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TickmillNews 24-03-2020 14:26

Tickmill UK Fundamental Analysis
 
Gold – Does History Repeat Itself?

Gold price has extended buying momentum on Tuesday, developing the takeoff from $1,500 seen on Monday. I guess the explanation for the move lies primarily in the following chart:

https://i.ibb.co/nMFLB12/1.png

As you might expect, I’m talking about inflation expectations in the United States. I also raised this topic in my yesterday post. Since last Friday, average expected inflation over the next five years has jumped from 0.86% to 1.23%. It is well known that gold and the inflation factor in pricing of the dollar are inversely related, which is based on the simple idea that an asset that loses its purchasing power should become cheaper in relation to the asset that retains it.

The latest jump in gold can be explained by the following factors:

Fundamentally determined weak prospects and an increased expected variance of returns on risky assets;
Rising concerns of inflation outbreak in the United States thanks to “unlimited” asset purchases by the Fed, which also expanded the range of securities to include corporate and municipal bonds and is now basically in “whatever it takes” mode;
Basic supply/demand change: expectations an increase in the money supply in the economy contributed to the currency weakness against other majors (including gold) which outweighed demand driven by “flight into cash” motive;
If you look at how gold behaved during and after the previous crisis, there are some parallels that we can draw:

https://i.ibb.co/L8F9btV/2.png

At that time, there were debates whether QE would lead to an acceleration in price growth or not, i.e. at the beginning of QE, there were expectations of this, which was priced in accordingly in the price of gold. I emphasize that QE’s novelty as a policy measure at that time was a volume of guaranteed bond purchases (the Fed achieves its interest rate targets by the same open market operations – treasury purchases that change supply of bank reserves). The novelty of the current measures, in my opinion, is in their volume again, which has potential to lead to similar gold response.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 27-03-2020 11:53

Re: Tickmill UK Fundamental Analysis
 
Narrowing Range in Oil Could Suggest Sweeping Move on the Cards

Stock market euphoria, which is also expressed by a global dollar dump, does not resonate with crude oil: WTI trades in a narrowing range around the $23 mark, remaining unimpressed by the dollar weakness and rebound in risk assets:
https://i.ibb.co/DWDWcwK/1-20.png

Such a pattern usually precedes a strong move and there are some reasons to expect the market to lose its temper. Government actions around the world are increasingly saying that countries are making bets on the experience of Wuhan in suppression of the outbreak – organizing home quarantine for at least two weeks. This is accompanied by serious short-term economic losses, including a drop in demand for fuel and a decrease in manufacturing and production activity because of forced decreased labor supply. This week the second most populated country in the world and the largest oil consumer, India, announced a 21-day full quarantine, which is likely to force experts to revise consumption forecast even more to the downside.

Data on Thursday showed that the number of initial unemployment claims in the US rose to a significant 3.3M. The response of the stock market showed that the downside surprise was quickly absorbed. The number of confirmed cases worldwide increased by 13.43% on Thursday compared with the previous day after several days of consistent decrease in the growth rate:

https://i.ibb.co/2ht3CGJ/2-13.png

The head of the IEA Fatih Birol said that global oil demand is now “in a free fall”, and the glut is deepening due to the price war between Russia and Saudi Arabia. According to him, 3 billion people are locked down, as a result, oil demand may fall by 20 million barrels per day (almost 20%). Goldman gave similar depressing figures for March and April (10.5M b/d and 18.7M b/d) and it is clear that bigger and longer lockdowns should shave off more near-term consumption demand. That’s why “updated” EIA forecasts offer even gloomier view. In the near-term prices may be supported by the decision of the US government to restart economy earlier as Trump promised. Rumors about the move should be kept on the radar.

Oil trader Vitol Group expects that demand drop will accelerate over the next three months and will not fully recover this year.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 02-04-2020 14:39

Re: Tickmill UK Fundamental Analysis
 
Investors Eye Unemployment Claims as the key Proxy of Stress of the US economy
Oil

Today we’ve seen relatively robust upward swing in oil as the market did not wait for negative news but were offered solid support thanks to a number of positive catalysts, including:

Rumors that China has started to fill strategic reserves taking advantage of the low oil price. The volume, duration, speed of purchases was not made public, so the news played out as a very general bullish catalyst.
Trump tweeted that Saudi Arabia and Russia may again commit themselves to coordination of oil supply. The deal, according to Trump, may take place in the coming days, which is consistent with reports that Trump held phone talks with President Putin during which they “discussed oil market.” It also became known that Trump invited US oil producers to the White House to discuss the situation, in addition, Texas companies turned to the state administration to discuss possible output cuts.
The Baltic Exchange data shows that the cost of transportation of US oil to China reached $10 per barrel, i.e. half the price of a barrel of the American benchmark WTI.
[IMG]https://i.ibb.co/6WB40rn/1-3.png[/IMG]

Cheaper grades of oil in the US are currently trading at absurd prices for producers which is increasing chances that the market may soon be surprised with substantial output curbs.

At the same time, Saudi Arabia is not going to stop – kingdom production reportedly exceeded 12.5 million b/d, which, however, is not a surprise for the market.
U.S. dollar

The focus is now on the growth of unemployment due to self-isolation measures, with initial unemployment claims as the key proxy indicator. The estimated March reading is 3.7M (+ 400K compared to the March 21 print), but risks are skewed to the upside, since the number of regions where self-isolation regime have been introduced is rising rapidly while it is difficult to calculate precise figures due to difficulties of Labor Department in processing a huge inflow of applications. More than 80% of Americans are now in some way affected by quarantine measures.

Huge spending package from the government which includes unemployed benefit of $680 per week (or 17 per hour for 40-hour week) may contribute to the growth of “intended unemployment” which is an unwelcome consequence of emergency fiscal stimulus that can hamper rebound of labor supply after quarantine measures are lifted. Dollar is expected to move lower after the release pricing in growing weakness of the US economy.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 07-04-2020 15:36

Re: Tickmill UK Fundamental Analysis
 
Is it Late to go Long in Gold? Real Interest Rate Path in the US Suggests “no”

The first signs of consistency appear in the decrease of the number of confirmed cases of Covid-19. The whole near-term market optimism hinges on that trend so it’s worth to keep a watchful eye on it. Following the abrupt daily drop in the number of new cases from peak 98135 to 75956 on April 5, it fell the second day in a row to 68608, extending relief rally in world stock markets today:

https://i.ibb.co/t3x04XD/1-9.png

Asian stocks have ended session in green, key European indices advanced by an average of 5%. US stock index futures have been also trading higher on Tuesday. Thanks to upbeat sentiments in the oil market, it is very likely that the bullish momentum in EM including Russia will be extended for the rest of today’s trading session. The ruble is expected to continue to strengthen with the main goal of 75 rubles per dollar, passing intermediate support without much effort.

Some questions are caused by the rise of gold coexisting with the rally of stocks which are considered to be the asset classes reacting to opposite market sentiments. But taking a look at the dynamics of TIPS yield (yield on inflation-protected treasury bonds), we can see that the real interest rate in the US seems to play a big role in gold pricing currently:
https://i.ibb.co/VwYgjCR/2-5.png


The real interest rate (nominal rate minus expected inflation) and gold are inversely related, since the decrease in the first reflects the deterioration of investment alternatives in the economy and decrease in the purchasing power of money (inflation), while gold serves as protection for all of this.

The nominal interest rate is likely to linger for longer near the zero level due to cautious Fed unwilling to touch the interest rate, while enormous fiscal incentives from the government should have strong inflationary effect (due to the fact that the money will also fall into the hands of the poor which have much higher propensity to consume). The real interest rate will probably decrease further and based on the dependence above, the likelihood of gold extending the rally is pretty high, making it attractive medium-term bet.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 14-04-2020 07:57

Re: Tickmill UK Fundamental Analysis
 
US CPI: Downside Risks Prevail

Broad and core US inflation printed lower than expected in March reflecting downward pressure from fuel prices, narrowing demand for apparel, transportation costs but only moderate upside pressure in other components. On the side of negative risks for CPI we can note explosive growth in unemployment and deepening fuel price deflation because of the oil price shock. The massive anticipated increase in government spending including tax reliefs and transfers to impacted households is likely to create inflationary pressures on certain goods including food while easing monetary policy is expected to have minor impact on prices due to decreasing supply and demand for loans.

The broad CPI declined 0.4% compared to February, holding back annual inflation which amounted to 1.5%. The fall was stronger than expected (-0.3%), price declines were led by fuel prices (-5.8%), transportation costs (-2.9%) and price for apparel (-2%).

The rest of consumer categories showed muted inflation pressure. The price for tobacco products gained 1%, prices for medical services increased by 0.4%, food inflation amounted to 0.3%. Rental prices rose 0.3%. Inflation in services sector decreased by 0.1% in monthly terms and amounted to 2.1% in annual terms against 2.4% in February.

Considering the negative risks for inflation, the biggest of them is collapse in oil prices, which feeds into retail prices for gasoline, utilities, producer costs what in turn limits inflation on final goods.

[IMG]https://i.ibb.co/BsdnJx7/1-15.png[/IMG]

Travel and transportation curbs will adversely affect housing prices, hotel accommodation prices, and rental rates. The weight of this component in the CPI is 33%.

Demand for services usually depends on the dynamics of the wages of the population. The explosive rise in US unemployment (+17 million over the past three weeks) is likely to translate into price deflation in this sector. The weight of this component in the CPI is 26%.

The minutes of the March Fed meeting revealed that officials do not expect inflation to accelerate in the near future even after a possible restart of the economy in the summer or even if lockdowns continue until the beginning of next year. According to the report, in all scenarios, inflation is expected to weaken, reflecting underutilization of resources and the drop in oil prices.

Loosening access to credit won’t lead to perceptible increase in consumer inflation unless, in fact, credit expansion takes place, which depends on the desire of banks to issue loans and on the demand of households for them. The main effect that we can expect is asset price inflation with first signs of it expressing in the latest stock market rebound in response to Fed actions.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 15-04-2020 16:57

Re: Tickmill UK Fundamental Analysis
 
IEA April Energy Outlook Pressures Oil Producing Nations to cut Bigger and Faster

The People’s Bank of China cut its medium-term lending rate for financial institutions on Wednesday to the lowest level on record. This is far from “fine-tuning” of monetary policy, but rather a powerful stimulus of the banking sector, which raises concerns about smoothness of economic recovery. The government tries to deal with the fallout of coronavirus mainly by taking the gloves off of the banking sector.

The cut of the lending rate for commercial banks should bring similar relief in financing for firms and households that were dragged under the mills of epidemic.

Commercial banks in China can now borrow at a record low rate of 2.95%. This credit facility was launched in 2014 and the latest rate cut amounted to 20 basis points which is relatively big cut. By lowering the rate, PBOC tries to spur the competition of commercial banks in making loans, which in theory should lead to a further decrease in the prime loan rate – benchmark loan rate offered to first-class borrowers:

[IMG]https://i.ibb.co/MZrvT9r/1-17.png
сервис гугл картинки[/IMG]

Trade data from China released on Tuesday beat expectations. Exports decreased by 6.6% against expectations of -13.9%, imports fell by only 0.9% compared with the forecast of -9.8%. A smaller than anticipated decline in China foreign trade contains pessimism about the virus impact on world trade which supported short-term positive market sentiment on Tuesday. The data on export and import prices in the US and Indonesia’s foreign trade in March laying the groundwork for better estimates of world trade recovery.

The risk-off wave as a next big test for the Fed

China will release March GDP, retail, and industrial production data on April 17. Weak figures will probably force markets to revise the pace of economic recovery and energy consumption outlook to the downside, restraining upturn in oil. The price resumed decline despite the pledge of many oil producers to reduce output during which the countries agreed to reduce production by 10 million bpd from May 2020. The IEA’s April outlook included dire predictions of demand recovery: the agency estimates that demand in April will fall by 29 mn b/d, which is almost a third of world consumption. Even if lockdowns are weakened in the second quarter, underconsumption for 2020 will amount to 9 mn b/d which is just 1 mn b/d less that max output cuts expecting to last only a couple of months:

[IMG]https://i.ibb.co/52kzgvK/2-13.png
сервис гугл картинки[/IMG]

EIA valuation exceeded market expectations negatively

Countries that set lockdowns earlier, such as Italy, announced on the weekend that quarantine would be extended until May. Recall that Wuhan was unblocked only 63 days after the introduction of the measures, so one-month social restrictions imposed in other countries are likely to be too short to be effective. They will probably also need to be extended.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 23-04-2020 11:59

Re: Tickmill UK Fundamental Analysis
 
Oil: Near-term Pressure may Remain in Place Because of Storage Issues

It is not surprising that the outlook for front-month oil futures, especially for June, remains bleak as some market participants continue to price project shocking drop of May contract price to June contract. Recall that May WTI contract dropped below 0 on April 20 and the NYMEX decided to use the negative settlement price on April 21. This forces investors to drop one of the fundamental concepts of risk limit in WTI futures market (the loss on long futures position is no longer limited to trading equity, even in “normal” market conditions).

The story also reveals the real degree of oversupply and importance of limits of Cushing storage hub, which underlies the mechanism for settlement of WTI deliverable futures. Despite the fact that the government data indicates that the storage is only 77% full (~ 59 out of 76 million barrels), Reuters reports that the remaining storage was fully “reserved” in mid-March. The storage issues should accelerate rebalancing of the market in the near future.
http://https://i.ibb.co/NYJQtqk/1-23.png


At the same time, the fact of possible permanent loss of some US oil output, financial constraints limiting proper supply response to demand rebound, create an upside risk that supply rebound won’t keep pace with recovery of consumption after lockdowns are lifted. This is a favorable fact that strengthens contango in the market. However, much depends on the willingness of the US government to save the sector and jobs.

Negative prices is an unlikely threat to front-month Brent contracts, because firstly, deliveries on Brent are carried out by sea, in contrast to the “landlocked” WTI market, where Cushing oil delivery is a part of settlement mechanism on deliverable WTI futures, and secondly, Brent contracts are settled in cash, so with the approach of expiration date there should be less pressure on buyers to cover long positions.

The storage in Cushing at the current rate will be likely filled up in mid-May, with adjustment for producers which are cutting production – around the end of May. This means that pressure in front month contracts, ceteris paribus, may remain for a week or so. When the storage is full, producers will have to curb output to approximately equal the loss of demand.

OPEC held another teleconference yesterday, together with comments by IEA head Fatih Birol, market expectations are emerging that countries that joined OPEC+ pact may begin to cut production earlier than planned in May, though this looks like a late measure. The meeting of Texas Railroad Commission ended with no positive results for the market, the next meeting is scheduled for May 5. API reported an increase in stocks of 13.2M barrels, this is the fourth consecutive week when stocks are growing at more than 10M barrels per week. Cushing reserves have increased by 4.91M barrels.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 27-04-2020 14:13

Re: Tickmill UK Fundamental Analysis
 
Oil and US Durable Goods Data Paint Mixed Picture About Recovery

Oil: An Unfinished Story

Oil prices renewed decline this week, June WTI contract dropped by more than 15%, Brent fell by 7.5%. The market expects OPEC to start cutting production later this week. Given fragile state of the market, some countries decided to start cutting output ahead of the agreed date in the OPEC + pact, including Saudi Arabia. Although bringing forward production cuts should positively contribute to market recovery, short-term market sentiment is under the sway of both near-term fundamental imbalances (the unresolved problem of oil storage in Cushing, highly uncertain pace of demand recovery) and psychological factors (fear of being on wrong side, FOMO shorts)

Drilling activity in the United States declined last week, Baker Hughes reported, pointing to a reduction in the rig count by 60 to 378 units:
https://i.ibb.co/2kqhQZJ/2-24.png

The number of oil rigs is quickly approaching the level that we observed in 2016. Since mid-March, the number of rigs has shrunk by almost 45%, which means an imminent coming decline in US output which should additionally ease supply pressure on the market.

Another important component of current expectations in the oil market is the information related to signs of demand recovery. The worst for global oil demand appears to be in the past and it is reasonable to assume that it is reflected in the price. Data on volumes of oil refining in China gives benign indication of a welcomed rebound. Independent refineries in Shandong province increased refining to record levels while the data from the analytical agency SCI99 shows that refinery capacity utilization last week increased to 72.67% (+ 0.71% compared to the previous week). However, more importantly, compared with February, capacity utilization increased by almost 30% (the lowest point in February was approximately 42%). This suggests that oil demand in China is growing at a relatively steady pace.

USA: Strange CAPEX Stability

Orders for durable goods fell 14.4% in March YoY, which seems to fit into the overall picture of the crisis and not particularly noteworthy information. However, one of the components of the indicator, namely, orders for capital goods excluding orders in the civil aviation sector, showed strange stability in March:

https://i.ibb.co/D7R39XL/1-30.png

Not taking into the account distressing situation with Boeing (13 new orders and 295 canceled), it seems that firms in the US were in no hurry to cut investment plans in March, as can be seen from the stable dynamics of the red curve in the above chart. The change relative to March 2019 was + 0.1%, but strangely it wasn’t reflected in production surveys from ISM (49.1 points) or from the Philly Fed (-12.7 points in March). It was expected that the reading will print much lower at -6.0%.

The Fed is closely monitoring the dynamics of orders for capital goods, as it reflects the expectations of financial managers regarding future demand for their goods. Taking “forward-looking” information into the account helps the Fed to not be lost in policy responses solely to past events. It is likely that firms were not able to assess the full severity of the lockdown in March, but there is also a chance that impact of lockdowns may be somewhat overstated (if we assume that financial managers have more information than we do). In any case, a positive surprise creates the basis for less gloomy figures for the first quarter of GDP, which will be released next week.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 30-04-2020 06:47

Re: Tickmill UK Fundamental Analysis
 
Oil: Historical Price Inefficiency Thanks to USO ETF

The fall in oil prices continued on Tuesday, the June WTI contract was offered a short-term support at around $10.60, front-month Brent contract is trading below $20 per barrel. With such scary nosediving moves the question arises about the true cause of the wave of liquidation which started on Monday. Settlement of June WTI contract will take place on May 19 and, in general terms, the core underlying problem is still an unresolved issue of WTI physical delivery. However, the fall of oil price below 0 due to a lack of liquidity drew market attention to the vulnerability of oil ETFs, which need normal liquidity to transfer positions to the next contract month (which is called rollover).

Of greatest interest are the positions of USO, the largest oil ETF in the United States. It came to the attention of traders after the April 20 carnage due to the fact that a fairly common trading strategy for commodity ETFs – holding front-month futures and sequentially rolling them over to the next month, began to have sharply increased risks. Although the USO rolled over into the June contracts some time before the collapse of May WTI, same delivery issues for June contract were creating huge risks for investment position of the fund in terms of opportunity for safe roll-over. On April 23, the fund said that it is going to change its holdings from June contracts to the following composition:

https://i.ibb.co/tmnfgb6/1-31.png

To change the composition of its investments, the USO has to entirely sell its June contracts and buy the ones indicated on the chart. But what is most remarkable, in the same statement, the USO indicated exact timeline of alteration of its investment portfolio (from April 27 to 29, by 33.3% every day).

https://i.ibb.co/Pt7GRFk/2-25.png

In simple words, the largest oil ETF in the US has clearly indicated what it will sell and what to buy. Well, how could you not front-run them here? Basically, it is probably the biggest and most evident market inefficiency for decade.

And the oil sell-off which began on April 27 is most likely a result of the fact, that a major participant, in this case the USO, announced in advance that it would sell all the June contracts to which it had previously been rolled over. The dovish pressure from other market participants has created a large speculative wave, which is only gaining momentum, as another 66.6% of the USO contracts in June will be sold today and tomorrow.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 30-04-2020 06:56

Re: Tickmill UK Fundamental Analysis
 
ECB Meeting preview: Wrong Words in a Wrong Time

The April ECB meeting has all chances to become a factor of support for EURUSD. At the March meeting, Lagarde failed to show off ECB’s firepower at a critical time for the economy, forcing investors to demand extra returns for holding Euro (i.e. creating risk premium in it). They obviously expected “whatever it takes” tone from the ECB president but Lagarde didn’t live up to expectations. This ambiguity became a bearish factor for EURUSD. If Lagarde elaborates properly on ECB’s rescue plan, including details on the pandemic asset purchase program (PEPP) the risk premium in Euro will probably vanish helping the currency to outperform USD in the near-term.

Two key aspects of the meeting to pay attention are updates on pandemic asset-buying program (PEPP) and ability of Lagarde to reassure markets that ECB has enough ammo and won’t hesitate to use it. It is clear that the policy response of the ECB in March was less profound compared to the Fed:

[IMG]https://i.ibb.co/ZBkF1Nj/1-32.png[/IMG]

And although interest rates cuts and increase of QE operations should normally lead to decline in national currency this doesn’t happen when economic conditions do not favor expansion of credit (which is the main driver of money supply growth) so positive QE effects (like bringing ease to funding markets) become a factor of currency strengthening, leading to capital inflows! The Fed and dollar performance in March perfectly support this reasoning.

The PEPP program, which is so much talked about now, can be increased both in breadth (from the current 750 billion euros to 1.250 trillion) and in depth (including the purchase of bonds of the so-called fallen angels – former investment-grade companies falling into speculative category). If this happens at the meeting on Thursday, it will be a big bullish factor for the euro, but given that updated economic forecasts from the ECB will not appear until June, the expansion of PEPP may be delayed. One of the simple but useful indicators of risk for the Eurozone economy is the yield on Italian bonds and its recent decline from 2% to 1.7% suggests that the anxiety about problematic debtors has somewhat eased. This increases chances that the ECB won’t rush to expand PEPP in April, but a signal that this will be done in July will be nevertheless a moderate positive factor for EURUSD.

As for the press conference with Lagarde, attention should be paid to the comments regarding inflation outlook, economic growth, interest rate and QE paths. In March, Lagarde surprised markets with a rather neutral statement that “inflation is expected to rise in the medium term,” so Lagarde’s remarks on Thursday that the ECB is moving away from the inflation target is a baseline scenario and should not be surprising. No changes are expected in the interest rates and QE; comments on economic growth are expected to focus on confirming sharp slowdown in March and April. In general, the trading idea for the meeting on Thursday concentrates on Lagarde’s ability to correct communication mistakes made at the March meeting.

Reducing distance between the interest rates of the Fed and the ECB, declining demand for dollar as a safe haven may determine fundamental advantage of EUR over USD in the medium term.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 01-05-2020 06:52

Re: Tickmill UK Fundamental Analysis
 
EU Data: Two weeks of Lockdown and -3.8% of GDP Decline in 1Q
GDP

Recession in 2020 will go down in history as a deliberate economic sacrifice of governments in exchange of greatly reduced uncertainty. Incoming data shows that this step came at a great cost. Eurozone GDP fell by 3.8% YoY in the first quarter and it is only with lockdowns affecting economy just the last two weeks of March! The fallout is expected to spill over into the second quarter as the economy has been under extreme pressure for the whole month of April while weakening of sanitary restrictions will occur slowly and with extreme caution. We cannot also rule out long-term damage to consumer confidence which is yet to reveal itself in the data. The economic downturn is likely to exceed the magnitude of the first quarter, so the season of gut-wrenching data has probably just started.

French output fell by 5.8%, Spain – by 5.2%, Belgium – by 3.9%, Austrian – by 2.5%. There is a direct relationship between strictness of quarantine and impact on GDP as the latter reflects the degree of suppression of economic activity as well as restrictions on mobility of consumers. It means that German economy probably suffered less damage than France or Spain because the lockdown was less strict.

Unemployment

Unemployment in the Eurozone rose from 7.3% in February to 7.4% in March.

https://i.ibb.co/R06gD2b/1-34.png

The increase in unemployment turned out to be less strong than anticipated both due to the labor market rigidities ( which in turn are caused by higher costs of hiring and lay-offs, prevalence of short-term working schemes), and due to smoothing of the effects of two-week quarantine in March by two “normal” weeks at the start of the month. Due to the above-mentioned features of the labor market in the Eurozone, it is precisely the dynamics of unemployment that will explain the speed of recovery and affect market expectations for economic rebound. With rising unemployment in the Eurozone, the likelihood of a permanent blow increases.

Consumer Inflation

April inflation in the Eurozone fell to 0.4%. As in the case of GDP, the accuracy of the figures is still in question due to difficulties in collecting data. Core inflation, which excludes fuel prices, fell from 1% to 0.9%, while measuring it for sure was much more difficult than usual. PMI surveys for the block showed that firms reduced prices to increase sales, but so far this is not visible in the data.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 12-05-2020 07:45

Re: Tickmill UK Fundamental Analysis
 
Real Unemployment Rate in the US Could be Much Higher

Non-Farm Payrolls reports released on last Friday showed that US basic labor market metrics have deteriorated, albeit at a slower pace than expected. Unemployment rose to 14.7% (vs. 16.0% forecast), jobs count suffered steep contraction by 20.5 million (vs. 22 million forecast). It would seem that the less downbeat report prompts us to revise devastating impact of lockdowns and the outlook for labor market recovery in May and somewhat weakens skepticism about the S&P500 rally, however details of the report show that this conclusion may be premature.

Firstly, recall that the BLS defines unemployed as a person who lost his job but is in active search for it. The part “is in active search for it” basically forms an additional filter because there is also a part of the unemployed who are demotivated to look for a job and it is reasonable not to count them as unemployed when the labor market is in good shape, because they deemed to be demotivated for reasons that economists do not particularly care about (sufficient income, health problems, etc.). It is assumed that they do not reflect/impact labor market conditions. But it is natural that during a downturn, an increase in the number of demotivated workers most likely indicates an increase in the number of “desperate” unemployed (want to a job but gave up looking for it), which should be effectively counted as unemployed because their status does reflect worsening labor market conditions. That is, there are also unemployed “outside the workforce”, which the basic unemployment rate (the headline 14.7%) doesn’t capture, but which are important to count. Looking at the collapsed level of labor force participation, we can conclude that the number of these desperate workers has increased:

https://i.ibb.co/d4RBLLb/1-11.png

Since February, 8.1 million people have moved out of the labor force and based on the analysis above, there are likely to be many “true” unemployed people in that category. Headline figures (14.7%) doesn’t count that.

Secondly, the importance of secondary indicators of employment, such as “employed, but absent from work for other reasons”, “involuntary part-time employment” unexpectedly increased. These indicators increased to 7.5 million and 6.6 million respectively. In my view, the fact that the BLS couldn’t count the gain in the first indicator as the gain of unemployed is pure formality, although it saw sharp increase during the lockdown period so it’s not hard to guess which were those “other reasons”.

So, let’s update our calculation of unemployment: 23.1 (basic BLS figure) + 8.1 + 7.5 + 6.6 = 45.5 million. Dividing this value by labor force (164.5 million) we get unemployment at 27.5%, that is, almost twice as high as the official indicator at 14.7% and higher than broad U-6 indicator (which include demotivated workers) which rose to 22.5% in April.

The April report did not have high hopes in terms of the ability to move the market, which, in fact, could be inferred from the calm market response to huge gains in the initial unemployment claims. However, with the country’s exit from the lockdown, the situation may change. In addition to the initial unemployment claims, continuing claims also come to the fore, which will be direct measure of recovery of employment. Much attention should be paid to negative surprises in continuing claims, as they will likely indicate permanently lost jobs, i.e. long-term negative effects of lockdown on the US economy which is of course not priced in the current S&P 500 rally.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 14-05-2020 07:06

Re: Tickmill UK Fundamental Analysis
 
Raising Price, Cutting Output: Mixed Signals from Saudi Arabia

Saudi Arabia underpinned oil mood on Monday announcing additional output cut by 1 million bpd. starting in June. The Kingdom’s output is expected to decline to 7.5 million bpd., the lowest level for almost 20 years. The underlying motive is probably to speed up market rebalancing and hence price recovery. It is worth mentioning that the decision of the Kingdom soon followed the telephone conversation of Trump and the King of Saudi Arabia. Brent jumped 5% on good news, but the bullish momentum proved to be short-lived as the price closed below the opening. Given the news that Saudi Arabia decided to rise OSP for June, the extra cut may seem as a weird move since by cutting output producer signals about expectations of declining demand, while charging higher prices is usually a sign of improving demand picture.

The Kingdom has successfully passed the baton of additional voluntary production cuts to other Middle Eastern countries, in particular Kuwait and the UAE which decided to follow suit and said they will reduce output by 100 and 80 thousand bpd in June, respectively. There is an aspect of the OPEC+ deal which explains limited optimism about the news: uncertainty in commitment of the individual participants to output cut targets. In other words, these additional output cuts may either surprise to the upside later, signaling about over-fulfillment of the plan or play out as a downside surprise if subsequent data reveals poor performance of other participants. For example, Iraq has historically turned out to be the least “diligent” member of the cartel (in terms of following a collective agreement), so there are concerns that the country won’t be able to deliver the output cut by 1 million b/d.

Today we expect the report from US Department of Energy (EIA), which will contain a short-term outlook for the oil market. It will be interesting to see how the agency adjusted their projections considering recent changes such as collapse of drilling activity and fairly rapid decline of the US production over the past few weeks. OPEC is going to release its monthly report on Wednesday and on Thursday the monthly EIA report is due which is of particular interest because of extremely vague demand picture and lack of reliable estimates of demand recovery.

The Chinese statistical agency reported that annual inflation in April was 3.3%, which is less than the forecast of 3.7%.

https://i.ibb.co/k2QgNt6/1-12.png

But looking under the hood we don’t see signs of severe slack in consumption: decelerating food inflation accounted for a good part of the slowdown in the aggregate indicator. Core inflation which excludes volatile components such as good and fuel was up 1.1% in annual terms. At the same time, production price index indicated a deflation of 3.1% against the forecast of -2.6%. Given the reliance of manufacturing sector to foreign demand, PPI points to weakness in foreign economies.

Easing inflation pressures gives a firm nudge to the Central Bank to proceed with a new round of monetary easing, which should bring some relief for local and foreign risk assets. The quarterly PBOC monetary policy report released over the weekend indicated a growing bias of the Central Bank to strengthen liquidity support for the economy in the near future.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 14-05-2020 07:29

Re: Tickmill UK Fundamental Analysis
 
Oil and Gold: Review of the Key Drivers
Oil: Contango Eases


Tuesday WTI gains, which helped the price to close above $25, set the stage for modest Wednesday rally. While the market ponders over next leg of the rally, price difference between the December and June WTI futures continued to narrow:

https://i.ibb.co/9b49xxq/1-13-2048x1390.png

Declining market contango indicates several effects are in play:

Abating concerns related to the storage and transportation of WTI, including in Cushing (more on that below);
Oil funds completing the shift from near-term to more distant contracts (change in USO positions at the end of April as an example);
Easing supply pressure thanks to output cuts from OPEC+ deal, market-driven output cuts in the US and voluntary cuts from some Middle East countries like Saudi Arabia and UAE.
Slow recovery in demand for near-term oil supplies.
The American Petroleum Institute said yesterday that oil reserves rose by 7.5 million barrels, but most interestingly, Cushing inventories, according to the agency’s estimates, fell by 2.26 million barrels. If the EIA confirms this estimate, it will be the first inventory reduction since February. Negative change in Cushing inventories basically means that less oil arrives there than taken from it. It reinforces our view that production declines and demand grows in the US. In addition, this limits pressure on prices based on concerns that the June WTI contract may repeat the story of the May contract with the approach of expiration date.

As for EIA’s short-term energy outlook report, the agency has revised down its forecast for US oil output. The agency expects that the average production for 2020 will decline by another 70 thousand barrels to 11.69 million barrels (-540 thousand bpd in annual terms). The agency also predicts a decline in production of almost 800 thousand b/d in 2021.

XAUUSD: risks are shifted to the downside

In gold, we observe some stabilization near $ 1,700 per troy ounce; technically, recent price action on 4H timeframe forms triangle, which is usually a sign of breakout:

https://i.ibb.co/pjQvDMs/2-9-2048x1387.png

There is strong evidence that Gold pricing depends a lot on inflation expectations in the US:

https://i.ibb.co/bHpYFwX/3-6.png

This chart suggests some “hyperinflation fears” may be priced in Gold which are subject to revision with the latest inflation data.

Core inflation in the US in April fell by 0.4% MoM for the first time in 38 years, showed the report on Tuesday. Firstly, this is evidence of a severe drop in consumption, which tends to regain losses slowly. Secondly, this indirectly indicates that firms have accumulated record inventories and may be soon forced to make discounts, which is another factor of pressure on consumer prices. In my opinion, with the advent of clear deflationary trend in the US, gold loses the main growth factor. Soon we can see a “sell-off” of hyperinflation fears from the Fed’s policies and fiscal stimulus, as, in fact, evidence grows that they won’t materialize soon.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 15-05-2020 06:34

Re: Tickmill UK Fundamental Analysis
 
FX Beats: Major Pairs Outlook
U.S. dollar


Jay Powell’s testimonial on Tuesday demonstrated the Fed’s intransigent position towards negative interest rates in the US. Meanwhile the assessment of economic prospects was rather gloomy, which together with NIRP comments resulted in a rather unbalanced and unusually dovish communication for a traditional centrist (which Jay Powell is), which disappointed market.

The most important economic update in the US today is initial unemployment claims which are expected to increase by another 2.5 million. It’s considerably less than in the past weeks but given Powell’s gloomy outlook, a miss in the data is unlikely to surprise anyone, but a positive surprise will likely support risk appetite, again, due to the fact that dovish Powell comments laid a rather “low base” for expectations about the US economy. This should be taken into account in the interpretation of incoming data.

The EIA confirmed decrease in Cushing inventories (-3M barrels), which is very positive news for the oil market. The IEA revised the average oil demand in 2020 by +690 thousand barrels per day, the comments of the head of Birol were slightly optimistic. In particular, he said that the drop in demand was not as strong as expected, as countries continue to lift restrictions.

Pound

Uncertainty with the path of economy reopening continues to put pressure on the pound. GBPUSD has tested the April low at 1.22, but in my opinion, GBP still has a room to fall. Today, all attention is on the webinar of the BoE head Bailey. As I wrote earlier, the government’s plans to increase public debt should be supported by the monetary policy, because acceleration in debt growth needs low rates. In particular, in order to keep the yield on government bonds at a low level, the Central Bank may have to push QE pedal and expectations for this step are now one of the drivers for GBP shorts. In a television interview, Bailey has already made it clear that the discussion on this topic is important.

Euro

Today the vice president of the ECB Guindos will hold a speech so the euro may react to comments of the second person in the ECB. He said on Tuesday that the peak of economic contraction had passed, but it was becoming increasingly difficult to predict how the economy would recover. A little optimism was added by data on inflation in Germany (0.9%, forecast 0.8%) and unemployment in France (7.8%, forecast 8.4%). Italy has presented a plan for a new fiscal stimulus of 55 billion euros. There are few growth catalysts for the euro, however Fed’s Powell helped the dollar to take a solid position, therefore, the growth of EURUSD is limited and it may be worth considering short positions with short goals. Nevertheless, in cross rates the euro will probably not back down.

AUD

Data on the labor market for April showed that the number of jobs decreased by 594 thousand, but the unemployment rate did not increase as much as expected. In April, it was 6.2% with a forecast of 8.2%. Now AUD has come under the fire, like, however, all other currencies that were the beneficiaries of the recent surge in demand for risky assets, but from the point of view of fundamental data, the Australian currency’s positions are quite strong. One of the arguments for this may be the fiscal stimulus of the government, which amounted to almost 16.5% of GDP.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 21-05-2020 07:03

Re: Tickmill UK Fundamental Analysis
 
FX Beats: Major Pairs Outlook for This Week

Global markets started the week with moderate optimism thanks to positive news flow related to re-opening of economies, increasing consumer mobility and lifting of related caps on consumption. News about gradual return of Europe and some US states to their normal economic rhythm somewhat neutralize dismal reports from the economic front.

The spurt in risk assets is also supported by oil prices as their robust growth prompts upbeat adjustments of inflation expectations, key gauge of an economic rebound. Relatively expensive crude oil compared to recent period of low prices helped commodity currencies to lead within the G10 group, although their bullish momentum grows fragile due to risk of oil downside correction. The demand for risk assets is now also constrained by emerging risk of re-escalation of the trade spat between the United States and China due to Trump attempts of scapegoating. The size of long-term economic damage from lockdowns on firms remains unclear, however, for risk assets this risk will be likely negative. Regarding foreign exchange market, limited room for risk-on moves provide solid foundation for stronger USD, with DXY likely staying above 100 mark.

The European currency continued to hover around 1.08 mark on Monday. The easing of sanitary restrictions in one of the epicenters of the Covid-19 outbreak in Europe, Italy, indicates that lockdowns for Europe is largely a past issue. Markets’ focus shifts to consumer spending data in order to understand whether there have been changes in consumer habits and what is the impact of social measures distancing on them. EURUSD is expected to continue to fluctuate in the range of 1.08-1.09 for all this week.

For the pound, support at 1.20 looks fragile thanks to a series of comments by British Central Bank officials who shed light on the future of the UK’s monetary policy. The chief economist of the Bank Haldane hinted in an interview that negative interest rates (on the reserves of commercial banks in the Central Bank) could be added to the bank tools, in addition, recent comments by the head of Bank Bailey indicated an increase in the likelihood of QE expansion in June. The current pound valuation may also not fully capture the risk of Brexit negotiation breakdown, similarly to breakdown of the trade deal between the US and China. The target for the pair is a test of 1.19 mark.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 21-05-2020 07:10

Re: Tickmill UK Fundamental Analysis
 
Germany ZEW Index: Is the Worst Over?

Germany believes in a rebound! Another update on economic expectations from ZEW suggests that the worst for the Eurozone economy may be behind. Or at least perceived that way.

After the V-shaped movement in March and April, the ZEW index, which gives an aggregate current assessment and expectations of 350 financial experts and economists, stabilized in May. The expectations index changed from 28.2 in April to 51.0 in May.

At the same time, the current situation assessment index fell to -93.5, the lowest since 2003. The improvement in expectations obviously reflects the purely psychological effect of lifting of lockdowns, the latest episode of growth observed in European equities (which works as a leading indicator itself) and increased support from fiscal authorities and the ECB.

The ZEW index refers to comparative statistics, therefore, the rebound above the neutral mark of 50 points in May, to 51 points, suggests that expectations of the respondents became slightly better than in April. The “low base” effect accounted for the increase of the index above 50 points. This U-turn is now of particular interest, since it may be indicative of ф turning point in the economy. In general, soft data becomes more important when markets are on the look for signs of bottoming out and insights from leading indicators can give big advantage for savvy investors. Even if equities ran far ahead of themselves in the current rally, then expectations, not the hard data were the fuel for this growth.

ZEW expectations index for Eurozone rose from 25.2 to 46 points which suggests that the bloc’s recovery lags behind of Germany. However high-frequency data on consumer mobility in the Eurozone indicates that easing of the lockdowns will be very soon reflected in the bloc-wide soft data. If in April the mobility index based on Google Mobility data for Eurozone countries amounted to 60% of the January level (reflecting the peak of lockdowns) it has increased in May to 80%:

https://i.ibb.co/Tr2rPxJ/1-18.png

Important thing to bear in mind trying to understand why bad economic data produces such tepid response is the fact that lockdowns took only a small part of the 1Q (the last weeks of March) and reached peak in the Eurozone in April. This means that GDP data for the second quarter, which we have not seen yet will most likely be worse than what we saw in the first quarter. Based on the stock market rebound investors may have already discounted that dismal 2Q data and are now trading the third and fourth quarter, which are widely considered to be recovery quarters. Market prices basically reflect a recovery which is at least 2 quarters ahead.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 25-05-2020 08:56

Re: Tickmill UK Fundamental Analysis
 
EURUSD Trade Idea: Risk of EU Fragmentation and Declining Risk Premium in the Euro

Asian and European equities caught little attention from buyers on Thursday, S&P 500 futures are looking for catalysts to break the 3000 mark, although they have less and less chances to do so because of expansion of anti-Chinese measures and intensifying anti-Chinese rhetoric in the United States. Recall that Congress approved yesterday a bill that allows blocking access for Chinese companies to the US stock market if they fail to “prove” their independence from the Chinese government. A few hours after the bill was passed, Trump attacked China again on Twitter, effectively interrupting the S&P 500’s hike to the 3,000 mark.

According to BoFA survey of investors, the share of hedge funds joining the rally in the stock market rose from 15% in April to 34% in May. However, fund managers maintain a record position bias to cash, apparently considering the rally a speculative impulse, “rally inside the bear market.” More than half of the fund managers interviewed said that among the potential “black swans” for the market, the first place takes a second outbreak of Covid-19 leading to a lockdown, in the second place – permanent job losses in the US labor market, in the third – the collapse of the EU. It’s pretty much clear that any information affecting the odds of these risks being realized will be the dominant factor in investor sentiment in the near future.

Regarding the risk of fragmentation in Europe, we see that credit risk premium in the yield on the debt of the most problematic debtors, for example Italy, continues to dwindle. Over the month, the yield on 10-year Italian bonds slipped from 2.3% to 1.6%. The idea of ​​a trade on EURUSD may be that the premium for this risk in EU assets will continue to decline with the decline of this risk, so the pair should be finally able to test goals above 1.10. Technically, in the horizontal channel, we can see completed pullback, which wasn’t the case during past runs to 1.10:

https://i.ibb.co/f8K0bDw/Image-1.png

EURUSD Trade Idea

Consumer confidence in the Eurozone is responding positively to lockdown easing. In May, the indicator moved in positive direction, changing from -22 to -18.8 points. At the same time, it was expected that it would fall to -24 points. Consumer sentiment is a leading economic factor, primarily for consumer spending component of GDP. Nevertheless, the Eurozone manufacturing PMI in May indicated that the number of companies reporting a reduction in output was rising, albeit at a slower rate than in April.

Separately, in the German economy, we see weak dynamics of manufacturing PMI and the faster recovery of PMI in services sector, which is consistent with the dynamics of consumer confidence. The layoffs had not yet managed to overwhelm Europe, government money transfers kept consumption from decline, which was reflected in a faster restoration of the services sector. Production PMI in May at 30 points is another argument in favor of the fact that it’s unlikely to see rebound in manufacturing, which means that it is too early to think about slack in employment.

Japan’s exports and imports declined slightly less than anticipated. Of course, more interesting is the change in exports (about 19% of Japan’s GDP), in the context of a number of other export-oriented Asian countries (for example, China), where export data also pleased in April, this paints a more favorable picture of foreign demand.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 25-05-2020 09:08

Re: Tickmill UK Fundamental Analysis
 
China Abandons GDP Growth, Sounds Gloomy on Outlook. Will the Bearish Impulse be Sustainable?

Chinese government made “injected” some reality into stock markets today, saying that they don’t’ promise any concrete GDP numbers for 2020, mentioning also the significant uncertainty because of which the impact of a number of factors is difficult to predict. Among those factors is probably a second wave of Covid-19 outbreak. One important sign of this was the fact that recently about 100 million Chinese people have been put quarantined in China. Such wave-like virus spread dynamics translates into a bumpy path for economic growth and activity in the near future, which can’t be averted by liquidity injections and “healthy” stock market valuations.

The logical chain can be continued further and, for example, we can conclude that the demand for resources, including energy, will suffer. It was impossible to pull the spring in oil endlessly, in fact, the factor of the pessimistic Chinese leadership, which abandoned the GDP target, was the reason (convenient premise?) for retracement that we see on Thursday. The commodity market as a whole is also quite frustrated with copper futures dipping by more than 2%. The outlook from the government of the second largest economy in the world, which, to put it mildly, calls for preparing for difficulties, in my opinion, will help the bearish impulse to gain some traction, in particular in emerging markets and commodity currencies.

The latest trade data on Asian economies again lowered the bar for the speed of recovery. The preliminary report on South Korea’s foreign trade unexpectedly indicated a strong decline in overseas shipments in May (-20.3% YoY). Sales of cars and spare parts abroad (in particular, to the main markets – to Europe and the USA) remain depressed, and the export of semiconductors has grown. This is baffling update since it shows that there is a permanent blow to consumption of durable goods and lifting lockdowns won’t fix it quickly. The export of Japan and South Korea to China has grown if we consider the monthly dynamics which serves as another evidence that lifting lockdowns won’t lead to V-shape dynamics in activity.

Recent market discussions about the negative rate of the Bank of England and QE are developing now into concrete expectations of another rate cut. Recall that when we talk about negative interest rate, we are not talking about a market rate (since holding cash yields 0% return and it is always better than negative return if we don’t take into account such complications as costs of storing cash), but about the Central Bank’s rate on bank reserves. The Bank of England wants to take such a radical step, since the last rate cut from 0.75% to 0.1% appears to not have reached the end loan consumers, particularly mortgage borrowers:

https://i.ibb.co/0Bb7KLR/image-22-5.jpg
China Abandons GDP Growth

Actually, this dynamics speaks in favor of the need to lower the rate further. The head of the Central Bank, Bailey, quickly moved from the camp of opponents to the camp of supporters of negative rates, said yesterday that such an opportunity was being actively discussed. Against this background, GBP is expected to decline further, the immediate goal is to retest the level of 1.20. I continue to hold bearish position in the pair expecting it to retest 1.20 level:

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 28-05-2020 06:51

Re: Tickmill UK Fundamental Analysis
 
April ECB Minutes Show the Central Bank DoesnÂ’t Know What to Expect

The minutes of April ECB meeting, released on May 22, revealed that the Central bank is eager to deliver more. “Minutes” are worthless they say, because it’s priced in… not the case this time.

Two key things from the report: the ECB is ready to ease credit conditions more and the fact that PEPP remains key policy tool. By the way, PEPP is an emergency “pandemic” program of purchases of private and public sector securities in the amount of 750 billion euros and which will be in effect until the end of 2020. Programs of this kind are usually done in crisis. Their key feature is lowered bar for quality of purchased debt. The key purpose is to directly buy debt of struggling firms and local governments, which are avoided by other creditors because of concerns about creditworthiness. The launch of the program basically leads to the appearance of indiscriminate buyer on the market which hampers market price discovery, leads to excessive risk-taking, etc., but these are considered to be manageable “side effects”. Another issue is that the program has a limit and it will end soon. With current pace of buying the ECB will reach the current limit in September-October. But the minutes, as we see, hinted that extension of the PEPP limit may be on the agenda of one of the next meetings. Given the ECB’s bias to act proactively, the expansion of PEPP may be discussed as early as June.

It is also curious that the ECB for the first time described medium-term uncertainty as radical uncertainty – i.e. risks which can’t be quantified. The Central Bank seeks a solution, experimenting more with preventive policy decisions which tend to cause positive shocks in market sentiments.

The USD index rose at the start of Monday although losing punch later, but it wasnÂ’t about stronger USD: the cause of gains was weaker euro, which has the biggest weight in the index.

IFO index update showed expectations rose higher than expected, but assessment of current situation was worse than expected. A number of survey indicators for May, which we analyzed earlier, where respondents were asked to assess future expectations, turned out to be better than forecasts. This also indicates that a lot of expectations are priced in equities.

On balance, the balance for euro shifts towards more declines with possible test of the lower bound of two-month range:

https://i.ibb.co/GRk3ypm/Image-4.png

In Asian markets, attention has been drawn to a rise in the USDCNY reference rate to its highest level since the 2008 crisis. Pressure on the yuan is rising due to capital outflows, and the central bank of China has “officially recognized” this, weakening CNY official rate. Investors are getting rid of Chinese assets because of fear that a new conflict between China and the United States may escalate into a full-fledged financial war. The dynamics of USDCNY over the past two years shows that the mainland yuan depreciated against the dollar whenever Trump threatened tariffs and strengthened anti-Chinese rhetoric. The last episode of the weakening of renminbi probably reflects an anxiety of the same nature:

https://i.ibb.co/zP0whc4/Image-5.png

Accordingly, the demand for risk can get hit from this front as well, which is undoubtedly a positive factor for strengthening the dollar.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the authorÂ’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 28-05-2020 07:03

Re: Tickmill UK Fundamental Analysis
 
COT Data: Buying Pressure Decreases in Crude Oil, More Sellers Resign

Market players are now sitting tight in crude oil as the price continues to float in the narrow range with key support to sentiments offered by voluntary/involuntary supply cuts. Upturn in commodity markets along with weaker dollar are also reflected in strong performance of EM and commodity currencies. As the bull trend in the oil market ripens, speculators are less willing to support it, shows COT data from the CFTC (weekly data on open positions of speculators and hedgers in the US). Growth of long positions slowed down from the end of April, and in the week of May 12 – May 19, the number even slightly decreased:

https://i.ibb.co/kc5ygQd/Image-1-2.png

The price gain in that week was achieved mainly by continued decline in short positions:

https://i.ibb.co/kDsncJV/image-2-1.png

The onslaught of buyers declined due to the fact that fundamental picture of the recovery in demand remains controversial, since the restart of economies follows a conservative scenario, while there is a risk of repeated lockdowns/extension in some countries. However, Russian Ministry of Energy expects that oversupply will disappear in June/July due to faster demand recovery. Drilling activity in the US continues to decline despite favorable price dynamics. The number of operating rigs decreased by 21 to 237. This is 65% less than in mid-March.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 28-05-2020 07:09

Re: Tickmill UK Fundamental Analysis
 
BoJ Yield Curve Control and new Supply of Government Debt. What to Expect from the Yen?

After DXY support at 99 points were damaged on Tuesday due to powerful risk-on move, the currency continues to cede ground on Wednesday. Asian equities posted mixed performance; European stock indices apparently enjoy another day of gains. Gold tries to defend hard support at $1,700 per troy ounce, but hunt for yield seems to be gaining upper hand. The collapse of USD yesterday basically confirmed that the main trading theme in FX space remains “USD vs. risk-on” and all country-specific events affecting national currencies may not be reflected in USD pairs but rather finds its way in crosses. The tug of war between risk-taking and risk aversion camps, where USD seemed to be one of the biggest beneficiaries seems to stay in the market for some time, while volatility, in the historical perspective, remains elevated.

The Japanese government will spend an additional $1.1 trillion to protect the economy, showed government’s budget draft released on Wednesday. Together with the fiscal package of $1 trillion announced just a month ago, the total government spending related to the fight against the virus and recession caused by it will amount to a whopping $2.2 trillion, or 40% of GDP. Only the United States spent more – $2.3 trillion, but adjusting the spending for GDP size, there is, of course, not contest for Japan.

The government’s spending plan for 2020 imply an additional issue of 200 trillion yen of fresh debt. To avoid a jump in borrowing costs, the supply will have to be soaked up by some robust demand. Japanese bond market won’t be probably surprised or spooked by massive debt supply, since there is “omnipotent” Bank of Japan with its yield curve control program. By the way the YCC is probably the most radical degree of bond markets intervention in Central Banks’ practice. The essence of this program is that the Central Bank announces that it is ready to buy an unlimited amount of bonds of a certain maturity at some fixed price. In other words, it guarantees some price. Obviously, this sets a lower threshold for the bond price and also stabilizes it. The main difference from QE program is targeting the bond price, not monthly amount of purchases as in case of QE.

If bond price cannot go below some level it means that the yield to maturity cannot generally rise above some level (hence the name “yield control”). To see how this works in practice, let’s try to see some difference between behavior of prices of 10-year government bonds of the US and Japan according to our reasoning
And indeed, we see that in the US, where the Fed has not yet introduced this program volatility of the price is much higher comparing to the price of JGB. We can also see the price floor around 100 pts for JGB.

Bank of Japan officially announced in 2016 that it would target the yield on 10-year government bonds in a narrow range near 0%.

Obviously, in the context of the government’s plans to massively expand the debt, the operation of the YCC essentially means a new large-scale QE. I repeat once again that this may not be reflected by USDJPY, but in cross-rates, these expectations, in my opinion, may determine the yen’s medium-term weakness.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 30-05-2020 06:37

Re: Tickmill UK Fundamental Analysis
 
AUDCAD: Can’t Divide the key Level

The trade war draws in new parties while the trend toward manufacturing independence gradually gains traction. This time, Australian exports of coal to China have caught market attention. Soured relations between the two countries can lead to China to putting more emphasis on its domestic coal production and create more barriers to imports, thereby reducing the size of key market for Australian coal.

Earlier, China imposed duties on beef and barley from Australia because the latter called for an independent investigation of origins of the coronavirus. Now the market is digesting the rumors that China Development and Reform Commission (the main planning authority) has ordered state-owned companies in the utilities sector to halt purchases of thermal coal from Australia. It is critical to understand now how much Australia’s coal exports will suffer in quantitative terms and how long it will continue if rumors turn out to be more than just rumors.

Coal exports for heating from Australia plummeted by 41% in the week ending May 24 compared to last week, FT reports referring to data from the transport broker Thurlestone Shipping.

23% of Australia’s coal exports accounted for China (data as of March 2020):

https://i.ibb.co/tJqST5B/Image-1-6.png

Rumors of a trade war with China pose a risk of weakening AUD. If China really restricts coal imports from Australia, this gives reason to expect that iron ore, the largest commodity export item in Australia, could also fall under the threat of losing key market. The headwinds for the export of iron ore will create a more tangible blow to the Australian economy. Now the risk of such a scenario gives rise to opportunity for AUD to lag behind its “commodity peers”, for example, CAD.

Let’s examine possible technical setup for AUDCAD:

https://i.ibb.co/cxVRGFM/us500-h1-2-1.png

Commentary:

Considering the technical picture of AUDCAD on the daily timeframe, we can see that the pair has been in a state of decline since the end of November 2016. Despite some subjectivity, the indicated trend line touches four price extremes formed in the downtrend. We can also see that the pair touched several times the level of 0.91500, which has established itself as a solid support level. The drop below this level in September last year was held with a relatively small objection from buyers, after which the level was re-affirmed as resistance. During the upward correction from the beginning of March, the pair returned to this level. Given the fundamental expectations for AUD, the trading idea may consist in a short position on the pair with a short stop loss in the area of ​​intersection with the trend line and wide profit target which can be corrected later.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 30-05-2020 06:45

Re: Tickmill UK Fundamental Analysis
 
“Absurd” Employment Situation in the US and Possible Consumption Shock in August

The rally in equities was brought to a halt with mild retracement in the US stocks observed on Thursday. Asian and Europe equities followed suit today, erasing from 0.1 to 1.5%. The driver of declines is largely a precautionary sell-off as Trump is going to lay out a plan today on how he is going to increase pressure on China.

Earlier, Mike Pompeo said that the US no longer considers Hong Kong an autonomous region, which was the first significant reaction of the US government to the decision of China to annul the superiority of local Hong Kong law (regarding security matters) over the national one. Pompeo’s comment seems to look like a standard attempt by an American politician to label an unwanted step by the rival country but given that there is 1992 Hong Kong policy act (which is based on Hong Kong’s autonomy from China), Pompeo’s statement puts under question the future of this law. And this is already far-reaching economic and political consequences. Let’s see what Trump will say today.

JP Morgan Bank analyst Marko Kolanovich, who in early March recommended investors to buy the dip in stocks and then consistently maintained his bullish stance for almost two months, said this week that increased political risks justify limiting exposure to US equities. In other words, the analyst doubts about further stock market rally due to tensions of the US with China. A month ago, Kolanovich forecasted that in the first quarter of 2021, the S&P 500 could renew historic highs.

Initial claims for unemployment benefits rose by 2.12 million, which is slightly higher than the forecast (2.1 million). Since the beginning of sanitary restrictions, the number of applications has reached 41 million. At the same time, continuing claims showed a larger than expected reduction – from 24.9 million to 21.05 million, with a forecast of 25.7 million.

https://i.ibb.co/CQGp00x/image-5-2.png

Undoubtedly, some of the workers returned to work, but conclusions about a strong trend in the recovery of employment may be premature – some of the unemployed also receive benefits under the so-called pandemic program, where the number of continuing claims is more than 30 million.

In the analysis of all these figures for employment, unemployment claims, it is important to keep in mind one important point. In the United States, there is a federal program for extra unemployment benefits in the amount of $600 (until the end of July). This means that some unemployed Americans now receive almost $ 1,000 a week. For some industries, in fact, an absurd situation arises where lounging is more profitable than working. A study by the University of Chicago showed that 68% of those who receive benefits now have more income than when they worked, and for 20% of those who lose their job, the benefits will be twice as much as earnings. In other words, workers now have little incentive to look for job, and this can continue until the end of July. The most interesting thing is when the program comes to an end – income will fall sharply, there may be fewer vacancies, and therefore a consumption shock may occur.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 10-06-2020 12:36

Re: Tickmill UK Fundamental Analysis
 
USD: Downside Trend on Pause?

The US Dollar hit a serious obstacle during decline on Monday which apparently helped bulls to gain control on Tuesday. A convenient explanation of this pullback is the process of pricing in the uncertainty related to the Fed’s meeting outcome on Wednesday. The US Central Bank has already signaled that it is unwilling to make “liquidity bazooka” a permanent feature of its policy quickly and quietly reducing bond purchases to a minimum

One way to understand why the FOMC meeting in June can offer really strong support to USD is to notice that macroeconomic situation in the United States has improved significantly since the last meeting, and it may seem that this recovery is becoming less and less consistent with various emergency programs of asset purchases, zero interest rate, credit facilities that the Fed has been rolling out since mid-March. Here we can also include purchases of commercial papers, corporate ETFs, support for the “fallen angels”, credit facility for the so-called “Main Street” (i.e. small firms) which played key role to keep interest rates subdued in corporate financing markets. Robust stock market growth hinges a lot to the expectations that this cheap liquidity will remain in place. Expectations for QT or at least a bit more hawkish stance is clearly visible in the treasuries futures market

The chances of interest rate hike by 25 basis points at June meeting rose from 0% from early May to 16%. It is reasonable to assume that these expectations are also priced in USD, so if the Fed makes it clear tomorrow that it does not share the optimism of the latest data, this will signal to market participants that the easing bias is still here which is negative for USD. And vice versa.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 11-06-2020 11:16

Re: Tickmill UK Fundamental Analysis
 
China: In a Worrying Sign, Price Growth Stalls Despite Reopening


Whatever China does, it appears that the economy still can’t take off after the reopening. Despite hefty fiscal and monetary support, consumer and producer price inflation have been slowing for the second month in a row. May inflation slowed down from 3.3% in April to 2.4% (2.7% forecast), the weakest price increase since March 2019. What is even more alarming, the price growth for intermediate goods (i.e. raw materials, resources, etc.) fell by 3.7% in May in annual terms (-3.3% in April). This means that producer demand for resources is declining, reflecting the negative expectations of how demand for their goods and services has changed and will change:
https://i.ibb.co/Kw9d3JK/1-4.png

A decrease in consumer price level gives a signal to producers to reduce output, which then negatively affects other macroeconomic indicators such as wage growth and volume of capital investments. Which again affects consumer demand and thus inflation.

Chinese stocks reacted negatively to the weaker than expected release of key data, SSE Composite fell by almost half a percent.

Positive news for the oil market was the suspension of oil production in Libya at the largest Sharara field, with a capacity of 300 thousand bpd. As it became known, the armed group stopped production on the weekend after relaunch, although the Libyan National Oil Corporation hoped to reach its working capacity within 90 days.

The API weekly report on US oil inventories showed that inventories increased by 8.42 million barrels, which exceeded market expectations. The increase in stocks usually negatively affects oil prices, as it means an increase in producer activity in the United States. Reserves in Cushing decreased by 2.29 million barrels.

The short-term forecast from the US Department of Energy indicated a lower than previously reported average level of US oil production in 2020 – 11.57 million bpd, against 11.69 million bpd in the previous forecast. Such a forecast followed the revival of US oil sector amid recovery in oil prices. Continuing decline in production reflects the collapse in drilling activity, which will recover more slowly after the 70% drop compared to mid-March.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 15-06-2020 11:48

Re: Tickmill UK Fundamental Analysis
 
Key Points from the June Fed Meeting. Decisive “no” to NIRP

Let’s start from the brief recap of the Fed meeting:

https://i.ibb.co/xfm3rVn/1-7.png
Key rates remain unchanged, monthly purchases of Treasuries and MBS (i.e. QE) will be carried out “at least at the current pace”;
Federal funds rate will be kept in the range of 0-0.25% for an extended period of time, until the Fed “is confident that the economy has weathered recent events and on the growth path to the target inflation and unemployment rate”;
According to the median forecast, the interest rate will remain at its current level at least until the end of 2022. Only 2 out of 17 committee members expect a rate hike in 2022;
None of the officials considers negative rates (there are solid reasons for that).
After the NFP report in May, which shook positions of even the most convinced doomsayers, it was really difficult to eradicate the hunch that the trajectory of US recovery will take the form of V. The Fed yesterday put an end to those suspicions, which become a formal signal for sell-off today.

In my opinion, there are still not enough arguments for the return of the bear market in risk assets. From the standpoint of monetary stimulus, the situation for risky assets not only remained favorable, but even slightly changed for the better (the Fed is clearly ready to do more). The volume of QE purchases will remain at least at the current level (~ $ 20 billion per week), while the expected period of zero rates has increased significantly (and in probability too) thanks to pretty dovish expectations of the committee members. Below is the updated dot plot:

https://i.ibb.co/sggLhMP/2-1.jpg

Blue dots indicate the opinions of FOMC members about what interest rate should be in the next two years.

Committee members unanimously agreed that the interest rate should remain at 0 in 2020 and 2021, and only two out of 17 participants thought that it could be raised in 2022. In fact, this is an extremely bearish bias in the policy. But there is little room to expect negative interest rates, as the experiment of Europe and Japan clearly showed how they “bury” the country’s banking sector:



The dynamics of the Covid-19 pace of infections remains generally stable, despite alarming developments in the US states that are gradually lifting restrictions.

Economic growth in the fourth quarter of 2020 was revised to -6.5% YoY, unemployment was revised up to 9% in 2020 which is a worrying sign that may result in some risk-off, especially in procyclical equities in the near term, as the Fed basically delayed expectations of an economic rebound.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 15-06-2020 11:58

Re: Tickmill UK Fundamental Analysis
 
Positive eco Data in the US Economy – As Good as Described?

Major US stock indices lost almost 5% on Thursday and the question arises whether this is the beginning of a bear market. The dynamics of key indicators of consumer activity and the US labor market move in positive direction, which justifies the stability of the stock market in the near future, but as will be discussed in the article, state support (and the associated increase in moral hazard) creates the basis for negative surprises in the future, closer to autumn.

Let’s start from Google Mobility data for the US: mobility in retail and recreations is just -21% below the norm, mobility associated with visiting workplaces is -14% below the norm. The trend in both indicators is positive and is due to the fact that the states are gradually lifting restrictions. Earlier, Stephen Mnuchin hinted that lockdowns are too expensive measure to fight the epidemic, hence even a sharp increase in new cases won’t be a clear-cut trigger for a new market sell-off since we won’t be able anymore to use the data as a proxy of the threat of a new lockdown, which undoubtedly would be a major shock for the economy.

Mortgage applications

Mortgage applications have been rising for eight consecutive weeks, outpacing growth in 2018 and 2019:

https://i.ibb.co/tKFvBHj/1-8.png
картинки на фото

Undoubtedly, the growth is fueled to some extent by ultra-soft monetary policy of the Fed, as mortgage rates, although reluctantly, are testing record lows.

The dynamics of mortgage applications correlates with consumer confidence, as consumers make decisions based on their financial positions (wealth) and expected future income. Lockdowns basically protected savings because of limited consumption ability. Now consumers are “fooled” by the state support and consumer sentiments are doomed to change erratically because of that. However, while generous social protection programs are in place, no major shifts are expected.

Car sales

Recent data also shows that demand for cars in the US rebounded after sharp decline in April

In 2009, there was a similar rebound that coincided with the moment the economy emerged from the recession. That rebound probably spoke of a shift in expectations, which often form a turning point in economic activity. The rebound now is probably the “residual pent-up demand” accumulated during the lockdown. But we certainly need more data to confirm this. In my opinion, the same situation as with mortgage applications, state support accounts for much of the rebound.

Labor market. Unemployment report.

It caught off-guard many economists but now, retrospectively, taking into account the latest data on unemployment benefits (negative dynamics in both initial and continuing claims), we can say that indeed, new jobs were partially inflated thanks to the Paycheck Protection Program (the loans de facto became “grants” to firms to save jobs), primarily by small firms which use low skilled-labor (hence low costs of hiring and layoff). The NFIB survey of small businesses showed that 73% of the respondents (small businesses) asked for money and 93% received them. This increase in moral hazard creates very ambiguous situation with jobs; in the future, surprises are possible because if firms face lack of demand, they will be forced to increase layoffs.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 16-06-2020 15:46

Re: Tickmill UK Fundamental Analysis
 
COVID-19 Infection Rate is On the Rise Again. Should You Worry About Market Sell-Off?

Nationwide lockdowns undoubtedly helped some countries to enter a plateau phase in the infection curve, however, as soon as the countries began to lift restrictions, daily cases started to rise again. Despite erratic daily gains, the curve shows a clear upward trend, which started to accelerate around the end of May

We also see the onset of the fuss about a second wave in the media, but it seems that this is only a continuation of the first wave that resumed growth, after a short pause.

The increase in daily incidence rates of Covid-19 mediates its negative impact on markets through two main factors – the odds of a second lockdown and duration of closed national borders. The experience from the first lockdown showed that this is a painful measure with high economic costs which forces governments to maintain high budget deficits and central banks to keep borrowing costs low. In my opinion, the second lockdown is possible only if incidence rates will create a risk of failure of national health services. Their safety margin is undoubtedly higher now so preventive lockdowns are definitely not a priority measure. While the upward trend in the infection curve is definitely a worrying sign, we still need to see significant acceleration of the trend to start worry about its impact on markets.

Hard Times for Asia

The latest update on foreign trade, production and consumption in Asia provided additional evidence that there is a lasting damage which further reduces chances for quick rebound in activity. Given that there are expectations of V-shaped recovery priced in the market, sluggish economic performance in May suggests there is a serious risk of downside correction for those hopes.
China was the biggest disappointment: industrial production rose 4.4% in May (5% est.), fixed capital investment fell 6.3% (-5.9% est.), retail sales also missed estimates contracting 2.8% YoY (-2% est.).

Dismal figures on India and Indonesia showed the true cost of lockdowns: Indian exports fell 73% in May (-60% in April), unemployment jumped to 24%, and industrial production fell 55%. Indonesia sharply reduced trade with the rest of the world: imports fell 42.2% (-24.55% est.), exports – 29% (-18% est.).

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 16-06-2020 15:57

Re: Tickmill UK Fundamental Analysis
 
Fed Initiates Corporate Bond Buying Program – What Does it Mean for Stocks?

The Fed said on Monday that it’ll buy corporate bonds directly from the market and intends to build a wide and diversified portfolio of US companies’ bonds. It was a huge bullish factor for stocks as well as the corporate bond markets which helped to deter sellers and initiate bullish momentum.

What are the consequences of this dovish move? In my view, they can be divided into two types – technical and psychological. Firstly, traders in the fixed-income market will try to predict the Fed’s choice of bonds and front-run the central bank. Secondly, the signal that there can be potentially unlimited demand on the market means that the chances of “getting on the wrong side of the market” are rising for short positions. This then skews the playing field towards bulls. Stable and low borrowing costs means that firms get safe opportunities to raise cheap debt financing and survive the period of low earnings.

The Fed’s bullish statement helped the S&P500 to defend support at the 3,000 level on Monday, providing an opportunity for buyers to gain control. Expectations of the Fed’s bond market support helped Asian stocks to rebound after the sell-off on Monday, which gained more than 4% on Tuesday. European and EM markets also cheered the Fed decision.

JP Morgan market guru Marko Kolanovich, who called to reduce exposure to US stocks two weeks ago citing rising geopolitical tensions, made a U-turn again calling to buy the dip, similar to the one that we observed last Thursday.

Kolanovich’s bullish stance is supported by two key arguments:
From a technical viewpoint, the sharp correction that we observed last Thursday reduced the feeling of the market being overbought, while at the same time, one of the main risk factors for the rally faded away, namely the tension between China and the United States.

A major source of untapped demand is naysayers of the current rally – hedge funds. For the most part, they refrained from participating in the stock rebound from March. The heads of several investment companies warned that the March rally had nothing to do with investing and was generated by speculative flows. However, given the policies of central banks, which guarantee unlimited support and near-zero rates for a long time (at least 2 years), the range of investment opportunities is narrowing, essentially making stocks the undisputed leader among other asset classes in terms of risk-reward ratio.

Two other major risk factors, according to Kolanovich, are the COVID-19 pandemic and unrest in the United States. As I wrote yesterday, the curve of new cases has gone up since the end of May, but this dynamic does not threaten lockdowns on a national scale. Especially since the government has already gained enough information about the new virus and does not face uncertainty, and the safety margin of national health services is already much higher.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 21-06-2020 09:48

Re: Tickmill UK Fundamental Analysis
 
AUD: Labour Market Data Disappoints in May, Raising Odds for Extended Reversal

Unlike in the US, Australian labor market, to the surprise of many, not even failed to rebound in May, but continued to deteriorate, putting pressure on the RBA to hint about fresh easing measures.

The number of jobs in the economy declined by 227 thousand, with expectations of approximately half less (-125K). The size of labor force has also decreased, as LFPR has fallen from 63.7% to 62.9%, i.e. we see more workers losing hope to find a job and moving out of the labor force. It is certainly not a welcomed development.

Decline in the number of jobs in April was revised to the downside: from -594K to -607K. The number of unemployed has risen to 928K or 7.1%, the highest level since 2001.

Australia, like many other developed countries, has introduced a scheme of loans and grants for the firms which can save jobs, but the effect, as we see, is low, due to significant restrictions on mobility in May. In June, mobility increased, but the government will only move to the third phase of lifting restrictions in July, therefore, for now jobs will continue to concentrate in the low-skilled sector, such as retail.

Central Bank Policy

The RBA said it had no intention of raising cash rate; given disappointing labor market data for May, policy normalization is ruled out not only this year, but most likely in 2021 too. Earlier, RBA head Low stated that the central bank would not want to enter the path of negative rates, but given the attractiveness of verbal interventions ( as the Fed has already proved to us with its “hodgepodge” of “limitless” credit lines, which were enough just to announce), the RBA may also hint that it does not exclude the possibility of negative rates, which may cause a weakening of AUD.

From a technical point of view, the AUDUSD pair erased decline since the beginning of March, having formed a small double top (a pattern often preceding a reversal) in the zone of resistance formed in the second half of 2019:

[IMG]https://i.ibb.co/G77k1cB/1-16.png[/IMG]

As a result, the pair may stage a pullback to the nearest level of 0.68, and then to the level of 0.6650 – 0.67, before we can consider purchases again.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 21-06-2020 09:53

Re: Tickmill UK Fundamental Analysis
 
Did the US unemployment rate decline because people didn’t want to work?

Higher-than-expected gains in the US initial unemployment claims in June pare down optimism regarding the jump in May payrolls. In the week ending June 13, the number of claims rose by 1.508M (1.3M exp) where the week prior was revised up to 1.566M.

However, the “sticky” behavior of continuing claims is more worrying. Their number declined less than expected – from 20.6 to just 20.54M with a forecast of 19.85M. This pool of unemployed people is fluid – meaning that to get a decline in the number, the stream of new claims (those who extend their initial claims) should be less than the outflow (persons who got the job and move out of the pool). Hence the sluggish decline that we observed last week suggesting that outflow weakened – less than the expected people who have become employed.

There is a solid reason to expect this tendency; the pandemic put constraints on people’s ability to find a job while also decreasing their drive to search at all. In addition, eligibility requirements for receiving the benefits were relaxed significantly. To get benefits, an unemployed person doesn’t have to be in active search for a job, getting laid off during the pandemic is the sufficient condition.

So what?

Obviously relaxed requirements create moral hazard: the unemployed become less interested in looking for a job because their income is insured by the government. In other words, they become disincentivized to do that.

Those disincentivized workers create distortion in the calculation of unemployment rate: they are unemployed and should be counted as such, but since U-3 unemployment measure counts only those who is in active search for a job, demotivated workers are obviously missed! In other words, extended social insurance in such an unusual way underestimates the real number of unemployed and will keep it that way while the state insures income. Extended unemployment benefits are due to end in 6 weeks, so it should not be surprise if we see a plunge in consumer spending and rise in unemployment if government prefers a “rough exit” from this stimulus.

Based on the data on continuing claims, the unemployment rate in the United States may be at least at 14.1% (the official BLS estimate for May is 13.3%) and at most 20% (if we take into account those who receive benefits under the pandemic program).

The data calls for caution about how we should interpret the sharp increase in jobs count in May as the impulse can be short-term and unstable. This conclusion is consistent with the comments of bankers from the Fed. Loretta Mester said that according to her observations, firms are in no hurry to return employees to their jobs. The head of the Federal Reserve Bank of Atlanta Bostik said that after talking with representatives of the restaurant industry, he concluded that 20-30% of restaurants and entertainment venues in the region might not open, and structural unemployment could rise.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 23-06-2020 04:33

Re: Tickmill UK Fundamental Analysis
 
What’s Fed’s swap line? And how does it affect the balance sheet?


One of the first symptoms of the Covid-19 turmoil in March was a global dollar shortage, but an aggressive Fed response helped to avert the credit crunch. One of the side effects of this move was rapid expansion of the balance sheet however, the latest data from the Fed indicated that this trend has started to reverse. Various financial media cited lowering demand for the Fed’s swap lines as the major source of decline. In this article, we will try to figure out what was the exact reason why the balance sheet started to deflate last week.

Let’s start from key definitions. What is the Fed’s swap line? It’s an agreement between the Fed and other central bank on a mutual exchange of currencies for some predetermined period of time. A swap contract involves two transactions (“swaps”) – direct and reverse. The direct swap occurs when the Fed lends USD to the foreign central bank taking foreign currency as “collateral”. Conversely, the Fed exchanges foreign currency back for USD. Since the Fed’s counterparty is usually a large foreign central bank and exchange rate for direct and reverse swap is fixed, the Fed bears no credit or currency risk. A swap line is not free though, the Fed charges some interest on it.

The Fed has been providing short-term and medium-term swap lines for 7 and 84 days.

Direct swap leads to an increase in the Fed balance sheet while reverse swap results in a decline. Ignoring interest income, a swap line transaction with the ECB in the amount of 100 USD will be reflected in the balance sheet as follows:

https://i.ibb.co/6Zh9M0W/1-19.png

Moments of time t and t + 1 are the dates of the forward and reverse swaps.

“Waning” 100 USD in the Fed’s liabilities in reverse leg of the swap may look odd because it creates impression that the Fed “destroys” USD. But that’s just how it works! Recall that US Dollars is a liability only for the Fed (asset for all others), so basically destroying USD (selling something on the asset side) the Fed basically “redeems” its debt!

In the table above, we can see which swap line transactions inflate and deflate the balance sheet.

Last week, we saw the news that the Fed’s balance sheet declined for the first time in several months thanks to lowering demand from foreign central banks for the Fed’s currency swaps:

https://i.ibb.co/z2qv4Sf/2-11.png

However, it was stated slightly incorrectly, as reduction in demand is not the only source of decline. Let’s discuss why.

Based on the data on operations (https://apps.newyorkfed.org/markets/autorates/fxswap – Operation Results), demand for swap lines peaked in early March. The size of the swap agreements was the highest but started to decline later. The “hungriest” was the Bank of Japan, which borrowed a lot of USD through this credit facility for the medium term (84 days).

Maturity dates for those large March USD borrowings (i.e. reverse swaps) fell precisely for the middle of June. As we have already seen from the analysis above, reverse swaps have a deflating effect on the balance sheet. In other words, the Fed’s balance declined not only because foreign Central Banks reduced demand for currency swaps but also because the turn has come for the largest reverse swaps.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 25-06-2020 14:13

Re: Tickmill UK Fundamental Analysis
 
Oil Prices at 3.5 month High as OPEC+ deal Compliance Improves

Oil prices continued advance on Tuesday, Brent gained $2 rising to $43 per barrel, the highest level since early March. Obviously, sentiment in the market remains positive, thanks to the fact that constructive rhetoric from the OPEC, regarding compliance of several participants, has finally appeared.

One of the weak links in the OPEC+ deal is the lack of enforcement mechanism which creates incentives for some participants to deviate.
However, progress on this matter was outlined last week, as individual participants to the agreement began to inform OPEC about how, when and how much they would reduce output. The traditional “hack worker” Iraq and Kazakhstan provided the organization with details of how they would cut output. Nigeria also outlined plans to cap production. Obviously, all this information cements the deal and increases the likelihood that compliance will be high.

Recall that extended version of the OPEC+ deal implies output cap of 9.7 million bpd until the end of July.
Russian energy minister Novak said the $40-50 range is now fair for oil. Although such an oil price is acceptable for the Russian budget, some OPEC members will not be happy if prices stay at this level for a long time (due to the higher oil price set into the budget), so they will probably want more expensive oil. These fundamentally justified disagreements give rise to an interesting situation by the end date of the agreement, as instead of cooperation, a competition may emerge again, pulling producers back into the price war.
Also, API data on US oil reserves are expected today. It is expected that inventories rose 2 million barrels last week. A steady increase in reserves may indicate that low oil prices failed to destroy the US oil sector and it is restoring production along with rising prices.

https://i.ibb.co/7bbpGHX/Oil-prices.png
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 25-06-2020 14:28

Re: Tickmill UK Fundamental Analysis
 
Gold’s Renewed Momentum Hints Markets are Worried about US Inflation

Gold’s renewed momentum was one of the most notable market events this week, sending price to a new 2020 high:
https://i.ibb.co/g6GtPLw/image-1-2.png

Gold’s Renewed Momentum

It looks like bulls and bears argued for two months about the direction as the price stalled in the range between key levels of $1680 – $1745. Finally, sellers capitulated. Last month, around May 18, a failed breakout took place – it is clear that the price failed to gain a foothold above the upper bound.

Now the chances that the breakout is successful are much greater. We can see that there was a rebound from the ex-resistance converting it into support. Also, higher low followed in the price action adding evidence to the truth of breakout. Such behavior tells us that the market has come to consensus about the validity of the breakthrough – sellers realized they made a mistake betting that resistance would hold, buyers became more confident that their decision to buy was right.

Breakout from a range is usually the signal of initiation of a trend. As the gold price quitted 2-month range, the base scenario is now bullish trend with next target at $1800.

The function of gold as protection from falling real interest rate suggests that the driver for the rally could be some upward shift in US inflation expectations. And indeed, one of the inflation expectation metrics (5y5y inflation swap) has risen to 1.62%, the highest level since mid-April:
[IMG]https://i.ibb.co/HDHsZLn/image-2-2.png[/IMG]

Gold’s Renewed Momentum

The breakthrough in gold price (red curve) coincided with the acceleration of inflation expectations in the US.

The market can discount too much inflation risk in the United States, including because of the confidence of the key “expectations-setter” – the Fed, which is confident that the net effect of the coronacrisis and subsequent stimulus is disinflationary. However, data for May on the labor market, retail sales, real estate and car sales slowly prove the opposite.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 26-06-2020 14:18

Re: Tickmill UK Fundamental Analysis
 
US Unemployment Claims: Still no Welcome News in June Despite Rebound in May

Getting ready for the June NFP release, which will probably shed some light on the striking employment gains in May, we continue to keep tab on the behavior of more frequent labor market indicators – initial and continuing unemployment claims in the US. For the fourth consecutive week, a drop in layoffs has been more “sticky” than expected:

https://i.ibb.co/wS32G9K/1-23.png

Weekly rise of layoffs in June appears to be consistently higher than the forecast. But in time of permanent monetary and fiscal stimulus, bad economic news are good news for the market: the weaker is recovery the more likely is extension of the lost income coverage scheme which expires at the end of July.

Continuing claims declined from 20.3M to 19.5M but WoW changes are not quite consistent with the story of massive rebound after the reopening:

https://i.ibb.co/TrkCVMc/2-14.png

Still, declining number is a good signal because it shows that people are returning to work. However, actual number can be higher this week due to a reporting feature of some states: for example, Florida and California send the data every two weeks and there was no data on unemployment claims this week.

As of June 6, the number of claims for all income insurance programs (unemployment benefits, pandemic payments, etc.) amounted to about 30.5 million. The first important requirement to be eligible for receiving the social payments is that a person have to lose a job during pandemic. However, in order to take into account constraints on job search opportunities arising from the pandemic, the government relaxed another important condition – the need to look for a job. Recall that for a person to be unemployed two conditions must be met – lose a job and be in active search for a work. As a result, a large part of unemployed can be out of reach of BLS precisely because of the flaw in accounting, that’s why the number of people who receive benefits can be more accurate measure of the unemployed than official BLS unemployment estimate. Currently it is 13.3%, while 30.5M claims is about 20% of the workforce.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 30-06-2020 08:43

Re: Tickmill UK Fundamental Analysis
 
Will SPX Resume the Rally After the Storm of Covid-19 Headlines?

On Monday, the struggle continues to unfold between positive macro data and signals of the “second wave” which can be challenging to dismiss. Asian markets closed in deep red while European stocks are trading slightly below the opening in response to reports that some US states are reviewing plans to lift lockdowns or partially reinstate them.

A 6% increase in industrial profits in China in May YoY looks like an encouraging macro update, however details of the report show that growth concentrated in technological sector while other sectors lagged behind. In addition, reduced costs accounted for the better part of the profit growth, which of course includes increased layoffs and wage cuts which puts dent on consumer spending outlook in the month ahead.

The COT update from last Friday showed that large speculators sharply reduced short positions in S&P500 futures:

https://i.ibb.co/wsYFPSj/1-26.png

In June, the biggest net short position on S&P500 (long positions – short positions) was around -40K contracts, the lowest level since early 2016. As of last Tuesday, there was a sharp turnaround: the number of bets on decline fell by 28.7K contracts. However, bets on the rally of the index fell as well, albeit slightly, by 2.8K contracts.

Swift liquidation of short positions suggests that some market participants are finally dropping their “second dip” prediction, which in turn adds arguments that we may see the next leg of the rally after proper consolidation near the level of 3000 points. Nevertheless, the rally is currently being hindered by a “storm” of headlines about a second wave of Covid-19 and negative shocks in the form that some states are making adjustments to lockdown removal plans.

As for the other “hot spots” of the Covid-19 pandemic, the accelerating number of new cases in India is striking:

https://i.ibb.co/GH39fzm/2-16.png

Over the past two weeks, the number of new cases per day has doubled – from 10K to 20K. Growth is concentrated in five large states (Delhi, Gujarat, Maharashtra, etc.), which account for 43% of GDP. Such a development of the situation prompts us not only to revise down the country’s GDP forecast, but also the forecast for oil consumption, as India accounts for 4.81% of world oil consumption (3rd place in the world).

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 01-07-2020 06:22

Re: Tickmill UK Fundamental Analysis
 
Fed’s Targeted QE Keeps Credit Markets Under Full Control


Despite positive developments in the US economy since the start of lifting lockdowns, Fed Chairman Jeremy Powell reiterated his dismal warning on Monday: extraordinary uncertainty reigns in the prospects for economic recovery. This uncertainty is generated mainly by the fact that economic projections strongly depend on the success of pandemic suppression and the government’s readiness to lend helping hand again in the form of new fiscal injections.

Powell’s statement, in fact, carries a call for taking signals of a second virus outbreak in earnest, but recent explosive growth in the number of new cases in some US states last week failed to convince bulls to ease grip. Optimism, as we see, triumphed after a slight hitch at the start of trading session on Monday: European and American indices closed in green, although the threat of new partial lockdowns in the US loomed on the horizon.

Analysts at Morgan Stanley said that despite the fact that the threat of a second outbreak exists, governments are more attuned to it compared with the first outbreak, they also realized the full power of fiscal “bazooka”, and the Fed, demonstrating unlimited depth of its balance sheet, leaves no chance for development of a credit crisis.
The Fed really hands out credit guarantees on every US credit market, announcing various credit facilities.

https://i.ibb.co/PzFb5HZ/1-27.png

Basically, they are all a kind of a targeted QE – depressing interest rates on the markets where the risk of their outbreak (and subsequent spillover to other credit markets if the state is fragile). It should be noted that the program of direct lending of the Fed to small and medium enterprises has not yet been enacted (the so-called Main Street Credit Facility). The program itself is a powerful signal that interest rates for these borrowers will remain at an acceptable level (as well as the market value of their debts), which should stimulate banks to expand lending to this group of lenders.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 02-07-2020 05:40

Re: Tickmill UK Fundamental Analysis
 
Gold Hits $1800 but Ultra-dovish Fed Suggests it isn’t the Limit

U.S. Senate unanimously voted on Tuesday to extend a key stimulus maneuver – Paycheck Protection Program. The goal of this program was to offer cheap loans for firms which want to save jobs. Initially it was expected that the program would be completed before the end of June, but Senate’s to extend it suggests that a wave of layoffs waits the economy without credit support. US stock markets welcomed the decision of the government to extend the program, SPX added 1.5%.

The program could account for some distortions in May NFP report since firms has strong incentive to delay layoffs or even boost hiring. The extension of the program means that the real trend in unemployment may be also masked in July.

Last week we discussed prospects of the Gold rally to $1800 level, which was successfully completed on Tuesday:

https://i.ibb.co/m6CcSR8/1-2048x1196.png

The price of gold has risen to the highest since 2012 amid falling real interest rate in the US and expectations that this trend will continue. This week, these expectations were fueled by a gloomy warning by the Fed’s Powell. Despite positive changes in eco data in May and June, Powell said that significant uncertainty continues to reign in the prospects for economic recovery.

Translating this into the language of concrete actions, the Fed may soon begin to target the yield curve – affect government bond market in such a way that the price of bonds of some maturity (medium to long-term) will fluctuate in a narrow band. In other words, control their yield. Decreased uncertainty about medium and long-term rates should boost lending for respective terms. Today we expect release of the Minutes of the past Fed meeting, which should shed light on intentions of the US central bank to further ease monetary policy, including targeting the yield curve.

In this regard, gold has a room for appreciation above $1800 because it becomes increasingly clear that the Fed will ease more depressing yields further.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

TickmillNews 03-07-2020 14:48

Re: Tickmill UK Fundamental Analysis
 
How Long will the Fed Keep Interest Rates low?


The minutes of the Fed meeting in June showed that officials want to give more certainty to investors about the path of interest rates. More specifically, the Central Bank is exploring the possibility of “tying” low interest rates to some goal, like achieving certain macroeconomic goal. For example, keep rates at current level until unemployment drops to 4%. This idea is not new and is similar to a pledge to keep rates low until inflation reaches some target, but we can say now that officials want to make a stronger statement.

For the US dollar, such Fed stance is clearly a downside risk, since by tying the policy to a macroeconomic event, the Fed loses opportunity to respond flexibly to the “unforeseen” accelerated recovery of economic activity (as it usually does). Of course, we have to take into account monetary policy of other central banks. Dollar decline will be more pronounced if other central banks choose to remain flexible and less categorical (i.e. less dovish) in their guidance for markets.

US crude oil stocks declined 7.1 million barrels, beating forecast of 0.71 million barrels, showed the latest report from the EIA. As oil prices continue to drift into profitable zone for US oil producers, they have more incentive to increase output, hence reduction of stocks could be achieved due to the outflow of oil from the inventories exceeding inflow. In other words, oil demand in the United States can be recovering faster than production, which is essential sign of expansion. Oil prices advanced by 1.5% on Thursday thanks to the positive EIA update and are likely to extend gains, pricing in expectations of more signals that the US economic recovery is gaining traction.

Sweeping reaction by the European government to prevent spillover from falling incomes on consumption seem to have been crowned with success: retail sales in Germany rose 3.8% in May against the forecast of -3.5%. Government countermeasures to retain jobs apparently were also successful – the number of unemployed increased by 69K in June, beating forecast of 120K.

Unexpected pickup activity of the manufacturing sector in the United States prompts us to revise outlook of recovery in manufacturing sector as well. ISM production PMI rose to 52.6 points in June, Markit PMI – to 49.8 points. Both indicators beat forecasts.

There was a little disappointment in the ADP jobs report, which estimated gain in jobs at 2.369 million with a forecast of 3 million new jobs. Government schemes to avoid layoffs in the form of cheap liquidity sources like PPP loans which helped to offset declining sales volume on demand for labor contributed significantly to the boost in employment in May.

All states in the US continued phasing out lockdowns in June, so it’s reasonable to expect that while this process continues, the number of jobs will increase. Given the available information about the quarantine removal process, even big surprise in jobs count may be discounted by investors, although markets may not be ready for a weak report. Payrolls are expected to show 3.5M gain in June.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 76% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.


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