UK inflation and Eurozone growth will be key this week

UK inflation and Eurozone growth will be key this week

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  Weekly Outlook Monday 15thMay 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. WHEN: Tue 16th May, 1330BST LAST: +0.4% QoQ (+1.7% YoY) FORECAST: +0.5% QoQ (+1.7% YoY) Impact: Soft Eurozone data (surveys) has been strong for the past few months. The economic recoveries in France and Spain have been beating expectations, but the composite PMIs of all the major Eurozone PMIs have been above 56.0 suggesting a strong end to Q1 which has continued into Q2. Flash GDP for Q1 is expected to be +0.5% and there could be an upside risk to this. Mario Draghi is increasingly confident and the ECB is likely to shift towards a more neutral stance. Tuesday’s growth data could be a nudge in the right direction and drive euro higher. Key Economic Events Date Time Country Indicator Consensus Last Tue 16th May 09:30 UK CPI (headline / core) +2.6% / +2.2% +2.3% / +1.8% Tue 16th May 10:00 Eurozone German ZEW Economic Sentiment +20.6 +19.5 Tue 16th May 10:00 Eurozone GDP (flash Q1 QoQ) +0.5% +0.4% Tue 16th May 13:30 US Building Permits / Housing Starts 1.27m / 1.27m 1.26m / 1.22m Tue 16th May 14:15 US Industrial Production (MoM) / Cap Utilization +0.3% / 76.3 +0.5% / 76.1 Wed 17th May 09:30 UK Unemployment / Av Wkly Earnings Growth (x b) 4.7% / +2.2% 4.7% / +2.2% Wed 17th May 15:30 US EIA crude oil inventories -5.2m Thu 19th May 02:30 Australia Unemployment 5.9% 5.9% Thu 19th May 09:30 UK Retail Sales (ex-fuel YoY) +2.5% 2.6% Thu 19th May 13:30 US Philly Fed Manufacturing +19.4 +22.0 T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 1N.B. Please note all times are British Summer Time BST (GMT+1), data source Reuters Macro Commentary Donald Trump firing someone should not be such a big deal. However, when he fires a man he has previously praised but has latterly been heading up an investigation into the President, it becomes an issue. The markets have been focusing on Trump firing FBI Director James Comey because it does far more than it first appears. Firstly, the investigation into Donald Trump’s potential involvement with the Russians during an election campaign that Russia has been accused of hacking into the emails of Hillary Clinton is ongoing. Comey’s sacking subsequently leads to serious questions over a potential cover up. Secondly and perhaps more importantly for financial markets, it just adds to the toxicity of the divide within Congress and poses further questions on the ability for Trump to get through his fiscal plans. Trump was an already polarising President and it has been claimed that he is having to learn on the job. However he is clearly learning pretty slowly that you cannot run the White House like a corporation. Trump claims to have sacked Comey due to his poor leadership and having lost the faith of those within FBI, a claim flatly denied by the now acting FBI Director Andrew McCabe. How does this impact on markets? Confidence is key, and the continued maverick/chaotic way that Trump runs his administration is worrying. Safe haven plays have started to rally and equities are wavering in their support, whilst the VIX last week under 10 surely shows complacency. Must Watch for: Eurozone GDP (flash) Eurozone GDP expected to show s another strong Q2
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  Weekly Outlook Monday 15thMay by Richard Perry, Market Analyst Foreign Exchange The dollar has recently been gaining ground as the market has increasingly factored in a June rate hike. However, whilst expectations are firmly set for June, the economic data has been hardly shooting the lights out. Wage growth dropped away in the recent Employment Situation report, whilst core CPI has dropped back below 2.0% in a trend that the Fed hawks will be eying with a wince. With little key data due this week, this could now weigh on the dollar. It was interesting to hear settling comments from the FOMC’s Bill Dudley on the balance sheet reduction. Dudley sees the Fed to begin the process in late 2017/early 2018 and this goes along with the expectation of two more hikes in 2017 and an announcement on quantitative tightening in December. Sterling is under pressure after the Bank of England lower growth expectations and cut longer term inflation expectations. This could lead to near term underperformance, whilst this week’s UK CPI and wage growth data will be keenly watched for sterling traders. Concerns over negative real wages will be a driver of the pound near term, but the political impact of the UK election should retain a floor of support. The euro will be impacted by the flash reading of Eurozone Q1 GDP. After so much positivity in the PMIs, this should ensure a decent and euro supportive number. A dovish RBNZ has put the pressure on the Kiwi but are fears over inflation overdone? WATCH FOR: US CPI and wage growth will be a key sterling driver. The euro will focus on GDP, whilst the dollar could drift in the lack of key economic data. T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 2 FX Outlook USD/JPY Watch for: Is a correction back towards 111.60/112.20 looming this week? Outlook: I have been confident that corrections would be bought into through the recent four week uptrend. However as momentum indicators begin to roll over I am looking at how deep a correction could be. I am still confident of medium term bull control but if this recent trend is decisively broken then the correction could be deeper than the 113.05 breakout I had initially anticipated. There is a key pivot range 111.60/112.20 over the first four months of 2017 that could yet be tested if the dollar comes under pressure this week. This would also be an unwind from the 23.6% Fib of 100.07/118.65 to the 38.2% Fib. This would be a test of the buying appetite. EUR/USD Watch for: Despite a brief scare, the euro remains supported Outlook: The euro has been supported above $1.0850 which is a long term key neckline breakout. A brief breach last week could not be sustained and the bulls seem happy to continue to hold the support. Momentum had threatened to turn corrective but seems to have been simply unwinding and corrections into the support band $1.0800/$1.0850 remain a chance to buy. The longer term prospects for gains towards the $1.1350 implied target remain sound and with momentum indicators unwound there could be renewed buying pressure in the coming weeks.
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  Weekly Outlook Monday 15thMay by Richard Perry, Market Analyst Equity Markets Earnings season has been strong in the US. However, equities have been concerned by the actions of President Trump which have pushed traders into a more cautious mind-frame. Could it be that last week’s low on the VIX Index of Implied Volatility at multi year lows below 10 was the nadir? Will traders now begin to start adding short protection to their portfolios through the purchase of index put options? If so, the consolidation on the S&P 500 could begin to turn more corrective. Technical indicators are already threatening to turn corrective and this comes as the market failed around the ceiling of the all-time highs posted at 2401 in February. The support to watch this week is at 2380 and whilst this is a small level it would mark a near to medium term pivot support break. The DAX is also held up in a consolidation but in a much stronger technical position. However, that should not rule out the prospect of a near term correction, as often has been the case following a break into new high ground. The bull run following Macron’s victory in the first round of the French election has subsequently been followed by almost 6% being added. This could easily unwind nicely back towards the key breakout support at 12,375/12,485 and be considered to be a bullish pullback to renew upside momentum. FTSE 100 has been supported by its heavy weighting in commodities which have seen a strong underlying rally in oil this week. Suddenly the all time high at 7447 is being tested. Continues gains on oil would help but beware a false breakout on the short covering of oil. The range highs could limit upside potential this week. WATCH FOR: Wall Street could continue to struggle this week in the absence of any good news. Will the DAX also lack the momentum and begin to fall over? T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 3 DAX Xetra Watch for: Consolidation could turn into correction below 12,660 Outlook: The consolidation that I expected last week continues. However traders will be looking at the support of 12,660 this week which could begin to tempt some profit-taking this week. The momentum indicators have yet to suggest this will turn corrective and the market remains strong, however a correction would be healthy at this stage. A retreat towards the support band 12,375/12,485 would be seen as a positive in the medium term and help to renew upside potential for the next bull leg. S&P 500 Watch for: Consolidation threatens to turn corrective this week Outlook: The market took a look at new all-time highs last week but just did not seem to fancy it. The concern now becomes that momentum indicators are beginning to turn lower. The Stochastics are leading the way but the prospect of a MACD sell signal would be the worry, as the last time this combination was seen (in early March) the market was in the midst of a 3% correction. The support at 2380 is key as a breach would complete a small 20 tick top but also open for a technical correction. The all time high is now 2304 and the bulls need to overcome this to release the shackles again. Index Outlook
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  Weekly Outlook Monday 15thMay by Richard Perry, Market Analyst Other Assets: Commodities & Bonds Commodities are beginning to rally, but the question is how sustainable the move will be. The gold and silver prices have started to pick up in the wake of Donald Trump sacking FBI Director Comey. The weaker than expected inflation and retail sales numbers have also added support. With the dollar under pressure and a lack of major US data this week, this turnaround could continue. Gold has room to recover towards an old pivot at $1240 whilst a downtrend comes in between $1240/$1250 this week. Similarly, Silver could also have room to unwind towards $16.80/$17.00. The recovery of the oil price is far more linked to fundamentals, with the market rallying on the back of the much larger than expected EIA inventory drawdown, added to positive newsflow surrounding the OPEC production cut extension. However, this seems to be near term in nature with significant overhead technical supply on the chart and ongoing concerns over the re-expansion of US shale oil. Despite rising for much of the week, US Treasury yields ended the week under pressure. Initially the comments from Boston Fed’s Eric Rosengren (three more hike possible in 2017) had pulled them higher, however weaker than expected CPI inflation and calming comments from New York Fed’s Bill Dudley (balance sheet reduction in a “careful way”) have pulled yields lower again. Fed speakers still have a key role in determining the direction of bond markets. Fed speakers due this week: Kaplan (centrist), Dudley (dovish/centrist) and Evans (dovish). WATCH FOR: Treasury yield moving on Fed speakers, impacting on the dollar and commodities T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 4 Gold Watch for: A failure at $1240 would put the bears back in control Outlook: The extent of the rally on gold could be key to the outlook over the medium term. There is a key band of resistance now overhead from a couple of pivot levels at $1240 and $1261. This makes this a range of key resistance in the coming weeks. The technical rally on gold is setting in but if the market begins to stumble around $1240 with the four week downtrend intact then the sellers could quickly return. However breaking the downtrend and trading into the $1240/$1261 resistance band turns the market more neutral again medium term. A break above $1261 give the bulls back control again. Markets Outlook Brent Crude oil Watch for: The bulls needs to break back above $53.00 to be a sustainable rally Outlook: The rally on oil has broken through the first barrier, the resistance at $50.00. However trading under all the moving averages which have all begun to decline in bearish sequence, there is a significant more to be done to improve the outlook on a sustainable basis. There is a band of resistance overhead between $52.65/$53.00 which has been a key pivot over the past seven months, which needs to be broken to really improve the outlook. The Momentum indicators have turned higher with the Stochastics and MACD lines beginning to rise, however watch the RSI for a failure under 50/60 which would be a disappointment.
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  Weekly Outlook Monday 15thMay 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