28 / 04 / 2017 | Market News

Pound in favour

Our prop desk is shorting a number of Euro crosses as well as having another go at opening up some short equity index trades, although the overall level of activity is looking somewhat more subdued than it was earlier in the week.
 
Daily round up
 
Today marks the last trading session of the month and although we have a few notable economic releases, indications are that these will be far from stellar and April will finish with more of a whimper than a bang as far as the fundamentals are concerned. However geopolitical risk continues to cloud the horizon and with European traders facing another long weekend, the temptation to derisk some positions could set the tone in the hours ahead.
 

Fundamental Analysis – Pound in favour

 
Sterling had been left to one side in the wake of last weekend’s first round of the French presidential election, but renewed optimism over a successful Brexit and the fact we saw some far better than expected retail sales figures coming from the CBI trade body has give the pound something to cheer. Cable is testing levels not seen since the pound’s flash crash of October last year and the focus will now shift to the flash Q1 GDP reading that’s due at 8.30am GMT. Expectations are upbeat here so any shortfall could leave traders itching to book profits – after this rally, there’s certainly scope on the downside.
 
US GDP readings for Q1 will also be in focus with this print expected at 12.30pm GMT. A somewhat lacking US durable goods order reading on Thursday is hiking expectations that the flash GDP reading will also disappoint, adding up another slug of woe to the US. Today’s print shouldn’t be negative but it could be close run, in which case another bout of profit taking from the greenback could be in order. And unless there’s a notable change of tone from the Fed in terms of cutting some slack with monetary policy then these latest gains for stocks will look difficult to justify, too.
 
EUR/USD has been very much on the back foot since yesterday’s underwhelming ECB meeting brought nothing new to the table and attention is now turning to the Eurozone’s scheduled release of inflation data at 9am GMT. Given the lack of intervention yesterday, the expectation here has to be that this print will disappoint too, but with oil prices drifting lower, it’s easy to see why the nascent inflationary pressures will be difficult to sustain. We have seen speculation that the outcome of the first round of the French Presidential election would help drive the decision to quicken the pace of policy tightening at the ECB, but with both candidate being seen as Eurosceptic to some degree, again there’s reason to argue that waiting until the shape of any new government in Paris is known may be the next trigger.
 
This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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27 / 04 / 2017 | Market News

Euro struggling ahead of ECB meet

In the last 24hours, the our prop desk has booked some healthy profits on long EUR positions and also benefitted from that brief rally in oil prices. Assorted long GBP trades – some of which have been open since Easter – remain in play and are broadly positive.
 
Daily Round up
 
The ECB rate meeting is high on the agenda for many traders with the Euro by all accounts still a little way adrift of where it should be on the assumption that Macron becomes the next President of France. Developments in the US stand off with North Korea will also be under scrutiny, although right now this seems to be more about posturing and hopes remain that a diplomatic solution may still be found.
 

Fundamental Analysis – Euro struggling ahead of ECB meet

 
The common currency is struggling to find further support ahead of today’s ECB announcement over monetary policy. There have been some suggestions that the greater clarity over the outcome of the French Presidential election – and the inevitability of a Eurosceptic winning – means that some policy tightening will be seen in the not too distant future, but it’s as if markets want reassurance of this before making another push higher. The bank’s press conference starts at 12.30pm GMT, but if we hear even just some modestly hawkish tones coming out here, the expectation would be for the Euro to find some renewed support
 
US Durable goods order data is slated for release at 12.30pm GMT today and expectations are that we’re going to see growth here, albeit at a slower pace than was posted last month. If this doesn’t prove to be the case and we see a print above 0.5% then that will once again put the focus back onto the Federal Reserve to consider pushing through that next rate hike. Such a move is clearly unpopular with Donald Trump who wants to see a weaker US dollar to help facilitate trade, but the prospect of mounting inflationary pressures will demand a reaction from the Fed.
 
Gold process ticked a little higher yesterday with the shipping of almost all US senators to the White House for a briefing over North Korea raising some concerns. However, with little new information emerging from the session, it looked more like a sabre rattling move than an indication that intervention was imminent. The White House said the briefing took place there rather than on Capitol Hill for logistical reasons – this situation is certainly one to watch, although the mooted reaction fro the precious metal seems appropriate given the fact little progress as been made.
 
Weekly oil inventories may have provided some momentum for the market yesterday where a bigger than expected draw sent US crude to briefly retest the $50 level, but this proved short lived. The big question is whether Russia will maintain its output cap – Saudi Arabia is due to discuss this matter with the country ahead of the Opec meeting late next month but it seems that assumptions over this will continue to have some significant sway on prices.
 
This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice
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25 / 04 / 2017 | Market News

Focus swings from Europe to US

Our prop desk has seen some profits overnight off the back of short Yen positions as well as a long EUR/USD trade. However attempts to call a top in the rally for European equity indices yesterday delivered nothing more than frustration.
 
Daily round up
 
There’s not all that much on the economic calendar today, but the risk focus is shifting from Europe to North America, as what is widely seen as the best outcome in the French election makes way for Trump’s 100th day in office. The screw is being tightened in terms of trade deals, whilst geopolitical tensions continue to mount, too. With the US clearly in no mood for making friends internationally, the next move could be a flight from the greenback.
 
Fundamental Analysis – Markets uneventful as focus swings from Europe to US
 
It has been a largely uneventful 24 hours for the major currency pairs with little overall direction having been found. The relief rally off the back of the likely win for centrist candidate Macron in the French presidential elections was relatively short lived – at least as far as currencies were concerned – and the focus is now moving to the US. Donald Trump will mark 100 days in office this weekend and there’s a degree of expectation over delivery of promised tax reform by then. We also have those mounting tensions with North Korea still very much on the agenda, but with granular fundamentals looking to be in relatively short supply, downside pressures on the greenback could be sustained in the near term. The DXY dollar index is wallowing around the 99 mark, perhaps reflective of those concerns that the hawkish stance at the Fed may be abating, too.
 
UK public sector borrowing data is due for release at 8.30am GMT this morning, something that could have influence over both the value of Sterling as well as UK bond yields. The country does have a general election looming but media reports are increasingly bullish over the fact this will deliver a significant majority for the incumbent Prime Minister, so even a modest rise in any reported deficit this morning is unlikely to derail sentiment here.
 
The Canadian dollar has been left on the back foot amidst reports that the US is to levy tariffs of up to 24% on some timber imports from the North. The move is backed by allegations of unfair Canadian government subsidies for some firms in the sector and apparently came off the back of the collapse of talks between the two nations over dairy imports. It’s worth pointing out that the sector has been embroiled in a cross-border trade war for some years, but this will be seen as a defining moment in the Trump presidency in terms of delivery against one of those campaign pledges.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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24 / 04 / 2017 | Market News

Euro Spikes Then Stalls

Recent trade has presented a slug of volatility with some mixed outcomes for our prop desk. Short Yen positions have yielded results, but short equity index trades have once again frustrated with futures pointing to significantly higher starts. The S&P is currently being called up 25 at 2374.
 
Daily Round up
 
The big event for markets to digest as they return from the weekend break will be the result of the first round of the French elections – and what this likely means for the run-off vote n two weeks time. Beyond this, economic data is relatively thin on the ground in the near term. The natural assumption would be that Macron’s appeal to the centre – and now by default the left – will assure him of the title, but the muted response from markets so far suggests the next two weeks will provide further volatility.
 

Fundamental Analysis – Euro Spikes Then Stalls

 
By the time Asian markets opened last night, the provisional results of the French election were well established and with a high voter turn out, it was perhaps no surprise that it was the two who had polled the best who went on to be declared winners. Arguably the risk markets had perceived in the run up was the run-off being contested between left and right, in turn splitting the vote far closer, but with centrist Macron now pitted against right wing candidate Le Pen, the result seems easier to call. EUR/USD opened above 1.09 – its highest level since the US Presidential election almost six months ago – but confidence has waivered since. European traders may be in a position to give the currency another boost as their day gets underway, but for now the gains do have the potential to look a little under-done.
 
We have the German Ifo business climate index due for release at 8am GMT and although any momentum here is likely to be overshadowed by the outcome of the French elections, any shortfall here could still serve to reign in upside for the common currency. As we have seen though the Asian session, the market isn’t quite ready to hand victory to Macron, yet.
 
There’s a French government auction of short term debt scheduled for 1pm GMT and this will again give a good idea of how markets see the run-off vote playing out. With these instruments currently trading with negative yields, the expectation would be that this pattern continues, but with the En Marche! Movement having no track record in politics, will we see a degree of caution creeping in over what may lie ahead here? A victory for Macron may well be the best outcome for keeping the European project alive, but can the campaign pledges be turned into reality – and in a cost effective manner?
 
This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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21 / 04 / 2017 | Market News

UK Retail Sales Set to Slump

Our prop desk has opened a series of short EUR positions in the last 24 hours, with the potential for an upset in the weekend’s first round of the election looming. Short equity index trades however continue to frustrate the desk.
 
Daily Round up
 
Again it’s a relatively light day in terms of economic data but the French election will be front of mind for many traders. We have a real risk of upset here and the point to watch for is whether we end up with two anti-Euro candidates going into the run-off vote next month. To this extent a degree of de-risking of Euro positions would present little surprise in the hours ahead.
 

Fundamental Analysis– UK Retail Sales Set to Slump

 
At 8.30am GMT we have the UK retail sales print from March set for release and this is expected to show contraction on a month-on-month basis. On the basis that the IMF upped their growth forecasts for the UK on the basis that retail spending hadn’t dried up as expected in the wake of the Brexit vote, there’s a chance that the market is being too pessimistic here, although the late timing of Easter is also likely to have some bearing on the number. With the idea that investors will be looking to shy away from Euro exposure in the run up to the weekend break, this could present further downside for EUR/GBP.
 
Eurozone manufacturing and services PMI readings are due for release at 8am GMT today and both numbers are expected to come in well above the break-even 50 mark. However, any weakness here could be jumped upon by those lining up short Euro positions ahead of the weekend break. There’s already growing interest in the options market for protection against a dramatic plunge in the value of the Euro off the back of the elections, so even a modest wobble here could heap downside pressure on the underlying currency.
 
Oil prices have failed to recover from Wednesday’s inventory driven sell-off, despite murmurs from Opec members that fresh production cuts may be on the table. There’s some concern that any move like this could be rather short lived, and on the assumption that we will see another jump in the Baker Hughes rig count when that is published at 5pm GMT this afternoon, there’s still justification for further downside pressures on crude. The $50 level has held right through the month so far, but the rebound we had eyed from Wednesday’s sell-off is showing no signs of materialising. 

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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20 / 04 / 2017 | Market News

French Election Front of Mind

Our prop desk is still running some of those long GBP positions from earlier in the week, although attempts to call an end to the Yen’s rally with short JPY trades are proving fruitless so far. The long GBP/NZD position noted yesterday was closed out for a significant profit.
 
Daily Round up
 
Again, the day ahead looks relatively light in terms of the economic calendar but it’s going to be politics that stands to dominate the agenda. The first round of the French presidential election is set to take place this weekend and there remains a real chance that two protectionist candidates could be pushed into the run-off. This would certainly serve up a healthy slug of volatility at the start of next week, with the risk that EUR/USD could threaten a test of parity.
 

Fundamental Analysis – French Election Front of Mind

 
The weekend’s election in France certainly has the potential to bring some uncertainty to EUR crosses, although against the dollar we saw some renewed strength last night off the back of a less than stellar Beige Book release by the Fed. Even the release of some slightly worse than expected German PPI data this morning has failed to detract from the currency, with EUR/USD having traded in a very tight range for the last 36 hours. To this extent there doesn’t seem to be that much risk mitigation in play against the common currency, although it would be no surprise if we see some weakness creeping in during Friday’s trade.
 
A big build in US gasoline reserves served to unsettle oil prices through yesterday’s session and although we have seen a modest bounce, further volatility is probably to be expected in the short term as today is the settlement date for the May ’17 contracts. To this extent another test on the $50/barrel mark may be feasible, although with that overhanging expectation of Opec extending production cuts into the second half of the year, there’s every reason to believe that downside pressure won’t last long.
 
The Aussie dollar may have recovered the 0.7500 handle against the greenback, but there’s little around to provide support to these gains, which largely seem to be spinning off the back of US dollar weakness. On the basis that we have no high profile economic data due from Australia before the weekend break, and with the Aussie dollar having little safe haven appeal, it is easy to see how another leg lower could materialise in the short term.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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19 / 04 / 2017 | Market News

More Proof Markets Dislike Uncertainty

Short US equity index trades continue to yield results for our prop desk, whilst a range of long sterling positions are also coming good. These include a GBP/NZD trade placed ahead of the weekend break, along with a rather more opportunistic GBP/AUD trade picked up in the last few hours.
 
Daily Round up
 
Given the relative dearth of economic data on the table it does seem as if the markets are struggling to drag themselves back from the Easter break, but that shock announcement over a snap general election in the UK certainly provided some much needed momentum. With this and the uncertainty of the French election looming large, our earlier assessment - that it’s the political rather than economic agenda which will influence markets in the short term - continues to hold true.
 

Fundamental Analysis – More Proof Markets Dislike Uncertainty

 
The British pound has been liming along wounded since the Brexit referendum last summer, but yesterday’s surprise announcement by UK Prime Minister Theresa May that a snap general election would be held had a galvanizing effect on the currency. The market’s clear belief is that the incumbent party will win again, and with a bigger majority. This in turn will make for a cleaner break when the Brexit negotiations conclude – something that has driven major GBP crosses out to six month highs. Success in today’s vote in Parliament - which is required to approve the early election - is a foregone conclusion, but the risk is that the vote in early June doesn’t return the result that’s expected. Early polling suggests it will, but with the centrist Liberal Democrat party likely to make sweeping gains from their diminished current position, they could be the deal-makers again as they were in 2010. Given they are expected to be running on a ticket that promotes retaining single market access, we should be bracing for further volatility as this campaign unfolds over the next seven weeks.
 
Risk mitigation continues to lend support to the Japanese Yen with USD/JPY declining once again during yesterday’s session and establishing a level below the 200-day moving average. Markets remain on edge over the next steps in terms of US foreign policy and we’ve seen some mixed reports over the intentions of the US naval fleet in the Pacific emerging over the last few hours. The pair does risk drifting into oversold territory especially with the Fed’s commitment to further policy tightening, although with little US economic data on the cards for today, further weakness at least in the short term may still be seen.
 
Eurozone inflation prints are due at 9am GMT this morning and we expect these numbers to attract some interest. The ECB has pushed back against any need to for rate hikes on the basis that the recent spike in inflation was temporary, although the reversion seen in energy prices during March could be seen as provide some misleading direction here. The weekend’s first round presidential election in France is also going to continue acting as a drag on sentiment for the common currency – this remains an open contest and the result could yet serve up a far bigger blow for the European project than we saw with Brexit. 

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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18 / 04 / 2017 | Market News

Currencies struggling to find cohesive direction

Our prop desk is finding some profitability off the back of long GBP positions with some of the less common crosses coming into play, including CAD and NZD. Short S&P and long USD/CHF trades remain in play.
 
Daily round up
 
Fundamental data is relatively thin on the ground today as European traders return from the long Easter weekend break. There are some building stats due for release from the US, but the key drivers seem to sit very much at the political level. These include factors such as the looming French election and how US foreign policy will play out next. We do however seem to be moving into a phase of more complicated price action than we’ve seen in recent weeks.
 
Fundamentals – currencies struggling to find cohesive direction
 
EUR/GBP is testing levels we haven’t seen since late February as caution surrounding the outcome of the French Presidential elections takes a toll on confidence for the common currency. Investors are looking to de-risk Euro exposure, but given the general backdrop of geopolitical uncertainty we have right now, the safe havens are few and far between. This appears to have pushed the pound into favour coming out of the long weekend break in Europe, although sustaining these gains in the medium term could prove difficult. With little fundamental data due for release today that will drive either currency, it’s really going to be any update on French voter sentiment that has the potential to provide the most meaningful direction here in the short term.
 
Gold prices are retreating slightly following the long weekend, with the fact that the North Korean situation didn’t escalate further over the weekend alongside hopes that a diplomatic solution can be found here helping cap the rally short of the $1300/oz level. Comments by the US Treasury Secretary Steve Mnuchin which went against Donald Trump’s calls late last week that the greenback was too strong have also helped here, with the dollar index once again finding some space above the 100 mark. Again however this serves as a good illustration of the complex web of fundamental factors that are each likely to continue playing a part in driving asset prices in the months ahead – we appear to be moving into a period where it’s far from being a clear-cut game.
 
The Aussie dollar floundered off the back of the release of RBA meeting minutes overnight, which revealed a cautious mood at the central bank. A weaker than expected labour market is keeping wage pressures in check and this is in turn reigning in inflation. With little indication of a need to tighten monetary policy - other than perhaps to reign in house price inflation and consumer debt – that rally we saw for AUD/USD at the end of last week, inspired by Trump’s talking down of the greenback already seems to have run out of steam.
 
Volatility continues to prevail in terms of US equity indices with the S&P having already recovered yesterday’s losses. The big potential drivers here again remain those expected policy announcements from the Trump administration, including the idea that we may see a tax holiday to encourage US companies repatriating cash. If this progresses then the resulting slew of M&A activity alone would likely be sufficient to give equities another shot in the arm, although underlying P/E ratios would be left looking even more toppy. The sell-off has to come at some point – this very much remains a question of when, not if.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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13 / 04 / 2017 | Market News

Dollar Weakness Persists

Over the last 24hours, our prop desk has closed out a long cable position and a long DAX position, both recording meaningful profits. Short US equity index trades are also still being held, whilst a foray into long AUD/CHF is yielding results, too.
 
Daily Round up
 
With the long weekend looming, the temptation today may well be to keep de-risking positions, although Donald Trump effectively talked some heat out of the greenback during yesterday’s session, so further weakness here may be reliant on the data. There’s a raft of fundamentals set for release today with some of Friday’s prints being published early and with there being a real risk that US PPI could tip into negative territory, there’s certainly the potential for volatility to persist in the near term.
 

Fundamental Analysis – Dollar Weakness Persists

Yesterday’s comments by Donald Trump that the dollar was getting too strong appeared to have the desired effect on the currency, with the greenback tumbling against the Euro at the start of the Asian session. There’s some speculation that the downside pressures may not be sustainable from jawboning alone, but combined with the current swing into risk-off trades and the questions that are mounting over the new US administration’s ability to deliver against campaign promises and the sell-off certainly looks warranted. As we move into next week, the looming French election may take the shine off the Euro, but the theme of dollar weakness could run for a little while longer yet.
 
The US PPI reading for March is due for release at 12.30pm GMT today and there’s a risk this could dip into negative territory. Again this would heap pressure on the Trump administration - and arguably call into question the Federal Reserve’s ability to keep hiking interest rates over the coming months. USD/JPY is already down at close to five-month lows having made a brief foray below 109 during the Asian session. Further weakness could well be seen here if that PPI print adds cause to concern, especially given the Yen’s safe haven allure.
 
Crude retreated marginally yesterday in the wake of a report showing US production reaching its highest level in over a year, but this is already looking o have been short lived. There’s ongoing speculation that Saudi Arabia will keep lobbying for those production quotas we saw brought in at the start of the year, whilst the risk of conflict in the Middle East should also see prices finding support.
 
Donald Trump’s talking down of the dollar has done little to lend any real support to US equity markets with the S&P again finding support around the 2340 level. Any desire to de-risk running into the weekend break could push equity indices lower still, although as noted above if the Fed’s ability to tighten monetary policy is called into question then this may be sufficient to offer stocks something of a reprieve – even if there is a push to de-risk going into the long weekend. 
 
This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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      12 / 04 / 2017 | Market News

      Risk Off Theme Weighs on Greenback

      Our prop desk is finding profit off the back of a long cable position opened on April 10th, whilst those short S&P trades continue to yield a profit. We are also seeing long GBP exposure having been added to in recent hours.
       
      Daily Round up
       
      The economic data is running a little thinner, although UK wage readings this morning may provide some fresh direction for the pound. The bigger story however appears to be one of risk mitigation and the greenback is under notable pressure as a result. So far we haven’t seen this filter across to US equities in any meaningful sense, but with US treasury yields cooling, there’s some concern building that the rally could be running out of steam.
       

      Fundamental Analysis – Risk Off Theme Weighs on Greenback

       
      There have been some notable declines for the US dollar in recent trade but it’s sentiment rather than fundamentals that are driving the moves in the short term. Traders still have one eye on the long weekend shut down we have approaching, but equally there’s rising concern over the geopolitical landscape – along with the fact that the much-vaunted economic revolution that Donald Trump had been talking up seems increasingly unlikely to materialise. The slide for USD/JPY below 110 – the first time we’ve seen a move down here in five months – typifies this sentiment and as it stands right now there’s little to suggest this risk off mentality won’t simply continue to build in the weeks ahead.
       
      Sterling has been a rather unlikely beneficiary of this drift away from the dollar, even with no surprises in yesterday’s inflation data. However we have UK employment and wage data both due for release at 8.30am GMT this morning and a break higher in terms of salaries here could really serve to fuel the idea that the Bank of England won’t be able to hold fire over interest rates for much longer. A sustained break above the psychological 1.2500 for cable could well follow.
       
      We have the Opec monthly report set for release at 11am GMT today and this could provide some meaningful direction at least in the short term. Crude pries continue to march higher in light of concerns over how the potential for conflict in the Middle East could impact distribution, but anything that suggests a lack of conformance with the production quotas introduced at the end of last year may be sufficient to initiate a degree of profit taking.
       
      At 2pm GMT the Bank of Canada releases its quarterly monetary policy report which will include projected growth forecasts for the country. There’s no suggestion that we will see any change in interest rates this month, but anything that serves to talk up the idea of tightening monetary policy in the near term will likely drive support for the Loonie, especially against the greenback. Economic data out of Canada is improving, whilst the steady rise in oil prices will also offer encouragement.
       
      This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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