Could a turnaround last the distance for major markets?

Could a turnaround last the distance for major markets?

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  Weekly Outlook Friday 9thAugust 2019 by Richard Perry, Market Analyst Forex and CFDs are high risk leveraged products that can result in losses greater than your initial deposit and you should therefore only speculate with money you can afford to lose. FX and CFD trading are not suitable for everyone. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions. You should first carefully consider your investment objectives, level of experience, and risk appetite and only invest funds you are prepared to lose entirely. For our full risk warning, please go to the end of this report. Key Economic Events WHEN: Tuesday 13th August, 1330BST LAST: Headline +1.6%, Core +2.1% FORECAST: Headline +1.7%, Core +2.1% Impact: Attention should turn back more towards the data to impact on the outlook for bond markets this week. There is plenty to look for from the consumer side (retail sales and Michigan Sentiment), but the Fed’s focus on inflation means that CPI will be key on Tuesday. Expectation is for a tick higher on headline CPI, but no move on core CPI. Any downside surprises could see bond yields tumbling again and a further rush to price for further Fed rate cuts. Expect to see volatility through US Treasuries, the dollar and also Wall Street with the impact on rates expectations. Date Time Country Indicator Consensus Last Tue 13th Aug 0930BST UK Unemployment / Average Weekly Earnings 3.8% / +3.7% 3.8% / +3.4% Tue 13th Aug 1330BST US CPI (Headline / Core) +1.7% / +2.1% +1.6% / +2.1% Wed 14th Aug 0300BST China Industrial Production / Retail Sales / FA Inv +5.8% / +8.6% / +5.8% +6.3% / +9.8% / +5.8% Wed 14th Aug 0900BST UK CPI (Headline / Core) +1.9% / +1.7% +2.0% / +1.8% Wed 14th Aug 1000BST Eurozone GDP (flash Q2) +0.2% +0.2% (Q1 final) Thu 15th Aug 0230BST Australia Unemployment 5.2% 5.2% Thu 15th Aug 0930BST UK Retail Sales (ex-fuel MoM/YoY) -0.2% / +2.3% +0.9% / +3.6% Thu 15th Aug 1330BST US Retail Sales (ex-autos MoM) +0.4% +0.4% Thu 15th Aug 1415BST US Industrial Production (MoM) +0.2% 0.0% Fri 16th Aug 1500BST US Michigan Sentiment (prelim) 97.5 98.4 T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 1N.B. Reuters data where possible. Please note all times are now British Summer Time (GMT+1) Macro Commentary With President Trump escalating the trade dispute with China, market fear has cranked up several notches in the past two weeks. This has resulted in a significant inversion of the US yield curve. You will get over 2% yield lending to the US Government for 3 months. This is over 50 basis points better than lending for 5 years (c. 1.50%) and over 30bps better than lending for 10 years (c. 1.70%). This inversion reflects a growing fear of a US recession. The US 10 year yield has dropped 30 basis points since Trump’s announcement. Safe havens have been the trade, with Gold soaring over $100 higher and strong yen and Swissy outperformance on forex majors. We do not see the trade dispute calming down any time soon, and as such we continue to see the medium to longer term outperformance of gold and the yen ongoing, with near term unwinding moves being a chance to buy. That said, there are a few signs this week that a near term consolidation could be coming. As the dust settles on the latest escalation in the trade dispute, this may give rise to profit-taking retracements. However, we continue to see these as counter trend moves amid the longer term outperformance of safe haven assets. We believe that the dollar will be caught in the middle ground of the spectrum of risk on this. With the euro taking on increasingly safe haven characteristics in the past week, and the pressure mounting on the Fed to cut rates further, tightening interest rate differentials will hamper the dollar’s ability to outperform, leading to an increasingly mixed period of performance. Must Watch for: US CPI US inflation indicators Inflation has been a key focus for the Fed which it classes as being at “muted” levels. After a tick higher on wages and core PCE recently, a tick higher is expected on headline CPI, but core surprises could shake up a recent consolidation on bond markets.
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  Weekly Outlook Friday 9thAugust 2019 by Richard Perry, Market Analyst Foreign Exchange Across the major forex currencies there continues to be a longer term dichotomy between the outperformance of the safer haven currencies (specifically the Japanese yen and Swiss franc, but also increasingly the euro) and the underperformance of the higher risk commodity currencies (Australian dollar and New Zealand dollar). The performance of the US dollar sits somewhere whilst sterling is a whole calamitous story of its own. The driving factor is how central banks will be forced to react to the continued escalation in the US/China trade war which is the driving force behind slowing global economic trends. As President Trump drags the US economy towards the rocks, it is the job of the Federal Reserve to steer the economy towards a less hazardous destination. At least that is the take of the Fed’s more international focus in the recent rate cut. A further two rate cuts are now priced for September and December respectively and there will have to be some serious pick up in inflation and strong consumer data that will persuade the Fed to disappoint the market. Subsequently rate differentials are the key. The BoJ and SNB have their hands tied on monetary policy, so this should help to ensure continued strong performance of the yen and Swiss franc. Even the ECB can only tweak at the edges. Compare this to the surprise 50 basis point cut from the RBNZ which is surely not the end, whilst the RBA is likely to also follow suit. Whilst near term snap backs should not be ruled out, we are worried for on-going under performance of the Aussie and Kiwi. Sterling remains a basket case whilst uncertainty of Brexit is unresolved. WATCH FOR: US CPI, Retail Sales and Michigan Sentiment. UK wages, CPI and Retail Sales. EZ growth T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 2 FX Outlook GBP/USD Watch for: The breakdown below $1.2100 has opened the critical low at $1.1980 Outlook: The period of consolidation over the past week and a half seems to have merely been a stay of execution for sterling bulls as another downside break has come. Consistent closing below $1.2100 takes the market to the lowest since January 2017 at $1.1980. This is the post-Brexit critical support for Cable under normal trading conditions (i.e. aside from the October 2016 flash crash). Momentum remains extremely bearish and any strength remains a chance to sell. The market may be extremely sterling short, but the outlook continues to price for a “no deal” Brexit. EUR/USD Watch for: Reaction to a $1.1180/$1.120 pivot remains key for the near to medium term outlook Outlook: A break back above $1.1200 has helped to create more of a mixed outlook on EUR/USD over the medium term. Breaking a six week downtrend and a move above the two month pivot band at $1.1180/$1.1200 has just shifted the outlook away from selling the euro into strength. With momentum indicators more of an improving configuration into this week, the bulls will be confident of restricting the selling pressure. Consistent trading above $1.1200 maintains this outlook, whilst the resistance at $1.1250/$1.1280 looms overhead to restrict upside. A period of choppy uncertainty looms.
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  Weekly Outlook Friday 9thAugust 2019 by Richard Perry, Market Analyst Equity Markets With such elevated levels of volatility and markets still reactive to movements in bond markets, the outlook for equities is barely taking any notice of earnings season. Although US corporates typically try to lowball earnings (under guide in order to drive outperformance), the development of Q2 earnings continues to suggest negative growth for the quarter. S&P 500 earnings are expected to fall by -1.0% for Q2 and given the negative guidance so far earnings are expected to decline again in Q3 by -2.2%. Perhaps this needs to be taken with a pinch of salt though as European STOXX 600 earnings are expected to fall by -2.7% in Q2. European earnings season has been rather disappointing, especially on financials which are under pressure from the prospect of looser monetary policy, but also a heavy industrial weighting. Into Q3 the earnings decline is better but still in the red, falling by -0.7%. Typically though, this could also reflect the lowballing in the US, where earnings beats are between 70% to 75%, far higher than in Europe which will typically see around 50% of companies beating estimates. Valuation reasonably reflect the contemporary issues, with the global slowdown and Brexit pertinent. The S&P 500 remains on a far higher valuation, c. 17x forward earnings and 2.4% yield, whilst the DAX is lower around 14x (reflecting stagnant German/Eurozone growth and exposure to a slowdown in the China trade story) and yields 3.4%. FTSE 100 which is also beset by Brexit uncertainty trades on 12.3x forward earnings and a yield of 4.6%. Getting Brexit sorted in a reasonable way would suggest decent value for a FTSE 100 recovery. WATCH FOR: Further developments in the trade story. Sterling and FTSE negative correlation T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 3 DAX Xetra Watch for: The sellers are increasingly in control as long term technicals turn decisively negative Outlook: The DAX breached the support of the key May low at 11,620 during the recent sell-off. With an instant bounce, the bulls will have been looking for a “V” shaded bottom, however the move has struggled for traction. With a string of long term technical indicators breaking down, the bulls are really struggling now. An old pivot at 11,845 has now formed resistance at 11,845/11,865 and is a key level to watch this week. RSI struggling below 40 and MACD lines falling suggest rallies are a chance to sell. A decline to close back below 11,620/11,560 opens the March low of 11,312 and a growing prospect of 11,000. FTSE 100 Watch for: Holding the key support band 7040/7080 is key for a recovery Outlook: The broken seven month uptrend was a blow for FTSE 100 bulls, but the crucial support between 7040/7080 remains intact and the longer term technical outlook is far better positioned than for the DAX (the negative correlation with a plummeting sterling is certainly helping). The resistance that the bulls need to overcome sits at the 7370 pivot. Momentum needs to pick up but it is interesting to see turning points for the market tend to be born out of the RSI bouncing off 30. The caveat is that these bottoms (Dec 2018 and May 2019) came after bullish divergences and another mini leg lower for FTSE 100 before the true low is seen. Index Outlook
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  Weekly Outlook Friday 9thAugust 2019 by Richard Perry, Market Analyst Other Assets: Commodities & Bonds Gold outperformance has been impressive of the past week and a half. Drove the market from a near term low at $1400 to $1510 at its high last week. However, the near term momentum of the move has just been lost now. The height of the market fear of the escalation of the trade dispute pulled investors into gold. However, this week, we need to watch how Treasury yields move (higher would be gold negative) and then the near term technicals on gold which are beginning to look more corrective. Ultimately, we remain buyers of gold into weakness, with the decline in real yields set to continue, and investors concerned of the global slowdown along with the inverted US yield curve. The US/China trade dispute drags on and the outlook of demand for oil will be scaled back. This should help to sustain the trend of lower highs and lower lows that has developed on oil in recent weeks. We would be looking to use Friday’s rally as an opportunity. Watch for inventory levels too, after the surprise EIA build last week. Bond yields seem to have just stabilised in the past few sessions and this week the focus will be on whether this is a pause in the big move lower, or whether a recovery can build. This is key in the outlook for risk appetite. Key levels to watch for a reversal on 10 year yields include -0.52% on the Bund yield, +1.80% on the US Treasury yield, and +0.54% on the UK Gilt yield. WATCH FOR: Further trade dispute developments, US inflation and consumer data . T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 4 Gold Watch for: Has the gold bull run topped out at $1510… for now? Outlook: The bull run has stuttered at $1510 and there will be questions of whether this signals an upcoming profit-taking reversal. Momentum indicators are threatening corrective signals (a bear cross on Stochastics and RSI back below 70 would be near term exhaustion signals). The resistance at $1510 has held and traders will be looking for consistent positioning back below $1500. The 21 day moving average has been a great basis of support in recent weeks and the recent breakout has very similar hallmarks of the June breakout which consolidated sideways whilst the 21 da ma caught up (currently at $1440). A breakout support is at $1452. Markets Outlook Brent Crude oil Watch for: A failing rebound into the resistance band $59.40/$62.00 would be a chance to sell Outlook: Oil has been selling into strength since the April high. A downtrend formation comes in around $64 this week so there is room for a technical rally. However, the overhead supply between the June low at $59.40 and subsequent lows throughout July up to $62.00 will be key resistance to overcome. Momentum indicators remain negatively configured and there is little change to then outlook that near term rallies are a chance to sell for what should be a retest of $55.90 and potentially back towards $50 in due course.
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  Weekly Outlook Friday 9thAugust 2019 by Richard Perry, Market Analyst T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 5 Risk Warning for Financial Promotions This report is issued by Hantec Markets Limited, who is authorised and regulated by the Financial Conduct Authority (FCA) in the UK, No. 502635. The report is prepared and distributed for information purposes only. Trading in Foreign Exchange (FX), Bullion and Contracts for Differences (CFDs) is not be suitable for all investors due to the high risk nature of these products. Forex, Bullion and CFDs are leveraged products that can result in losses greater than your initial deposit. The value of an FX, Bullion or CFD position may be affected by a variety of factors, including but not limited to, price volatility, market volume, foreign exchange rates and liquidity. You may lose your entire initial stake and you may be required to make additional payments. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions. Before deciding to enter into FX, Bullion and/or CFD trading, you should carefully consider your investment objectives, level of experience, and risk appetite. You should only invest in FX, Bullion and/or CFD trading with funds you are prepared to lose entirely. Therefore, only your excess funds should be placed at risk and anyone who does not have such excess funds should completely refrain from engaging in FX and/or CFD trading. Do not rely on past performance figures. If you are in any doubt, please seek further independent advice. This report does not constitute personal investment advice, nor does it take into account the individual financial circumstances or objectives of the clients who receive it. All information and research produced by Hantec Markets is intended to be general in nature; it does not constitute a recommendation or offer for the purchase or sale of any financial instrument, nor should it be construed as such. All of the views or suggestions within this report are those solely and exclusively of the author, and accurately reflect his personal views about any and all of the subject instruments and are presented to the best of the author’s knowledge. Any person relying on this report to undertake trading does so entirely at his/her own risk and Hantec Markets does not accept any liability. Trust Through Transparency Hantec House, 12-14 Wilfred Street, London SW1E 6PL T: +44 (0) 20 7036 0850 F: +44 (0) 20 7036 0899 E: [email protected] W: hantecfx.com