New chancellor rips apart Liz Truss’s mini-Budget, which includes ending the Energy Price Guarantee in 2023. Here’s everything you need to know.
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Monday, October 17, 2022
Market Update – October 17 – Tug-of-war!
- USDIndex – steady at 112.90 following US inflation which reinforced bets a 90.9% chance of a 75 basis point rate hike, and a 9.1% chance of a 100 bp increase in Fed’s next meeting. Yields down, 10-year Treasury rate is down -4.1 bp at 3.977% and the German Bund future has corrected -6.3 bp, after the JGB rate corrected -0.3 bp to 0.24%.
- GBP – Sterling rallied to 1.1300 on calls for PM Truss to resign and ahead of UK Chancellor announcement for tax and spending measures, 2 weeks earlier than scheduled, as he tries to stem a loss of confidence in the government’s fiscal plans. Truss said on Friday that corporation tax will rise to 25% from April 2023 instead of keeping it at 19% as part of her government’s initial “mini-budget”. Medium-term fiscal plan remains as scheduled on Oct. 31.
- Daily Mail reported that: “British lawmakers will try to oust Truss this week despite Downing Street’s warning that it could trigger a general election.”
- EUR – slightly up to 0.9735.
- JPY – pinned to 32-year (1990) highs at 148.79 as markets awaited signs of intervention from Japanese authorities.
- Stocks – Stock markets have remained under pressure overnight, after a weak close on Wall Street Friday, after inflation concerns were rekindled by a US survey showing the first rise in inflation expectations in a while. Still. US futures are higher and with a nearly 1% rise in the NASDAQ leading the way.
- China and Hong Kong stocks fell after Chinese President Xi talked up national security, while dashing hopes of any changes in growth-hitting zero-COVID policies and property sector curbs. Xi called for accelerating the building of a world-class military, while touting the fight against COVID-19 as he kicked off a Communist Party Congress on Sunday by focussing on security and reiterating policy priorities. Greater emphasis on national security comes amid heightened geopolitical tensions. The biggest applause came when Xi restated opposition to Taiwan independence.
- USOil – hold support at $85.
- Gold – $1650.
- BTC – down for the day to $19214.
Today – US Monthly Budget, BOC Outlook Survey. All eyes though remain on UK and the speech of Chancellor Hunt.
Biggest FX Mover @ (06:30 GMT) UK100(+0.23%) rallied at EU open, to 6907 but pullback asap. MAs flattened, MACD histogram & signal line hold below 0, RSI 46 & falling, H1 ATR 19.84, Daily ATR 142.87.
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.
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Netflix: Could a Strategy Change Pull It Out of Its Trough?
The US annualized CPI climbed 8.2%, slightly lower than that recorded in the previous month (8.3%) as a result of falling gasoline prices. However, the core CPI which excluded prices of food and fuel rose at the fastest pace since 1982, to 6.6% (previously 6.3%). Despite the fact that US indices closed the day higher, according to Reuters, it was mainly due to technical support and investors covering short bets. In fact, market participants continued to anticipate a more aggressive rate hike by the Fed.
Fig 1：FedWatch Target Rate Probabilities ：CME Group
According to FedWatch, the probability for the Fed hiking 75 bp in the FOMC November meeting is nearly 100%, a huge leap from a week ago (81.1%) – more suffering awaiting the stock market?
Ahead of the Fed’s meeting, we shall see more companies releasing their quarter earnings report. Among them, Netflix, one of the world’s leading entertainment services companies, shall reveal its Q3 2022 earnings report on 18th October (Tuesday), after market close.
Fig 2：Netflix Revenue, Q1 2012 – Q2 2022 ：Statista
Despite revenue growth remaining in an uptrend for the past decade, the management of Netflix refers to recent sales as ‘slowing’ due to fierce competition among peers, account sharing between users, the strengthening of the Greenback and other factors such as the Russia-Ukraine war and the deteriorating economic growth.
Worse, Netflix,Inc. reported losses of 1.2 million subscribers in the first two quarters of 2022. In an attempt to reverse the situation, the company is going to introduce a new cheaper ad-supported tier starting this November (Countries include: Canada, Mexico (1st Nov), United States, United Kingdom, Australia, Brazil, France, Germany, Italy, Japan, Korea (3rd Nov), and Spain (10th Nov)). This move is intended to encourage more sign-ups for the company’s streaming service as a survey has shown that people are tolerant of advertisement if it means they would pay less for the service.
Fig 3：Streaming Price Offerings：Netflix & its Competitors : CNBC
The Netflix basic plan with ads (an average of 4-5 mins of ads per hour) is set to be priced at $6.99, relatively cheap compared to its major competitors HBO Max ($9.99), Hulu ($7.99) and Disney+ ($7.99). Under this plan, the management expects to reach 40 million viewers by Q3 2023, with at least $3 advertising revenue gains a month from each user.
It is also worth noting that the effectiveness of the company’s strategy remains to be seen. While some may welcome the plan, there was also a survey recently that revealed 25% of users might cancel their subscription. On the other hand, the password sharing crackdown and heavy investment on foreign language series (which helped to capture a large audience base worldwide) are some of the tailwinds that could continue supporting company growth.
Fig 4：Netflix Sales & EPS versus Analyst Forecasts： money.cnn
The management expects to see net 1 million subscribers in the coming quarter. Sales is expected to hit $7.8B, slightly down 2.5% from the previous quarter, but up 4% from the same period last year. On the other hand, earnings per share (EPS) is expected down -32.5% to $2.16. In the same period last year, the company’s EPS was recorded at $3.19. In general, sentiment remains mixed as analysts rated a ‘Hold’ on the Netflix stock.
Technical Analysis:
Fig 5：Netflix Historical Price ： Google Finance
#Netflix (NFLX.s) share price last closed near $230, up over 40% from its recent lows at $162.48, a level not seen since August 2017. The company share price left its highest print in November last year, at $700.20. Obviously, it is now still below the median price target given by analysts ($250.50). The low and high price target are set at $157 and $399, respectively.
The median price target $250.50 shall serve as the first resistance threshold. Breaking above this level would provide an opportunity for the asset to challenge the next resistance at FR 23.6% ($290), then FR 38.2% ($370). The 100-week SMA coincides with FR 50.0%, at $430. On the other hand, $200 serves as minor support, followed by $162.50 and the low price target at $157. Regarding indicators, both RSI and Stochastics remain traded below 50.0.
Click here to access our Economic Calendar
Larince Zhang
Market Analyst
Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
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Friday, October 14, 2022
Is it a good time to invest in property?
Property has always been an attractive sector for investors, but with market turmoil and a potential house price crash, we look whether now is a good time to invest in property.
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Kwasi Kwarteng sacked after mini-Budget U-turn
The former chancellor, Kwasi Kwarteng, has been fired as Liz Truss tears up his flagship mini-Budget policies.
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Events to Look Out for Next Week
- Retail Sales (GBP, GMT 06:00) – UK Retail Sales are expected to ease a bit, with -0.5% m/m and -4.2% y/y. Core Retail sales for September are expected to fall to -0.7 m/m and -3.4% y/y.
- Retail Sales (CAD, GMT 12:30) – Canada August Retail Sales could fall to -2.0% m/m and core at -1.2% m/m.
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.
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Is the chancellor about to backtrack on his dividend tax cut?
Reversing the cut to dividend tax announced in the mini-Budget could be on the table as the government tries to win over the markets.
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US stimulus checks – will you get one?
To help fight high inflation and financial hardships, some US states have started to send stimulus checks to support residents. Here’s what you need to know.
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UK: Crisis, Division, Uncertainty, Distrust
The UK’s crisis of confidence is deepening, and as the BoE insists its emergency bond buying program will end today, pension funds continue to frantically try and raise cash. A flurry of rumors added to volatility in markets this week, and pressure on PM Truss to rewrite her fiscal plan is mounting.
We’ve seen another week of attempts to calm markets, but so far without much success and the situation is still very fragile and markets are nervous. At the start of the week, the Treasury gave way, and Chancellor Kwarteng announced that he would bring forward the publication of his medium-term fiscal plan to October 31. Unlike the mini-budget, the full fiscal plan would lay out medium term plans on how to cut UK government debt, backed up by official forecasts from the OBR (Office for Budget Responsibility). That announcement came alongside fresh intervention from the BoE, which topped up the daily bond buying target to GDP 10 bln. They included index linked Gilts in the buying spree, and they also announced a new short term lending facility that allows banks to borrow cash against their bond holdings.
The new Temporary Expanded Collateral Repo Facility (TECRF) will run until November 10, and it will greatly expand the pool of assets the BoE will accept as collateral. As the FT pointed out, it will allow “banks more flexibility to accept a broader range of collateral from pension funds using LDI schemes”. Concern of wider risks at pension funds that use so-called liability driven investment strategies had been at the heart of the current crisis, as many face liquidity problems in light of the sharp rise in yields.
Pension funds reportedly also urged the bank to extend its asset purchases. Bailey warned funds, that they had “three days left” before the end of the central banks’ emergency bond buying program. This was followed by an FT report suggesting that BoE officials had signaled privately in discussions with bankers that the program could be extended after all. That in turn was promptly denied by Bailey who insisted the program will end as planned on Friday.
The confusion played into the government’s hands, with Kwarteng setting Bailey up to take the blame, if the end of the BoE’s program on Friday were to trigger a fresh wave of turmoil. However, while the conflicting headlines clearly didn’t help, and markets are bracing for a “cliff-edge” scenario if bond buying really ends on time this week, it is clear that the real problem remains the government’s fiscal plan. It didn’t help today that the government’s Business Secretary Jacob Rees-Mogg seemed to imply that Kwarteng should simply ignore the OBR’s fiscal projections and stick to his plans.
Markets have and will remain volatile, and pension funds are nervous. They now had two weeks to try and raise cash by selling off UK government bonds and index-linked and corporate bonds. With rates still rising, the fundraising task is intensifying. A Reuters source story highlighted that providers of so-called liability driven investment strategies (LDI) are now demanding cash buffers that “are about three times larger than previously requested”. The BoE has pointed out that the special repo facility will remain in place until November 10 and should help to smooth over the transition next week.
Whether this will be enough remains to be seen, but the ball is now back in the government’s hands. While officials have continued to rule out further changes to the fiscal plan, there were plenty of reports suggesting that the government is secretly preparing a U-turn on the corporation tax, which could rise to 25% from 19% after all. If Truss fails to deliver, pressure will build again, especially if the BoE sticks to its guns and doesn’t extend the bond buying program. The head of the IMF also stepped into the debate again today and repeated that fiscal policy “should not undermine monetary policy”, while telling the UK “not to prolong the pain” and to ensure that “actions are coherent and consistent”. This won’t go down well in Westminster, but very much goes to the heart of the problem.
Consumers meanwhile are facing more pain. The government’s energy price guarantee may cap bills to a certain extent, but with mortgage offers pulled and rates rising fast, and the BoE’s Financial Policy Committee said: under the assumption that rates follow the market implied path “the share of households with high cost of living-adjusted mortgage debt-servicing ratios would increase by end-2023 to around the peak levels reached ahead of the global financial crisis (GFC),’ the Bank said. The bank still argues that “households are in a stronger position than in the run-up to the GFC, so UK banks are less exposed to household vulnerabilities.”
Indeed, there are fewer households with mortgages than at the time of the GFC and the ratio of debt to income of British households is well below where it peaked before the 2008 crash. Nevertheless, even the bank admitted that “it will be challenging for some households to manage the projected rises in the cost of essentials alongside higher interest rates”. Consumers are now also facing the risk of falling house prices and an erosion of pension pots on top of the cost-of-living crisis.
Many think that situation carries the seeds of a much wider financial reckoning, revealing major vulnerabilities in the so-called shadow banking sector that controls trillions in assets globally. The assumption that government bonds are “ultra-safe” may be correct in the long run, but this year’s developments have shown that they are not immune to a sudden sell off. In this situation, many feel that the turmoil in UK markets is a sign of what awaits 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.
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Three foreign exchange companies to buy
New entrants in the global foreign exchange market present opportunities for investors, says Bruce Packard
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Now is a good time to buy Vietnamese stocks
Vietnam’s benchmark VN index has slid by 30% this year – but there is plenty of potential in Vietnamese stocks.
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Market Update – October 14 – Wild, Wild Swings following US CPI, Risks in London Rise
- USDIndex – Spiked to 113.80 following hot reading for CORE CPI and then reversed sharply into 112.20 as Stocks staged a record reversal (from -3% to +over 2%) on short covering, technical floors being tested and ????? Perhaps assumptions that the top is finally in for inflation (Headline fell for 3rd consecutive month). Yields also whipsawed, with at one point, all major maturities above 4%. (US 10yr closed 3.902% & the 2/10 year rate inversion {a sign of recession} sits at 51bp). 75 bp fro Nov 2 fully priced in, and a 71% chance of a further 75bp in December. (this will take hikes since March to 450 bp).
- The UK’s new fiscal policy remains squarely under threat as Chancellor Kwarteng returns from the IMF meetings a day early (last person to do that was the Greek Fin. Min. in 2011 and many are predicting a similar outcome both politically and economically). The BOE’s Bond-Buying, programme ends today, uncertainty swirls as tax U-turns become priced in. Sterling rallied and then rallied again, but Gilts remain fragile. Asian markets follow Wall Street higher (Nikkei +3.25% Hang Seng +2.64%) & European FUTS also higher.
- EUR – rotated through 0.9700, down to 0.9632 before rallying to 0.9800.
- JPY – rallied to new 32-year (1990) highs at 147.67 and with no signs of BOJ action! Suzuki and Kishida remain committed to accommodative policy. Trades at 147.35 now.
- GBP – Sterling rallied from a new 11-day low at 1.0923 over 1.1000 to 1.1075. Immense pressure on PM Truss & Chancellor Kwarteng to reverse tax cuts as successors are rumoured and the Tories are 30% behind in opinion polls.
- Stocks – Wall Street dove on the data given the jump in rates and as the market priced in greater risk for a hard landing. The NASDAQ plunged over -3.0%, with the S&P500 over -2.25% lower, and the Dow down almost -1.90% before turning around to end with solid gains. The Dow rallied to close with a 2.83% gain, a 1400 point round-trip, while the S&P 500 was up over 3% before ending with a 2.60% gain. US500 3577. BLK (assets tumbled but earnings beat)+6.58%, BAC +6.13%, NFLX +5.27%, APPL +3.36%. US500 FUTS trades at 3706 now.
- USOil – declined again on the CPI data & global recession worries into $85.51, before reversing sharply to $89.50 as USD weakened and risk aversion dipped.
- Gold – plunged to $1642 before recovering to trade at $1668 now but remains pressured.
- BTC – plummeted to $17.9K yesterday, trades at $19.8k now.
Today – US Retail Sales, US University of Michigan Prelim Survey, Speeches from BoE’s Bailey, Fed’s George, Cook & Waller. Earnings from Wall Street banks JPM, Citi, MS Wells Fargo.
Biggest FX Mover @ (06:30 GMT) NZDJPY (-0.96%) rallied from sub 81.20 lows yesterday to 83.75 highs today. MAs aligned higher, MACD histogram & signal line positive & rising, RSI 70.00 & ob rising, H1 ATR 0.186, Daily ATR 3.201.
Click here to access our Economic Calendar
Stuart Cowell
Head Market Analyst
Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
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Thursday, October 13, 2022
DS Smith shares are undervalued
DS Smith shares look cheap when seen against the international packaging group’s performance in difficult circumstances.
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Why you need to act fast to get the best deals on savings accounts
Interest rates on savings accounts are rising fast. We look at what banks are doing to attract cash holders and why you need to act now.
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