tickmill-analytics Posted February 22, 2021 Author Share Posted February 22, 2021 Stimulus expectations, jump in US economic momentum put USD under pressure A key theme of trading on Monday has been renewed rise in market risk-free interest rates in the US. The yield on 10-year Treasury bond after short consolidation near 1.30% mark last week has updated its local high Monday, rising to 1.38%. This led to increased anxiety in equities: US stock index futures tumbled, SPX by about half a percent, Nasdaq by more than 1%. There are two key channels through which an excessive rally of Treasury yields exerts pressure on equity markets: - Bonds vs. stocks choice. Some investors start to rebalance their portfolios, dumping stocks and buying bonds as they became cheaper and start to offer meaningful returns. Stocks which have high duration (like growth stocks) are good candidates for replacement by bonds and tend now to sustain more losses; - Borrowing costs channel. The effect of the rise in risk-free rates feeds into other credit market rates, so it’s reasonable to expect that long-term borrowing costs for firms will rise as well. This has negative effect on shares value as rising interest rates reduce firms’ access to cheap financing. Nominal interest rates in the US are rising due to expectations of new fiscal stimulus, which in turn will lead to an increase in the supply of Treasuries in the market. Spurred by government spending economic growth should lead to higher inflation, so investors are now also demanding higher compensation for this risk. Comparing yields on 10Yr Treasury Note and bonds with same maturity but protected from inflation (TIPS) we can clearly see the steep rise in inflation premia: This week, attention will be focused on Powell testimonial in the US Congress. Also, the Fed will release a semi-annual report on monetary policy. Investors will examine the report for clues on the essence of the Fed’s new concept of inflation targeting. It’s still not clear from the Fed communication what should be trajectory or rate of growth of inflation which can enable the Fed to lift interest rates. We are talking about a change in rates on a more distant horizon, but long-term investment assets should be sensitive to the new information, which will constitute a market reaction. US dollar is expected to continue to drift lower thanks to benign environment for risk-on trading supported by strong US economic data. We saw huge jump in US retail sales in January but still White House administration determined to push new 1.9 tn. stimulus to the Congress. Rising self-sustained economic momentum supported by massive government spending spree in the US should trigger stronger hunt for the yield and inflation fears which is generally negative for US currency. The technical picture also favors USD slide as we get closer to March: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
tickmill-analytics Posted February 26, 2021 Author Share Posted February 26, 2021 Where oil could move ahead of the OPEC+ meeting in March? Oil prices continued to rise on Thursday with Brent breaking $67/bbl, returning to the level where it traded in January 2020. Powell's speech this week, in which he said about the need to maintain significant monetary easing, helped oil rally. Additional reports from the US indicated that oil market tightening gathers pace. As it often happened before, traders could easily miss the moment where the market will already start to suffer from undersupply. That is why oil prices are rising in unabated fashion. The US EIA released its weekly oil inventories report yesterday. One of the key indicators, commercial crude oil reserves, showed an increase of 1.29 million barrels. The rise in inventories is usually associated with a bearish price response. However, the market discounted the reading despite expecting a 5.19 million barrels decline. Why? It may seem that US oil producers quickly restored output, which led to an increase in stockpiles, but this is not the case: in fact, the level of refinery capacity utilization decreased over the week by 14.5% to 68.6%, complicating the clearance of inventories: This utilization rate is the lowest level since May 2020. Therefore, even a moderate recovery in production could have such an effect on inventories. That is why the release of the data could have a positive effect on the market despite the negative change in headline reading. Gasoline reserves rose indicating that petroleum demand continues to suffer as cold weather obviously hampers mobility. It’s also a moderately bullish development for WTI prices. Speaking about the upcoming releases of EIA reports, we can expect that the upward trend in inventories will persist for some time, as production has shown that it can quickly recover, but the refinery's refining capacity is not. The growth of stockpiles is likely to have minimal impact on the market. More important for the oil market is the upcoming meeting between OPEC and Russia to discuss the current deal on output curbs. Oil demand is recovering, but the OPEC + deal limits ability of producers to ramp up output, what results in confident growth of prices. Producers, especially the Russian Federation, have a great incentive to gradually lift curbs. Such expectations could drive pullback in prices ahead of the March 4th meeting and there is a risk for some meaningful correction in the market. The situation contributes precisely to sell on rumors (rather than buy), as the risks are clearly skewed in favor of increasing production in response to strengthening demand which should have negative impact on prices or at least make the rally less pronounced. Technical setup also favors meaningful bearish oil pullback ahead of the 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. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
tickmill-analytics Posted February 28, 2021 Author Share Posted February 28, 2021 Why stock markets Thursday fall is a good buying opportunity Consolidation of 10-year US bond yields around 1.30% turned out to be a short-lived market state. On Thursday, the yield surged to +1.55% area which brought about a massive knee jerk reaction in risk assets. Investors dumped tech shares with Nasdaq erasing 3.52% of its market cap and SPX losing 2.45% of its value. Aggressive selling began right after the NY opening on Thursday: On Friday, there are signs of modest downside pressure remaining - European equities trade in the red, futures on US stock trade near the opening exhibiting some correlation with Thursday returns. What is really important that the outflow from bonds (which led to steep rise in yields) is not limited to the US Treasury market and is a global phenomenon - the yields of German, Japanese, Australian bonds are rising as well, despite yield curve control efforts from the BoJ or the ECB: The chart shows that expectations of quickening inflation pace and, to a lesser extent, rise of real interest rate are also driving factors in other developed economies, which is the cause of outflows from fixed income instruments. How long will the bond outflow last and weigh on equities? It’s difficult to give precise answer, but CTA futures positions on major government bond futures show that net short increased to 85th percentile: In other words, only in 15% of cases since 2009, net short exceeded the current level. Therefore, from a technical point of view, investors should be tempted to buy the dip as the sell-off is quite extreme. In addition, according to JP Morgan on Monday, pension funds will have a rebalancing at the end of this month, about $ 90 billion will be available for investments, and the choice may fall on the government bonds, because they of appealing valuations. Fed officials Williams and Bostic, commenting on the rally in bond yields, said that it is unlikely that the Fed will somehow react to this move, since it is natural and stems from the reassessment of economic growth expectations due to positive data. They also downplayed the impact of fiscal stimulus on inflation. Judging by Powell's speech last week, the Fed's stance on inflation is that the observed inflationary effects are temporary, so no response is required. Consequently, if the FED is correct, the inflation premium in bonds would also need to adjust downward with inflation weakening later. Let's hope that 1.5% in 10-year yields will become a psychological borderline and the “pernicious” effect of bond rout worldwide on stock assets will not develop further. A cautious buy on SPX and a short dollar is justified, despite the risk of continued slide in bonds to more extreme levels. All the same, world economy has not yet recovered enough to confidently dump bonds. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
tickmill-analytics Posted March 3, 2021 Author Share Posted March 3, 2021 Powell speech, upcoming stimulus talks in Congress should provide additional support for stocks Orderly sell-off in sovereign debt markets, which flared into massive dump last week, has slowed down on Monday, but is far from over. The 10-year Treasury yield bounced off from a local high of 1.55%, however resumed advance on Monday. It looks like the bond markets entered into a state of short-term equilibrium, but the balance of forces is fragile. The Fed types gave a dry commentary on the rout last week, leaving a lot of understatement. This week there will be a number of speeches by the Fed officials, it is expected that their detailed comments on the rally of risk-free rates will become the main catalyst for movement in risk assets. Unlike the Fed, the European Central Bank did not stand aside and came forward with “open mouth operations”, hinting at flexibility of the current main program of asset purchases - PEPP. The RBA supported Australian government debt market with concrete actions, boosting bond purchases to enhance control over long-term rates. Considering that world central banks often act in sync, there is a chance that the Fed will also hint at the opportunity, for example, to change composition of monthly QE purchases (by increasing purchases of longer-maturity bonds), which should bring peace to the Treasuries. Nevertheless, since both inflation expectations and real rate rise in the US, with the exception of negative shocks due to high volatility, this combination should have a bullish impact on world stock markets. At least this is what history suggests: Macroeconomic news on the US last Friday had in overall a positive tone – consumption expenditures growth (the main inflation gauge of the Fed) accelerated to 1.5% (1.4% forecast), consumer sentiment from Michigan beat forecast. As for the economic calendar this week, the focus is solely on the US labor market data - ADP report, employment component of the ISM service sector activity index. and Non-Farm Payrolls report for February. Congress is rushing to approve new fiscal stimulus. Biden proposal were approved in the House on Saturday. None of the Republicans voted in favor, but their votes are not needed. Past stimulus measures had bipartisan support, but this time we see a complete split between the parties. It should be borne in mind that the main programs of extended social protection will expire on March 14, i.e., this date is probably an unofficial deadline for the approval of new stimulus. The highlight of the proposal is stimulus checks of $ 1,400 per person (whose income is below $ 75K per year). A good portion of this money, like last time, will likely flow into the stock market. Expectations of an impending positive retail investment shock are also pushing stock indices higher, or at least preventing them from correcting much. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
tickmill-analytics Posted March 4, 2021 Author Share Posted March 4, 2021 Negative correlation of Gold with US real interest rate starts to bite the safe haven European markets rallied alongside US equity index futures as the recent factor of bearish pressure - correction in sovereign debt markets and related volatility of interest rates - faded into the background. The themes of global expansion, bull market in commodities and fiscal impulse in the United States are apparently returning to the forefront. After a short period of stabilization, the yields on long-term US and German bonds are on the rise again as local Central Banks stand their ground and refuse to contain the rise. And no wonder, in fact, in the past few weeks, the dynamics very desirable for central banks has been taking place in bonds - real interest rate started to rise as well. This is usually associated with "qualitative" economic growth and increasing productivity. Until mid-February, the biggest contribution to the growth of nominal rates was made by inflation expectations, which could have worried the Central Bank, but then the real rate joined the party and immediately soothed concerns. By the way, this is why gold also collapsed, since an increase in the real rate means an increase in gold’s opportunity costs: Gold has negative correlation with US real interest rate and therefore tend to decline when the interest rate starts to rise. Although the real rate has risen, it is still deep in the negative zone. It is at a historic low. It has a room to rise more. There are expectations that the rate will continue to rise, since it is believed that global economy is in the initial phase of upturn and related trends in the government bond markets can only start to emerge as well. This should have a negative impact on the Gold’s investment appeal for at least the next quarter or two. The European STOXX 600 Index rallied for the third trading session in a row, and British assets reacted optimistically to the government's decision to extend payments to those who lost their jobs as a result of lockdowns. The data on retail sales and unemployment in Germany made sad adjustments to the expansion story. The forecast for growth of the key item of consumer spending did not materialize - sales fell by 4.5% in monthly terms, against the forecast of +0.3%. It was also expected that the number of unemployed will decrease by 13K, but the number of unemployed, on the contrary, has increased. There has been another mini-shock in expectations for the largest EU economy, which paints an unclear outlook for European assets. European stocks are ignoring the worsening data so far, but for how long? The Bundesbank in its report on Wednesday said it expects a marked decrease in economic activity in the first quarter. The European currency has experienced difficulties in growing amid negative data and the strong economic outlook for the United States undermines the idea that the dollar will weaken on the upcoming growth in the money supply in the United States due to fiscal stimulus, as an inflow of investors in US assets due to expectations of higher expected returns could start to counterbalance the supply factor. The US labor statistics on Friday will provide more information on the speed and direction of the US economic recovery, but one should closely monitor the emerging trend in the US, as it has every chance of developing into a medium-term strengthening. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
tickmill-analytics Posted March 5, 2021 Author Share Posted March 5, 2021 OPEC’s extension of current output curbs is still in cards despite robust demand growth Greenback advance eased on Thursday as bullish momentum developed earlier in the first half of the week failed to find support in key data releases. ADP report and ISM non-manufacturing PMI published on Wednesday fell short of expectations, although bull run in USD indicated expectations of a positive surprise. The number of jobs in the US in February rose by 117K according to ADP, which is less than 177K estimate. ISM index missed estimates as well with employment sub-index indicating a slight cooling in the pace of hiring. Recall that services sector employs more than 70% of the US labor force that’s why ISM employment survey data is a key for understanding pace and direction of US recovery. If Friday payrolls report misses estimate as well, the contribution of eco data in USD strength will greatly diminish, leaving USD vulnerable to concerns of money supply expansion due to upcoming fiscal stimulus. There are signs of USD strength on Thursday thanks to bearish mood in US equity futures and European shares. Given the S&P 500's plans to test 3800 today, USD is likely to extend intraday advance today. Oil market with little effort digested EIA weekly release on commercial oil stockpiles in the United States. In the week ending February 26, crude oil inventories surged 21.5 million barrels - the highest growth in several years. When the market is in a state of contango (oil futures curve is upward sloping), oil prices often drop on the rise in inventories since inventories are hedged by selling more futures what means less demand pressures in the future. However, current situation is somewhat different: inventories rose mainly because refinery utilization dropped to the lowest level in several decades. During the reporting week, refineries were working almost at half-full capacity - utilization fell to 56%, the lowest level since the 1980s: At the same time, oil production in the United States extends recovery - in the reporting week, it increased by 500 thousand bbl/d. An additional point on the report, which neutralized the increase in inventories - a significant decrease in refined petroleum products. Gasoline stocks fell by 13.6 million barrels (forecast -2.3 million), distillates - by 9.7 million barrels. This is partly the result of reduced refinery utilization rates, but the dynamics also speaks of strong fuel demand, which is positive leading indicator for the market. Oil prices were offered additional support after Reuters reported that OPEC will extend current output curbs until April. In case this outcome becomes reality, prices will likely suffer a strong upside shock, as probability of this event is low based on recent rumors and demand data. In my opinion, if OPEC extends current output settings, this should fuel prolonged price recovery, justifying short-term bets on oil growth. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
tickmill-analytics Posted March 9, 2021 Author Share Posted March 9, 2021 Major global funds could start portfolio rebalancing soon. What does it mean for stocks? China strengthened investors’ conviction in the global recovery with the latest trade data released on Sunday. The volume of exports gained impressive 60% YoY in January-February period. The reading was way ahead of market projections (40%). The February figure is a huge gain - 150% YoY. Undoubtedly, growth of China exports is also a merit of its trading partners, especially the United States, where economic growth in February could be the highest on record. This can be seen, for example, in the surge of GS Analytic Index to the highest level in many years: A similar jump is in the NY Fed Nowcast GDP forecast for the 1Q of 2021: The forecast was revised sharply higher thanks to strong incoming data and now stands at 8.5%. And that's without taking into account forthcoming government spending stimulus! Congress approved support measures of $1.9 trillion, but Monday moves in the US futures indicate that approval of the bill apparently has been priced in valuations. Equities remain under pressure as the stressful situation in US long-term rates has not gone anywhere. Moreover, last week's events (Powell speech, NFP release) only fueled the trend. I agree that the topic of erratic moves in the Treasury rates has set the tongue on edge, but the markets, in a sense, are now in unchartered waters – the good old Fed which expressed concerns about every ebb and flow in the market, has apparently gone. Therefore, repeated shocks in rates, such as the recent ones, should not be ruled out. We’ve seen their impact on equities and the risk of repeated volatility keeps buying pressure effectively in check. JP Morgan has discovered another channel of the impact of the recent Treasury selloff on the stock market – coming portfolio rebalancing of large pension and mutual funds. They will most likely significantly adjust the proportions of assets in the portfolio, due to accumulated overweight in equities as well as favorable conditions - stocks became quite expensive while bonds have fallen a lot. There are 4 big players to watch out for - balanced Mutual Funds (60:40), US Pension Funds, Norwegian Oil Fund and Japan Pension Fund. They make portfolio rebalancing at different intervals, but since some of them have called off the move, there is a risk of combined sell-off. For example, US mutual funds have a noticeable overweight in equity, which sooner or later will have to be adjusted: JP Morgan estimates cumulative potential outflow from stocks caused by the sale of these funds at $316 billion. Since the event (rebalancing) is more or less likely (the fund's strategy periodically requires this procedure), other market participants may be inclined to try to get ahead of the whales, which may increase near-term pressure on equities. Key events to watch this week: EURUSD – the weekly report of the ECB’s purchases within PEPP (pandemic QE” program) which is due today - will the ECB respond to the rise of EU bond yields? Increased bond purchases by the ECB should have negative impact on the Euro as it will signal that the ECB is concerned. On Thursday - the ECB meeting and again the question, what does the regulator think about the recent moves in bond yields? USD index - on Wednesday and Thursday - major auctions of 10- and 30-year Treasuries bonds. Week demand on these auctions (low bid-to-cover ratio) will likely add upward pressure on the yields, and vice versa, strong demand will bring welcomed relief to risk assets. Another report to watch is US CPI in February, which is due on Wednesday. Given the latest data on the NFP, a positive surprise is likely and should support upside movement in the USD. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
tickmill-analytics Posted March 10, 2021 Author Share Posted March 10, 2021 US 10Yr bond auction could weaken USD support Brisk recovery of risk assets on Tuesday, during which the Nasdaq recaptured almost half of the correction since February, gave way to more measured moves on Wednesday. Modest inflow into longer-maturity Treasury bonds caused the yield to retreat from local high of 1.6% to 1.54%. Yesterday's auction of 3-year Treasury notes was a moderate success allowing bond investors to collectively breathe out: However, bond yields resumed modest upside on Wednesday which apparently curbs optimism in risk assets and offers solid support to US currency. SPX and Nasdaq futures sway near opening, European equities also lack buying pressure. The Dollar sell-off on Tuesday drove the currency’s index to the lower bound of the current ascending channel. Potential break in the trend channel today or tomorrow could put an end to the short-term bullish USD move: Three key events that will determine the way forward in the near term are US inflation report, the $38 billion 10-year bond auction due today and the 30-year bond auction due tomorrow. Weak demand for long-term Treasury debt may cause new volatility in rates, which in turn could limit advance in equities, however, strong rebound of risk assets on Tuesday indicates that investors discount that risk. Tomorrow will be followed by an auction for 30-year bonds, which will be of interest for the same reasons. Key indicators that need to be monitored are bid-to-cover ratio (an indicator of strength of the demand), foreign sector demand and the actual yield at which the securities were sold. US consumer inflation is expected to accelerate to 1.7%, core inflation to 1.4%. The focus is on core inflation as the broad inflation could easily beat forecast due to higher fuel prices and cold winters in several US states which implies more spending on heating. An upward deviation from the forecast in core inflation will likely support upward trend in the USD and will probably initiate additional sales in gold, since in such a case, instability may reemerge in the Treasury market, where recent sell-off were caused by rise in inflation expectations and real rate. Recall that the markets are now worried about a possible spike in inflation due to a combination of pro-inflationary effects from a real economic recovery + fiscal stimulus from the government. Therefore, investors are now especially sensitive to inflation data. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
tickmill-analytics Posted March 15, 2021 Author Share Posted March 15, 2021 OPEC turns dovish on 1Q, 2Q oil demand, bond yields are on the rise again. Will stocks’ sell-off continue? Oil prices were under pressure on Friday thanks to stronger USD, rising US oil inventories and negative short-term outlook in the OPEC monthly report. The organization expects oil demand to grow stronger in 2021 than previously thought, however, pessimism about the first two quarters increased. Rising worries about short-term demand outlook appears to be the key reason behind extension of current output curbs in early March. According to the OPEC estimates, the demand for hydrocarbons will be noticeably weaker in the first half of the year than previously expected, but it will rebound strongly in the third and fourth quarters. The OPEC, apparently, counts on massive easing of lockdowns by that time: An additional constraint is created by prospects for increasing production outside OPEC - by 370K b/d in the second quarter. It seems clear that the OPEC is likely to take a pause in increasing production for another couple of months, probably till the end of this quarter. Oil prices have already taken into account extension of curbs, so further near-term growth prospects will depend on how much the mass vaccination outpace expectations in key economies-consumers of oil and resumption of activity in China after the Lunar New Year (after relatively weak PMI for January and February). Technically, the uptrend in oil has been extremely steep. Quotes drifted away significantly from key moving averages with the divergence from 200-day moving average increasing to the highest level since 2008: Price last met MAs in November 2020 - when the markets hit a turning point - the vaccine was announced. Prices are now near their 2-year highs. In addition, the market entered a phase where key positive catalysts on demand and supply side have been priced in, which leaves little room to extend rise. In my opinion, the market is at best poised to enter on a sideways trend for 1 – 1.5 month. EURUSD Downtrend risks in EURUSD have risen markedly since the ECB meeting on Thursday. The recent rise in EU bond yields did worry the regulator, since Lagarde said the ECB will significantly increase PEPP asset purchases in the next quarter. In contrast, the Fed said that nominal interest rates rose in response to growth in the economy, so no intervention was needed. The resulting divergence in policy of the Fed and the ECB is a signal for further selling of EURUSD. In addition, epidemic curves and pace of vaccinations in the EU cause worries about the outlook for economy reopening. Take, for example, the reports about slow pace of vaccinations and expectations of a third wave of the epidemic in the EU. In my opinion, the pair has every chance to drift lower to 1.18 by the end of March: Weaker-than-expected February US inflation and strong demand at the Treasury auctions failed to contain the rise of bond yields. On Friday, the sell-off on the sovereign debt markets resumed - 10-year bond yields in the US, Germany, Great Britain and Australia renewed uptrend. There is a risk of a new bearish retracement in equities and a wave of strengthening in the Dollar. Today and the beginning of next week, risk assets and gold are likely to stay in corrective mode, pushing USD back above 92.00, as it is not yet clear what could stop the renewed sell-off in bonds. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
tickmill-analytics Posted March 15, 2021 Author Share Posted March 15, 2021 EURUSD: tactical retreat continues on growing EU risks In the past few weeks, risk assets were shaken up by wild moves in interest rate markets. The surge in volatility was caused by the dump of fixed income assets, primarily by the outflow from sovereign debt markets of developed countries. Although intensity of the sell-off eased on Monday, further upside in yields is likely if incoming data continue to point to quickening economic rebound. Consequently, risk assets remain vulnerable to potential downside caused by yield spikes, as increasing base interest rates feed into other credit markets as well, pushing up borrowing costs for firms. More expensive liquidity means higher risks: In this regard, the main event of the week will be the Fed meeting on Wednesday. It seems that the Central Bank made it clear that the rise in yields is normal, however investors still expect the Fed at least to signal that it is ready to support the market (as the ECB did last week). The upcoming meeting in this sense will not be an exception. Particular attention should be paid to the Central Bank decision on extension of temporary exemption from the so-called supplementary leverage ratio (SLR). If the Fed does not extend the exemption, US banks will have to look for extra liquidity to bring capital adequacy ratios to the required levels. It is believed that they will do this by selling Treasuries from balance sheets. We all know what happens when Treasuries are sold a lot and quickly. Yes, equity markets collapse. To the day ahead the data highlights include US retail sales report. It is one of the biggest catalysts for short-term market volatility. Better-than-expected monthly growth of sales should add fuel to the US reflation story, adding bearish pressure on Treasury market, which may in turn affirm USD positions against other majors. Markets expect retail sales to nudge down by 0.6% and it is reasonable to expect that due to high-base effects. Recall that January growth was 5.3% and it should be difficult for retail sales to make additional gain. It will also be interesting to see what happens to consumer inflation in the EU. The CPI report is due on Wednesday. Risks are skewed towards a weaker reading than the forecast (1.1%) as we saw some reports last week indicating that the EU made tactical retreat extending lockdowns due to the threat of a "third wave" and slow pace of vaccination. In general, coronavirus situation in the EU remains tough, which is reflected in the weakness of European currency. Therefore, it may be worth to expect a negative inflation surprise and downside in Euro after the release. By the way, the latest COT data showed that speculators trimmed long positions in the euro, so fast rebound in EURUSD looks unlikely. Risks are on the side of weaker euro against USD for the next couple of weeks due to Central bank’s policy discrepancy, slowdown caused by extension of lockdowns and risk of fading inflation impulse: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
tickmill-analytics Posted March 19, 2021 Author Share Posted March 19, 2021 B] Key takeaways from the Fed meeting for equity markets[/B] The Fed meeting was not convincing enough to stop the rise in market rates. The yield on 10-year US Treasuries again renewed its local peak, exceeding 1.7% on Thursday. Acknowledging that GDP and inflation will grow at faster pace than previously forecasted, the Fed generally left its forecasts for a first rate hike unchanged - no earlier than 2024. QE at the current volume of $120 billion / month (80 billion Treasuries + 40 billion MBS) will continue until there is "significant progress in achieving unemployment and inflation targets." The Fed significantly raised its forecast for GDP growth - from 4.2% to 6.5% (Q4 2021 compared to Q4 2020), and inflation - from 1.8% to 2.2%. Nevertheless, the dot plot showed that the majority of FOMC members would not have voted for a rate hike before 2024. That is, the opinion of the majority, compared to the last meeting, has not changed. The number of FOMC participants awaiting an increase by the end of 2023 increased from 5 to 7, and those who would vote for an increase by the end of 2022 - from 1 to 4 participants. The situation is not easy for the Fed. On the one hand, recent economic data trumpet expansion and market participants demand that the Fed admit it by hinting at an earlier rate hike. We see this through the rise in market interest rates, growing inflation premium in bonds, various inflation swaps, etc.: If the Fed pretends that early rate hikes are out of the question, inflation expectations will accelerate growth (low Fed rate + strong economy = high inflation). On the other hand, if the Fed hints at earlier QE tapering or a rate hike - the expectation that the Fed will start selling bonds from the balance sheet earlier => another jump in yields upward (“the Fed will soon join the bond sale”). In both cases, rising market interest rates (borrowing costs) will slow recovery. It would seem, why not then declare that it is still not so rosy and low rates are justified? This would contain the rise in bond yields, but it could sow anxiety among market participants and derail the recovery as well due to wrong guidance. In general, Powell has to carry out a difficult balancing work at press conferences - to combine recognition of expansion, uncertainty about the future and, as it were, leave the possibility of an early increase in rates. The US economy is currently experiencing an increase in consumer spending and the number of jobs in the US, but on the other hand, the economy is still 9.5 million fewer jobs than it was a year ago. The unemployment rate shows an incomplete picture, as it does not take into account the unemployed who are not looking for work. So, for example, if unemployment in the United States fell from 10% to 6%, the labor force participation rate recovered from a minimum of 60.2% (May 2020) to only 61.4%, which is below the pre-crisis level of 63.4%. And if we look at the share of the employed in the working-age population (an even broader indicator), then it recovered even worse after the crisis: In my opinion, the Fed would like to see this figure at 60% before starting to normalize policy. The catch is, it's hard to predict when this will happen. With fiscal incentives - maybe this year. Then the markets will have to prepare for a rate hike. This is why markets tend to get ahead of the curve now. As a result of the meeting, one thing became clear - long-term rates will continue to grow, which will neutralize the positive effect of fiscal stimulus on stock markets. Waves of sales in bonds, which, apparently, will still occur, since the path of yields upward is open, will cause, according to the well-known scenario, corrections in the stock markets as well. Growth is likely to be, but not as smooth as we would like. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
tickmill-analytics Posted March 21, 2021 Author Share Posted March 21, 2021 Oil, USD and Gold: trading ideas for the week ahead Relief in the equity markets after the Fed meeting was short-lived - yet another spike in Treasury rates knocked down oil, growth stocks. Nasdaq lost 3.02%, the biggest daily drop in several months. Oil closed with 7.6% loss, with maximum decline reaching 9%. Oil market rout was the most intense since October last year. Markets are increasingly nervous about the situation with coronavirus in the EU countries, where lockdowns, disastrous for economic activity, are either reintroduced or extended. Increasing incidence rate in Germany does not let the government to ease restrictions, with third lockdown in sight as hinted by the local Ministry of Health today. The outlook for economy reopening deteriorates. The recent backwardation in term structure of Brent and WTI (when short-range contracts are more expensive than long-range contracts), which indicated strong current demand, is either decreasing or turning into contango (short-range contracts become cheaper than long-range contracts). Basically, time spreads in oil indicate a pause in the uptrend. On the daily chart, the drop was picked up exactly on the 50-day DMA: In the short term, the former uptrend line (point 61.50) will already act as a barrier to growth. After such a strong fall, the shock to buyers is unlikely to pass quickly - the most likely development of the market is a sideline movement with a retest of $60 round support before the market gathers strength and continues to rise as there are plenty of reasons for this. The dollar should also contribute to the moderate dynamics of oil. The fact of the approval of fiscal stimulus has been priced in, but it remains uncertain how much households will spend in consumption and how much will go into savings. In the data, this will manifest itself gradually. What has not been fully taken into account in asset prices is the high rate of vaccination in the United States, which will allow the lockdown to be completely lifted earlier than previously thought. We all know what consequences such expectations have for the Treasury market (continuing increase in nominal rates). By the way looking at weekly timeframe it becomes clear that the Treasury rates are at their historical low, so the recent increase is a drop in the ocean, so to speak. The growth in February-March on the scale of decades is just a minor rebound from the all-time bottom. Further expansion of interest rate differential (US rates minus other countries rates on fixed income) may turn more capital flows into US assets which is a factor in the demand for the currency. Technically, the steep uptrend of the dollar broke off the week before last - the index went into the range, 91.40 - 92.00, the Fed could not help. Exit from the range in my opinion is upwards, we can consider the target 92.50 (the previous March high): In gold, the main driver is related to the reasoning above - real interest rates in the US. This is the opportunity cost for gold (what we miss in terms of return with the same level of risk when we choose to hold gold). The real rate is rising and based on US growth forecasts, the coming consumer boom will be higher this year. Therefore, all upward movements of gold, within the framework of close correlation with the real rate, are rebounds in the downtrend: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
tickmill-analytics Posted March 25, 2021 Author Share Posted March 25, 2021 These moves in asset prices should put investors on alert Risk assets were sold off moderately on Tuesday while there was a solid interest in debt assets, which is evident from synchronous fall of yields on sovereign debt of developed countries. This distinguishes Tuesday pullback from the dips that we saw earlier in February in March – in contrast, they were fueled by sharp sell-off in bond markets, i.e., rise in yields. If we assume that the idea of post-pandemic recovery still remains a dominant market theme, rising bond prices together with falling stocks should put us on alert, as the pattern belongs to classic risk-off environment. So maybe investors started to doubt about recovery? Looks reasonable, considering that oil has spookingly grown a second leg down, and small-caps, which have experienced a renaissance since November, were sold aggressively: The yields on sovereign debt in developed countries began to decline at about the same time: Oil prices bounced down from the trendline after the breakout, in line with the idea described earlier: Based on the widespread pullback movements in assets or asset indices, which were used to bet on the recovery, we can conclude that recovery euphoria gives way to more cautious markets. At least in the near-term. A key ingredient of continuation of recovery is a clear timeframe of lockdown lifting in the key economies, which markets currently lack for. With recent developments in vaccination programs and lockdowns, expected dates of getting key positive catalysts were delayed again. In my opinion, the case of consolidation in one week – one month horizon strengthens. On the technical side, some equity indices are currently playing with key resistance areas with little fundamental backdrop to expect true breakouts. Also, strong performance of equities relative to bonds let us expect a significant quarterly rebalancing of large funds which buy stocks and bonds. The rebalancing will obviously lead to paring down share of equities in portfolios and increasing exposure in well-fallen bonds. The risks that sell-off will develop into a full-fledged bear market are small. The main recovery impetus is still in stock and has not been used up. This is the complete removal of lockdowns and release of pent-up demand. For example, it can be seen that forecasts of leading central banks and oil agencies have the biggest optimism in the third-fourth quarter of 2021 – they anticipate that the bulk of social restrictions will be lifted by that time giving essential boost to consumer mobility. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
tickmill-analytics Posted March 29, 2021 Author Share Posted March 29, 2021 Oil and EURUSD set to rebound next week but it may hide a selling opportunity The news continues to be full of headlines that discourage risk appetite. Among them – a new all-time high in daily Covid-19 cases in Poland and gloomy forecast for the course of the third wave from the German Ministry of Health without additional restrictions. Nevertheless, risk assets are successfully developing a technical rebound on Friday. Why technical? First, the intraday growth is moderate, not exceeding 1% in the main indices. Secondly, a fairly spoiled news background can be fixed only by a decline in infection rates, which obviously will not happen overnight. The peak of pessimism in this regard has not been reached. Thirdly, the quarterly rebalancing of large funds, during which they will have to reduce the weight of shares in portfolio and increase the share of cheap bonds, has not yet been completed. The blockage of the Suez Canal counterbalanced the virus story, causing prices to rise. Risk-on in the commodity market then spread to risk assets. But let’s keep in mind that supply chain disruptions are temporary. As soon as the movement in the channel recovers (1-2 weeks), the market will again be absorbed by fears of fragile demand due to the third wave, which will certainly not go anywhere by that time. As for the technical picture for oil, a series of recent dips have invalidated the bullish trendline that has been running since November 2020. The breakout has led to a shift in sentiment in the short term, resulting in a short-term bearish channel: The story with the blocking of the channel increases chances of a short-term rise in oil, however, the main resistance in this rise may be located at around 60.50 (the upper border of the channel). It should be borne in mind that on April 1, OPEC will again decide how to adjust production in response to the deteriorating market conditions. In my opinion, OPEC has already surprised by leaving the restrictions at the same level at the last meeting, so on April 1 there will be disappointment. EURUSD has reached the target proposed in yesterday post - the lower border of the current trend corridor. I expect the pair to rise next week to the level of 1.183-1.185 (a repetition of the previous scenario with testing 1.1955), followed by a drop back below 1.18: The catalysts for the weakening could be data on inflation and the German economy or worsening epi curves or new measures in the EU to contain the virus. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
tickmill-analytics Posted April 5, 2021 Author Share Posted April 5, 2021 Strong March NFP suggests more US data surprises to come The US jobs market data in March were really impressive. Given momentum effect in the labor market and still incomplete recovery in consumer mobility, payrolls growth April may top 1 million. It means the odds of more economic surprises in the US from the key macroeconomic areas are quite high, which justifies elevated market expectations about US assets and USD performance. We cannot rule out that US labor market can achieve pre-pandemic levels by the end of the year which will certainly trigger premature Fed tightening. For now, it remains a tail risk. The solid report on the US labor market for March indicated the growth of jobs by 916K against the 660K forecast. The payroll readings for the previous two months were revised upwards by 156K. Employment in the private sector rose by 780K, while the currently not very indicative unemployment rate fell to 6%. Employment growth overtook the forecast thanks to warm weather which additionally boosted mobility and some economic sectors like construction, strong vaccination program in the US and economy reopening efforts from individual states, which boosted consumer sentiment, business climate, activity and labor demand. Improved weather helped construction sector to boost hiring by 110K, continuing easing of restrictions led to an increase in jobs by 280K in the leisure and hospitality industry. Public sector employment increased by 136K. However, in no industry has demand for labor recovered to pre-crisis levels. Expectations for the jobs market performance in April are high due to two reasons. Firstly, consumers mobility still has room to recover. Secondly, it’s reasonable to expect that recovery will continue given positive trend in reopening and non-stop supportive government measures. The following shows the dynamics of restaurant reservations for some key states, as well as the number of security checks at airports: Source: ING It can be seen from both charts that all the curves (with the exception of Miami table reservations) are still below the pre-pandemic level, so recovery still has a room to go. Consequently, the demand for labor should continue to grow. Despite the positive NFP update, there are 8.4 million fewer jobs in the US economy than it was before the pandemic. The Fed has signaled that it will not raise rates until 2024 until there is substantial economic progress. Given their lukewarm attitude towards rising inflation, it is clear that they want to see jobs return to pre-crisis levels. Officials' comments make it clear that unemployment is now giving false signals due to the large number of demotivated workers. Now only 57.8% of the working population is employed: This is very low and, in some respects, comparable to the employment rate of the 1980s. To reach pre-crisis levels (labor force participation rates above 60%), the labor market should add at least 6 million jobs. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
tickmill-analytics Posted April 8, 2021 Author Share Posted April 8, 2021 Upbeat soft data in the EU fuels tactical retreat of USD Indices of activity in manufacturing and services sector in the EU indicated a welcomed expansion in March. However, it came with a decent delay due to lockdown extensions. Compared to the pace of recovery in the US, it’s still just a minor uptick. Nevertheless, it was enough for Euro to break a series of falls as there was a bunch of risks associated with extended lockdown which were priced in the European currency. The March data eased concerns about worst-case scenario for the EU and helped to downplay impact of slow vaccinations and lockdown pressure on business sentiment. EURUSD is developing a rather rapid upward movement, while USD index broke the main uptrend channel which casts doubts on immediate continuation of the advance: Improving demand for Treasuries also played against the US currency. The yield on 10-year notes continues to decline after reaching a local peak of 1.774% on March 30. In my view it’s just another break in the broad downtrend. Labor market data, ISM indices, in particular the components of new orders and expectations, consumer mobility indices call to prepare for new surprises in April, so the positive impact of the flight from long-date Treasuries on the dollar should still remind of itself in the near future. The recovery in the Eurozone was quite synchronous: Markit pointed to the growth of business activity in Germany, Italy, Spain and Ireland, both in services and in manufacturing. Together, these four countries account for three quarters of the Eurozone's economy. Firms see a surge in orders in the United States against the backdrop of the lifting of restrictions, so they are too very optimistic about the near future. Today, clues about the further behavior of the dollar should be looked for in the minutes of the Fed meeting for March. Expectations are modest – reiteration of the mantra of ultra-easy monetary policy despite all the optimism taking place in the data. Still, there are fears that the dynamics of inflation will cause discomfort among officials. Therefore, if there is even a slight bias towards hawkish policy, even a hint of an earlier curtailment of QE, it will certainly resume the growth of Treasury yields and support the dollar. In general, it is too early to write off strong dollar. On the other hand, the risks of weak vaccination rate in the European currency may be eliminated by news refuting the connection of the Astra Zeneca vaccine with blood clots. This will signal a recovery in vaccination rates - a key component of expectations that immunization targets will be met earlier and mobility will recover faster. From a technical point of view, the upward correction in EURUSD may hit the 1.1930 - 1.1960 zone before we could start discuss resumption of USD rally: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
tickmill-analytics Posted April 13, 2021 Author Share Posted April 13, 2021 Strong US CPI May Trigger Treasury Sell-off, Dollar Rise Summary - Long-dated bond yields picked up ahead of US CPI release, increasing odds of USD rebound; - Solid China trade data, in particular growth of imports, underpinned oil prices. Calm in the equity markets extended into Tuesday with US equity index futures swaying near the opening. However, debt markets appear to be strained. Bond yields advanced as the risk of higher inflation rates re-emerged in the past and this week’s data. Today US consumer inflation report is due and there are good reasons to expect a surprise on the upside. The fact is that inflation on intermediate goods (PPI) in China and the United States came materially higher than forecasts in March, which is likely to affect the final prices due to cost-push inflation pressures. A strong CPI reading will most likely wake up the bears in the Treasury market, and again we will see a renewed uptrend in yields and USD. EURUSD will probably not hold at the current levels and likely go down to 1.1850-1.1860, given tepid behavior of the buyers after reaching 1.19 mark: Accordingly, a breakout of 1.70% level in 10-year Treasury Note yield may become a technical signal for resumption of the rally to new local highs. The factor of Treasury sell-off, as shown by the dynamics of USD in March and February, is probably the most import in the currency’s strength. ZEW report on corporate sentiment in Germany, which is usually of high importance, can be ignored, as investors focus on data on vaccination pace, as well as news on the European Recovery Fund, which still has a long way before approval and which could be the factor of Euro strength, similar to fiscal stimulus in the US. China foreign trade showed mixed dynamics - export growth did not meet expectations, but imports accelerated significantly (38.1% versus 23.3%). Details also showed that China ramped up oil purchases, which came as a surprise. Oil prices rose moderately, but the focus is on successes or failures in suppressing the virus. The situation in this regard is very ambiguous - the deserted streets of India due to record daily growth on the one hand and the rapid recovery of mobility in the United States or Great Britain due to the weakening of the restriction on the other. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
tickmill-analytics Posted April 17, 2021 Author Share Posted April 17, 2021 Markets are not afraid of US inflation risks Summary: - Markets reaction to US inflation report was rather restrained, which came as a big surprise and has medium-term implications for USD; - The basis of bearish pressure in GBPUSD is largely lockdown-related risks, the chances of which are falling. Despite highly upbeat reading of US March CPI, markets’ reaction to the event was quite unusual – long-dated Treasury yields skid, pulling lower disappointed dollar. This suggests that the prospects for inflation and growth are largely factored into valuations - the market has gone far ahead in its inflation outlook and will be difficult to surprise. At the same time, the number of arguments against buying the dollar is growing - the net position of speculators in futures has approached neutral (net short is only 2% of open interest), which reduces the opportunity for short-squeeze, the Fed is resolutely rejecting speculations about tapering of asset purchases, and on the other side of the Atlantic, economic activity is reviving, making growth more synchronous, which takes the advantage off the USD. EURUSD continued to rise, thereby completing the "flag" pattern (one of the trend continuation patterns). However, now the pair is in the area of overlap of the upper bound of the downward trend channel and key horizontal level. The previous attempt to break out and go beyond the upper border of the corridor in a similar situation ended unsuccessfully, and sellers retained control. Successful consolidation above the level of 1.1950 may be considered as a signal that the pair is returning to a medium-term uptrend: The pound sterling came under pressure yesterday after news that the chief economist of the Central Bank is leaving his post. Andrew Haldane was one of the main hawks in the Central Bank of England, so the path to raising rates may be longer, due to decline in the general policy bias of the Central Bank to quickly normalize credit conditions. However, the main focus remains on the pace of vaccination and the UK is doing well in this. Among the latest news, England's superiority in this regard is notable - take, for example, the fact that more than half of the adults in the country received the vaccine. In the GBPUSD pair, after the correction from 1.40, many risks related to the last lockdown remain priced in, which, as time shows, are unlikely to materialize. This justifies gradual strengthening of the pound against the main peers - EUR and USD. On the technical front, the pound is likely to test the upper boundary of the correctional channel (1.3850) against the backdrop of retreating USD: Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
tickmill-analytics Posted April 17, 2021 Author Share Posted April 17, 2021 Shale oil is slow to recover removing on the key caps for oil price growth The data on US crude oil inventories has brought noticeable relief to the market, once again hinting on lack of shale oil output rebound, despite warming weather and strengthening demand. Inventories dropped by ~5.9 million barrels last week, more than double than the forecast. Gasoline inventories declined more than expected as well, indicating that consumer demand remains strong. The report apparently came as a surprise to the market. Oil prices jumped upwards on the release, breaking through the trading range that formed after the last oil mini-collapse: Production in the US is indeed recovering slowly despite increasing rig count. It means that on the supply side, the picture is still quite favorable for price growth: The IEA's monthly report released on Wednesday also pushed prices higher. The agency has significantly raised its forecast for oil consumption in the second quarter of 2021, which makes it possible to expect the market to better cope with the forthcoming increase in OPEC production. The geopolitical factor also accompanies the rise in oil prices. The chances of a quick conclusion of a nuclear deal between Iran and the United States have decreased due to the escalation of the conflict between Israel and Iran, which means that a quick return of Iranian barrels to the market (with a potential of 2 million bbl/d) is not to be expected. Another piece of data on inflation in the US again exceeded expectations, but assets’ market lacked response. Import and export prices for March were significantly higher than the forecast, indicating that supply is not keeping up with demand. This is a perfectly reasonable assumption, given the series of fiscal stimulus in the US that has sparked a surge in consumer demand. By looking at prices in terms of their signaling function to producers, firms will start adjusting their output in response to price increases, so we first need to see inflation. It is becoming increasingly difficult for the Fed to maintain the status quo against the backdrop of hints of inflation coming from “all the cracks in the economy”. Therefore, commenting on what is happening, officials are increasingly saying that inflation is not a problem and monetary stimulus are not endless. Yesterday the head of the Central Bank Powell said that the curtailment of QE will begin "much earlier" than the rate hike, and the Fed is going to keep rates at the current level at least until the end of 2022 (previously the deadline was until the end of 2023). The early withdrawal of monetary incentives is one of the main threats to the growth of risk assets. An important component of their fundamental assessment is the cost of credit, which justifies their high sensitivity to any hints about an early tightening of the Central Bank's policy. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
tickmill-analytics Posted April 18, 2021 Author Share Posted April 18, 2021 Falling yields open opportunity to short Gold The most notable move in asset markets this week was collapse of US yields. The 10-year Treasury yield, which has exploded since the start of the year on accelerating inflation expectations, tumbled to the lowest level since early March: Most interestingly, this happened against the backdrop of the release of quite pro-inflationary reports - strong US CPI, stellar retail sales, US labor data. Recall that in March, consumer inflation in the US accelerated to 2.1% YoY, retail sales by 9.8% in monthly terms while unemployment claims rose by 576K (the lowest since the beginning of the pandemic). All three indicators beat forecasts, however expected sell-off in bonds never happened. Moreover, investors began to flow back en masse to long-term bonds. As a result, gold skyrocketed due to lower opportunity costs and the dollar came under pressure. The strange bond move could be explained by heightened geopolitical tensions, in particular, between Russia and the United States over the Ukrainian issue. There were also reports that the downward movement of yields triggered coverage of short positions in the Treasuries, one of the backers of which was "Bond King" Bill Gross. At the beginning of the year, he advocated shorting Treasuries on a potential surge of inflation. Inflation did accelerate, but there was no surge, so his bond position and his followers could be under pressure. In my opinion, yields will not be able to hold out for a long time at the levels where they are now after a fairly rapid pullback. The reason for this is unchanged inflation trend in the United States. Recent economic data marked beginning of the accelerating trend in price growth. There are no potential catalysts on the horizon for a sharp slowdown in inflation or that could lead to inflection points in the trend. Considering the instruments most available to trade this idea, gold is striking. It is currently approaching the upper border of medium-term downward trading corridor ($1800) … …which could be a good selling opportunity if we bet on integrity of the channel. Surely this will require a resumption of growth in yields, but there are all the prerequisites for this. The most important of these is continuing trend in lifting of social restrictions and subsequent emerging consumer impulse that generates price increases. In Europe and in a number of other countries, it is still waiting for its moment. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
tickmill-analytics Posted April 21, 2021 Author Share Posted April 21, 2021 EUR, GBP and JPY: near-term technical setup against USD The most notable event in FX market on Monday was steep fall of the greenback. The currency index erased half a percent through rather sharp downward moves, which could indicate a large dump. The US currency has been taken away one of the key footholds – ssell-off in long-dated US Treasuries. Massive sales observed in February and March has been fueling demand for cash, however, this driver has suddenly lost steam last week - strong pro-inflationary data in the US (CPI, retail sales) for March met relatively tepid reaction of the bond market. Apparently, this forced dollar holders to ditch the currency. Analyzing the possibility that the dollar will continue to fall, it is worth paying attention to the technical situation in the pair with the main rival - the euro. Earlier, we discussed a scenario where price after breakout of the horizontal + sloping resistance level (1.1950-60) may set the stage for protracted euro rebound if it stays above the level for several days. Price action on Monday indicates realization of this setup: The ECB decision this week may open up additional growth prospects for the European currency. If the Central Bank sees optimism in the data and speaks less about the need to maintain huge asset purchase stimulus, the euro will get a support factor in the form of the European Central Bank’s slightly less dovish stance. Chances abound due to unexpectedly strong European data for March. The dollar's downward jerk also affected GBPUSD - the pair broke through from the bottom up the correctional channel, which has been going on since March, which opens the way to 1.40 after a technical pullback: The movement could be catalyzed by employment and inflation data on Tuesday and Wednesday. Particular attention should be paid to the inflation report, as due to the rapid pace of vaccinations, the chances of seeing a consumer boost in March are high. USDJPY did not stand aside either. However, it should be borne in mind that technically the yen was strengthening extremely quickly against the dollar (hourly RSI is below 20 ppoints), which increases the chances of a rebound. Potential entry area - intersection with the medium-term trend line (107.60-70): Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
tickmill-analytics Posted April 27, 2021 Author Share Posted April 27, 2021 Pressure on USD rises ahead of possible dovish Fed move The CFTC data showed that net long speculative position on EURUSD rose last week, which suggests the shift in sentiment on the pair is under way after protracted squeeze of long positions. Historically, the euro net long position is within one sigma, i.e., far from extreme levels and there is still room for bulls to ramp up pressure. Speaking of the short term, there was no particular rush of buyers after the test of 1.21 on Monday - the major move is most likely set for Wednesday, when the Fed will clarify the course of US monetary policy. And again, the main question is when to expect unwinding of current pace of QE purchases. Long-dated Treasury yields advanced on Monday, signaling return of inflation concerns as well as worries about possible Fed meeting outcome where the regulator hints that reduction in credit stimulus could begin in the less distant future. The European currency is also drawing strength from progress on the fiscal front. Positive news on the European recovery fund (large-scale fiscal stimulus) triggered some sell-off in European bonds, due to reassessment of inflation expectations. The yield on 10-year German bonds is again moving towards the local high of this year (-0.217%), while the sell-off appears to be stronger than in long-dated Treasuries: The dollar index is moderately correcting downwards, having touched the lowest level since the beginning of March (90.65). Despite the coronavirus crisis in one of the largest emerging economies (India), expectations for a global recovery persist, as evidenced by the positive dynamics of industrial metals prices. Iron ore and copper have resumed their uptrend since early April, reflecting expectations that demand will continue to rise: The theme of recovery this week may be supported by the data on the US economy, in particular GDP, orders for durable goods and claims for unemployment benefits. Output growth in the US economy for the first quarter is expected to be an impressive 6.1%. Given benign environment, better-than-expected data updates should fuel risk appetite. If the Fed gives a signal that it will tolerate overheating of the economy, there will be even less sense to stick to USD positions till the next meeting. Joe Biden's first speech to Congress will also take place this week, in which he can provide more details on tax reform. For risk assets, the details are likely to be negative, so US indices are likely to decline ahead of the speech. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
tickmill-analytics Posted April 29, 2021 Author Share Posted April 29, 2021 “Frozen” USDCAD and the upcoming Fed meeting: markets overview FX and sovereign debt markets are bracing for the bout of turbulence ahead of the Fed event today. Despite success in spurring inflation growth, the Fed’s message will likely remain unchanged – substantial observed progress in employment is an essential condition to depart from accommodative policy. Yield differential between the 10 and 2-year Treasuries will likely extend gains on a dovish message - which should support EM currencies as well as Norwegian krone and CAD. US long-dated yields have rebounded ahead of the Fed, halting decline which lasted about a month: The US dollar were also offered support thanks to signs of renewed bond market rout and set to test the upper bound of downward channel in which it currently resides: Inflation premium in long-dated Treasuries could be fueled by the US consumer sentiment report released on Tuesday. Consumer sentiment index jumped to 121.7, the highest since February 2020. The report reinforced fears that supply in the economy is not keeping pace with rebounding consumer demand, which should result in faster inflation. There are signs on the supply side that justify those fears: for example, quickly rising maritime shipping rates or, for example, updated profit forecast of the largest container operator Maersk. The company has doubled its profit forecast for 2021 due to "exceptionally strong" demand for its logistic services. Given these findings, if the Fed continues to cling to the transient inflation argument today and leaves QE timeframe unchanged, the US real rate will be under pressure again. This time, however, we have less patchy global growth, so there are plenty of alternatives to US fixed income assets. This should stimulate the search for yield abroad. The effect on the dollar appears to be negative. However, pressure on USD will likely be uneven. Given positive correlation of yielding currencies with the spread between 10-year and two-year US government bonds, in particular the Canadian dollar, today's message from the Fed may open way for their further rally. By the way, the CAD has been behaving strangely in the couple of last days, fluctuating in a very narrow range after strong sweeping moves earlier: Continuation pattern? Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
tickmill-analytics Posted May 2, 2021 Author Share Posted May 2, 2021 “Frozen” USDCAD and the upcoming Fed meeting: markets overview FX and sovereign debt markets are bracing for the bout of turbulence ahead of the Fed event today. Despite success in spurring inflation growth, the Fed’s message will likely remain unchanged – substantial observed progress in employment is an essential condition to depart from accommodative policy. Yield differential between the 10 and 2-year Treasuries will likely extend gains on a dovish message - which should support EM currencies as well as Norwegian krone and CAD. US long-dated yields have rebounded ahead of the Fed, halting decline which lasted about a month: The US dollar were also offered support thanks to signs of renewed bond market rout and set to test the upper bound of downward channel in which it currently resides: Inflation premium in long-dated Treasuries could be fueled by the US consumer sentiment report released on Tuesday. Consumer sentiment index jumped to 121.7, the highest since February 2020. The report reinforced fears that supply in the economy is not keeping pace with rebounding consumer demand, which should result in faster inflation. There are signs on the supply side that justify those fears: for example, quickly rising maritime shipping rates or, for example, updated profit forecast of the largest container operator Maersk. The company has doubled its profit forecast for 2021 due to "exceptionally strong" demand for its logistic services. Given these findings, if the Fed continues to cling to the transient inflation argument today and leaves QE timeframe unchanged, the US real rate will be under pressure again. This time, however, we have less patchy global growth, so there are plenty of alternatives to US fixed income assets. This should stimulate the search for yield abroad. The effect on the dollar appears to be negative. However, pressure on USD will likely be uneven. Given positive correlation of yielding currencies with the spread between 10-year and two-year US government bonds, in particular the Canadian dollar, today's message from the Fed may open way for their further rally. By the way, the CAD has been behaving strangely in the couple of last days, fluctuating in a very narrow range after strong sweeping moves earlier: Continuation pattern? Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
tickmill-analytics Posted May 4, 2021 Author Share Posted May 4, 2021 Continuing US bond rout may offer some support to USD next week Incoming economic data of developed economies in the second half of the week, dynamics of commodity prices (record price of steel futures) added fuel to the flight from long-dated bonds: US GDP growth beat forecast in the first quarter of 2021, averaging to 6.4%, while quarterly inflation measured through GDP growth accelerated to 4.1% against expectations of 2.5%. Despite weak output in Germany and threat of technical recession in the first quarter, price growth there also accelerated above expectations in April. US unemployment claims that came on Thursday were slightly weaker than the forecast - both initial and continuing claims gained more than expected, nevertheless, the markets are bracing for a very strong increase in the April NFP of 925K. The report is due for release on next Friday. If job growth meets expectations or even beats forecast, rumors that the Fed will move to tapering earlier than previously expected should increase, as according to the Fed, substantial progress in employment is the key goal of ultra-easy credit policy. Inflation expectations are also set to accelerate in this case, fueling more upside in yields which in case of rapid movements may offer support for USD. It is clear that US debt market became more concerned about the threat of inflation this week. However, in the current environment, inflation is a synonym of expansion, which means demand for risk is likely to stay here as the dominant market theme. At the very least, it is difficult to expect that there will be a reason for a collapse and even a correction. The Fed added fuel to the fire on Wednesday, once again declaring that "it is not time to even discuss the changes in QE purchases". Cheap credit policy, coupled with economic pickup will likely continue to push prices up and the risk that inflation will accelerate haunts bonds. The Fed stubbornly denies that inflation will be here for a long time and is trying to convince market participants of this. As you can see, it doesn't work out very well. The dollar sank after the Fed meeting, but is trying to recover for the second day in a row. Yesterday, consolidation above the upper border of the descending channel failed, but on Friday the chances of this are much higher: Next week we may see a slight strengthening of the dollar towards 91.00-91.20 amid bond pressure ahead of a possible NFP surprise. The bar to surprise is very high and if the report fails to meet expectations, USD will likely start to drift lower from those levels. Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company. High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% 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. Quote Link to comment Share on other sites More sharing options...
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