Daily Market Analysis and Forex News

Investors kicked off Monday in a cautious mood as the Covid menace hijacked the headlines. 

According to the World Health Organisation (WHO), the number of new global coronavirus cases surpassed 5.2 million last week – the most in a single week since the pandemic began.

It did feel like a sluggish start to the week, especially when considering how the calendar was void of any major economic releases from the United States, United Kingdom, and Europe. 

In our technical outlook, we covered the not so mighty Dollar which got hammered by G10 currencies. The Dollar Index (DXY) has shed roughly 0.7% this week with prices trading around 91.06 as of writing. With the fundamentals favouring a weaker Dollar and the technicals illustrating a bearish picture, further losses could be on the cards for the rest of April.

Our stock of the week was Netflix which released its Q1 earnings after US markets closed on Tuesday. Let’s just say that the company kicked of FAANG earning season with a disappointing report after subscriber additions fell well below Wall Street estimates.  

Another currency that caught our attention was the British Pound. Pound bulls were on a tear on Monday, trampling most major currencies amid the recent easing of lockdown restrictions and roll-out of Covid-19 vaccines.

However, bulls were unable to maintain the momentum with the Pound later weakening across the board. 

We highlighted how the 1.40 level will be a tough resistance to crack on the GBPUSD. Sustained weakness below this level could invite bears back into the game.

Mid-week, Canadian Prime Minister Justin Trudeau announced that the country will keep its border restrictions for another month.

Equity bulls were back in action on Wednesday despite the concerns over rising Covid-19 infections in Asia. Although investors may turn to robust earnings and encouraging data to elevate equity markets, the Covid-19 fears could sap risk appetite. The S&P 500 is down roughly 0.8% this week and Nasdaq has lost over 1%.

The mood across markets soured on Thursday following reports that President Joe Biden could raise capital gains tax for the wealthy. According to Bloomberg, Biden is considering nearly doubling tax to as high as 39.6% on individuals earning $1 million or more.

In Europe, the European Central Bank (ECB) kept monetary policy unchanged as widely expected. The Euro has appreciated against almost every single G10 currency excluding the Japanese Yen this week. 

Looking at the technical picture, EURUSD is bullish on the daily chart. Prices are likely to push higher if 1.20 proves to be reliable support. 

In regards to commodities, it has been a choppy week for Gold. The commodity is basically flat for the week despite being supported by a softer Dollar and falling Treasury yield. With surging Covid-19 cases in Asia fostering a sense of caution and the Dollar still under pressure, Gold could rebound in the week ahead. 

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

US stocks took a step back on Thursday, amid reports that President Joe Biden could impose a higher capital gains tax rate of 39.6% on individuals earning US$ 1 million or more. Such headlines moved markets into looking past the lowest weekly US jobless claims in a year, and perhaps prompted wealthier investors to book in some profits yesterday before the higher taxes kick in. They'll surely be eyeing the official tax rate that POTUS will unveil before Congress on 28 April.

Following the news by Bloomberg, the S&P 500 went on to register its biggest single-day drop since 18 March, falling by 0.92% at yesterday’s close. The Dow also declined, shedding 0.94%, led by the materials sector.

US tech stocks took a bigger hit yesterday, with the Nasdaq 100 falling 1.24% to drop below its February cycle highs.

Big Tech companies are seen to be more exposed to the threat of higher tax bills.

Noting that tech giants such as Apple and Microsoft have revealed overseas profits exceeding US$100 billion, they are seen to be prime targets to help fund the Biden administration’s spending plans. Recall also earlier this month, the Treasury Department announced plans to raise the corporate tax from 21% to 28%, although a compromised 25% is likelier to be the final outcome.

Note that these are just proposals at this point in time, and have yet to be passed by lawmakers. Still, given the forward-looking nature of the markets, it hasn’t stopped markets from reacting to such risks. The Biden policy pipeline remains a key risk that global investors will have to continuously monitor.

Despite such bumps along the way, as highlighted in yesterday’s report, stock markets are still expected to explore more of their upside potential.

At the time of writing, the futures contracts for all 3 benchmark US indexes are edging higher.

EURUSD little changed after ECB meeting

The European Central Bank kept its policy settings unchanged at yesterday’s rate meeting, as widely expected, while ECB President Christine Lagarde said little to rock the boat. Lagarde stated that the central bank isn’t yet entertaining the thought of reining in its emergency bond-buying programme, amid green shoots of an economic recovery, buffered by higher vaccination rates and the prospects of 800 billion euros in fiscal stimulus being rolled out later this year.

However, Lagarde did say that the ECB will keep a close eye on the shared currency, considering that a stronger euro could serve as a drag on import prices which would influence inflationary pressures onshore, while making European exports less affordable to its global customers.

Such commentary suggests that the euro might have a tough time matching its highs against the greenback from earlier this year, despite the softer dollar environment that we are witnessing currently. And given that the euro accounts for 57.6% of the benchmark Dollar index (DXY), a euro that is prevented from taking full advantage of the softer buck may in turn offer support for the DXY.

As things stand, the world’s most traded currency pair remains hemmed in by the psychological 1.20 level and its 100-day simple moving average (SMA).

What are markets looking out for on Friday?

Global investors will be eyeing the April preliminary PMI figures out of the US, UK, and the Eurozone today.

These economic data are mostly expected to march further into expansionary territory, as denoted by a print above the 50 line, except for the Eurozone’s services sector.

Even as they digest the latest developments surrounding the pandemic, and also the prospects of higher taxes in the US, market participants who still harbour a healthy appetite for risk-taking activities would be hoping that the optimism surrounding the global economic recovery would remain intact and help stock markets end the trading week on a positive note.

There remain enough reasons to expect further gains for risk assets, considering the continued rollout of the Covid-19 vaccine around the world, and the continued fiscal and monetary policy support across major economies.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Asian and European equities along with US futures rose ahead of what is expected to be a busy week on all fronts. While market watchers will keep an eye on the global rise of COVID-19 cases, central banks in Europe, Japan and Canada will provide some insight into whether cheap liquidity will continue to flow over the foreseeable future. China’s GDP is due to be released on Thursday and is likely to mark a steep recovery from the 6.8% contraction in the first quarter, and EU leaders gather on Friday to determine the fate of an ambitious recovery fund. There will also be several pieces of US data that will indicate whether the rebound in economic recovery remains in place. However, it is the earnings season that is likely to determine if stocks continue to move higher from current levels.

According to Factset, the S&P 500 is expected to report a decline of 44.6% for the second quarter. Assuming the aggregate earnings beat forecasts by 5%, the index will still end with a 39.6% fall in profits. Even the most optimistic scenario will show the largest year-on-year decline in earnings since the Great Financial Crisis. If investors were taking the loss in Q2 earnings and revenues into consideration, it follows that stocks should not be trading at current levels. In fact, investors are looking post-Q2 with the hope that lost revenue will be recovered in the second half of this year and into 2021. That is the V-shaped recovery every stock market bull is betting on.

What CEO’s say on earnings calls will be of greater influence than what the numbers say. In the last quarter, only 10% of S&P 500 companies issued EPS guidance compared to an average of 20%. Given that we are already more than six months into this pandemic, corporate leaders should have more clarity on how their businesses will operate over the second half of the year. To keep the bull market alive, it requires an optimistic tone reflecting the V-shaped recovery that confident investors are looking for. That is especially the case for Tech stocks that have led the surge in equities. If investors sense the V-shaped recovery in earnings is misplaced, expect companies with extreme forward P/E ratios and those with weak balance sheets to be punished the most.

Monetary policy, the key driver to market performance over the past several months, will gradually lose influence to the earnings outlook. After all, prolonged low-interest rates are already baked into asset prices and that is evident in most valuation metrics you look into. Meanwhile, the chances of Joe Biden winning the upcoming US election and reversing some of Trump’s tax reforms is the other risk which does not seem to be priced into markets yet. Even a limited reversal in the 2018 corporate tax cuts will have an impact on investor sentiment, given the levels where stocks are currently standing.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Despite a record high close on the S&P 500 last Friday, Asian equities edged lower, led by Korean markets. Chinese stocks continued to decline after having the biggest one-day selloff in 17-months on Thursday, as rising government and corporate bond yields signaled tighter liquidity conditions. Whether the selloff is a slight correction after a strong surge in 2017, or steeper declines on the way, remains to be seen. However, rising bond yields, particularly junk bonds, should keep investors worried.

Bitcoin, no signs of slowing down

Bitcoin continued to gather pace over the weekend rising to above $9,000, despite warnings of a bubble being created in this relatively new asset class. From a fundamental perspective it is still almost impossible to give the cryptocurrency a fair value, however, there has been a strong correlation between the price of Bitcoin and number of users opening new wallets. It is not just retail investors showing interest in the cryptocurrency, but many hedge funds have decided to join the party recently by including Bitcoins in their portfolios. Given that number of users haven’t exceeded 0.1% of the global population, there’s still more potential for this momentum trade to continue. Whether the price will be justified in the foreseeable future, depends on the adoption and the application of the new currency, but so far it still looks unstoppable.

OPEC meets

On Thursday OPEC and Russia will finally end speculations on whether the deal to cut output will be extended beyond March 2018. Brent crude is undoubtedly pricing in good news and probably a little geopolitical risk premium.  The 32.5% surge in Brent price from a year ago reflects expectations that production cuts will remain in play for 2018 and failing to do that, will have negative consequences. At this stage, I think that the upside in Brent should remain limited, if tensions in the middle- east don’t escalate. However, the downside move will look ugly if OPEC & Russia fails to show a strong commitment to extending the production cuts. Investors and speculators are sitting on record net-long positions and upsetting the oil bulls at this stage isn’t a good idea. 

U.S. stocks and dollar awaiting tax reforms

Expectations of tax reforms, in my opinion, has kept Wall Street optimistic throughout the year and stocks at record highs. It’s time for U.S. policymakers to deliver or the long-awaited correction will likely occur soon. The Senate is back from recess and President Trump will meet senators on Tuesday. At this stage, neither economic data nor monetary policy will be given a lot of attention. It’s all about fiscal policies, and without meaningful progress it’s likely to be painful for stocks and the dollar.  

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

President Donald Trump and corporate America may not be satisfied with the revised Senate Republican tax plan. The dollar and global equities received a hit on news that Republican senators are likely to delay the introduction of corporate tax cuts until 2019. The reaction in markets wasn’t a surprise given that investors have been pricing in a lot of good news and further pullback may continue for a couple of days or weeks, as many stocks look overbought at the moment.

The Senate wants to maintain the seven tax brackets, rather than the four proposed by the house. They also want to tax foreign profits held by offshore U.S. companies at a different rate. However, the timing of the corporate tax cuts will likely determine how markets move for the remainder of 2017.

The dollar traded in very tight ranges early Friday after falling on Thursday. While the delay in tax cuts isn’t good news for the U.S. currency, the rise in U.S. Treasury yields prevented the dollar from falling further. The U.S. economic calendar is light today with only November’s Michigan Consumer Sentiment Index due for release, so I don’t expect much action unless the Senate reveals a detailed tax reform plan.

Sterling is the only currency in play. with manufacturing and industrial production, trade balance, and NIESR GDP estimates, due for release later today. Brexit negotiations also resumed on Thursday, but according to officials there was no major breakthroughs. If talks in Brussels end in a similar way to previous negotiations, expect Sterling gains to remain capped.

Oil prices were also moving in narrow ranges after rallying sharply at the beginning of the week. High demand, falling inventories, and confidence that OPEC will extend production cuts, will likely keep the prices elevated in the short run, but the geopolitical risk premium due to tensions in the Middle East, has undoubtedly been responsible for a large portion of the recent surge in prices. I still believe that current fundamentals aren’t sufficient to keep Brent above $60-$62, however geopolitical tensions will continue to be the main driver in the days and weeks to come. 

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.