office (SFO). The SFO had accused the FTSE 100 company of bribing officials to ‘perform their functions improperly, or reward them for so doing, by unduly favouring Glencore Energy UK Limited.’
    More specifically, it argued that ‘Glencore, via its employees and agents, paid bribes of over $28m for preferential access to oil, including increased cargoes, valuable grades of oil and preferable dates of delivery’ in multiple African countries between 2011 and 2016.
    Glencore had already set aside $1.5 billion to cover the impact of expected fines. Last month, it agreed to pay a $1.1 billion settlement in the US over a decade-long scheme to bribe officials in seven countries, and a $40 million settlement in Brazil to state-run Petrobras and the Brazilian authorities.
    And this may not be the end of the story for the FTSE 100 stock. While Chairman Kalidas Madhavpeddi argues it ‘is not the company it was when the unacceptable practices behind this misconduct occurred,’ Glencore is also facing charges in the Netherlands and Switzerland.
    Spotlight on Corruption’s Helen Taylor thinks the charges were ‘hugely significant,’ but argues the SFO could have gone much further in its investigations given the global nature of Glencore’s malpractice.
    The legal researcher also thinks it ‘critical’ that when the courts decide the fine amount in November, it ‘reflects the staggering scale and seriousness of this corporate criminality otherwise companies like Glencore will simply write this off as the cost of doing business.’
    Backing calls for senior executives to be investigated and prosecuted, as reported in detail by the Daily Telegraph, the scandal is unlikely to disappear anytime soon.

    Source: Bloomberg FTSE 100 stock: where next for Glencore shares?
    While the fines are a PR disaster, context is important. Glencore made a record £16 billion profit in 2021 and plans to spend at least £3 billion in share buybacks and dividends in 2022.
    Moreover, Russia’s invasion of Ukraine has sent its marketing business into overdrive. Glencore expects the sector to generate earnings of $3.2 billion in just six months, far exceeding the $2.2 billion to $3.2 billion guidance it had previously issued for the entire year. Further, the sector only generated $3.7 billion in 2021.
    Glencore predicts a return to ‘more normal market conditions’ in H2, the FTSE 100 company argues that its ‘marketing segment’s financial performance has continued to be supported by periods of heightened to extreme levels of market volatility, supply disruption and tight physical market conditions, particularly relating to global energy markets.’
    A key component of Glencore’s current run is its coal mining division. CEO Gary Nagle has pledged planned to run down its coal mines over the next 30 years and aims to achieve net-zero by 2050.
    And activist investor Bluebell Capital Partners has previously pressured Glencore to spin off coal, arguing that it acts as a depressant on the FTSE 100 company’s market value.
    But operating 26 mines across the globe, coal generated a quarter of Glencore’s revenue in 2021. And while it’s currently dealing with higher costs for diesel, explosives, electricity, and logistics, Glencore recently highlighted the rising price of coal as a key revenue driver as nations grapple with energy security after Russia’s invasion of Ukraine.
    This argument hasn’t escaped the notice of investing giant Morgan Stanley, which recently upped its Glencore price target to a record 740p. The bank specifically cited its spot free cash flow yield of 29% and the potential for higher coal prices to drive capital returns.
    And with Glencore finally pencilling a line under long-standing corruption charges, the FTSE 100 stock could now soar further in July.

    Charles Archer | Financial Writer, London
    28 June 2022
    Go short and long with spread bets, CFDs and share dealing on 16,000+ shares with the UK’s No.1 platform.* Learn more about trading shares with us, or open an account to get started today.
    * Best trading platform as awarded at the ADVFN International Financial Awards 2021
  21. ArvinIG

    Naked Wines' shares slump on result

    By ArvinIG,


    Analyst article
    The wine producer said it faces inflationary pressures this year

    Source: Bloomberg   Shares Recession Wine Inflation Inventory Balance sheet   Shares in Naked Wines collapsed by 40% on Thursday after its full-year results disappointed. The wine company’s gloomy outlook statement spooked investors after chief executive Nick Devlin said that it would only achieve break-even this year due to inflationary pressures.

    The share price slump came despite the company returning to profit, posting pre-tax profits of £2.9 million following last year’s losses of £10.7 million. Total sales rose 5% at constant currency rates to £350 million.

    Naked Wines’ proposition works by connecting customers – or ‘angels’ as it dubs them – with independent wine makers. Consumers then gain access to wines directly from the producers at a discounted price.
    Naked Wine faces “inflationary challenges”
    The company was one of the pandemic’s winners as many new customers signed up when pubs and bars were closed during lockdown. However, with a possible recession looming and the cost of living crisis, there could be difficult times ahead.

    “In the past year we moderated investment responsibly as we navigated inflationary challenges,” group chief executive Nick Devlin told investors. “In that context, I’m pleased with the substantial growth in sales to repeat members supported by sales retention above our expectations for the year at 80% and our ability to deliver profitability."

    However, while he said that the company is “well positioned to continue to grow amidst a changing consumer environment,” he added that management would not “pursue growth at any cost” and that it intended to "trade the business at or around breakeven this year.”

    Devlin added that he believed this was the “responsible balance to strike in FY23, mindful of the levels of macro-economic uncertainty, but also of the opportunities we see ahead and the potential for disruptive models like ours to gain traction in tough times as consumers revaluate their purchasing choices.”
    Balance sheet concerns
    The company’s net cash position more than halved to £40 million from £85 million in the previous period. Management also said it took on a $60 million credit facility at the year-end, which included covenants. However, inventory assets rose to £142 million from £76 million in the previous year.

    While total group sales are anticipated at £345 million to £375 million for the full-year 2023, Naked Wines says it expects to spend up to £40 million on acquiring new customers. What’s more, the company will also be incurring administration costs of £45 million to £48 million, as well as £5 million in marketing and £4 million in share-based compensation fees.

    Profit from repeat customers is anticipated at £83 million to £93 million, however.

    In a note to clients, Wayne Brown, an analyst at broker Liberum, voiced concerns about the “poor quality of customers” the company had picked up in the past financial year and its balance sheet.

    “There is a risk heading into a downturn that weak demand and potential cancellations combine to force the company to discount stock more in an attempt to turn the inventory into cash,” he wrote.

    The shares are down 79% in the past year to 156.5p and 82% on their pandemic highs of 874p.

    While the shares may look oversold at these levels, wine is a discretionary spend customers may decide they need to cut back on in the face of a recession.

    Piper Terrett | Financial writer, London
    28 June 2022

    Trade over 16,000 international shares from zero commission with us, the UK’s No.1 trading provider.* Learn more about trading shares with us, or open an account to get started today.
    *Based on revenue excluding FX (published financial statements, June 2020).
  22. ArvinIG
    The Australian dollar eyes further gains versus the US dollar; Chinese industrial profits data in focus to kick off APAC trading and AUD/USD may face resistance from the 23.6% Fib and 20-day SMA.

    Source: Bloomberg   Forex United States dollar Australian dollar AUD/USD China Japanese yen   Monday’s Asia-Pacific outlook
    Chinese industrial profits data is set to cross the wires this morning, which could help to set the tone for Asia-Pacific trading. The Australian dollar is a prime proxy to gauge the market’s response to those numbers. AUD/USD saw a moderate bounce last week after a multi-week losing streak alongside a broader pullback in risk assets.
    Industrial profits grew by 3.5% on a year-over-year basis in April, which was seen as a dull figure weighed down by a wave of Covid-19 infections that caused lockdowns across major Chinese economic hubs. The situation has improved since then, although cities like Beijing and Shanghai continue to see localized Covid measures. Still, this morning's data should reflect a growing recovery, which could help to revive some optimism across the APAC region. AUD/USD may rise if the y/y figure exceeds that of the prior month.
    In Japan, the final revisions of April’s Coincident and Leading economic index figures will drop. The Japanese yen fell against the US dollar last week but sellers appear to backed off, with USD/JPY gaining only 0.16%. Still, the currency pair hit its highest level since September 1998 before trimming strength. The technical posture has weakened recently, but USD bulls may yet attempt an attack.
    Industrial metals like copper and aluminum could give clues to how traders are assessing the short-term macroeconomic outlook. Copper prices fell to the lowest since February 2021 last week. Steel demand has eased in recent months. Renewed fears about an economic recession following the Fed’s latest interest rate hike have weighed heavily on demand for industrial metals. A firm print on China’s industrial profits data may help to inspire some confidence across the metals space.
    Notable Events for June 27:
    Indonesia – M2 Money Supply (May) Philippines – Business Confidence (Q2) Taiwan – Consumer Confidence (June) Hong Kong – Balance of Trade (May)
    AUD/USD technical forecast
    A trendline from 2021 helped to underpin prices during last week’s action. A move higher faces potential resistance from the 23.6% Fibonacci retracement level and the falling 20-day Simple Moving Average (SMA). The MACD and RSI oscillators are both improving, and crosses above their respective midpoints may provide technical boosts for the Australian dollar in the days ahead.
    AUD/USD daily chart

    Source: TradingView   Thomas Westwater | Analyst, DailyFX, New York City
    27 June 2022 This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. 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.
  23. ArvinIG

    Is the FTSE 100 index on borrowed time?

    By ArvinIG,


    Analyst article
    The FTSE 100 is benefitting from rocketing commodities, oil, and interest rates that may ultimately become its downfall.

    Source: Bloomberg   Indices Shares Commodities FTSE 100 Recession Interest   The FTSE 100 index has remained remarkably resilient this year, down 4% year-to-date. While it spent Friday morning surfing dangerously close to the symbolic 7,000-point watermark, it ended last week at a relatively healthy 7,209 points.
    For perspective, the S&P 500 is down 18.5%, while the NASDAQ Composite has fallen by 26.7%. Most other international indices aren’t faring much better.
    However, competitors like the NASDAQ are stuffed with tech stocks which underwent a stellar run during the covid-19 pandemic era of loose monetary policy. This has left it much more rope to correct as the fiscal landscape changes.
    And it’s worth noting that a NASDAQ investor who bought into the index just before the pandemic struck would even now still be significantly better off than one who stuck to the FTSE 100.
    FTSE 100: banks, oil, and mining
    However, the FTSE 100’s sector composition has made it a strong choice so far this year.
    The index’s big four banks — HSBC, Barclays, Lloyds, and NatWest — are set to be prime beneficiaries of rising interest rates. The Bank of England has already increased the base rate five times in the last six months to 1.25%; market pricing has them rising again to at least 2.25% by the end of the year. Capital Economics thinks it could even increase to 3% in 2023.
    Meanwhile, the FTSE 100 oil majors — BP and Shell — are making so much money that BP CEO Bernard Looney has likened his outfit to a ‘cash machine.’ And both companies foresee increased profitability despite windfall taxes on North Sea profits. With Brent Crude still above $100 a barrel, the oil benchmark has remained elevated for months, even before Russia’s invasion of Ukraine.
    Then there are the miners benefitting from sky-high commodity prices — Rio Tinto, Anglo American, Glencore, and Fresnillo — which, despite several serious PR hiccups, are only expected to generate ever more revenue as the mining super-cycle continues.
    The FTSE 100 also boasts strong stocks with numerous defensive qualities, including pharmaceutical giants AstraZeneca, GSK, and HIKMA. History shows that the demand for new vaccines and drugs remains constant regardless of the economic state of the world.
    The same is true of tobacco stocks British American Tobacco and Imperial Brands, as well as food sector companies like Tesco, Sainsbury’s, and Unilever. Likewise, utilities stocks including National Grid, SSE, and Centrica, and telecom stocks like BT and Vodafone are also highly defensive; consumers have little choice but to utilize electricity and gas in the 21st century.
    In fact, only a handful of stocks within the FTSE 100 are outright struggling.
    Most are travel-dependent stocks like IAG or Rolls-Royce, the former of which is besieged by a PR nightmare, labour crunch and potential strike action. However, given the lengthy airport queues and optimistic forward-looking corporate statements, demand for travel remains high, while the current problems are likely to disappear over the medium term.
    The major FTSE 100 housing stocks — Rightmove, Persimmon, Taylor Wimpey, and Barratt Developments — are also suffering, with a market slowdown widely expected as interest rates rise, given that the average English home is now worth a record £299,249.
    Another notable faller is the tech-heavy Scottish Mortgage Investment Trust, down 43% year-to-date. However, it’s worth noting that the trust is still up compared to its pre-pandemic value, and has outperformed the wider FTSE 100 over a five-year timescale.
    But overall, the FTSE 100 is in strong shape compared to its peers. But as storm clouds appear on the economic horizon, one powerful risk factor could bring down the UK’s premier index.

    Source: Bloomberg FTSE 100: UK recession, global recession
    CPI inflation is at a decades-high 9.1% and expected to exceed 11% by October. For perspective, an employee that has not acquired a raise this year will lose over a month of real terms buying power over the next 12.
    And with essentials including fuel, energy, and food rising at a near-unprecedented speed, consumers are also being squeezed by rising interest rates that are making mortgages, credit cards, and other loans more expensive.
    Chris Williamson, chief business economist at S&P Global Market Intelligence, thinks ‘the economy is starting to look like it is running on empty’ as companies report a ‘near-stalling of demand.’ Outgoing CBI President Lord Bilimoria argues the UK is ‘definitely’ heading for recession.
    Worryingly, the ONS reports that 44% of adults were buying less food in May, up from 18% in January, and the core reason behind last month’s 0.5% drop in retail sales. British Retail Consortium CEO Helen Dickinson notes that ‘households reined in spending as the cost-of-living crunch continued to squeeze consumer demand.’
    Meanwhile, data company GfK’s monthly survey of UK citizens found that consumer confidence is at the lowest it’s ever been since the survey began in 1974. For a frame of reference, this includes events such as the 1979 oil crisis, 1990s housing market crash, and 2008 credit crunch.
    But the upcoming recession isn’t just a UK problem. Deutsche Bank CEO Christian Sewing thinks ‘we have a 50% likelihood of a recession globally.’ Citigroup analysts concur, warning it is an ‘increasingly palpable risk’ as ‘history indicates that disinflation often carries meaningful costs for growth, and we see the aggregate probability of recession as now approaching 50%.’
    This is the catch-22 of sky-high oil and commodity prices, rising interest rates, and more expensive consumer staples. Short-term, it benefits the aforementioned FTSE 100 giants, especially as many of them operate on a global scale. But longer-term, it creates economic distress.
    Of course, if the upcoming recession were to be confined solely to the UK, the FTSE 100 could well continue to outperform its international peers through 2022.
    But with inflation rocketing and consumer confidence collapsing, there is a very real danger of demand destruction across almost every developed country across the globe.
    It’s worth noting that in 2021, Morgan Stanley predicted demand destruction for oil would occur when the commodity hit $80 per barrel. While the bank recently admitted it got this forecast wrong, it’s possible that what it got wrong wasn’t the prediction, but the timeframe.
    And with inflation predicted to 11% in October, interest rates to strike potentially 3% next year, and consumer confidence at all-time lows, the FTSE 100 may be on borrowed time.
    Charles Archer | Financial Writer, London
    27 June 2022
  24. ArvinIG
    Australian dollar falls against US dollar as markets shift to risk-off; the 2022 BRICS Summit set to kick off today in virtual format and AUD/USD looks set for further weakness above key trendline support.

    Source: Bloomberg   Forex Australian dollar United States dollar AUD/USD Inflation Japanese yen   Friday’s Asia-Pacific outlook
    Asia-Pacific markets are set to open higher after a rosy overnight session on Wall Street. The New York trading session saw risk assets climb, with all three major US equity indexes posting gains. The high-beta Nasdaq-100 Index (NDX) outperformed, closing 1.47% higher. Bitcoin prices rose more than 3%, in line with the positive market sentiment. Traders were unswayed by negative economic data, with S&P Global PMI data for the US in June missing estimates, although remaining in expansion territory.
    Activity in the foreign exchange market, however, did not align with what equity markets were communicating. The US dollar, which typically strengthens amid risk-off moves, gained against its risk-sensitive peers, like the Australian dollar. Greenback strength appeared after Treasury sellers vanished mid-day, pushing yields modestly higher.
    The Japanese yen may see some volatility today on the release of Japan’s inflation data for May. Analysts expect to see core inflation—a measure that removes volatile food and energy prices—cross the wires at 2.1%, according to a Bloomberg survey. The Japanese yen is near its weakest level against the dollar since 2002. A higher-than-expected inflation print may help underpin JPY strength, but the Bank of Japan has remained defiant against tightening policy despite the monumental collapse in its currency.
    Elsewhere, industrial and precious metal prices fell. The growing threat of a global recession sent copper prices over 5% lower in New York. Chinese-sensitive iron ore prices managed to gain on comments from President Xi. The Chinese leader reaffirmed his commitment to support economic growth at the 2022 BRICS summit. The Australian dollar remains weak despite the rebound in iron ore, but traders may take notice today and put a bid on the Australian currency.
    Notable events for June 24:
    Singapore – Industrial Production (May) Taiwan – M2 Money Supply (May) China – Current Account Final (Q1) Australia – RBA Governor Lowe Speech
    AUD/USD technical forecast
    AUD/USD found support from a trendline formed from the October 2021 swing high. That trendline may continue to underpin prices, but a break lower would likely lead to a test of the May swing low. The psychologically important 0.7000 level remains a visible target for bulls, should prices rebound. Meanwhile, the MACD and RSI oscillators remain negative.
    AUD/USD daily chart

    Source: TradingView

    Thomas Westwater | Analyst, DailyFX, New York City
    24 June 2022 This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. 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.
  25. ArvinIG
    Crude oil prices are on pace for the worst month since November. Global growth expectations for 2022 are falling as OPEC+ continues restoring supply. Is more pain ahead for WTI?

    Source: Bloomberg   Commodities Petroleum Price of oil OPEC WTI Inflation   WTI on course for worst month since November as fundamental drivers decay
    After six months of consecutive gains, WTI crude oil is on pace to weaken by over nine percent this month. That would be the worst performance since November 2021 if it holds. In fact, on Wednesday the commodity closed at its lowest since early May. Is there more scope for energy prices to weaken ahead? Or will this translate into another bounce in the coming weeks?
    Broadly speaking, WTI has been on an impressive rally that has its beginnings going back to when prices found a bottom in 2020. Then, a global pandemic destroyed travel demand, plunging oil prices to lows not seen in decades. Since then, recovery from a period of lockdowns, plentiful government stimulus and geopolitical tensions in Europe have worked in unison to bolster prices. Things are seemingly turning.
    Some of the highest global inflation in decades has resulted in central banks around the world tightening monetary policy. To bring down rising prices, they must slow down growth by raising interest rates and ending government asset purchases. Unsurprisingly, real 2022 global growth estimates have been falling. On the chart below, growth is now seen at 3.2% y/y versus 4.5% expected back in late 2021.
    This is a clear downside risk to oil amid rising recession concerns. Meanwhile, the Organization of the Petroleum and Exporting Countries and allies (OPEC+) have been gradually restoring supply – see chart below. By August, the last of the production cuts made back in 2020 is expected to be rolled back. Barring an escalation of tensions between Russia and the West, it seems that the tide may be turning for crude oil. With that in mind, what are key technical levels traders should watch for?
    Crude oil fundamental drivers – global growth, OPEC output

    Source: TradingView Crude oil technical analysis
    Crude oil prices have broken under a key rising trendline from December – red parallel lines in the chart below. A confirmatory secondary close below could open the door to reversing more of the 100% rise from the end of last year through late February. Below, the 92.95 – 95.11 support zone will be key to watch as the 200-day Simple Moving Average nears. Clearing the latter opens the door to retesting the 85.38 inflection point. Otherwise, a turn back above the trendline could hint at uptrend resumption.
    Daily chart

    Source: TradingView

    Daniel Dubrovsky | Currency Analyst, DailyFX, San Francisco
    23 June 2022 This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. 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.

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CFD accounts provided by IG Markets Ltd, spread betting provided by IG Index Ltd and share dealing and stocks and shares ISA accounts provided by IG Trading and Investments Ltd. IG is a trading name of IG Markets Ltd (a company registered in England and Wales under number 04008957), IG Index Ltd (a company registered in England and Wales under number 01190902) and IG Trading and Investments Ltd (a company registered in England and Wales under number 11628764). Registered address at Cannon Bridge House, 25 Dowgate Hill, London EC4R 2YA. IG Markets Ltd (Register number 195355), IG Index Ltd (Register number 114059) and IG Trading and Investments Ltd (Register number 944492) are authorised and regulated by the Financial Conduct Authority.

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