Run Euro Run !

The euro’s rally may have only just begun.

While the European Central Bank made few changes Thursday to its forward guidance and Mario Draghi said that policy makers were still waiting for wages and prices to match the region’s improving economic growth, the common currency rallied to its highest level in nearly two years.

It’s the best performer among Group-of-10 currencies this year and could still have further to run with the bank likely to announce the scaling back of its quantitative easing program in either September or October.

“It’s an armor-plated rally and it won’t stop,” Peter Kinsella, a London-based senior foreign exchange and rates strategist at Commonwealth Bank of Australia, wrote in a note. “Everything speaks in favor of further EUR appreciation — increasing portfolio inflows, changing monetary policy, improved political risks.”

Increased hawkishness from the central bank, spurred by Draghi saying that reflationary forces had replaced deflationary ones on the continent, has helped the euro rally from lows last seen near the start of the millennium. Investors expect the ECB to start tapering in the new year and are pricing in a 10 basis point rate hike by September 2018.

At the same time, political risks have largely dissipated. The victory of market-friendly Emmanuel Macron in France allayed fears after a populist wave swept through the European Union following the Brexit vote and the election of Donald Trump as president of the U.S. Economic growth has also picked up, helping to buoy investor prospects.

The euro broke through $1.16 after Draghi said that the currency’s recent re-pricing had received “some attention,” without specifically saying he was concerned about its strength, at the press conference following July’s ECB decision. That reference helped boost the shared currency, while European bonds rallied following the meeting led by those of Spain and Portugal.

Mario Draghi “essentially did not push back on the market pricing, which was the key point,” said Jordan Rochester, foreign-exchange strategist at Nomura International in London. “The Fed was moving more aggressively in terms of their monetary policy while other banks were still easing. All that’s come into reverse now,” he added, referring to the Federal Reserve’s recent rate hikes.

The euro advanced 0.1 percent to $1.1642 as of 8:49 a.m. in London, having touched $1.1677, its highest since August 2015. The currency has climbed about 11 percent this year, partly on speculation that a tapering of bond purchases is drawing closer. It traded near its highest versus the pound in eight months with one euro worth 89.59 pence.

Nomura currently forecasts the euro at $1.15 by the end of the year. “In the short-term we’re overshooting and I wouldn’t fight it,” Rochester said.

For some analysts, the only thing that can stop a prolonged euro surge is events on the other side of the Atlantic. That could come in the form of progress of U.S. tax reform, according to Rochester.

“One factor that might stop the euro rally from here is a repricing of expectations for the Federal Reserve,” said Andrew Cormack, a London-based money manager at Western Asset Global Management. “There is so little priced for the Fed now any upside surprise in the data could see this reverse.”

Cheerio

The Wig and Pen Club shares information with MF Solutions Ltd

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Markets Update

U.S. job growth surged more than expected in June and employers increased hours for workers, with signs of a labor market strengthening that is likely to keep the Federal Reserve on course for a 3rd interest rate increase this year, despite lackluster inflation. Non-farm payrolls increased by 222,000 jobs in June beating expectations for a 179,000 gain. Data for April and May was revised to show 47,000 more jobs were created than previously reported. US unemployment rose to 4.4%, from a 16-year low of 4.3%, because more people were looking for work; a sign of confidence in the labor market. The jobless rate has dropped 0.4% this year and is close to the most recent Fed median forecast for 2017.

UK data released on Friday showed output by British factories unexpectedly fell in May, indicating that the UK economy has struggled to gain any momentum after a slow start to 2017 and further raising questions about the likelihood of the Bank of England raising interest rates this year. Markets were expecting an increase of 0.5% in Manufacturing Production (MoM) but were surprised with a very poor reading of -0.2%. GBPUSD reacted immediately dropping from 1.2955 to 1.28664 (-0.7%) whilst EURGBP climbed from 0.87964 to 0.88602 (+0.55%). GBPUSD is currently trading around 1.2905 and EURGBP around 0.8840.

The G20 meeting in Hamburg over the weekend had little to no impact on the markets. The highlights were the first-time meetings of Trump, Putin & Xi Jinping. The general undertone was that this was the G19 plus 1 meeting as the US was not a particularly welcome attendee.
USDJPY initially dropped by 0.6% on Friday, to trade as low as 113.148, before rebounding higher following the NFP to reach a high of 114.176 – a 0.8% increase on the day. In early trading USDJPY is around 114.15.

EURUSD had a similar story reaching a high of 1.14393 after the data release before retracing down to a low of 1.13791 a relatively small loss of 0.2% on the day. Currently EURUSD is trading around 1.1410.

Gold had heavy selling pressure, dropping 1% on Friday to trade as low as $1,207.17 – close to a 4-month low. Gold is down over 1.6% on the week resulting in its worst performance since May. Currently Gold is trading around $1,212.

WTI closed down 4% on the week as the decline in US inventories did not convince traders that global production was anywhere near rebalancing. On Friday WTI traded down 1.8% to hit a low of $43.88pb. Currently WTI is trading around $44.65pb.

Today & Tomorrow is light on impactful economic data releases – traders are focusing on Wednesday July 12 when, at 09:30 BST, the UK will release its Average Earnings Index followed, at 15:00 BST, by the Bank of Canada interest rate decision and Fed Chair Yellen’s Testimony.

Cheerio,

The Pinstripe and Bowler Club shares information with MF Solutions Ltd

 

NASDAQ Tumble Through Just 5 Stocks.

When it comes to the ongoing technology beat-down in the stock market, it appears not all shares are created equal.

Indeed, just five names account for nearly 75 percent of the drop in the Nasdaq Composite Index, which has fallen more than 2.1 percent since June 7. Meanwhile, the Dow Jones Industrial Average and S&P 500 Index are roughly unchanged over the same time frame.

Much of this dynamic is due to giants like Apple Inc., Microsoft Corp. and Goggle parent Alphabet Inc. falling as much as 6.5 percent. Add Facebook and Amazon to the mix and those companies account for nearly 30 percent of the index’s weighting, and their outsize impact has driven the gauge lower even though the bulk of the stocks are doing fine.

This selloff was “way overdue given the extreme out-performance and positioning in technology shares,” Morgan Stanley analyst Michael Wilson wrote in a note to clients Monday, Shares of Apple, for instance, are still up 25 percent this year, giving them room to fall.

But while Wilson expects the drubbing to continue in the short-term, he doesn’t think the market has seen a peak in tech shares.

“We would be surprised if this is the end for technology stocks given the very strong earnings growth we are witnessing,” he wrote.

Analysts now believe performance in technology will depend on the economic outlook. And if conditions change, finance will be the likely beneficiary.

“If the current economic ‘Goldilocks’ environment persists, technology and other growth stocks should continue to outperform, despite today’s price declines,” Goldman Sachs Group Inc. analysts led by David Kostin wrote in a note to clients late Friday. “However, if investors recalibrate expectations for inflation and Fed policy to match the growth optimism suggested by the S&P 500 level, higher rates should lead to financial sector outperformance.”

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

 

Forex Trading Update

We ended up last week with softer than expected April US retail sales and consumer prices. As a result, the US Dollar, which had had a very good week, gave back almost half of its gains of the week.

By the time you are reading this, our week of trading will have already started. Retail sales q/q for New Zealand was out late last night and beat the forecasted figure by 0.4%. Retails sales rose 1.5% against estimate of 1.1% on Q1. China Industrial Production was out at 3am as well and that was y/y release.

Today should be a typical Monday with no news. Traders coming back to their desks and assessing what happened over the weekend and preparing their week ahead. We should experience thin liquidity thanks to no important Fundamental Events happening throughout the day. We only have Theresa May who is Due to participate in Facebook’s Live Q&A hosted by ITV News, via satellite;

Due to Brexit talks which are going not so well at the moment plus a General Election in the UK on June 8th, this speech should affect the British Pound in the morning as investors will have their eyes and ears plugged on any clues the UK Prime minister may give on her plans for Brexit negotiations and the future of the country.

The British Pound is one of the Major currencies which should be most affected this week with CPI Y/Y on Tuesday, Average Earnings Index3m/y on Wednesday and Retail Sales m/m on Thursday. All being released @ 9:30 GMT on their respective days.

France has now its new president Emannuel Macron who was sworn as President yesterday with the difficult task of transforming electoral success into political strength in a society tormented by unemployment and divided by anger.

There is not much to say in terms of fundamentals as the bigger picture haven’t changed much in the past few weeks and the market is quite indecisive at the moment. It looks like the summer doldrums may be starting to have its effects . For the time being the biggest mover is the USD/JPY and that could easily be a “buy the rumours sell the news” run fuelled by the idea that the FED will hike next month at its next meeting.

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

Feeling Gilty ?

The Bank of England could surprise markets by lowering its inflation projection for 2017 and that will be positive for gilts, according to Mike Riddell, a U.K. fixed-income portfolio manager at Allianz Global Investors.

This would go against the consensus in a survey for Thursday’s Inflation Report, where only economists from NatWest Markets and Intesa Sanpaolo among the 20 polled agree with Riddell. Of the rest, five see the BOE keeping its inflation outlook unchanged for this year and 13 see it upgrading the forecast. Oil prices have fallen and sterling has moved higher since the BOE’s last report in February, supporting his case.

“The market seems to be expecting a hawkish rhetoric from the Bank of England and I expect it’s more likely we see the opposite,” said London-based Riddell, whose firm manages 480 billion euros ($522 billion). He said on Wednesday he did “actually go a bit long again” on gilts, as they now offer “better value.”

Gilts have traded in a narrow range this year, amid uncertainty over the country’s exit from the European Union and the potential response from the central bank as U.K. economic data takes a turn for the worse. Ross Walker, head of European economics at NatWest, is another who sees a “fractionally lower” outlook for prices because of slower GDP growth, a stronger pound and muted wage inflation.

With U.K. snap elections less than a month away on June 8, it is unlikely the BOE will want to surprise the markets, said John Wraith, head of U.K. macro rates and strategy at UBS Group AG in London, but he agrees it will refrain from lifting inflation projections for 2017.

Riddell said he had changed his view on gilts from a month ago, largely linked to the BOE meeting, where he sees it also announcing a downward revision to its growth forecast. The yield on 10-year gilts rose two basis points on Thursday to 1.19 percent, after reaching its highest since March on Tuesday.

“If we get to 1.10 percent I will probably start fading it again,” Riddell said. “My biggest concern for bond markets and why I am not super long and super bullish is that the Fed is clearly very keen to hike rates and this is not yet fully priced in by the markets.”

Cheerio

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

Commodity Rally – Maybe !

Commodity prices usually rally as the U.S. Federal Reserve heads into a hiking cycle, but it might be different this time, Goldman Sachs said in a note Monday.

Historically, “commodities perform the best when the Fed is raising rates,” Goldman said. “This makes intuitive sense because the reason why the Fed raises interest rates is that the economy displays signs of overheating. Strong aggregate demand and rising wage and price inflation are precisely the time when commodities perform the best.”

It added that rising interest rates in China also tend to coincide with better commodities performance, noting the mainland’s “outsized role” in demand.

That’s a driver of Goldman’s overweight call on commodities, with expectations for solid performance over the coming year as the Fed raises rates and the labor market runs at full employment.

But Goldman pointed to three risks that could derail its view.

Firstly, it noted that technology changes and U.S. shale oil production could have “a profound impact” on commodity returns.

“While conventional oil production takes time to ramp up, the response time for shale is much shorter,” it said. “This has increased the oil supply elasticity, which may contribute to lower commodities returns relative to historical experience even as demand strengthens.”

Secondly, Goldman said the China tailwind may be waning.

As an example, it cited China’s demand for refined copper, which rose to 10.2 million tons in 2015 from 660,000 tons in 1990, totalling 90 percent of the total global growth in copper demand.

“Going forward, the growth in the Chinese demand for industrial metals is likely to be much more muted, also contributing to lower commodities returns relative to historical experience,” Goldman said.

Finally, Goldman also pointed to a risk from the Fed’s hiking cycle itself, noting that the current pace has been much slower compared with previous cycles amid a gradual US and global economic recovery.

“While our U.S. economists expect three hikes this year and another four hikes in 2018, the fact that this hiking cycle has been different from previous hiking cycles imply that commodities returns may also differ from their historical performance,” it said.

Cheerio

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

 

Gold Rising

Gold has traded in a range since the end of March, but Todd Gordon sees a rise in market volatility coming that could send the yellow metal higher.

The trader commented Thursday that recent comments by the Federal Reserve could spell more uncertainty in the market. Potential rate hikes aside, Fed minutes released on Wednesday from the March meeting stated its intent to start shrinking its $4.5 trillion balance sheet later this year.

“We’re seeing some volatility in the markets,” said Gordon. “I actually want to look at the gold market, which could be moving up here” off the uncertainty that could result from the Fed.

To determine just how high gold could climb, Gordon looked at a long-term chart of GLD, the ETF that tracks gold, dating back multiple years. According to Gordon, a “triple-test trendline” can be drawn on GLD starting from its peak back in 2012, with the line finishing just above current levels in GLD at the $123 to $125 mark. This leads Gordon to believe that should GLD bounce, it can hit the trendline again at around those levels.

“There are a couple sources of volatility and concern in the markets,” explained Gordon. “I think that’s going to be enough to punch the market through resistance to test that long-term downtrend from 2012.”

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.