Forex Trading Review Guide: January 2022

Monday, January 31, 2022

HSBC Strategist Sees Bullish Pound Risks Going Into BOE Meeting

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Meta Q4 2021 Earnings Report Preview

On February 2, 2022, the world’s largest online social media network, #Facebook.Inc (Meta), with a market cap of approximately $839.28 billion, is anticipated to disclose its fourth-quarter 2021 profits. Since changing its name from Facebook to Meta, the company, which is known for its products such as Facebook, WhatsApp, Instagram, Messenger and Oculus, has gone through several changes.

One of the FAANG companies, Facebook revealed results in the preceding quarter. Earnings per share (EPS) was above consensus projections, increasing 18.8% over the previous quarter’s EPS. MAUs on Facebook increased by 6% yearly to a little more than 2.9 billion.

MAUs are a fundamental metric used by Facebook to determine the size of its global active user base. MAUs for the whole family of apps (Facebook, Instagram, Messenger, and WhatsApp) were 3.58 billion, a 12% year-over-year rise and a 70 million quarter-over-quarter gain. Advertising revenue was $28.3 billion, an increase from the previous year but decrease from the previous quarter. Profits surpassed $10.4 billion, a new high for the corporation.

During the company’s third-quarter earnings call, CEO Mark Zuckerberg outlined a new direction for the company, declaring a significant $10 billion investment in Meta, with additional costs to come in subsequent years, a transformation in how the company reports earnings, and, most importantly, a new strategic North Star. The release of Facebook’s third-quarter results came amid increased scrutiny from the media, legislators, and regulators of the powerful company’s purported damages. In the last few weeks, Facebook has faced a surge of negative publicity due to allegations made by whistleblowers who disclosed internal papers to media outlets, portraying the business as favoring profits before safety.

Facebook anticipates overall revenue of $31.5 billion to $34 billion for the fourth quarter, representing a year-over-year increase of 12%-21%. The outlook includes the severe uncertainty faced in the fourth quarter due to Apple’s iOS 14 revisions and macroeconomic and COVID-related issues.

For the forthcoming Q4 earnings report, the market generally expects sales of $33.4 billion, while earnings per share (EPS) is expected to reach $3.85. The current consensus of analysts maintains a “buy” rating on the company. Brian White, a Wall Street Analyst, expects Sales projection of $33.09 billion – equating to an 18% year-over-year growth – and EPS expectation of $3.73.

Meta expects overall costs in 2021 to be in the region of $70-71 billion, updated from their previous estimate of $70-73 billion. It forecasts total spending in the region of $91-97 billion for the fiscal year 2022, driven by investments in technology and product expertise as well as infrastructure-related costs.

Facebook announced a new financial reporting segment structure beginning with the Q4, with two sectors: Family of Apps (FoA), which includes Facebook, Instagram, Messenger, WhatsApp, and other services, and Facebook Reality Labs (FRL), which involves augmented and virtual reality related consumer hardware, software, and content.

Technical analysis

The start of 2022 hasn’t been pleasant for Meta (FB.) The stock has been plummeting since December 28, when it reached a monthly high of 352. The selling pressure continued at the turn of the year, and it broke the previous support of 322.

On January 26, the stock hit a low of 289, the level it last reached on March 2021. The resistance levels 327 and 343 are important for the stock to continue the upward movement. If the stock breaks above these levels, it may reach 352 or even cross that level. Oppositely, if the stock goes below 280, it could tank towards 250, the level seen in January 2021.

All the indicators suggest a downward trajectory of the stock. The RSI and MACD are pointing downwards on the daily chart, and the 100-day Moving Average is above the price level.

Click here to access our Economic Calendar

Adnan Rehman

Regional Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our written permission.

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“Relief Week” Could Add Strength to GBP, AUD Ahead of Central Bank Meetings

Potentially downbeat US macro surprises in January should be a key test of the strength of the dollar rally post-FOMC meeting. However, a possible disappointment, in my opinion, will be short-lived, since the Fed shouldn’t be spooked with one or bad reports. In addition, the driver of the slack is known, and it is also known that there is not so much uncertainty with it. The decline in tensions in Eastern Europe, the Chinese New Year creates more attractive conditions for the rally in risk assets and recovery of some currencies, in particular the AUD and GBP. The respective central banks that will meet this week are likely to surprise to the upside in their tightening plans.The dollar declines moderately on Monday, consolidating above previous local high (97 level). The key question is whether the dollar can weather possible weakness in US economic data in January without bearish consequences. Crucial ISM January activity indicators ADP and NFP reports are due this week and preliminary data for the second half December-first half of January indicates high risk of a negative surprise. The main argument for such expectations is that Omicron's impact on economic activity fell on the period during which the data were collected.The market has probably prepared for a weak January in US economic data and will be able to quickly bring the focus back to expectations regarding the Fed's March decision. A necessary condition for this would be a rebound, seen in the US economic data for February, which would confirm the hypothesis that the impact on activity due to Omicron was indeed transient and it didn’t halt the economic recovery.In terms of geopolitical risks, the situation also looks calmer. Consolidation of long-term rates in the US after a pullback before the Fed meeting, points to the possibility of a relief rally in risk assets, as well as currencies correlated with risk, such as AUD and GBP. The central banks of Australia and the UK are making interest rate decisions this week and are expected to try to keep up with the Fed. In particular, the Bank of England may raise interest rate by half a percentage point, which in principle is a sufficient condition for the end of asset purchases and the start of a discussion on balance sheet runoff. AUD and GBP risk is skewed to the upside against the dollar.In particular, AUDUSD bounced off the 0.70 horizontal support and an unexpected shift in RBA policy towards more tightening could help the pair move towards the upper boundary of the current bearish trend: Demand for risk in general could send the dollar index below 97 points, however some support should be expected at 96.85. US data, at least in line with forecasts, may already become a catalyst for continuation of the greenback rally, as expectations for the data are quite low.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/relief-week-could-add-strength-to-gbp-aud-ahead-of-central-bank-meetings"
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ECB and BoE Up Next

The FOMC announcement is out of the way, and the fact that the US central bank has not only prepared the ground for a lift off in rates, but also flagged that a balance sheet reduction is coming into view has boosted speculation for further action from the BoE next week. It seems if the Fed is confident enough on the recovery to map out the way to a removal of policy accommodation, the BoE can also afford to focus on inflation risks and overlook remaining uncertainties. There is also some movement at the ECB it seems, and pressure to at least commit to an end date for net asset purchases is mounting as German data signals a quick recovery from Omicron.

The BoE already lifted Bank Rate by 15 bp to 0.25% in December and after yesterday’s Fed announcement, markets are preparing for further action next Thursday, when the MPC once again sets policy. The 2-year rate jumped 0.99% early in the session, the highest rate since 2011, before the paper found buyers, but it is clear that there was general repricing of U.K. tightening risks this morning, prompted by the FOMC’s message that effectively endorsed a rate hike in March with more to come in later months.

The fact that the BoE hasn’t pushed back against lingering speculation of another move next week has only added to pressure on bonds since hot inflation and labour market data was released.

CPI inflation hit 5.4% in December and if that doesn’t look high enough, the debate on different inflation measures and the different impact of looming energy price hikes on different income brackets has fueled the debate on adequate wage demands. RPI is no longer an officially recognised measure, but still used by unions and that number hit a whopping 7.7% at the end of last year. At the same time the Institute for Fiscal Studies think tank has warned that if energy prices and other essential items rise as expected, lower income groups would face price hikes nearly 1.5% points higher than richer households, due to the larger share of their income that is eaten up by these items.

Latest growth numbers meanwhile have looked mixed, with PMI reports disappointing and monthly GDP looking lacklustre even ahead of Omicron restrictions. Still, with labour market data pointing to ongoing tightening, cost pressures and staff shortages, with give unions a very strong hand in wage talks this year. So more rate hikes clearly are on the way and while there may be arguments for the BoE to wait another month, it seems unlikely that officials wouldn’t have pushed back against mounting market speculation of a follow up move next week.

The BoE last delivered back to back hikes in 2014 and another move higher in Bank Rate would also open the way to a scaled back balance sheet, via an end to the re-investment of expired bonds, starting with GBP 28 bln of Gilts maturing in March. What could still throw a spanner in the works are escalating tensions with Russia over the Ukraine, which indirectly also impact energy supplies, and of course the developing situation in Westminster, where PM Johnson is still fighting party-gate and calls for him to resign. And with markets pretty much pricing in a move, the event risk is not so much that the BoE is hawkish, but that the BoE fails to deliver, which see Gilts rallying and the pound selling off in the initial reaction.

Over in Frankfurt meanwhile the ECB remains much more generous, but most recent comments also suggest an ongoing shift. The December forecasts still saw inflation slightly below the 2% mark this year on average this year and next. Chief economist Lane now says it is possible that inflation will stabilise around the 2% mark. The main tenor of the arguments has switched from stressing that generous policies remain necessary to bring inflation to target in the medium run, to saying that inflation won’t overshoot the target to an extent that would require significant tightening. That is quite a change that is likely to be reflected in the ECB’s statement next week.

So far the ECB’s main scenario has been that rates will remain on hold through this year with the guidance that net asset purchases would end shortly before the first rate hike.

When they will end remains open so far and while net asset purchases via the APP are set to run at a higher pace through the second and third quarter, when PEPP has ended, there was no commitment to let net purchases run through the fourth quarter. In theory then the first step for the ECB would be to commit to an end date for net asset purchases under the APP program. That could happen next week, if the ECB is ready to accept that interest rates could rise earlier than previously anticipated in the light of rising inflation pressures.

The growth outlook clearly plays a major role and the ECB next week will also have advance Q4 GDP readings as well as the full round of January confidence numbers. Q4 numbers won’t look stellar, largely thanks to Omicron and the renewed hit to the services sector. However, survey data suggests not just that supply chain disruptions are easing, but also that the services sector will be bouncing back relatively quickly from Omicron. Germany, which is set to report a negative quarterly GDP rate for Q4, has seen a round of much stronger than expected survey readings at the start of the year. PMI and Ifo reports suggested a turnaround, and today’s consumer confidence number also improved unexpectedly.

Clearly downside risks remain and Germany in particular will feel the chill from slowing growth in China. However, if the Fed is sufficiently confidence on the growth outlook to map out a path to removing stimulus, the ECB will risk falling behind the curve if it doesn’t at least confirm an end date for net asset purchases. Trying to keep all sides happy, which seems to be Lagarde’s preferred course of action, may no longer work and could end up being counter-productive if the central bank’s credibility is lastingly undermined.

Click here to access our Economic Calendar

Andria Pichidi

Market Analyst

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Market Spotlight: NZDCAD Hits Final Target

The NZDCAD trend play initiated a fortnight ago from .8553 has now hits its final target at .8351. Weakness in NZD linked to the return of a nationwide lockdown there, as well as strength in CAD linked to higher oil prices and BOC hawkishness, has worked wonderfully for this trade. While the final target for this trade has been hit, those looking to remain short can simply use the levels now. While price holds beneath the last broken support at .8475, the market is likely to extend further to test the channel low around the .8242 level. The retail market remains heavily long, in favour of further downside. However, if holding shorts, make sure to monitor momentum indicators for any bullish divergence.Keep An Eye OnRisk flows over the week are likely to be key. We are seeing some rebound so far today linked to the bounce in equities. However, given the volatile situation between Russia and Ukraine as well as the US labour reports at the top of the weeks, risk markets are vulnerable to further downside on any worrying news reports and any strong data on Friday. Such conditions should likely benefit CAD over NZD near term.

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Market Spotlight: USDCNH Channel Break On Watch

Weak China Data Weighs On YuanThe latest set of Chinese PMI data sets released overnight have revealed the impact of fresh COVID lockdowns as the country battles omicron. The Caixin manufacturing PMI was seen falling to 49.1 in January, marking a decline from the prior month’s 50.9 reading and a fresh contraction in the factory sector. Indeed, the figure was lower than the 50.1 result expected. With this latest decline, the factory sector in the world’s second largest economy is now at its lowest level since February 2020, during the height of the pandemic.Given the issues facing the Chinese economy as it continues to run a zero-COVID strategy, this reading will no doubt increase expectations of further action likely to be taken in a bid to support the Chinese economy. With this in mind, there are near term downside risks for CNH, particularly against USD, given the Fed’s hawkish shift.Technical ViewsUSCNHWhile prices has been moving lower within a bear channel, we’ve seen bullish divergence creeping in along recent lows. With MACD and RSI turning higher following the large bullish engulfing candle off the 6.3246 level, the focus is now on an upside channel break. Bulls can look for a break of 6.4018, targeting 6.4241 initially and 6.4490 above.

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Precious Metals Monday 31-01-2022

Metals In Meltdown As USD ReboundsThe uptick in the US Dollar over the last fortnight has taken a heavy toll on the metals complex with both gold and silver prices sinking. With the Fed having lad the groundwork for a March rate hike, and the market now keenly focused on gauging the likelihood of any increase on the banks current rate path projections, USD is firmly back in demand. Last week’s better than expected US GDP data was yet further evidence that the US recovery is picking up real momentum and, with this in mind, the market remains firmly focused on Fed tightening expectations, likely to keep metals prices weighed near term.Over the weekend, reports that Russia has downplayed the likelihood of an “imminent” invasion of Ukraine has been welcomed by markets. Equities prices are rebounding firmly on Monday, which is diluting safe haven support for gold prices, further weakening the metals complex. While these reports are encouraging, the situation remains incredibly tense and markers are likely to react to any sudden shift in news-flow meaning that metals retain upside risks on any shift in risk sentiment.Looking ahead this week, data wise, the main focus will be on the US labour reports due on Friday. A strong reading will no doubt add further fuel to the current USD rally, sending the metals complex lower as traders upgrade their Fed expectations. On the other hand, any unexpected weakness will likely see metals prices higher near term as USD sees some give back.Technical ViewsGoldThe rejection in gold prices from around the 1850 level has seen the market reversing underneath the 1826.71 level. Price is now testing the bottom of the bull channel. With both MACD and RSI turned lower, the market is vulnerable to a downside break of the channel, opening the way for a test of the 1763.88 level next. To the topside, bulls need to see the market swiftly back above 1826.71 to put the focus back on 1871.04 above.SilverThe rejection at the bear channel top has seen silver prices turning sharply lower, trading back down to test the 22.3105 level support, with the rising trend line sitting there also. Price is now sitting within a triangle pattern within the larger bear channel, highlighting potential downside risks and a trend continuation. Should we drop below 22.3205 the next levels to note are 21.4525 and 19.5643 thereafter.

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The end of the US stockmarket superbubble

SEE MORE Jeremy Grantham, we're in one of the greatest bubbles in financial history

Jeremy Grantham, the founder of asset manager GMO, has a long history of leaning towards the bearish side of things. But he also has a long history of being right about bubbles. And today, according to his latest research note released just before this week’s market turmoil, he thinks the US stockmarket is not just in a bubble, but in a “superbubble”.

GMO has done a lot of research into financial market bubbles and has settled on the definition that an investment bubble is a market that has moved more than two standard deviations above its trend mean (for more, see the box below). Now, however, we’ve gone even beyond the “normal” bubble. Instead, says Grantham, the US market specifically is in a “superbubble”, having moved three standard deviations from the trend.

This is the sort of thing that should only happen once ever 100 years. It’s not quite that rare, but Grantham reckons it’s only been seen on five other occasions: US stocks in 1929 and 2000 (the tech bubble); US housing in 2006; plus Japanese stocks, and Japanese property in the late 1980s. “All five of these greatest of all bubbles fell all the way back to the trend.” Grantham notes that if the S&P 500 does the same from here, it could end up dropping to 2,500. Grantham adds that the air began leaking from the bubble last February, which is when the most speculative stocks on the market peaked. For example, Cathie Wood’s ARK Innovation EFT, which invests heavily in such stocks, has halved since then.

Inflation isn’t priced in yet

It’s hard to disagree with Grantham’s view that US markets are overvalued. They’ve been that way on almost any measure you care to mention for several years now. GMO also notes that going all the way back to 1925, surges in inflation have “always hurt multiples badly” – in other words, investors become less willing to pay up for stocks. So far (or at least, up until the past week or so) investors seem to have assumed that inflation really would be transitory, but if that changes, the price/earnings ratio on US markets has a long way to fall.

So what does this mean for your money? GMO’s view isn’t too different from our own at MoneyWeek. While US markets are very expensive, other developed markets – particularly Japan and the UK – are in better shape, especially if you opt for “value” rather than “growth” stocks. A proper crash in the US would inevitably drag down most equity markets, but the cheaper they are, the quicker they’ll be to recover (you’d hope). Emerging market value is also on GMO’s list. Finally, adds Grantham: “I also like some cash for flexibility, some resources for inflation protection, as well as a little gold and silver.” It’s hard to disagree with any of that.

I wish I knew what standard deviation was, but I’m too embarrassed to ask

Standard deviation (SD) is the most widely-used measure of “dispersion”, or in financial markets, “risk”. That may sound technical but it’s actually quite straightforward to understand. It is based on the idea that any population is “normally distributed” (it follows a “bell curve” pattern) – in other words, whether it contains the height of every UK adult male, or the annual return from the FTSE 100 over 100 years, most members of a normally-distributed group will bunch around the arithmetic average (the “mean”) for the whole.

For the heights example, this would be the sum of every man’s height divided by the number of men in the UK. So a randomly chosen man in the UK will on average be close to, say, 5’10” – with only a few people significantly above or below that “mean” height (these are so-called “outliers”).

SD quantifies the average dispersion of a given measurement (in this case, heights or equity returns), above or below the mean figure. In other words, it’s a measure of how widely the data varies from the mean.

Given a normal distribution, about two-thirds of all the data points in a set should lie with one SD of the mean, and almost 100% should lie within three SDs. The higher the SD, the wider the spread of the data – or the greater the risk that a randomly chosen man from your data set is nowhere near the average of 5’10”, or that the return from equities next year is way above or below the past 100-year average.

SD can also be applied to other aspects of financial markets. For example, as noted above, in GMO’s definition, a market which has moved more than two SDs away from the mean is in bubble territory. This, according to GMO, is something that should happen once every 44 years, but in fact happens once every 35, which reflects the fact that markets do not follow a “normal” random distribution but are instead driven by human behaviour.

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Investment Bank Outlook 31-01-2022

Credit AgricoleAsia overnightAhead of the Lunar New Year holiday period in Asia, sentiment enjoyed a modest bounce spurred on by better-than-expected China PMI data as well as some growing investor comfort with higher rates; Chinese technology stocks led the rally. Most Asian bourses as well as S&P 500 futures were higher at the time of writing.G10 FX traded in a risk-on fashion with the AUD leading the pack ahead of the RBA meeting on Tuesday. The JPY and USD were the underperformers during the session.RBA to unchain the AUD? The highlight for the AUD this week will be the RBA meeting on Tuesday. Australian underlying inflation is in the top half of the RBA’s target band and the unemployment rate is already close to the central bank’s estimate of the natural rate; both have occurred a year earlier than the RBA expected. While the RBA could continue blaming temporary factors such as border closures and supply chain blockages for these circumstances, it is more likely to accept the new normal, and end its QE programme and bring forward the timing it expects to begin raising rates.Indeed, ending QE tomorrow would signal that a rate hike in late 2022 is a possibility, as historically the RBA has waited about six months between ending an easing cycle and beginning a tightening cycle. The RBA is likely to point to rate hikes in 2023 now being its new central scenario (previously late 2023/early2024) and that rate hikes in 2022 are only an outside possibility. The market is used to being disappointed by the RBA when it comes to its hawkishness, however, hence it remains short the AUD. So, the RBA coming close to market expectations would be enough to get the AUD to rally. Close, in our view, would consist of the RBA acknowledging the odds of a rate hike in 2022 are no longer insignificant.CitiEuropean OpenUSD weakness was the major theme of the day, with DXY dipping 0.17% in a continuation of the trend seen towards the NY close. Over the weekend, the Fed’s Bostic, in an interview with the Financial Times, left the door open to 50bps hikes as well as moves in consecutive meetings, which saw UST flatten led by the front end yields up, with 2y +3bps. Italy’s presidential election finally came to a conclusion, as Italian President Sergio Mattarella was formally re-elected on Saturday. Meanwhile, lower Chinese PMI prints revealed demand weakness prior to the Chinese New Year holidays.Looking ahead, Fedspeak and data will be top of mind. We see the Dallas Fed Manf. Activity at 15:30 GMT, followed by Fed’s Daly at 16:30 GMT. We note that Daly is expected to sound more cautious in his speech. EUR will see Eurozone and Italy GDP at 10:00 GMT, while German CPI is expected at 13:00 GMT. In the EM space, we will see TRY trade balance at 07:00 GMT, HKD retail sales at 08:30 GMT, and MXN GDP at 12:00 MGT.

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Yusaka Maezawa: the punk rocker heading to the moon

When the Japanese fashion tycoon Yusaka Maezawa returned to earth in December in a Russian Soyuz space capsule – landing in a remote area of Kazakhstan – it capped a banner year for private space travel, following breakthroughs from fellow billionaires Richard Branson, Jeff Bezos and Elon Musk. Maezawa, 46, who travelled with his personal assistant, spent most of the 12-day trip as “a paying guest” on the International Space Station – entertaining his social-media followers by demonstrating how to pee and make tea in zero gravity, and bemoaning his shortage of clean underwear. It was an expensive jaunt, costing $66m. But he views it as just “a practice run”, says Al-Jazeera. In 2023, he plans a “trip around the moon” on Elon Musk’s SpaceX with eight artists in tow.

A one-man national lottery

A born stuntman, who made his money founding the online fashion retailer Zozotown (which was sold to SoftBank subsidiary Yahoo Japan for $2.3bn in 2019), Maezawa is a household name in Japan, not least because of his penchant for doling out “cash giveaways” to his Twitter followers. Three years ago, he notched up a record for the most ever retweets after offering a million yen each to randomly selected people who retweeted the message and followed him – in essence becoming a one-man national lottery in exchange for four million followers.

Still, it was Maezawa’s passion for contemporary art that put him on the international stage, says the Financial Times. During one buying spree in New York in 2017, he caused a sensation by snapping up a Jean-Michel Basquiat painting for more than $110m – setting a record auction price for an American artist. Maezawa, who was once in a punk band, later observed that he felt an affinity with the late “enfant terrible” of US art who, like him, “rose up from the streets”.

Maezawa has been “rocking” the Japanese business world for decades, says The Daily Beast. Born in the Chiba prefecture in 1975, he was educated at the renowned Waseda Jitugyo High school, but rejected the conventional path to life as a white-collar “salaryman” “after seeing all those tired faces on my morning commutes”. Instead, he travelled to the US and began collecting CDs and records – a hobby that became the basis of his first business. On returning to Japan in 1995, Maezawa started a mail-order music import business, Start Today, running it in tandem with his own recording career. But the company’s rapid growth after adding an online clothes line in the early Noughties became all pre-occupying. After severing the music arm in 2007, Start Today listed in Tokyo and, by 2010, had reinvented itself as a pioneering “virtual shopping mall”, says the FT. The cash poured in. By 2017, the renamed Zozotown had expanded to 7,300 brands.

Davos in space

Maezawa made his mark as an innovator, introducing “the Zozosuit” – a spandex polka-dot bodysuit designed to gauge the wearer’s body shape to tackle the perennial online problem of how you “try before you buy”. It was a flop: in 2018 Zozo reported a 20% fall in profits amid analyst predictions of slowing growth. Some might count Maezawa fortunate that SoftBank’s ambition to take on Amazon enabled him to cash in Zozo the following year.

Now fully focused on his new role as a space pioneer, Maezawa is currently sorting through “a million” applications to select his fellow travellers for the SpaceX moon trip, says The Japan Times. He may yet ditch the artists for more lofty companions. “You begin to think about world leaders getting together in space…”

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Dollar Retreats From 18-Month High; Central Bank Meetings in Focus

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Will PayPal’s Earnings Announcement Halt Its Bleeding?

PayPal Holdings, Inc. (#PayPal) is scheduled to release its earnings for the fiscal Quarter ending Dec 2021 on 1^st February (Tuesday), after market close.

In general, the largest digital payment platform under-performed in 2021, with its share price closing down 63% off its highs ($309.47) seen in July. Reasons the price fell include slowdown of revenue growth, rising expenses, disappointing company sales guidance for 2022, performance not on par with the market’s elevated expectations, overvaluation etc.

Figure 1: Reported Sales and EPS versus Analyst Forecast for PayPal. Source: money.cnn

In the upcoming Q4 report, consensus estimates for sales stand at $6.9B, up over 11% (q/q) and 13% (y/y) respectively, whilst EPS is expected to hit $1.12, up 0.9% (q/q) and 3.7% (y/y). Despite undergoing a heavy sell-off till today, analysts remain a strong buy rating on the company. A detailed explanation on the stock’s valuation has been done by Cramer in terms of CAGR estimates: the CAGR is valued at +4.10%, rating PayPal a “Hold” in contrast to most analysts, as CAGR estimates rate a company a “Buy” if the CAGR is above 12%, or a “Sell” if the CAGR is below 4%.

Figure 2: Number of PayPal’s Total Active User Accounts from Q1 2010 to Q3 2021 (in millions). Source: Statista

According to MBLM’s study on brand intimacy based on emotional connections in the second year of the pandemic, PayPal has been ranked second in the financial industry, outpacing its competitors such as Visa and Mastercard, as well as other major banks. This suggests PayPal remains a strong preference for most consumers considering the positive emotional connections that have been established. Up to Q3 2021, number of PayPal active users reached 416 million, up over 4.9 times from Q1 2010.

Also, there are a few research-based fundamental metrics that may support the positive outlook for PayPal, such as high EPS rating (82/99) and an A SMR rating (representing the top 20% of companies).

In November last year, PayPal announced a team up with Amazon, allowing the latter’s US clients to pay with Venmo (a mobile payment service owned by PayPal). Besides the usual money-transfer services, Venmo also offers an in-app cryptocurrencies buying/selling service, which may help in further improving the company’s competitiveness in the financial sector.

#PayPal has been traded in a strong downtrend since its failure to break above $310 in July 2021. To date, the company’s share price has pared its gains by 47.2%, below $168.90 (FR 61.8%). This level serves as an immediate resistance. Based on the indicators, MACD fast and slow lines hovered below 0 line, while RSI and Stochastics showed signs of rebound from the oversold zone. If a bullish breakout is successful, the next target should be $195.75 (FR 50.0%) and $222.60 (FR 38.2%). The latter also intersects with 100-day SMA and the downtrend line – a strong confluence zone in which a break above may indicate a change in the current trend direction. On the other hand, if bearish pressure persists, the first support is $130.70 (FR 78.6%). Breaking below this level would open up an opportunity for the share price to continue testing the psychological level $100, and the lows in March 2020 at $82.

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Larince Zhang

Market Analyst

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Market Update – January 31 – USD & Stocks hold gains plenty of risks around

Stock markets rallied (+2.43%) Friday, Asia markets are higher (Nikkei +1.4%) in thin Lunar Holiday trading, USD & Yields & Oil all remain bid with Gold heavy. Markets have a busy week ahead, with China closed, tensions in Ukraine/Russia not subsiding and North Korea firing missiles into Sea of Japan.

BOE, ECB, RBA, ISM PMI’s, and NFP on Friday

USD (USDIndex 97.10) holds 1.7% gains forthe month
US Yields 10-yr moved closed at 1.782 & trades at 1.785%.
Equities – USA500 +105 (+2.43%) 4431 – (APPLE +6.98%) USA500 FUTS hold 4428.
USOil – Breached $87.00 on Friday now at at 86.30
Gold – down to $1788 afrom highs over $1850 last week
Bitcoin remains under $40,000 back to test $37 100,
FX markets – EURUSD back to .1.1170 USDJPY now 115.40 & Cable back to 1.3433.

Overnight – Chinese Factory data missed & Japanese Consumer confidence, Housing Starts and Construction spending all missed significantly too.

European Open – The March 10-year Bund future is up 31 ticks, underperforming versus Treasury futures, which are also in the red, however. European stock futures meanwhile are higher, with the DAX up 1.3% and set for a strong rebound after the sharp sell off on Friday that came in the wake of weaker than expected German GDP numbers. Still, risk appetite remains supported ahead of BOE & ECB this week.

Today – German CPI, EZ GDP (Flash, Prelim.), Speeches from Fed’s Daly & George.

Biggest FX Mover @ (07:30 GMT) AUDCHF (+0.92%) Rallied from 3 day fall at 0.6490 to 0.6560 now. MAs aligned higher, MACD signal line & histogram rising over 0 line RSI 65 & rising, H1 ATR 0.00125 Daily ATR 0.0060.

Click here to access our Economic Calendar

Stuart Cowell

Head Market Analyst

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OIL, H4 | Potential For Dip

Type: Bearish ReversalKey Levels:Resistance: 90.248Pivot: 89.066Support: 85.537Preferred Case:Prices are consolidating in an ascending triangle. We see the potential for a dip from our Pivot at 89.066 in line with 127.2% Fibonacci extension and 161.8% Fibonacci projection towards our 1st support at 85.537 in line with 61.8% Fibonacci extension and 78.6% Fibonacci retracement. Divergence is spotted on RSI, supporting our bearish bias.Alternative Scenario:Alternatively, prices may climb towards our 1st resistance at 90.248 in line with 78.6% Fibonacci retracement.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/oil-h4-or-potential-for-dip"
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AUDJPY, H4 | Potential For Dip!

Type: Bearish ReversalKey Levels:Resistance: 81.273Pivot: 80.932Support: 80.237Preferred Case:Prices are on bearish momentum and abiding to our descending trendline. We see the potential for a dip from our Pivot at 38.2% Fibonacci retracement towards our 1st support at 80.236 in line with 127.2% Fibonacci extension. Prices are trading below our ichimoku clouds, further supporting our bearish bias.Alternative Scenario:Alternatively, prices may climb higher towards our 1st resistance at 81.273 in line with 61.8% Fibonacci Retracement and 23.6% Fibonacci retracement.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/audjpy-h4-or-potential-for-dip"
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GBPCAD, H4 | Bearish Continuation

Type: Bearish DropKey Levels:Resistance: 1.71354Pivot: 1.70912Support: 1.69632Preferred Case:Price is reacting in the descending channel, signifying an overall bearish momentum. We can expect price to drop from pivot level in line with 127.% Fibonacci projection towards 1st Support in line with 127.2% Fibonacci projection and horizontal support. Our bearish bias is further supported by the stochastic indicator where the %K line dropped from the resistance level.Alternative Scenario:Alternatively, price can push higher up to 1st Resistance in line with 161.8% Fibonacci projection and 127.2% Fibonacci extension.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/gbpcad-h4-or-bearish-continuation31"
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Ruble Forecast: Potential Drop Ahead?

Good day,Having tested a very strong psychological level of 80.00, the Russian ruble is undergoing correction. The price of USD/RUB should drop although it might recover next to the level of 76.00 and uptrend, and jump. So far, the correction is ongoing.Gold has approached the daily uptrend and supporting level of 1780. The price of gold is likely to jump till the level of 1840, however, the asset might also break this level and drop. So, it is worth observing what is going to happen next.Oil is targeting the level of 96.00 away from which it might drop. Pulling back from the resistance at the level of 96.00, oil might also jump depending on the situation in the market.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/ruble-forecast-potential-drop-ahead-31-01-2022"
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BTCUSD, H4 | Bearish Continuation

Type: Bearish ReversalKey Levels:Resistance: 39108.24Pivot: 38223.21Support: 35482.49Preferred Case:Price is abiding to the descending channel, signifying an overall bearish momentum. We can expect price to make a small retracement to pivot level in line with horizontal resistance and drop to 1st Support in line with 61.8% Fibonacci retracement and 100% Fibonacci projection. Our bearish bias is further supported by rsi dropping at resistance level.Alternative Scenario:Alternatively, price could push further up towards 1st Resistance in line with 61.8% Fibonacci projection.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/btcusd-h4-or-bearish-continuation31"
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USDCAD, H4 I Potential Rise!

Type:Bullish BounceKey Levels:Resistance: 1.28479Pivot: 1.27396Support: 1.26503Preferred Case:With prices moving above the Ichimoku cloud, we see the potential for a bounce from our pivot at 1.27396 in line with Horizontal overlap support and 23.6% Fibonacci retracement towards our 1st resistance at 1.28479 in line with horizontal swing high resistance and 127.2% Fibonacci extension .Alternative Scenario:Alternatively, price may break pivot structure and head for 1st support at 1.26503, in line with 61.8% Fibonacci retracement and horizontal overlap support.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/usdcad-h4-i-potential-rise31"
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Dollar Down, Investors Await Central Bank Meetings

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Dollar near 18-month high ahead of bumper central bank week

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Sunday, January 30, 2022

Crypto giant Binance restricts 281 Nigerian accounts

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Key Economic Events and Reports of the Week Ahead

The Fed held a meeting this week and signaled that it will conduct monetary policy tightening much faster than its peers and faster than market participants expected. Now rumors are centering around a possible Fed rate hike at the next meeting by 50 bp.Next week the decision on the interest rate will be made by the Bank of England and the RBA. Both central banks are expected to raise rates in response to inflation, which should have a positive impact on the GBP and AUD, as the Banks are likely to hint that they will continue their tightening cycles. In addition, the decision on monetary policy will be taken by the ECB and there is a high risk that its passive stance will drive Euro decline towards 1.10 against the dollar.The NFP report closes next week's economic calendar and strong job growth should strengthen the likelihood of a 50bp Fed rate hike in March, potentially helping USD to resume the rally.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/key-economic-events-and-reports-of-the-week-ahead-30-01-2022"
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The state-backed “gigafactory”: all aboard the next Concorde

The government’s ambition of creating new industries, levelling up the regions and turning post-Brexit Britain into a tech powerhouse has generated lots of rhetoric so far, but not much in the way of concrete plans.

Last week, we finally saw an actual decision. The business secretary, Kwasi Kwarteng, announced that the ambitious start-up Britishvolt would get £100m of state funding to help it build a vast new factory to make the batteries for electric cars in Northumberland. The gigaplant has the potential to make batteries for 300,000 cars a year, creating 3,000 skilled jobs on the site, and another 5,000 among suppliers. If it all goes according to plan, it will make the UK a player in the battery industry.

Danger: high-voltage risk

Of course, everyone wishes Britishvolt well. There is no question that the world will need lots of car batteries. The market for electric cars is exploding. Tesla already makes one of the best-selling models in the UK and every major car manufacturer is pouring billions into creating new models. In a decade, petrol-powered cars may well be a historical relic. But just because an industry is huge doesn’t mean it can be profitable. The battery business faces some big challenges.

First, soaring raw-material prices. Batteries that are powerful enough to drive a car have lots of metals inside them, many of which are in short supply. Lithium is the most crucial, and the price has more than doubled over the last ten years. Cobalt and nickel are almost as important, and miners are struggling to keep up with soaring demand. Building a huge new plant is one thing. Getting the supply chains in place to feed in all the raw materials will be far harder. There will be a constant threat of shortages and rising prices destroying any profit margin that might otherwise be there.

Second, we are about to see massive overinvestment. Just about every other country in the developed world is trying to get into battery production. French president Emmanuel Macron is putting €700m into a plan to develop a domestic battery industry. The German government is putting in €1bn. The EU has launched a European Battery Alliance to funnel subsidies into plants across the continent.

On the other side of the Atlantic, US president Joe Biden is spending billions on developing the American industry, with huge subsidies for US manufacturers, along with subsidies for charging networks.

It is not hard to work out what is about to happen. In a few years’ time, there will be far too many batteries being produced by companies that have been massively subsidised to ramp up production. That is great for anyone thinking of buying a new car. But with prices falling and many state-owned companies selling at below cost price, it will be terrible for manufacturers.

A fast-moving target

Finally, the technology behind electric vehicles is still developing very rapidly, and so are customers’ preferences. Is a 400- or 500-mile range crucial, or does it not make much difference, given that most of us typically only drive ten or 20 miles a day? Will rapid charging make it irrelevant anyway? Will we actually own an electric car, or prefer simply to borrow one on an app when we actually need it? The market has not decided yet, but it will make a huge difference to the type of batteries that are in demand.

Likewise, we hardly even know what materials will be used. For example, India’s giant Reliance Industries is spending big money on developing sodium- rather than lithium-based batteries, including on the acquisition of UK-based Faradion, a specialist in the technology. Sodium is far cheaper than lithium, and there is plenty of it in the world. Until the answers to these questions become clear, it is impossible to know what batteries will be needed, with what capacity, and what they will be made of.

In truth, many of the state-backed battery plants have the potential to turn into massive white elephants. We have plenty of history to tell us that governments are typically very bad at making those kinds of strategic choices. They back the wrong technologies and spend too much money at a time when everyone else is getting into the market. This gamble could turn out to be a 21st-century Concorde.

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Saturday, January 29, 2022

Gold Pressure Set to Remain Under Pressure Because of Hawkish Fed

Gold prices fell to a three-week low on Friday and could see their worst weekly performance since late November as the dollar rallied after the Fed signaled a rate hike in March.The Federal Reserve on Wednesday signaled it was likely to raise US interest rates in March and reaffirmed plans to stop buying bonds later that month before launching a major balance sheet cut.An increase in the interest rate will increase opportunity cost of holding zero-yield gold. The market appears to be targeting the $1,800 level, which is acting like a giant price magnet. And we seem to be continuing to revolve around it. Dollar strength and rising yields put pressure on the precious metal.The World Gold Council (WGC) expects demand for jewelry, small bars and coins to remain strong in 2022, with central banks "continuing to buy gold, but at a slower pace than in 2021."

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Russia and Ukraine: what does Putin want?

What’s the Ukraine conflict about?

In the long run, it’s about Russia’s traditional fear of encirclement and perceived need for a “sphere of influence” as a buffer and Vladimir Putin’s stated belief that Ukraine is “not even a real country”. It is also, some analysts think, about Moscow’s fear of a good example in the form of a modernising, democratic Ukraine.

Putin’s Russia has been waging hybrid war on Ukraine since 2014, when it annexed Crimea (which has a large proportion of Russian speakers and is home to Russia’s Black Sea fleet at Sevastopol) and backed armed pro-Russian separatists in the east of Ukraine. That followed the ousting, in a popular uprising, of a pro-Russian president. Moscow has ramped up the pressure since Volodymyr Zelensky’s government moved to counter Russian influence. Moscow has also calculated that now is a good time to up the ante.

Why is it a good time?

No one yet knows whether Putin’s amassing 125,000 troops on the border is the precursor to a large-scale invasion aimed at regime change in Kiev, a more limited military campaign in the east and south-east, or simply leverage aimed at extracting concessions from Nato.

But it’s happening now due to Nato’s relative weakness and Russia’s relative economic strength and energy leverage, says Ambrose Evans-Pritchard in The Daily Telegraph. “European Nato disarmed through the austerity years and is now near rock bottom, while Russia has been rearming for a decade.” Europe’s politics are in flux, with a lack of unity over how to respond. The US is deemed to be a “pushover” that signalled its own post-Trump weakness with a chaotic retreat from Afghanistan.

What does Moscow want?

It says it wants “legal guarantees” of Russia’s security, in the form of draft treaties with the US and Nato that would dramatically scale back Nato’s reach and in effect create a recognised Russian sphere of influence in eastern Europe. Nato would rule out further expansion, stop any military co-operation with Ukraine or other states in the ex-Soviet space, and withdraw troops and weapons from ex-Soviet states.

Of course, Moscow knows that none of this would be acceptable to Nato, hence the view that its demands are performative and unserious – and that the likelihood of military action is genuinely high. Moscow’s strategy, says Fiona Hill in The New York Times, is to further weaken Ukraine’s sovereignty, and also to weaken Nato, divide Germany (very dependent on Russian gas) from the UK and US, and destabilise the Baltics.

Ultimately, its aim is to push the US out of Europe altogether – and complete what it sees as the unfinished business of the Cold War. That’s a big gamble since it may well have the effect of unifying and strengthening Nato, and encouraging the likes of Sweden and Finland to finally join.

Can Russia afford it?

Some of the gloss has come off Russia’s economy since 2014, says Adam Tooze on his Substack blog. Yet it remains a “strategic petrostate” which has built up significant foreign reserves and economic power. Russia accounts for about 40% of Europe’s gas imports, and is “too big a part of global energy markets to permit Iran-style sanctions”.

Currently, the state’s budget is set to balance at an oil price of only $44. “That enables the accumulation of considerable reserves”, says Tooze – and since 2014 these have risen from less than $400bn to more than $600bn (among the largest in the world, after China, Japan and Switzerland). “This is what gives Putin his freedom of strategic manoeuvre. Crucially, foreign-exchange reserves give the regime the capacity to withstand sanctions on the rest of the economy” and slow a run on the rouble.

Could Russia turn off the gas?

Yes, it could – and might, depending on what sanctions the West tried to impose. But it would end up hurting Russia more than the West, says The Economist. Russia’s deep foreign-exchange reserves mean it could withstand a brief energy shock, and a total shutdown is not as unthinkable as it once was. That would be unpleasant for Europe, but it would mean economic pain (in the form of spiralling prices as markets scramble to access alternative sources) rather than an actual inability to heat homes.

However, “a bigger price would be paid by Russia over the longer term”, as European markets (and indeed China) adjusted to “such a display of aggressive unreliability”. Seriously tough financial sanctions (such as cutting Russia off from the Swift international payments system, or export bans) currently look unlikely, says Hamish McRae in The Independent. But in the long run Russia’s position is weaker than it seems now. The global transition away from fossils will diminish its economic clout, as will its already falling population.

What about the short run?

Even in the short term it has a lot to lose, says Lex in the Financial Times. Yes, Russia has bolstered its reserves, and has a strong trade balance. But “jittery markets represent a greater threat to Russia” than its neighbour’s desire to get closer to the West – and an invasion of Ukraine would inevitably incur sanctions that would make things worse.

As an emerging economy, Russia is “already exposed to disinvestment triggered by US rate rises”. Inflation is surging and the Bank of Russia has doubled its key lending rate in the last year to 8.5%. The rouble has lost a tenth against the dollar in the past three months, and the stockmarket is down 31% in the same period in dollar terms.

Is this a buying opportunity for hardy contrarians? After all, at about ten times estimated earnings, the market valuation is nearing the lows of 2015, and the dividend yield has hit 7%. The answer is no: “if a conflict cut off Russian oil and gas flows, the risk-off switch would become a rout”. Even very brave investors should “stay clear when nationalism rather than national prosperity propels events”.

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Friday, January 28, 2022

End of Week Wrap Ahead of US Open!

US personal income increased 0.3% and spending declined -0.6% in December after respective gains of 0.5% (was 0.4%) and 0.4% (was 0.6%) in November. The Dollar ticked lower following the data, which saw the ECI a bit lower than consensus, while personal income missed the mark, and consumption was a little more negative than expected. Prices, meanwhile, were in line with forecasts. EURUSD headed to 1.1153 from 1.1135, while USDJPY slipped to 115.45 from near 115.60. Equity futures remain mixed and very choppy, while yields are off their highs.

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Andria Pichidi

Market Analyst

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The Rand is relatively resilient to market shocks

USDZAR,H4

South Africa’s Central Bank (SARB) raised its benchmark interest rate for the second time on Thursday and warned that further gradual increases in borrowing costs are likely. The SARB raised the interest rate 25 bps from 3.75% to 4%, in line with the consensus, and warned that further hikes in the benchmark may be needed to keep inflation in check, over the coming years. “However, economic and financial conditions are expected to remain more volatile in the future,” SARB Governor Lesetja Kganyago said in a statement.

In December, headline inflation increased further to 5.9%, above market expectations of 5.7% and moving closer to the top of the 3-6% SARB target range. The headline CPI forecast has been revised slightly higher to 4.9% in 2022 (vs. 4.3% in November) but lowered to 4.5% in 2023 (vs. 4.6%). Meanwhile, GDP growth projections remain unchanged at 1.7% for 2022 and 1.8% for 2023.

The South African Rand stood out for its resilience in the face of a resurgent US Dollar during most of the early session, however in the US session the Rand lost ground against the Greenback.

USDZAR,H4

The currency’s intraday bias looks neutral below the resistance at 15.5680. A move above this level will target the resistance levels 15.7355 and 16.0739. As long as the resistance at 15.5680 holds the movement will likely consolidate in the early session. RSI and MACD are still validating yesterday’s volatility, RSI is above the 50 level, MACD and OSMA are also above the midline. This slightly confirms the movement which tends to move to the upside. As long as the support at 15.0499 holds on the downside, the pair will still move in the direction of the ascending channel. A move below the support at 15.0499 will annul the bullish scenario.

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Ady Phangestu

Market Analyst

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FOMO Friday: NZDUSD Breaks Through Lows

Kiwi Comes Under PressureAnother week comes to a close in financial markets, and we’re also rounding out the first month of the year. I hope it’s been a great start to the year for you all. In terms of market action this week, there’s been plenty going on, however, it seems that the move catching the most attention is the rally in USD and, in the FX space, the pair which has seen the biggest shift is NZDUSD. So, let’s take a look at what caused this move and, as always, if you caught it? Well done! If not? There’s always next week.What Caused The Move?USD Rally Back OnThere have bene a couple factors which contributed to the roughly 2.5% drop in NZDUSD this week. The first has been the uptick in USD which has weighed particularly hard on higher-beta currencies such as NZD. The January FOMC this week saw the Fed greenlighting a rate-hike in March. The Fed was decisively hawkish in its language, satisfying the market’s hawkish expectations and reigniting the USD rally which had been on pause over late December/early January. With the greenback riding high, equities and commodities prices have come of sharply weakening capital flows for NZD. Looking ahead, this theme looks likely to remain in place while US data supports.NZ Lockdown ReturnsThe other factor weighing on NZDUSD is news, which came over the weekend, of a fresh nationwide lockdown in New Zealand, in response to a small outbreak of omicron. The news of the return of the strictest measures, including a closing of the borders, has been met with dismay and has turned sentiment sharply sour towards NZD given the expected economic hit of yet another lockdown there. While other country’s central banks are pressing ahead with tightening schedules and monetary policy normalisation, expectations of RBNZ tightening have been pushed further out in light of this latest development.Technical ViewsNZDUSDThe rejection at a retest of the .6863 level has seen the market reversing sharply with price breaking down out of the bear flag structure and below the bigger bear channel low. Price is now fast approaching the .6512 level. With both MACD and RSI firmly bearish here, the focus is on a continuation lower while price holds below the .6703 level.

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Asian economies must adjust to Covid-19

We’re in the third year of the pandemic and travel in Asia is still “heavily restricted”, says Chad de Guzman in Time. Most Asian countries have done an excellent job fighting the pandemic: South Korea has recorded 12 deaths per 100,000 people, compared to 259 per 100,000 in America. But the arrival of Omicron has triggered a return to 2020-style measures.

Japan has banned most foreigners from visiting. Hong Kong “which once boasted one of the world’s ten busiest airports… banned all flights from eight countries including the US and the UK” earlier this month. Yet as cases of Omicron spike across the region, “experts question whether continuing to stay closed to tourists, students and business travellers” is still “an effective strategy”.

Southeast Asia in recovery

Tight restrictions and slow vaccine rollouts have weighed on stocks. The MSCI Asia Pacific index underperformed European and American shares in 2021, finishing the year down 2.5%. Southeast Asian markets have been particularly dull. The regional MSCI Asean benchmark has been flat over the last three years, even as the wider emerging markets index delivered gains of 11% a year. Vietnam’s VNI, which soared 35% last year, has been the only bright spot as other markets lagged global averages.

Delta wreaked havoc last summer, says Trinh Nguyen of the Carnegie Endowment for International Peace. Lockdowns disrupted Malaysian semiconductor production and Vietnamese textile manufacturing. GDP in the latter country tumbled 6% year-on-year in the third quarter.

However, better times may be coming. Vaccination rates in most countries in the region (with the exception of Indonesia and the Philippines) are now comparable to those in the UK. Southeast Asia is also a potential winner from worsening US-China relations. Companies are diversifying their supply chains, which is bringing more inward investment. Trans-Pacific “jockeying for power” has “allowed Vietnam to escape the United States’ currency-manipulator list”.

Commodities, not tourism

“The nexus of Asia-Pacific economic growth is shifting to Southeast Asia amid maturing recoveries in northeast Asia,” says RBC Capital Markets. “The retreating pandemic and higher commodity prices have catalysed a brightening growth outlook for Malaysia and Indonesia”. The latter is a significant coal and oil exporter.

The outlook for tourism is less encouraging, says The Economist. The sector “accounted for over 12% of the region’s GDP before the pandemic”. In 2019, Chinese tourists “made up 12 million of Thailand’s 39 million international arrivals”, but Beijing’s zero-Covid policies mean few Chinese visitors are travelling overseas anymore. “In Cambodia the temples of Angkor Wat are eerily empty.”

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No easy answers to Europe’s gas crisis

“The European energy crisis is not over yet,” said Goldman Sachs in a research note this week. The bank’s analysts think that gas prices could remain twice as high as normal until 2025. British wholesale gas prices, which are heavily influenced by Europe, are currently about four times higher than they were a year ago, at 218p a therm. An escalation in Ukraine could see prices top their highs of last December.

It might not come to that, says Bloomberg. Germany, which is highly dependent on Russian gas, has long argued that Moscow is a reliable supplier: it “kept sending gas to Europe all through the Cold War” and during the 2014 Crimean annexation. Russia is thought to be unlikely to want to damage that reputation. It is also economically dependent on the revenue from energy sales. Still, if the US throws Russia off the Swift payments system then energy transactions could become impossible. Nord Stream 2, a new energy pipeline to Germany that bypasses Ukraine, could be hit by new sanctions. Finally, a war could damage key Ukrainian pipelines that deliver gas to the West.

Liquefied natural gas (LNG) cargoes have been diverted from Asia to Europe in response to soaring prices, but LNG is no silver bullet, says Deutsche Welle. EU gas storage facilities are just 47% full, compared with a more normal level of 60% at this time of year, according to a report by Commerzbank. If Russian supplies are disrupted, “LNG would not be able to fully compensate”. There is “a lack of free short-term capacity among exporters such as the US and Qatar”. If things get very tight then governments may be forced to “ramp up coal power stations… environmentalists will not like that… but that really is the only possibility in the short term”.

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Tech stock sell-off may be a good signal

“There is an old saying that ‘markets ride the escalator up and take the elevator down’,” says Russ Mould of AJ Bell. Last year’s stockmarket gains were steady and serene, with “just 40 daily moves of more than 1% in the FTSE 100 from open to close, compared with 116 the year before”. But with central bankers about to remove monetary stimulus – investors’ “happy pills” – volatility has made a comeback.

Big tech disappoints

America’s S&P 500 and Nasdaq indices both suffered their worst weeks since March 2020 last week, says Ben Levisohn in Barron’s. The tech-heavy Nasdaq is down 15% since its November peak. The trouble started after pandemic winners Peloton and Netflix both issued disappointing trading updates, sending their shares down by 14% and 24% respectively. That has fed a broader sense that the big-tech boom is running out of steam. As Chris Senyek of Wolfe Research notes, the “combination of Fed tightening and some big earnings misses” was what ultimately popped the dotcom bubble in 2000.

The volatility continued into this week. The FTSE 100, which has largely avoided the sell-off, fell by 2.6% on Monday. The pan-European Stoxx 600 lost 3.8% for its worst day since June 2020 as tensions over Ukraine heightened the sense of gloom. The same day on Wall Street, the S&P 500 crashed 4% in the morning only to then rally and close the day with a small gain. Such extreme trading reversals are exceedingly rare. The CBOE Volatility index, dubbed the “fear gauge”, has jumped to its highest level in more than a year.

The Nasdaq has retreated to the same levels it was at in June last year, says Bill Blain in the Evening Standard. That could be “the curtain-raiser to a more chaotic market collapse”. The sell-off in Peloton and Netflix is justified – “both are in highly competitive sectors” and will lose out from the end of the pandemic. The sign that something bigger is afoot is that even the likes of Apple and Microsoft, some of the “most profitable firms in the history of capitalism”, are tumbling. “The bubble pops when a collapse in weak stocks spreads as a contagion to strong stocks”.

Pandemic endgame

“Momentum is building against companies with exciting promises to reshape the world,” says Graeme Wearden in The Guardian. Tech stocks are heading for a “crunch fortnight” as its biggest names report their latest earnings. “They must prove they can thrive in a post-lockdown world where the cost-of-living squeeze is leaving people with less money for tech products and services.”

Big tech’s giant market rally has rested on two assumptions, says the Financial Times. “One was that lockdowns would permanently change how we live our lives,” the second was that interest rates would stay ultra-low “for the foreseeable future”. Both are now being brought into question. What’s bad for tech investors might be good for society: instead of betting on more bouts of lockdown misery, markets are ready to move on from the pandemic. “Those of us who prefer a busy social calendar to social distancing should be pleased.”

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Dollar Edges Higher as U.S. Rate Outlook Offers Continued Support

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Investment Bank Outlook 28-01-2022

CIBCFX FlowsCurrencies were locked in narrow ranges, the only pair that had better trading range was the $CAD. The pair was sold into the North America closing minutes, believed to be linked to ETFs. WTI Crude March futures began the session weak, contracts dipped briefly below $87.00 and bounced back to $87.28, this helped accelerate $CAD move towards 1.2713. There was also a talk that leveraged accounts sold the USD. Total of $750mio option strikes around 1.2695 and 1.2700. Nothing in terms of economic data release today.NZD¥ faced resistance above 76.00, this limited NZD$ recovery. The cross took out 75.75 but only went as much 75.65. As said, leveraged names will probably look to sell above 76.00. NZD$ rose to 0.65855, light offers seen above 0.6590. I see limited downside option strikes, suspect market is not well positioned.Rest of the currencies had little or no action, talk of $YEN offers close to 115.50, could be linked to a USD call which expires today for $1.77bn. Downside strike 115.00 also due today for $1.35bn. Japanese retail day traders as I said yesterday have now positioned short $YEN. They will continue to do so up to 116.00.CitiEuropean OpenAfter the NY session saw equities pare gains into the close and OIS markets pricing in almost 30bps of Fed rate hikes by March, the Asian markets were quiet on the Friday prior to the Chinese Golden Week. DXY was slightly lower, while the UST curve mildly bear-flattened. The g10 complex was mixed against the dollar with no notable moves. We note that early in the Asian session, there were negative geopolitical headlines from unconfirmed reports on Bloomberg concerning Biden’s comments on Russia and Ukraine. We note, however, that there were subsequent comments claiming that these reports were not true. Nevertheless, we remain alert for any geopolitical developments as headline risk remains live.Looking ahead, the US will look forward to Employment cost index and the PCE core deflator at 13:30 GMT, as well as the final prints for the University of Michigan inflation expectations at 15:00 GMT. While we don’t usually look to final prints, we note that there is upside risk to this reading on the back of rising energy prices. Meanwhile, SEK sees some second-tier data n the form of unemployment figures for December at 07:00 GMT, while EUR will see French GDP and Eurozone economist sentiment data at 10:00 GMT. HKD will see GDP at 08:30 GMT, BRL an inflation print at 11:00 GMT and COP a rate decision at 18:00 GMT, where our economists expect a 75bps hike to 3.75%.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/investment-bank-outlook-28-01-2022"
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Share tips of the week – 28 January

Three to buy

Hargreaves Services

The Mail on Sunday

This former coal-mining company owned 17,000 acres of land a decade ago. It retains 11,000 now, which it’s cleaning up to convert into space for homes and businesses. It currently has several ongoing developments and a strong pipeline. Its trading, recycling and industrial-services arms are also performing well, and are expected to grow over the next five to ten years. The company has pencilled in a dividend of 20p for 2022, putting the stock on a yield of 5% at the current price. 400p.

Marks & Spencer

Shares

High-street retailer Marks & Spencer has further to go. The company “continues to demonstrate strong progress in transforming the business”. It had a stronger third quarter than analysts had predicted – sales for the 12 weeks to 1 January climbed to £3.27bn, up 18.5% from the previous year, and were 8.6% higher than in the same period in 2019. This was mostly driven by its clothing and home sections: sales for both were up over 50% on a two-year basis, “which suggests that the firm has finally got its web offering right”. Food sales were “also outstanding”: M&S grew the most rapidly of any store-based food retailer during the quarter and had its highest ever Christmas till roll. 221p.

Mr. Cooper Group

Barron’s

This US mortgage firm is unusual because it profits from rising rates. About half its revenue comes from servicing loans – a higher percentage than any competitor. It also owns Xome, an auction platform for foreclosed properties, whose business is picking up after the expiry of a moratorium on foreclosures. It hopes to sell Xome, which could be worth between $750m and $1bn – roughly 20%-30% of its total market cap of $3.2bn. $41.34.

Two to sell

Rentokil

The Daily Telegraph

Pest-control expert Rentokil is buying US rival Terminix for $6.7bn (£5bn) – just over half of its own market value of £9.5bn. Its shares “have taken quite a battering since” as investors question the deal.

If Rentokil is overpaying “at least it will be doing so largely in its own shares rather than in cash”, which should cushion any impact on its balance sheet. What’s more, the share price had risen strongly in the last few months, “so if Rentokil is overvaluing Terminix it is at least paying for it in an overvalued currency”.

But “this does not… make everything fine”. Those who get the new shares – Terminix’s current shareholders – could decide they want to sell, which might well lead to a “torrid time for Rentokil’s share price”. Steer clear. 512.6p.

Currys

The Sunday Times

Currys – previously known as Dixons Carphone – has 829 shops and 35,000 employees “selling everything from washing machines to laptops”. Sales growth over Christmas slowed due to supply-chain issues and inflationary concerns and the company has cut its profit guidance for the year.

Part of the sales decline was due to Currys “having had a good 2020” as people invested in home entertainment. But it remains to be seen whether spending habits will be maintained now that restrictions are ending.

The group shut down over 500 shops in 2020, but has yet to acknowledge the need to reduce its bricks-and-mortar presence further. Shares have fallen 16% so far this year, but “if a further restructuring is on the cards, there could be more pain to come”. 99.2p.

...and the rest

The Daily Telegraph

Unilever’s £50bn offer for GlaxoSmithKline’s consumer health unit was rejected, so it will either have to “raise its bid or walk away”. There is a danger of overpaying, bidding wars and “battles for regulatory clearance”. But the deal seems unlikely to go ahead, so hold on (3,517p). Doric Nimrod Air Three suffered in the pandemic as investors shunned its aircraft-leasing business model. But it has declared an unchanged quarterly dividend of 2.0625p and has an “extraordinary” yield of 21.7%. Hold (38p).

Investors’ Chronicle

“Parking excess stuff in safe storage is now a permanent feature of modern life” due to the decreasing size of modern houses. That’s great for Safestore. Hold (1,320p). Best of the Best, which runs online competitions, saw a surge in activity throughout the pandemic. The shares have sold off due to weaker guidance, but revenues are still at twice the level they were reaching before it went fully digital shortly before the pandemic. Hold (450p).

Shares in video-game developer Frontier Developments fell following a downgrade to forecasts for 2022 and 2023, but the issue seems to be “management’s overly ambitious guidance rather than fundamental development of the business”. The potential is still there. Buy (1,330p).

Motley Fool

Vistry Group’s low share price “belies the possibility of strong and sustained profits growth”. The housebuilder’s cheapness reflects concerns that demand for new-build properties will fall, but low mortgage rates and government support should prevent that. Buy (1,080p).

from Moneyweek RSS Feed https://moneyweek.com/investments/stocks-and-shares/share-tips/604388/share-tips-of-the-week-28-january
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Energy stocks will only get better in 2022 – here are three to buy

Oil prices have risen over the last few months. Global demand is rebounding strongly, following the worst of the pandemic, and is expected to reach new highs later in 2022. The Organisation of the Petroleum Exporting Countries (Opec) cartel has been adding supply back into the market in a cautious fashion – its aim being to keep global oil reserves under control while achieving a price that satisfies the fiscal needs of its members.

Elsewhere in the world, a lack of investment in new oil supply is beginning to show up, with no major oil developments starting up this year. Natural gas has become front page news, with a perfect storm of supply and demand events driving European and Asian prices to record levels.

Rising oil and gas prices have created a positive backdrop for energy equities. The sector performed strongly in 2021, but valuations remain subdued relative to our long-term oil price and earnings expectations. In particular, we are seeing the emergence of much stronger free cash flow yields in the sector, a result of higher revenues and better spending discipline by the companies in question.

Our Guinness Global Energy fund invests worldwide in companies across the oil and gas sector. This includes the large integrated oil and gas majors, smaller and mid-sized oil producers, refiners, and pipeline and energy services companies.

BP: catching up with the market

In common with other oil and gas super-majors around the world, BP (LSE: BP) has lagged broader equity markets for several years. In addition to navigating a period of depressed commodity prices, the company has been dealing with the aftermath of the Gulf of Mexico oil spill in 2010. Today, BP has reshaped itself and now has one of the industry’s strongest pipelines of new oil and gas projects, has improved the profitability of its existing production assets, and is showing some leadership in its de-carbonisation strategy. The company’s dividend yield is currently just over 4%, but this has room to rise, since its free cashflow yield is expected to be over 10% this year.

Pioneer Natural Resources: higher oil prices, higher dividends

Pioneer Natural Resources (NYSE: PXD) is a US-based oil and gas producer, with a focus on shale oil production in the Permian Basin in Texas. We believe that the company owns one of the highest quality asset bases in the shale oil industry, with a deep inventory of undeveloped acreage. Pioneer is also demonstrating growing shareholder friendliness, shifting its ambitions away from production growth and towards higher shareholder returns. In particular, we like Pioneer’s recent adoption of a variable dividend structure, which returns excess profits to shareholders in sync with the oil price cycle.

Equinor: Nordic powerhouse

Equinor (Oslo: EQNR), previously known as Statoil, is Norway’s state-controlled energy major. The company has grown its oil production well over the past couple of years, thanks to the successful development of its Johan Sverdrup oil field. In addition, Equinor is responsible for supplying a high proportion of Europe’s natural gas imports, so it’s enjoying the benefit of higher prices. We expect Equinor to increase production this year, to help alleviate the worst of the gas price spike, but we still expect gas prices to settle at a level that supports strong earnings growth for the company in 2022.

from Moneyweek RSS Feed https://moneyweek.com/investments/stocks-and-shares/share-tips/604387/three-energy-stocks-to-buy-in-2022
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