13 / 06 / 2018 | Market News

ECB's interest rates and tapering in the spotlight

In a week full of economic data releases coming from various countries across the world, one of the most important updates in Europe will be coming from the European Central Bank (ECB). On Thursday June 14th 2018, the ECB’s board will meet to decide on interest rates. Economists will focus on the ECB’s decision as the Eurozone central bank’s decisions greatly affect the global financial markets. 

According to the majority of economists polled by Reuters on June 11th 2018, the ECB’s governing board will likely keep its benchmark interest rate unchanged at 0% as well as the deposit rate stable at -0.4%. The last time that the ECB proceeded in altering interest rates was in the March 2016 meeting when its governing council lowered its benchmark interest rate to zero, expanded its monetary easing programme in order to revive the Euro-bloc’s economy.

In its board meeting on April 26th 2018, the ECB had decided to keep its benchmark interest rate at 0% and had reaffirmed that the net asset purchases were intended to run at a monthly pace of €30bn per month until the end of September 2018, or beyond, if it will prove necessary. During the ECB’s April 2018 meeting, the central bank’s policymakers had agreed that an ample degree of monetary stimulus remained necessary for underlying inflation pressures to continue to build up. 

The members of the ECB’s board had noted that risks to the Eurozone’s economic growth had continued to be broadly balanced but those related to global factors, including protectionism, had become more prominent. The minutes of the ECB’s meeting had shown that its board believed that the underlying strength of the Euro-bloc’s economy continued to support the scenario of the inflation gradually converging to the target of below, but close to, 2% over the medium term. 

Future of monetary easing policy to be discussed

While market analysts suggest that the ECB will keep its benchmark interest rate unchanged at 0%, they will scrutinize the monetary policy statement due to be released after the meeting. Economists will be searching for data that will indicate the ECB’s future strategy for the monetary easing programme that it used to reduce the consequences of the financial crisis that hit the Euro-bloc’s countries. 

According to a Reuters poll, published on June 11th 2018, the majority of economists think that the ECB will stop its asset purchasing programme until the end of 2018. The recent headline inflation in the Eurozone was close to the ECB's target, mainly because of the increase in fuel prices, with the Italian political situation also playing a role. However the risks are still on as the European Union (EU) is on the verge of a trade conflict with the United States (US).

Peter Praet, the ECB's chief economist, said in a speech delivered in Berlin on Wednesday June 6th 2018, that the June 2018 ECB policy meeting will be pivotal for reaching a decision on when to end the institution’s bond-buying program. “It’s clear that next week the governing council will have to make this assessment, the assessment on whether the progress so far has been sufficient to warrant a gradual unwinding of our net asset purchases,” he noted according to a Bloomberg report published on June 6th 2018. 

John Woods, who is Credit Suisse’ chief investment officer, spoke to Bloomberg on Wednesday June 13th 2018 and noted that the June 2018 ECB meeting may have bigger impact on financial markets than the Donald Trump-Kim Jong-un meeting. He also said that “any announcement that tapering can start earlier than expected can impact markets.”

STO and the Euro

The Euro to US Dollar, the Euro to British Pound and the Euro to Japanese Yen are just three of the currency pairs you can trade with on the STO platform. STO clients can select from a variety of over 30 currency pairs and plan the suitable trading strategy for them. STO provides traders with daily fundamental and technical analysis that aims to help them reduce the trading risks. 

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12 / 06 / 2018 | Market News

Fundamental Analysis 12.06.2018 – Market Outlook

Market Recap

The market’s movements are a bit hard to explain today.

AUD up and JPY down is a typical risk-on move, which is logical given the optimism surrounding the North Korean Supreme Leader Kim Jong-un - US President Donald Trump summit. How then to explain a stronger dollar, which usually declines when risk sentiment improves? Neither US stocks nor bonds moved enough to sway the currency one way or the other.

The euro move was particularly perplexing. The currency gained in early European trading following the comments in the Sunday 10th of June 2018 papers from the new finance minister Giovanni Tria pledging allegiance to the euro and downplaying the potential for issuing “mini-BOTs”. Italian bond yields plunged on the news, showing that investors were reassured about the country’s intentions. But EUR couldn’t sustain the gains, and especially around midnight GMT it weakened vs USD, as did a number of other currencies. 

There wasn’t any news out at that time to send the dollar up at that time. Rather, it looks like there was significant position-squaring ahead of the summit in case any announcement was made.

The summit is not that important for countries other than Japan and of course South Korea (and KRW was up only 0.10% vs USD, a surprisingly small move, and it’s actually one of the very few EM currencies to fall over the last week). The reduction in tensions could be important for risk sentiment in Japan, but how will it help any country’s economy? Even if sanctions are lifted, North Korea’s economy is too small and the country is too poor to make much of a difference economically. The population of the country is estimated at 25.4mn, less than one-third the size of Iran (80.3mn) for example.

It is expected that the Federal Open Market Committee (FOMC) meeting tomorrow and the European Central Bank (ECB) meeting Thursday 14th of June 2018, while much less dramatic, are much more important for the currency markets. In that respect, the euro’s sudden weakness may be a sign that investors may be giving more weight to the possibility that the ECB will delay a decision on ending its Quantitative easing (QE) program until the July 2018 meeting. It is expected though that they will announce at this meeting an end to the QE program and that the euro is likely to strengthen as a result.

GBP weakened after the trade deficit came in much wider than expected (-£14.0bn vs -£11.3bn expected, -£12.0bn previously) and industrial production fell 0.8% mom instead of rising 0.1% as expected. That plus the political minefield that Prime Minister Theresa May must walk today (see below) is hurting sentiment for the pound, as well it should. Sterling could continue to decline.

Today’s market

The day starts with the UK employment data. The figures are expected to show the same sort of mixed message that so many other countries face nowadays. On the one hand, the job market is quite strong: the unemployment rate is forecast to stay at the lowest level since May 1975 while the increase in the number of jobs, while expected to be less than last month, is forecast to be above the six-month average.

On the other hand, growth in earnings overall (including bonuses) is expected to slow, while growth base wages – that is, earnings excluding bonuses – is forecast to remain the same. So the strong labor market is not feeding through to higher wages, a phenomenon that we see in other countries as well. This could be negative for sterling.

Bank of England Monetary Policy Committee member Silvana Tenreyro said recently, “I expect that the tight labour market will continue to feed through into domestic cost pressures…” and that was one of the main reasons why she expects “a limited and gradual tightening in Bank Rate over the next three years.” But if we see that it isn’t feeding through as much or as rapidly as expected, then there’s no penalty for waiting a bit longer to raise rates. 


Other UK events today include the start of a two-day debate in Parliament on the EU Withdrawal Bill, the law that’s supposed to take Britain out of the EU. The bill enshrines EU law into UK law, so that there aren’t any gaps when the UK leaves. The House of Lords added 15 amendments to the bill; Prime Minister Theresa May wants Parliament to overturn all of them except one. There is some concern that if she is defeated, this could lead to a general election that might even bring in a Labour government under the current Labour Leader, Jeremy Corbyn. That possibility could see the pound reaching parity with the dollar.

The ZEW survey is forecast to show a further gradual decline from the record high set in January 2018 (data goes back to Dec 1991). That’s only natural as the Eurozone economy did slow notably in Q1. The expectations index however is forecast to fall further below zero, indicating that the analysts and other experts polled are becoming more and more pessimistic about the outlook for Europe – not surprising, considering the tit-for-tat tariffs with the US, the Brexit negotiations, and the US reimposition of sanctions on Iran, which was becoming a nice business for many European countries.



The US National Federation of Independent Businesses (NFIB) index of small business optimism is expected to be largely unchanged from the previous month. That would be three months in a row at the same somewhat lower (but still historically high) level. The hiring plans index, which is already out, rose slightly. The report suggests that small businesses, which are the backbone of the US economy, remain healthy. This should be good news for the US economy and therefore good news for the dollar. 



Finally, we get the main event of the day:  the US consumer price index (CPI). Coming just as the Federal Reserve System (Fed) starts its two-day meeting, this is a crucial data point for the markets (even though technically this isn’t the indicator that the Fed uses to gauge inflation – they use the personal consumption expenditure deflator). In any event, both the headline and the core rate of inflation are expected to accelerate further above the Fed’s 2% inflation target, which may give some confidence to those Federal Open Market Committee (FOMC) members who are considering raising their “dot” a bit this time. 

Note though that history suggests it’s unlikely the figure will beat expectations, which may temper the impact on the dollar. Since 2000, the headline Consumer Price index (CPI) for Theresa May has beat the consensus estimate only 33% of the time. It’s missed the consensus four of the last five years. Similarly, core CPI has beat the consensus only 22% of the time and only equaled or missed four of the last five years.





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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12 / 06 / 2018 | Market News

US Federal Reserve to announce interest rate decision

In the evening of Wednesday June 13th 2018 markets will be waiting for the announcement of the Federal Open Market Committee’s (FOMC) decision regarding interest rates. The US Federal Reserve (Fed) started its two-day meeting on Tuesday June 12th 2018 and will publish a monetary policy statement right after the end of the meeting.

The CME’s (Chicago Mercantile Exchange & Chicago Board of Trade) FedWatch Tool which market analysts take into consideration when the Fed’s decisions on interest rates are imminent gave, on Monday June 11th 2018, 96.3% chances for a 0.25% rate hike. According to the CME’s FedWatch Tool, there was a possibility of only 3.7% for the Fed to keep its benchmark interest rate unchanged at 1.75%. If the forecast is confirmed this will be the second time that the FOMC announces a rate hike.
 
With a benchmark interest rate hike highly likely in the June 2018 meeting, economists will scrutinize the post-meeting Fed monetary policy statement to see whether the US’ central bank will keep its forecast for a total of three rate hikes during 2018 or it will add one more to reach four, an idea which some analysts have supported in the last few months. 

Some economists believe that tempered increases in Consumer Price Index (CPI) inflation will allow the Fed to raise interest rates gradually. Headline inflation in the US has edged up in recent months, pushed up by higher fuel prices but the core CPI inflation which is closely monitored by the Fed’s board has advanced modestly. 

Analysts disagree on the number of possible Fed rate hikes during 2018

A report published on June 11th 2018 by Nomura, which is one of the most known Asia-headquartered financial services group, suggested that “it would be extremely surprising were the Committee to forgo a rate hike.” Nomura’s analysts noted in their report that “more important, with respect to the ‘dot plot’, given that economic momentum has accelerated since March, we expect the Committee’s new rates forecast to reflect a total of four rate hikes in 2018, up from three previously." 

They also added that “there is also some risk that the longer run median ‘dot’ moves up given the distribution of participants’ forecasts. We continue to expect a total of four rate hikes from the FOMC in 2018 with hikes in September 2018 and December 2018 after the expected rate increase at the June 2018 meeting." The Nomura report ended with a special reference to the monetary policy statement, expected to be released after the FOMC meeting, which economists believe will include revisions to the forward guidance language. 

Economists at TDS don’t share the same opinion as their Nomura counterparts regarding the number of times that the Fed will proceed in hiking its interest rates during 2018. In a report, released by TDS on June 8th 2018, its analysts noted that “markets are likely to key in on the ‘dot plot’, where we expect the median 2018 dot to remain unchanged for three hikes in total this year. Note it would only take one more optimistic Fed official to shift the median to four hikes this year; while this remains a risk for June we do not see an obvious candidate among recent speakers.”

STO and the US Dollar

The US Dollar against the Euro, the US Dollar against the British Pound and the US Dollar against the Japanese Yen are just three of the major currency pairs that you can trade with on the STO 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, arehigh 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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11 / 06 / 2018 | Market News

Fundamental Analysis 11.06.2018 – Market Outlook

Market Recap

On the G7 meeting US President Donald Trump initially agreed to sign the communique after the meeting and everything seemed to be going well, but then he repudiated it by tweet after Canadian Prime Minister Justin Trudeau made a statement that basically just repeated what he’s been saying for some time anyway. 

The fact is, the US trade deficit is largely caused by the country’s position as the world’s major reserve currency. Other countries want to hold much of their foreign exchange reserves in dollars, which gives the US an enormous financial account surplus. The (almost) inevitable counterpart to that surplus is a current account deficit. Tariffs and trade wars won’t change that. Now admittedly, Donald Trump is trying to fight that battle too – he’s been urging countries not to intervene in the FX market, which would have the effect of reducing the financial account surplus.



But adding tariffs doesn’t necessarily do anything to rectify the problem. It’s based on the often fallacious assumption that domestic production will increase to take the place of the now-more-expensive imports. But it doesn’t always work that way. Sometimes, all that happens is that prices for imported goods go up, dampening demand further down the line. Domestic production may actually go down in response to the higher input prices. Or production moves from one country that’s been hit by tariffs to another that hasn’t been. In any case, it’s far from certain to have the desired effect, and as anyone can see, it invites countries to impose their own reciprocal tariffs, which can cause a spiraling decline of demand across countries.

In any event, CAD gained going into the meeting on Friday 8th of June 2018, perhaps in hopes of a successful conclusion (despite a temporary spike on the worse-than-expected employment data). After Saturday’s 9th of June 2018 debacle, it opened lower in Asia this morning but was gradually recovering. It is expected that investors will gradually discount the US theatrics and the currency will continue to recover slowly.

The Swiss Sunday 10th of June 2018 resoundingly defeated the “Sovereign Money Initiative” by a 3-to-1 margin.

The currency was considerably weaker this morning, but all of that was due to Friday’s 8th of June 2018 action – in fact it had strengthened notably since midday in Europe Friday, indicating that the vote had no impact one way or the other. The problem facing CHF seems to stem from a dispute with the EU over whether the Swiss stock exchange can trade EU company shares (known as “equivalence,” i.e. whether the Swiss stock exchange is equivalent to an EU-regulated exchange). In December 2017 the EU only extended Switzerland’s permission to trade EU company shares for one year. On Friday 8th of June 2018, Switzerland said that if the EU didn’t grant further “equivalence” by the end of this year, Switzerland would require all foreign exchanges to apply for permission to trade Swiss shares.

Italy’s new finance minister was quoted in the press on Sunday 10th of June 2018 as saying the government was “clear and unanimous” in wanting to stay in the eurozone. “We are not discussing any proposal to exit the euro. The government is determined to avoid the materialisation of market conditions that push us towards an exit in any way,” Giovanni Tria told Corriere della Sera, an Italian daily, on Sunday 10th of June 2018. EUR was largely unmoved though, as was USD.

 Bitcoin was down 11% from Friday’s level to below $7,000 after a hacker attack on a trading center in Seoul.

Commitment of Traders (CoT) report

The market continues to get less and less bearish on USD. The modest DXY long position rose a bit further, while the overall short USD position fell somewhat. The counterpart was less bullishness on EUR and GBP and more negative stance on JPY, CHF and CAD. Short AUD positions were cut a bit though while the market increased its long NZD.

The inflation trade seems to be dissolving. Traders once again reduced their long WTI position and their short US Treasury position, although both remain at extreme levels.



Today’s market

It’s Britain’s “short-term indicator day” today. The Office of National Statistics releases the trade, industrial production and construction figures.

The visible trade balance is expected to narrow slightly and be somewhat narrower than trend. That should be good news for the pound. The overall trade balance (including trade in services) is also expected to narrow.



Industrial production is expected to slow somewhat, but manufacturing production is forecast to accelerate.


Overnight, the rate of increase in Japan’s producer prices is expected to accelerate somewhat. In theory that might be positive for the yen in that it means inflation could be coming back.



Finally US President Donald Trump meets North Korean Supreme Leader Kim Jong-Un in Singapore today Monday 11th June 2018.The CIA concluded North Korea won’t give up its nuclear weapons, but might be willing to accept a hamburger chain as a sign of opening up to the West. If the meeting goes well and tensions in Asia dissipate somewhat, JPY might fall and AUD rally.

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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11 / 06 / 2018 | Market News

Economists focus on US CPI inflation and UK average weekly earnings data

Tuesday June 12th 2018 is going to be a busy day for economists as a series of important financial data will be published in the United States (US) and the United Kingdom (UK). On this day, analysts will have the opportunity to scrutinize data regarding the US Consumer Price Index (CPI) inflation as well as the unemployment rate and the average weekly earnings in the UK.

US CPI inflation

On June 12th 2018, the US Department of Labour Statistics will publish data regarding the US CPI inflation during May 2018. The CPI is an indicator used to measure the rate at which the prices of goods and services bought by households rise or fall, which is the rate of inflation, referred to as the CPI inflation. The CPI inflation figure is taken into consideration by the US Federal Reserve (Fed) board when it evaluates its monetary policy.

Economists polled by Reuters suggest that the US CPI inflation edged up to 2.7% during May 2018, on an annualised basis. On a month-to-month basis, the US CPI inflation is expected to come in at 0.2%, matching the figure of April 2018. The reading, however, that economists are going to scrutinize more will be the core CPI inflation figure. The core CPI inflation measures the price movements by the comparison between the retail prices of a representative shopping basket of goods and services. In order to measure the core CPI inflation, analysts are excluding the prices of volatile products such as food and energy to capture an accurate calculation. Core CPI inflation in the US during May 2018 is expected to come in at 2.2%.  

In April 2018 the CPI inflation in the US had edged up to 2.5% from 2.4% in March 2018 matching market expectations.   It was the highest CPI inflation rate in the US since February 2017. Core CPI inflation had come in at 2.1 percent. On a monthly basis, consumer prices had gone up 0.2%, rebounding from a 0.1% in March 2018 but below forecasts of 0.3%. 

Economic data releases in the UK

In the UK the Office for National Statistics (ONS) will publish data regarding the average weekly earnings and the unemployment rate. The average weekly earnings excluding bonuses released by the ONS is a key short-term indicator of how levels of pay are changing within the UK economy. The unemployment rate released by the ONS represents the number of unemployed workers divided by the total civilian labour force. It is a leading indicator for the UK economy.

According to the economists' forecast, the average weekly earnings excluding bonuses in the UK will have likely risen by 2.9% in April 2018, matching the reading recorded in March 2018. The average weekly earnings including bonuses are expected to have risen by 2.6% as it had been measured in March 2018. 

Economists suggest that during April 2018 the unemployment rate in the UK remained stable at 4.2%. According to the ONS, the 4.2% figure is the lowest recorded in the last 42 years. In March 2018, the unemployment rate 4.2% figure had come in line with market expectations. The ONS' March 2018 report had shown that 197,000 more people had found jobs during the October 2017-December 2017 quarter which was the largest quarterly increase since the end of 2015. 

Trade the US Dollar and the British Pound on STO platform

The US Dollar against the Euro, the US Dollar against the British Pound and the US Dollar against the Japanese Yen are just three of the major currency pairs that you can trade with on the STO 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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08 / 06 / 2018 | Market News

Fundamental Analysis 08.06.2018 – Market Outlook

Market Recap

A big “risk off” day that sent the safe-haven CHF and JPY higher along with USD, while the risk-sensitive commodity currencies fell. 

The risk-off sentiment was more evident in the fixed income markets than in equity markets. It started from emerging markets, particularly Brazil, where the stock market crashed 3% yesterday Thursday 7th of June  (it had been down over 6%), bond market trading was halted as the benchmark three-year bond yield soared past 10%, and the currency fell to a two-year low. Turkey meanwhile stopped its currency collapse by tightening policy for the third time in less than two months. The dollar gained on this risk aversion even though 10-year US Treasury yields fell 5 bps on a “flight to safety.”

There was also some nervousness in Italy, where spreads vs Germany widened out further, but this doesn’t seem to have impacted EUR significantly. 

It’s noticable that CHF was the best-performing currency even though the country faces the “Soveriegn Money” Initiative over the weekend. Apparently the market doesn’t think it will pass, which is probably correct. See below for details.

Today’s market

The big event today is the start of the G7 Leaders’ Summit in Charlevoix, Canada. It’s likely to feature heated arguments about trade. Last weekend, the G7 finance ministers expressed their “unanimous concern and disappointment” about the tariffs on metal imports that the US imposed recently. The six issued a statement calling for “decisive action” to resolve the issue at this weekend’s meeting. The US sanctions on Iran are also likely to be a topic of conversation.

Far from trying to sooth ruffled feathers and smooth relations, US President Donald Trump is planning to use the summit to confront other world leaders “over what he believes is a global economic system tilted against the United States,” according to the Washington Post. Donald Trump will hold bilateral meetings with his French and Canadian counterparts during the summit.

We may get some comments today, but the focus will probably be on the communique and press conferences after the meeting ends Saturday 9th of June. Usually the leaders make an effort to “paper over the cracks.” In the case of a disagreement, they usually issue some anodyne statement that allows each country to put whatever spin they think is necessary on it. This time however that’s doubtful. The others are too upset. Indeed, officials are reportedly considering whether to have Donald Trump refuse to sign the communique “as a signal that the old ways of doing business are over.”

Increasing trade tensions and the increasing isolation of the US could be negative for the dollar.

Today’s indicators

As for the indicators, early in the European day Friday 8th of June 2018, Germany announces its trade data too. The German trade surplus jumped in March 2018 but is expected to fall back to trend, which could be negative for EUR if investors feel that takes some pressure off of Germany to cut back exports.

Germany’s industrial production, which will be released at the same time, is forecast to show only a small mom increase and a slowdown in the yoy rate of growth. Although a modest change, that would still be better than yesterday’s factory orders number, which fell 2.5% mom (+0.8% expected). This could be positive for EUR. 

Canada’s housing starts are expected to slow somewhat to 220k. That’s exactly the same as the forecast last month. Perhaps people are just coming out with estimates suggesting a slight slowing from the 6m moving average, which is fairly steady around 225k.

The unemployment rate is forecast to be 5.8% for the fourth consecutive month.

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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08 / 06 / 2018 | Market News

What is hedging?

People invest by buying assets or items with the expectation that they will generate income or appreciate in the future. Committing money or capital to a long-term investment plan may prove profitable in the future but it could also lead to capital losses if the market moves against the investors’ interests. The possibility of losing their hard-earned capital makes investors search for mechanisms and strategies that could reduce the risks of an investment plan. 

The need for investors to safeguard their investment plans becomes even bigger when their long-term investment goal is to cover their families’ future expenses or other important needs, adding anxiety and extra weight on their shoulders. This is the reason why some investors do research on their own or with the help of a professional skilled advisor in order to find the proper strategy. One of the most known strategies which help to mitigate risk is hedging.

What is hedging?

Hedging is a financial strategy that helps to reduce or mitigate the effects of measurable type of risk from the future changes in the fair value of shares, currencies, commodities, assets and liabilities. In simple words, hedging could work as a type of insurance that can’t totally eliminate risks but could mitigate their effect. Hedging could also be suitable for mitigating the risks that an investment portfolio may face when the market is volatile. 

How does hedging work?

In order to better explain how the hedging technique works, it would be best to use an example. An investor buys a number of shares of company A which sells electrical appliances. The experts’ forecasts say, taking into consideration the current economic conditions, that the company A will likely announce new record sales in the next quarters. However, market downturns are always possible to occur, and it is normal for the investor to look for ways to ensure that his investment is as safe as it could be.
 
Utilising a hedging strategy, the investor would have to conduct market research themselves or assign this task to a professional experienced investment manager who would be able to find shares that could hold their value during a period of economic downturn. These shares could come from companies of the same industry such as company A but also from industries that, during time, have shown the ability to withstand the consequences of an economic crisis. Buying shares from company B, which has achieved good results even during economic slumps, means that the investor may be able to control and limit his downside risk if company A’s share price drops. In theory a “perfect hedge” is a position undertaken by an investor that eliminates the risk of an existing position but, in reality, a perfect hedge is rarely found. 

Economists call these shares ‘defensive’. Defensive stocks are the stocks of companies whose performance is good even when the economy shrinks during a downturn. As professional investment portfolio managers suggest having defensive stocks in a portfolio could cut capital losses sustained during recessionary periods. Most of the times, defensive stocks belong to companies whose business is not especially related to economic growth. An example of this type of companies is those which are part of the utility sector. Economists note that defensive stocks offer high dividend yields that can be made in low-interest rate environments. Pharmaceuticals and medical stocks as well as shares of companies related to food generally belong to the segment of defensive stocks that investment portfolio managers tend to trust in order to mitigate risks. However increased competition and the ambiguity around upcoming drug price regulation means that pharmaceuticals and medical stocks may not be as defensive in the future. 

STO and Investo

Our consolidated experience in portfolio management has helped us develop an investment strategy for STO clients called “Investo”. Our “Investo” strategy is suitable for individuals who seek long-term investment goals, who want to trade Forex and CFDs but lack the advanced knowledge of a professional portfolio manager or the necessary time to trade. Trading CFDs requires potential investors to have sufficient knowledge and experience to understand the nature and the risks involved in trading CFDs and the management of their portfolio of  leveraged derivative products. 

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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07 / 06 / 2018 | Market News

3 types of investors that could consider using a portfolio management service

Portfolio management is about investing capital with the goal of maximising investment returns at a specific level of risk. A portfolio management strategy depends on the risks that an investor would like to take. Investors have different needs regarding the income or growth they want to achieve from their investments, as well as different risk tolerances which could shape their strategies. An investment portfolio management service provided by an appropriately authorised and regulated financial services company, can help investors by managing their investments on their behalf to meet specific goals. 

Who could use portfolio management solutions?

The basic idea behind investing is to invest capital into buying and selling assets and with the goal of making a profit from changes in the prices of the assets, if the market moves in the favour of the investor’s interest. However, investing can also result in capital losses if the market moves against the investor’s interests. Investors can find the appropriate solutions by researching various types of investments, nevertheless keep in mind that time is the most valuable “commodity” of our era, therefore some investors may prefer to utilize an authorised portfolio manager to provide them with a portfolio management strategy rather than searching themselves for investing opportunities. 

It is easy to understand why portfolio management can be a suitable solution for many investors who don’t have the necessary time to develop an investing plan on their own, researching financial instrument, to learn the different trading strategies and to execute them. The lack of time can often be a major problem for investors because investing in general, requires research and getting all the latest updates from the markets. The time consumed for these tasks is precious and therefore tends to lead people who are interested in investing to portfolio management solutions. 

Another category of investors who trust portfolio management services are investors who have made investments on their own in the past but have realised that they are not happy with the results or that they don’t enjoy the procedure anymore. The thought of growing their invested capital is generally a motive for them to find a professional portfolio manager, who would have the necessary skills to find the right type of investments, make the right investment choices and at the right time. However, it should be known that a portfolio manager can and should never guarantee its investors positive returns. Financial markets are volatile and capital losses are a possibility despite the existence of a well-prepared investment plan by a professional portfolio manager. 

Last but not least is the category of people who would like to invest and are aware of the risks of trading, but lack sufficient trading experience. Knowing how to invest in various assets requires a lot of careful and thorough study of the financial markets and their mechanisms, which could be a quite a time consuming and challenging task for investors compared with the level of financial knowledge background and risk management tools of a professional portfolio manager. Although this category of investors may have sufficient funds and knowledge to execute their own investment plan, however sometimes they may be hesitant to invest due to lack of professional financial advice or professional experience, poor asset allocation which are not in line with their risk tolerance, or their lack of experience in being a successful at self-directed investing, which can weigh on their investment decision making. A portfolio management service could be suitable for people who are reluctant to execute their  investment plan, but are willing to take the risk with the goal of seeing their capital grow. 

STO and Investo

Our consolidated experience in portfolio management has helped us develop an investment strategy for STO clients called “Investo”. Our “Investo” strategy is suitable for individuals who seek long-term investment goals, who want to trade Forex and CFDs but lack the advanced knowledge of a professional portfolio manager or the necessary time to trade. Trading CFDs requires potential investors to have sufficient knowledge and experience to understand the nature and the risks involved in trading CFDs and the management of their portfolio of  leveraged derivative products. 

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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06 / 06 / 2018 | Market News

Eurostat to release Eurozone's Q1 2018 GDP data

On Thursday June 7th 2018, Eurostat which is the official statistical office of the European Union (EU) will publish the finalised data regarding the Eurozone’s Gross Domestic Product (GDP) growth in the first quarter of 2018 (Q1 2018). The GDP is one of the most comprehensive measures of the economy’s output since it provides key information on how much it grows or shrinks on a quarterly or a yearly basis. 

Eurozone GDP Q1 2018 forecast

According to a poll published by Bloomberg on June 4th 2018 the majority of economists suggest that the Eurozone’s GDP grew by 2.5% in the first quarter of 2018 on an annualised basis. The figure is expected to be lower than the Euro-bloc’s GDP growth in the fourth quarter of 2017 (Q4 2017) by 0.2%. On a month-to-month basis, the Eurozone’s GDP is likely to have expanded by 0.4% in Q1 2018. The Eurostat’s data released on March 7th 2018 had shown that the Eurozone’s GDP had grown by 0.6% in the fourth quarter of 2017, on a quarterly basis.  

Both anticipated Eurozone GDP figures for the first quarter of 2018 are expected to match a preliminary GDP report published by Eurostat on May 2nd 2018. The flash estimates had shown that Eurostat forecast a 0.4% GDP growth, on a quarterly basis, for both the Euro-bloc and the EU28. In the same report, Eurostat had forecast a 2.5% Eurozone GDP growth and a 2.4% GDP growth for the EU28, on a year-to-year basis. 

Eurozone inflation rises

A report published by Eurostat on May 31st 2018 showed that the Eurozone’s headline inflation jumped to 1.9% in May 2018 from 1.2% in April 2018, on an annualised basis. The significant increase added fresh fuel to the debate over when the European Central Bank (ECB) will halt its loose monetary policy. 

Economists familiar with the Eurozone’s economy noted that the uptick was attributed to a sharp rise in the price of crude oil as energy prices went up by 6.1% on a year-to-year basis. According to the Eurostat’s research, the prices of food, alcohol and tobacco also rose by 2.6%, pushing the Euro-bloc’s headline inflation upwards. The Eurozone’s 1.9% headline inflation reading, recorded in May 2018, is close to the 2.0% ECB’s mandate with economists arguing that if it remains at current levels during summer 2018, it may well have an impact on the Eurozone’s central bank policies and may press its governing board to decide to accelerate the process of monetary tightening. 

Angela Merkel takes initiative

On June 3rd 2018, the German Chancellor Angela Merkel revealed some of her ideas on economic reforms that should be done in the Eurozone. Angela Merkel told Frankfurter Allgemeine Sonntagszeitung journalists that she supports the idea of a European Monetary Fund (EMF) and the concept of an investment budget which would be designed to address structural weaknesses in the Euro-bloc countries. 

The French President Emmanuel Macron has already proposed the creation of the EMF but his vision is still far from what the German government believes to be proper. Angela Merkel would like to see the EMF as a tool to strengthen budgetary discipline while Emmanuel Macron believes that the EMF could be used to fight back the consequences of new financial crises. 

Eurozone’s GDP and the effect on the euro

The release of GDP data is a factor that could create market volatility. A figure that indicates robust GDP growth or a figure that exceeds economists’ expectations could strengthen the euro. On the contrary, a low GDP growth rate figure or a figure that misses expectations could weaken the Euro’s value against its major competitors such as the US Dollar (USD), the British Pound (GBP) or the Japanese Yen (JPY). STO offers its clients over 30 currency pairs to choose from for a bespoke trading experience, including major, minor and exotic ones. A daily technical and fundamental analysis is also available to STO clients in order to help them execute their trading strategies.

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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05 / 06 / 2018 | Market News

Fundamental Analysis 05.06.2018 - Market Outlook

Market Recap
The risk-on mood continues. In the United States, the small-cap Russell 2000 index and the high-tech Nasdaq 100 closed at record highs as the “fear gauge,” the VIX index, dropped back below 13. Treasury yields were higher with the better tone in risk.

The Euro gained as fears of the imminent dissolution of the Eurozone proved unfounded. Italian bond yields continued to fall as the market calms down a bit about the situation there.



Eurozone contagion fears are retreating as well. Spain, Portugal and Greece all saw their spreads over Germany continue to narrow. With the risk-on mood, it’s no surprise that the Japanese Yen (JPY) and the Swiss Franc (CHF) lost ground.



The British Pound (GBP) was the worst performing currency however. Even though the construction Purchasing Managers’ Index (PMI) beat expectations, it looks like the currency was hit by the “EEF/BDO Manufacturing Outlook” for Q2. (EEF is a manufacturers’ organization and BDO is an accountancy firm.) Their economists said conditions worsened in the second quarter of 2018 (Q2 2018), “continuing the downward drift” from 2017, and that “the durability of this upturn is looking somewhat more fragile.” “We are starting to see the impacts of the ongoing political and economic uncertainty on the UK manufacturing sector,” they said. Brexit negotiations “have led to amber lights flashing again on the business investment outlook,” was noted in their report. The ongoing Brexit negotiations are likely to keep the pound under pressure except for occasional bouts of over-optimistic temporary short-covering.

The Australian Dollar (AUD) was the best-performing currency over the last 24 hours, but this was no thanks to the Reserve Bank of Australia (RBA). The currency gained in European trading yesterday but has been weakening today after Q1 2018 current account deficit was wider than expected (AUD 10.5b vs AUD 9.9bn expected, AUD 14.7bn previous) and net exports smaller (0.3% of GDP vs 0.5% expected, -0.5% previous).

It weakened further after the RBA’s meeting. The RBA’s board left interest rates unchanged, as it was expected. The point is that the statement gave no indication of any change in their view. On the one hand, they added the sentence “the rate of wages growth appears to have troughed and there are reports that some employers are finding it more difficult to hire workers with the necessary skills,” which implies that there may be some upward pressure on wages to come. But on the other hand, when they were talking about how they expected growth to pick up a bit, they removed the sentence “This should see some reduction in spare capacity in the economy.” At the end of the day, they left intact their assessment that inflation is likely to be “a bit above 2 per cent in 2018.” Although the market is pricing in a rate hike as of June 2019, some Australian brokers don’t expect a rate hike until sometime in 2020.

Today’s market
The day starts with the final service-sector Purchasing Managers’ Indexes (PMIs) for the major European countries, which usually are not that important for the global financial markets. The forecasts are the preliminary numbers.

Britain’s service-sector PMI is expected to rise slightly. This follows a slight improvement in the manufacturing PMI and yesterday’s better-than-expected unchanged construction PMI.



Bank of England (BoE) Deputy Governor for Financial Stability Jon Cunliffe will speak at the Futures Industry Association International Derivatives Expo.

ECB President Mario Draghi and his predecessor, Jean-Claude Trichet, will present the “Two Presidents’ Talk” that the ECB is organizing on the occasion of its 20th anniversary. Unfortunately, the ECB’s first president, Wim Duisenberg, died in 2005. Investors would like to hear their views about the changing politics on the Continent, especially in Draghi’s home country, and the recent upturn in headline inflation. Will these changes affect their outlook on the likely progress of monetary policy?

The US Job Offers and Labor Turnover Survey (JOLTS) report is getting more traction nowadays. It’s the mirror image of the unemployment data:  the unemployment data show how many people are looking for jobs, the JOLTS report shows how many jobs are looking for people. In some areas of the US, there would still be unfilled jobs even if every unemployed person got work! Last month was extraordinary – the number of job openings jumped by 472k. This month they’re expecting a 250k decline to 6.33mn. Still, that would be well above the six-month moving average, which is at 6.09 mn.



Using this data and the number of unemployed persons from the household survey, we can calculate a “job openings to unemployed persons” ratio for the US. It’s currently 99.5, meaning there’s 99.5 jobs for every 100 unemployed persons in the country. In fact, there’s more than that, because the JOLTS data is two months behind the jobs data. The May 2018 job report showed 6.065mn unemployed persons, while today’s April 2018 JOLTS report is expected to show 6.30mn jobs – i.e., more than one job opening for every unemployed person, the first time this has happened that we know of. (The JOLTS data only goes back to 2001.) What this implies is that the strong US payrolls figures, which many people had expected to start turning down ages ago, can probably continue for sometime longer which could be positive for the US Dollar.



ECB Council member and Bundesbank President Jens Weidmann will speak on “Reforms for a stable monetary union.” It will be interesting to hear what he has to say, since generally speaking he opposes most of the things necessary for a stable monetary union, such as EU-wide bond issues and an EU-wide bank insurance program. Probably he will talk about the need to keep fiscal discipline.

Japan’s labor cash earnings jumped last month, rising 2.1% yoy. This was the first 2% rise since 2004 (it rose 2.0% yoy once in 2004, 2.1% once in 2003, and before then the last time there was a sustained number of +2% or more rises was the mid-1990s). However, a lot of the acceleration in wage increases was probably due just to the change in the survey sample. Using only the same businesses, scheduled salaries (i.e., excluding bonuses) rose at the same +0.8% yoy pace as the month before, showing no acceleration at all. That’s probably why the market looks for a noticeable slowdown in the rate of increase this month, yet still expects it to be above trend, since those new companies will still be in the sample.



In any case, it appears that cash earnings are finally rising on a real basis, that is, faster than the extremely low inflation rate, for the first time in about two years. That should be good for consumer spending, good for the economy as a whole, and good for the Japanese Yen.

Australia’s Gross Domestic Product (GDP) growth is forecast to accelerate. The quarter on quarter (qoq) rate of increase is expected to double. The key here is net exports, which are expected to add to growth this quarter instead of subtracting from growth as they did in Q4. However, given the lower-than-expected contribution from net exports that was announced in the morning of Tuesday 5th June 2018, the figure could miss expectations. Home building and business investment are also forecast to be a net addition to growth, vs a drag in Q4.  News of faster growth is likely to be positive for the Australian Dollar, unless of course the figure misses expectations.




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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