XAUUSD – The key factors remain the USD & Yields

XAUUSD, H1

You will notice that the gold price decline is clearly correlated with higher bond yields by the all-time high of the gold price at the beginning of August last year. It was the same period that the US 10-year bond yield was also stuck in the all-time low zone, while another closely related asset to gold was the US dollar. During the volatility of the market in the past year, there were both periods when gold and dollar prices moved in opposite directions and the range moved in the same direction as a safe haven.

Just like last night, following comments from Fed Chair Powell that the 10-year US Treasury yield rose to a new high of 1.582, the US dollar index this morning moved up to a three-month high of 91.73, causing gold to drop to the original low, coming down to trade below the level 1,700.

From a technical point of view, last night the price of gold surpassed 1,700, falling in the same level as the March high zone. That was the beginning of the Covid-19 crisis and the gold price that has continued to fall so far. Still, there are no significant or interesting reversal signs or patterns. And from vaccination, including the new round of US economic stimulus measures one of the hopes of driving gold prices is now an inflationary concern. That began to cause concern in the market at this time but it has to be looked at whether investors will maintain their gold inflation hedge strategy or not. The first support seen at this time is at 1,685 and the next at 1,630, while the resistance is at 1,720 and 1,740, respectively.

On top of today’s economic calendar, there are Non-Farm Payroll figures that forex traders are looking forward to after the non-farm employment figure continues to fall below the market expectations since December onwards.

Click here to view  the economic calendar  or the  free webinar. 

Chayut Vachirathanakit
Market Analyst – HF Educational Office – Thailand

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 prior written permission.

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Market Update – March 5 – Jobs, Jobs, Jobs,

What Fed Chair Powell did not say that shook up the markets.

Wall Street turned sharply lower following Fed Chair Powell, even though it was not what he said but what he did not mention that undermined equity sentiment. Specifically, he did not push back against the recent surge in Treasury rates. Indeed, he took attention of the spike and would be concerned by a “disorderly” move, providing tacit approval for the run-up in longer dated yields. Consequently, the stock market was dragged lower once again thanks to rising rates and expectations for more of the same as the economy and inflation pick-up further.

Headlines:

• The Chair’s comments that he took attention of the spike and would be concerned by a “disorderly” move were not in the market’s narrative.
•  Fed Chair Powell’s perceived benign neglect of the surge in bond yields weighed on Treasuries and extended the recent selloff back toward the highs from February 25.
• The US 10-year rate corrected slightly overnight but remains at 1.56%. The 10-year rate is currently down -5.3 bp at 0.079%, while yields jumped 6.0 bp and 7.5 bp in Australia and New Zealand.
• The tech-heavy USA100 over -3% lower intraday, with spill over to the broader indexes. However, the losses were pared in late trading with closing declines of -2.11% on the USA100, -1.34% on the USA500, an d-1.11% on the USA30. JPN225 and ASX were still down -0.2% and -0.7% respectively at the close
• BoJ’s Kuroda sees no need to widen yield band. He said there is no need to widen the implicit band set for its long term yield target, while stressing the need to keep borrowing costs low to support the economy.
• Oil prices jumped higher after the OPEC+ meeting decided to maintain current output levels. The USOIL is currently trading at USD 64.60 per barrel.
• In Europe key central bankers have also played down the rise in rates and signalled that the central bank won’t add additional measures next week that would reverse the rise in rates. Verbal intervention and a flexible use of PEPP purchases will likely be used to smooth an uptrend that most central bankers seem to feel is essentially justified, given the improved outlook for growth later in the year.
• German manufacturing orders rose 1.4% m/m in January, more than anticipated

Forex Market
JPY – USD rally’s again – USDJPY over 108.00
EUR –dropped against a largely stronger dollar- Currently at 1.1947
GBP – at 1.3859
AUD – dipped below 50-DMA again, at 0.7686
CAD –steadied to 1.2660 after 1.2574 bottom.
GOLD – breaks the $1,700 – trades on 1695 now.
USOil –  Oil rocketed following OPEC+ agreeing to no production increase and to keep current levels for at least April. USOil at 64.60 up from 59.20 lows on Wednesday.
Bitcoin – returns to 47K.

Today: Attention will turn to the US February employment report, hourly earnings, unemployment rat, January trade report and consumer credit is due late in the session, seen rising $10.0 bln from $9.7 bln previously. Canadian Ivey Purchasing Index in the tap as well.

Biggest mover – CADJPY (+0.60% as of 07:30 GMT) 

Click here to access the our Economic Calendar

Andria Pichidi

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 prior written permission.

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US Unemployment Claims tick up

USDJPY, H1

US initial jobless claims rose 9,000 to 745,000 in the week ended February 27 following the -98,000 plunge to 736,000 in the February 20 week. That brought the 4-week moving average down to 790,800k from 807,500. Claims not seasonally adjusted rose 31,500 to 748,100 on the week after falling -118,500 to 716,600. Continuing claims declined -124,000 to 4.295 million in the February 20 week after tumbling -101,000 to 4.419 million. The insured unemployment rate dipped to 3.0% from 3.1%.

This leaves over 18 million unemployed citizens on government support and although holding under 800,000 the weekly initial claims count has yet to break below 700,000 since the pandemic hit the US at the end of March last year.

The largest increases in initial claims for the week ending February 20 were in Illinois (+6,014), Missouri (+5,624), Tennessee (+3,987), Mississippi (+3,266), and Colorado (+2,842). The largest decreases were in California (-49,138), Ohio (-45,189), New York (-9,117), Idaho (-5,111), and Michigan (-3,942).

The Dollar was little changed following the data, which saw initial jobless claims largely in line with consensus, and continuing claims lower than forecast. Q4 productivity was revised higher, while unit labor costs were revised lower. EURUSD was a few points lower near 1.2030, with USDJPY up slightly over 107.45 and the 7-month high area.

Click here to access the HotForex Economic Calendar

Stuart Cowell

Head 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 prior written permission.

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USDJPY hits 7-month high

Since January this year, the USDJPY has recorded an increase of about 4% from a low of 102.58 to a 27-week high. As of yesterday’s close, the currency exchange recorded 106.67. Obviously, in 2021, the attractiveness of the US Dollar far exceeds that of the Yen.

There is no doubt that the two governments did not pay attention to epidemic prevention measures in the early stages of the coronavirus outbreak, which led to a surge in infection rates, hospitalization rates and death rates. However, with Biden’s victory in the election to become the new president of the United States, the gap between the two countries has gradually widened. We all know that Biden quickly tightened restrictions and promoted virus testing and vaccination programs after he took office, which greatly reduced the damage of the virus to the US economy. In contrast, Japan’s anti-epidemic process lags far behind the United States. The country only officially launched the first round of vaccinations on February 17, targeting 40,000 medical staff. The data shows that as of March 1 this year, the coverage rate of at least a single dose of vaccination in the United States has reached 22.99%, while  in Japan it is only 0.03%, indicating that the latter will lag far behind the former in the process of economic recovery (provided that the constantly mutating strains will not pose a threat to the effectiveness of existing vaccines).

From an economic perspective, compared with Japan, the US manufacturing and service industries rebounded earlier and performed strongly:

Figure 1: Manufacturing PMI in Japan and the United States. Source: Trading Economics。

Figure 1 shows that although the decline of the US manufacturing PMI during the worst period of the pandemic was more severe than that of Japan, its rebound was far greater than the latter, and it reached the 50-level boundary of economic expansion in July last year. Today, the US manufacturing PMI has moderately raised to 58.6 from the initial value of 58.5, slightly lower than January’s 59.2. On the other hand, the Japanese manufacturing PMI has been below the 50 level (shrinking) since the outbreak of the pandemic last year, and only passed the 50 level in February this year, at 51.4.

Figure 2: Service industry PMI in Japan and the United States. Source: Trading Economics。

In addition, the PMI performance of the US service industry is much stronger than that of Japan. Figure 2 shows that the former reached the 50 level in July last year and recorded 58.9 in February this year; the latter has been in contraction for 13 consecutive months and recorded 46.3 in February this year.

Figure 3: Unemployment rates in the United States and Japan. Source: Trading Economics。

In terms of employment data, the unemployment rate in the United States reached a record high of 14.8% in April last year, while the unemployment rate in Japan peaked at 3.1% in October last year. In any case, the US unemployment rate curve seems to be in an inverted “V” shape, and after peaking, it has more than doubled its decline to the current 6.3%. This may reflect that the US job market has survived its darkest moments and may return to pre-pandemic levels before the end of the year as the vaccination rate rises and more stimulus measures are introduced.

Earlier, ADP data showed that the number of employees in February only recorded an increase of 117,000, which was not as good as the market’s expected increase of 177,000, and an increase of 174,000 from the previous value. The unexpected performance of the data is not as expected and will have a downward impact on the non-agricultural data released on Friday. Later, the market will also focus on employment data including Thursday’s continued jobless claims and the number of layoffs, as well as Friday’s heavy data – non-farm payrolls, unemployment and wages data. Overall, the increase in employment in the United States has not yet recovered the decline of more than 20 million people recorded in April last year, and the unemployment rate is still higher than the pre-pandemic level.

 

Figure 4: Annual GDP growth rates of the United States and Japan. Source: Trading Economics。

In any case, the GDP data of both countries have recorded negative growth. In the fourth quarter of 2020, the United States recorded a contraction of 2.4% year-on-year, while Japan’s contraction was 1.2%. This means that the two countries still need appropriate fiscal and monetary policy support to boost GDP growth by boosting consumption, spending, investment activities and even domestic and foreign trade.

Technical analysis:

The weekly chart shows that after the USDJPY rebounded from the 102 median level and crossed the wedge-shaped trend line, the current trading is at the 106 level. From the perspective of indicators, the MACD double-line upward expansion; the relative strength index (RSI) and the Stochastic index (Stochastics) are respectively at the 50 level and the 80 level.

The daily chart shows that the USDJPY is oscillating higher in the ascending channel. Short-term resistance is seen at the upper trend line and 107.40 (50.0% Fibonacci retracement level). If the breakout is successful, the currency pair may continue its rally and test 108.50. In terms of support, 106.25 (38.2% Fibonacci retracement level), the 105.50 lower channel trend line and 104.85 are key levels.

Click here to access the our Economic Calendar

Larince Zhang

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 prior written permission.

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Market Update – March 4 – Ahead of Powell & OPEC

Reflation trades are back with a vengeance, pushing pressure on stock markets as yields rise. Treasuries managed to stabilise somewhat overnight, after a sell off yesterday saw rates pushing higher again, but across Asia bonds as well as stocks sold off.

Markets are looking ahead to scheduled comments from Fed Chairman Powell for soothing words, but in Asia mounting concern over the health of China’s property market added to pressure on equity markets. Essentially it seems the turning point on policy is getting closer and that will keep bonds under pressure. GER30 and UK100 futures are currently down -0.9% and -0.7% respectively, with US futures also under pressure, led by a -0.7% drop in the USA100 future. While much of the erosion is a function of the improved outlook on the recovery, as noted by Fed officials, there is a breath of inflation filtering in, reflected in the pop in the 5-year breakeven to 250 bps, the widest since mid-2008.

JPN225 and ASX closed with losses of -2.1% and -0.8% respectively, while Hang Seng and CSI 300 are currently down 2.2% and 2.99%. Markets remains very susceptible to the action in Treasuries with the jump in rate supporting the USA30’s reflation trade, but weighing significantly on the tech-heavy USA100 which plunged -2.7% given its high valuations. 

Headlines:

• Reuters report that China’s $1 trillion sovereign wealth fund (China Investment Corp (CIC)) is scouting for long-term investments in the United States.
• Australia Retail Sales for January, final, +0.5% m/m.
• Australia trade balance for January AUD 10,142m surplus (vs. expected AUD 6850m surplus).
• Goldman Sachs is looking for further rising commodity prices and a comeback in growth.

Forex Market

EUR – stacked in the mid 1.20 area.
GBP – steadied at 1.3900-1.3960.
JPY –  at 7-month high at 107.16
AUD – benefited from a record trade surplus, NZD was also supported, t, recovered from early losses and rose to 0.7810
CAD –tested 1.2600 but settled at 1.2635 by the end of the North American Session.
GOLD – hit a 9-month low of $1,701.8
USOil – edged up to $61.60 ahead of the OPEC + meeting today.
Bitcoin – Reuters: Bitcoin has surged 78% so far this year as it gains more acceptance in the financial services industry, but the U.S. financial regulator is likely to start working on guidelines for digital assets, which could increase scrutiny of cryptocurrencies. (below 50K currently)

Today: The calendar has Eurozone retail sales and unemployment data for January, as well as the UK CIPS construction PMI. Investors will also continue to assess the UK budget, which offered an extension of furlough payments through to September, but also introduced first steps to try and recoup the costs of virus measures. Initial and continuous Jobless claims will be on tap however Fed’s Chairman Powell and OPEC meeting will be in the spotlight.

Biggest mover – AUDJPY (+0.60% as of 07:30 GMT) & EURAUD (-48% as of  07:30 GMT)

Click here to access the our Economic Calendar

Andria Pichidi

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 prior written permission.

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NFP: Major divergence in estimates

US ADP reported private payrolls increased 117k in February, well below forecast (177k), though the 174k January gain was revised higher to 195k. The service sector supported the increase, with jobs rising 131k. In this sector, trade/transport led with a 48k increase, followed by education/health with a 35k gain, while leisure/hospitality added 26k. Employment in the goods sector declined -17k including a -14k drop in manufacturing and a -3k dip in construction. As for company size, small firms added 32k workers, with medium sized companies adding 57k, with a 28k increase for large firms.

The US Dollar slipped following the February ADP jobs report but quickly recovered, turning the USDIndex close to 91.00. Firmer Treasury yields should keep USD bulls in control, while struggling equities may keep the Greenback’s safe-haven status in effect.  The USA500 and the USA100 have slipped into negative territory. Bonds are for sale globally, led by Treasuries and Gilts. Reflation trades and the advent of a boatload more of stimulus are weighing, with a double whammy of reluctant investors afraid to step in after very poorly received auctions of late. The 10-year yield has cheapened 7.2 bps to 1.46%, with the bond 6 bps higher to 2.25%, while the Gilt has climbed 8 bps to 0.764%.

Looking ahead, today’s data signal only modest downside risk for payrolls on Friday, given the loose correlation of the “as reported” figures to monthly payroll swings. The estimates in the market  have major divergence, with the Reuters Poll estimating 180K, FXstreet at 195Kn while Action economics estimates a 350k February nonfarm payroll bounce that lies above market forecasts, as big January divergences in the jobs data are partly reversed. The range in the Reuters Poll estimates varies from -100,000 to 500,000, which is massive.

In the meantime, in January, a huge 0.9% hours-worked gain was composed of a lean 49k payroll rise but a 35.0 workweek that marked a 21-year high. Hence a payroll bounce should be seen in February with a workweek pullback to 34.9, alongside a flat hours-worked figure. The jobless rate is expected to hold at 6.3%, while hourly earnings rise 0.1%. The February establishment survey was for a reference week before the Texas freeze, but we will likely see distortions in the household survey.

Seasonal Trends and Weather

The graph below shows the two-year average NSA payroll change for each month. The seasonal impact through the year on payroll changes is mostly positive, but is negative in December, January and July. Distortions of last year’s COVID-19 hit have produced negative averages for March and April now as well. The NSA average rebounded to 859k in February from -3,026k in January, and -288k in December. The red bars show each month’s variance. After a first-half peak in February, variance decreased over the spring before reaching a second-half peak in September.

For disruptions to employment from weather as gauged in the household survey, the biggest disruptions occur in the winter months generally, with the average peaking in February. There is an additional climb through the late-summer months due to disruptive hurricanes in some years. The ten-year average number of people not working as a result of weather climbed to 363k in February from 336k in January, 160k in December, and 107k in November. The extreme cold across the south began mostly after the BLS survey week, but the distortions will likely be captured in the household survey, leaving a potential big hit to this household series.

The Birth/Death Assumption

The average net birth/death effect rebounded to 117k in February, up from -306k in January, -9k in December, and -10k in November. Its annual high typically occurs in April and its annual low in January. After the January low, the month of July marks a summer trough for the average which becomes more volatile in the second half of the year, oscillating between negative and positive territory with a second-half trough in September and a peak in October.

The BLS birth/death assumptions are adjusted each quarter with data from the Quarterly Census of Employment and Wages (QCEW). The QCEW data has been released through 1Q21, and shows a net birth/death effect that was Weaker than assumed in the original monthly report. The QCEW data show a -160k net birth effect for 1Q21, compared to the 24k initial assumption.

Hourly Earnings

We expect a 0.1% rise for February average hourly earnings, after gains of 0.2% in January, 1.0% in December and 0.3% in November, with swings that likely still largely reflect the percentage of lower paid workers in the jobs pool, as seen with the 4.7% surge last April and the 1.0% pop in December. We expect a 5.2% y/y increase in February, which is down from 5.4% in January. Growth in hourly earnings was gradually climbing from the 2% trough area between 2010 and 2014 to the 3%+ area until the economy’s plunge last March. The y/y wage gains will be distorted through 2021 via the comparison effects from last year’s wage spike and ensuing unwind.

The ECI data are designed to avoid distortion from the shift in the composition of jobs that sharply impacted the payroll report’s wage measure. The ECI revealed a 0.7% Q/Q rise in Q4, with a 2.5% y/y gain that exceeded the 2.4% in Q3, versus a 1.4% cycle-low in Q4 of 2009. We saw a 2.6% y/y increase for wages and salaries in Q4 after 2.5% in Q3, versus a 1.4% cycle-low in Q4 of 2011. We saw y/y benefit cost growth of 2.3% in Q4, as seen in Q3, versus a 1.5% cycle-low in Q3 and Q4 of 2009.

Continuing and Initial Claims

Continuing claims fell -366k between the January and February BLS survey weeks after a -551k drop between December and January, and a -767k drop between November and December. Despite setbacks around renewed lockdowns at year end, the economy continues to unwind the 24,912k continuing claims peak in the second week of May. Initial claims fell to 841k in the February BLS survey week from prior BLS survey week readings of 875k in January and 892k in December. We expect a February initial claims average of 785k from 852k in January and 825k in December. We saw a 49-year low for weekly claims of 193k in April of 2019.

The four-week average for initial claims has a strong inverse relationship with the monthly payroll gain. Until the massive claims surge caused by COVID-19, claims had been surprisingly tight relative to the rate of job growth, presumably due to reduced job churn in the latter half of this expansion. This relationship has taken a wild ride since COVID-19, and initial claims won’t be particularly useful for forecasting payrolls until we see how the series match up in the post-pandemic environment.

Click here to access the our Economic Calendar

Andria Pichidi

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 prior written permission.

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Midweek Market Podcast – March 3

The Market Week – March Week 1

HotForex · The Market Week – March 3rd 2021

The focus of attention once again this week is on the Bond markets, however Treasury prices & yields have stabilized, and volatility has cooled.  The pressure on the USD eased as commodity currencies came off 3-year highs and equity markets recovered.

Unemployment remains stubbornly high globally, and NFP is in focus for Friday with expectations of a 180,000 headline. Last week’s new US unemployment claims beat expectations significantly at 730,000. This week they are expected to tick higher again to 758,000.

The vaccine rollouts continue to gain traction globally – all US citizens will be offered the jab by May 31 – as the signs of the pandemic easing continue, and the WHO reported a fall in cases for a seventh consecutive week. However, the positive vaccine news is tempered by increases in the new variants.

This week FX volatility picked up – the USDIndex tested 90.00, then rallied over 91.20 to start the month before settling around 90.70. EURUSD moved to highs at 1.2240, then down to under 1.2000 before testing 1.2100 once again.  USDJPY held over 106.00 and even tested 107.00 and 6-month highs. For Cable, after a spike over 1.4200 and lows under 1.3900, the psychological 1.4000 remains key.

Global stock markets cooled from all-time highs. The USA500 remained below 3900 and under the 20-day moving average, and even tested below the 50-day moving average at 3825 as worry about valuations and a rise in inflation increased.

Q4 Earnings Season continues to beat to the upside, with over 90% of USA500 companies having reported, 80% of whom reported better than expected results.

The Gold price fell again this week having shown some life last week. The collapse from $1800 pushed to $1707 and 9-month lows as the non-yielding asset continued to be pressured lower. Bitcoin had another volatile week but found support at $45,000 and has since recouped to $50,000.

USOil prices peaked at $63.80, before testing under $60.00 as the cold snap in the southern US disappeared and expectations of more dovishness from the OPEC+ meeting this week cooled.

The yield on the US 10-Year Treasury Note holds over the key psychological 1.000 level and tested 1.6100 this week to post a new 12-month high. The anticipation of the large US stimulus package, record high stock markets, and the spectre of rising inflation are combining to keep yields the main focus of markets.

Click here to access the HotForex Economic Calendar

Stuart Cowell

Head 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 prior written permission.

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Apple ahead of its Spring update

APPLE, Daily

Apple, an American company founded in the 1970s, represents itself as a great example of the American dream with many success stories. The company has at least two key months every year, usually September and March. Last September, everyone was waiting for the new iPhone, which is the company’s main product and stock mover; however, the company could prove that its services can also bring in high income for them.

On October 23, 2020, the new iPhone with 5G support was introduced, and even though at the beginning the market reaction was not overly positive, in the time since the 14th-generation iPhones, which have improved cameras, speedier processors and a new design, have started to convince iPhone lovers that they are different than previous models and not simply repeating the same cycle that has been seen since the iPhone 6.

The highest share price of $145, seen on 25 January, marked a 24.7% gain since the October product announcement, and even with the correction that started on the same day, the Apple share price at the current level ($125.17) shows a 7.6% gain. The question is that with the success of the iPhone 12 reaction, what will be the next big growth driver for Apple stock for 2021?

In the latest earning report on January 27, results were much better than expected. According to company reports, EPS on sales of $111.44B was $1.68. On a year-over-year basis, Apple earnings rose 34% while sales climbed 21%. In the December quarter, iPhone revenue gained 17% by rising to $65.6B, supported by the launch of the iPhone 12 series. However, the best sales were on iPad tablets with a 41% gain to $8.4. In short, Revenue was up 21% and EPS up 35% to new records. iPhones, Wearables, and Services set new revenue records.(1) We are now in March and waiting for new product announcements for new iPad Pro tablets, new AirPods wireless earbuds, and AirTags tracking devices, which could be the next growth potential of the stock price in the market.

Apple’s Wearables, Home and Accessories unit (Apple Watch, AirPods wireless earbuds, and Beats headphones) with a 30% gain had a $13B revenue for the company in the December quarter. (2)

On the other hand, according to reports that have been circulating for what seems years now, the company is trying to get significantly involved in the burgeoning Electric Vehicle (EV) market, which could be another market mover for them. Hyundai, Nissan and a number of other automakers have been mentioned as potential partners.

Apple’s spring event for the year 2021 is expected to be online due to COVID-19 limits; however, the exact date has not yet been revealed.

Technical review – Daily

In the daily chart, the technical indicators are mostly supporting the lower prices, while RSI and MFI, both at 40, confirm the EMA crossing strategy downtrend. PP sits at $126.50, while R1 at $129.40 is more likely to be a key lever for an uptrend, while below the current level, S1 shows at $124.30, and S2 sits at $121.05.

1- https://www.apple.com/newsroom/2021/01/apple-reports-first-quarter-results/
2- https://www.apple.com/newsroom/2021/01/apple-reports-first-quarter-results/

 

Click here to access the our Economic Calendar

Ahura Chalki

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 prior written permission.

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Market Update – March 3 – Cautious ahead of Powell and OPEC

Trading was consolidative and quiet Tuesday as the markets took stock of recent activity. A lack of fresh catalysts also limited action. There was some jostling in stocks late after Texas announce it is opening up the state economy 100% and removing the mask mandate. US Government suggested that vaccinations could be rolled out quicker than initially expected and after Fed’s Brainard indicated that volatility in bond markets could further delay the turnaround on asset purchases. Stock markets moved broadly higher, leaving JPN225 and ASX up 0.5% and 0.8% at the close, while Hang Seng and CSI 300 are currently posting gains of 2.2% and 1.6% respectively. GER30 and UK100 futures are up 0.5% and 0.6% respectively, US futures are also broadly higher, with a 0.8% rise in the USA100 leading the way. Vaccine optimism and the push back from central bankers against the rise in yields has helped to stabilise sentiment and ease concern over cliff edge scenarios on growth.

Optimism on the outlook remains very supportive, especially with more vaccines on the way and another big stimulus injection on the horizon. Recent data are supporting that point of view with many revising up Q1 and 2021 growth projections. Treasuries have stabilized too which has helped calm jitters regarding the bearish impacts on stocks from rising rates, and over worries inflation pressures will pick up and cause the FOMC to pullback accommodation sooner than expected.

Forex Market

EUR – close to its 20-day moving average at 1.2085
GBP – ranging between at 1.3850-1.4000.
JPY –  at 106.86, retesting 107.00 for a 3rd day in a row.
AUD – reversed nearly 40% of last week’s dip.
CAD – down to 1.2616 from 1.2730.
GOLD – declines further below 50-day EMA, and 8-month Support.
USOil – edged up to $60.10 per barrel, amid growing conviction that the OPEC+ alliance is poised to agree an increase in output this week.

Today: Calendar includes final readings for Eurozone and UK services PMIs for February, which are expected to confirm levels in contraction territory as the sector remains depressed by virus measures. UK Chancellor Sunak will present his budget proposal today, with reports already out indicating that furlough measures will be extended until September, although the Chancellor also seems eager to find ways to finance crisis measures. Also on tab are the ISM Service for February for US along with ADP employment data.

Biggest mover – GBPJPY (+0.37% as of 09:30 GMT)

Click here to access the our Economic Calendar

Andria Pichidi

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 prior written permission.

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CAD remains and should remain capped

Canda’s GDP grew 9.6% in Q4 (q/q, saar), better than expected after the 40.6% bounce in Q3 (was 40.5%) that followed 38.5% plunge in Q2. A modest inventory accumulation in Q4 after the huge drawdowns in Q3 added to GDP in Q4. Government consumption, M&E investment and housing investment also made positive contributions. Household spending dipped in Q4. GDP contracted -5.4% in 2020, the largest decline since the series began in 1961. The slip in household spending bodes poorly for Q1, as restrictions likely bit early in the quarter which have left the door open to a small -0.5% decline in Q1 GDP. However, we see activity rebounding 6.5% Q2, while the recovery extends in the second half amid a simulative mix of rising vaccination rates, accommodative central bank policy and ongoing support from government stimulus. The separate December GDP tally edged up 0.1% (m/m, sa) after the 0.8% jump (was 0.7%) in November.

Canadian Dollar as a commodity currency is getting stronger once again despite the Oil near term weakness. USDCAD edged higher following the better than forecast Q4 Canadian GDP, though lighter than expected December GDP data. The pair dipped to 1.2630 from 1.2673 highs overnight, and will now look past the backward looking data, with focus remaining on the risk backdrop, USD direction, and oil prices. Currently risk taking levels are fairly neutral, while the USDIndex remains above Monday’s three-plus week highs. USOIL is above earlier lows, but well off Monday’s peak. As a result, the CAD should remain capped for now.

Commodity currencies such as CAD have posted very interesting crosses since past week, with CADCHF breaking 61.8% Fib level since 2019 decline  while CADJPY remains for a 3rd week in a row above 200-week SMA and 2019 highs

CADJPY is retreating this week the losses from the drift on February’s month end flows to 83.50 from 85.10. The RSI is confirming the recent view and is moving upwards above 60 area with further are to be covert in the positive territory, while the MACD line are sloping higher suggesting an increasing positive momentum. In trend indicators, the 20-, 50-day and 200-day SMA are endorsing the broader bullish outlook.

In case that the price remains above the 82.80 support which is set at the 200 -week SMA, the price could move until the multi-year Resistance and the ro9und 85.00. Sharper increases could move the market towards the 88.00-88.20 resistance, registered in September-October 2018 highs and the midpoint of 100% and 161.8% Fib. expansion levels.

Briefly, EURJPY has been in a strong upside tendency since October 2020 and if there is a plunge below the uptrend line, that could switch this view to neutral.

Click here to access the our Economic Calendar

Andria Pichidi

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 prior written permission.

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USOil and upcoming volatility

Later today and tomorrow evening we will have the API and EIA reports, while the day after that, on March 4, eyes will be on OPEC and its non-OPEC partners, known as the OPEC+ meeting.

After touching the 13-month high at $63.67 on February 25, USOil started moving backwards for a few reasons. Let’s review where we are, what happened, and what’s going on.

Last year on April 12, OPEC+ made a historical decision: a 9.7Mbpd production cut, a cut of almost 10% of global supply in order to support oil prices amid the COVID-19 crisis. At that meeting, Russia led the non-OPEC members to agree with the OPEC decision. This plan started on May 1st – even though some members were not 100% committed to it – and continued until the end of July. From August 2020, the production cut was eased to 7.7Mbpd as recovery started in some developed countries. In the first meeting of 2021, many were expecting another rise in production; a rise of just 500 additional barrels a day was agreed, but that was just the beginning of another story.

In 2020, Saudi Arabia and Russia grew much closer on Oil market management, but 2021 seems different. After the 500 barrel per day rise in OPEC+ production, Saudi Arabia voluntarily started a production cut of 1Mbpd for the two months of February and March, which in fact was a sign of contrast to Russia, as they support a production rise. Currently the sharply rising US supply and potential for a weakening in discipline amid the OPEC+ group to maintain supply quotas may offset rising demand.

The OPEC+ group meets this week (tomorrow and Thursday) to decide on April quotas, with Moscow reportedly calling for a relaxation while the Saudis want to maintain output at prevailing levels.  Another clash between Saudi Arabia and Russia on oil production quotas, or the ‘known unknown’ risk, to use epistemological phraseology, of more transmissible SARS-Cov2 coronavirus variants that might prove resistant to current vaccinations, which would threaten a further prolonging of restrictive measures, could also affect the supply and demand of oil.

Additionally on the Covid front, earlier today WHO Director-General Tedros Adhanom Ghebreyesus said the rise in cases was “disappointing but not surprising,” warning that it was “too early for countries to rely solely on vaccination programs and abandon other measures.” (Investing.com). In the next weeks, we will probably hear more similar messages.

On the other hand, concerns about rises in bond yields in the US and EZ, with over-betting on the latest US stimulus package and its effect will change market sentiment and behavior in the next weeks.

For tomorrow’s EIA report, since the freezing weather in the US has passed, it is normal to expect higher than forecast numbers for inventories. Simultaneously, the Thursday OPEC+ meeting is also widely expected to raise production, but the main question is the level and quotas. Both could be the motivation for more decline, at least in a short period.

USOil – Daily Chart

Technical analysis on the daily chart started to have a correction signal. RSI is moving lower under 50, from OB zone, while market volume is still high, which can be a supportive signal for a downtrend, especially if the price breaks under 20 DMA and then S1 at 59 on today’s close price. For now, S2 is sitting at 58. On the flip side, PP at 61 could open the doors again for R1 at 62 and  R2 at 63.90.

Click here to access the our Economic Calendar

Ahura Chalki

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 prior written permission.

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Forex Update – March came in like a bull for Wall Street

The major indexes surged sharply higher on the back of more good news on vaccines and the expectation of massive stimulus sooner than later. Another batch of stronger than expected data helped too. But opening the door for the gains was the more subdued tenor of the Treasury market. In the Asia session, the risk aversion returned and stock market sentiment faded. Major indexes quickly pared early gains and headed south, while Treasuries were supported and the US rate dropped back -0.2%

The risk-on flows lifted longer dated Treasury yields, but the cheapening was much more orderly than last week’s furious 20 bps intraday jumps in the 10- and 30-year maturities. A heavy corporate calendar is also contributing to the losses in Treasuries with the focus on a $7 bln 6-part deal from Goldman Sachs.

Headlines:

• The February ISM and the January construction spending strongly beat expectations and contributed to upward revisions in GDP projections.
• The RBA left policy settings unchanged and while that was expected, market reaction suggests that there was some hope of supportive action, especially after the central bank doubled its bond purchases on Monday.
• China’s banking regular highlighted worries about bubbles in overseas financial markets, but also domestic property markets, with suggestions that leverage will be reduced, which only added to concerns about further tightening in China.
• Dovish comments from ECB’s Villeroy, who called for an active use of PEPP purchases and flagging the possibility of a deposit rate cut seem to have helped to boost confidence that central bank will manage to avoid a cliff edge scenario on stimulus, without stoking inflation.
• The Pfizer PFE.N and AstraZeneca vaccines are more than 80% effective at preventing hospitalisations from COVID-19 in those over 80 after one dose of either shot, Public Health England said on Monday, citing a pre-print study.

Forex Market

EUR – 3rd day lower at 1.2075. Next Support at 1.2000
GBP– crossed the 20-DMA and currently is traded at 1.3878.
JPY – yen found buyers, leaving USDJPY at 106.80
AUD – holds steady between 20-and 50-DMA
CAD –CAD has been soft, weighed on also by the continuing weak oil prices during the session.
GOLD –slumped to their lowest in 8-1/2 months, as a stronger dollar and elevated U.S. Treasury yields eroded investor appetite for the non-yielding metal.
USOil – below $60 amid expectations that OPEC would agree to raise oil supply in a meeting this week added to pressure and worries over slowing demand in China dampened sentiment.

Today: Calendar focuses on Eurozone inflation data for February, as well as German jobless numbers and retail sales and Canadian GDP for Q4.  Also on tab speech from ECB’s Panetta and Fed’s Brainard.

One of the bigger movers – XAGUSD (-2.19% decline) 

 

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Market Outlook – March 2021

March – 2021, Monthly Outlook

February was positive for stock market recoveries and negative for safe-havens, as the virus infections declined and vaccinations increased, both significantly. Gold had its worse month since 2016, the Japanese Yen traded 1.7% lower and stocks hit new all-time highs. A soaring rise in the 10-year T-note yield confirmed the prospect of a growing economy in the US and possible inflation spikes, while money flows into the Stock Markets, signaled a move from tech-based stocks to commodity base and cyclicals, especially energy-related and financial stocks.

Currencies

Dollar: The Dollar strengthened initially in the first week of February and continued the recent uptrend from January, but the USD index traded lower for the rest of the month, until the final two trading days when there was a significant sell off in US treasuries and a rise in the 10-yr. yield to over 1.6%. The USDIndex gained back part of the previous week’s losses and finally ended the month at 90.90 with a 0.42% monthly gain. The Fed meeting (16-17) and likely wait and see policy announcement with no change in rates will be the month’s key event. March starts with NFP on the 5th, with CPI data on the 10th and Retail Sales on the 16th the other main events for USD, while Housing data is due in the second part of the month.

Euro: February published data, which covered January and February 2020, were mostly positive, which helped to support the EUR against the USD, generally reflecting the weaker USD and the USDIndex movement.  During the second part of the month EURUSD hit seven-week highs in the 1.2240s, up more than 2.4% from the February low. Besides the stronger USD, in the final days of the month, ECB officials also raised the dovish rhetoric, upping the pressure on the EUR. For the month ahead, the ECB interest rate decision, Policy Statement, and Press Conference are the headline events on 11th. The key driver is German Manufacturing and employment data on the 1st and 2nd of the month. EZ CPI data will be published on March 17th.

Sterling: The “currency of the month” with a more than 1.7% gain against USD. Cable touched the highest level since April 2018 at 1.4240 on February 24. With Brexit over, the market participants’ focus has turned to economic data and the local domestic agenda. The main driver for sentiment for Sterling has been the rapid vaccine rollout. GDP and CPI economic data also supported the currency, but a key driver has been BOE officials downplaying negative and even lower interest rates.  Again, the BoE Interest Rate Decision (March 18) will be the month’s main event, but it is not just about rates. The calendar has PMI (3rd) and Retail sales (9th), Industrial and Manufacturing production (12th), Claimant Count Change (23rd), CPI (24th) and finally GDP on the last day of March.

Yen: Unlike the Pound, Yen, in line with CHF, was the worst performer of the month, as Safe-Haven demand decreased with the amazing performance of global stock markets. USDJPY traded down to 104.42 from highs of 106.66 in the first trading week of the month but recovered into month end to close at 106.55, with a monthly gain of 1.7%. Important dates for the coming month are employment data (2nd), GDP (9th), the BOJ Interest Rate announcement and monetary policy meeting (19th), and then the release of meeting minutes (24th).

Aussie: The Aussie rose against all crosses during February. AUDUSD traded above the open price of 0.7620 all month to touch a three-year high above 0.8000, before the sharp decline of the past two trading days of the month, to close lower at 0.7698, for a 0.88% monthly gain. The Aussie, similarly, to other commodity currencies, followed the uptrend rally of commodities, especially industrial-based commodities, as well as the recovering Chinese economy (Australia’s biggest export destination). The RBA announcement on February 2nd, with no change to policy and confirmation of unchanged rates alongside a more hawkish than expected statement supported the AUD, while Trade Balance, Retail sales, and unemployment rate also were other supportive factors. For the month ahead, the RBA rate decision and monetary policy meeting on 2nd will be the key event, while other events are GDP (3rd), retail sales, and Trade balance (4th), RBA Minutes (16th), and Employment numbers (18th).

Loonie: USOil prices hit new 13-month highs, showing a near 28% gain on the year so far, which marks a substantial improvement in the trade of the Canadian economy. USDCAD posted a 3-year low at 1.2466 on the 27th, before a sharp return above 1.2745 which was caused by both stronger USD and weaker USOil, before finally closing the month at 1.2736, for a decline of -0.27%.  On the data front, February had few positives for CAD, except CPI. A weak job number and the USOil rally ignored expected retail sales. The three key events for March are the BOC Interest Rate announcement (10th), GDP (2nd), jobs numbers (12th), CPI (17th), and Retail Sales (19th).

Emerging: The Ruble was trading below the 75 level against the Dollar by the middle of the month to touch 73.09, the lowest since 17 December 2020. RUB could have benefited from the weaker USD during the month, as TRY did, however, political changes in Moscow and talks about new sanctions, in line with stronger USD in the last days of the month, caused RUB to make a U-turn to close the month at 74.58. However, thanks to a strong Oil rally, RUB gained 2.3% against USD in February. USDZAR ended the month almost at the same level, 21 pips lower than the 15.1648 at the beginning of the month. Price movement also confirms that more than being dependent on ZAR, the movement was based on USD changes. The Turkish central bank, with higher repo rates, was trying to support the Lira, while USD weakness also helped the trend; however, in the second half of the month, after weaker economic data and the stronger USD, TRY lost its strongest position in the past 6 months against USD at 6.8915 and ended the month 0.90% lower, at 7.3503.

Commodities

Gold: Gold has suffered a series of setbacks since its futures hit record highs of nearly $2,090 an ounce in August 2020. However, after vaccinations started back in November and December 2020, the yellow metal decline continued to print its worst monthly loss since 2016 with falling under $1725. For now, as many analysts believe, with vaccination progress, Gold recovery seems unlikely before the hard crash. In March, we will know the final fate of the Biden Stimulus Package, however, Gold’s trend directly depends on market sentiment about economic recovery, so we need to carefully follow GDP, PMI, CPI, Job, and Consumer Expectations data from the US, EZ, and China.

Silver: Unlike Gold, which is almost 8.5% lower than the price at the end of 2020, XAGUSD is currently trading more than 1% above its 2020 close. February started with a sharp decline, but with recovery hopes as Silver, like other precious and industrial metals, compensated the lower demand of its safe haven. For the month ahead also, positive economic news will still be supporting it.

Oil: USOil, with a more than 19% gain in February, printed one of its best monthly performances. According to the Energy Information Administration’s latest monthly report, US crude oil production fell to an average of 11.063Mbpd in December 2020. In line with recovery reports, these data, while EIA estimates that US crude production will not exceed the levels seen in 2020 until 2022, could still support the market rebalancing. On the other hand, the voluntary production cut of 1Mbpd by Saudi Arabia will continue during March. For the month ahead, eyes will be on the OPEC+ meeting on March 4, as well as IEA and OPEC monthly reports.

Indices

US: Clear messages from the White House about more stimulus packages and raising the minimum wage supported the dovish policy of the FED, while  the third vaccine for COVID-19 from  J&J also supported the market in February. The USA500 gained 2.77%, and the USA30 rose by 3.47%, but the tech-based index of the USA100 lost -0.04%. After new record highs in the middle of the month, all three indices had a correction, but for the USA100, the correction coincided with the EU copying Australia’s lead in making Big Tech pay for news. Also, more openings will decrease the volume of online commerce, which will be more negative for the USA100.

Europe: Generally, EU based indices had a good and profitable performance. EU30, GER30, FRA40, and UK100 all closed the month way above their open prices. Stock markets are totally in a good mood and happy from reopening news, while the vaccination process is growing faster. Eurozone and UK economic data are also supporting this optimism at the moment.

Japan: The JPY225, with a 5.31% gain in February, it had the best performance of the main indices. The price change, however, followed Wall Street, with gains in the first half and weakness in the second half. The overall economic outlook is improving alongside inflation, GDP, CPI, and industrial productions. Besides positive economic data, hopes on holding the Olympics in the summer will help the Japanese financial markets and the economy’s positive attitude.

EQUITY PICK OF THE MONTH – GameStop & ViacomCBS

As the pandemic hit many retailers, GameStop was not different than others and was planning to close 450 stores this year. However, a rebellion against Wall Street changed the game, and its shares became one of the hottest stocks of not just January, but probably the whole year; it became a February equity pick as management took advantage of this jump and the price again rose above $140 from a February low of $40, indicating that it does not intend to go down. However, ViacomCBS Inc. (VIAC), with a 40.45% gain, takes the place of Wall Street’s best performance.

Cryptocurrencys

In the last months of 2020, PayPal, one of Elon Musk’s first companies, announced that it will support digital currencies, boosting BTC as well as other digital currencies to a new record high, and then in February, one of his more recently established companies, (Tesla) also invested in BTC and started accepting it as a payment method, moving the crypto market  to touch above $52K. Even in the last days of the month, as it fell back under $45K, technically BTC, LTC, and ETH are all moving above main MAs and technically still moving in clear uptrends on Daily charts. In smaller charts, momentum indicators have started signalling a technical correction. Some ECB and FOMC members are warning about cryptocurrencies, while also confirming that digitalization is the future of currencies.

Click here to access our Economic Calendar

Ahura Chalki

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 prior written permission.

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US Market Open Live Analysis – March 1

A year since the markets plummeted on the pandemic’s global spread.
Join Andria for a preview of the markets prior to the US open today.

 

Click here to access the our Economic Calendar

Andria Pichidi

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 prior written permission.

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Germany to escape a technical recession – But what about Europe?

German state inflation data today have been mixed, with some states reporting an acceleration in the headline rate, others a slight decline. On the whole there may be a slight downside risk to preliminary pan Germany numbers, due this afternoon. Expectations are for a steady HICP rate of 1.6% and even if the headline comes in a tad lower, PMI readings this morning highlighted once again that cost pressures are building in the manufacturing sector, which together with higher energy prices could push up consumer prices once consumption demand rebounds.

Germany has had a stricter lockdown than France, Italy or Spain, but individual states have started to re-open activity today, even though overall numbers are not where the government would like them to be. However, German inflation numbers are likely to remain above the Eurozone average for a while and the ECB clearly is not expecting headline rates to top targets any time soon. Even if they eventually do, the shift towards a more symmetric target would require letting inflation run hot for a while following the current period of underinflation.

Overall, Germany’s economy not only weathered the first wave of the pandemic better than other major EU countries, it also expanded in the last quarter of 2020, despite the return of a relatively strict lockdown. Activity is still likely to contract in Q1, but Germany is set to escape a technical recession. At the same time, underlying price pressures are starting to pick up. With the ECB focused on the Eurozone average, Germany is likely to post above average inflation and risks fresh bubbles in house prices down the line.

German GDP growth was unexpectedly revised up to 0.3% q/q in the final reading for Q4 2020 – from 0.1% q/q reported initially. This left the annual rate at -3.7% y/y (working day adjusted). Still a sizeable contraction, but a much better result than developments in the EU as a whole. Not surprisingly consumption was severely hit by virus developments and the return of stay-home-orders at the end of last year. The rebound in machinery investment also came to a halt, even as construction investment continued to expand.  Exports, however, lifted a further 4.5% q/q, while imports jumped 3.7%, and together with a marked rise in stock building that suggests companies prepared for Brexit with pre-emptive orders and a build up of stock levels.

Manufacturing PMIs are at the highest level in 37 months across Germany, France and Italy, highlighting that despite ongoing virus restrictions, the manufacturing sector is looking very strong. Markit reported that “producers are benefitting from resurgent demand for goods in both domestic and export markets, linked to post-Covid recovery hopes” and “renewed stock building and investment in business equipment and machinery”, is adding to improved consumption. Good news for overall economic activity ahead, but also highlighting that inflation pressures are building, and that reflation trades are not totally unfounded.

This is also reflected in other survey data for February. The overall Ifo reading lifted to 92.4, the highest since October last year, driven not just by an improvement in the expectations index, but also a strengthening in the current conditions indicator. Not surprisingly, manufacturing sentiment turned even more positive, but even the services sector and retail trade are less pessimistic, despite ongoing restrictions. Vaccination programs and the sharp decline in active cases in Germany have boosted hopes for a re-opening of the economy and indeed, many German states have started to open schools this week starting with Kindergartens and primary schools. Others are set to follow in coming weeks.

 

The improvements suggested by the Ifo and PMI readings confirm that the jump in the ZEW earlier in the month was not just a reflection of buoyant investor confidence, but actually reflects improvement at company level. At the same time, the PMI in particular flagged supply chain shortages and a marked rise in costs and subsequently prices charged. German headline inflation already jumped markedly at the start of the year, as the temporary cut to the VAT rate fell out of the equation and developments at factory level suggest a further build up of underlying price pressures.

Markit reported that average charges for goods and services rose at the fastest rate since August 2019 – mainly driven by manufacturing output price, which rose at the fastest pace in nearly two-and-a-half years. Input costs have seen the sharpest increases in nearly a decade, reflecting not just higher raw material prices, but also upward pressure on transportation costs. Input price inflation across both manufacturing and services reached a 27-month high in February and the numbers suggest a further increase in price pressures down the line. The fact that companies are able to pass on costs highlights that there is no shortage of demand, despite rising prices, and as long as consumption bounces back once lockdowns are lifted, that could quickly lead to a sharp rise in consumer price inflation down the line.

What is pretty evident is the fact that the manufacturing sector clearly is pretty unfazed by latest lockdowns and that Germany’s export oriented economy is benefiting the storm better than others. Indeed, countries such as Spain, which rely heavily on services and tourism, will see a much larger boom bust cycle, but also a bigger share of income that is permanently lost. For Germany that means that the ECB’s one-size-fits-all monetary policy will be too expansionary for the domestic economy for a while to come. Traditional savings will remain unattractive and stock market and property investment look attractive by comparison. For national regulators that also means they need to keep a close eye on potential bubbles and insufficient risk management as money remains cheap.

Click here to access the our Economic Calendar

Andria Pichidi

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 prior written permission.

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Market Update – March 1 – Yields correct sharply!

Bond as well as stock markets rallied across Asia, with yields correcting sharply. The big swings in the markets of late, and especially Thursday’s wild ride intensified an increasingly nervous tone on Wall Street which is still just off of record highs. The long end continued to lead the move in yields lower just as it paced the surge on Thursday. While the rally picked up some steam in late trading on index buying which erased most of Thursday’s rout, the move pales in comparison to the run up for the month. Indeed it was the largest since the Trump victory in November 2016.

Headlines:

• RBA doubled its regular purchase volume at its bond-buying operation. – Australia’s 10-year rate dropped back nearly. opposition to higher rates in the market
• New Zealand’s 10-year rate still declined 17 bp, JGB yields are down -0.8 bp and the U.S. 10-year rate has dropped back -0.2% to 1.40%.
• The China’s official manufacturing PMI came in below expectations and at 50.6 was at a 9-month low, but Japan’s reading lifted into expansion territory again in and markets seem to have scaled back inflation worries somewhat, although clearly the sharp swings over the recent weeks remain worrying.
• JPN225 closed with a gain of 2.4%, the ASX was up 1.7% at the close and Hang Seng and CSI 300 are currently up 1.3% and 1.2% respectively. GER30 and UK100 are currently up 0.8%, while U.S. futures are posting gains of 0.7-1.1%
• Tech-heavy USA100 futures, that previously benefited from stay-home orders, outperforming again.
• The U.S. approved a new single shot vaccine by Johnson & Johnson, which is hoped to speed up the vaccination process and investors are in spending mood.
• British finance minister Rishi Sunak is set to announce an extra 1.65 billion pounds ($2.30 billion) to fund the country’s vaccination roll-out as part of his annual budget statement on Wednesday. – He would not rush to fix the public finances as he readied a budget plan which will pile more borrowing on top of almost 300 billion pounds of COVID-19 spending and tax cuts.
• The US passed a $1.9 bln stimulus package.
• Largely weaker dollar.
• Iran rejected a European Union offer to hold direct nuclear talks with the U.S. in the coming days, risking renewed tension between Tehran and Western capitals. Link

Forex Market

EUR – below 1.2100 under its 20-day moving average.
GBP– supported at 1.3968
JPY –  at 106,50 after 6-month high.
AUD – reversed nearly  70% of February’s gains – Currently between 20-and 50-DMA
CAD –  jumped to 1.2700 from 1.2600 as risk aversion returned.
GOLD – recovers some of Friday’s losses but remains at mid 1700.
USOil – retests 63 again with more than $1 appreciation after US stimulus news

 Today: Data releases today focus on final manufacturing PMI readings for the UK and the Eurozone as well as preliminary German inflation data for February. Eye are on the RBA is set to announce its policy tomorrow and markets will look ahead to comments from Fed Chair Powell on Thursday and the OPEC+ meeting on output on the same day.

Biggest mover – AUDJPY (+0.69% as of 09:30 GMT)

Click here to access the HotForex Economic Calendar

Andria Pichidi

Market Analyst

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