Feb 2, 2018 – Market Update (NFPs day but a high bar for USD to rise, Trys rising but where is the USD?, Rising yields challenging stocks (dividend/higher financing), Strong EUR to weight on EU stocks soon, Italy in or out?, eBay dumping PayPal and going for Adyen, Insurers to sell cryptos theft protection)

Mr Price Action/ February 2, 2018/ Market Update, Market Update Posts/ 0 comments

 

Short recap

 

Asia lower

Europe opening mixed

Strong EUR to weigh on EU stocks soon

10-yr Trys yield above 2.75% putting pressure on stocks

As dividend yield is not as attractive as before and cost of financing for companies is getting higher

With recent rise in US yields, economic numbers and improving earnings season

Are we going to see one 50 bps hike among all three hikes expected in 2018?

 

Equities

 

Apple likely to return half of USD 285 bln of cash to shareholders

Amazon.com enjoying a record USD 2 bln profit

Royal Dutch Shell attacking Exxon Mobil position of biggest cash generator

Daimler on the spending spree for electric and autonomous vehicles this year

eBay dumping a privilege partnership with PayPal

Adding a Dutch fintech Adyen to payment service

Insurers looking at protection against cryptos thefts

Saudi Arabia in strategic talks with China, Japan and SoKo before Aramco listing

 

Earnings

 

Chevron, Exxon Mobil reporting in the light of higher oil prices. Any surprises?

Merck

 

A bit of reflection…

 

Seems like 2-yr Trys yield is giving more than dividend yield of S&P 500 stocks on average or…

Market Euphoria May Turn to Despair If 10-Year Yield Jumps to 3%  link

 

 

Is the excess money from bond markets flowing to equities or does it mean something else?

 

 

Something like valuations are extremely high?

 

 

Number of Americans thinking about stock markets being higher in one year from now hitting multidecade records:

Well, two many too bullish…

 

 

Bonds

 

10-yr Trys yield at 2.79% vs 2.73% yesterday (20 bps from 3.00% mark)

30-yr Trys yield above 3.00%

Yield curve keeps flattening despite recent spike in short term yields

But 10-yrs touching 3% could help USD

Credit spreads in speculative bond space have been tightening over the past years

With lots of money flowing there, higher Trys yields may reverse flows

If US yields keep rising what in turn can send volatility waves across all markets

VIX is already trading above 10, the level that acted as a resistance for quite some time

 

10-yr Bund yield at 0.73% vs 0.70% yesterday

More and more EZ bond yields moving above zero level

 

Italy in or out?

 

Probability of Italy leaving EZ still elevated since Constitutional vote

ECB and Bank of Italy have a problem – holding over EUR 100 bln of debt

Once ECB stops tapering, IT bonds will suffer on the back of debt to GDP ratio being higher than pre crisis

Thus sending shock waves through periphery

Luckily, majority of the public supports more EU integration

Despite immigration and EU criticism

Parliament elections (Mar 4) to be a lose call

 

 

PIMCO: The Fed is quietly trying to engineer an inflation overshoot  link

 

There’s been a distinct shift in currency markets that explains why the US dollar is getting hammered  link

Something strange is underway in currency markets at present…

 

EURUSD

 

Markets focussed on USD weakness and potential ECB taper, now holding pretty firm

Bids sitting below 1.2490

Stops seen above 1.2540-50, if broken we can visit highs of 1.2570 and 1.2602

To watch also 1.2597 (61.8% Fibo of 1.3992/1.0340 move)

EUR 1.1 bln options with strikes between 1.2495-1.2500 expiring today

Important 1.2516 (38.2% Fibo of 1.6038/1.0340 move)

Support 1.2398 (10 DMA), 1.2305 (23.6% Fibo) and descending trendline (highs 2008, 2011, 2014)

 

USDJPY

 

BoJ special operations helped the cross higher

Offers seen ahead of 109.75, 110.00 and stops above

Bids may be around option expiries (USD 2.3 bln strikes 109.00-35)

Support 109.45 (10 DMA), 109.06 (76.4% Fibo) and 108.12 & 107.31 lows

Resistance 110.14 (61.8% Fibo)

 

Crude Oil

 

Crude oil – US producing 10 mln barrels a day, putting enormous pressure on OPEC

But strict adherence to production cuts by OPEC and Russia support the prices

China overtaking US as a biggest crude importer

Latest correction seems not to do any harm to long speculative positions held by funds

GS upgraded Brent forecast that should hit 82.50 level by summer

 

Bitcoin

 

Well, few accounts holding huge amounts  link

 

 

…and 13 exchanges trading 40% of the volume:

 

 

Data/events

 

ECB’sCoeure (1000 MGT)

ECB’s Villeroy (1400 GMT)

 

US NFPs

 

Bar high for any surprise to support USD

Payrolls 180k exp vs 148k prior

Unemployment rate 4.1% exp vs 4.1% prior

Average earnings (m/m) +0.3% exp vs +0.3% prior

Average earnings (y/y) +2.6% exp vs +2.5% prior

Strong labour market supporting consumptions

But earnings may disappoint despite minimum wage and bonus increases

If not, market will start to speculate about quicker rate hikes this year

 

Fed’s Kaplan (1830 GMT)

Fed’s Williams (2030 GMT)

 

Feb 3 – Powell taking office as Fed Chair (he is a lawyer and not economist)

Feb 16 – Chinese New Year

Mar 4 – Elections in Italy

 

 

 

Should you have any questions feel free to contact me anytime.

 

Good luck Champs!

 

 

Mr Hawk

 

 

 

 

 

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. Contact: landoftradingATgmailDOTcom

 

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