Nov 8, 2017 – Market Update (EURUSD – H&S almost done, US yields not supporting further USD strength – a correction coming?, Oil – China demand lower on pollution cuts, Gold stuck in 1263-1282 range, ECB Governing Council meeting – watch the comments as more hawks on the Board, Apple – EU asked for more details about tax structure, Bitcoin an asset class?)
Europe opening lower
Trump in China to ask for China cutting financial ties with NoKo
US-Chinese companies signed USD 9 bln deals
USD impacted by headwinds/slowdown related to tax reform (implementation in 2019)
As the tax cuts will spike the budget deficit and will have only temporary effect on the economy (according to Fitch)
Brexit – EU preparing tough transition terms for UK (duration, scope and obligations)
According to CME Bitcoin is a new asset class, not crypto currency
ECB caught by bad loans in Italian banks
More leaning towards hawkish side what may support EUR
Apple – EU asked for details about tax structure
Monte dei Paschi in profit after some one off items (Q3)
Qualcomm–Broadcom merger under Chinese scrutiny
Valeant profits up
Funo (BoJ) – Japan stock prices not overheating, reflect global investments and corporate earnings
Nikkei 225 close to level last seen in 1992 on relatively low valuations, profit growth and weak JPY
Are US stocks too high?
As mentioned few days ago, the sentiment index (bulls/bears ratio) is close to 1987 highs what may be seen as bears completely giving up. Would feel like there are no more bears left to be converted to bulls and push the market higher. What’s next?
Yes, the valuations (S&P 500 with 19x forward PE) are high but we need a trigger. Is it going to be a weakness in US economy or substantial increase in rates? We believe that missing higher yielding alternatives than dividends are behind all low volatility and investors not caring. Of course US companies do well from earnings and revenue perspective but we truly lack an alternative. Even thought Fed is on a hike path, the bond yield remains flat, thus not attractive enough to trigger a cyclical rotation of capital.
Techs (lately Apple) do support the rally heading towards Christmas. A small correction or hesitation may come on the back of Trump tax reform hurdles. US macro is good, EBITDA at higher than in 2007, revenues growing almost 11% y/y as weaker USD gave a hand.
S&P 500 – we see a divergence on a daily chart, moving higher in a narrow channel and any decisive break up/down can start the correction.
Volatility is at extreme lows again prompting a China story from Aug 2015 to our minds. If you feel so, check this out…
Warren Buffett’s favorite market metric suggests investors are ‘playing with fire’ link
…and you may get some chips off the table now.
10-yr Trys yield at 2.31% – very low, not lending any support to USD vs EUR, JPY
10-yr Bund yield at 0.33%
Periphery saw rally yesterday with Bunds almost unchanged
IT/PT to Bunds spread keeps declining
USD on negative, not helped by low US rates
As the yields remain low, USD need positive news from data or tax reform effort
Otherwise the recent USD rally is due for correction
H&S formation almost complete, Bear sitting above 1.1600 level
Resistance at 1.1595 (55 HMA), 1.1605 (50.0% Fibo), 1.1615 (high from May 2016), 1.1623 (10 DMA), 1.1658 (200 WMA), 1.1670 and descending trendline connecting the lows of Oct 2008, Jul 2012
Support at 1.1550, 1.1500, 1.1490 (61.8% Fibo)
Heavy activity expected above 114.00
As there are bids from lows and above 114.00
Nikkei 225 to test 23 000 level
Goldman Sachs looking to invest in Japan
Resistance at 114.40/50
Support at 113.82 (10 DMA)
Source: Saxo Bank
Crack on corruption and fight for power a new daily norm in Saudis
Speculative demand for front end contracts (backwardation) drives oil higher
While sellers sitting on sidelines and supply unaffected
Be aware that this speculative longs may create a misleading feeling about market tightening
Geo political risks to support oil further along with likely OPEC cuts extension
Overnight corrected on lower China imports as country is reducing production due to pollution over winter months
EVs can create a plateau in 2030
Stuck between 1263 (61.8% Fibo) and 1282 (50.0% Fibo)
Sitting above 1277 (100 DMA) with further level of note 1300/1306
Which may be in focus once 1282 is broken and net sellers turn to buyers
ECB Governing Council meeting
To watch any comment as more officials lean to hawkish side
Are US rates dependent on the height of the Chair? Enjoy… link
Should you have any questions feel free to contact me anytime.
Good luck Champs!
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