30 / 06 / 2017 | General

Asia Stocks Follow US Sell-off as Bonds Fall

As the quarter comes to a close and US stocks sell-off revived volatility in the market, Asian equity markets followed suit and extended their slide this week. The dollar extended its losses as the major central banks move toward a hawkish tone.

Stocks from Hong Kong and Sydney had a decline after the S&P 500 Index had the biggest losses in 6 weeks. Woes deepen at the tech industry as investors sell off this year’s biggest winners. After the benchmark US rate increase to 2.29% for the first time in one month,

Australian 10-year-old bonds jumped high for a third consecutive day. The oil is seen to continue its climb back after being in the bear market for so long.

The debate on normalizing central bank policies brings back volatility- which was absent most of the year- especially as talks start to intensify after 9 years of unparalleled stimulus. This shows the concern of some investors regarding their confidence in the economy and whether the markets are able to withstand a tightening cycle. Again, tech stocks are still under pressure while banks have been supported in view of higher rates.

Global equities are moving towards an 8th month of gains in a row and this led to record high figures for stocks shown during the beginning of last week. US stock traders are putting their confidence in the strength of earnings as the economy recovers, ignoring the concerns of political wrangling in Washington and oil not making significant moves away from a bear market.

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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28 / 06 / 2017 | General

In the News: Deutsche Bank Derivative Loss, French Mother of All Reforms, Google vs. EU

Although markets seemed to calm after last week’s activity, this doesn’t mean that the newsrooms are quiet. One of the big topics – is Deutsche Bank’s big derivative loss estimated at $60 million due to a risky bet placed on U.S. Inflation. According to Bloomberg.com, the derivatives were closely tied to United States inflation but miscalculated, forcing the bank to reevaluate its risk management operations.  

Another EU-centric news item, which will likely affect trader/investor confidence in the one-currency, is Macron’s inauguration of the “Mother of all Reforms” promised during his presidential campaign. His promise for reform sought to make France economically competitive again. This first phase that Macron’s administration is proposing is on par with his campaign promises; to reform labor to open up the labor market. As it stands now the Marcon’s plan is to introduce his plan by decree to avoid it being bogged down and delayed by debate in the parliament. The plan is pro-business so it should have a positive effect on growth. The main points of the reform include, curbing pay given to organizations terminating staff, streamlining employee representation councils and redefying who decides on wages moving away from industry level deals to employee-employer level deals.

Finally the most economically relevant newsworthy story, is of course information giant Google’s discrepancy with the EU. If you are unfamiliar, the EU recently fined Google an exorbitant 2.4 billion for promoting its own shopping solution over its competitors, which is being reviewed for its ethics.

 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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28 / 06 / 2017 | General

Fundamental Analysis – 6.28.2017

Mario Draghi shook up markets on Tuesday by announcing victory against deflation and stating that policy needs to gradually normalize. He was quoted saying: “deflationary forces have been replaced by reflationary ones” and that monetary policy will run in stride with economic recovery, largely due to the fact that although inflation is increasing in Eurozone interest rates are holding creating fertile ground for growth. This in turn would necessitate or even force a policy adjustment. This is one of strongest indicators that Draghi given that the EU is considering reducing generous stimulus that the ECB was open-handed with.
The ECB President’s speech was another indicator that Central Banks are becoming more confident that recovery is near and are reconsidering policies necessary post-Great Recession and Crisis.  The graph below shows that the market is adjusting its estimates for an ECB interest rate hike forward. Conservative estimations after Draghi’s speech show a hike in April a 50/50 possibility, where before the possibility of rate hike was assumed to happen in September.
 
These affects caused the EUR to gain sharply against the dollar (which inevitably dropped slightly). Amongst the World’s Major currencies, the JPY was the biggest loser, based largely on the BoJ reluctance to increase their rates. Another safe-haven CHF on the other-hand grew, under traders’ assumption that due to the SNB’s close ties to the ECB moves, if one institution enacts a rate hike (the ECB) so will the other.
Federal Reserve’s Chair of the Board Yellen, didn’t reveal much in terms of her stance on monetary policy during her speech but instead covered subjects related to regulation largely.
Although when the USD usually drops the NZD and AUD gain, but the opposite was true during yesterday’s trading.
Oil price saw a slight bump up, which was reversed when the American Petroleum Institute (API) reports showed a surplus in inventories even though inventories were expected to shrink. Although oil prices dip momentarily they still were up by market closing.

Today’s market
Although the ECB Money Supply data will be released today, bank lending will probably be the only factor that affects markets.
Most expect the margin between US advance goods trade balance and the US trade deficit to narrow. Although there will be a movement, it will likely be to miniscule to be felt by markets. As Oil prices continue dropping, in addition to US oil imports diminishing, the trade deficit should shrink.
 
Wholesale inventories, which are released concurrently with the merchandise trade balance and figure into the GDP number. The expectation is that inventories will recover from the dip experienced last month, but its shouldn’t be taken as a full reversal. The forecast at the moment is around the 6-month moving average.
 
The Central Banking Forum in Sintra, Portugal, will feature some heavy hitter of the financial industry: Bank of England Gov. Carney, European Central Bank President Draghi, Bank of Japan Gov. Kuroda, and Bank of Canada Gov. Poloz. Bank of Israel’s Gov. Flug will be serving as moderator to the panels and discussions during the Forum. Traders will be following these speeches closing for any indications regarding monetary policy or other market relevant policies, especially from Gov. Kuroda which interest rates have remained solidly immobile in 2017. Another point of interest will be any remarks made by Gov. Poloz. The reason why Poloz is an anticipated speaker is he is the only Central Bank official that hasn’t recently. The last unofficial news out of the Bank of Canada, was Gov, Carolyn Wilkins’ unexpected speech calling for a more aggressive monetary policy. Investors and traders will want of course to see if Gov. Poloz backs that perspective especially considering the low inflation figure for Canada announced the previous week. Some assume that the entire statement was a strategic set-up for Poloz to back the hawkish view, ultimately to boost CAD.

Home sales are expected to rise after two months of faltering figures. The previous week we saw the data being revised showing a stronger than expected increase. Another increase we’ve seen is applications for home financing (mortgages). This confirms the health of the US housing market which in turn  means the Fed can increase interest without it being detrimental to the economy.
 
The US Dept of Energy weekly crude oil figures were expected to show a decline in about 2.2mn barrels during the latest week, but the API data showed a rise of 851,000 barrels. The news pushed oil off its peak, but it recovered much of the losses. As I’ve mentioned before, the two series disagree even on the direction of inventories about 40% of the time, so it is possible that the DoE figures do show a decline.

 
 


 
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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28 / 06 / 2017 | General

Technical Analysis: Gold

Our four-hour chart is showing Tenkan-sen under the Kijun-sen, both while being horizontal. Chikou Span confirmative line bisects the chart from below, indicating a descending cloud reversing into ascension. XAU seems to be trading over both the Tenkan-sen and Kijun-sen; pointing toward a continued Bullish trend. The most proximate support is denoted by the bottom of the cloud at 1248.26. The most proximate resistance at 1260.81.


The one day chart Tenkan-sen line is below Kijun-sen, with the red line moving downwards, the blue line is keeping horizontal. The Chikou Span confirmative line is again bisecting from below, meaning an ascending cloud. Gold again is trading between both the Tenkan-sen and the Kijun-sen line. Support is at the upper edge of the cloud at 1247.32. Proximate resistance is defined as the Kijun-sen line at 1265.92.

 
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 / 06 / 2017 | General

Italy Commits 17 Billion Euros to Keep Veneto Banks Afloat

Italy arranged for one of the biggest bank rescues in history, with a cost of up to 17 billion euros ($19 billion) in order to wind up two failed banks in one of Italy’s wealthiest regions. However, the deal- which was approved by the European Commission- raises some questions regarding the consistency of the bank regulations in Europe.

This decision to rescue Veneto Banca SpA and Banca Popolare di Vicenza SpA includes state support for Intesa Sanpaolo SpA to obtain their good assets for a token amount. Intesa can tap about 5.2 bill. euros at first, without harming capital ratio.

This commitment boosted bank stocks in Europe with Intesa gaining, and raising questions regarding how effective European rules are and whether they can guarantee that private investors won’t share the bank bailout burden.

When the firms open for business on Monday, the two moneylenders will be divided into bad and good banks as according to PM Paolo Gentiloni. The government had to intervene as savers and depositors were at risk and their operation region is one of the most important regions for Italy’s economy and small to medium sized enterprises.

The government of Italy was trying to find a way to rescue the banks for months and without a positive result, their hard work ended on Friday when the ECB said the Veneto banks are failing and subsequently turned the issue over to the Single Resolution Board in Brussels to dispose.

The solution to let the Italian government to put the two failing banks under national insolvency law was very important in protecting senior debt for further losses. Marina Brogi, a professor of Capital Markets and International Banking at Sapienza University said that it was a very pragmatic decision and that investors should stay confident in the European banking union.

The minister of finance said that these measures will guarantee that senior depositors and creditors of these two banks would be safeguarded in the wind-down process and that they will not interrupt the service to their clients. Intesa CEO Carlo Messina ensured that all junior retail bondholders who will share the burden will be refunded completely as he confirmed that Intesa can fill the gap by providing 60 million euros for the compensation of retail subordinated bonds.
 
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 / 06 / 2017 | General

Technical Analysis DAX & AUD/JPY

The four-hour chart above clearly shows the Tenkan-sen line crossing the Kijun-sen from the bottom of the chart, we also see the blue line moving downwards, while the red is holding horizontally. The Chikou Span confirmative line is moving towards the bottom of the chart, indicating a descending cloud. The FDAX is currently in this cloud. Support level is delineated by Tenkan-sen at the 12760.5 price level  and resistance is shown by Tenkan-sen line at 12784.8.

FDAX: Ichimoku Clouds


 
 Also in the context of a four-hour chart the Tenkan-sen line is intersecting the Kijun-sen from the bottom of the chart while the lines remain horizontal. The Chikou Span confirmative line is bisecting the chart from the bottom, showing an ascending cloud. Currency pair has overtaken both the Tenkan-sen and Kijun-sen. The most proximate support level is set by the Tenkan-sen at 84.48. Resistance is set by Chikou Span at 85.03.

AUD/JPY: Ichimoku Clouds


  

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 / 06 / 2017 | General

Fundemental Analysis - CHF, JPY, GBP, USD, EUR

Market Review
It seems that investors’ confidence in commodity currencies were renewed as their prices grew while the safe-havens such as CHF and JPY. Yesterday’s most recent bailout of failing Italian bank; Veneto Banca, an increase in oil prices, the high the German Ifo index experienced, and finally ECB President Draghi’s speech restating that interest rates should remain low bolstered investors’ confidence. A continually growing economy and the promise of low rates and the aforementioned events are all economically positive signs.
A feeling of normalization was also helped by the Democratic Unionist Party (DUP) agreeing to back British PM Theresa May, in exchange for an additional £1bn of funding on-top of their already £500 m approved, especially regarding Brexit and budget decisions in the British Parliament. This sets up the Tories with 13-seat majority. Even though this means that Brexit related legislation proposed by the Tories shouldn’t have to compete with significant resistance, an instability or variable that was significantly affecting the pound, it still saw a small drop. This is likely due to the blow-back Theresa May received due to the less than honorable agreement.  


Today’s market

The economic calendar is slight of significant events today On event that may affect markets is the distributive trades survey by the Confederation of British Industry (CBI). This is a so called diffusion index – in that it shows the difference between the perceived sales volume increasing and decreasing. Forecasts an indicating towards an increase in the index , strangely the sales index overall is expected to drop. The Bank of England is forecasting the volume of sales to go down as prices go up still out-running pay raises, creating a positive effect for the pound.

 
A slight drop is expected in US Conference Board consumer sentiment survey The Trump effect seems to be waning and so is investors’ confidence. Even so we are still seeing pre-election levels but this isn’t instrumental or detrimental to the USD.

One the other hand a conservative increase is expected of the Richmond Fed manufacturing survey. This is consistent with this years’ Fed surveys we’ve seen. This will most likely be a dollar positive event.

We should also be aware of today is the ECB’s Forum on Central Banking hosted in Sintra, Portugal – this is an equivalent event to that of the Federal Reserve’s  annual Jackson Hole symposium. ECB President Draghi is slated to speak, then a session that will touch on “Innovation, investment and productivity” headed by ECB Board member Benoît Cœuré. The last official event will be a panel discussion headed by Peter Praet, the organization’s Chief Economist.

 
 


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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26 / 06 / 2017 | Market News

Global Stocks Advance as Crude Gains for Third Day

CAD was the biggest mover on Friday with a sharp fall after the Canadian CPI slowed even more than expected. At only 1.3% yoy, it is actually at the bottom of the Bank of Canada’s 1%-3% target range. This means that it will be less likely to have a rate hike during the July meeting; the probability of a hike plunged from 56% to only 37%.

The weak CPI figures make Wednesday’s speeches by Bank of Canada Deputy Governor Patterson and Governor Poloz to be even more important as they are going to give a better idea if the rate hike is actually possible or not. In addition, the GDP figures on Wednesday will also indicate the possibility of recovering inflation, too.

https://media.clawshorns.com/uploads/files/94b0083475fd3cb91781b0fa8b95f9a3.png

Fundamental Analysis- Global Stocks Advance as Crude Gains for Third Day


As soon as the European day starts, we are going to closely watch the IFO Expectations survey. Right now, as it is closely watched, it is expected to show a modest decline with regards to the current conditions and business expectations for the next six months.
https://media.clawshorns.com/uploads/files/aeb615af32c59733f5a89ff583e0c118.png
That would be in consonance with the fall in the German composite PMI which was announced on Friday, and therefore, this won’t come as a surprise to the market and most probably won’t affect the euro in any way.
https://media.clawshorns.com/uploads/files/56b1909c57250f4374536e4e7882375c.png
The British Bankers’ Association figures on loans for house purchase are predicted to slightly drop, too. This would be in line with the recent decline in property prices in the UK, probably due to the uncertainty around Brexit negotiations. Even though this wouldn’t be a surprise to anyone, it will still negatively affect the sterling.
https://media.clawshorns.com/uploads/files/0c1aed8f165e386dc386eec131de6ff5.png
Today, US durable goods orders are predicted to have a sharp fall again at the headline level and this is a result of a drop in aircraft and defense sales. Nondefense capital goods orders are expected to show a decent rise and this could help restore some confidence around US economic indicators and subsequently boost the dollar.

On a final note, later on today President Mario Draghi, the president of the European Central Bank, will make a speech in Portugal right before Janet Yellen appears in London tomorrow. Last week, markets were affected by a plunge in oil while equities, treasuries and the dollar all made little progress. Haruhiko Kuroda, Bank of Japan’s Governor will also be speaking at the ECB forum and therefore, the heads of the most important central banks have the opportunity today to shape discussion and offer more clues and solutions regarding future policy.

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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26 / 06 / 2017 | Technical Analysis

Technical Analysis: GBP/USD - USD/JPY



GBP/USD:

Last, week the sterling’s power was determined by the unstable position of PM Theresa May and the twofold position of the Bank of England which both affected the dynamics of the GBP/USD pair. However, during the last days of the week the pair was growing and in fact crossed the strong psychological level of 1.2700 and is now trading below the upper border of the blue channel on D1.


Support and resistance
Resistance levels: 1.2780, 1.2865, 1.2990, 1.3040.
Support levels: 1.2700, 1.2610, 1.2510.

USD/JPY

The Japanese yen has been trading in the channel with the upper level of 111.71 or 3/8 Murrey and the lower of 110.93 or 2/8 Murrey for several days. The dollar was under pressure after the data release of industrial PMI which was reduced by 0.6 points. In general, the dollar looks more attractive to buyers than yen and therefore, traders may open longer positions after the upper level of 111.71 is broken through.


Support and resistance

Support levels: 110.93.
Resistance levels: 111.71.

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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26 / 06 / 2017 | General

This Week’s Economic Calendar: Draghi’s Speech, Carney’s Speech and BoE Inflation Report

Morning Market Review

This week is going to be very active – at least in regards to economic calendar events, because markets were extremely mobile last week:

The trading day on Friday saw USD fall against G10 currencies.

Although both US and EU Markit PMI data was lackluster, this didn’t seem to significantly affect trader’s confidence in the currency pair.

EUR/USD went up by 0.36% finally reaching 1.1193.

GBP/USD saw a gain of 0.29% reaching 1.1280.

USD/JPY is band between the price range of 111.13and 111.42.

AUD/USD also gained, by 0.34% reaching 0.7567.

The Asian trading day saw gold prices pushing towards their maximum -1257.99 and correcting at 1254.00.
Oil prices seem to be in the correction after a continuation of plummeting prices we saw throughout last week. Brent gained 1.73% reaching 46.00 a barrel within the correction. WTI also gained 1.70% reaching 43.50 a barrel. After low oil prices pulled it down the US stock market is finally in the green. Dow Jones reached 21415.0 after climbing 0.07%, NQ went up by 0.66% and reaching 5817.6. S&P is now at 2439.1 after gaining 0.62%.

European Stock is a bit more turbulent. The UK FTSE gained 0.31% reaching 7447.1. The CAC also gain, 0.14% to be exact going up to 5270.2. The German DAX is trading around 12749.2 (-0.16%). 

Economic Calendar

This week has the ECB President, the BoE Governor and Federal Reserve Chair of the Board of Governors are slated to speak. Historically these types of speeches have been used by traders to discern if the central banks will take a hawkish or dovish stance on interest, which in turn of course affects their respective currencies. Another indication this week that could possibly affect both interest rate and the GBP is the BoE inflation report hearings.

Here are the rest of the week’s most important events:

June 26th
  • USD – Durable Goods Orders
  • USD - Durable Goods Orders ex Transportation
  • EUR – ECB President Speech
June 27th
  • EUR – ECB President Speech
  • GBP - BoE Governor Speech
  • GBP – Inflation Report Hearings
  • USD – Federal Reserve Chair of the Board Speech
June 28th
                No significant events are slated for the 28th
June 29th
  • USD – Gross Domestic Product Annualized first quarter
June 30th
                No significant events are slated for the 28th

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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