AUD Under Pressure Following Muted RBA Meeting

RBA Unchanged The Australian Dollar has come under pressure over the European morning on Tuesday following the May RBA meeting held overnight. As expected, no changes were announced at the meeting with the RBA holding its headline monetary policy unchanged, with a most unchanged policy statement. However, there were some subtle points to note which explain why AUD has been weaker in the wake of the meeting.Lowe Stresses Caution On the whole, the message from governor Lowe and the rest of the RBA policymakers today was one of caution. While the bank deems the recovery, both domestic and global, to be making good progress, the bank was keen to note that the “recovery remains uneven”, with some countries struggling to contain the virus. With this in mind, the outlook still contains a great deal of uncertainty and means the bank must move with caution.Inflation Pickup “Gradual and Modest” On the domestic level, the RBA noted that Australia’s economic recovery has been stronger than the bank initially projected with employment recovering firmly. However, inflation remains low and despite the pickup in global trade and the lift in commodity prices, the bank expects that subdued inflation is likely to continue for some time. Indeed, while the bank projects that inflation will continue to recover, it expects the trajectory to be “gradual and modest”. Given the firmer upward revisions to inflation we have seen from other central banks, the RBA’s projection that inflation will hit 2% in mid 2023 was a little underwhelming for AUD bulls.Housing Market on Watch GDP and employment were both highlighted as areas where the RBA has been impressed and expects continued progress to be made. While the bank also noted that “housing markets have strengthened further”, Lowe cautioned that the “environment of rising house prices and low interest rates” means the RBA will be keeping a close eye on financial conditions and lending standards.Considering Fresh Bond Purchases Looking ahead, the RBA noted that it will use the July meeting to decide whether to keep the current April 2024 bond as the target for its 3-year yield curve target or move up to the next maturity of November 2024, extending purchases. However, the RBA noted that it is not considering a change in the 0.10% target range though will be considering a further tranche of bond purchases once the second $100 billion in purchase sis complete.Mildly AUD Negative In all it was a fairly subdued meeting and with nothing much for Aussie bulls to latch onto, we’ve seen the Aussie coming off subsequently. On the whole, the bank retains an optimistic outlook though subdued inflation and concerns over the housing market/financial stability are the key takeaways today.Technical Views AUDUSDFor now, AUDUSD is still sitting at the potential right shoulder of a large head and shoulders pattern, suggesting the potential for a reversal lower. Bears will need to see a break of the .7564 level to open up the path for a deeper correction towards .7413 and beyond. On the other hand, if bulls can break above the .7824 level this will put the focus back on a further push higher.Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 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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The IndeX Files 04-05-2021

FTSE Leading the PackGlobal equities benchmarks have started the week on a softer note with most indices leaning slightly into the red over the European morning on Tuesday. Despite the bank holiday in the UK yesterday, the FTSE is leading the pack so far this week with the UK index the only one of this group to be trading in the green.The slight rebound in the US Dollar is weighing on US and Asian equities with both the Nikkei and the S&P pulling back from recent highs. With data continuing to show strength in the US, a further Dollar recovery could develop in the near term which could see the current pull back in equities deepening. Indeed, the buying in USD comes despite the Fed reaffirming its message that it sees no need to adjust policy this year in response to rising inflation.In the UK, the continued drop in virus stats, as well as the ongoing momentum in vaccinations, is creating optimism that the reopening of the economy will not lead to a further breakout. The PM is set to announce a further easing of measures this month with hospitality venues expected to be allowed to return to offering indoor services, which should provide a significant boost for the economy.In Europe, the latest data shows the Eurozone entered a double dip recession last quarter, cementing fears over the impact of the pandemic there. Many countries are experiencing a third wave of the virus with lockdown measures extended or reversed as a result.Technical Views DAXThe DAX has fallen back below the 15311.01 level for now and is trading back within the bullish channel which has framed the rally this year. Despite the pull back, the index remains well supported near April’s lows, keeping the focus on further upside. Should price slip from here, however, 14783.12 is the next support zone to watch.S&P500The S&P continues to hold in a tight, narrow block of price action around the 4180.50 level hugging the upper line of the rising wedge formation. The focus is still on further upside for now, though, with momentum studies weakening, there is a risk of a dip back towards 3964.25, the key downside level to note.FTSEThe FTSE is once again attempting to breakout above the 7025.8 level as the break of the triangle pattern over Jan-Mar continues to probe higher. Should price break higher here, the 7235.9 level is the next upside level to note. To the downside, bulls need to defend 6803.1 to keep upside momentum intact.NIKKEIThe Nikkei continues to hover around the 29005.6 level following the failed break of the triangle pattern which was stalled by demand at the 28372.5 region. With price still within the broader bull channel, the focus is on continued upside. However, should the channel break, 27701.1 is the next downside marker to note.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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Investment Bank Outlook 04-05-2021

Citi We have seen markets normalise in Asia hours following wide-ranging USD weakness on Monday after a miss in ISM manufacturing and while London, Japan and China were out on holidays. There do not appear to have been any major headlines driving the reversal in Asia though. On an idiosyncratic basis, data was also not a mover, with the AUD RBA coming and going with minimal impact for example. Data in the day ahead should also not provide many distractions, with USD trade data and snippets of central bank speak in USD, EUR and SEK the only points of note in G10. In EM, HKD retail sales and a RUB CBR monetary policy report are the only main releases due.USD: ISM Manufacturing (Citi: 64.6, median: 65.0, prior: 64.7) missed at 60.7 with underlying components ISM price paid increasing to 89.6, ISM new orders lower to 64.3 and ISM employment declining to 55.1. Citi Economics dissects the details further here. Though this set of data printed below expectations, with vaccine distributions picking up and herd immunity set to be achieved into this summer - we believe there is scope for optimism in future releases.AUD: The RBA has not surprised the market, leaving its policy levers unchanged and broadly reiterating its existing policy stance. Forecasts were, however, revised up with RBA seeing 4.75% GDP growth for 2021 and 3.5% for 2022 vs 3.5% in forecast in both years at the February meeting.As we outlined in RBA Preview: AUD to come back from the CPI shock and Monday Macro FiX: don't sell in May, still bearish USD, EUR up, Scottish elections, we remain bullish on AUD, and NZD too for the week ahead and expect AUDNZD to stage a rebound as bullish industrial metals continues to support Australia’s commodities terms of trade.Deutsche BankTo an abbreviated week ahead now and the biggest scheduled event will be Friday’s US jobs report for April, where our economists are expecting nonfarm payrolls to have grown by another +1.275m, which would follow the strong +916k reading in March. Fed Chair Powell has said that they “want to see a string of months” like the March report in order to reach the Fed’s goals, so all eyes will be on whether this report fits that definition. On the unemployment rate, our economists are expecting another decline to a post-pandemic low of 5.7%.Here in the UK, the main event this week will be on Thursday when an array of local and regional elections will be taking place. This year there are an unusually large amount because last year’s set were delayed to 2021 because of the pandemic, meaning this is likely to be the biggest mid-term electoral test the parties face this side of the next general election.One of the main highlights will likely be the Scottish Parliament elections, where a majority for pro-independence parties would lead to fresh calls for another referendum on independence from the rest of the United Kingdom. Staying on the UK, the Bank of England will be making their latest monetary policy decision on Thursday as well, though our economists write in their preview that they don’t expect any change to their policy settings. In terms of when they might begin to taper their QE operations, they think it’s a close call between May and June, but ultimately the BoE will wait until June.Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 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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The SNP’s record in Scotland: how does it stack up?

What does Scotland’s government spend?

Spending on services that are largely devolved came to to £41.6bn in 2019-2020, according to the Institute for Fiscal Studies. This includes the vast majority of Scottish public spending on health, education, social care, transport, public order and safety, environmental and rural affairs, and housing. The IFS calculates that this equates to £7,612 per person in Scotland, which is an astonishing 27% higher than the £5,971 per person spent on those areas in England, and 13% higher than the £6,748 spent in Wales (where the population is older, poorer and sicker than in Scotland). Since 2007, the party spending that money has been the Scottish National Party, either as a minority government or, from 2011 to 2016, with an overall majority at Holyrood.

How has the SNP performed?

In its manifesto for next week’s Scottish election, the SNP trumpets its biggest achievements as “transforming education”, strengthening the NHS, creating a new social-security system with “game-changing benefits” and building thousands of affordable homes. The party boasts of creating a “fairer” country with a more progressive tax system, and delivering the “best public services” in the UK. The SNP has certainly spent heavily – in particular on subsidised childcare, early learning, enhanced child benefits and university tuition – but Scotland’s performance on a wide range of social indicators remains dire. 

How dire?

Healthy life expectancy (HLE; the number of years lived in “good” or “very good” general health) is the lowest in Europe, at 61.8 years compared with an average of 68.3. Inequality is high: there’s a vast 25-year gap in HLE between the most- and least-deprived areas. Overall life expectancy is two years lower in Scotland than in the UK as a whole. Rates of poverty (including child, in-work and pensioner poverty) have all risen under the SNP. But the SNP’s most glaring failures concern its drugs deaths and (despite its boasts) its abysmal record on education.

What’s the story on drugs?

In 2019, 1,264 people died drug-related deaths in Scotland, more than twice as many as five years earlier – and the sixth year in a row to hit a new record high. According to The Economist, Scotland’s drug-death rate per person is now more than three times that in the rest of the UK, ten times the European average – and is probably higher even than in the US, a country ravaged by an opioid epidemic. The median age of those dying has risen from 28 to 42 over the past two decades – suggesting a close link with entrenched social deprivation – and 94% of all drug-related deaths involve people who took more than one substance. Heroin and morphine were implicated in more than half of the total, and “street” benzodiazepines were named in almost two-thirds of deaths, more than in any previous year. In December, after the long-delayed publication of the latest figures, First Minister Nicola Sturgeon called them “indefensible”, admitted her government had taken its “eye off the ball”, and sacked her public health minister. A shocking one in five Scottish adults are on anti-depressants; one in three on a range of drugs for sleep, depression or pain relief.  

And education?

At the 2016 election Sturgeon made improving education the “defining mission” of her government, explicitly telling voters that narrowing the poverty-related attainment gap between well-off and poor pupils was the issue she “wanted to be judged on”. But last month the watchdog Audit Scotland found that the gap “remains wide” and progress towards closing it slow. Under the SNP Scotland’s once-proud education system has seen a near-constant slide down the PISA assessments comparing global educational attainment standards. It now ranks lower than England, and lower or alongside many much less wealthy countries. In 2010, the then First Minister Alex Salmond withdrew Scotland from two other international measures of maths, science and literacy, making such comparisons harder. And in 2017 the Sturgeon government scrapped the long-standing Scottish Survey of Literacy and Numeracy, making it harder to track the decline in both. It’s an odd way of delivering on your most critical mission.  

How are public finances under the SNP?

Even before Covid-19, they were shaky. According to the most recent official data, published in August 2020, Scotland had a notional budget deficit of 8.6% of GDP in 2019-2020. That compares with 2.5% for the UK as a whole. In cash terms Scotland’s deficit was estimated to be £15.1bn. And that’s “just an appetiser” for what followed the pandemic, says David Smith in The Sunday Times. According to IFS projections, the 2020-2021 Scottish deficit (ie, for the fiscal year just ended) was 22%-25% of GDP – a peacetime record high. That compares with 14.5% for the UK as a whole, or around 16% including expected future write-offs on coronavirus loans. In cash terms, Scotland’s deficit will have been “comfortably more than £40bn”.

Why does that matter?

Fiscal instability matters in terms of Scotland’s future economic performance, and it also affects the prospects for independence and rejoining the EU. The UK budget deficit is projected to fall to around 3% of GDP over the next five years and historic data suggest its deficit will remain in, or close to, double digits for the foreseeable future. That would appear to rule out EU membership, a condition of which is sustainable public finances including (normally) a deficit of 3% of less. Scotland hasn’t had that for two decades. Scotland under the SNP doesn’t look it is actually preparing for independence. Rather, its high public spending and low tax revenues, compared with the UK as a whole, suggest its high degree of fiscal dependence on the rest of the UK is set to continue.

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Daily Market Outlook, May 04, 2021

Daily Market Outlook, May 04, 2021 Stock markets in Japan and China are closed for holidays today, while equities elsewhere in Asia-Pacific region are mixed. Notably, Australian stocks are trading higher following the conclusion of the RBA’s latest policy meeting, where policymakers upgraded the economic outlook and said that interest rates will remain at emergency levels until at least 2024. Domestically, UK PM Johnson said yesterday that the country was on track to scrap lockdown rules in seven weeks’ time.The prospect of an uneven global recovery continues to provide a challenging backdrop for financial market participants. Last week’s US GDP report showed the economy expanded by 6.4% on an annualised basis in Q1, propelled by a 10.7% rise in personal consumption. Growth could be even stronger in Q2. In contrast, Eurozone Q1 growth reportedly fell by 0.6%, signalling a return to recession as Covid-19 containment measures were extended. Still, latest survey indicators point to rising business and consumer confidence, with vaccinations in Europe finally being ramped up, paving the way for a gradual reopening of the economy and a return to growth in Q2. However, concerns about rising infections rates in other parts of world, especially in India and other emerging economies, continue to cap market optimism.Economic activity across the UK is also expected to have contracted over the first quarter. However, the rapid rollout of vaccines and the associated continued rolling back of restrictions means that a strong bounce back in activity from Q2 onwards is in motion. Today’s ‘final’ reading of the manufacturing PMI report for April is expected to confirm an ‘above 60’ reading. Elsewhere, Bank of England housing data are expected to show another robust outturn for mortgage approvals in March. Measures announced in the Budget aimed at stimulating mortgage activity are likely to take some time to feed through to mortgage approvals data. Hence, expect the March data to show a slight dip in the number of approvals, from 87.7k to 86.0k, before mortgage activity picks up again in subsequent months.Outside of the UK, the calendar is relatively sparse. Following the preliminary US durable goods orders report for March, factory orders are expected to have rebounded by 1.0%m/m, following February’s decline. Meanwhile, US trade data are likely to show another wide deficit, reflective of strong consumer demand across the US. US Federal Reserve policymakers Kaplan and Daly are also due to speak at separate events.G10 FX Options Expiries for 10AM New York Cut(Hedging effect can often draw spot toward strikes pre expiry if nearby)EUR/USD: 1.2035 (1.1BLN), 1.2050 (300M) 1.2085 (238M)GBP/USD: 1.3700 (291M), 1.3800 (1.1BLN), 1.3900 (642M), 1.4100 (200M)NZD/USD: 0.7180 (201M)AU/NZD: 1.0855 (298M), 1.0860 (1.5BLN), 1.0865 (200M)USD/JPY: 108.50 (350M)EUR/JPY: 130.00 (445M)AUD/JPY: 84.50-60 (380M), 85.00 (470M)Technical & Trade ViewsEURUSD Bias: Bearish below 1.2120 bullish aboveEURUSD From a technical and trading perspective, the close sub 1.2080 warns of deeper corrective cycle to test support at 1.1990/60 failure here opens 1.1850Flow reports suggest topside congestion through to the 1.2160 level from the highs and then while there maybe some weak stops just beyond stronger offers are likely through the level to the 1.2200 area with weak stops again appearing but very limited and the 1.2250 again seeing the stronger offers through to the 1.2300 level with the market then having the ability to test this year’s highs, downside bids light through to the 1.2000 area and then weak stops on a move through the 1.1920 level opening the market to the 1.1850 area where stronger congestion appearsGBPUSD Bias: Bullish above 1.39 bearish belowGBPUSD From a technical and trading perspective, as 1.3960 contains upside attempts look for a test of range support towards 1.37.Flow reports suggest topside offers through the 1.3900 level light through to the 1.3940 area where offers are likely to be a little stronger with further offers likely to be into the 1.4000 area with stops likely through the 1.4020 area and opening a stronger move higher, downside bids strong into the 1.3800 with congestion likely to continue through the level and while there may be some stops that congestion is likely to continue through to the 1.3750 level, light bids through the level but increasing again into the 1.3700 level with congestion then continuing through the level.USDJPY Bias: Bullish above 108 targeting 112USDJPY From a technical and trading perspective, as 107.50 acts as support there is potential for a test of the pivotal 108.50, through here will open another look at 110.Flow reports suggest downside bids into the 107.80 however, a break through the level is likely to see weak stops and breakout stops appearing and the market free to quickly test 107.50 and an old trendline then nothing until closer to the 107.00 area where stronger bids start to appear but the downside opening to Feb levels, topside offers through to the 110.00 level with light congestion through the figure level and weak stops possibly limited and stronger offers likely increasing on a move higher towards the 111.00.AUDUSD Bias: Bearish below .7700 bullish aboveAUDUSD From a technical and trading perspective, the closing breach of .7730 has relieved downside pressure opening a move to test offers towards .7820Flow reports suggest topside offers continue through the 0.7800 area with a break through the 0.7820 area likely to see weak stops and a test towards the sentimental 0.7850 area however, while there maybe some offers in the area the market looks to be fairly open through to the 79 cents level and ultimately ranges from the end of Feb, downside bids light through the 0.7700 level with weak stops likely on a move through the 0.7680 before stronger bids around the 0.7650 area and continuing through to the 0.7600 likely increasing in size, any further moves are likely to see strong support into the 0.7550 to calm the situation.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 – Shares edging higher

Market News Today – Treasuries kicked off May with modeset gains, correcting from the losses to end April. Caution ruled as covid problems remain worries, especially with the spike in India. The Wall Street led by the USA30‘s 0.7% rally, with the USA500 up 0.27%, though the USA100 slipped -0.48% lower, as where tech stocks were under pressure. Comments from Fed Chair Powell suggesting that the economic recovery remains patchy helped to boost Treasuries yesterday, but bonds traded mixed overnight. Australia markets outperformed, but yields have come back from lows after the RBA left policy settings unchanged for now but upgraded its economic outlook. GER30 and UK100 futures meanwhile are down -0.1% and up 0.3% respectively, the latter in catch up mode as UK markets return from the extended bank holiday weekend. Trading conditions remained quiet, with China and Japan still on holiday.

In FX markets, the US Dollar strengthened across the board and USDJPY lifted to 109.33. Both EUR and GBP dropped against a largely stronger USD and also by speculations on BoE. Analysts reckon the bank might announce a slowdown in its bond buying programme as vaccinations have bolstered Britain’s economy. Ethereum at 160% above the 200-day MA, breaking $3,500. USOIL meanwhile spiked to $64.35 per barrel, as more US states eased lockdowns and the European Union sought to attract travellers.. The weaker-than-expected US data stoked concerns over recovery and limited losses for the safe-haven metal. Gold is down at $1,785, after hitting its highest since Feb. 25 at 1797.

Today – Data releases in Europe today focus on the final UK manufacturing PMI for April as well as consumer credit growth ahead of the BoE announcement on Thursday.

Biggest (FX) Mover @ 07:30 GMT – USDRUB turned by 0.44% lower, breaking 20-period SMA. The MAs aligned lower while is declining as RSI is at 43 and pointing lower while MACD  is below signal line suggesting decreasing positive bias.  ATR (H1) at 0.24544 & ATR (D) at 0.90351.

 

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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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StarWars Pin-Bars

Much to Learn You Still Have… Let Our Pin-Bars Guide Help You Feel the Force.Contents: Introduction The Power of the Pin Bar Pin Bars at Key Fibonacci Levels Pin Bars with Support & Resistance Pin Bars with Trend Lines Reverse Pin Bar Conclusion"In a dark place we find ourselves, and a little more knowledge lights out way." - YodaIntroductionThe costumes might not be as fancy, and Harrison Ford has yet to make an appearance, but the battle between bulls and bears is just as real and exciting as the battle between the Jedi knights and the Stormtroopers.In this battle, it’s important to be equipped with the knowledge needed to succeed. While the Jedi had Yoda to dispense wisdom and prepare them for battle, you luckily have Tickmill. With that in mind, in this article, we’re going to take a look at 4 pin bar setups that you can use right away to start battling the markets and claiming pips.Read on young Skywalker.The Power of the Pin BarThe Jedi had their lightsabres to do battle with and similarly, we have our trusty pin bar to help us defeat the forces of evil in the market. Here’s a quick breakdown for those of you unfamiliar with pin bars. By the way, if you already have the scoop on them, feel free to jump ahead!So, a pin bar is a candlestick with a long tail and a short body, which I guess looks a little like a lightsabre... Kind of.The candle also represents a snippet of time in the market. Essentially, the candle tells us there has been a shift in market sentiment.With a bearish pin bar (shown on the left), the long tail and small body at the bottom tells us that buyers were in control initially, driving price higher, before sellers overpowered them, driving price lower to close at the bottom of the candle. This shift in sentiment tells us that a reversal lower is likely coming.In the same way, with a bullish pin bar (shown on right) we know that sellers were in control initially, driving price lower, before buyers overpowered them and drove price higher to close in the top of the candle. This shift in sentiment tells us that a reversal higher is likely coming.So, now you’ve been armed with the lightsabre. Sorry, pin bar! Let’s take a look at the 4 Pin Bar setups you need to know about.1 – Pin Bars at Key Fibonacci LevelsThe Fibonacci retracement tool is a fantastic technical tool that all traders should be using. The tool helps us measure any move in price and automatically plots key retracement points on our chart based on the Fibonacci sequence principles. These retracement points often serve as key price pivots and can be a powerful way of finding an entry during the correction in a trending market.Now, although the Fibonacci retracement tool is a fantastic tool for helping us find potential trade locations, the issue is that we still don’t know at which level to trade. Price might blow through the level or it might reverse, so if we just try and trade every level, we’re unlikely to come off too well. This is where the pin bar comes in handy!"Difficult to see. Always in motion is the future." - YodaKnowing what the pin bar tells us about a shift in market sentiment and the likelihood of a reversal occurring, it makes sense that if we wait to identify a pin bar at a key Fibonacci level, we stand a much better chance of having a successful strategic move at that level, right? Yes, young Skywalker, now you are learning!Ok, so, in the image above you can see a great example of how we use this setup and the type of results it can yield. Price has sold off from the second peak in this bearish trend and broken down to make a new low. Price then starts to retrace higher. As it does so, we use our Fibonacci tool, measuring from the peak to the trough of the downswing, to give us our retracement points.You can see that price blows through each level until it hits the 78.6% level and, that’s where we get our bearish pin bar – our lightsabre! So, knowing what we know about pin bars (that a big shift in sentiment has occurred), we can go ahead and sell as price breaks below the pin, capturing the reversal. Even Yoda would be impressed with this trade!2 - Pin Bars with Support & ResistanceNow you’ve seen what the pin bar can do, you’re no doubt excited for the next setup. So, this time around we are going to be using our trusty pin bar in conjunction with support and resistance levels. Support and resistance levels are at the very heart of technical analysis and among the foundation of any good technical trader’s toolkit.Support and resistance levels are horizontal lines that traders plot on our charts marking highs and lows to identify support and resistance in the market. Support levels are marked by joining swing lows and show us where there has been strong buying interest in the market. So, we can anticipate that if price tests the level again, buyers will take price higher.Similarly, resistance levels are marked by joining swing highs and show us where there has been strong selling interest in the market. So, we can anticipate that if price tests the level again, sellers will take price lower."Your path you must decide." - YodaNow, some traders will mark their support and resistance levels and simply take a trade each time price hits the level. However, this is a very risky way to trade and these levels can often catch traders out with volatility as order flow changes. A much more strategic way to trade is to wait for some price action confirmation, and what better way to do this than to use our pin bar! If we use our support and resistance levels to highlight a potential trade area and then wait for a pin bar to form, we know we have a much higher chance of being right with our trade. So, in the image above you can see a great example of this method at play. We have three big swing lows on the left, all in the same region, which allow us to draw in our support zone. So, once we have our support level marked out, we know that we are looking to buy at this level if price comes back down to test it.However, we don’t just want to buy at the level in case price just blows straight through. You can see that in the highlighted region price comes down and tests our support zone, even dipping through it slightly (bye-bye everyone who bought at the level!) before reversing sharply and closing as a bullish pin bar.So, with our bullish pin bar in place at our marked support zone, we now have a strong case for making a trade and can take on the bears, capturing the reversal higher as price breaks out to the topside. Another fine trade young Jedi, the force is growing in you!3 – Pin Bars with Trend LinesOk, we’ve looked at Fibonacci levels and we’ve looked at support and resistance, now it’s time to step up our pin bar game even higher and explore the art of trend line trading. Think of Luke Skywalker on his quest and imagine this is probably the place where the montage music starts playing. Anyway, back to trend lines.Trend lines work much in the same way as horizontal support and resistance levels, where we are simply connecting lows and highs. However, trend lines are a little different because we’re drawing in diagonal lines to connecting rising lows, for a bullish trend line. Or lower highs, for a bearish trend line. Trend lines are therefore a great way of not just helping us understand whether the market is in a trend (and if so, in which direction?) but also a great way of finding locations to trade."When you look at the dark side, careful you must be. For the dark side looks back." - YodaSo, in the same way as with our horizontal support and resistance levels, once we have identified our trend line, we are then looking to trade subsequent test of that trend line. However, because we know that just like the Dark Empire, the market can be full of tricks, we are always looking to improve our chances when taking a trade. So again, we are looking to find a bullish bar at a bullish trend line, to take a buy trade or a bearish pin bar at a bearish trend line to take a sell trade. Ok, so, in the image above you can see that we have identified our bearish trend line by connecting the initial swing high in the series, with a secondary, lower high to give us our line. We then look to monitor price if it tests the line as we know this is a potential sell zone because the bearish trend line can act as resistance.In the highlighted region you can see that price tests the trend line and forms a big, bearish pin bar, giving us our entry signal. So, with our bearish pin bar at the bearish trend line we can then go ahead and place a sell trade as price reverses lower from the entry candle. Another, crafty way to use our pin bar!4 – Reverse Pin BarOk young Jedi, we’ve walked through Fibonacci levels, we’ve looked at support and resistance and we’ve looked at trend lines. Your journey is almost complete. However, just like a good Jedi must become proficient in using their lightsabre with skill, a good technical trader must also develop their pin bar skills. Now, granted, we can’t do 99% of the cool tricks that Jedi Knights can do, however there is one thing we can do with a pin bar; turn it upside down."You can't stop the change, any more than you can stop the suns from setting." - Shmi SkywalkerSo far, we have looked at the pin bar in terms of trading reversals, however it can also be incredibly useful in trading continuations. Knowing the shift in sentiment which occurs during a pin bar, one slightly more advanced way to use them is to trade reverse pin bars during breakouts. So, looking at this image you can see that we have our resistance level marked but as price trades up to test the level it simply blows straight through. So, this would be a classic breakout trade; trading a break above a resistance level. Now in terms of how to enter such a trade, pin bar traders have a secret trick up their sleeves; the reverse pin bar.You can see in the highlighted region that as price breaks out, what would typically be a bullish pin bar forms. However, we would usually look to trade such a pin bar at support level or a Fibonacci level or a trend line as we’ve looked at so far. However, knowing what the pin bar is telling us about a shift in sentiment, we can employ this knowledge during breakouts even though it hasn’t formed at a technical level.Let’s think about what has actually happened during the creation of the pin bar. So, we’ve had our big break of the resistance level with two bullish candles but then during the pin bar we know that sellers were in control initially, taking price lower, before buyers overpowered them at the low and drove price higher. So, when you think of it like that, we can actually look at this pin bar as a mini correction within the trend signalling that price is going to continue higher. This is a very clever way of using these candles and can help you gain entry in fast moving breakouts which might otherwise seem difficult to gain entry to!ConclusionSo, there you have it, young Skywalker; 4 pin bar setups to help you take on the markets whether you are looking to buy or sell. As with all technical setups, the more time you spend studying the charts and practising identifying these setups, the better you will become at trading them. So, with that in mind, once you’ve finished watching the Star Wars saga today, and start using your pin bar! Remember when trading to always use a stop loss to protect yourself against adverse market conditions and always aim for positive risk-reward with your trades. And most of all, may the force be with you!

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/starwars-pin-bars"
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Dollar Up as Investors Digest Surprise Fall in U.S. Manufacturing Data

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Dollar wobbles after manufacturing miss as traders look to payrolls

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The RBA and BoE takes some shine ahead of NFP

Equity markets remain upbeat on global recovery prospects even amid the tragic surge in infections and deaths in India and Brazil, along with fresh restrictions in Japan.

A strong US recovery, light at the end of the tunnel in the Eurozone and faith that vaccines will eventually tame the pandemic globally have boosted Wall Street and many key markets back to or near record highs, even as trading activity has turned choppy amid myriad cross-currents. In the US, the employment report and Chair Powell will be monitored, but are expected to support the outlook. Europe’s docket has final PMIs, which should reflect the bounce in the economy after the Q4/Q1 recession. In Asia, the rising toll of the pandemic on India will remain the focus. Market conditions overall have been quiet with China, Japan and the UK out today, while Chinese and Japanese markets will remain closed through to Wednesday. Holidays already made for a quiet session in Asia and will also impact trading in Europe today, with the UK still on an extended weekend break.

Various central banks will be reviewing monetary policy this week, including the Norges Bank, RBA and BoE. All are expected to maintain prevailing policy rates, with Norges Bank expected to be the most hawkish/least dovish. The BoE’s quarterly MPR is expected to bring upward revisions in both growth and inflation projections.

Firstly, the RBA’s meeting on Tuesday will be in the spotlight. We expect no change to the 0.1% setting for the cash rate target. In the minutes to the April meeting, the bank confirmed its commitment to easy policy. Policy makers again stressed that they are committed to maintaining a supportive monetary environment until at least 2024 and until actual inflation is sustainably within the 2-3% target range. The RBA also maintained the 3-year bond yield target of 10 basis points and will consider whether to shift the target bond later in the year. CPI inflation is expected to rise temporarily due to base effects and technical factors, but the minutes showed that the RBA still sees the jobless rate as too high. Wage and price pressures are expected to remain subdued for several years. The bank will keep a close eye on house price developments, however, and officials stressed the need for appropriate lending standards. A reiteration of this forward guidance is anticipated at the May meeting. Also on the docket is a speech from RBA Deputy Governor Debelle (Thursday). The trade report for March (Tuesday) and March building approvals (Wednesday) are the featured economic data this week.

In the UK, the BoE’s MPC meets on monetary policy announcing Thursday, where no change in the repo or QE totals are widely anticipated, while upgraded GDP and inflation forecasts can be expected in the Bank’s quarterly Monetary Policy Report. Local elections are also up (Thursday), where a particular focus will be on whether pro-independence Scottish parties can reach the supermajority threshold. Polling suggests it’s too tight to call.

None of the upcoming data or events are expected to have much bearing on UK markets. The prognosis for the UK economy remains strong as the UK continues on a reopening path on the back of a highly successful vaccine program. From the Sterling perspective, as reported last week, overall the bullish outlook on the Pound has been retained, and more especially the low-yielding currencies of surplus economies, such as Japan and Switzerland, which is hinged on the expectation that the global pandemic recovery trade will continue into 2022. Sterling has also developed a pandemic-era proclivity to correlate positively with risk appetite in global markets and is supported concurrently with a burst in risk appetite in global markets.

Click here to access 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.

from HF Analysis /233816/
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Analysis: Prospects fading, Turkey hopes lockdown rescues tourism season

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Things are looking up for income investors as dividend payouts start to rise

Things are finally looking up slightly for investors who rely on stocks for income. In the first three months of this year, UK dividends fell at their slowest annual rate since the pandemic began, down 26.7% excluding special dividends according to the latest quarterly figures from shareholder registrar Link. That still sounds painful, but the year-on-year figure disguises an encouraging trend: half of all listed companies resumed, maintained or increased their dividends between January and March, compared with just one third between October and December.

The bad news is that dividends fell an unprecedented 43.1% – including both regular and special dividends – in 2020. Even though payouts are recovering and we can expect a decent level of special dividends this year, Link projects that total UK dividends will rise between 11% and 17% in 2021. That will leave them between 33% and 37% below pre-pandemic levels and unlikely to regain previous highs until around 2025.

Investment trusts may yet need to cut

This will mean income portfolios and income funds that were too reliant on a small group of high-yielding stocks, such as banks, oil and gas, and miners (which made up three-fifths of cuts) are going to be paying a lower income for some time. Many income investment trusts are likely to be able to keep raising dividends due to their ability to draw on revenue reserves (see below). But if a trust has to do this too heavily for too long, it will ultimately affect future dividends or capital gains because they will be selling assets. Two trusts have already cut (Temple Bar and British & American) and two have announced plans to do so in 2021 (Edinburgh and Troy Income & Growth). If we face several years of weak dividends, others will have to consider it. 

Go global for income

There was a way to avoid this: international diversification. British dividends were very hard hit in this crisis. Even European ones fell by less, down 31.5% before the effects of currencies and index changes, according to fund manger Janus Henderson, with half of that due to banks. Japanese dividends were slightly lower by 2.3% and US payouts were actually up by a similar amount. There were hits to favoured income stocks elsewhere – regulators in Australia and Singapore capped bank dividends – but a diversified global portfolio suffered much less.

Of course, UK dividend yields tended to be higher than the rest of the world, so overseas dividends looked less tempting – but the crisis proved that many of these yields were unsustainable. Investors should not forget this harsh lesson when payouts start to bounce back.

I wish I knew what a revenue reserve was, but I’m too embarrassed to ask

Many high-profile investment trusts have managed to raise their dividend every year for decades regardless of dividend cuts by companies. The main reason for this is that trusts, unlike open-ended investment funds, don’t have to distribute all the dividends they get each year. They can hold back up to 15% to build up a revenue reserve, which they can then draw on to maintain their own dividends in years when company payouts fall.

This can be useful for investors who prefer a steady income from their funds. You could do a similar thing with your own portfolio, by putting aside 10% or 15% of your dividend income to be drawn on only during market crises. However, avoiding dipping into that requires discipline, while having it out of reach inside an investment trust doesn’t present the same temptation. 

That said, it is important to understand that a revenue reserve is not a sum of money separate from the trust’s portfolio, sitting in a bank account for emergencies. It is an accounting entry: the money will be invested alongside the trust’s other assets – in stocks, bonds or something else – on which the trust will hopefully be earning income and/or capital gains. Drawing on the reserve means selling assets. Typically the amount needed would be small, but if the trust had a large revenue reserve and had to draw on it for quite a while, the portfolio would shrink by a meaningful amount, which would cut future dividend income.

Following a change to tax laws in 2012, investment trusts are also allowed to pay dividends out of realised capital gains, known as the capital reserve. A few trusts now aim to pay out a flexible proportion of their value each year, regardless of whether that comes from capital or income. Drawing on capital to maintain a fixed dividend could make sense as a one-off in a crisis, but if a trust is forced to draw on revenue or capital repeatedly, the dividend is not sustainable.

from Moneyweek RSS Feed https://moneyweek.com/investments/investment-strategy/income-investing/603181/things-are-looking-up-for-income-investors
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Micro-cap stocks: how to get huge returns from tiny firms

• SEE MORE Gervais Williams: the market is ripe for micro-caps

“The smaller, the better,” says the London Business School, which has examined the performance of smaller companies since 1955. The compound annual return of the Numis Smaller Companies index, representing the bottom 10% of the UK market, has been 14.7% since then, 3.4% ahead of the All-Share index. The yearly return of the Numis 1000, representing the bottom 2%, has been 16.3%. 

Excluding investment companies, there are over 100 listed “micro-cap” companies with market values below £100m, but they only account for 0.2% of the total market by value. Another 50 have market values of £100m-£200m, adding 0.4% of total market value, but the inclusion of listings on Aim, the junior market of the London Stock Exchange, trebles the number of stocks.

Scouring this mass of tiddlers for bargains are two trusts, the River & Mercantile UK Micro Cap Investment Company (LSE: RMMC), launched in late 2014, and the Miton UK MicroCap Trust (LSE: MINI), launched a few months later. Both have assets of a little over £100m; target firms with a market value below £150m; and trade on discounts to net asset value (NAV) of around 3%. However, George Ensor, manager of RMMC, points out that his trust has also returned capital to investors four times, £57m in total, in order to limit its size. It has just 41 holdings and without that limit would have to increase that number or have larger and less liquid holdings. Gervaise Williams, MINI’s manager, is happy with 128 holdings.

The tortoise and the hare

It’s been a story of the tortoise and the hare. RMMC raced away under its first manager, who was then forced to leave owing to an obscure compliance issue. Its investment return has been 143% over five years and 44% over one. MINI has returned 94% over five years, but 92% over one. Both trusts struggled in 2018-2019, but MINI, with a strong bias towards value, struggled more. Having withstood the sell-off in early 2020 better than RMMC, it has since soared. This is probably due to Williams’s focus on “highly cash-generative stocks”.

Choosing between them is tough. Ensor is clearly finding his feet, but lacks Williams’s 30 years of experience. Inevitably, both trusts are full of stocks few people will ever have heard of. Ensor has moderated the growth focus of his predecessor: “growth is important, but we don’t want to overpay for it”. Williams notes that “it’s important not to get carried away by a good story”, though his exposure to information technology companies is, at 14%, ten percentage points higher than Ensor’s. By contrast, Ensor’s exposure  to the consumer and healthcare sectors is 32% compared with 17% for Williams.

Unparalleled choice in the UK

Williams sees particular opportunity in “the cyclicality of various financial and commodity micro caps, providing greater upside at a time of recovery from the pandemic. The potential could be even greater if [inflation takes off]. They have been out of favour for so long that it is easy to underestimate the full scale of their upside”. He has pushed exposure to these sectors up to about 40% of the portfolio compared with 32% for RMMC.

Neither trust has any borrowings and both have plenty of cash. As to the outlook, “what remains curious is how easy it is to find attractively valued companies capable of compounding value for shareholders over a multiyear horizon,” says Ensor. “The UK stockmarket is possibly unparalleled from this perspective.” Williams thinks that the low valuations of micro caps provide “better potential for recovery than other areas of the market” and thinks they could be “at the start of a brand-new supercycle”. This corner of the UK market is easily ignored, but promises rich returns for investors in either trust.

from Moneyweek RSS Feed https://moneyweek.com/investments/stocks-and-shares/small-cap-stocks/603172/micro-cap-stocks-how-to-get-huge-returns-from
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Beyond US tech stocks: three global stars to buy now

Stockmarket indices can be a poor reflection of reality. Mega-cap technology stocks in the US have had an overwhelming impact on returns, but this obscures the fact that the average global stock has only recently recovered from a hidden bear market dating back to early 2018. 

While there is much to like about the US tech giants – deep “moats” (entrenched competitive advantages that fend off potential rivals), high returns on capital, piles of cash and appealing long-term growth potential – there are excellent businesses out there trading at much more attractive valuations. Great investment ideas come in many different shapes and sizes and it always pays to cast a wide net.

A top Taiwanese chip maker

Taiwan Semiconductor Manufacturing Company (Taipei: 2330) has many of the same attractive fundamentals as its US peers. TSMC is more dominant in chip manufacturing than its largest customer, Apple, is in smartphones, yet it trades at a substantial discount to its American client. As the world’s dominant manufacturer of logic semiconductors, TSMC stands to benefit from powerful long-term tailwinds in artificial intelligence (AI), cloud-computing and 5G-wireless broadband. 

None of these technologies will be possible without leading-edge semiconductors and TSMC is one of only two remaining players who can make them. We believe TSMC can continue to grow its earnings at around 15% per annum over the long term while maintaining its very high returns on equity (a key gauge of profitability). 

A leading US health insurer

Having a new resident in the White House almost always leads to fresh debate about the future of the US healthcare system. Historically this has been a source of opportunity for investors. Leading US health insurers such as Anthem (NYSE: ANTM) have rarely traded at demanding valuations, despite delivering superior fundamentals. 

Since 2000, Anthem has delivered earnings-per-share growth of 16% a year compared with 6% for the S&P 500 index. The combined tailwinds of an ageing population, rising incomes and expansion of health coverage to more people should continue to fuel above-average profit growth. There will no doubt be considerable volatility and heated political rhetoric, but history has shown that changes in the US healthcare sector have been gradual rather than revolutionary, and the likes of Anthem are an important part of the system.

Luxury car group roars ahead

BMW (Frankfurt: BMW) is one of the world’s highest-quality car manufacturers. Of the 1,600 companies in the FTSE World Index ex-US in 1990, fewer than 80 have delivered earnings-per-share growth of more than 10% per annum since then, and BMW is one of them. It has generated a return on equity of 15% over the long term and has compounded earnings at a rate well above most businesses in any sector for several decades. 

It is a remarkable achievement and a testament to the family-controlled company’s discipline, culture and premium brand value. The pandemic has been a setback in the short term and BMW will also need to adjust to a future where electric vehicles are more common, but we are confident that the group has the expertise and financial strength to navigate these headwinds successfully over the long term. 

from Moneyweek RSS Feed https://moneyweek.com/investments/stocks-and-shares/share-tips/603163/beyond-us-tech-stocks-three-global-stars-to-buy-now
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