I wish I knew what an ETF was, but I’m too embarrassed to ask

• SEE MORE All you need to know about exchange-traded funds

The acronym ETF stands for exchange-traded fund. And that pretty much sums up what it is. It’s a fund that is bought and sold on a stock exchange.

Most ETFs are passive funds. In other words, they aim to track the performance of a specific asset or stockmarket index, such as the FTSE 100 in the UK, or the S&P 500 in the US.

There are two main ways in which ETFs do this. Physical ETFs simply own the same assets as the index they are aiming to track. So a physical FTSE 100 tracker would own all the shares in the FTSE 100 in the same proportion as in the underlying index.

Synthetic ETFs instead use financial instruments called derivatives to copy the returns on the underlying market, without having to own the physical assets at all. Synthetic ETFs still have to be backed by collateral, but the use of derivatives introduces counterparty risk. That is, the danger – however small – that the investment bank which underwrites the derivative might be unable to pay out.

ETFs are not limited to tracking stock indexes. There are ETFs and ETF-style products available to track the price of anything from individual commodities to bond indexes to currency markets to “themes” such as robotics and AI, or cannabis stocks.

If you are considering investing in an ETF, you can get an idea of how efficiently it tracks the underlying asset by looking at the “tracking error”, which simply measures the gap between the return on the ETF and the return that it’s supposed to be matching. The narrower, the better. You should also – as always - look at how much the ETF costs in terms of annual fees and trading costs.

So why might you use an ETF rather than a traditional open-ended fund, or an investment trust? The big difference between an ETF and an open-ended fund is that an ETF is listed, and so can be bought or sold throughout the trading day.

The big difference between ETFs and investment trusts – or closed-ended funds – is that while both are listed on stock exchanges, an ETF should – except in exceptional circumstances – always track the value of its underlying assets very closely. An investment trust, by contrast, can trade at a premium or a discount to the value of its underlying portfolio.

To find out more about ETFs, subscribe to MoneyWeek magazine.

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US Open – Live Analysis after IMF lifts global growth forecasts

IMF lifts global growth forecast, but warns of divergence. The IMF sees global growth at a record 6% this year, following a -3.3% contraction in 2020. A very strong rebound in the U.S. is a key reason, but while growth in the U.S. and indeed the world is expected to be higher than the contraction last year, this isn’t expected to be the case for the Eurozone and indeed the U.K.. Eurozone growth is expected at 4.4% this year and 3.8% next after a -6.6% contraction in 2020. The UK economy is expected to expand 5.3% this year and 5.1% in 2022, but after a correction of -9.9% last year.

 

Click here to access the HotForex 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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Deliveroo’s IPO flop shows which way the market is going

• SEE MORE Why was Deliveroo’s IPO such a disaster? And what should investors do now?

Over the past year you will have heard a lot about what is driving stockmarkets. You’ve been told that environmental, social and corporate governance, or ESG, matters more than anything; “better” companies provide better returns.

You’ve probably also been told that the pandemic has changed the dynamics of economies entirely. It’s driven relentless digitisation, and changed the way we live and work for good. No one will ever go back to the office full time, shop again at physical retailers, or cook for themselves again. It’s home delivery, forever.

Much of this may be true. But listening to a lot of this guff, it feels as though we have reached a point in the market cycle where everyone is preferring stories to reality. Take food delivery firm Deliveroo, which listed on the UK stock exchange last week. It didn’t go very well: the shares closed down 26% on their first day of trading.

A lot of people have a lot to say about this. Some reckon it was caused by Deliveroo’s dual share structure: chief executive Will Shu holds shares with 20 times the voting power of others. Some reckon it was about regulatory concerns: what if the company’s gig-working riders end up costing as much as employees? Others say it was about a shift in investor perceptions. As vaccines get to work and lockdowns are eased, the idea we are completely changing the way we live and consume is starting to fray.

Deliveroo shares were just too expensive

Much of this is clever nonsense. It may seem ridiculous to say so, but the slide in Deliveroo’s share price was not solely about fund managers’ new passion for ESG or any of these other things. It was about the share price.

The company’s £7.6bn valuation, the highest for a British initial public offering since Glencore’s 2011 listing, was simply too much to ask for a loss-making company that operates in a market with few barriers to entry. Deliveroo may be a brilliant, innovative and fast-growing business that will be worth £7.6bn one day – just not this week.

Until a couple of months ago this might not have mattered. Super-low bond yields, which make the lack of income from loss-making companies easier to bear, made many investors value a company’s putative success in the future more than actual corporate success today. Even at the start of the pandemic, this valuation gap between growth stocks and value stocks was at a record high. For most of 2020, it got bigger. In certain fast-growing sectors, company fundamentals and stock prices simply stopped mattering.

Rising bond yields are something of a red herring

So why did Deliveroo’s valuation suddenly matter? One answer is that rising bond yields are now making the market’s more crazed sectors come to their senses. In the last quarter alone, the yield on ten-year US Treasuries has almost doubled to 1.7%. With inflation looking likely, yields may well keep rising from here.

Some may look at this, see Deliveroo as a canary in the coal mine, and rush to sell everything. But just as we must be careful not to extrapolate recent food delivery trends far into the future, we need to be careful not to rely too much on what recently rising bond yields means for markets. It is pretty easy to find periods when rising bond yields have not translated into falling equity prices. Just look at what happened in the 1920s and 1960s, says Calderwood Capital’s Dylan Grice.

In fact, if you examine how equity prices and yields have changed over the long term, it’s hard to find much of a relationship between them at all. Even in really nasty bond routs, equities as a whole don’t always do badly. What matters more is less where bond yields are heading than where equity prices are starting from. Put another way, as bond yields rise, any overpriced assets, such as growth stocks, may well suffer. But anything that is both fairly priced and exposed to economic reopening will not.

The shift from growth to value is under way

Anyone wondering how to invest over the next year should therefore look at what happened in English parks this week. On Monday, two days before the Deliveroo flop, a relaxation of lockdown regulations allowed six people to meet outside – as they did. Anyone seeing those crowds would have sensibly dumped the idea of buying anything involving home delivery and instead rushed to buy assets linked to travel, energy, cars, retail or commodities.

It’s a lesson for the busy bankers at Goldman Sachs and JPMorgan, who mispriced the Deliveroo deal and should have lifted their heads from their spreadsheets to check out the real world instead. The shift to value from growth is already under way: one classic value index, the FTSE 100, is up 21% since the end of October but should have further to go.

There is one more important thing investors should think about. Grice’s analysis may show an ambiguous relationship between bond yields and stock prices, but it does show one clear connection: rising bond yields tend to coincide with rising volatility. So one thing you can be fairly sure about the market over the next few years: it will scare you.

• This article was first published in the Financial Times

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What will Joe Biden’s “build back better” plan mean for markets?

Last week, US president Joe Biden unveiled his much-anticipated infrastructure plan.

Biden’s vision to rebuild America is, he says, “not seen through the eyes of Wall Street or Washington but through the eyes of hardworking people”. Accompanying those words are proposed corporate tax hikes worth $2trn to cover the cost of the package.

So what did Biden announce and what does it mean for your portfolio?

The American Jobs Plan

The first part of Biden’s “Build Back Better” – dubbed the “American Jobs Plan” – detailed around $2trn of spending over the next eight years in several key areas.

These include direct investment in rural and tribal communities by providing 100% broadband coverage; the reconstruction or repair of 20,000 miles of road and 10,000 bridges; clean-energy projects; affordable housing; and funding for those who provide care for the elderly and disabled.

Electric vehicles will also receive a boost – the proposal includes plans for 500,000 electric vehicle chargers to be built by 2030, and will also pave the way for 50,000 diesel public transit vehicles to be replaced.

The second part of Biden’s plan – which is due to be announced in a few weeks – is the “social infrastructure” section. This is expected to include proposals for free community college and universal pre-kindergarten, according to the New York Times, as well as moves to increase the participation of women in the workforce.

How likely is it to get passed?

Combined, both parts of the plan would add up to more than $3trn in public spending. That’s on top of the $1.9trn stimulus package that kicked off Biden’s administration.

The plan was split in two to make it easier to get Republican backing, which reportedly supports the physical infrastructure side, with its focus on bridges, roads, and broadband access.

But the sticking point plan is likely to be the question of who pays for it all. That’s because the plan also calls for significant tax rises. The main proposal is to raise corporation tax from the current level of 21% to 28%. This would raise $730bn over ten years, reckons the Tax Policy Center, a US think tank. The tax paid by foreign companies would rise to 21%, which could add another $440bn to the coffers over the same period. Biden, meanwhile, believes the proposal will generate $2trn over a 15-year period.

This increase would still leave corporate taxes well below the 35% level that Biden’s predecessor, Donald Trump, originally cut taxes from in 2017. However, Senate minority leader Mitch McConell (a Republican) has already made clear that he is unlikely to support the proposal.

That said, while Biden has said he wants bipartisan approval for the plan, the truth is he doesn’t need any Republicans to back it, thanks to a mechanism called “budget reconciliation”. This emergency power was used to pass the previous $1.9trn “Great Rescue Plan” without any Republican support.

Democrats ideally want the package to be approved this summer by 4 July, though that’s not an official deadline, reports CNBC. To get there, the proposal would have to pass through both chambers of the Congress. There’s the House of Representatives, where Democrats hold a majority, and the Senate, which is almost evenly split, with US-vice president Kamala Harris serving as the tie-breaking vote.

White House press secretary Jen Psaki says it is up to Democratic House leader Chuck Schumer and other leaders in the Congress to decide how the bill will be passed. Democrats have two more chances to use “budget reconciliation” before the 2022 midterms take place.

What effect will this have on the market?

Biden’s radical plan may still signal higher inflation even though the plan proposes tax rises to fund it. That’s partly because Republican opposition might result in the tax increases being scaled back. If, as a result, “Build Back Better” means borrowing and spending more money, this could strengthen the argument for higher inflation, and potentially nudge bond yields up higher.

Meanwhile, the sorts of big tech stocks that have done well from the last decade or so of falling interest rates might also come under more pressure as governments around the world try to crack down on shopping around for the most hospitable tax regimes.

On the electric vehicle side, Biden’s pledge to invest in the sector is good news for electric vehicles, but the question is: how much of this is already in the price? The answer already appears to be: rather a lot.

According to analysts at Stifel, quoted on MarketWatch, the plan should particularly benefit engineering, construction and companies related to those sectors. Stocks such as Dycom Industries, Quanta Services, MasTec, MYR Group, and Atlas Technical Consultants, which all have higher revenue exposures to focus areas of the plan, are good picks to investigate further.

But commodities will be the true winner as “investments in domestic manufacturing and fixing roads, bridges and ports will drive the next commodity super cycle," Edward Moya, senior market analyst at OANDA, says. We’ve looked at commodity plays several times already in the past few months in MoneyWeek magazine. If you’re not already a subscriber, get your first six issues – plus a free beginner’s guide to bitcoin – absolutely free here.

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ISM Non-Mfg. Activity Index for March Hits All Time High

Incoming data on the US economy suggests that recovery is quickly gathering pace. The bar to surprise markets after blockbuster March NFP report was quite high, however US activity indices could raise economic optimism to a new level. The ISM released services and manufacturing PMIs for March managed to beat already upbeat forecasts.The service sector index rose from 55.3 in February to 63.7 points in March, beating the forecast of 59 points. This is an absolute record since 1997:The service sector is a key part of the US economy as it employs more than 70% of workers. New orders, a leading component in the data, jumped to 67.2 points which indicates a huge monthly increase in orders, unlike anything seen in many years. The jump is clearly explained by easing of social restrictions, which in turn explain the impulse of consumption. The very fact that the ongoing reboot of the economy props up demand for risk assets allows us to witness breakouts of key resistance levels in US stock indexes after a long period of consolidation.Markit's composite activity index, which combines activity in both manufacturing and services, added a few tenths in March, climbing 59.7 points.The 50-point level divides the area of contraction and expansion of activity. PMI readings reflect the change in activity compared to the previous month. The actual high readings of the indices indicate that in March there was an impulse in US economic growth, which is due to accelerated vaccination, the lifting of restrictions and, of course, the fiscal impulse. This, as we see it, is stimulating consumer spending at the right time.ISM data reinforce hopes that April job growth will exceed March growth by 916,000.S&P 500 futures pull back after rising to 4077 points on Monday. All three major US stock indexes closed more than 1.5% yesterday, reflecting optimism in the data. Oil prices rebounded on the expectation that the economic momentum in the US would also spur growth in other economies. WTI and Brent rose by more than 2% on Tuesday.The June Fed meeting will certainly require significant revision of economic projections. Now the Fed’s dot plot indicates that the Central Bank plans one rate hike starting in 2024, but taking into account the latest data on the economy, it is difficult to drive away the idea that the normalization of policy in the United States will begin much earlier.Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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BP looks set to return more money to shareholders as it beats expectations

Oil major BP has said that it expects to start buying back its own shares again, after hitting its targets for reducing its debt load earlier than anticipated.

“We are pleased to announce that we now expect to have reached our $35bn net debt target during the first quarter 2021,” said BP’s chief executive, Bernard Looney. “This is a result of earlier than anticipated delivery of disposal proceeds combined with very strong business performance."

Net debt at the end of 2020 was $38.9bn, meaning that BP has sliced nearly $4bn off its debt pile in the past three months. 

The group will update with more detail when it reports on its first quarter results at the end of this month (27 April). For now, BP noted that it is committed to “returning at least 60% of surplus cash flow to shareholders by way of share buybacks, subject to maintaining a strong investment grade credit rating.” 

So why has net debt declined so rapidly? BP made more money from selling assets than it had expected. Deals included the sale of a petrochemicals business to global chemical giant Ineos, the sale of a stake in software group Palantir, and the raising of more than $2.4bn from the sale of an Omani gas development. As a result, the group now expects sales proceeds to hit the upper range of its earlier $4bn to$6bn estimate. 

The group also benefited from the strong rebound in the oil price earlier this year. 

What does this mean for your portfolio? 

BP’s share price cheered the unexpectedly positive announcement, gaining around 3% to trade at around 300p a share. 

As Mark Nelson of Killik notes, the shares still look reasonably priced “on a price to December 2021 earnings ratio of 11.3 times” plus “a prospective dividend yield of 5.3%”. Meanwhile AJ Bell analyst Danni Hewson reckons that the share buybacks raise the “prospect of more generous returns to shareholders”. 

Long story short, if you hold BP already – and we’ve been pretty positive on oil stocks so a lot of you probably do – this is another reason to hang on. And even if BP isn’t your preferred play, we’d suggest having some exposure to the sector – fossil fuels will be around for a while longer and the market still doesn’t look to have priced in all of the rebound potential from the Covid-19 lockdowns.

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Market Spotlight: EURJPY Breakout Eyed

EURJPY Nearing HighsEURJPY has turned higher again this week with price moving back up to just below the March highs at 130.69. Having rallied almost 5% off the 2021 lows, the EURJPY up-move looks to be in good health, with the market presenting fresh breakout opportunities for bulls. With the retail community holding a more than 80% short position in this pair currently, there is still room for the rally to extend further with the 132.02 and 133.13 levels the next upside targets for bulls. It is worth noting that we are seeing bearish divergence as price moves back up to highs. However, until the last swing low at 128.20 is breached, the market remains in a bullish trend.Key Data on WatchIn terms of key data to watch this week for the pair, the ECB meeting minutes due on Thursday will likely have the biggest impact alongside the IMF meetings which will be taking place all week. The extent to which the ECB has been troubled by the recent rise in domestic and global yields will likely draw the most investor attention so traders are advised to manage their risk heading into the release. Any comments regarding optimism over the economic recovery should see EURJPY continuing higher near term.Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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Inflationary pressure is building across the globe. But is it here to stay?

From an investor’s point of view, there’s one big post-pandemic question that matters more than any other: will the big picture economic backdrop finally turn into an inflationary, rather than a disinflationary, one?

I don’t have a crystal ball, so I can’t be sure of what’ll happen in the long run. But in the short-term at least, you don’t need a crystal ball. There are signs of inflationary pressure exploding out everywhere.

Everything important is getting more expensive

Fold-up bicycle maker Brompton has had a good pandemic. Apparently sales rose by about a fifth in the last year. And managing director Will Butler-Adams tells the FT he reckons that’ll continue, with economic boom times ahead once Covid-19 goes away: “The Roaring Twenties, here we go”.

But while the demand side looks good, the supply side looks a challenge. Costs are rising because steel prices are higher, aluminium is in short supply, and shipping rates have shot up (for those wondering, note that while Brexit admin is in the mix, it is also apparently “the least of our problems”). The company has already raised prices by 6% this year. And it looks like they might end the year up by 10%.

The story is similar at “other small UK businesses”, reports the FT. So what’s going on? 

To cut a long story short, we’re seeing exactly what you’d expect, given the weird nature of the recession we’ve just had. The pandemic whacked both supply of and demand for goods and services. But it did so artificially: the economy was shut down by lockdowns, but it was kept in deep freeze.

Now it’s thawing out, and demand is recovering much faster because it’s far easier to switch that back on than it is to sort out supply. As a result, you have a flood of demand hitting the market and supply can’t yet keep up.

Take those shipping costs, for example. A report from the San Francisco Chronicle notes that San Francisco Bay is struggling with a huge “West Coast maritime traffic jam, the biggest in years”.

There’s a lot more to this than just the blockage in the Suez Canal. This jam began to form at the start of this year. What happened? Factories in Asia reopened as lockdowns eased; imports surged too. As a result, the ports in southern California simply “couldn’t handle all the business”.

There was a shortage of vaccinated workers, for one thing, as well as a shortage of equipment. The number of backed-up ships peaked at about 40 in February. Now, reports Bloomberg, there are about 28 ships in line (though another seven look set to join the queue in the next few days).

For perspective, when things are going OK, the container ships can spend less than a day in the area, unloading before they head off. Currently the average wait for berth space is eight days. In November it was less than three days. All of this adds to costs.

As credit ratings group Fitch puts it: “World trade has recovered more rapidly than expected and, in combination with dislocations in the container shipping sector as a result of the pandemic, shipping freight costs have soared since November. Container ship charter rates have increased fourfold on some routes.”

It’s the same thing with raw materials. Commodity prices have been rocketing for some time. That’s partly because China snatched up a pile of commodities – particularly copper – at cheap pandemic prices last year, as Bloomberg reports. 

Now Chinese buying might be slackening off. But again, in the US, president Joe Biden is planning a big infrastructure spending spree, which should help to keep demand strong. 

There’s also a shortage of microchips, because again, supply has been unable to keep up with demand, and microchips are in practically everything these days.

Are these really just bottlenecks, or are they turning points?

And it’s not just raw materials. It’s that other vital resource – people. In the US, small businesses are complaining about being unable to hire staff. Yes, I know, small businesses rarely say – “yup, everything is absolutely hunky-dory” – but the data makes it clear that this is not just the usual gripes.

Last month, according to the National Federation of Independent Business, 42% of small businesses surveyed said they had jobs they can’t fill, reports Bloomberg. That’s a record high, and compares to an average since 1974 of 22%. And a full 91% said they’ve had "few or no qualified applicants for job openings in the last three months".

The US stimulus package – whereby lots of people have been getting much higher than usual unemployment benefits – will be helping to keep at least some people at home (rather than going back out to work for not a great deal more extra money).

Yet there are other underlying reasons why the labour market isn’t quite as much of a buyer’s market as you’d expect, given the level of unemployment. Nearly a million jobs were added to payrolls in the US last month, according to the latest US employment reports.

Employers want to hire because the economy is recovering, and it’s recovering with a great deal of strength. If you have a lot of options and you’re not quite as desperate as you perhaps normally would be after being out of work for nearly a year, then why rush to take the first offer?

Is that going to drive up wage inflation? Well, labour is like any other resource. Sure, you might well be able to get it cheaper if you wait a while. I mean, if everyone waited until the traffic jam was cleared in San Francisco, then shipping costs would go back down too.

But people aren’t waiting. They need that stuff now. And like commodities or imports, if you need labour right now, then that’s when you need it, and you’ll need to pay up for it.

Are these temporary bottlenecks? On the surface, yes, sure they are. But how long will it take to clear? And what will be the impacts in the meantime? And how much of this is really temporary and how much will turn out to be longer-term in nature?

Are rising shipping costs just down to bottlenecks? Or have we exhausted a lot of the disinflationary potential of globalisation?

Are rising commodity prices just down to an unexpected and sudden surge in demand? Or is the under-investment of recent years now catching up with us, alongside a pressing need to rejig a lot of our infrastructure to cope with electrification and renewable energy?

Is pressure on labour markets really just a short-term issue? Or is the political pendulum finally swinging back towards the workers and away from capital?

I don’t know. But I think we’re going to find out quite soon, and it could be a sticky period for anyone who thinks the trends of the last 40 years are going to continue for the next 40.

It’s all good reason to make sure your portfolio is prepared for inflation. It’s a theme we keep returning to in MoneyWeek magazine. If you’re not already a subscriber, you can get your first six issues, plus a beginner’s guide to bitcoin, absolutely free here.

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RBA Holds Monetary Policy Unchanged

AUD Weaker Following RBAThe Australian Dollar has come under selling pressure over the European morning on Tuesday following the latest RBA meeting. The Reserve Bank of Australia held its headline policy rates unchanged today, in line with expectations, with the bank holding rates at record lows of 0.10% and maintaining its current bond yield target of 0.10%.Rates & Yield Curve Target MaintainedIn terms of the statement given alongside the decision, the RBA maintained broadly the same message that it gave in March, citing optimism over the progress seen within the vaccination effort, while citing the remaining uncertainty and downside risks in its outlook. Importantly, there was no shift in the bank’s yield curve targeting at this stage, reflecting that the bank is still fighting against rising bond yields. However, there were some developments to note with the RBA advising that later in the year it will consider whether to make a shift from the April 24 bond maturity used in its yield curve control program or shift to the next maturity.Economic Recovery In Good HealthSpeaking on the health of the economy, the bank noted that the recovery is well under way and is in fact progressing ahead of expectations. However, wages and price pressure remain subdued and look likely to continue to remain so for some years, keeping inflation below the bank’s 2% target. The bank once again reiterated that it does not see these conditions being met until at least 2024 when it would expect to raise rates.In all, the meeting was a fairly subdued event with the bank offering little in the way of new information since last time around. While the domestic and global vaccination programs continue to gather pace, however, there are plenty of upside risks for AUD which tends to track global risk appetite.Yields & Aussie Lower Following MeetingIn response to the meeting, we’ve seen Australian yields coming off with the 10 year yield sitting around 1.70 as of writing, correcting lower from the recent highs around 1.80. However, with current pullback only representing a shallow move within the rally which has been running since August last year, the outlook is still firmly bullish for Aussie yields.Technical Views AUDUSDThe breakdown below the rising trend line from last year’s lows has been accompanied by the formation of a head and shoulder pattern. These two elements together suggest the market is vulnerable to a deeper correction lower. Price is currently sitting on the .7563 level support, the neckline of the pattern. If broken, the next target for bears is the .7413 support. To the topside, bulls will need to see a break above .7814 to regain upside momentum.Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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Market Update – April 6 – Equities Rally & USD Cools

Market News Today – US Equities closed at new all-time highs, (Service PMIs at record, TSLA beats delivery targets – shares up +4%) USD and 10-yr yields cool. No change to rates (0.1%), bond buying or outlook from RBA, AUD unfazed. Yellen suggests global minimum tax rate, Credit Suisse announces $4.7bn hit from Archegos margin call. Overnight JPY earnings better, spending worse, CNY Services PMIs beat. UK shops pubs & restaurants open from April 12, NZ-Aus flight corridor April 19. Globally 658 million vaccines administered across 151 countries. The EU vaccine roll-out and new infections in India & Brazil remain areas of concern.

RBA – Governor Lowe stressed that the “board is committed to maintaining highly supportive monetary policy conditions until its goals are achieved” and that the cash rate won’t rise “until actual inflation is sustainably within the 2-3% target range”. “For this to occur, wages growth will have to be materially higher than it is currently”. At the same time, Lowe warned that “given the environment of rising housing prices and low interest rates, the bank will be monitoring trends in housing borrowing carefully and it is important that lending standards are maintained”. AUD house prices increased the most since 1988 in February.

Week Ahead – RBA (6th) EU PMIs & FOMC Minutes (7th), ECB Minutes, Weekly Claims & Powell speech (8th), CAD Jobs & US PPI (9th).

The Dollar has found its feet after taking a tumble in thin markets yesterday. The bullish case for the Dollar remains strong, given the outsized fiscal stimulus coursing through the US economy alongside the relatively advanced states of Covid vaccination progress in the US and likelihood for further widening in the US Treasury yield differential versus peers. The March jobs report was a blowout, while the ISM services index surged to a record peak. Wall Street also scaled to new record highs yesterday. The only blot on the bullish dollar landscape is the uber accommodative stance of the Fed, which has been downplaying the scope for runaway inflation risks, although the relatively high Treasury yields, among low- and sub-zero yielding peers, will offset this. The USDIndex has lifted to the upper 92.0s after yesterday posting a 12-day low at 92.52. EURUSD has concurrently tested the waters below 1.1800 after making a 12-day peak at 1.1820. USDJPY has lifted back above 110.00. AUDUSD has dropped back from one-week highs, while Cable has tipped back under 1.3900 after earlier pegging an 18-day high at 1.3920. The Pound yesterday printed a 14-month high versus the Euro, which although occurring in holiday-thinned trading reflects the contrasting fortunes of the reopening UK economy with the re-restricted economies across the Channel. The rate of new Covid cases is now 4% of what it was at the peak seen in early January, despite a more than doubling in testing over that time, while the death rate is less than 3% of what it was at the highs.

Today – EZ unemployment, ECB asset purchases, US JOLTS.

Biggest (FX) Mover @ (07:30 GMT) NZDCHF (+0.20%) rallied from test of 200MA on open, (0.6600) to PP at 0.6620 and over 50 MA. Yesterday declined from 0.6645 high. Faster MAs remain aligned higher, RSI 53 and rising, MACD histogram & signal line aligned higher but under 0 line from open after yesterday’s fall. Stochs rising. H1 ATR 0.0008 Daily ATR 0.0046.

 

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Stuart Cowell

Head Market Analyst

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The Investment Bank Outlook 06-04-2021

Citi A revival in risk sentiment on Monday, despite many markets being out for holidays, appears to have held in Asia. USD ISM services beating at 63.7 (59 expected), following a 916k NFP print (660k expected) last Friday appears to have triggered broad optimism, as well as USD weakness despite the surprise beats in both. Away from FX, US equities have continued to push higher with S&P making new all-time highs around 4077, deriving tailwinds from data here and reflation biases.In Asia since, AUD’s RBA left policy tools unchanged, while CNH saw another services PMI beat (Caixin). Neither appear to have moved relevant markets though. Looking ahead to today, there is little on the calendar to derail recent trends too, with EUR unemployment and COP trade data the only points of note.JPMorgan GBP Blockbuster US data and USD weakness has punctuated the long Easter weekend and while there is some head scratching out there those approaching the FX markets with a seasonal lens have been rewarded especially as US yields have failed to make any headway in response to the data. Indeed cable is off to a flyer in April so far living up to the hype of the plethora of conversations on sterling’s April performance over the last few weeks. Step 2 of lockdown lifting is confirmed for next week but would-be holiday goers were left with little from Boris yesterday other than further realization that trips will likely be kept onshore this summer which would actually be a further positive for the pound. We remain long sterling here albeit against the Euro given the gaping divergences and we remain encouraged by the time spent on the 0.84 handle after a glacial break of the 0.8530/50 zone. Besides some final PMI data there is little to look for this week in the UK while Fed speak will be in focus on the other side of the pond throughout the week - highlights are Minutes Wednesday and Powell Thursday. 1.3850/55 will act as short term support with 1.3810 below (0.8470/75, 0.8420/30 EURGBP) while next resistance is 1.3950/55 with 1.4000/10 above (0.8550, 0.8600/05 EURGBP). EUR Interesting holiday market price action in the euro, failure to break lower post month end dollar demand and very strong US data (ISM and Payrolls) led to some short covering as we regained the 1.18 handle. It seems US yields failing to break materially higher despite robust growth is encouraging some USD bears back out as we enter April in a positive mood for markets. As alluded to last week, first resistance was taken out above 1.1770 and some short term position squaring ensued. Going forward, euro bears remain somewhat in control whilst we stay below the 200 day moving average which now comes in just below 1.1890. Whilst the US data keeps printing in a strong fashion it’s hard to go against the USD for more than a very short term trade at this point, but I am watching signs for more positive news out of Europe in the weeks ahead to position for a sharp but delayed European growth catch up. For now support levels come in towards 1.1770 and then last week’s lows around 1.1700, 1.1630/40 would be a decent target/reassessment for the remaining bears. Above, 1.1840/60 should provide resistance and then the aforementioned 200 day 1.1890. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/the-investment-bank-outlook-06-04-2021"
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The IndeX Files 06-04-2021

Markets Higher on Better US DataIt’s been a mostly positive start to the week for global equities benchmarks as better momentum returns on the back of recent US data surprises. Last week, the March Non-Farm Payrolls number came in well above expectations at 916k versus 652k expected. The strength in labour market conditions helped drive risk assets higher into the end of the week, offering further encouragement that the US economic recovery is gathering pace. While the headline NFPs were seen coming in above expectations, however, the wage growth figure was seen shrinking over the month at -0.1%. With the Fed having recently cited the importance of wage growth in driving a rerun to target inflation, the weakness there has pulled the near-term USD prospects lower, giving a green light to equities investors.This week, traders will be focusing on the FOMC meeting minutes looking for further detail on the Fed’s outlook and assessment. Traders will also receive the latest round of PMI readings for the UK and Europe which should help drive equities higher still if the readings are in line with consensus forecasts.Technical Views DAXThe rally in the DAX has seen price breaking out above the 14783.12 level and above the local bull channel top. While price holds above this area, the focus is on a further push higher. To the downside, any correction below that area should find support into the 14411.90 level next.S&P500The S&P rally continues with price breaking out above the recent 3964.25 level highs which had acted as a cap on the market over recent months. While above here, the outlook is firmly bullish. Any correction below that level should find support into the 3786.25 level next.FTSEThe FTSE is once again attempting to break out above the 6803.1 level following the rebound off the 6640.6 level support. With bearish divergence growing, however, there is a risk that a further failure here could spark a bigger sell off in the index.NIKKEIThe Nikkei continues to consolidate within the 28372.5 – 30752.5 range which has framed price action over recent months. For now, while price holds within the bull channel, the focus is on an eventual continuation higher above the 30752.5 level.Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/the-index-files-06-04-2021"
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Daily Market Outlook, April 06, 2021

Daily Market Outlook, April 06, 2021 US equity markets rose yesterday, continuing their strong start to Q2. However, Asian markets are mixed after China’s central bank told banks to restrict loan growth for the rest of the year. UK PM Johnson yesterday confirmed that a further loosening in lockdown restrictions in England will go ahead on 12th April. However, he may face opposition from MPs over plans to consider domestic “Covid passports”. The Australian central bank left monetary policy unchanged at its latest update.In the US, last Friday’s labour market report for March posted a 916k monthly rise in employment, the largest increase for seven months, while the unemployment rate dropped to a new 12-month low of 6.0%. Yesterday’s ISM services survey had a reading of 63.7 for the headline index (up from 55.3 in February). Both prints suggest that the US economy has considerable momentum behind its rebound even before the impact of the latest fiscal package past in March is seen.The economic calendar for the holiday-shortened week is, not surprisingly, light. There is likely to continue to be a lot of interest in the thoughts of central bankers particularly about the recent rise in bond yields and any sign of them faltering in their intentions to keep monetary policy very loose in the face of improving growth trends. The US Federal Reserve and the European Central Bank will release minutes from their last policy meetings this week. Policymakers from those institutions and other central banks will also appear at virtual sessions at the IMF-World Bank semi-annual conference. The IMF will also release new economic forecasts and the focus will be on how much growth expectations, particularly for the US, have been revised up.Today’s data calendar is particularly sparse with nothing of note in the UK. The Eurozone unemployment rate for March is expected to be unchanged from February at 8.1%. That compares with a recent pandemic peak in August of last year at 8.7%. As in the UK, unemployment has stayed relatively low despite a big economic impact from the pandemic due to government support measures. The Sentix investor confidence index for April will provide an indication of how market sentiment is holding up in light of recent news of an acceleration in Covid-19 cases in the EU. Last month, it rose to its highest level since February of last year.In the US, the JOLTS survey may provide some interesting detail on employment trends. As it is an update for February, it lags last week’s labour market report by a month but it should still provide some information on which sectors have seen a particularly sharp rebound in the labour market.CFTC DataIMM data covering the week through March 30th reflect a further reduction in overall USD shorts, with the aggregate position, reflected in the main currencies in this report, falling a little less than USD2.5bn in the latest week, to total USD8.1bn. This was the sixth successive week that aggregate USD shorts have been cut back, leaving speculative accounts’ overall exposure to the short USD trade at its lowest in a year.Positioning in the EUR and JPY contracts continue to dominate the overall picture of exposures via currency futures. Net EUR longs were cut by a little over USD3bn in the past week, taking the net long down to USD10.8bn, mainly reflecting an increase in gross shorts. Gross EUR longs were relatively stable this week. Meanwhile, speculators boosted net JPY shorts, rather more modestly this week, by USD576mn. The net short JPY position of USD6.7bn (nearly 60k contracts) does, however, represent the biggest, bearish position in the JPY since May 2019.As has been more or less typical in recent months, sentiment and positioning changes in the other major currencies was rather limited. GBP bulls added— modestly—to net longs, mainly reflecting a drop in gross short GBP positioning as gross GBP longs dropped in the past week as well. The GBP net long increased USD268mn this week to USD2.1bn, the third largest exposure reflected in these data.Net CHF bullish positioning increased USD182mn in the week but the overall exposure remains low (just USD566mn). Net CAD bullish sentiment was little changed this week (up USD111mn to USD516mn). Net AUD longs jumped USD479mn to USD932mn while net NZD and MXN risk was little changed near flat in both cases. Net gold longs were cut USD1.8bn to USD28.3bn.G10 FX Options Expiries for 10AM New York Cut(Hedging effect can often draw spot toward strikes pre expiry if nearby)Technical & Trade ViewsEURUSD Bias: Bearish below 1.1880 targeting 1.16EURUSD From a technical and trading perspective, as 1.1880 contains upside corrective moves, bears target a test of 1.16. A close through 1.19 would relieve downside pressure opening a retest of 1.20 offersFlow reports suggest light offers and with weak stops on a move through the 1.1820 area with limited congestion then continuing through to the 1.1840-60 area before stronger offers start to appear on a test through the 1.1880 level and stronger through the 1.1900 area. Downside bids into the 1.1700-1.1680 area with weak stops on a move through and then congestive bids into the 1.1650 area and continuing through to the 1.1600 where better bids are likely to be seen with weak stops through the level opening a deeper move as a possibility.GBPUSD Bias: Bullish above 1.3910 bearish belowGBPUSD From a technical and trading perspective, as 1.3910 contains upside attempts there is a window to test the downside equality objective at 1.3550. A close through 1.30 would suggest the current correction is complete opening a retest of 1.40 offersFlow reports suggest topside offers congested around the level and increasing through to the 1.3900 area, some weak stops likely to be absorbed by congestion that is likely to continue through to the 1.4000 area before stops increase. Downside bids light through the 1.3800 level and then light bids through to the 1.3700 area where bids are likely to increase through to the 1.3650 area before weak stops appear.USDJPY Bias: Bullish above 109 targeting 112USDJPY From a technical and trading perspective, as 109.50 continues to attract support bulls will look for a test of 112. A loss of 109.30 opens a retest of bids at 108.50Flow reports suggest topside light congestion through to the 110.80 level before weak stops then weakness through to the stronger offers around the 111.80 area matching the highs from the beginning of the previous two years at the same period of time, a break of the 112.30 area is likely to see strong stops appearing and the market opening for further push beyond the last couple of years highs. Before running through to the 112.50 area and another set of stronger offers appearing continuing through to the 112.80 level and likely continue seeing strong offers, downside bids light back through the 110 level and likely to continue to 109.80 with weak stops likely through the level and weak through to the 109.00 area.AUDUSD Bias: Bearish below .7700 targeting .7453AUDUSD From a technical and trading perspective, as 7700 contains upside advances bears will target a test of the downside equality objective at .7453 before trend resumption may developFlow reports suggest light offers through the 0.7700 area with weak stops through the level and the market opening to the 78 cents area before stronger offers through to the 0.7840-60 area and then increasing offers onwards through 0.7900, with the offers likely to continue through to the 0.7950 area and likely increasing resistance through to the 0.8000 levels, downside bids into the 76 cents level with strong bids likely through to the 0.7580 area, weak stops are likely to be few and far between with stronger bids likely into the 0.7550 level and likely stronger congestion through to the 0.7500 area.Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/daily-market-outlook-april-06-2021"
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Dollar Edges Higher; U.S. Growth Profile Looks Impressive

from Forex News https://www.investing.com/news/forex-news/dollar-edges-higher-us-growth-profile-looks-impressive-2466478
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