Liability-driven investment: another financial fix has backfired

Liability-driven investment (LDI) has become the latest widely touted investment product to go horribly wrong, says Max King.

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Liability-driven investment: the “doom loop” in the bond market

LDI – an investment strategy used by defined-benefit pension funds – was at the centre of last week’s panic in gilts. What exactly happened, and how was it tackled?

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Share tips of the week – 7 October

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.

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The dangers of derivatives as the “Goldilocks era” ends

That this is no longer a benign environment for investors, says Andrew Van Sickle. But – as the recent pension-fund derivatives blow-up shows – not everybody seems to have grasped that.

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USDIndex: Greenback falters as investors look for key data

During Thursday’s choppy Asia session, the Dollar fluctuated as investors anticipated US employment and inflation data, where weakness might indicate a pause in US rate rises.

Dollar Rush

Positive US ISM Services PMI and Automatic Data Processing (ADP) Employment Change data boosted the dollar bulls on Wednesday. The Non-Manufacturing PMI was 56.7, above expectations of 56.0. Moreover, payrolls increased to 208k, above expectations of 200k. The expansion of the services sector, which accounts for more than two-thirds of US economic activity, is indicated by a reading over 50. The economy is struggling as the Federal Reserve aggressively tightens monetary policy to battle inflation.

JOLTS fall

The number of job openings in the United States decreased the most in August in almost two and a half years. Still, they stayed elevated as labour demand remained relatively robust, which may have kept the Federal Reserve on a track of aggressive monetary policy tightening. According to the Labor Department’s Job Opportunities and Labor Turnover Survey (JOLTS) issued on Tuesday, job openings decreased from 11.1 million to 10.1 million as of August 31. Risk-averse market conditions and rising geopolitical tensions supported the Dollar in recouping some of the losses it sustained versus its main rivals earlier in the week.

Hawkish Fed

Meanwhile, the Fed’s posture remains aggressive, and all indications point to an interest rate increase of 75 basis points at the November 2 meeting. Raphael Bostic, president of the Atlanta Fed Bank, advocates raising rates to 4.5% by the end of the year, or 125 basis points of tightening, while Mary Daly, president of the San Francisco Fed Bank, dismissed discussion of a Fed shift next year. This, in turn, promotes increasing US Treasury bond yields, which, along with fears of a broader global economic crisis, strengthens the Dollar as a safe-haven currency.

Key Events for the rest of the week

Today’s US economic schedule will include Initial Jobless Claims and Federal Reserve member speeches. On Friday, there is the all-important NPF report. Nonfarm payrolls are predicted to climb by 250,000, following a 315,000 gain in August. The Fed’s commitment to keep rising rates until inflation appears well under control will keep the Greenback bullish in the long run. However, a slowdown in economic growth and a lack of impetus in the job market may discourage dollar bulls.

USDIndex Technical Analysis:

The USDIndex has lost 0.63% so far and is trading above the 111.00 level. The index is at its 20-day moving average on the daily chart, and the RSI is above the 40 level. USDIndex is now hitting the 111.065 level. A fall below 110.28 could bring the index towards the 109.36 support level. If the pair dips below this level, it will reach the next support level at 108.63. On the upside, the index could reach the next resistance level, around 111.93. A break over 112.66 would pave the way for a test of the following resistance level of 113.57.

Click here to access our Economic Calendar

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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Yvon Chouinard: The billionaire “dirtbag” who's giving it all away

Outdoor-equipment retailer Yvon Chouinard is the latest in a line of rich benefactors to shun personal aggrandisement in favour of worthy causes.

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Market Update – October 6 – USD & Stocks Flat, Oil Rallies

• USDIndex – Rallied from a test of 110.00 peaking at 111.50 following weak Services  PMI data in UK & Europe, and a beat for US data; ADP (208k vs 200k) and ISM Services PMI (56.7 vs 56). Closed lower and trades under 111.00 now at 110.83.  Fed’s Mary Daly says the Fed is resolute in raising rates to curb inflation and that  market anticipation of interest-rate cuts next year is misplaced. Stocks closed flat , yields dipped again and Oil rallied following OPEC+ announcement. AUD Trade slipped and German Factory Orders tanked (-2.4% vs. -0.8%).  Asian & European stocks  are mixed following the stall on Wall St. 
• EUR – A brief test of  Parity at 1.0000, reversed all the way to 0.9833 before USD recovered and the pair trades at 0.9915 now.
• JPY – Rallied from lows yesterday at 143.60 and trades at 144.50 now.
• GBP Sterling remains volatile with the new PM under pressure. 260+ pip range yesterday, from 1.1495 to 1.1226. Cable trades at 1.1325 now.
• Stocks – US stocks, were heavy all day but closed flat (-0.2%) US500 -7.65 at 3783. TWTR -1.35%, TSLA -3.46% XOM +4.04%.

• USOil rallied again to $88.40 after OPEC+ agreed 2.0 million barrels per day production cuts, provoking major rebuke from the US. 
• Gold – declined from initial test of $1725 yesterday before testing $1700 support and now back to $1725 again. 
• BTC – dipped below the key $20k yesterday ,but now back to $20.2k.

Today – EZ/UK Construction PMI, EZ Retail Sales, ECB Minutes, Weekly Claims &  Speeches from Fed’s Waller, Evans, Cook & Mester and BOC’s Macklem.

Biggest FX Mover @ (06:30 GMT) NZDUSD (+0.84%) Rallied from yesterday’s low at 0.5660 to 0.5800 resistance today. MAs aligned higher,  MACD histogram & signal line positive & rising, RSI 61.20 & rising, H1 ATR 0.00181, Daily ATR 0.01096.

 

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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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The best 0% balance-transfer credit cards

These 0% balance transfer credit cards offer some of the best deals on the market today.

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The Burberry share price looks like a good bet

The Burberry share price could be on the verge of a major upswing as the firm’s profits return to growth.

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What’s happened to Credit Suisse stock?

Credit Suisse stock has slumped on rumours that the bank is in trouble. Is there any truth in this speculation?

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Credit Suisse share price fall: what’s happened at the Swiss bank?

Jittery investors fear for the financial health of Credit Suisse, the Swiss banking giant. Are they right to be concerned? Matthew Partridge reports.

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Barclays bounces with the broader market to start Q4

The recent mini-budget presented by Finance Minister Kwasi Kwarteng has sparked a significant sell-off in the UK bond market as investors grow increasingly anxious about rising interest rates and a possible credit rating downgrade. To stop more economic chaos, the Bank of England had to step in and inject liquidity into the bond market. The mini-budget blunder appears to have saved Barclays’ share price, but it is a preview in the short term as the UK struggles with a new administration and rising cost of living.

Barclays share price rose more than 4% to close yesterday’s trading session at 1.5082 but has retraced to the 1.4600 zone today. The increase is a continuation of the rebound of 1.4122 from Monday’s low.

The current bullish impetus coincides with growing anxiety about the state of the UK economy. However, the banking sector appears to have benefited from the steps taken to address these concerns, which may have led to the recent price hikes in the Barclays market. For example, the recent increase in interest rates by the Bank of England will have a significant effect on the profitability of the banking sector.

Barclays’ stock price fell to the low seen around April 2022 during the early trading session of the week, before closing with a second straight day of gains. The current price movement is more likely a price retracement of the decline to the continued peak of 1.7582 than a price reversal. A further rebound is possible to test the 38.2% (1.5442) level if there is a rally today and if it is strong it will be limited below the 1.6042 neckline.

Meanwhile, on the downside it will remain limited to support from this week’s low at 1.4122. Broadly speaking, the downward trend from the peak of 2.1950 (Jan’2022) is probably not over yet, as the price movement is indicated to be still below the daily moving average and the histogram oscillations are still on the sell side. A drop back to lower support will provoke the bulls to re-enter the market, should there be a decline in the coming days.

Click here to access our Economic Calendar

 

Ady Phangestu

Market Analyst – HF Educational Office – Indonesia

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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Markets may have bounced, but this is not the end of the bear market

Stocks are back on the rise, commodities and precious metals prices are up – even the pound has rebounded. But none of this is typical of bull markets, says Dominic Frisby. The bear market isn’t over yet. Here’s why.

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Gold Analysis: Gold jumps amid the weaker Greenback

On Tuesday (October 4), Gold gained substantial positive momentum and reached its highest level in three weeks. Gold continues its upward trajectory and is returning from its lowest level since April 2020. The XAUUSD has reached its highest in three weeks as  a result of the sustained rising momentum.

Weaker Greenback

The US Dollar continues to decline from the two-decade high hit last week, and it looks to be a key factor driving flows into dollar-denominated commodities.  US T-bond rates continued to decrease against the backdrop of US economic data showing that the Federal Reserve’s Federal funds rate hikes have started to hurt the economy as the US central bank strives to manage inflation.

US downbeat stats

Monday’s US economic data suggested that the country’s industrial sector is decreasing. Subcomponents of ISM surveys revealed a decline in new orders and an increase in pricing. The Department of Commerce stated that factory orders for August were constant during Tuesday’s session, after a 1% decrease in July. According to the Labor Department, employment possibilities in the United States decreased, but they remained high. According to the August US JOLTS data, vacancies fell from 11.239 million in July to 10.053 million in August.

Key Events to watch

Friday will see the publication of the monthly employment report for the United States. The highly publicized NFP report will have a substantial influence on the Fed’s future rate-hiking strategy. If the employment news is worse than expected, Gold will likely increase. If it is far stronger than expected, the market may reflect this, and the Fed may continue to hike rates.

What to look for around Gold?

The possibility of additional aggressive policy tightening by the world’s main central banks may act as a headwind for the non-yielding yellow metal, restricting its potential for further rises for the time being.  The year has been eventful for Gold as the US Dollar has been chosen as a safe haven, while treasury yield rates have played a significant role.  Any further swings in the metal will be primarily determined by US data, with this week’s jobs report having the potential to drive the metal back to its previous lows.

Technical Analysis: The upside momentum continues

XAUUSD is now trading at 1721.62, up 1.34% on the day. The pair is above its 20-day moving average on the daily chart, and the RSI is over 50. A drop below 1672.50 could push the pair down to the 1645.16 support level. If the pair falls below this level, it will find support at 1630.61. On the upside, the index could reach the next resistance level at 1728.94. A break over 1756.28 would open the door for a test of the next resistance level, 1801.56.

Click here to access our Economic Calendar

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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