29 / 06 / 2018 | Market News

The 3 types of traders

Markets have changed radically in recent years with the introduction of new products and trading rules. Despite the market evolution, some basic principles have remained the same and can be easily identified in all aspects of financial activities. The market laws of supply and demand which shape prices are still there, affecting the way the market functions. 

However, the evolution of the markets has led to the creation of certain categories in which traders have split according to their needs, strategies and targets. This article aims at giving you a general description of each trader segment and may help you decide which would match your style and needs. 

Day Trader

According to economists, “day trading” is the kind of trading in which individuals are buying and selling financial instruments, such as stocks, currencies, options within the same trading day with the goal of profiting from small price fluctuations. Day trading involves significant risks which the potential trader should learn about and build a suitable strategy that will allow him to avoid the consequences. 

Day traders who would like to gain from their trading strategies should have a thorough knowledge of the market. Day trading is a speedy process and the amount of money being used for buying shares can be quite large. That’s why day traders should know which stocks to trade in, when to enter a trade and when to exit it. Another factor that plays an important role in day trading as well as in any type of trading is the knowledge of using online trading tools and choosing the right online trading platform which has all the necessary requirements. 

Day trading involves making profit by differentiating between bid prices and asking prices. People who indulge in day trading aim for a speedy turnover rate on one or multiple trades. This tactic allows them to gain more profit from small swings in asset values if the market moves in their favour. If the market conditions are against them, it is possible that they will record losses, taking a toll on their portfolio. 

Swing Trader

Swing trading is among the most popular forms of trading, used by traders who search for medium-term opportunities and are familiar with the various forms of technical analysis. Swing traders use technical analysis to look for stocks with short-term price momentum. The main difference of day trading with swing trading is that day trading positions last less than 24 hours while swing trading positions often last from two to seven days, and on some occasions, may last as long as 14 days. 

The swing traders’ objective is to identify a trend and attempt to gain with swing trading within that trend. For this reason, knowing how to use the technical analysis is imperative for swing traders since they have to study and analyse the fluctuations of an instrument’s price. Understanding the advantages of the data coming from the technical analysis, swing traders can execute the appropriate trading strategy. 

Although swing traders often go with the main trend of an instrument, some of them prefer to go against it and trade the counter trend instead. This trading strategy is called “fading”. Fading is a contrarian trading strategy used to trade against the prevailing trend. This strategy involves increased risk so inexperienced traders and those starting out should carefully consider the risks involved and investigate all other types of trading strategies before proceeding with fading. 

Position Trader

Position traders are the complete opposite of day traders. In contrary with day traders whose positions last for less than 24 hours, position traders hold positions with a long-term target. This time period could be weeks, months or even years. While day and swing traders aim to benefit from short fluctuations on the instruments’ prices, position traders give less attention to news updates that could affect prices short-term. 

Position traders often use a mix of technical and fundamental analysis to form their trading strategies and have the necessary time to perform thorough evaluations of the instruments and the assets they want to trade with. Position traders also tend to keep a much smaller number of trades in their portfolio when compared with day and swing traders. 

STO and traders

STO offers its clients 5 diverse account types to trade with. STO provides traders with educational material which will walk them through multiple solutions, depending on each trading strategy. STO is the trading name of AFX Markets Ltd, licensed and regulated by the FCA (Financial Conduct Authority), and AFX Capital Markets Ltd licensed and regulated by the CySEC (Cyprus Securities and Exchange Commission). 

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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28 / 06 / 2018 | Market News

Fundamental Analysis 28.06.2018 – Market Outlook

Is USD a risk-on or risk-off currency? On Monday 25th of June 2018 it was the best-performing G10 currency as risk-taking sentiment returned, but yesterday Wednesday 27th of June it was also the best-performing currency even though risk-taking sentiment declined notably.

In fact there seems to be little correlation between the dollar and risk sentiment, as gauged by the S&P 500. The correlation in changes between the two this year is -0.16%, meaning that in general, when the S&P 500 rises, the DXY index falls slightly – but very low correlation. As you can see from the scatter graph below, there’s little connection, as indicated by the R2 of 0.027, which means there’s little correlation between the two. They’ve moved in the same direction 50.8% of the time this year, which is exactly what you would expect if the correlation were random. 



Furthermore, while the US economic indicators were generally better than expected on Monday 25th of June 2018, they were mixed on Tuesday 26th of June 2018. The headline durable goods orders figure fell less than expected but excluding transportation, it was much worse than expected (-0.3% vs +0.5% expected) and core capital goods orders fell instead of rising as expected. Pending home sales were disappointing (-0.5% mom vs +0.5% expected).

The big surprise though was a narrowing in the US trade deficit as exports rose sharply while import growth slowed. The deficit narrowed to -$64.8bn, whereas it had been expected to widen to -$69.0bn. The previous month was revised to -$67.3bn from the initial -$68.2bn. Perhaps under the current administration, trade is having an outsize impact on FX.




It appears that the message from last week’s Commitment of Traders report was correct:  the market has capitulated and is bullish USD.

Both Bank of England Governor John Carney and Bank of Canada Governor Stephen Poloz echoed Federal Reserve Systems (Fed) Chair Jerome Powell’s recent comments highlighting the risks to the economy from trade tensions. Governor Carney noted that, “trade tensions have intensified…the question is the extent to which these measures start to affect business confidence…it’s one of the potential triggers for a broader risk-off attitude or adjustment to risk appetite in financial markets.” Governor Poloz stressed that the bank “cannot mechanically follow the rate path provided by our models because there is simply too much uncertainty in the world…these include the degree to which uncertainty about trade policy is holding back business investment…we expect these issues to figure prominently in our upcoming deliberations.” The message is clear:  trade is no longer affecting FX just via stock markets but directly through expectations for monetary policy. The comments suggest that measures of business confidence will have more weight in monetary policy deliberations than before and will therefore be more important for FX market participants to watch.

NZD fell further after what was interpreted as a modestly dovish Reserve Bank of New Zealand meeting. While the main points and the forward guidance were basically the same, some of the details had a dovish tilt, for example when Governor Robert D. Orr said that the weak Q1 growth “implies marginally more spare capacity in the economy than we anticipated,” and that the fiscal impulse would be “also slightly lower and later than anticipated." He also referred to the trade tensions. With the currency having been beaten up so much recently, it could be in for a modest recovery on short-covering if risk sentiment returns.

EU Summit: migration, Brexit, trade and other topics

The two-day EU Summit starts today. The summit will take up a number of difficult topics:
  • The hardest one is probably migration. The question of migrants and asylum in Europe has always been a source of disagreement among the EU countries, but now it’s an even bigger crisis as German Chancellor Angela Merkel’s coalition is starting to fall apart over the issue. There was a “mini-summit” on Sunday 24th of June 2018 to prepare for today’s discussions, but that event ended in disarray as the new Italian government demanded a total rethink of the EU’s rules for dealing with migrants. If this meeting can’t come up with a position that’s acceptable to all sides in Germany, her coalition may crumble. That would probably mean new elections in Germany in a few months. The increased political uncertainty would be negative for the euro.
  • As for Brexit, the EU’s view is that there’s not much new to discuss, that Britain still hasn’t put forward a viable position for the two sides’ relationship after Brexit. There probably won’t be much disagreement within the EU side about the issue, but the conclusion is likely to be negative for Britain and the pound, in my view.
  • The summit will also discuss trade with the US. The EU leaders are likely to take a hard stance in opposition to the US’ talk of more tariffs, with the result of a further “risk off” mood pushing the dollar down and JPY and CHF up.
  • Finally, they will discuss measures to strengthen the Eurozone’s fiscal stability, such as a common Eurozone budget to fund investment programs and provide financial support for countries facing recession; a banking union; and transforming the European Stability Mechanism(ESM) into something resembling a European Monetary Fund (EMF) to better address future crises.
Other indicators and events
Getting back to today’s indicators, German Consumer Price Index (CPI) (to be specific, the HICP, or harmonized index of consumer prices) is expected to rise only modestly on a mom basis, while yoy growth is forecast to decelerate. Nonetheless the market expects tomorrow’s EU-wide CPI to accelerate somewhat (although core CPI is forecast to slow). Since 2009 the German HICP and EU-wide HICP have moved in the same direction 73% of the time, but that still leaves 27% of the time that they don’t – meaning it is possible for the former to slow and the latter to pick up. Nonetheless, a slowdown in German inflation would be seen as a warning for the rest of Europe and could be negative for the euro.



The third revision of US 2Q Gross Domestic Product (GDP) is expected to result in the figure remaining unchanged. However, the the Quarterly Services Survey (QSS) indicated that there was less spending on services than previously assumed. That could lead to a downward revision, which would be negative for USD if indeed it does happen. But as the graph shows, the third revision of US GDP hasn’t shown much change in the last several years. Since 2015 the average of the absolute values of the revisions has been about 25 bps. Still, a 25 bps downward revision (actually it would be 20 or 30 bps) would be enough to move USD, at least temporarily.




Bank of England Chief economist Andy Haldane will deliver the Academy of Social Sciences Annual Lecture on productivity. Haldane was third person who joined the two regular hawks in dissenting at the latest Bank of England (BoE) Monetary Policy Committee meeting. The speech will give him an opportunity to explain his dissent. That could be positive for GBP, although with the EU Summit starting today, politics may outweigh economics for GBP. Sluggish productivity growth has been a major concern for the BoE for some time, although the Eurostat data suggests Britain’s productivity growth is no worse than Germany or France, and much better than Italy’s.



Overnight there are a number of indicators out for Japan. The most important of these is the Tokyo CPI. Inflation is expected to remain sluggish, with the headline rate of change forecast to stay at the previous month’s rate, while core CPI is forecast to perk up but by an insignificant degree. That news could be negative for JPY if indeed anyone cares any more about inflation – even the Bank of Japan seems to have given up hope that it will ever return to the 2% target.




Japan’s unemployment rate and job-offers-to-applicants ratio are both expected to remain unchanged.
Australia’s private sector credit is expected to rise at the same mom pace as in the month before, while the yoy rate is forecast to be almost the same. In that case, we can expect an impact on AUD only if the actual deviates notably from the forecast. This could be neutral for AUD.



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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28 / 06 / 2018 | Market News

UK GDP growth and Eurozone CPI inflation in the spotlight

Friday 29th June 2018 may be the last day of the week, but the scheduled economic data releases are going to catch the market analysts’ attention. Data coming from Great Britain and the European Union is expected to make the headlines and likely create market volatility. The British Pound and the Euro are among the most traded currencies in the global foreign exchange market with every economic data release playing a role in their values’ fluctuations. 

United Kingdom

On June 29th 2018, the Office for National Statistics (ONS) will publish data regarding the UK’s Growth Domestic Product (GDP) growth during the first quarter of 2018 (Q1 2018) and the number of mortgage approvals in May 2018. Market analysts, polled by Reuters, suggest that the UK’s GDP grew by 1.2%, on an annualised basis, in the first quarter of 2018 matching the reading of the fourth quarter of 2017. On a quarter-to-quarter basis, the UK’s GDP is likely to have expanded by 0.1% matching again the figure for the last quarter of 2017. 

A report by the National Institute of Economic and Social Research (NIESR), published on June 11th 2018, said that “our monthly estimates of GDP suggest that output grew by 0.2% in the three months ending in May 2018 following growth of 0.1% in the three months ending in April 2018.” Analysts at NIESR noted that “economic growth has slowed materially since the start of this year and it continues to remain weak. One reason for the sluggish growth is the disruption caused by severe weather in March 2018, particularly in the construction sector.” 

Another important data release is the one regarding the mortgage approvals in the UK during May 2018. According to the market analysts’ estimate mortgage approvals are likely to have increased to 62,528, a bit higher than April’s 2018 62,455 approvals. A report by Nationwide, released on June 27th 2018, showed that the house price growth in the UK fell in June 2018 to the lowest level recorded in the last five years. The Nationwide’s analysts reported that the annual house price growth slowed to 2% in June 2018 with the market dragged down by falling prices in the London area. 

Eurozone

On June 29th 2018, Eurostat which is the official statistical office of the European Union (EU) will publish the preliminary data regarding the Eurozone’s Consumer Price Inflation (CPI) in June 2018. Economists, based on the last economic data releases coming from the Euro-bloc, suggest that the Eurozone’s CPI inflation surged to 2% in June 2018, 0.1% higher than in May 2018. On the contrary, core inflation in the Eurozone is expected to have declined to 1.0% from 1.1% in May 2018. 

Mario Draghi, the head of the European Central Bank (ECB), told reporters in Sintra, Portugal on June 20th 2018 that the forces holding back wages in the euro zone are gradually waning and the ECB is confident that inflation will continue to rise back towards its objective of almost 2%. The Italian president of the ECB noted that factors holding back inflation such as labour market slack, low productivity are gradually reducing their effect on the economy. 

Trading the British Pound and the Euro on STO

STO clients can trade with more than 30 major, exotic and minor currency pairs on one of the most advanced online trading platforms in the market. STO provides its clients with all the necessary educational material such as webinars to help them with preparing a suitable trading strategy. 

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27 / 06 / 2018 | Market News

Economists focus on US GDP data and RBNZ's interest rate decision

On Thursday 28th June 2018, two economic data releases coming from the United States (US) and New Zealand may create market volatility. The day is going to start with the Reserve Bank of New Zealand’s (RBNZ) monetary policy meeting and decision on interest rates. Later in the evening, the US Bureau of Economic Analysis (BEA) will publish data regarding the US Gross Domestic Product (GDP). 

US GDP in Q1 2018

Market analysts will be expecting to scrutinize the report regarding the US GDP growth in the first quarter of 2018 (Q1 2018), released by the US Bureau of Economic Analysis (BEA). This will be the third estimate published by the US BEA. The GDP shows the monetary value of all the goods, services and structures produced within a country’s economy in a given period of time. The GDP reading is an indicator of market activity because it shows the pace at which a country’s economy is expanding or shrinking. In general, a high reading could help the US Dollar’s value surge while a low reading could be negative for the US currency. 

The consensus among financial analysts, polled by the Wall Street Journal (WSJ) on June 25th 2018, is that the US GDP grew by 2.2% in Q1 2018, on an annualised basis. The 2.2% GDP growth rate was revised lower from the initial estimate of 2.3% which was also a significant slowdown from the 2.9% GDP growth rate recorded in the fourth quarter of 2017 (Q4 2017). The third US GDP Q1 2018 estimate is expected to reveal whether consumer spending and business investment were stronger than last month’s forecast. Economists predict that the economy’s growth will accelerate as the year progresses and reach more than 3% which is a figure achieved twice during the last four quarters. 

On May 30th 2018, the US BEA had released the second estimate for the GDP growth during the Q1 2018. In the report the BEA’s analysts had noted that “the per cent change in real GDP was revised down 0.1 percentage point from the advance estimate, primarily reflecting downward revisions to private inventory investment, residential fixed investment, and exports that were partly offset by an upward revision to non-residential fixed investment.”

RBNZ decides on interest rates

On June 28th 2018, the New Zealand’s central bank governing council will convene to decide and announce its decision on interest rates. The majority of economists, polled by Reuters on June 24th 2018, forecast that the RBNZ’s board will keep the benchmark interest rate unchanged at 1.75%. It should be noted that the RBNZ has maintained its Official Cash Rate (OCR) stable at the 1.75% record low in the last 20 consecutive months. The same Reuters poll showed that 8 out of 14 economists questioned suggested that the RBNZ will consider lifting the rate during the third quarter of 2019 (Q3 2019). 

Economists at ANZ (Australia and New Zealand) Bank wrote in their report published on June 21st  2018 that they expect the RBNZ to keep rates unchanged, adding that “ A clear, consistent message will be retained: the RBNZ will remain cautious until inflation shows consistent signs of life. Developments since the June 2018 monetary policy meeting have been negative on balance. The RBNZ will maintain its wait-and-see approach, even as inflation rises little by little over the coming year. After two false starts this cycle, it will want to be sure that inflation is broad-based and likely to be sustained before an interest rate increase will be on the table.”

Westpac’s financial analysts seem to agree with their counterparts at ANZ. In a report, released on June 22nd 2018, they note that “we expect the RBNZ to repeat its main message that the OCR is expected to remain on hold for a long while, but the timing and direction of the next move will depend on how the economy evolves. The RBNZ is keen to avoid formulaic communications and might chop and change its wording even if its intentions have not changed.”

Trade the US Dollar and New Zealand Dollar on STO

The US Dollar against the Euro and the British Pound, as well as the New Zealand Dollar against the US Dollar and the Euro, are just some of the currency pairs that you can trade with on the STO online platform. STO provides its clients with all the necessary educational material such as webinars to help them with preparing a suitable trading strategy. 

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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26 / 06 / 2018 | Market News

Fundamental Analysis 26.06.2018 – Market Outlook

Worries about trade continue to dominate the financial markets through the impact on stocks. Yesterday Monday 25th of June there were reports that the US Treasury is planning to subject Chinese investments in sensitive US industries to greater scrutiny. This news sent stock markets around the world lower. The S&P 500 was down as much as 2.0% at one stage, led by tech stocks, but pared the loss slightly to -1.4% after National Trade Council Director Peter Navarro said on TV that “The whole idea that we’re putting investment restrictions on the world – please discount that…All we’re doing here with the President’s trade policy is trying to defend our technology when it may be threatened.” Treasury Secretary Steve Mnuchin also said reports of plans to curb Chinese investment were “false.” Nonetheless, there was a widespread “risk-off” tone as reflected in slightly wider credit spreads, higher bond prices, weaker commodity markets, a higher VIX and a stronger CHF and JPY vs USD, although not on a trade-weighted basis.

It seems though that EUR is now the #1 “safe haven” currency. EUR was the only major currency to gain yesterday overall. EUR vs AUD, the major “risk on” currency, was the biggest-moving major currency pair over the last 24 hours. During the US session it tracked the VIX index closely, although it’s noticeable that when stocks started to recover and the VIX turned down, EUR/AUD didn’t move lower – apparently the “risk off” sentiment continued in the FX market.



The strength of the euro is puzzling, because Europe faces its own problems, too. Italian bond spreads widened yesterday after the anti-migrant League party did well in municipal elections over the weekend. Spanish and Portuguese spreads widened somewhat as well. Candidates from the League and traditional allies Forza Italia and Brothers of Italy won in the second round of local votes in most Italian cities, including some usually left-wing cities. The success of this anti-migrant party is bound to solidify Prime Minister Giuseppe Conte’s opposition to EU immigration policy at this week’s EU summit, making for a more difficult summit and more pressure on Chancellor Angela Merkel. EUR could weaken later in the week as a result.



In addition to the looming political problems, Europe’s economic indicators are also underperforming the US. Yesterday’s German Ifo business climate index fell, as was expected. The message from the Ifo was broadly in line with that of the German and EU-wide Purchasing Managers’ Indexes (PMI) data:  the levels are consistent with solid rates of growth, but those levels have been steadily declining this year from the cyclical highs that were hit at the end of last year.

In contrast, yesterday’s US data was stronger than expected, with new homes sales rising to their best levels since November 2017 and a Dallas Federal Reserve System (Fed) survey unexpectedly rebounding back towards a record high. (The Chicago Fed’s national activity index however unexpectedly plunged into negative territory.)

Furthermore, there’s still an expectations gap. The US economic indicator surprise index is almost at zero, meaning that overall, indicators recently have come in about as expected, whereas the European index is still heavily negative – meaning that indicators in Europe are still failing to meet expectations (although less so recently, which means that investors are revising their expectations for Europe down as the indicators come in weak.)



The slowdown in Europe may mean that European Central Bank (ECB) tightening is likely to be delayed,. ECB Governing Council member Vitas Vasiliauskas yesterday said that the ECB Council could start to discuss raising rates in the autumn of next year – significantly later than many people had thought. Furthermore he stressed “as I said, discuss,” i.e. not necessarily act. ECB guidance is that rates will remain stable “at least through the summer of 2019.” Vasiliauskas observed that “in this part of the world, summer means until the end of September.”

Ordinarily that would be a kick in the pants for the euro, but after Fed Chair Jerome Powell’s warning last week that the trade dispute is hitting US business confidence, investors aren’t so sure about the Fed’s plans, either. Ultimately, that may be the reason why the euro is so strong:  doubts about the Fed’s ability to move while the US is caught up in a trade war on multiple fronts. It seems that investors assume the US is likely to be the big loser in this trade war. Accordingly, USD may remain weak until we get some clarity on the trade issue.

Today’s market

UK Finance gives its monthly report on its members’ mortgage business. Mortgages issued by UK Finance’s members are expected to be up about 0.5% from the previous month, whereas the Bank of England mortgage approval figures, to be released on Friday 29th of June 2018, are expected to show a 0.4% mom decline. In other words, people have no idea what’s going to happen. Approvals may be down a bit, they may be up a bit. Down a bit (today Tuesday 26th of June 2018) would be bad, up a bit (Friday 29th of June) would be good.



Professor Jonathan Haskel will speak before Parliament’s Treasury Committee. Haskel, a Professor of Economics at Imperial College London, will replace hawk Ian McCafferty on the Bank of England’s Monetary Policy Committee (MPC) from 1 September 2018. His main research interests are productivity, innovation, intangible investment and growth, which are particularly important questions nowadays for the MPC, since sluggish productivity growth is one of the major problems facing the British economy (aside from committing suicide by voting to leave the EU). His comments may be negative for sterling

European Central Bank (ECB) Vice President Luis de Guindos will make introductory remarks at the Bond Market Contact Group organized by the ECB in Frankfurt. You’ve probably never heard of de Guindos. He was Spain’s Finance Minister until he recently (1 June) took over from Vitor Constancio as the Vice President of the ECB, the #2 person in the organization. De Guindos has only a B.A. in Economics and no experience with central banking. However he does have considerable experience with government economic policy. According to Wikipedia, he was in charge of overseeing Spain's entry into the eurozone and is credited with steering Spain to economic recovery following the 2008 Global Financial Crisis as well as negotiating the EU’s €100bn bailout of Spain's savings banks. As for his views on monetary policy, he has described himself as neither a hawk nor a dove but as “pragmatic,” which probably means he has a hidden bias that he isn’t aware of. As Keynes said, “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.” De Guindos hasn’t made many speeches on monetary policy so although this speech is likely to be short, it will be closely watched in case he reveals his biases.

The Conference Board’s index of US consumer confidence is expected to be unchanged in June 2018. This would be slightly worse than the University of Michigan index, which rose during the month. That’s a little surprising, because the Conference Board measure is more heavily weighted towards the labor market while the Michigan methodology places more emphasis on longer-term macroeconomic expectations. The labor market is certainly in good shape, with the unemployment rate now at 3.8%, whereas the nascent trade wars spell longer-term trouble for the economy.

In theory the decline may be negative for USD. However, we shouldn’t get carried away. The recent high in the index – February’s 130.00 – was the highest level since the internet bubble days of 1999/2000, when people were convinced that a new world was dawning and Pets.com launched at $11 a share even though it was selling goods at one-third their cost. It should be no surprise that the trade wars are causing some people to get a bit nervous about their future. Problems would only begin if the index fell below its recent low, causing people to think that perhaps the uptrend had ended.


Atlanta Fed President Raphael Bostic will hold an “armchair conversation” with the Birmingham Civil Rights Institute (BCRI), a museum in Birmingham, Alabama dedicated to the struggle against segregation and for civil rights worldwide. There’s no text but there will be a Q&A session. There’s no indication what this is about – the Atlanta Fed doesn’t have an “upcoming events” section on their website, while the venue doesn’t list this event either.

Dallas Fed President Robert Kaplan’s participation in a moderated Q&A session with “the Greater Houston Partnership State of Talent” (whatever that is) promises to be a more ordinary event. Given where he works, his comments on the oil market and last week’s OPEC decision will be especially notable. He said recently (19 June) that his bank’s economists think “the negative impact of higher oil prices on GDP growth is likely to be more muted than in the past,” as the oil/GDP ratio has fallen considerably.

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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25 / 06 / 2018 | Market News

Fundamental Analysis 25.06.2018 – Market Outlook

Worsening trade dispute pushes JPY, CHF higher. The US Treasury department reportedly is planning to subject Chinese investments in sensitive US industries to greater scrutiny under a law that would declare these investments to be a threat to economic and national security. The ruling would threaten China’s “Made in China 2025” drive and could therefore lead to an all-out “trade war”. The news sent AUD lower, reducing the large gains that it made on Friday 22nd of June 2018, despite China’s measures to shore up growth (see below).

China cut its reserve requirement ratio (RRR), which means banks can lend out the money instead of keeping it in their reserve accounts. The CNY 700bn freed is going mostly (CNY 500bn) to debt-to-equity swaps, in which banks swap their loans in companies for equity. This allows troubled companies to reduce their leverage. The other CNY 200bn is aimed at loans to small businesses, which are entering into a difficult time as the US-China trade war heats up. Overall, the move is one of a series of recent policy actions taken to support growth as economic indicators suggest the economy is slowing just as the trade war heats up. The measures will take effect on 5 July 2018, one day before the first round of US tariffs on Chinese goods goes into effect.

It is a wonder how effective the move will be. It’s not clear whether the RRR is a leading indicator of bank lending, i.e. whether a cut in the ratio leads to more lending, or a lagging indicator, i.e. the authorities cut the ratio when bank lending slows. Nonetheless, it certainly won’t hurt.




It’s also not clear whether lending leads or lags industrial production or retail sales:




Organization of the Petroleum Exporting Countries (OPEC) raised their output ceiling, but by how much? The statement following Friday’s 22nd of June OPEC meeting didn’t set a specific production ceiling nor did it say which countries would increase their output by how much. A bit of calculation shows it implies an overall increase of around 624k barrels a day (b/d). Then on Saturday 23rd of June, the group met with major non-OPEC producers, such as Mexico, and endorsed a “nominal” increase of 1mn b/d, again without even saying how this would be split between OPEC and non-OPEC, much less among specific countries.
 
Saudi Arabian Energy Minister Khalid Al-Falih was the one who called it a “nominal” increase. Maybe “theoretical” would be a better term. That’s because 10 of the 14 OPEC countries (now 15 after Congo was admitted at this meeting) are already producing as much as they can, so they have no room to expand production. Furthermore, Venezuelan production is cratering as that country descends into chaos, and it’s not clear how much oil Iran will be able to sell as US sanctions begin to bite.
 
Since some countries are unable to raise their production, in practice this means that countries with greater capacity (specifically, Saudi Arabia) will raise their production to higher than their implied quotas. But since we don’t know how much they will raise output, we don’t know what the net effect will be.
 
Total OPEC production was 31.87mn b/d, according to the latest OPEC bulletin, making a 1mn b/d increase a 3.1% rise – if it actually happens.


 

In any event, the move was less than the market feared and oil rose sharply following the meeting. That wasn’t enough to support CAD however as trade fears increased. The market will now await Governor Stephen Poloz’ speech on Wednesday 27th of June 2018 for any clues about the 11th of June 2018 Bank of Canada meeting.
 
An emergency EU meeting Sunday 24th of June 2018, to discuss the migrant issue saw the divisions in Europe laid out in the open after Italy demanded that the EU totally change its policies for dealing with migrants who land on European shores. The meeting was an attempt to reach some agreement on this issue before Thursday’s 28th of June 2018 EU summit, but in fact it just showed how difficult if not impossible it will be to reach any agreement. The lack of any agreement puts more pressure on German Chancellor Angela Merkel’s coalition, which is threatening to come undone over the issue. It could potentially be very negative for EUR, although for the moment the threat of trade wars to the US is dominating the markets.

Why was NZD down so much while AUD was up? New Zealand sends 24% of its exports to China and 10% to the EU, while Australia sends 37% to China and 6% to the EU. So measures to boost growth in China help Australia more, while possible hits to growth in Europe affect New Zealand more. Also investors may be looking ahead to Thursday’s 28th of June 2018 Reserve Bank of New Zealand meeting, which is expected to do virtually nothing to boost growth or make the currency more attractive. Finally, investors may have noticed the shift in sentiment towards NZD that was evident in this weeks’ Commitment of Traders report (see below).

GBP was the worst performing major currency, presumably as the market focus shifts from last Thursday’s 21st of June 2018 Bank of England meeting to this Thursday’s 28th of June EU leaders summit and the ever-present Brexit problem.

Commitment of Traders (CoT) report shows the capitulation trade
Speculators threw in the towel and switched from net short USD to net long. The aggregate position of speculators in the futures contracts went from net short $7.1bn to net long $10.6bn. As you can see, the net EUR longs fell by more than half. Several other currencies flipped from net long currency to net short (thereby making for confusing percentage changes). JPY went from a net long 5,052 contracts to net short 35,562. GBP went from net long 10,969 to net short 19,206. NZD went from net long 7,006 to net short 15,940 – quite a dramatic move, as in one week they moved from being net long to being among the most short they’ve ever been. AUD net shorts more than doubled.






One exception was MXN, where net shorts fell considerably after the Mexican central bank raised interest rates. Curiously, CAD net shorts also fell slightly even as trade fears rose.

Both gold and silver longs were cut as precious metals fell.

Speculators reduced their net short US Treasury positions a week ago, but changed their mind this week and added to them. 



Today’s market
The day starts with Germany’s Ifo survey. All the indicators are expected to decline. By contrast, while the German manufacturing purchasing managers’ index (PMI) for June 2018 was lower, the services (and therefore composite) PMI was higher.


The Ifo expectations index has tracked the PMI fairly well, although the peaks and troughs tend to be sharper. This suggests that the downturn could continue even while the PMI turns up.


The Chicago Fed National Activity Index (CFNAI) is expected to be little changed, indicating that the US economy continued to grow at an above-trend pace in May. The CFNAI is different from the other regional Fed indices, which gauge conditions in that particular Fed district. The Chicago index is designed to gauge national economic activity and related inflationary pressure. A positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend. Although the components have all been previously announced, the indicator is one of the more closely watched among those issued by the various regional Feds. This could be positive for USD.


US new home sales are forecast to be 667k, a mom increase of 0.8%. This compares with the 0.4% decline in existing home sales that actually took place during the month. Pending home sales have been soft recently and higher mortgage rates have been discouraging new home buyers, but with the recent uptick in home building, sales of new homes could increase. This could be positive for USD.



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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22 / 06 / 2018 | Market News

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 | Market News

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 | Market News

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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20 / 06 / 2018 | Market News

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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