23 / 06 / 2017 | Market News

Fundamental Analysis – EU PMI, Oil and Canada CPI

CAD saw the highest gains (amongst other G10 currency) Thursday largely due to the announcement of retail sales figure which surpassed expectations.  This wasn’t the only factor that contributed to this trend though. A slight upswing of oil prices also contributed to CAD price boost. The heavily followed Warren Buffet was said to have purchased a minority stake in the rocky mortgage company Home Capital Group – based in Canada - bolstering the currency tri-fold. The announcement of Canada CPI will be highly anticipated by traders considering the positive movement of the country’s currency. Bank of Canada Gov. Poloz with Deputy Gov. Patterson will comment on Wednesday, which trader will be hawking for any indications of an interest rate hike. June 12th is when next BoC meeting is scheduled which could further affect the loonie. All previous events and price movements considered, forecast are estimating the chance at an interest rate hike to be at 56% and increase from the previous speculation of 45%.
Oil saw a spike in prices, under fears that an interruption of production might be caused by tropical storm Cindy. At this point in time, estimations are showing a potential of 17% drop in production from Mexico and the Gulf of Mexico region. Another reason oil price may increase is Saudi Arabia’s new crown Prince, which is looking into ways to increase oil prices. This has forced analysts to reevaluate their stance on oil, with its future being at best speculative.

What to Expect – Purchasing Manufacturer’s Indices German, France, EU

News from the EU today is the Purchasing Manufacturers’ Indices (PMIs). Both EU and German indices are forecasted to drop slightly, which might impact the euro, but the effect is likely to be minute considering the recent gains EUR has gained.


  Also Canada’s CPI will be announced today, with forecast showing it between 1% to 3%.

 Globally interest rate decisions have been dovish, with the BoE, ECB along with BoJ and SNB holding their previous rates – this may be the same outcome for the Canada’s rate – depending on the outcome of its CPI. 

  The US Markit manufacturing PMI is showing signs that it might see an increase, while the PMI for the service sector is expected to fall. 
 
The disparity between the movement of the US and EU manufacturing PMI may negatively affect the EUR/USD, although this unlikely to be long term.t 



 US new home sales will likely grow in May after their abrupt drop in April. .If this holds true, it could even bolster the price of the USD slightly.

 Oil investors are eagerly awaiting the Baker Hughes oil rig count even though the forecasts are widely differing , although rumors coming out of Bloomberg say that the number will likely come up to 938 with the addition of 5 new rigs.On the other hand though reports from the industry are hinting towards few rigs being added breaking a 23 week increase which in turn would cause oil prices to increase.

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 / 06 / 2017 | Market News

US Stocks Boosted by Oil as Haven Assets Advance

Over the last 24 hours, there were big moves in sterling and oil. Initially, sterling was hit hard by Bank of England Governor Mark Carney’s dovish comments during his Mansion House speech. At his speech, he said that it is not the time to raise rates and mentioned mixed signals on consumer spending, business investment and weak wage growth as well as the high uncertainty around Brexit talks.
The expectations around UK inflation have also started to come down a bit, and even though they are above the BoE’s 2% target, it is apparent that the panic around UK inflation has somewhat decreased. This should give the BoE some room to breathe, too and remain bearish on sterling.
https://media.clawshorns.com/uploads/files/0991eca0b23e4eee6c308e8e808f24fa.png
 Oil is officially in a bear market due to the rising supplies which offset the OPEC supply cuts. For example, the output from Libya, which is not part of the OPEC agreement, has seen a steady rise while oil stored on tankers hit a high for the year. In addition, the number of oil rigs in the US has greatly increased over the last weeks, which is the longest string in 30 years.
 
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These lower oil prices have affected commodity prices and emerging market currencies in general and with an increased risk aversion, equity prices went down almost across the board in Asia and, of course, the safe haven currencies JPY and CHF rallied.

Fundamental Analysis- US Stocks Boosted by Oil as Haven Assets Advance


The focus today will be on the UK again. Public sector borrowing will show the stance of fiscal policy. Chancellor Hammond has declined the plans of his precursor to balance the budget by 2020 and pushed them to “the middle of the next decade”. This is a very vague promise on his behalf, that as it appears, will be basically ignored.
It seems that borrowing is already rising and Prime Minister May assured more spending to go against the attraction of Jeremy Corbyn, the Labour Leader, who has surprisingly good results at the recent election by promising, among other things, free university tuition.
 
The Queen’s Speech, which will be delivered during the formal opening of the new session of Parliament is expected to be more controversial than usual. In fact, the government in power writes the speech and the Queen only delivers the speech and several days after the speech (on 28 June this year), the parliament has to vote on it. If this does not pass, this means that the parliament has no confidence in the government in power and Labour will be asked to form a government instead.
Right now, Theresa May has not reached an agreement with the DUP (Democratic Unionist Party of Northern Ireland) yet and if this is not accomplished the speech might be delayed. Nonetheless, in case the conservatives will be a minority government, this means that the government in power will be weak and this will result in a bad negotiating position during the Brexit negotiations.
 
Existing US home sales might be more important to look at right now due to the recent data that has shown signs of weaknesses. Some of the reasons why the figures did not meet expectations for the fourth month in a row are due to the unexpectedly wet weather, a natural decline and a shortage of construction workers which has affected production. On the other hand, the indicators for housing demand remain solid and, therefore, if the figures of sales of existing homes continues to weaken then this might affect the economy as a whole. This will make it more difficult for the Fed to raise interest rates further and ultimately affecting negatively the USD.
https://media.clawshorns.com/uploads/files/6256f17d0296008904c8300f12a22b83.png

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 / 06 / 2017 | Market News

Yen Weakens as Dollar Strengthens After FOMC Dudley’s Speech

The US dollar was much stronger after NY Fed President William Dudley clearly stated that he is confident in the US economy. He expressed that the US economy is close to full employment and as the labour market tightens, the economy will see inflation get back to 2%.

President Dudley also observed that the four rate hikes haven’t significantly tightened financial conditions yet. The financial conditions in the graph below can be seen to be still at or near the loosest levels since the Global Financial Crisis of 2009. This also means that the Fed will have enough room to raise rates even further without making the economy go into recession.
 
The President’s comments seemed to have a significant effect on USD/JPY, as Japan is the only country that is not going to start implementing more tight policies any time soon. As a result, JPY was the weakest currency in the G10 currencies overnight.
 
It is important to note the quite strong performance of the Canadian dollar despite another fall in the oil price. Wilbur Ross, the US Commerce Secretary said that Canada and Mexico do not have a tendency to manipulate their currencies and that soon after NAFTA is renegotiated, “there’s a good chance that both their currencies will strengthen because of removing the uncertainty from their picture.” However, he also added that the NAFTA talks might not even happen anytime soon, or even this year.
 

Fundamental Analysis- Yen Weakens as Dollar Strengthens After FOMC Dudley’s Speech


Again, today seems to have a light schedule. Fed Vice Chair Stanley Fischer is the keynote speaker at a conference in Amsterdam on macroprudential policy. Even though he isn’t expected to talk about monetary policy, it is important to listen to his views and comments, too.

Eric Rosengren, the Boston Fed President, is also speaking at the same conference in Amsterdam with his speech title being: “Bad Zero: Financial Stability in a Low Interest Rate Environment.” Again, Rosengren may not focus his speech on monetary policy but still, there could be some opportunities for him to discuss this topic as it is a great market concern.

The current account balance in the US has been a market moving indicator before and this is expected to move the market even more now that the Trump administration is focusing so much on trade. Even though the expected figures show a wider deficit than in the months before, it is in fact narrower than necessary to keep the 4-quarter moving average steady. In other words, this means a slight improvement which could in fact effect the dollar in a positive way.

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 / 06 / 2017 | Market News

Euro Rises as Gold Slips for Fourth Day

Despite the Fed’s rate hike, the steady rate outlook amongst the FOMC member and the plans to start decreasing the Fed’s balance sheet, the dollar fell Friday. All the disappointing data and shaky US politics are starting to negatively affect the US currency.

On Friday, US homebuilding didn’t match the estimates for the 4th consecutive month, while the University of Michigan consumer sentiment survey demonstrated a continuing decline in sentiment from the immediate highs of the post-election.

Once again, NZD was the biggest gainer in the market, with most gains taking place on Friday and continued gaining on Monday after the Westpac consumer confidence index for 2Q and a service industry PMI both had a sharp raise. This raise wasn’t predicted by economists; the rise in the service sector PMI comes after another similar rise in the manufacturing PMI on Friday.
Investors could be thinking that these positive reports could contradict the poor Q1 GDP figure for New Zealand and prevent the Reserve Bank of New Zealand (RBNZ) from taking a more dovish stance when it meets later this week. Going into the meeting, kiwi could be a buy but it is forecast to fall afterwards as the RBNZ keeps their policies untouched.

Fundamental Analysis- Euro Rises as Gold Slips for Fourth Day


Even though there aren’t many major indicators during the day in Europe, investors are expected to focus on the start of the long-awaited Brexit negotiations between the EU and the UK. Today’s first meeting. This first meeting is expected to focus on the structure of the talks rather on the problems themselves. The European Union proposed a series of 4 week negotiating cycles for each round of talks; for example, 2 weeks to work on the negotiating positions, 1 week for any bilateral talks, and 1 week for feedback and comments or even more talks at a more political level. Even though the two sides haven’t agreed yet, it is expected that Britain will agree on this.

Philip Hammond, the UK Chancellor of the Exchequer, said the Brexit notification letter that Prime Minister May sent in March would be the foundation of the Brexit negotiations. This means that the starting point would call for a “hard Brexit”, a very negative result for GBP.

It is expected that nothing market-moving will come across the first day but it could be an indicator of the tone of the negotiations- will the negotiations be cooperative, friendly, antagonistic or hostile?

There will also be an EU summit on Thursday and Friday where Michel Barnier, the EU’s chief negotiator, will brief leaders on the results of the talks.
On a final note, later on today, William Dudley, New York Fed President will hold a business roundtable. As he is a very respected person on the FOMC, the market will be very interested to hear his views and comments on a possible market fall-out.



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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16 / 06 / 2017 | Market News

Is the USD Going Up After its Recent Drip?

The US dollar is showing signs of recovery against other major currencies, sans the GBP. After the Bank of England Meeting Minutes announced an increase of interest rates, GBP/USD prices saw a significant upswing. This resulted in GBP climbing from 1.2696 to roughly 1.2755.

On the other hand EUR/USD dropped to 1.1143  or -0.66%, due to the price increase of USD. Out of the EU today we can expect the CPI – if MoM and YoY indices are as forecasted or under-performs this might cause further fluctuation.

USD/JPY reached its resistance level at 111.25 with an increase of +1.24%.

AUD/USD is currently sitting at 0.7573-0.7599.

Gold prices were slightly sluggish. A sideway channel emerged after a reversal of its test of the 1251.72 level.

Like Gold Oil also remained sluggish with prices of Brent around 48.86 and WTI close to 44.53.

Even though the dollar was bolstered the US stock market is currently trading in  the red.
Dow Jones is floating around 21318.0 due to a -0.17%drop. The NQ fell 0.35% to 5698.5. And S&P saw a 0.08% dip reaching 2433.0.

European Stocks trading in the red too. The UK FTSE  lost 0.75% falling to 7427.3. The French CAC also dipped by 0.54% to 5223.1.  Finally DAX dipped to 12699.1 after losing -0.93%.

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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15 / 06 / 2017 | Market News

FOMC - Dovish Rate Hike

The FOMC meeting results were as expected; they delivered the “dovish rate hike” emphasizing that they are “monitoring inflation developments closely” and implying that they could pause in the event that US inflation resumes its deceleration.

Something that wasn’t expected was actually their announcement to start running down their “bond mountain” this year, without specifying the time as this depends on the future economic position of the country.
 
Today’s market
Today will be a quite full day for Europe. It started off with the Swiss National Bank meeting; in general they were satisfied with the EUR/CHF pair’s current position and the general economic and political situations in Europe and, therefore, it is unlikely that they are going to take any further steps. The result of the meeting had little changes in policies and, therefore, little changes in CHF.

The UK retail sales release didn’t have a big impact on the market as this came out only a few hours ahead of the Bank of England’s announcement of the MPC meeting. During the last BoE meeting on May 11, it was predicted that the MPC would turn more hawkish but it was actually only “less dovish” than before.
The inflation data for May that was released on Monday, proved to show a notable acceleration in inflation, however, after the disastrous UK election results and the slowing in the UK Economy, there’s not much reason for someone to turn more hawkish.

In the US, the Empire State manufacturing survey and the Philadelphia Fed survey will be released; the Empire State survey is predicted to rise and the Philadelphia Fed survey is predicted to fall, the only natural result after last month’s surprising jump. Therefore, these might offset yesterday’s weaker than expected retail sales figures and give a little boost on the dollar.
 
 
 
On a final note, the Eurogroup of Eurozone finance ministers will meet up to discuss about Greece. Currently, the result of the meeting is unknown- as usual. The IMF believes that Greece’s debt is not maintainable and can’t partake in a bailout unless it becomes sustainable. This is in fact putting pressure on Germany in order to allow some debt relief with all these discussions and debates negatively affecting the euro.

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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14 / 06 / 2017 | Market News

Sterling and Oil Drop as Canadian Dollar Gains

Today, everyone will focus on the Federal Open Market Committee (FOMC) meeting, and the rate-setting discussion and policy decisions for the US central bank. Since it is widely expected that the FOMC will hike rates, the big question is what comes next.
 
Investors will focus on any other hints about whether they will impose another hike this year, and if so, when; this is the market’s main concern at the minute. No matter what happens during the meeting, investors still believe that rates will have a more gradual raise than the Fed does and, therefore, this would probably be very supportive for the dollar.
 
The members of the committee have also started a discussion about when would be appropriate to start trimming their huge balance sheet- it is now almost 4 ½ times bigger than it was prior to the Global Financial Crisis.
 

Fundamental Analysis- Sterling and Oil Drop as Canadian Dollar Gains

In Europe, the UK unemployment rate will be announced today. Unemployment rates are predicted to stay at the moderately low levels of 4.6% and the average weekly earnings are expected to rise at the standard rate of 2.4% on an annual basis. These predictions should prove neutral for the pound. However, if unemployment falls to 4.5% this might have significant implications on the pound.
 
During US morning, US CPI and retail sales will be announced but since these will be ahead of the FOMC meeting, it is not expected to significantly affect the market. More specifically regarding retail sales, these are not expected to upset in any way the market ahead of the FOMC as they are all expected to be in line with their recent performance.
 
The dollar continued dropping for a third consecutive day with US Treasuries edging up ahead of the Federal Reserve’s policy decision and the European stock markets had a higher open after a mixed day in Asia.
 
The pound, which had some increase for the first time on Tuesday, continued climbing against USD, the same way that other G-10 currencies including the euro did. In addition, gold rose while oil continued declining and US stocks scaled to record highs on Tuesday as technology shares started rebounding, causing S&P 500 futures to lower.
 
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 / 06 / 2017 | Market News

Pound Slides as May Struggles

A sell-off in US tech stocks has spread through Europe and Asia, with shares battering from the Netherlands to South Korea. The pound was altered as Theresa May fights to survive the mess from the UK general election results.

Tencent Holdings Ltd, ASML Holding NV and Samsung Electronics Co. declined in Asia and Europe and this resulted in pulling down benchmark indices. US stock futures also had a decline as markets proceed with digesting the Nasdaq 100’s dive which took place Friday.

Fundamental Analysis- Pound Slides as May Struggles

GBP seems to be caught between the potential benefits of the current socio-political uncertainty and a “soft Brexit” whereas Italian bonds rallied as the Five Star Movement suffered in local elections and Palladium extended its presence in the market as a world-beater.


In the meantime, the drama continues in Washington regarding the alleged Russian meddling in the 2016 Presidential Elections and with the Federal Reserve expected to lift rates there is a high volatility on the dollar over the next couple of days.
 

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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09 / 06 / 2017 | Market News

UK Vote Roils Pound While Other Assets Shake Off The Result

Yesterday wasn’t a good day for Britain. The UK faces a hung parliament with an uncertain course on the Brexit negotiations and how Britain will handle their exit from the European Union. This has led the pound to drop while other assets tranquil in the wake of the UK election results.

GBP dropped the most since January as the leading Conservative Party, which was expecting to win most seats, has in fact fallen short of winning the overall majority with only 317 seats. However, this did not have a major impact on other assets, with volatility measures retreating.

Equities from South Korea and Singapore have greatly advanced along with S&P 500 Index futures whereas Treasuries were very slightly affected and Gold dropped again for a third consecutive day.


Source: Bloomberg

The day after the election comes after several major events that captivated investors all week, but as traders shook off the UK elections they weren’t affected either by the ECB’s decision from ex FBI Director James Comey.
Mario Draghi, the European Central Bank’s president stated that Europe still isn’t creating enough inflation, which makes it more difficult for officials to upgrade their growth assessments.

Donald Trump and Comey, blamed each other for being dishonest regarding their private encounters after the Senate testimony which focused on whether Trump sought to suppress part of a federal probe into Russian meddling during the elections in 2016.

Later on today, the Canadian employment data is predicted to have mixed figures with an increase in employment but with a higher unemployment rate as well, probably because of the higher participation rate. However, as it usually happens with Canadian data results, the changes in oil prices may prove to be more significant. After Wednesday’s major drop in oil, it might be hard for CAD to have a substantial shift towards higher prices.


There is a prediction that on Friday afternoon there will be some profit-taking on those who were short CAD. Speculators have been at record short CAD levels for the past couple of weeks with some closing out their positions at a profit- the best hope for the currency.


Source: Claws & Horns

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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08 / 06 / 2017 | Market News

UK Elections - US Testimonies and ECB Meetings - GBP USD EUR

Thursday is shaping up to a very active day for markets, as Comey’s Testimony regarding his time with President Elect Trump might affect USD depending on how damning it is. Today we will also have the results of UK elections at 10 p.m. which might create further volatility for the already shaky GBP and finally depending on the content of the ECB meeting, this might affect the EUR. Today could be a very mobile day for markets, especially the Foreign Currency Exchange.
The ECB meeting is expected to cover the Central Bank’s monetary policy which was loosened during the economic downturn of previous years – but might be revised due to the economic growth seen recently. If this is true, it could potentially impact the price of the EUR and European Stock, but we will have to wait and see if it will create a full reversal or just a temporary retracement. This will depend heavily on their approach to inflation which some economist say might only be adjusted down slightly, giving the markets a bit more confidence in the One-Currency.
The previous ECB meetings this year have seen EUR prices dip below the average, due to the geopolitical instability created by the Brexit, the EU’s hard stance during Brexit negotiation and the on-going debt crisis in Southern European Nation-members of the EU. Below is a chart showing movement on the days of previous ECB meetings.  

Source: Claws and Horns
 
Comey’s testimony has been released already and it doesn’t seem that it contains anything that has shaken the markets significantly, in fact markets closed with U.S. Stocks seeing an increase in price. Of course items might be revealed during the Q&A section of Comey’s testimony that could reverse or bolster this temporary trend.
Since the public referendum voting for Brexit, investors’ confidence in the UK economy has been as bleak as the country’s cloudy skies. Since then the UK and its leaders have been dealing with diminished consumer confidence, a lowered rate of growth, inflation outpacing salaries and hard negotiations with the EU regarding the policies and leniencies (which seem to be few if not non-existent at this point) to be enforced during the UK’s divorce with the EU. One of the most frequently traded pair – colloquially known as the “Cable” – GBP/USD has also felt these ups and downs (although primarily downs in ’17) and it seems to be responding even further to hard-line of negotiation the Tories and their leader PM Theresa May have taken in regards to the EU.
 

Source: Claws and Horns
 
 A Tory win would see May preserving her position as Prime Minister and strengthen her EU negotiations, but it seems that at this point – with the 6 point difference with the opposing party – that that is a pipe dream.
The most negative outcome for GBP would be a majority under 17% for the Conservative party allowing even harder negotiations with the EU or a “hard” Brexit.
The most positive outcome would be actually be a win of a 50% majority by the Conservative party which would not disrupt Brexit negotiations and embolden the Tories with the ability to enact a soft-Brexit.
UK Elections Timeline
  • Polls open 6.00 GMT - close at 21.00 GMT
  • Release of first exit polls shortly after closing. Although under normal circumstances exit polls are accurate, the tight margin between the two leading parties might mean markets will have to wait for official results.
  • First results at 22.00 GMT and 23.00 GMT the majority of results expected by 01.00 GMTFinal results should be in by 05.00 GMT.
 
 

Source: Claws and Horns
 
 
 

Source: Claws and Horns
 
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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