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.

Feddy Steady

U.S. central bankers stuck to their outlook for gradual monetary-policy tightening after they left interest rates unchanged and showed no alarm over recent economic weakness.

Federal Reserve officials were unusually explicit in their statement, released Wednesday following a two-day meeting in Washington, indicating that a disappointing first quarter wouldn’t knock the committee off its path to raise rates two more times this year after a hike in March.

“The committee views the slowing in growth during the first quarter as likely to be transitory,” the Federal Open Market Committee said. “Near-term risks to the economic outlook appear roughly balanced.”

The widely expected decision contained no concrete commitment to the timing of the next rate increase. Even so, investors increased bets on a move in June after absorbing the Fed’s sanguine assessment of the outlook and its encouraging observations on inflation, following data showing first-quarter economic growth of 0.7 percent and monthly price declines in March.

“Nothing in the statement today, which was voted unanimously by the FOMC, leads me to believe that the Fed is even close to changing its mind on rates,” Roberto Perli, a partner at Cornerstone Macro LLC in Washington, wrote in a note to clients. “Base case is for a couple more rate hikes this year — probably in June and September — and for the beginning of balance sheet shrinkage in December.”

The Fed didn’t signal any change to its balance sheet policy. It is discussing how to begin shrinking its $4.5 trillion in holdings, and officials have said they hope to release a plan this year. They may start unwinding by the end of 2017, though that hinges on economic conditions.

The jobless rate has fallen to a level officials see as consistent with their maximum-employment mandate, and inflation is near the Fed’s 2 percent goal, even if price gains slowed in March. A core measure that strips out food and fuel was 1.6 percent on an annual basis, based on Commerce Department data, and headline inflation stood at 1.8 percent.

“Inflation measured on a 12-month basis recently has been running close to the committee’s 2 percent longer-run objective,” the Fed said. Household spending rose “only modestly” but the fundamentals underpinning consumption growth “remained solid.”

“The statement makes it very clear that the Fed does not take the reported slowdown in first-quarter growth seriously,” Ian Shepherdson, chief economist at Pantheon Macroeconomics Ltd., wrote in an email to clients.

Fed-Speak Friday

The decision to leave the target federal funds rate unchanged in a range of 0.75 percent to 1 percent was unanimous and in line with forecasts. Fed Chair Janet Yellen did not have a press conference after this meeting. But she and at least five other Fed officials are scheduled to speak on Friday, giving policy makers a chance to explain their decision more fully.

Employers continued to hire at the start of 2017, averaging 178,000 net new jobs a month in the first quarter, and signs of labor-market tightness suggest wage growth will pick up further. The unemployment rate was 4.5 percent in March, near or below most estimates for its longer-run sustainable level. April’s figures are due Friday from the Labor Department.

The Fed’s next meeting will take place June 13-14 in Washington. That decision will come alongside officials’ updated quarterly economic projections and will be followed by a press conference with Yellen.

Investors increased the likelihood of a move next month to around 65 percent, according to pricing in federal funds futures contracts, compared to 60 percent before the FOMC decision was announced.

“This glass-half-full statement leaves the door wide open to a June hike, provided, of course, that the recent data letdowns are indeed transitory,” Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., wrote in a note to clients. “We expect this will be the case.”

Cheerio.

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

Gold Rise To Continue

“Don’t gain the world and lose your soul; wisdom is better than silver or gold.”

You may have to read the quote more than once, but Bob Marley knew what he was talking about.

At the moment, investors seemingly disagree a bit with him, and they have pushed spot gold up around 8 percent higher since the beginning of the year.

The lack of wisdom from everyone with the desire to hurt others has meant the safe-haven trade has found a new pocket of geopolitical opportunity.

Nobody sane wants more people to die in Syria, and nobody sane wants to start a war with North Korea, but how to handle both these hotspots is easier said than done, and this is proving the case with the new U.S. administration, just as it was the old.

The potential for deflation is a thing of the good old days (like 2016), but even with inflation gods sprinkling inflation dust, gold as an inflation hedge is not the only reason to buy the metal.

Kieron Hodgson, a commodity and mining analyst from Panmure Gordon & Co, says that despite having a bullish outlook for the  USD, all other factors are in place to push the spot gold price higher.

He lists economic uncertainty (Brexit, French elections, Chinese debt levels), concerns over high equity valuations (the U.K. now has all 10 industry groups returning positive 5-year rolling performances for the first time), trading positions (short positions were peaked around the recent U.S. rate decision and then collapsed when the conversation switched to deleveraging the Fed’s balance sheet), central banks (they are now marginal buyers of gold for the first time since 2012) and indeed the pickup in inflation as being the main issues that should continue to support the price of gold.

Hodgson says that the long term trend of lower gold prices that has been in place since 2011, will come to an end due to gathering risks, which could impact record high equity markets and lead to a correction.

Panmure Gordon isn’t waiting, and has upgraded its gold price forecast to $1,300 per ounce (from $1,225 per ounce) for 2017.

For 2018, they also see a rise to $1,350 per ounce (from $1,200 per ounce).

Cheerio.

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