21 / 09 / 2017 | General

German Elections 2017 – CDU/CSU Still Holding Majority, but Polls Showing Difference

The expected coalition

 
The most recent ZDF poll published last Friday showed that Merkel's CDU/CSU coalition is leading with 39% support, While the Forsa poll sees that CDU/CSU has retreated to 36% and the SPD is still standing at 23%.
German equities are still underpinned by optimism about the country’s economic outlook, largely due to the pro-business coalition of the CDU/CSU being in the lead.
 

CDU/CSU and SPD

 
If the CDU/CSU and the Social Democratic party (SPD) government is preserved in the next term, this can open the door for Martin Shultz's inflation plans.
The DAX30 we also see an influx, as industrial stocks such as Siemens, Bosch, Daimler, Volkswagen and BMW due to the coalition’s positive stance on domestic industrial production.
After the recent September 3rd debate Schulz is inching closer to the position of deputy chancellor to Merkel during her fourth term.
 

CDU/CSU, The Greens and FDP

 
A coalition between CDU/CSU, The Greens and The Free Democratic Party FDP is still very plausible.
FDP party is looking for more tax cuts and easier legislation for the companies and which is good news for corporations, but the FDP has shown disapproval for Germany’s de facto rule in EU.
DAX30 will see a boost by this coalition also underpinning the demand for equities in several industries, especially for financial institutions such as Commerz Bank and Deutsche Bank.
 

Avoiding the AfD

 
There are no signs whatsoever that the far-right AfD will be part of any coalition.
At the moment though, the latest polls are showing a meager 9% gain. The far-right, euro-skeptic, anti-immigration party is still likely to hold seats in the Bundestag.
Markets will likely react negatively to this bringing down the EUR, as the party has given no clear economic package as its populist platform mainly focused on the 2015 and 2016 waves of immigrants and asylum seekers.
 

The worst possibility

 
A tightening gap between CDU/CSU and its counterparts is the worst possible scenario for the EUR, as it will destabilize Germany politically; splitting the Bundestag leaving it unable to reach an easy decision in relation to bailing out indebted countries in the EU. This in turn would destabilize the Union at large creating a volatile environment which will likely result in investors selling off the one-currency.  
 

 EURUSD Daily Chart: 


 
EURUSD came under downside pressure in the recent hours to form a lower high at 1.2032 below its peak at 1.2092 which has been formed on Sep. 8.

EURUSD contained most of its bouncing up from 1.1837 by relatively high downside momentum can expose 1.1822 supporting level to be broken over the short term.

EURUSD is now trading close to 1.1885 level in its seventh day of consecutive being below its daily Parabolic SAR (step 0.02, maximum 0.2) which is reading today 1.2041.

EURUSD is still underpinned by forming series of higher lows which have started with its formed bottom at 1.0339 on the third day of this year to be the lowest level since December 2002.

After rising from its formed bottom at 1.1569 on last Apr. 10, EURUSD succeeded until now to maintain its existence above its daily SMA50, its daily SMA100 and its daily SMA200.
EURUSD daily RSI-14 is referring now to existence nearly in the middle of the neutral region reading 50.103.

EURUSD daily Stochastic Oscillator (5, 3, 3) which is more sensitive to the volatility is still having its main line in the neutral region at 43.043 leading to the downside its signal line which is at 59.392.

Important levels: Daily SMA50 @ 1.1808, Daily SMA100 @ 1.1507 and Daily SMA200 @ 1.1079

Support and Resistance: 

S1: 1.1822
S2: 1.1662
S3: 1.1612
R1: 1.2032
R2: 1.2092
R3: 1.2271
 

Deutsche Bank Daily Chart: 


 
Deutsche Bank stock extended its slide yesterday to €13.50 from €14.28 which limited its rebounding from its Sep. 6 bottom at €13.12.

Deutsche Bank stock spent yesterday its first day of being below its daily Parabolic SAR (step 0.02, maximum 0.2) which has been reading at €14.28 yesterday.

Deutsche Bank stock is still undermined by continued being well below its daily SMA50, its daily SMA100 and its daily SMA200, after facing difficulty to rebound higher than €14.28 which is now forming a lower high below its formed resistance at €14.77 on last Aug. 16.

Deutsche Bank daily RSI-14 is referring  now to lower existence inside the neutral region reading 40.818.

Deutsche Bank daily Stochastic Oscillator (5, 3, 3) which is more sensitive to the volatility is having now its main line in its oversold region below 20 at 13.128 leading to the downside its signal line which is still inside the neutral area at 32.248, after peaking up inside the overbought territory above 80.
 
Important levels: Daily SMA50 @ 14.59, Daily SMA100 @ 15.41 and Daily SMA200 @ 16.44

Support and Resistance:

S1: 13.12
S2: 12.00
S3: 9.89
R1: 14.28
R2: 14.77
R3: 15.66
 
 

DAX30 Daily chart: 


After footing on 12479, DAX30 could extend its rebound from 11866 to be trading now at 12630 in its day number 12 of continued being above its daily Parabolic SAR (step 0.02, maximum 0.2) which is reading now 12310.

DAX30 which is now at a closer place to last Jul. 13 peak at 12678 is still underpinned over the short term by being above its Daily SMA50, after it could form an intermediate support at 12242 during its rising from 11866.

DAX30 is also underpinned over longer term too by keeping existence above its Daily SMA100 and also it has been above its Daily SMA200 since bottoming out at 12032.48 on Sep. 4.

DAX30 daily RSI is referring to existence at a higher place inside the neutral territory at 67.227.

DAX30 daily Stochastic Oscillator (5, 3, 3) which is more sensitive to the volatility is still having its main line in its neutral region at 78.503 to be at a closer place to the overbought area above 80 leading to the upside its signal line which is lower inside the neutral region at 72.495.

Important levels: Daily SMA50 @ 12276, Daily SMA100 @ 12467 and Daily SMA200 @ 12150

Support and Resistance: 

S1: 12479
S2: 12242
S3: 12032
R1: 12678
R2: 12841
R3: 12953
 
This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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19 / 09 / 2017 | General

German Elections Market Overlook

AfD's risk to EU:
The risk-on sentiment continues this week sending the Dow Jones and S&P 500 to record levels putting stress on safe haven options such as Gold and the Japanese yen.
Euro zone equities still seem to be experiencing bullish sentiment, while the market’s attention is still directed towards The German Election taking place next Sunday.
 
Merkel's Chance
While Merkel's CDU/CSU alliance definitely increased her share of the polls, her chance to win is still high currently near 37% comparing with the Social Democratic Party (SPD) led by Martin Schulz which is expected to gain about 23% of the Bundstag seats.

We should mention here that Merkel's chance increased considerably last May following the defeat of the far-right populist Marie Le Pen in the French presidential elections which have watched alignment against the polarization direction in EU.

Merkel has been criticized earlier for opening Germany to immigration but now the situation is different and German society’s approval of the immigration has increased - underpinning Merkel's situation in the face of the Right-wing nationalist party, Alternative for Germany (AfD) which is expected to gain 9% of the Bundstag seats.
 
Af's Threat 
AfD could gather momentum due to the immigration waves of 2015 and 2016 which some perceived as threatening to   the EU, while the recent debate between Merkel and Schulz has shown how many points the two party leaders have in common - issues like condemning Erdogan's policies and refusing Turkey's entrance to the EU.

Even the discrepancy between the 2 candidates about the flow of immigration into Germany, is relatively minor as it has to do more with the timing of accepting these waves of immigrants.
The debate which ran on Sep. 3 has shown that Schulz can be the deputy of chancellor Merkel in her fourth term instead of being a direct opponent.
Beyond the primary election race between the CDU and SPD, markets will be closely watching how many seats AfD can gain compared to the number of seats the CDU/CSU and SPD will claim. This is because the AfD is yet another member of the slew of euro-skeptics that have been cropping up around the Union.

So, the single currency can go up higher in light of a strong defeat of the AfD and bigger number seats are won by the CDU/CSU, but if this gap is smaller though, then the Euro’s price could potentially drop, as the Afd is a strong opponent of both the EU and a globalized economy.
 
  
EURUSD Daily Chart:
 

EURUSD bouncing up from 1.1837 kept it above 1.1822 supporting level but this rebound is still limited below 1.20 psychological level satisfied by reaching only 1.1987 last Friday. 

EURUSD is now trading close to 1.1970 level in its Fifth day of consecutive being below its daily Parabolic SAR (step 0.02, maximum 0.2) which is reading today 1.2059.

EURUSD retreated from 1.2092 on Sep. 8, after getting over its previous high at 1.2070 which has been formed on last Aug. 29 to avoid forming a lower high below 1.2070 and keep the pair vulnerable to the upside.

EURUSD is still underpinned by forming series of higher lows which have started with its formed bottom at 1.0339 on the third day of this year to be the lowest level since December 2002.

EURUSD could gather higher momentum by breaking out its previous resisting level at 1.1616 which capped the pair on May. 3, 2016.

After rising from its formed bottom at 1.1569 on last Apr. 10, EURUSD succeeded to maintain until now its existence above its daily SMA50, its daily SMA100 and its daily SMA200.
EURUSD daily RSI-14 is referring  now to existence inside the neutral region reading 58.554.

EURUSD daily Stochastic Oscillator (5, 3, 3) which is more sensitive to the volatility is still having its main line in the neutral region at 69.930 leading to the upside its signal line which is at 50.034.
Important levels: Daily SMA50 @ 1.1788, Daily SMA100 @ 1.1487 and Daily SMA200 @ 1.1065

Support and Resistance:
S1: 1.1822
S2: 1.1662
S3: 1.1612
R1: 1.2092
R2: 1.2271
R3: 1.2599
 
Deutsche Bank Daily Chart: 

Deutsche Bank stock failed to sustain a place above €14 level to edge lower for trading currently close to €13.85, after limited rebounding to €14.28 from its formed bottom at €13.12 on Sep. 6.

After forming that bottom, Deutsche Bank stock could spend 8 consecutive days of being above its daily Parabolic SAR (step 0.02, maximum 0.2) which has been at €13.453 yesterday.

Deutsche Bank stock is still undermined by continued being below its daily SMA50, its daily SMA100 and its daily SMA200, as it faced difficulty to rebound higher than €14.28 which is now forming a lower high below its formed resistance at €14.77 on last Aug. 16.

Deutsche Bank daily RSI-14 is referring  now to lower existence inside the neutral region reading 46.389.

Deutsche Bank daily Stochastic Oscillator (5, 3, 3) which is more sensitive to the volatility is still having now its main line in its neutral region at 55.084 leading to the downside its signal line which is at 72.730, after peaking up inside the overbought territory above 80.
Important levels: Daily SMA50 @ 14.70, Daily SMA100 @ 15.47 and Daily SMA200 @ 16.46

Support and Resistance:
S1: 13.12
S2: 12.00
S3: 9.89
R1: 14.28
R2: 14.77
R3: 15.66
 
 
 
DAX30 Daily chart: 

DAX30 could extend its rebound from 11866 to 12614.24 which is forming now a lower high below last Jul. 13 peak at 12678.

DAX30 is still above its Daily SMA50, after it could form an intermediate support at 12242 during its rising from 11866.

DAX30 kept its being above its Daily SMA100, while it is still existing above its Daily SMA200 since its bottoming out at 12032.48 on Sep. 4.

DAX30 daily RSI is referring now to existence inside the neutral territory at 65.004.

DAX30 daily Stochastic Oscillator (5, 3, 3) which is more sensitive to the volatility is still having its main line in its neutral region at 72.806 leading to the downside its signal line which is still inside its overbought region above 80 at 82.945.

Important levels: Daily SMA50 @ 12277, Daily SMA100 @ 12465 and Daily SMA200 @ 12132

Support and Resistance:
S1: 12242
S2: 12032
S3: 11866
R1: 12614
R2: 12567
R3: 12678

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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18 / 09 / 2017 | General

Meet the Candidates – Martin Schulz – SPD

Considered the party that has the potential to break the CDU and Merkel’s 12 year streak – Martin Schulz and the SPD have been gaining popularity in the polls since the last elections. Although the CDU had a 11% lead in July in the polls and that margin has grown to 15% as of recently, the SPD’s 22% is much closer to the CDU’s 38% than the 9% and below the other parties have in the polls.

The problem is that pollsters were also absolutely certain that the Brexit Referendum would end in a resounding “Stay”. Yet today we are in the second round of Brexit negotiations. Ultimately these are opinion polls and although the outcome may be a given for some, the polls might still be proven wrong - September 24th is considerably long time away.

The problem is that during the previous elections the CDU created a grand coalition with the SPD but this time they are running against each other – which might force the CDU to align with the liberal FDP instead. Judging from the polls this would bring the coalition to an astounding 47% (38% for the CDU and 9% for the FDP). There is also a possibility of the preservation of the current “grand coalition” between the CDU and SPD – with a caveat though: no matter who the CDU chooses to collaborate with for the elections, they will inevitably ask for a more powerful position in the newly composed government – the finance ministry. In previous coalition governments the CDU held both the Chancellor’s office and the ministry of finance – essentially giving the party a choke-hold on financial policy-making. This was a problem – especially considering both the SPD and the FDP both had their own economic agenda that involved more aggressive tax policies, than the ones the CDU promoted.

The situation can become even more complex if Martin Shultz’s SPD shares power with the CDU. As a proponent of European integration; this means that he will be pushing for a common EU Finance Minister, Monetary and Economic Union. Also Shultz will likely push for more infrastructure and a ramp up of welfare. This would force Germany away from its role as unofficial leader of the EU and might actually lessen the animosity that many countries harbor against Germany due to its enforcement of strict austerity during the recession.

Economic Policy

Beyond the complexities of a joint or multiple party government, the SPD has made very specific statements regarding economic policy. Most parties agree that the so-called solidarity surcharge (a tax intended to help E. Germany financially after the reunification of the country) should be phased out.

Beyond that the economic policy each party is proposing is significantly different. The German government’s surplus is at an astounding 23.7 billion euros – thus many parties are promising tax cuts during their campaigns. Most of these cuts are being promised to the most vulnerable strata of society, but the SPD also wants to increase the income tax of the highest earning individuals of the German Economy, pushing the tax rate on the highest earners to a 45%. Beyond this tax the SPD is also proposing an increase of inheritance tax – which both the CDU and FDP are strongly against.

The SPD also intends to invest a substantial 30 billion euros in public spending – to build new schools, care homes, hospitals, maintain infrastructure and railways.

The SPD and The Euro

Merkel’s CDU is pro-Euro, but nowhere as involved as the SPD’s pro-EU proposals. Shultz (the President of the European Parliament until recently) seeks to homogenize the EU under a common tax harmonization scheme, coordinated economic policy amongst the member-state, more flexible and adaptable financial rules and a union to guarantee welfare standards amongst the member-states.

Of course, the most extreme EU policy is that of the far-right AfD which seeks to exit the Euro and stop supporting bailouts.
 
This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
 
 
 
 
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18 / 09 / 2017 | General

Meet the Candidates – Sahra Wagenknecht and Dietmar Bartsch – Die Linken

The third largest party in the running Die Linken represents Germany’s left-wing and as is expected they have the rich and privileged squarely in their crosshairs during their campaign promises. Proponents of substantial taxes on the rich, ramped up welfare spending and tax cuts for the lower levels of society.

Although we could say that Die Linken is the one of the top three political parties – but according to the last poll this is untrue. The second position is a three-way tie at 9% amongst the FDP (the liberal party), the AfD (the hard right) and Die Linke (the hard left).

At the moment there is an inkling of a SPD, Die Linke and Green Party coalition – but this plans was thrown out with the news that former West Germans would be reluctant to support a coalition which includes a communist or at least a far-left party. This was proven when Saarland (a former West German state) rejected a new coalition with the same member outright – in a March election.

Their policy is largely EU-centric and they propose reform, bolstering of the EU’s economic power and striving towards making the Union’s institutions more egalitarian. They also propose that EU decisions involve national parliament of the member-states more. Their ultimate agenda is to reinforce the Union – well as a Union, avoiding further unraveling of the political/economic community. Having a place in the Bund, should counterbalance the Euro-sceptics on the other side of the ideological spectrum – which would be positive for the Euro and the Union at large.

Economic Policy

One of Die Linke policy which seems the least conventional is the proposal for large EU banks to become nationalized – something which is obviously an unsavory perspective for its political counterparts. This isn’t even the beginning of their unconventional economic platform – they seek to disband the Investment Partnership  and Trans-Atlantic with the US.

As is expected of a far-left party most of their policies are pro-social. For example when a minimum wage was proposed, Die Linke opposed it because they believed the 8.50 an hour should have been in the area of 10 euros and hour for it to be a livable wage.

Although at the moment polls show a three way tie – the center and the far-left would be much more beneficial to the EURO then the Euro-skeptic far-right.
  
This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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15 / 09 / 2017 | General

Trade the German Elections - Overview

Polls
The most recent polls have shown that Germany’s Chancellor Merkel is closing in on her fourth term in office and that is what the markets seem to be responding to.
Merkel's CDU/CSU Party is standing near 37% according to the INSA Institute, while the center-left Social Democrat Party candidate Martin Schulz only has 25% of the votes.
The Forsa poll, commissioned for Stern magazine and broadcaster RTL, at the end of last August showed that Germany’s Chancellor Merkel’s CDU/CSU party had lost some of their lead, only to gain 38% of the votes (down from 40%).
The Forsa  poll said the German election on September 24th will conclude with the CDU/CSU gaining of 38% of the votes, 24% for SPD, 7% for Greens, 8% for FDP, 9% for Linke  and 9% for AfD, while the others will likely gain 5%.
The latest GMS poll on the upcoming German election has supported the 38% CDU/CSU win, while the SPD holds at 22%.
 
Scenarios
 
For EU: 
Approving bailout packages in the EU will give leeway for higher financial stability and integration.
 
Inside Germany:
 
Merkel wins 
 
Merkel promise of retaining Finance Minister Wolfgang Schaeuble who intends to keep the governmental fiscal surplus until 2020 indicating towards a lower chance of new inflation plans in Germany.
Wolfgang's view supports the German Bunds prices having lower yields by sustaining the fiscal situation of the German government but at the same time a cap on German equities prohibiting holders from benefiting by a new inflation boost in the coming years.
 
Schulz's winning 
 
While Schulz's winning can put new inflation plans on track in Germany by raising public spending and cutting taxes, this is likely to hurt the current financial stability and weaken the economic situation exposing the German government to higher yields when issuing new bunds. This is while most other governments in the EU are depending on its stability.
However this will likely favor consumer spending and inflation hikes in Germany which in turn will support a stronger EU economy later on.  
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15 / 09 / 2017 | General

Meet the Candidates – Angela Merkel – CDU

The 2017 German Elections will take place on the 24th of September which its outcome will decide the members of the 19th Bundestag, the New Chancellor and government. The CDU (the Christian Democratic Union/Christian Social Union) have essentially dominated popularity polls, until the SPD (the Social Democratic Party) announced their new leader – Martin Schultz.

This is a compound effect though and not as superficial as just a widely popular opponent. Merkel and her party have been criticized recently for their lax immigration policy, also allowing the further- right-than-center AfD to gain on the CDU’s dominance, enough to potentially earn the party a position in the Bundestag. Yet another point of criticism against Merkel and her party.

On Sunday, September 3rd  Merkel and Schulz, faced off – largely covering matters of refugee immigration and relations with a combative (as of recent) Turkish leadership. Here the SPD leader Martin Schultz, kept a more populist slant during most of the debate, but noted that the EU’s borders should remain open, an increasingly unpopular stance when talking about immigration policy within Germany.

Merkel on the other hand, took a popular stance when it comes to Muslim immigration – she mentions that Islam is compatible with local culture as long as it adapts to said culture. But then took a hit when questioned how she felt that a party further right than her own ascending to parliament under her “watch”.

In general though – the CDU wants to keep the immigration policy largely untouched (although the CSU – a sister party to CDU – wanted a cap set at 200.000 immigrants a year) whereas the FDP and SPD want to set up a point scheme for non-EU economic immigrants which will target or facilitate the attraction of skilled labor. The AfD (which is a party further right than Merkel’s conservative CDU) also wants to cap immigration at 200.000.

Economic Policy
The CDU is pushing for a substantial tax cut in the region of 15 Billion Euro and offer stimulus to young families. By 2025 the party seeks to lower unemployment to 3% (released in their pre-election manifesto) a lofty goal considering Germany’s current unemployment rate is at 5.5%. They also seek to increase the highest income-tax bracket by 8,000 euros, up to 60,000. This is a very meager increase compared to the CDU’s political opponents more populous stance, which promises to tax the members of the top economic strata -  42 – 45% with the limit for that taxation set at 76,000. The CDU wants the 42-45% taxation to be limited only to the “extremely wealthy” that make over 200,000.

What the CDU and its counterparts agree on is gradually phasing out of the so-called “solidarity fee” which was a tax intended to economically boost E. German states after reunification almost 30 years ago. One of the pro-social economic policies the CDU wants to enact is an increase of child allowance and tax leniency increase for child dependents. Also the party wants to give first time home owners with dependents a yearly stipend.
Finally the long debated restriction on dual citizenship – the CDU wants to allow first generation and their children to preserve both their passports.

A CDU victory would be a sigh of relief for both markets and the EU – especially against AfD (Germany’s right-wing populist party), as the U.S. Trump victory inspired a wave of populist parties and candidates across Europe including – Nigel Farage (proponent of the UK leaving the EU for 17 years), Marie Le Pen (a proponent of France leaving the EU), Geert Wilders (Dutch Far-Right leader) and even outside of Europe such as Australia’s Pauline Hanson. In both France and Holland, the far-right, domestic first anti-EU parties – were dangerously strong contenders for their respective country’s top offices. 

If this scenario plays out for Merkel’s CDU party goes up against the AfD markets will likely react with risk-off the EUR, as Germany is one of the Unions, strongest economies, if not the strongest.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
  
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24 / 08 / 2017 | General

What to Look out for Today – Threats and New Homes Sales hit USD

U.S. new home sales was released yesterday – and the data was less than confident inspiring, coming in at a seven-month low. Although it was an unexpected – the signs were there – just this month data revealed a drop in both building permits and home building. The unfortunate news for the US real estate is that analysts are expecting this to continue throughout the third quarter of the year.

A proposed over-hall of the U.S. tax code is being floated in lieu of complaints made by small business owners, Trump’s threats to shut-down government and terminate NAFTA are all contributing to markets being risk-averse towards the USD.
This caused the USD to weaken against its primary competing currency the Euro by 0.188% this morning coming in at 1.1794.
The Union’s one currency on the other-hand is experiencing its highest prices in the past five years and an overbuying trend it hasn’t seen since 2007. This is largely due to a torrent of positive data and growth in one of the EU’s biggest markets – Germany.
Of course the primary event of the day is the beginning of the Jackson Hole summit – and it seems that markets are holding their breaths for the first set of speeches although both the dollar and European stock seem to have climbed slightly in hopeful anticipation.
This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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18 / 08 / 2017 | General

Technical Analysis 2017.08.18 – Brent Crude Oil

Current trend 
Brent is at 50.00 which is the commodity’s important level of support. If support breaks down, this might bring the price down to $45.00 per barrel.

Pressure was put on oil after the data release by the US Department of Energy showing a continuation of the increased production at 9.5 mln barrels a day. Analysts expect the LTO revolution to continue to grow in the USA canceling out the reduction of oil output by OPEC.

Support and resistance
Stochastic is currently at 80 points pointing towards an overbought asset with the potential for a correction.

Brent Oil Support levels: 50.00.
Brent Oil Resistance levels: 51.56.
 
This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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03 / 08 / 2017 | General

What to Look out for Today – US – Russian Trade Sanctions

Although Trump signing a bill imposing trade sanctions on Russia is yesterday’s news the blowback is new and potentially market effecting.

Russia’s second in command Prime Ministry Dmitry Medvedev, said that the signing of the bill basically equates to full out trade-war. Already the European market opening is expected to be lower because of these sanctions. To rub salt into the wound he added that this proved to be utter powerless. This has also been the general market consensus regarding the Trump administration – proving its political impotence when they recently attempted to reform Obamacare.

Much like the markets’ hope that the Trump administration would be able to reform the American market and manufacturing – the PM also mentioned that he had lost hope that their relationship with new U.S. administration would be improved compared to the previous. Of course much like the previous week’s quid pro quo – when Russia asked the U.S. to shrink their diplomatic staff by more than half and then seized a compound that was used by U.S. Embassy workers as a recreation home.

Both sides are walking a thin line though, neither Russia or the U.S. want to lose investments from each other – or create an irreparable political rift. Both of these scenarios cause unnecessary economic damage.  

Another paradox that this has created is the EU’s resistance to the bill even though they were politically aligned with the U.S. upon the first enactment of sanctions in 2014 – as a reaction to Russia’s annexation of Crimea. The most significant point of the EU’s protest to the bill, is the fear that a new series of sanctions might have a parallel economic effect on the Union. European energy and oil companies working in Russia might have their activities impeded or even completely halted in retaliation.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
 
 
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02 / 08 / 2017 | General

Fundamental Analysis 2017.08.02 – UK Construction PMI, USD and EUR

Market recap
USD is finally moving slightly North after a less than positive month - unfortunately this comes at a cost to US bonds. The effect or slight upswing was bolstered by the core personal consumption expenditure (PCE) deflator for June which reached +1.5% YoY compared to May’s +1.4% which was also June’s speculated rate. It is too early to speculate whether this a full reversal or just the temporary eye of the storm.

EUR/USD EU GDP meeting its estimated level. Due to the USD overall slipping, the EUR gained.

The UK PMI surpassed initial estimates. A noteworthy spike of demand of foreign capital has also been observed, indicating that the low price of the pound is boosting manufacturing. These items are unfortunately speculative – there isn’t any hard data – at least at the moment – to back this up. It sufficed though to quiet investors’ sentiment  at least holding the faultering GBP even opposite the strengthening EUR and to a lesser extent USD.

This is unfortunately probably a temporary effect though, as instability surrounding the still new Brexit negotiations will likely dissuade investors and raising inflation will outpace salaries weakening retail sales.
CAD slipped even taking into consideration the substantially higher than expectations Markit manufacturing PMI. The sharp decline of oil prices is probably the source of this effect.  Various data also pointed towards a weakening housing market which usually used the gauge of a healthy economy. Oil dropped when American Petroleum Institute (API) announced data showing an unexpected 1.78mn barrels increase in reserves. The forecast was a drop of 3.1mn barrel.

Today’s market
Other than the ECB’s non-monetary meeting and another exception we will touch upon, the markets are expected to stay stable for the most part.

The only noteworthy event of the European trading day is the UK’s construction PMI. This can cause a market reaction, considering the correlation between a country’s housing market and the health of its economy. At the moment forecasts are assuming a lower figure, resulting in a slip of the GBP price. We might have another surprise though like the UK manufacturing PMI which was expected to be lower but surpassed expectations. On the other hand fewer mortgage applications and declining house prices, in addition to hearsay about UK companies relocating part of their operations to the European main-land in as a precaution against the Brexit fallout, all of events that would imply towards a lower construction index. 


 
 
Today’s forecast for US crude oil inventories was a 3.1mn barrel depletion of current stocks. It was an educated deduction considering Crude inventories plunged last week. P Investors yet again were surprised though – when the American Petroleum Institute (API) reported an increase of reserves by 1.78mn barrel.

 

 

 
This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
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