Investment Bank Outlook 05-04-2021

Citi Asia has seen markets tentatively rebound once again following a choppy Tuesday session, where comments from Treasury Secretary Yellen saw heightened volatility materialise as she touched on interest rate hikes and inflation. A degree of walk-back following initial comments appears to be behind the rebound in Asia hours since, where AUD, NZD and GBP have outperformed counterparts. Bigger picture, CitiFX Strategy continues to look through noise expecting further upside for risk assets and USD weakness along with this as per the latest Monday Macro FiX.Data wise today, USD ISM services is the main print of the day, while various pieces of Fedspeak are likely to see extra scrutiny following Yellen’s comments yesterday. Elsewhere we see central bank speak in EUR and CAD too. Over in EM, rate decisions in THB & PLN (hold), and BRL (75bp hike likely) are the focal points, with BRL IP and a COP quarterly inflation report also due. While the USD notched bids against all of its G10 counterparts on Tuesday, tentative weakness has once again ensued in Asia hours, with AUD, NZD and GBP seen as the G10 outperformers. The most notable overnight developments came in the form of comments by Treasury Secretary Janet Yellen which contributed to the initial bid as highlighted in today’s Asia Open:– Yellen stated when discussing fiscal efforts that “it could cause some very modest increases in interest rates to get that reallocation. But these investments are what our economy needs to be competitive and be productive. I think that our economy will grow faster because of them...It may be that interest rates will have to rise a little bit to make sure our economy doesn’t overheat.”– We note that Yellen’s remarks were more aimed at highlighting optionality rather than advocating for a hawkish shift in policy guidance. The comments are not necessarily at odds with recent points made by Fed officials. Powell has on multiple occasions acknowledged that the Fed would have the means of countering any unwanted inflation that “materially moves above 2% and persists above that range.”Yellen affirmed our above take after the NY close, and clarified via a Wall Street Journal event that she is neither “predicting nor recommending higher interest rates.” This appears to have calmed the market explaining the aforementioned rebound in risky FX. We also noted declines in equities too, with the S&P falling -0.7% to 4164.00, with losses spearheaded by losses in growth names. Nasdaq in comparison closed -1.85% to 13,544.00. Futures indicate a 0.2%-0.3% rebound though in Asia.Natixis FX: the US dollar rebounded against all G10 currencies on Tuesday after risk aversion took hold in reaction to the equity selloff. Traditional safe haven currencies, namely the Japanese yen and Swiss franc, were the ones that put up the stiffest resistance in the face of a resurgent dollar. The EUR/USD corrected back towards 1.2020. Commodity currencies were down sharply, in particular the Australian dollar, New Zealand dollar and Norwegian krone. Turning to emerging currencies, note the underperformance of the Turkish lira (USD/TRY at 8.32) ahead of today’s monetary policy meeting.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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Dollar Higher; Yellen Raises Interest Rate Hike Concerns

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Daily Market Outlook, May 05, 2021

Daily Market Outlook, May 05, 2021 The most notable overnight developments came in the form of comments by Treasury Secretary Janet Yellen which contributed to the initial bid as highlighted in today’s Asia Open: Yellen stated when discussing fiscal efforts that “it could cause some very modest increases in interest rates to get that reallocation. But these investments are what our economy needs to be competitive and be productive. I think that our economy will grow faster because of them…It may be that interest rates will have to rise a little bit to make sure our economy doesn’t overheat.”Note that Yellen’s remarks were more aimed at highlighting optionality rather than advocating for a hawkish shift in policy guidance. The comments are not necessarily at odds with recent points made by Fed officials. Powell has on multiple occasions acknowledged that the Fed would have the means of countering any unwanted inflation that “materially moves above 2% and persists above that range.” Yellen affirmed after the NY close, and clarified via a Wall Street Journal event that she is neither “predicting nor recommending higher interest rates.” This appears to have calmed the market explaining the aforementioned rebound in risky FX.Asian equity markets are mixed this morning although China, Japan and South Korea are all still closed for holidays. Singapore announced stricter anti-Covid-19 measures in response to a recent rise in cases including some instances of the India variant. Japan’s PM is reportedly still undecided on whether to end the state of emergency in three areas.The Australian April services PMI was revised higher to 58.8 from 58.6 signalling improving economic conditions. In contrast, however, India’s services index dropped to a three-month low in April reflecting the impact of the latest rise in Covid-19 cases. In New Zealand, unemployment fell by more than expected in Q1 as the economy reopened.Today’s data calendar is dominated by April updates for services. They are generally expected to provide further support to the view that the sector is strengthening as Covid-19 cases fall and restrictions are being eased. In the Eurozone, the PMI measure will be an update to the first reading from two weeks ago, although the data for Italy and Spain are new. That first estimate saw the Eurozone measure move above the 50 level that signals expansion for the first time since last August. Admittedly Monday’s second reading for April manufacturing was revised down modestly from the initial outturn. However, there seems no significant reason why the services measure will follow and expect it to hold above 50. In the UK, the April update will be released Thursday as it is delayed by a day due to the Bank Holiday.In the US, the April ISM survey for services is a first reading. The March print was a multi-decade high signalling strong growth in the sector as Covid-19 concerns fade. The already released services PMI for April points to another rise. One note of caution is that the ISM manufacturing index was down from March but nevertheless we look for another rise in the services reading. Also of interest in the US will be the ADP private sector employment estimate for April, which as usual will be watched for clues ahead of Friday’s official payrolls data. The ADP reading for March was the strongest for six months although it still underestimated the official report. Another strong gain is expected for April given growing signs of an improving labour market.A number of Fed speakers are scheduled for today. Amongst them Chicago Fed President Evans is normally one of the most ‘dovish’ while in contrast, Cleveland Fed President Mester has typically taken a harder line. However, for now both seem likely to repeat the message from last week’s policy meeting that the Fed sees no urgency to change policyG10 FX Options Expiries for 10AM New York Cut(Hedging effect can often draw spot toward strikes pre expiry if nearby)EUR/USD: 1.2025-30 (560M), 1.2040 (367M), 1.2050-55 (1BLN), 1.2120 (650M)USD/CHF: 0.9175 (200M). EUR/GBP: 0.8635-50 (300M)AUD/USD: 0.7700 (481M), 0.7750 (1BLN), 0.7775 (488M)0.7800 (452M), 0.7850-70 (1BLN)USD/CAD: 1.2300 (1.1BLN)USD/JPY: 108.85-109.00 (607M), 110.00 (293M)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 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 situationDisclaimer: 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 – May 5 – Yellen finesses comments

Market News Today – USD continues its May recovery (USDIndex holds over 91.00), Equities closed lower (Nasdaq shed 1.88%). Mrs. Yellen spooked the market and then toned down her interest rate rise / inflation comments. The Fed’s Kaplan and Allianz’s Al El-Erian also talk up “non-transitory” nature of the inflation threat. Yields cooled on USD advance, fell to 1.55% before moving 1.59%. Overnight Good jobs data from NZD and Housing data from AUD lift the antipodean pair. Japan, China and South Korea still closed.

EUR – down to test 1.2000 zone, JPY holds over 109.00 at 109.40, Cable rotates around 1.3900. AUD has support at 0.7700 and CAD still rotates through 1.2300

USOIL at 38-day high peaked at $66.00, Gold – $1776 following a volatile session (highs $1798, lows $1770) Commodities remain robust. BTC back to test $55,000(PP). 

European Open – The rout in tech stocks that hit markets yesterday has eased somewhat and US futures are moving higher – DAX and FTSE 100 futures are also sought. Comments from US Treasury Secretary Yellen yesterday reminded markets that with economies strengthening as fiscal stimulus picks up it is not a question of if, but when central banks will take the foot off the accelerator. Official rates may remain low for a while to come, but when asset purchases are reigned in, the long end will suffer. Stocks meanwhile may continue to see rotations out of companies that benefited from stay home orders to cyclicals. With the DAX closing below the 15000 mark yesterday there is room to the downside.

Today – Eurozone & US services & composite PMIs, ISM services PMI, ADP Employment, Oil Inventories, Fed’s Evans, Rosengren, Mester, ECB’s Lane, Earnings from GM, Barrick Gold, Maersk, Deutsche Post, Uber, PayPal & Hilton Hotels.

Biggest (FX) Mover @ (07:30 GMT) NZDJPY (-0.27%) rallied from 6-day low yesterday (77.70) over 78.00. Today,  PP at 78.07 and R1 at 78.50. Faster MAs remain aligned higher, RSI 53 & neutral, MACD histogram over 0 line & signal line aligned higher but under 0 line. Stochs cooling to neutral. H1 ATR 0.1065, Daily ATR 0.6200.

 

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Stuart Cowell

Head Market Analyst

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

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Dollar Up, Boosted by Yellen Interest Rate Hike Comments

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Dollar tries to build rally, eyes major euro bulwark

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Dollar Rides Yellen's Hawkish Remarks Higher

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Too embarrassed to ask: what is a central bank digital currency?

• SEE MORE What is “Britcoin” and what could it mean for you?
• SEE MORE Central bank digital currencies are coming, whether you like it or not

Cryptocurrencies such as bitcoin and ethereum have divided investor opinion. Some people think that they represent the future of money and a huge technological advance. Others think that the whole thing is a scam, a bubble, or just hopelessly idealistic. 

But one thing is clear: governments are increasingly keen on the possibilities that might arise from issuing fully-digital currencies themselves. Hence the growing interest in central bank digital currencies, or CBDCs for short. 

A CBDC is simply a government-backed digital currency. A digital pound – or “Britcoin”, as it’s been nicknamed – would be similar to the paper pound, in that the central bank would control its issuance. 

This is perhaps the most important difference between CBDCs and cryptocurrencies. Cryptocurrencies are decentralised. The whole point of bitcoin is that it represents a form of money that cannot be created at will by a government or a central bank. Instead it derives its value from a network of freely-participating individuals. 

There are some benefits to CBDCs. In theory they should cut down on transaction costs. And in developing markets in particular, they should make it easier for everyone to get a bank account. 

However, there are also some serious disadvantages. Bitcoin is anonymous, but transactions made using CBDCs would be easily tracked by the authorities. This gives rise to privacy concerns.

CBDCs might also replace cash altogether. That would make it easier for central banks to impose policies – such as negative interest rates – that effectively operate as a tax on savers. So the next time the economy is deemed to require monetary stimulus, the central bank could effectively force people to go out and spend their money.  

This might sound like something from a dystopian science-fiction novel, but most governments around the world are now working on CBDCs. The Bahamas already has the “sand dollar” which was launched last year. Among major economies, trials of a digital yuan are well advanced in China. And in the UK, the Bank of England and the Treasury are now looking into the idea of “Britcoin”. 

So even if cryptocurrencies aren’t the future of money, there’s a good chance that they’ve helped to bring forward the end of cash.

To find out more about the monetary system and central banks in general, subscribe to MoneyWeek magazine.

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Pound’s, Dollar’s and Euro’s Pros and Cons

The US Dollar rallied, extending the bounce out of the lows seen yesterday following sub-forecast April ISM and March construction data. The narrow trade-weighted USDindex lifted back to yesterday’s 2-week peak at 91.39. A bullish medium-to-longer term view of the US Dollar has been retained this week as the prognosis for the US economy remains unchanged despite yesterday’s data disappointments, and upside risk should be factored on Friday’s release. Markets should also be factoring in the possibility of a peer-bearing doubt digit quarterly GDP growth in Q2.

Elsewhere, EURUSD tested the waters the 1.2000 for the first time in a couple of week. The pair continues to be largely driven by broader directional shifts in the USD. With the US economy building up a head of steam on the back of the Covid vaccine rollout, alongside the release of pent-up consumer demand and the outsized, record-level of fiscal stimulus, and with a central bank that remains steadfastly in uber-accommodative mode, the risks for inflation, and the dollar, are to the upside. The upward trajectory for US price increases into 2021 extends beyond the much-touted base effects that are clearly lifting the y/y measures.

In sum, a rising bias in longer-dated US yields is likely to re-establish as markets return to pricing in contingency risk that the Fed may be forced to tighten sooner than the 2024 start point for tightening that it has been signaling.

As for the Euro, peak pessimism about the Covid situation looks to have passed, and Eurozone growth and inflation are set to rise, but lag the US. The ECB left policy settings unchanged in April while signalling an unambiguously dovish bias and kicking the decision on whether to extend the PEPP (Pandemic Emergency Purchase Program) down the road.

As of the Pound in the meantime, even though the the stellar UK PMI report, which was revised higher in the final April manufacturing reading, to 60.9 — the best since the record 61.0 reading that was seen in July 1994, given a boost to Pound, the pressure is still there. The data also showed a sharp increase in prices changed to clients as manufacturers passed rising costs on to clients, which combined with rising employment won’t go unnoticed by the BoE.

Markets have already been anticipating upgraded growth and inflation forecasts in the Old Lady’s upcoming release of its quarterly Monetary Policy Review (released Thursday). The 2-year gilt yield rose back towards recent highs near 0.085% in the wake of the data, and the 10-year gilt yield is zoning in on recent highs. The Pound is registering as the second strongest of the currencies we keep tabs on (being the G10 units plus some others, such as the Australian and New Zealand dollars), with the US Dollar the strongest.

Cable pared earlier declines in to levels around 1.3838. Yesterday’s closing level is at 1.3909-10. The UK has in the meanwhile pegged respective 2- and 12-day highs versus the Yen and Euro, and a 13-day high against the Aussie. As explain last week, the bullish view on the pound against the Euro, 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 expected to continue into 2022. The UK’s main equity indices are replete with globally-focused cyclical stocks, which should benefit as major economies rebound.

The broad trade-weighted value of the Pound still remains near historically weak levels, too. Local elections loom on 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.

 

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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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Dollar firms as risk appetite ebbs; data eyed

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Developed Economies Compete in the Pace of Recovery. Which one will win?

Developed economies keep competing in the pace of recovery.UK data showed on Tuesday that manufacturing activity rose to its highest in morethan 26 years:Interestingly, the Markit report mentioned the same challenge also faced by US and EU producers: supply chain bottlenecks, resources and inventory shortages. This results in the rise of intermediate prices and response to this is the same everywhere - push the increase further in the price chain, i.e. hike end prices. However, the temporary consumer boom against the background of lifting of the pandemic restrictions makes it easy to do this, so cost-push inflation does not yet run into demand constraints, causing steady upward inflation trend.The data on activity of manufacturers in the US and German economies were somewhat disappointing, but still it was quite strong. Looking under the hood, primary drivers of growth of the broad index were extremely high readings of new orders and prices components, while components of inventories and customer inventories made negative contribution:Nonetheless, central banks have been slow to sound the alarm and tighten credit conditions in response to the threat of inflation pickup. But there is still some progress in this matter. Yesterday the head of the New York Fed Williams spoke, who admitted that the Fed could raise interest rate on excess reserves for banks or reverse repo rate. Both measures are intended to remove excess liquidity from the banking sector, although they are quite technical in nature. However, in the past, they preceded the start of normalization of credit conditions, so the dollar bulls took this hint with great optimism.On Tuesday, we saw increased demand for greenback thanks to Williams comments, USD index climbed to 91.40 which is highest level since the start of the week. Today, the report on activity in the US service sector from ISM is due which should help to prepare better to the NFP surprise as well as give an idea of what is happening with services sector inflation in the US. Strong reading, especially driven by prices and hiring components will likely to push USD index higher with potential test of 91.55 resistance level, however further upside is under question and will require more reflation optimism, i.e., strong NFP surprise.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 Spotlight: NZDUSD Lower Ahead of Unemployment Rate

New Zealand Unemployment Rate DueThe latest labour market data for New Zealand is due later today and traders will be closely watching the reading given the improvement made last time around. The prior month’s reading came in at 4.9% with the market looking for an unchanged reading this time. However, if the unemployment rate is seen to have fallen lower than this, NZD could be subject to a reversal higher, especially given the current pressure on the antipodean currency. On the other hand, a weaker than expected reading (unemployment rate increase) could see the current NZD sell-off exacerbated.Where to Trade NZD Unemployment Rate? Given the current strength in USD, NZDUSD looks interesting today. The pair failed on approach to the .7315 level and is now potentially carving out the right shoulder of a large head and shoulders pattern. Should price break below the .7110 level, this will open the way for a test of .6966 and .6791 thereafter. Alternatively, if .7110 holds, this could see price trading back up to test the .7315 level, putting focus back on the topside.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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Pfizer reports soon!

Another important company from which significant growth is expected is the pharmaceutical company Pzifer, which is scheduled to report the results of the first quarter today.  It should be noted that the shares added little more than 3% to their value during the last year, including an increase to position the stock 20% up after the use of the vaccine jointly developed by the company to combat Covid-19 was approved. Earlier this year the stock added another 6%, supported by the March 31 lifting of the ban that prevented the company from exporting any of the vaccines; the positive outlook remains based on the fact that Pfizer has started to send doses to Mexico. (1)

However, despite having developed the first vaccine licensed to be used in the United States, some investors consider that Pfizer shares are far from the levels that would indicate a celebration, since the stock gained just 8% during the last year, demonstrating that vaccine sales in the United States and around the world do not generate a large enough impact on the profitability of the company in the near future. On Friday, Pfizer shares closed at $38.65, but it is a fact that the company is already charging a higher price for its vaccine than some of its competitors; under the terms of its supply agreement with the United States, Pfizer is charging $19.50 for each injection of the two-dose regimen, while AstraZeneca, which still lacks government approval for its two-dose vaccine, has said it plans to charge less than $4 per injection, thus being regarded as the clear leader in the field of Covid treatment. Nevertheless, Pfizer despite competitors advantages, is well positioned to unlock more value for its investors after its latest corporate restructuring.  (2)

Analyst groups like Trefis forecast that Pfizer’s valuation is $40 per share, largely  in line with the current market price, with first-quarter revenue estimated to be around $14 trillion, slightly above the current market price, with the  $2.2 billion be from the COVID-19 vaccine sales for the quarter. The revenue estimate is at $13.62 billion for Q1 FY 2021 with earnings per share be at $0.80 although some other resreach houses such as SeekingAlpha estimate it at $0.77, while margins are expected to improve further in the future as the current health crisis subsides.  Pfizer’s adjusted net income of $2.4 billion in the fourth quarter of 2020 reflected a 15% increase over its figure.(3)

Pfizer has been on a bullish rally since February and after a setback from its March maximum at $42.15 to the 61.8% level at $37.05 which was tested 2 times before recovering to the current price of $37.22 and very close to testing the 50-period SMA in H4. If it resumes its bullish momentum, we will see resistance from the 38.2 Fibo at $39.00 to the psychological level of $40.00, which if  crossed  will then put resistance at the previous high at $42.15. If the Fibo 61.8 level is broken again, the level will probably no longer recover and will continue to the 78.6% -88.6% support at $35.67- $34.84 and the continuation GAP of the first bullish impulse.

Recent analyst ratings lean towards a “Buy” or “Strong Buy” outlook, so the share’s consensus target price is $40.69, giving it an upside potential of 5.4% at a recent price of $38.59, while the high target is $53, with upside potential  around 37%. Currently Pfizer shares are trading at 11.6 times expected earnings per share for 2021, 12.5 times estimated earnings for 2022 and 12.1 times estimated earnings for 2023, with a 52-week range of the stock being $29.99 to $43.08 and the Dow Jones Industrial Average component paying an annual dividend of $1.56 with a yield of 4.04%. (1)

1. https://247wallst.com/investing/2021/04/30/earnings-previews-cvs-pfizer-under-armour-and-more/2/
2. https://in.investing.com/analysis/pfizer-q1-earnings-preview-vaccine-sales-in-focus-as-stock-fails-to-impress-200471330
3. https://www.forbes.com/sites/greatspeculations/2021/05/03/all-eyes-on-covid-19-vaccine-contribution-as-pfizer-reports-its-q1/?sh=fb6fe624c464

Click here to access our Economic Calendar

Aldo Weidner Z.

Market Analyst– HF Educational Office – Mexico

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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The UK is sitting on its biggest debt pile since WW2. Should you be worried?

The UK government borrowed an eye-watering £303bn in the year to March as the pandemic created a massive hole in the government’s finances. Government net borrowing now stands at 14.5% of UK GDP. The last time it was anywhere this high was in 1946 when it hit 15.2%, after running up debts to fight the Second World War. The result is that the UK’s public sector net debt, commonly known as the fiscal deficit, is now 97.7% of GDP.  

The furlough scheme and other measures taken to help the economy stay afloat during the pandemic have hit public finances badly. But along with higher spending, the pandemic has also hit tax revenues: the unemployed or furloughed pay lower income tax, and businesses who suffered a slump in profits also pay less in tax. 

Borrowing will continue this year, as many job assistance programmes will continue until at least October, says the BBC’s Faisal Islam. And the government will gain a clearer picture in coming months of the scale of losses on some covid loans to businesses. 

Debt is high – but it’s not all bad news

But it5’s not all bad news. Borrowing, though high, fell short of analysts’ predictions – they had expected UK government spending to hit £400bn this March. That prompted the UK to cut back its plans to sell bonds as it doesn’t need as much cash as it thought it did. The Debt Management Office will now issue £252.6bn of gilts for the year 2021-2022 – £43.4bn less than previously expected. 

And there was positive news from the UK’s retail sales, too, which rose 5.4% in March, even before the country opened its doors to hospitality and reopened shops and outdoor dining on 12 April. 

Why does any of this matter for investors? It signals the UK may have a stronger recovery from the pandemic than the market expects. "If we are right in thinking the economic recovery will be faster and fuller than the OBR anticipates, borrowing will probably fall more quickly than most expect,” says Ruth Gregory, senior economist at Capital Economics. 

Investors should also bear in mind that a stronger economic recovery will boost inflation. That in turn could reduce the value of debt, if wages rise in line with inflation. 

The UK’s debt pile decreased as a percentage of GDP each year between 1947 and 1974 even though  “we only paid back more than we borrowed during seven of those years,” points out the Evening Standard. But given the government is selling more than £40bn fewer gilts next year, this could also put a cap on inflation. 

All this is in theory, of course. Whether that happens in practice will be interesting to see. But a slew of data suggests the UK is poised for strong economic growth. 

Analysts at Capital Economics expect UK GDP to be 3.7% higher than pre-covid levels by the end of 2022. This is higher than European rivals, who suffered a lower contraction last year than the UK economy which slumped by 10% in 2020. 

So for now investors needn’t worry too much about the UK’s debt pile. Expectations of a stronger recovery will boost value stocks that have underperformed in the last decade in favour of growth stocks that are looking increasingly expensive.

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