22 / 06 / 2018 | Notizie sul mercato

Fundamental Analysis 22.06.2018 – Market Outlook

Trade concerns hit the market hard despite a report that China and the US are making last-minute behind-the-scenes efforts to avoid a trade war starting on 6 July 2018, when tariffs on an additional $16bn of Chinese goods will be triggered. More immediately though, Daimler AG cut its earnings outlook, citing US-China tensions. The S&P 500 was down 0.6% and NASDAQ off 0.9% from its record high, while US Treasury yields fell across the curve.

Adding to the gloom for USD was an unexpectedly large fall in the Philadelphia Federal Reserve Systems (Fed’s) manufacturing index, which dropped to 19.9 from 34.4 (29.0 expected). The new orders index saw its largely fall since 2008, which was particularly worrisome coming the day after Fed Chair Jerome Powell said companies were starting “to postpone investment, postpone hiring” because of uncertainty about the trade outlook.

Safe-haven JPY and CHF gained in response to the risk-off trend.

GBP gained after the Bank of England voted 6-3 to keep rates unchanged. The fact that Chief Economist Andy Haldane joined the two usual dissenters was quite significant, as he is an influential member of the Monetary Policy Committee (MPC). The MPC also said it will begin considering unwinding the bonds that they bought in the quantitative easing program once rates hit 1.5%, down from the 2% level that they had specified previously. Haldane’s change of heart significantly raised the market’s estimate of the likelihood of a rate hike in August 2018 to 63% from 48%. For now though more focus should be placed on the 28-29 June 2018 EU summit than the 2 August 2018 MPC meeting. I expect the summit to be harsh on Britain and for GBP to fall next week as a result.

Yesterday Wednesday 22nd of June 2018 a graph was included to show how confidence was coming back to Italy. Today it is included to show how confidence in Italy ebbed again following the announcement of two euroskeptic appointments to the Italian Senate finance and Lower House budget committees. EUR still managed to rise vs a weakened USD, however.

NZD was the best-performing currency as the market apparently agreed that yesterday’s decline was overdone.

Today’s market

The main event is the Organisation of Petroleum Exporting Countries (OPEC) meeting. With the cooperation of Russia – which last Friday 15th of June 2018 said it had decided to “institutionalize” its relationship with OPEC – the group has managed to withhold 1.8mn barrels a day (b/d) from the market. Now that supply and demand are back in balance, oil inventories are back to normal, and oil prices have recovered, Saudi Arabia and Russia want to relax the production ceiling, but the others don’t – naturally, since 10 out of the 14 OPEC countries are already producing almost as much as they can. Since OPEC takes decisions by consensus, it’s unusually hard to predict this time what will happen.

There was a Joint Ministerial Monitoring Committee meeting yesterday that was supposed to hammer out an agreement for the group to ratify today, but it was unable to reach an agreement. Apparently Iran doesn’t want to agree to any increase in production by the other members, as that would in effect inoculate the world against the impact of the US sanctions that have been reimposed on the country.

There are three basic scenarios:
  1. The market seems to be pricing in a modest increase of 500k-800k b/d. Russia apparently is looking for 1mn to the entire 1.8mn b/d; Saudi Arabia wants a much smaller 300k; settle for something in the middle. That would more or less offset the decline from Venezuela, whose output has collapsed.
  2. A larger increase of 1mn b/d to offset not only lost production from Venezuela, but also the expected decrease in output from Iran as the sanctions start to bite.
  3. No official change in the ceiling. If that happens, Russia and Saudi Arabia are likely to increase output on their own initiative in coming months, as the Saudis did back in 2014, but less aggressively than they had hoped so as not to anger the other producers.
#1 could be as expected and therefore might elicit a “sell the rumor, buy the fact” response. Oil could move up slightly and with it, CAD. #2 would definitely be bearish oil, bearish CAD. And #3 would probably be bullish oil, bullish CAD.

The three currencies most closely correlated with oil are CAD, NOK and RUB. The correlation of CAD isn’t as great as it used to be back in 2016, perhaps because North American Free Trading Agreement (NAFTA) has emerged as a more important driver of the currency.  

Today’s data

Today is the start of the monthly purchasing managers’ indices (PMIs). In Europe, the EU-wide service-sector PMI is expected to be unchanged, but the more cyclical manufacturing PMIs are forecast to decline in France, Germany and the EU as a whole. This suggests that the EU economy hasn’t yet stabilized and is still losing momentum – a worrisome thought for the markets. This could be negative for EUR.

Later in the day, the US manufacturing PMI is also expected to decline, but by rather less. The service-sector PMI is also expected to decline, but that comes after a sharp jump in the previous month and so is to be expected.

The fact that the US manufacturing PMI remains above its EU counterpart is likely to reassure investors that the outlook for the US economy is more certain and may therefore boost USD vs EUR.

Canada’s retail sales are forecast to rebound after the previous month’s decline. Much of the rise may be just from gasoline prices, which really doesn’t say anything about the overall economy. Nonetheless, a rise is a rise, and since this is an above-trend rise, the figure should prove modestly positive for CAD.

Canada’s headline inflation rate is expected to accelerate further, vaulting into the upper part of the Bank of Canada’s target range as gasoline prices rise. But the rate of change in the “core inflation – common component” measure (a measure of core inflation that tracks common price changes across categories in the CPI basket) is expected to be unchanged at just below the 2% target. The market puts a 65% probability on a rate hike at the next Bank of Canada meeting on 11 July 2018, meaning there’s still some question. This figure can therefore still raise expectations. Unfortunately there isn’t enough data available to judge whether the market puts more weight on the headline figure or the core figure. The Bank of Canada has said that while it expresses its inflation target in terms of the headline CPI, it “looks through” the impact of temporary factors on inflation by utilizing the various measures of core inflation to strip out their effect. “Using multiple indicators will help the Bank transparently manage the risks associated with the shortcomings of any single indicator,” is how they explain their technique. This could be positive for CAD.

The Fundamental Analysis is provided by Marshall Gittler who is an external service provider of Claws and Horns (Cyprus) Limited, an independent analytical company. Any views and opinions expressed are explicitly those of the writer. Any information contained in the article, is believed to be reliable, and has not been verified by STO and is not guaranteed to be accurate. References to specific products, are for illustrative purposes only and are not a form of solicitation, recommendation or investment advice. Past performance is not a guarantee of future performance.
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21 / 06 / 2018 | Notizie sul mercato

Fundamental Analysis 21.06.2018 – Market Outlook

After wobbling a bit for a few days, markets recovered their poise and it’s back to risk-on despite warnings from the world’s central bankers that the worsening trade disputes could derail the global economy (see below). S&P 500 was up only a bit, but NASDAQ 100 and Russell 2000 gained more to close at record highs. Chinese stocks though continued to decline on a Xinhua report that China will take strong measures to counter the US tariffs. JPY and CHF fell in the calmer atmosphere.
In the currency market, the big story of the day is clearly NZD, which fell sharply ahead of the Q1 Gross Domestic Product (GDP) report. The figure came in exactly as expected, with growth slowing to 0.5% qoq (2.5% yoy) from 0.6% qoq (2.9% yoy) in the previous quarter. The qoq change is 0.2 ppt less than the Reserve Bank of New Zealand (RBNZ) forecast last month and suggests that the RBNZ may be on hold for even longer than people had thought. Investors already saw  little chance of a rate hike this year (12% probability) and some forecasters are now saying they won’t move until 2020.
Although the figure exactly matched expectations, there was no “sell the rumor, buy the fact” response; on the contrary, NZD kept falling afterwards. Oddly enough, NZ bond yields also rose; usually you would expect yields to decline after a weak GDP figure. But the auction of 20-year bonds had the lowest bid-to-cover ratio since they started issuing such bonds in 2016, while 10-year yields were up 8 bps. Perhaps the idea is that the government will have to embark on a more stimulatory fiscal policy?  Really though, growth of 2.5% yoy is hardly a recession (yet). I think the decline is overdone and NZD should stage a modest comeback today, especially with risk sentiment improving.
USD gained on the day as Federal Reserve System (Fed) Chair Jerome Powell reiterated his faith and confidence in the US economy. Speaking at the European Central Banks (ECB’s) Sintra forum, Powell said, “With unemployment low and expected to decline further, inflation close to our objective, and the risks to the outlook roughly balanced, the case for continued gradual increases in the federal funds rate is strong,” He did mention concerns over US trade policy as the one factor that could derail the economy. “Changes in trade policy could cause us to have to question the outlook,” he said. “For the first time, we’re hearing about decisions to postpone investment, postpone hiring.” The other three central bank heads on the panel chimed in as well on that theme, all with negative comments as you can well imagine.

Today’s market
There are two central bank meetings:  the Swiss National Bank and the Bank of England. Plus an Ecofin meeting.
The Swiss National Bank (SNB) is simple. It’s on hold so long as the European Central Bank (ECB) is on hold. They will never move first, because their main target is the EUR/CHF exchange rate, which has started to come down again, no doubt much to their distress. Since the ECB just announced that they’ll keep rates on hold at least until the summer of 2019, don’t expect anything from the SNB for the next year, either.


The Bank of England is certainly going to be the more interesting of the two. The market sees almost no possibility of raising rates this month. Rather, the question will be what hints they give about the future course of policy, especially a rate hike at the next meeting in August 2018. After three months of declines, inflation stabilized in May 2018 at an above-target level. Does that make it more likely that they’ll hike in August? The odds of an August rate hike are put at slightly less than 50-50, probably because the Q2 data so far have been mixed. The manufacturing, trade and pay data for April 2018 was weak, but retail sales rebounded and the May 2018 services Purchasing Managers’ Index (PMI) was fairly strong. The mixed data makes it unlikely that the Monetary Policy Committee (MPC) will change its view notably in either direction. A similar tone is expected to the May 2018 statement and the same 7-2 vote to keep rates unchanged, with result that GBP probably ends the day a little weaker.


Later in the day, Bank of England (BoE) Governor John Carney will deliver the Mansion House Speech, so we can expect to get a little more clarity on the situation then. He is likely to adopt a more dovish tone in this speech while still keeping to the Bank’s tightening bias.
A rate change – or even a change in tone – is more likely in August 2018, when they issue a new Inflation Report with new forecasts. That will also be the last meeting with Messrs. McCafferty and Saunders, the two hawks who keep dissenting in favor of a rate hike. They’re both leaving the Monetary Policy Committee (MPC) shortly after the meeting, to be replaced by people who apparently have more middle-of-the-road views. It might make it more difficult to get a consensus for a rate hike after that.
The Eurogroup/Ecofin meeting of finance ministers from the EU and the Eurozone meets. As you may have already guessed, they’ll be discussing Greece. The country’s last debt repayment is scheduled for 2059, so I imagine that Greece will be a semi-permanent agenda topic for them. As for what they’ll be discussing, they have to decide on the final disbursement to Greece and possibly on additional debt relief for the troubled country. It’s more complicated than that, and the International Monetary Fund (IMF) is in there somewhere, but as long as they can paper over the cracks until 2059, then it shouldn’t be a major factor for the markets again.
Now if it were Italy instead of Greece that they’re discussing, that would be a different story, because Italy is too big to bail out. But Italian bond yields have come back down substantially, indicating that everyone thinks the country is more or less OK for now. (But notice that spreads have not returned to where they were before the election.)


Other indicators and events
Today 21st of June 2018 and tomorrow 22nd of June 2018, the Bundesbank and the Banque de France will hold a joint conference in Paris on “Monetary Policy Challenges.” International experts will discuss the current challenges facing monetary policy and the international role of the euro. Bundesbank President Jens Weidmann will give the keynote speech today. There are a number of papers and panel discussions that might be worth listening to if you happen to be interested in such topics as “How Global Currencies Work: Past, Present, and Future,” but since most of the speakers are academics except for Weidmann and Banque de France’s Villeroy (who gives a 15-minute welcoming speech), probably only Weidmann’s speech might have something of immediate interest to the market.
Later in the day, there will be a conference in Vienna about The Future of the EU, a few days before Austria takes over the Presidency in the EU Council. ECB Governing Council members Ewald Nowotny and Gaston Reinesch (Governor of the Central Bank of Luxembourg will participate in a panel discussion on Competitiveness, Solidarity and Subsidiarity. In case you’re wondering, “subsidiarity” is EU jargon for taking decisions at the most local level possible rather than at the EU-wide level.
As for the routine data, the UK public sector net borrowing (PSNB) (excluding banks) is expected to rise, except since the figure isn’t seasonally adjusted, we have to look at the 12-month moving average to make any sense out of it. The forecast amount would keep the 12-month average on a gradual decline, consistent with the government’s pledge to bring down borrowing.
But what would be the effect on GBP? Would healthy government finances be considered a plus and therefore good for the currency, or would a less expansionary fiscal stance, coupled with fewer gilts for foreigners to buy, mean a weaker currency? The Mundell-Fleming model of exchange rate determination shows it can go either way.

The Philadelphia Federal Reserve System (Fed) manufacturing survey is expected to be down somewhat, although still well in expansionary territory. This compares with the Empire State survey last Friday 15th of June 2018, which was forecast to fall to 18.8 from 20.1 but in the event rose to 25.0. Will we see a similar outperformance this time too? Looking at the data for the last 10 years, the two have moved in the same direction 45% of the time, meaning it’s basically random.


Finally, overnight Japan releases its national Consumer Price Index (CPI) data. The national rate of inflation is expected to follow the Tokyo rate of inflation and decelerate somewhat. In particular, the poor pitiful core inflation measure is expected to be a little closer to the dreaded zero line. No wonder the Bank of Japan last week changed its statement to read that inflation was “in the range of 0.5-1.0 percent” rather than “around 1 percent” as they said in March 2018. (They’re referring to the old-style core CPI, which just excludes fresh food. It’s expected to remain at +0.7% yoy this time.) In theory a slower rate of inflation should be negative for the currency, but since nobody expects the Bank of Japan (BoJ) to loosen rates further nor to tighten at any time in the foreseeable future, it probably won’t have much effect.

The Fundamental Analysis is provided by Marshall Gittler who is an external service provider of Claws and Horns (Cyprus) Limited, an independent analytical company. Any views and opinions expressed are explicitly those of the writer. Any information contained in the article, is believed to be reliable, and has not been verified by STO and is not guaranteed to be accurate. References to specific products, are for illustrative purposes only and are not a form of solicitation, recommendation or investment advice. Past performance is not a guarantee of future performance.
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21 / 06 / 2018 | Notizie sul mercato

3 ways to improve the performance of an investment portfolio

The term investment portfolio is used to refer to investment collections held by individuals, banks or other financial institutions. The main function of a financial portfolio is to manage two or more types of investments. Many people invest in different types of investments to make profits, while they try to ensure that the initial capital is protected.

Investment portfolios include bonds, real estate, stocks, equities, and mutual funds among others. Many investors like to diversify their investment portfolio in order to control potential losses of capital in the event of a market downturn. However, diversification should be the result of careful thinking because it isn’t unusual for investors to exaggerate, reversing its potential positive effects. Our article will shed light to which rules should be followed in to form the right investment portfolio. 

Rebalancing the portfolio

If aiming for a long-term investing strategy, then the mix of assets in your portfolio should reflect the investor’s goals and risk tolerance. As different investments earn different returns, the investment portfolio should be periodically rebalanced to restore it to its proper proportions. By having funds spread out across multiple stocks, a downturn in one will be partially offset by the activities of the others, which can provide a level of portfolio stability.

There is no arranged schedule for rebalancing an investment portfolio. Some market analysts suggest that investors should check their portfolio and examine the market conditions at least once per year. Rebalancing gives investors the opportunity to sell high and buy low, taking the gains from high-performing investments and reinvesting them in areas that have not yet experienced such notable growth. That’s why experienced investors note that not rebalancing a portfolio may lead to poor performance. 

Research about new investments before spending capital

Preparing an investment portfolio that will have increased chances to perform well is not an easy task. Investors should have a thorough understanding of how investments work, and which elements should be taken into consideration before hard-earned capital is spent on them. Some investors believe that constantly adding new investments to their portfolio will bring them more profits. 

However, this is not always the case. Firms have found the right ways to advertise their shares in the financial markets, with investors sometimes getting carried away and acting on impulse. Seasoned investors suggest that it’s better to have a simple investment portfolio that efficiently balances risk and return rather than adding new asset classes or investments for which information may be limited or, even, false. 

Limit the number of investments and examine them better

The quality of an investment portfolio is much more important than the quantity of shares, bonds or other assets included in it. There is no standard number of investments that a portfolio should include. Economists suggest that having an increased number of investments may lead to overlapping. There is even the chance that investors may venture into investments that they don’t really need. 

People who would like to invest should know how each one of the potential investments works, giving extra attention to the information that they can collect from the financial media and the markets. Investors should take into consideration three essential characteristics that define any investment which are the risks they are willing to take, the potential return and the liquidity. 
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Trading Forex and CFDs, which are leveraged products, are high risk investments and puts your capital at risk. You may sustain a loss of some or all of your invested capital. Only speculate with money you can afford to lose.
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20 / 06 / 2018 | Notizie sul mercato

Fundamental Analysis 20.06.2018 – Market Outlook

The worsening trade war between the US and China sent stock markets and bond yields down in a classic “risk off” move. Yet its impact on currencies seems to be fading already. USD was the top-performing currency overnight, followed by AUD – quite notable, since AUD was the hardest hit by the “trade war” fears on Monday 18th of June 2018. The currency bottomed out during the US trading day as New York stocks proved more resiliant and has since recovered to trade unchanged vs USD and higher against many of the country’s other trading partners.

The trade dispute is hitting CAD however. The difference is that AUD is peripherally affected via possible weakness in the Chinese economy, whereas Canada has its own trade dispute with the US. Canadian Foreign Minister Chrystia Freeland yesterday Tuesday 19th of June 2018, said that Canada already has plans in place to respond to any US trade restrictions on autos, and “has no choice but to reciprocate” to US tariffs on steel and aluminum. With this “trade war” likely to run for some time further, Canadian monetary policy may have to be on hold because of the uncertainty and CAD is likely to decline further. You can see from the graph how although the odds of a rate hike sometime this year have remained fairly constant, the maket has just over the last week become more cautious about the likelihood of a hike at the 11 July 2018 meeting – although the odds are still greater than 50-50 that it will happen.

EUR was slightly lower as European Central Bank (ECB) President Mario Draghi confirmed the market’s interpretation of his recent comments. Speaking at the ECB’s Sintra conference, he said that “We will remain patient in determining the timing of the first rate rise and will take a gradual approach to adjusting policy thereafter…The path of very short-term interest rates that is implicit in the term structure of today’s Wednesday 20th of June 2018 money-market interest rates broadly reflects these principles.” Some market participants had thought he might use his speech to fight back against the market’s dovish interpretation of his comments. It’s clear that the monetary diversion trade is back in force for EUR/USD, which is likely to lead USD higher, assuming that US President Donald Trump’s trade war doesn’t lead it off a cliff.

Today’s market

The Confederation of British (CBI) industrial trends survey is a second tier indicator at best, but with little else to trade on, people may focus on it. Economists expect the total orders DI to recover to be slightly in positive territory.  The selling price index is arguably the more interesting of the two though, as inflation is in focus. Unfortunately economists have stopped forecasting it.

The US current account deficit is forecast to widen slightly. This is exactly what the US administration doesn’t want to see, although to be fair, Donald Trump doesn’t seem to know the difference between the current account and the trade balance, as demonstrated by his frequent criticism of US trade with Canada (Canada has a surplus with the US in merchandise trade, but the US has a surplus in overall trade in goods & services). Nonetheless, a further deterioration could be the occasion for another tweet, which could be negative for the dollar.

The ECB’s Sintra forum ends today with the much-anticipated panel discussion with the heads of the Federal Reserve System (Fed), ECB, Reserve Bank of Australia, and Bank of Japan. This panel will be particularly interesting given the divergence in stance of the panel’s participants:  the Fed debating when it will have finished normalized policy, the ECB debating when to start normalizing policy, the RBA on hold for the time being, and the Bank of Japan (BoJ) wary of even hinting that they might ever start normalizing policy. The contrast with last year’s conference, when all the central bank heads in attendance seemed fairly certain that monetary stimulus would be withdrawn everywhere and rates headed higher simultanously, is notable. The market will particularly want to hear what Fed Chair Jerome Powell has to say about the subject of the conference, because at his press conference following the recent Federal Open Market Committee (FOMC) decision he had problems explaining why there was so little upwards pressure on wages even though the economy was beyond what the Committee thinks of as “full employment.” 

US existing home sales are expected to be up by a modest 1.3% mom. This is somewhat surprising, given that pending home sales the previous month were down by 1.3% mom. A recovery in this series would be taken as good news, given the recent rise in mortgage rates, and could therefore be positive for the dollar.

Overnight, New Zealand releases its first estimate of 1Q Gross Domestic Product (GDP). It’s expected to be up 0.5% qoq. This is below the 0.7% qoq growth that the Reserve Bank of New Zealand (RBNZ) forecast in its latest Monetary Policy Statement, but it is doubtful whether the miss would be enough to change any views at the RBNZ. In any case, investors already see virtually no chance of a rate hike this year (only 14% probability), so it’s hard to see weak data moving the market – only stronger data that might move up the expected time of tightening. Furthermore, there’s two more weeks before the end of Q2, so don’t expect them to steer the ship with Q1’s data. This could be neutral for NZD.

The Fundamental Analysis is provided by Marshall Gittler who is an external service provider of Claws and Horns (Cyprus) Limited, an independent analytical company. Any views and opinions expressed are explicitly those of the writer. Any information contained in the article, is believed to be reliable, and has not been verified by STO and is not guaranteed to be accurate. References to specific products, are for illustrative purposes only and are not a form of solicitation, recommendation or investment advice. Past performance is not a guarantee of future performance.
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20 / 06 / 2018 | Notizie sul mercato

BoE likely to keep interest rates unchanged at June 2018 meeting

In a poor week of economic data releases, the Bank of England’s (BoE) governing board meeting scheduled for Thursday June 21st 2018 will attract the attention of investors and traders. The June 21st meeting will be the first of two BoE’s board meetings during the summer with the second one scheduled for August 2nd 2018. 

The BoE’s meeting is important because its results will indicate how the central bank’s policymakers perceive the condition of the United Kingdom’s (UK) economy. Right after the meeting, the BoE will publish its monetary policy summary and will announce whether it’s going to lift interest rates or keep them on hold. 

Monetary Policy Committee (MPC) to convene

The majority of economists polled by Reuters on June 19th 2018 suggested that the Monetary Policy Committee (MPC) will decide to keep the BoE’s benchmark interest rate unchanged at 0.5%. Some of them appeared doubtful that the BoE will consider raising its borrowing costs even in the August 2018 meeting because, as the report accompanying the poll, noted “inflation fell to 2.4% on an annualised basis in April 2018, which is a one-year low according to the Office For National Statistics (ONS), while the industrial and construction output data in the same month was strikingly weak.”

The BoE’s board decided to raise borrowing costs for the last time in November 2017. The board decided to lift the benchmark interest rate by 25 base points, reaching 0.50%. This was the first pick up on interest rates in the UK since 2007.

Economists debate over the timing of the next interest rate hike

 Analysts at BNP Paribas commented on June 18th 2018 that “the MPC will be wary of providing any firm guidance over the likely timing of the next hike as it won’t want to tie its hands.” Fabrice Montagne, one of the chief economists at Barclays bank, noted while speaking to Reuters’ reporters that “August 2018 would be too much of a gamble and we see the November 2018 BoE meeting as the next best opportunity for an interest rate hike, assuming data strengthens more than we expect, and that Brexit remains free of major disruption.”

James Smith, a Developed Markets Economists at ING (Internationale Nederlanden Groep), wrote in the bank’s latest report that the mixed UK economic data released during the last month may mean that the chances of a summer rate hike are still hanging in the balance. “Data since May 2018 has been pretty mixed and hasn’t given a clear steer on whether the economy is fully recovering, prompting markets to temper their expectations for the August 2018 meeting. However, with wage growth picking up, we still suspect policymakers would like to hike rates then if they can. Based purely on recent BoE commentary, we still feel an August hike is slightly more likely than not – but there’s a long way to go before the next meeting,” the ING’s economist noted.

The same Reuters poll, published on June 19th 2018, showed that economists forecast the UK’s economic growth to come in at 1.4% in 2018 with the figure being a bit higher than their previous forecast. They also anticipate that the UK’s inflation will hover around 2.5%, on a year-to-year basis, during 2018 and is expected to decline to 2.1% in 2019. 

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19 / 06 / 2018 | Notizie sul mercato

Fundamental Analysis 19.06.2018 – Market Outlook

With little data out, the market is focused on the growing “trade war” between the US and China. Shortly after the US Senate passed a bill with an amendment that would kill US President Donald Trump’s rescue of Chinese telecom firm ZTE, Donald Trump directed the US Trade Representative to identify $200bn of Chinese goods for additional 10% tariffs. Needless to say, China has threatened to retaliate with “comprehensive measures” if the US goes ahead with this plan. China-related stocks are down sharply this morning, e.g. the CSI 300 -2.85% and the Shenzhen Composite -4.35%. The S&P 500 held up fairly well yesterday (-0.2%) but the futures were trading -0.9% this morning.

Clearly it’s a risk-off environment. Against that background, it’s no surprise that the commodity currencies did badly and the “safe haven” JPY and CHF did well. AUD was particularly hard hit, for two reasons:  first off, it’s often traded as a more free-floating proxy for CNY, and secondly, Australia’s economy would be hardest hit by a slowdown in the Chinese economy. USD fell, as is to be expected in a trade war that’s likely to take an increasing toll on the US economy (see Mr. Bostic’s comments below).

So far the “trade war” has been confined to trade. The fear however is that it may spill over into the financial world. Specifically, China could start selling off some of its massive holdings of Treasury bonds. The country owns some $1.18tn of Treasuries, or 30% of all foreign official holdings of Treasuries, which is not to mention their holdings of agency bonds and others.

Of course to some degree it would be shooting themselves in the foot to sell these bonds aggressively, because once the market realized what was happening, bond prices would plunge. However, US mortgage rates would soar as a result, and China might feel the pain was worth it to make middle-class US voters sit up and take notice.

Would that be good or bad for the dollar? Oddly enough, it might be good for the dollar. As you can see, in general USD has risen and fallen along with US yields over the past several years.

We had some interesting Fedspeak yesterday, with two voting members presenting quite different assessments of the outlook.

Atlanta Federal Reserve System (Fed) President Raphael Bostic said, “I began the year with a decided upside tilt to my risk profile for growth, reflecting business optimism following the passage of tax reform. However, that optimism has almost completely faded, replaced by concerns about trade policy and tariffs. In contrast, incoming NY Fed President John Williams said, “Our economy’s in great shape; we’re in the second-longest expansion in history,and economic data from both the United States and countries around the world continue to trend upwards.” So a mixed view on the FOMC.

Today’s market

A relatively quiet schedule today.

In Europe, European Central Bank (ECB) President Draghi will be giving the opening speech at the ECB’s forum in Sintra, Portugal on Price and wage-setting in advanced economies. His speech is to last 30 minutes. Then, ECB Chief Economist Peter Praet will chair the first session, on Macroeconomics of price and wage setting. Participants include St. Louis Fed President James Bullard. They break for lunch at 13:30 local time and that’s it for the day.

The only major data out from the US today is housing starts and building permits. The market is looking for a 1.9% mom increase in starts, a rebound from the fall in the previous month, but a 1.0% mom decrease in permits. A fall in permits of that degree wouldn’t be particularly worrisome though as the upward trend seems to be still in place. This could be positive for USD.

Overnight, New Zealand announces its current account balance for Q1. It’s expected to be slightly in surplus. However, the 4-quarter calculation of the current account as a percent of GDP will show a slightly wider deficit, because the Q1 2017 surplus, which now falls out of the calculation, was a bit larger than the Q1.

Early in the European day Wednesday 20th of June 2018, Bank of France Governor and ECB Board Member Villeroy de Galhau will hold a press conference on the Annual Report of the Banque de France. According to Google Translate, he’ll talk about the economic situation of France and the Eurozone. We might get more insights into the ECB’s recent decision.

The Fundamental Analysis is provided by Marshall Gittler who is an external service provider of Claws and Horns (Cyprus) Limited, an independent analytical company. Any views and opinions expressed are explicitly those of the writer. Any information contained in the article, is believed to be reliable, and has not been verified by STO and is not guaranteed to be accurate. References to specific products, are for illustrative purposes only and are not a form of solicitation, recommendation or investment advice. Past performance is not a guarantee of future performance.
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19 / 06 / 2018 | Notizie sul mercato

What are cryptocurrencies?

The financial world has gone through radical changes in recent years because of the technological developments that have affected the way businesses come in contact with clients and the changes in the ways transactions are made. The Internet and the various mobile devices such as laptops and cell phones connected to it have enabled people to buy and sell products and services instantly across the world, expanding the range of targeted markets.

The financial crisis that hit the United States in 2008 and transmitted to the countries of the European Union in 2009-2010 had the consequence of changing the monetary strategies of several central banks, including the US Federal Reserve and the European Central Bank (ECB). The strategy changes resulted in fluctuations of currency values. Exchange rates changed with some currencies strengthening against others while investors and traders suffered losses. 

What are cryptocurrencies?

Some programmers thought that the financial crisis was an opportunity to find ways to bypass the monetary policies of central banks and the problems that they create to simple consumers. One of the most important ideas that came up was the invention of new currencies that wouldn’t be affected by any financial crisis or by any decision of a central bank’s governing board. 

The term “cryptocurrency” refers to a currency associated with the internet that uses cryptography, the process of converting legible information into a code, to track purchases and transfers. Cryptocurrencies are digital currencies that use cryptography – complex mathematics and computer science – to secure and verify transactions. They operate in a very different way to traditional (“fiat”) currencies, because they are not issued or backed by a central authority such as a government. Instead, cryptocurrencies are decentralised and run across a network of computers.

Cryptocurrencies make it easier to transfer funds between two parties in a transaction; these transfers are facilitated through the use of public and private keys for security purposes. These fund transfers are done with minimal processing fees, allowing users to avoid the steep fees charged by most banks and financial institutions for wire transfers.

However, because cryptocurrencies are virtual and do not have a central repository, a digital cryptocurrency balance can be wiped out by a computer crash if a backup copy of the holdings does not exist. Since prices are based on supply and demand, the rate at which a cryptocurrency can be exchanged for another currency can fluctuate widely.

Blockchain technology

A blockchain is a digitized, decentralized, public ledger of all cryptocurrency transactions. Steadily growing as ‘completed’ blocks, which represent the most recent transactions, are recorded and added to it in chronological order, it allows market participants to keep track of digital currency transactions without central recordkeeping.

In 2008, a person allegedly called Satoshi Nakamato designed distributed blockchain. It would contain a secure history of data exchanges, utilize a peer-to-peer network to time stamp in order to verify each transaction, and could be managed autonomously without a central authority. Blockchain technology became the base that Bitcoin, the most known cryptocurrency in the world, functions.

Trading Cryptocurrency CFDs on STO

Using the STO Crypto Account, our clients are able to trade Cryptocurrency Contracts for Difference (CFDs) with competitive trading conditions. STO clients can trade CFDs on three of most important cryptocurrencies such as Bitcoin, Litecoin and Ethereum. 

Trading Forex and CFDs (Contracts for Difference), which are leveraged products, are high risk investments and puts your capital at risk. You may sustain a loss of some or all of your invested capital. Only speculate with money you can afford to lose.
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18 / 06 / 2018 | Notizie sul mercato

Fundamental Analysis 18.06.2018 – Market Outlook

The trade war heated up on Friday 15th of June 2018, with the US slapping tariffs on $50bn in from China, and China quickly announcing reciprocal tariffs on $50bn of US imports, mostly agricultural products. You can see how the Bloomberg grains sub-index (comprised of corn, soybeans and wheat) has plunged 11% in just a few weeks since its recent high on 28 May 2018.

The relatively muted reaction in US stock markets (S&P 500 -0.10%, Russell 2000 -0.05%) shows though that the move was already anticipated and discounted by the US stock market, although Asian markets were hit harder today – Japan’s TOPIX and South Korea’s KOSPI were both down 1.2% at the time of writing, while China’s Shenzhen Composite was off 1.8%. Fears of a trade war or other disruption certainly didn’t boost precious metals, which fell as that market looked forward to higher US interest rates.

Oil collapsed nearly 5% as the trade war threatened global growth. As the graph shows, the price of oil (roughly) follows the volume of world trade, as world trade is an indication of world output and the health of the world economy. This Friday’s 22nd of June 2018 Organization of the Petroleum Exporting Countries (OPEC) meeting, which raises the possiblity of an increase in OPEC production just at a time when demand might be slowing, is also pressuring the oil price.

The tit-for-tat-tariffs plus the fall in oil hit the commodity currencies, particularly CAD as the currency plunged (along with MXN). US President Donald Trump’s willingness to get into a trade war with China suggests he might also be willing to dig in his heels with North American Free Trade Agreement (NAFTA). Things look bad for CAD until later this week. In the face of such uncertainty OPEC may decide to keep the output ceiling in place for now, while an expected acceleration in Canadian inflation (to be released Friday 22nd of June 2018) may also boost the currency.

USD weakened on the trade dispute, while EUR gained as a result. However, I expect EUR to come under pressure as Chancellor Angela Merkel faces dissent within her fragile coalition. It took several months for her to form a government in the first place. Now, Minister of the Interior Horst Seehofer, who is also the head of one of the coalition partners, is refusing to follow her instructions with regards to immigrants. Note that Seehofer said over the weekend that “nobody in the CSU” has an interest in ending the coalition or kicking Merkel out, so they will certainly try to find a solution. If nothing else, this means the problem of immigration will be one of the key issues to address at the 28-29 June 2018 EU summit.

Commitment of Traders

The market stopped cutting its overall USD shorts over the past week and instead increased those positions. In particular there was only a small fall in EUR longs, which are still at a relatively high (but not overextended) level. That may help to explain why the market dumped so aggressively on Thursday 14th of June 2018 following the European Central Banks (ECB) decision! Investors actually increased their long GBP positions and closed out some short CHF, CAD and AUD positions. On the other hand though they increased their DXY longs, which suggests that maybe some people are turning bullish USD but just don’t know what it’s likely to go up against.

Speculators increased their positions in both gold and silver.

WTI longs increased, which is interesting with the OPEC meeting coming up – perhaps the market doesn’t expect the group to agree to a hike in its production ceiling.

A quiet day ahead, insofar as scheduled events are concerned.

Nothing on the schedule for Europe.

In the US, the New York Federal Reserve System (Fed) is holding its annual conference on “Reforming Culture and Behavior in the Financial Services Industry: Progress, Challenges, and the Next Generation of Leaders.” According to the NY Fed’s website, “This event will build upon previous New York Fed conferences in 2014, 2015 and 2016 on reforming culture and behavior in the financial services industry. The program will focus on assessing progress to date; exploring ongoing and new challenges; and preparing the next generation of leaders to continue driving cultural reform.” Speakers include retiring NY Fed President William Dudley and his replacement, John Williams (previously San Francisco Fed President). They won’t speak for very long however. 

The National Association of Home Builders (NAHB) housing market index is expected to stay at the relatively high level of the previous month even though mortgage rates in the US have recently been at a 4 ½ -year high. For perspective, the recent high of 74, set back in December 2017, was the highest level since Aug. 1999. During the peak of the housing boom, 2004-05, the index averaged 68. So the current level of 70 in the face of rising mortgage rates is really good. This could be positive for USD.


Atlanta Fed President Raphael Bostic speaks on the economic and monetary policy outlook. He’ll be the first voting member of the FOMC to speak since last week’s decision to raise rates. Bostic is considered a neutral/middle-of-the-road kind of guy. It will be interesting to hear his take on the upgraded economic projections and the increase in rate expectations and to see how his views have changed, if at all, because that could indicate a shift in the center of the Committee’s thinking.

ECB President Mario Draghi will give some opening remarks at the ECB’s annual conference at Sintra, Portugal. This is one of the highlights of the week. The theme this year will be “Price and wage-setting in advanced economies.” This is a big issue for central banks. They’ve all been counting on an improving labor market to push wages higher, and for higher wages to push up prices, but it just isn’t happening like the textbooks say it should (although the Phillips curve, which relates the unemployment rate to the inflation rate, does seem alive and well in the US – see graph). The highlight of the forum will be the closing policy panel on Wednesday 20th of June 2018 featuring the heads of the ECB, Bank of Japan, US Federal Reserve and the Reserve Bank of Australia.

Last year, Draghi used the Sintra forum to signal a possible change in ECB policy when he said that renewed reflationary forces may provide room for “adjusting the parameters” of the ECB’s stimulus measures. His comments sparked a rally in EUR. This year however the focus is likely to be on the divergence in wage and inflation trends around the world, which may weaken EUR. 

Overnight, New Zealand holds its biweekly dairy auction. The relationship between dairy prices and NZD seems to have broken down somewhat recently, however.

The minutes of the Reserve Bank of Australia (RBA)'s June 2018 meeting are unlikely to hold any surprises. The Bank left both the cash rate and its broad policy assessment unchanged at the meeting, which suggests there wasn’t much new in the discussions.

The Fundamental Analysis is provided by Marshall Gittler who is an external service provider of Claws and Horns (Cyprus) Limited, an independent analytical company. Any views and opinions expressed are explicitly those of the writer. Any information contained in the article, is believed to be reliable, and has not been verified by STO and is not guaranteed to be accurate. References to specific products, are for illustrative purposes only and are not a form of solicitation, recommendation or investment advice. Past performance is not a guarantee of future performance.

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18 / 06 / 2018 | Notizie sul mercato

Digital currencies change the financial world

A currency refers to money in any form when in actual use or circulation as a medium of exchange, especially circulating banknotes and coins. Some suggest that a currency is a system of monetary units in common use. Various currencies are recognized stores of value and are traded between nations in foreign exchange markets, which determine the relative values of the different currencies. 

Currencies can be classified into two monetary systems: fiat money and commodity money, depending on what guarantees the value which could be the country’s economy itself or the government’s physical metal reserves. However, the technological developments in recent years brought forward a new currency concept called digital currency. 

Digital currency is a payment method which exists only in electronic form and is not tangible. Digital currency can be transferred between entities or users with the help of technology such as computers, smartphones and the internet. Although it is similar to physical currencies, digital money allows borderless transfer of ownership as well as immediate transactions. Digital currencies can be used to purchase goods and services but can also be restricted to certain online communities such as gaming or social networks.

Digital currency currently has a limited user base and the regulatory framework as well as tax treatments of digital currencies is still evolving. The infrastructure needed to support digital currency is still being determined and developed. Cryptocurrencies and virtual currencies are categories of digital currencies.

Virtual currency is a type of unregulated, digital money, which is issued and usually controlled by its developers and used and accepted among the members of a specific virtual community. The U.S. Commodity Futures Trading Commission has warned investors against schemes that use virtual currencies. In 2014, the European Banking Authority (EBA) defined virtual currency as "a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat currency, but is accepted by natural or legal persons as a means of payment and can be transferred, stored or traded electronically".

Virtual currencies have been called "closed" or "fictional currency" when they have no official connection to the real economy, for example, currencies in massively multiplayer online role-playing games. This type of currency has also been used for a long time in the form of customer incentive programs or loyalty programs.

Cryptocurrencies have become a global phenomenon known to most people. While they are still not understood by most people, banks, governments and many companies are aware of its importance. A cryptocurrency is any form of currency that only exists digitally, that usually has no central issuing or regulating authority but instead uses a decentralized system to record transactions and manage the issuance of new units. It also relies on cryptography to prevent fraudulent transactions.

Cryptocurrency is essentially a fiat currency. This means users must reach a consensus about cryptocurrency's value and use it as an exchange medium. However, because it is not tied to a particular country, its value is not controlled by a central bank. The cryptocurrency’s value is determined by market supply and demand, meaning that it behaves much like precious metals, like silver and gold.

Trading Cryptocurrency CFDs on STO

Using the STO Crypto Account, our clients are able to trade Cryptocurrency Contracts for Difference (CFDs) with competitive trading conditions. STO clients can trade CFDs on three of most important cryptocurrencies such as Bitcoin, Litecoin and Ethereum. 

Trading Forex and CFDs (Contracts For Difference), which are leveraged products, are high risk investments and puts your capital at risk. You may sustain a loss of some or all of your invested capital. Only speculate with money you can afford to lose.
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15 / 06 / 2018 | Notizie sul mercato

Fundamental Analysis 15.06.2018 – Market Outlook

The European Central Bank (ECB) announced the end of its quantitative easing (QE) bond purchases. They will continue buying €30bn a month until the end of September, after which they’ll reduce it to €15bn a month until end-December, then stop net purchases.

Note though that they hedged their bets by saying the end of the program was “subject to incoming data” that would confirm their outlook for inflation. Contrast this with the change in the FOMC’s comment Wednesday, when they removed the section saying that rate hikes were dependent on the economy performing as expected. Thus the ECB’s policy stance is still far more dovish than the Fed’s.

Furthermore, the ECB said it expects rates “to remain at their present levels at least through the summer of 2019” and in any case for as long as necessary to get inflation back on track. This statement shocked the markets as it was the first time that the ECB has committed to a rate policy for a specific period of time. (It did have a time-based commitment for its asset purchases). Up to now it has always refused to “pre-commit” to any action on rates and stressed that its commitments were data-dependent.

Moreover, ECB President Draghi said the Council didn’t even discuss when to start raising rates. So while they are ending their bond purchases, they seem in no rush to start raising rates any time soon. On the contrary, Draghi noted that “significant” stimulus is still needed to build up inflationary pressures. Thus the ECB will continue to reinvest maturing debt, in contrast to the Fed, which has for months now been reducing the size of its balance sheet. Furthermore, Draghi reiterated his usual statement that “the Governing Council stands ready to adjust all of its instruments as appropriate,” meaning it’s all still data-dependent and that they could even restart bond purchase if necessary, at least theoretically.

The news was a surprise to many investors –only 30% of respondents to a Bloomberg poll expected them to announce the end of the QE program at this meeting, while I would guess few if any people expected any forward guidance on rates yet.

While the announcement of an end to the QE program may have come earlier than many people expected, the pledge to keep rates unchanged “at least through the summer of 2019” means rates will stay low for longer than had been previously expected. It also means the risk on rates is only in one direction – it’s possible that the ECB tightens later than investors had thought, but it’s no longer possible to tighten earlier. Estimates of when the ECB would start hiking rates collapsed.

The market now sees a higher likelihood of a cut in rates by mid-2019 than a hike.

That hit the currency and EUR was lower on the news. USD by contrast soared as the monetary policy divergence theme came roaring back.

Just as the European day begins, the Bank of Japan finished its Monetary Policy Board meeting. They maintained their policy rate and bond yield at the existing levels and retained the ¥80tn annual bond-buying target even though they haven’t actually been hitting it recently. They are no doubt wary of even hinting that they might be withdrawing stimulus from the economy. They did accept reality and downgrade their assessment of inflation – they now see core CPI in a range of 0.5% to 1.0%, whereas previously it had just been 1.0%, although they still imagine that it’s likely to trend upwards towards the fabled 2%.

The contrast between the BoJ, the ECB and the Fed couldn’t be sharper. The Fed is approaching normal policy, the ECB is starting on the road to normalizing policy, and the BoJ is wary of even hinting that it might normalize policy. Thus it’ll be no surprise if JPY weakens vs USD and EUR over the longer term.

Elsewhere, CAD and the other commodity currencies slipped. I assume this is because Trump approved tariffs on about $50bn worth of Chinese goods, signaling that the global trade war is about to begin. You can see from the graph how USD/CAD has tracked the Shanghai stock market index recently.

Today’s market

Finally, after a busy busy week, we get a relatively calm day.

The highlights of the day may be two speeches by central bank officials.

The European day starts with a speech by ECB Executive Board member Benoit Coeure at a “Chief Investment Officer – Chief Financial Officer” conference.

Then later in the day, Dallas Fed President Robert Kaplan speaks at an event in Texas. While there won’t be a text of his speech, there will be a Q&A session with both the audience and media. This is likely to give us further insights into Wednesday’s 13th June FOMC meeting.

As for the indicators, Canada manufacturing sales are forecast to slow after two above-trend months. Nonetheless, the expected pace of growth is enough to raise the six-month moving average. That suggests the rising trend in sales is still intact, which should be positive for CAD.

The Empire State manufacturing survey kicks off the monthly Fed surveys for June. It’s expected to be down slightly but still at a relatively high level. In May, all five regional Fed surveys plus the Chicago national survey all rose, which is quite unusual. Some decline in these manufacturing sentiment indices was to be expected. A gradual decline shouldn’t be any big case for concern as long as they don’t collapse. On the contrary, sentiment remains firmly in expansionary territory, so it should be neutral to good for the dollar.

The US industrial production data for May will be released shortly afterwards. This is expected to show a marked slowdown after three months of fairly robust growth. The monthly employment figures showed that factory hours worked fell during the month, while manufacturing jobs gained were below the recent average. Also auto sales were weak in May, which means auto companies probably slowed production. This figure could be negative for USD.

Finally, the U of Michigan consumer sentiment survey is expected to show a small improvement in sentiment for June. With the stock market rising and the unemployment rate falling – the two major determinants of consumer sentiment – that seems entirely possible. The improvement, modest though it may be, should be positive for the dollar as it would suggest that the trade disputes that are roiling financial markets don’t necessarily bother the average individual.

The Fundamental Analysis is provided by Marshall Gittler who is an external service provider of Claws and Horns (Cyprus) Limited, an independent analytical company. Any views and opinions expressed are explicitly those of the writer. Any information contained in the article, is believed to be reliable, and has not been verified by STO and is not guaranteed to be accurate. References to specific products, are for illustrative purposes only and are not a form of solicitation, recommendation or investment advice. Past performance is not a guarantee of future performance.

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