Middle-Week Screening: Gold Glitters and Shines!

Overview and trends

US stocks rose on Monday as investors looked to major earnings on deck this week and awaited the release of the GOP’s coronavirus stimulus plan. Senate Majority Leader Mitch McConnell finally said that Republicans were ready to present their long-awaited $1 trillion COVID-19 package details, as Democrats remained wary. S&P 500 ended up 0.74%, while Dow Jones Industrial Average was higher 0.44%, and Nasdaq Composite shot up 1.86%.

US stock indices ended down from 0.65% to 1.27% yesterday as investors mulled Senate Republicans’ coronavirus stimulus package and a slew of very surprising earnings reports.

The U.S. republicans continued debating on its fiscal relief plan most of the day. The projected $1 trillion packages will include another round of $1,200 payment checks and additional funds for small-business loans.

A large portion of reporting yesterday companies sadly missed their earnings figures, with most disappointments coming from 3M, McDonald’s and even biotech Pfizer. Oil tumbled through the session, with West Texas Intermediate crude dropping as much as 1.5%, to $41.10 per barrel.

Gold was the leading instrument in the 1st half of trading week. Gold prices took a stratospheric leap last week, jumping from the previous week’s support test at $1800 an ounce to the $1900 level that hasn’t been traded since 2011.

Next day Gold jumped to a record high of $1944 per ounce, driven by an uptick in new U.S. coronavirus cases that have added to economic uncertainty. Shares of Moderna surged after the company said it received an additional $472 million in funding for its COVID-19 vaccine.

Trading ideas

According to a new court filing, multiple California state offices are actively investigating Amazon (AMZN) over worker safety concerns as the coronavirus continues to rage throughout the U.S. An eighth Amazon employee has died of COVID-19, and the virus has spread quickly through clusters of employees at factory floors and warehouses nationwide where social distancing isn’t enforced. Amazon’s own shipping centers have reported outbreaks, including one in the Pocono Mountains and another in Oregon.

The earnings date for Amazon is July 31, an overwhelming majority of high-profile analysts think the numbers will be as stellar as never before. Amazon’s average EPS estimate is $3.6 versus $5.01 it actually earned last quarter. It’s easy to guess that Amazon will beat that number indeed. However, even the bigger question will be how the tech giant is going to address these mounting allegations about poor safety of its employees. It looks like this time around it’s no longer just curiosity.

Global payments processor Visa reports earnings today, on July 29, and it will be more than just one more set of quarterly financial numbers. Investors will get a direct insight into how consumer spending is being affected by the pandemic and an uncertain economy. This quarter revenue for the payments processing giant are expected to drop by roughly 17% to $4.81 billion versus $5.84 billion a year ago. This anticipated drop has a lot to do with lower transaction volume as many stores were closed throughout the quarter. With that said, there is optimism for a potential beat driven by increased digital payment volume as more and more people shopped online.

Indeed, dealing with paper money has now become not only unsafe but also unsanitary. So VISA’s performance will be more or less accurately reflecting the real global consumer spending, and households’ entire propensity to consume, and how efficient the world’s largest central banks’ and governments’ efforts to offset the COVID-19 impact. So fasten your seatbelts!

The Australian dollar has rallied rather significantly on Monday, showing signs of life yet again as the U.S. dollar continues to get hammered against most currencies. Aussie pierced below 1.40 mark, and now this level became its support, rather than resistance level. A couple of times over the past several trading sessions it tried to approach it, but the big return looked invariably spectacular.

So, this level now can be seen as a cemented support for the Australian currency. Its further growth towards 1.35 is highly dependent on the continuation of the gold rally. Australia is the second-largest gold producer in the world with 325 tons per year, right after China. By the way, 2019 was a record year for Australian gold production.

So, the momentum the Australian currency has been gaining lately is not just a coincidence, and if greenback keeps getting softer, and metals keep getting stronger, it would be hard to find a better choice than to take a chance on the Aussie.

One of the less-talked-about but more potent beneficiaries of this year’s gold rally Kinross Gold (KGC) is scheduled to announce Q2 earnings results today, on July 29th, after market close.

The consensus EPS estimate is 13 cents and the consensus revenue estimate is around $1 billion (assuming a 20% growth Year-over-Year). Over the last 2 years, Kinross Gold has beaten EPS estimates 63% of the time and has beaten revenue estimates 50% of the time.

Kinross is gaining from higher production at its two main deposit fields, which already had shown strong momentum in this year’s first quarter. Strong production is likely to have continued in the second quarter. Further, gold prices have been soaring this year making it the most attractive safe-haven asset. Gold prices have gained around 13% in the second quarter — the highest quarterly percentage increase in more than four years.

by Vladimir Rojankovski, Grand Capital Chief Analyst

US Stock Market: Investors Dumping Overpriced Tech Stocks, Rotating into Undervalued Cyclical Stocks

The major U.S. stock indexes plunged on Thursday as investors continued to shed high-flying tech shares due to mixed earnings reports and growing signs of a worsening coronavirus pandemic, which could drive the economy into a deep recession. The price action also suggests that investors continued to dump overpriced tech stocks, while rotating into undervalued cyclical stocks.

In the cash market on Thursday, the benchmark S&P 500 Index settled at 3235.66, down 40.36 or -1.34%. The blue chip Dow Jones Industrial Average finished at 26652.33, down 353.51 or -1.41% and the technology-based NASDAQ Composite closed at 10461.42, down 244.71 or -2.58%.

Stock Index Recap

The bellwether S&P 500 snapped a four-day winning streak with its biggest daily percentage drop in nearly four weeks. All three major U.S. stock averages lost ground. The S&P 500 Index, the Dow and the NASDAQ Composite were mostly dragged down by shared components Apple and Microsoft Corp. Heavyweight Amazon.com was also a major drag on the tech-driven NASDAQ.

The Russell 2000 and the S&P Smallcap 600, both small cap indexes, outperformed the broader market.

Earnings Update

Second-quarter reporting season is in full-stride, with 113 S&P 500 constituents having reported. Refinitiv data shows that 77% of those have beaten expectations that were extraordinarily low. Analysts now see aggregate second-quarter S&P earnings plummeting by 40.8%, year-on-year, per Refinitiv, Reuters reported.

Microsoft Corp shares fell after reporting its cloud computing business Azure reported its first-ever quarterly growth under 50%.

Tesla Inc reported a profit for the fourth straight quarter, setting the company up for inclusion in the S&P 500. But the stock slid as analysts questioned whether the electric automaker’s stock price matched its performance.

Twitter Inc advanced after reporting its highest-ever annual growth of daily users.

American Airlines Group Inc jumped after announcing it would rethink the number of flights to add in August and September. Also, it reported an adjusted loss per share of $7.82.

Southwest Airlines said Thursday it lost $915 million in the second quarter compared with $741 million in net income a year earlier and warned that travel demand will likely remain depressed until there’s a vaccine or treatment for the coronavirus.

Economic Data and Fiscal Stimulus Bill Update

The number of Americans who filed for unemployment benefits rose more than expected last week as the coronavirus pandemic inflicted more damage to the U.S. economy.

The Labor Department said Thursday initial jobless claims came in at 1.416 million for the week-ending July 18. Economists polled by Dow Jones expected 1.3 million.

It was the 18th straight week in which initial claims totaled more than 1 million, and it snapped a 15-week streak of declining initial claims.

The number excludes recipients of Pandemic Unemployment Assistance, set to expire on July 31.

Meanwhile, Congress kept working to pass new stimulus before that deadline continued, with Senate Republicans announcing they could present their version of the bill to Democrats as early as this week.

For a look at all of today’s economic events, check out our economic calendar.

Middle-Week Screening. Seesaw on the Market. Silver and Alibaba are for long; Boeing is for short

Overview and trends

Across the pond, according to Reuters, European Union leaders did not reach solidarity on a coronavirus stimulus plan on Sunday, German Chancellor Angela Merkel said as marathon negotiations ran into a third day and acrimony mounted over the demands of rich but thrifty countries.

On Monday U.S. officials including Senate Majority Leader Mitch McConnell and Treasury Secretary Steven Mnuchin met in the White House to discuss another coronavirus stimulus package. Mnuchin reiterated he wanted to put a cap on spending to about 1 trillion dollars, well below House Speaker Nancy Pelosi’s $3.5 trillion relief plan. He also said the bill will focus on “kids and jobs and vaccines.” Meantime U.S. stocks were higher Monday as Wall Street came off its third straight week of gains and investors turned were busy analyzing more earnings reports including those from Halliburton and IBM (the latter beat estimates by a wide margin and added over 3% in post-market).

Yesterday stocks closed mostly higher on Wall Street Tuesday despite a final hour hiccup that nearly wiped out the market’s gains for the day. The S&P 500 added less than prominent 0.2%, after culminating as much as plus 0.8%. Banks, telecoms and energy stocks led the gains, offsetting mounting losses in technology stocks – something every smart investor must take seriously in the wake of more big techs’ like Apple, Amazon and Microsoft earnings underway – which pulled the Nasdaq index lower.

Oil prices joined precious metals’ extravaganza and rose, reaching the highest levels since March. West Texas Intermediate crude gained more than 3%, to 41 dollar 88 cents per barrel. Brent crude, in its turn, rose almost 3%, to 44 dollars 30 cents per barrel, at the U.S. market close.

Most investors wait as a savior for more financial stimuli from big governments and central banks to prop up stocks and bonds that are slowly losing steam.

Seemingly in response to that urge, many governments have already announced large amounts of additional fiscal support to keep tackling the pandemic. But S&P Global Ratings suggests that some countries, including the U.S., have shown “a degree of fiscal fatigue”. The problem is that additional spending will worsen the governments’ balance sheets, but they are still necessary to “prevent things from getting even worse.”

S&P Global Ratings earlier this month downgraded its forecast for the global economy. The agency now expects global GDP to shrink by 3.8% this year — worse than the 2.4% contraction it previously projected. So the central banks and governments really have little choice but to move on.

The end of the coronavirus pandemic could bring a large number of new asset managers. Recently published data from a research firm called eVestment showed that the number of new investment firm launches substituting some less lucky rivals tends to spike following economic crises.

Here’s why, according to data firm: As markets contract, asset management employees may be laid off. Instead of seeking out a new job, they start their own firms. Additionally, some of these employees leave their jobs voluntarily, with the goal of taking a new investment approach presented by market turmoil.

Conclusion: in order to survive hard times, one needs to be open to new trends and must possess the skill of distinguishing between winning and losing assets.

Trading ideas

Silver futures logged the highest finish in nearly 4 years at the beginning of the week, buoyed by expectations for further central bank stimulation that destroy the value of world major currencies and as the rise in global COVID-19 cases continues to threaten the economic recovery. September silver added almost a dollar, or 4.9% since July 17, to settle at $20.21 an ounce, the highest front-month contract finish since August 2016. Silver is known to be more choppy and volatile precious metal as compared to gold. But this year its uncharacteristic trade smoothness since mid-March leaves its older sister gold’s parameters derailed.

Alibaba’s affiliate company Ant Group, operating the mobile payment service Alipay, reportedly started the process of its initial public offering on the Hong Kong Stock Exchange and Shanghai’s Nasdaq-style STAR market simultaneously. In China Alipay is much more prominent than the namesake portal (alibaba.com) of Alibaba Group. Ant was previously valued at $150 billion after its last funding round in 2018, making it the world’s most valuable start-up.

Reportedly, Ant generated about 120 billion yuan or $17.1 billion dollars in revenue and nearly 17 billion yuan or $2.4 billion dollars in net profit last year. This is very good news for Alibaba stock which rose over 50% since April. Its earnings reporting day is scheduled for August 13, so there is plenty of time to judge this event keeping the stock in the portfolio.

Boeing’s reputation remains under siege even after the much-advertised test flight of Boeing 737 MAX couple of weeks ago. The company was forced to release a catastrophically damning set of documents to congressional investigators last week that included “conversations among Boeing pilots and other employees about software issues and other problems with flight simulators” for the 737 Max, the plane involved in two fatal crashes. The messages further complicate Boeing’s tense relationship with the Federal Aviation Administration, which can’t be satisfied to read the disdain with which Boeing treated the civil aviation regulators.

After the undisclosed outcome test flight, the Boeing share edged up almost 6.5% to $176, but its quarterly earnings date of July 29 will be Boeing’s judgement day, because there is nothing to cheer up its shareholders with. The company reported net loss of $5.72 a share in the previous quarter, which is expected to further deepen this time around, so Boeing is a definite short, which will be easy to cover at a profit thereafter.

For a look at all of today’s economic events, check out our economic calendar.

By Vladimir Rojankovski, Grand Capital Chief Analyst

Broad-Based S&P 500 Moves Higher for Year, but Rally Hasn’t Been ‘Broad-Based’

The major U.S. stock indexes finished mixed on Tuesday, with the technology-based NASDAQ Composite succumbing to a late-session sell-off. If you’re keeping score, the benchmark S&P 500 Index is now positive for the year, however, the internals suggest some problems with its individual sectors.

After spending months digging out of the whole created by the shortest bear market in history in March, the index is up 0.8% on the year and at its highest level since February 21, which puts it just slightly below its all-time high.

In the cash market on Tuesday, the S&P 500 Index settled at 3257.30, up 5.46 or +0.18%.

Where Has Investor Money Been Going?

For every stock that has advanced on the S&P 500 this year, 1.7 have declined, according to Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut. That is partially because investors have gravitated to a small group of tech-related stocks they believe have the best chance of delivering steady profits in a climate fraught with uncertainty over the coronavirus pandemic and its economic fallout.

The five most valuable S&P 500 companies – Apple Inc, Microsoft Corp, Amazon.com Inc, Alphabet Inc and Facebook Inc – account for some 23% of the index’s market capitalization, the highest level on record, according to Goldman Sachs, Reuters reported.

“It’s hard to imagine the index going up if you lose that leadership,” said Robert Phipps, director at Per Stirling in Austin, Texas. “Most of the market is really not participating here.”

Tech-Related Sectors Outperforming Other Sectors by Significant Margins

According to Reuters, tech-related sectors to which those aforementioned stocks belong, have outperformed other sectors by significant margins this year. The technology index, which includes Apple and Microsoft, has climbed about 18%, while consumer discretionary index, which includes Amazon, has jumped 15%. The communications services index, which includes Alphabet and Facebook, has risen nearly 6%.

Only one other sector, healthcare, has had year-to-day gains.

Flight to Large-Cap, Tech-Related Companies Reflects Caution Rather than Euphoria

While U.S. equity valuations stand at their highest level since the dot-com boom nearly 20 years ago, “the flight to large-cap, tech-related companies reflects caution rather than euphoria,” said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey.

“Moreover, the top five S&P 500 companies today have the greater share of the index’s earnings and trade at a lower multiple than the top five companies in 2000 did,” Jonathan Golub, chief U.S. equity strategist at Credit Suisse, wrote in a research note on Tuesday.

According to Reuters, given their relatively strong balance sheets and steadier revenue streams, many investors believe large-cap, tech-related companies are better positioned to withstand the economic pressures resulting from the novel coronavirus pandemic.

Conclusion

The huge rally since March 23 has created the illusion that all the stocks in the S&P 500 Index are moving higher. This is the illusion of “all ships rise with the tide” that is often present during the latter stages of a bull market.

However, this current rally is completely different. This is because the economy is in the middle of the worst pandemic in a hundred years and there is uncertainty over how and when it will fully recover from the damage inflicted by the coronavirus.

Don’t be fooled that the strength of the rally is being driven by broad-based buying. Professionals are buying strong companies. They are not guessing and betting on high-flying experimental technology stocks. They are putting their money in proven profitable companies.

For a look at all of today’s economic events, check out our economic calendar.

‘No Company is Entirely Immune From a COVID-19 Led Economic Slowdown’ Says Fidelity’s Simnegar

No business is completely immune from a COVID-19 led economic slowdown and the ongoing global pandemic isn’t affecting all industries and its stocks in the same way, said Sammy Simnegar, portfolio manager in the equity division at Fidelity Investments.

So far, the deadly coronavirus has infected over 14 million people in 188 countries and killed more than 600 thousand, impacting day-to-day businesses worldwide.

“We shouldn’t think of how COVID-19 is affecting the stock market in monolithic terms because the opportunities and risks are very different at the company level… we try to identify the potential ‘winners’ and ‘losers’ in a post-pandemic world,” noted Fidelity’s Simnegar.

Microsoft

Fidelity’s Simnegar thinks Microsoft is resilient. Microsoft has two main businesses – its Office software suite and its Azure cloud-services operation. Because Office and Azure help customers to be more productive and competitive, Simnegar believes spending on these products is not likely to be hurt much by an economic slowdown, Fidelity noted.

Twenty-four analysts forecast the average price of Microsoft in 12 months at $219.11 with a high forecast of $260.00 and a low forecast of $190.00. The average price target represents an 8.00% increase from the last price of $202.88. From those 24, 23 analysts rated ‘Buy’, one rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $230 with a high of $290 under a bull scenario and $150 under the worst-case scenario. We think it is good to buy at the current level and target at least $230 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Amazon

Amazon is another name Simnegar thinks could continue to take market share during this uncertain time. The company’s logistical advantages allow it to ship essential items to Amazon Prime customers with same-day shipping, Fidelity noted.

Thirty-nine analysts forecast the average price of Amazon in 12 months at $2,991.34 with a high forecast of $3,700.00 and a low forecast of $1,987.00. The average price target represents a 0.99% increase from the last price of $2,961.97. From those 39, 36 analysts rated ‘Buy’, two rated ‘Hold’ and one rated ‘Sell’.

Morgan Stanley target price is $3,450 with a high of $4,200 under a bull scenario and $2,200 under the worst-case scenario. We think it is good to buy at the current level and target at least $3,400 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Facebook and Google

Large media and entertainment holdings in the fund as of the end of May included Facebook and Google-parent company Alphabet. Simnegar thinks usage of these services has increased among many customers since they started sheltering at home due to COVID-19.

Thirty-four analysts forecast the average price of Facebook in 12 months at $257.04 with a high forecast of $300.00 and a low forecast of $185.00. The average price target represents a 6.20% increase from the last price of $242.03. From those 34, 29 analysts rated ‘Buy’, five rated ‘Hold’ and none rated ‘Sell’.

Morgan Stanley target price is $270 with a high of $325 under a bull scenario and $185 under the worst-case scenario. We also think it is good to buy at the current level and target at least $270 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity. Check this for Google stock forecast.

Others

Other top holdings included credit card companies Visa and MasterCard, as well as Home Depot. The first two continued to ride the strong secular trend toward electronic payments, while Home Depot has benefited from customers who have spent more time in their homes and, therefore, have dedicated more money toward home improvement, Fidelity noted.

E-mini NASDAQ-100 Index (NQ) Futures Technical Analysis – Strengthens Over 10791.25, Weakens Under 10708.50

September E-mini NASDAQ-100 Index futures closed higher on Friday, but the inside move suggests investor indecision and impending volatility. Gains were capped as fears over business disruptions due to another record-breaking rise in COVID-19 cases at home overtook optimism over a further stimulus package for a post-pandemic economic revival.

The NASDAQ also underperformed the S&P 500 for the sixth session in a row as investors rotated out of high-flying companies including Microsoft Corp and Apple Inc, which have powered the tech-heavy index to a record high last week.

On Friday, September E-mini NASDAQ-100 Index futures settled at 10622.50, up 110.75 or +1.04%.

In stock-related news, Netflix’s shares fell 7.2% after it forecast slower-than-expected subscriber growth during the third quarter and weighed the most on the S&P 500 and the NASDAQ Composite.

Daily September E-mini NASDAQ-100 Index

Daily Swing Chart Technical Analysis

Main Trend Technical Analysis

The main trend is up according to the daily swing chart. However, momentum has been trending lower since the formation of the closing price reversal top on July 13 and its subsequent confirmation the next session.

A trade through 11058.50 will negate the closing price reversal top and signal a resumption of the uptrend. The main trend will change to down on a trade through the nearest main bottom at 9728.75.

Minor Trend Technical Analysis

The minor trend is down. This move confirmed the shift in momentum to down. A trade through the last minor bottom at 10358.75 will signal a resumption of the downtrend.

The minor trend will change to up on a move through the last minor top at 10766.50. This will shift momentum to the upside, but an even bigger shift will occur if buyers can overtake 11058.50.

Retracement Level Analysis

The minor range is 11058.50 to 10358.75. Its retracement zone at 10708.75 to 10791.25 is resistance. This zone stopped the buying at 10766.50 last week.

This chart pattern is very important because it could be indicating that a secondary lower top is forming. This is usually the first sign of fresh short-selling.

The first short-term range is 9728.75 to 11058.50. Its 50% level at 10393.50 essentially stopped the selling last Tuesday when buyers came in at 10358.75.

The second short-term range is 9368.25 to 11058.50. If the selling pressure is strong enough to take out last week’s low at 10358.75 then look for an extension of the break into its retracement zone at 10213.25 to 10014.00.

Short-Term Outlook

The closing price reversal top is a major chart pattern. So far, all it is indicating is that the selling is greater than the buying at current price levels.

Usually this chart pattern leads to a 2 to 3 day correction or at least 50% of the last rally. We’ve already seen that with the pullback into the 50% level at 10393.50.

Look for the selling to resume if 10393.50 fails as support with 10213.25 to 10014.00 the next major downside target.

Our work suggests that trader reaction to 10708.75 to 10791.25 will set the tone of the market on Monday.

For a look at all of today’s economic events, check out our economic calendar.

Europe Set for Negative Start, US-China Tensions Rise, US Tech Giants Fell

Pfizer and BioNTech are working on four drugs that they are hoping will go on to be coronavirus vaccines, and the FDA put two of the four on a fast track for approval. At the back end of last week, BioNTech said they could receive approval as early as Christmas, but in light of yesterday’s news, it might even be sooner.

European equities closed higher and US stocks got off to a good start on the back of the news. The FDA update carried on nicely from Friday’s news that Remdesivir, the antiviral drug produced by Gilead Sciences, can reduce the fatality rate in coronavirus sufferers by 62%. In the past couple of trading sessions there was a feeling that big pharma stands a chance of taking on the virus.

That being said, many countries are still battling against Covid-19. There were in excess of 60,000 new cases yesterday in the US, while there were 312 deaths. The infection rate remains high, but at least the fatality rate is relatively low. The situation in Florida is getting worse as the growth in the number of new cases was 4.7%, while the seven day average was 4.4%.

Robert Kaplan, the head of the Federal Reserve Bank of Dallas, issued a mixed statement yesterday. The central banker expressed concerns in relation to the infection rate, and he said the Fed might be required to do more should assistance be needed. Mr Kaplan also said the Fed might row back on its stimulus packages should the economy improve.

The NASDAQ 100 set a fresh record high yesterday, a few hours into the trading session. The bullish run didn’t last long as the tech focused index finished down more than 2%, and the S&P 500 closed down nearly 1%. The usual suspects – Apple, Amazon, Netflix, Facebook and Google’s parent, Alphabet – all set all-time highs, but finished lower.

US earnings season will kick-off today as the latest quarterly numbers from JPMorgan, Wells Fargo and Citigroup will be posted. In April, the major banks collectively put aside more than $25 billion for provision for bad debts, the view is that the rate of loan defaults will surge on account of the pandemic.

Last month, the Fed carried out a stress test, and in one extreme scenario, the central bank cautioned that total bad debts provisions could be $700 billion. Dividends will be in focus as the Fed said that pay-outs must be capped at current rates, and there has been speculation that dividends could be cut in an effort to conserve cash.

It was a mixed day for commodities yesterday. The slide in the US dollar helped gold. Silver, copper and palladium were also helped by the move in the greenback, and the overall feel-good factor helped the industrial metals too. Oil on the other hand lost ground as there was talk that OPEC+ are looking to taper off the steep production cuts that were introduced in May. Last month WTI and Brent crude hit three month highs, but they failed to retest those levels since, because of the pausing of the reopening of economies.

Overnight, China posted its trade data for June. Imports were 2.7%, and economists were expecting -10%, keep in mind the May reading was -16.7%. Exports came in at 0.5%, and the consensus estimate was -1.5%, while the May reading was -3.3%. The rebound in imports and exports points to a turnaround in the global economy. It is possible the positive exports reading was largely because of Western government’s demand for personal protective equipment.

Rising tensions between the US and China in relation to Beijing’s territorial claims in the South China Sea has weighed on sentiment. Hong Kong is reintroducing tougher restrictions and a rise in coronavirus cases in Victoria, Australia, has impacted the mood too. Stocks in Asia are in the red, and European markets are called lower.

At 7am (UK time) the UK will release a number of economic reports. The GDP reading for May on an annual basis is tipped to be -20.4% and that would be an improvement on the -24.5% posted in April. The monthly reading is expected to be 5.5%, and keep in mind the April reading was -20.4%. UK industrial output, manufacturing output and construction output are expected to be 6%, 8% and 14.5% respectively.

At the same time, the final reading of German CPI for June will be posted and the consensus estimate is 0.8%.

The German ZEW economic sentiment report for July is tipped to be 60, and that would be a dip from the 63.4 recorded in June. It will be released at 10am (UK time).

Eurozone industrial production will be announced at 10am (UK time) and the May reading on a monthly basis is tipped to be 15%, and that would be a huge rebound from the -17.1% posted in April.

US headline CPI is expected to rebound to 0.6% from 0.1% in May. The core reading is tipped to be 1.1% and that would be a fall from the 1.2% that was posted in May.

EUR/USD – since late June it has been in an uptrend, and a break above the 1.1400 zone might put 1.1495 on the radar. A break below the 1.1168 area might pave the way for 1.1049, the 200-day moving average, to be targeted.

GBP/USD – has been in an uptrend recently, and should the positive move continue, it might target 1.2690, the 200-day moving average. A move through that level should put 1.2813 on the radar. Thursday’s candle has the potential to be a gravestone doji, and a move lower could see it target 1.2432, the 100 day moving average. A drop below 1.2251, might bring 1.2076 into play.

EUR/GBP – yesterday’s daily candle has the potential to be a bullish reversal, and if it moves higher it could see it target 0.9067 or 0.9239. A break below the 50-day moving average at 0.8949, could put the 0.8800 zone on the radar.

USD/JPY – has been drifting lower for the last month and support could come into play at 106.00. A rebound might run into resistance at 108.37, the 200-day moving average.

FTSE 100 is expected to open 78 points lower at 6,098

DAX 30 is expected to open 239 points lower at 12,560

CAC 40 is expected to open 91 points lower at 4,965

By David Madden (Market Analyst at CMC Markets UK) 

Europe Set to Rebound, US Jobs Data on Radar

Traders in this part of the world continue to monitor the situation in the US, where the majority of states continue to see the number of new Covid-19 cases increase. As of yesterday, the number of confirmed cases in the US exceeded 3 million. On Tuesday, the WHO cautioned there could be an increase in the fatality rate as there has been a rise in infections, but the death rate so far has lagged.

US-China tensions were doing the rounds yesterday. The decision by the Chinese government to introduce the national security law in regards to Hong Kong has sparked criticism from many countries around the world as it chips away at the principal of ‘one country two systems’.

Yesterday there was speculation the US government would hit back at Beijing by potentially undermining the Hong Kong Dollar (HKD) peg. It wasn’t that long ago that President Trump reiterated that the US-China trade deal was intact, so going after the HKD might be a useful tactic. The US leader might be hesitant about taking a very tough stance against the Beijing administration given that he’s not doing well in the polls and the Presidential election is in November.

The mini-budget from Rishi Sunak, the UK’s Chancellor of the Exchequer, made big political headlines yesterday, but it didn’t have a significant impact on the markets. Mr Sunak revealed £30 billion worth of schemes that are aimed at providing assistance to the UK economy. The furlough scheme will come to an end in October and £9 billion will be allocated to job retention. There will be a temporary cut to VAT for the tourism and hospitality sector.

In addition to that, there have been incentives offered for dining out too – the combined stimulus is worth £4.5 billion. Providing help to the battered hospitality sector is a sensible move, but people in the UK might be cautious about socialising given what has happened in places like Melbourne and the US in relation to a rise in new cases. As expected, the stamp duty threshold was upped to £500,000 from £125,000. One could argue that this tactic might not be as fruitful as the government are hoping as some people are likely to be cautious about purchasing a property on account of the huge economic uncertainty.

The health crisis in the US remained in focus. Oklahoma, California and Tennessee all posted a record daily rise in the number of new cases. States like Florida and Arizona continue to see higher case numbers too. Despite the pandemic, US equity benchmarks closed higher as the tech sector continued its bullish run. Amazon, Apple and Netflix all set new record highs. Raphael Bostic, the head of the Federal Reserve of Atlanta, said that some of the fiscal support programmes might need to be extended.

Overnight, China posted its CPI data for June and the level was 2.5%, while economists were expecting 2.5%. Keep in mind the May reading was 2.4%. The PPI metric was -3%, and the consensus estimate was -3.2%, while the previous update was -3.7%. The improvement in the PPI rate might bring about higher CPI in the months ahead. Stocks in Asia are up on the session, and European markets are being called higher too.

The US dollar came under pressure yesterday. It was a quiet day in terms of economic data so the move wasn’t influenced by economic indicators. Lately the greenback has been a popular safe haven for traders, it was showing losses during the day when European indices were in the red, and when US stocks were flickering between positive and negative territory.

Gold was given a hand by the slide in the US dollar. The metal topped $1,800, and it was the first time since September 2011 that it traded above that mark. The commodity is still popular with certain traders as there are concerns that a second wave of Covid-19 could be on the cards. The metal’s positive move is being partly fuelled by the belief that central banks will maintain very loose monetary policy. Some people are afraid an inflation rise is in the pipeline, so that is influencing gold too.

At 7am (UK time) Germany will post its trade data for May, and the imports and exports are tipped to be 12% and 13.8% respectively.

The US initial jobless claims is anticipated to fall from 1.42 million to 1.37 million. The metric has fallen for the past 13 weeks in a row. The continuing claims reading is tipped to drop from 19.29 million to 18.95 million. Keep in mind that last week’s reading actually ticked up. The reports will be posted at 1.30pm (UK time).

A eurogroup video conference meeting will be held today and traders will be listening out for any potential progress being made in relation to the region’s recovery fund.

EUR/USD – since early May it has been in an uptrend, but it has been trading sideways recently. If it holds above the 1.1168 zone, it could target 1.1495. A break below the 1.1168 area might pave the way for 1.1042, the 200 day moving average, to be targeted.

GBP/USD – since late June it has been in an uptrend, and should the positive move continue, it might target 1.2687, the 200-day moving average. A move through that level should put 1.2812 on the radar. A drop below 1.2251, might bring 1.2076 into play.

EUR/GBP – Tuesday’s daily candle has the potential to be a bearish reversal, and if it moves lower it might find support at 0.8935, the 50-day moving average. A retaking of 0.9067 could see it target 0.9239.

USD/JPY – has been drifting lower for the last month and support could come into play at 106.00. A rebound might run into resistance at 108.37, the 200-day moving average.

FTSE 100 is expected to open 34 points higher at 6,190

DAX 30 is expected to open 153 points higher at 12,647

CAC 40 is expected to open 46 points higher at 5,027

For a look at all of today’s economic events, check out our economic calendar.

By David Madden (Market Analyst at CMC Markets UK)

E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Bearish Under 25938

September E-mini Dow Jones Industrial Average futures are expected to open lower based on the pre-market trade. The selling is in response to yesterday’s potentially bearish closing price reversal top that could be signaling a shift in momentum and the start of a minimum 2 to 3 day correction.

The catalyst behind the selling pressure is the fear that the current surge in coronavirus cases could derail the economic expansion after several Fed officials issued a warning.

At 09:54 GMT, September E-mini Dow Jones Industrial Average futures are trading 25700, down 70 or -0.27%.

Investors have become increasingly concerned about a second-wave of demand destruction after large parts of the United States reported tens of thousands of new coronavirus infections. New York expanded its travel quarantine for visitors from three more states, while Florida’s greater Miami area rolled back its reopening.

Meanwhile, three Fed officials expressed concern that the surge in infections threatens to curtail consumer spending and job gains just as some stimulus programs are set to expire. One Fed policymaker, Loretta Mester, pledged more support ahead from the U.S. central bank.

Among the best Dow component performers were Microsoft Corp and Apple Inc. Walmart jumped 6.2% after a report that the retailer is close to launching its membership program, a direct competitor for Amazon.com’s Prime service.

Daily September E-mini Dow Jones Industrial Average

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart, but momentum is trending lower following yesterday’s closing price reversal top and subsequent confirmation.

A trade through 27466 will signal a resumption of the uptrend, while a move through 24409 changes the main trend to down.

The minor trend is also up. A trade through 25438 changes the minor trend to down. This will confirm the shift in momentum.

The short-term range is 27466 to 24409. Its retracement zone at 25938 to 26298 is resistance. This area stopped the buying on Tuesday.

The minor range is 24743 to 26280. Its 50% level or pivot at 25512 is potential support.

The main range is 22640 to 27466. Its retracement zone at 25053 to 24484 is the primary downside target.

Daily Swing Chart Technical Forecast

Based on the early price action, the direction of the September E-mini Dow Jones Industrial Average futures contract on Wednesday is likely to be determined by trader reaction to the 50% level at 25938.

Bearish Scenario

A sustained move under 25938 will indicate the presence of sellers. The next downside targets are 25512 and 25438. Since the trend is up, we could see a technical bounce on the first test of these levels.

Taking out 25438 will change the minor trend to down. This could trigger an acceleration into the main 50% support at 25053.

Bullish Scenario

A sustained move over 25938 will signal the presence of buyers. If this creates enough upside momentum then look for a surge into the resistance cluster at 26280 to 26298. The latter is a potential trigger point for an acceleration into the minor top at 26658.

Europe and US Join in on China’s Rally, Home Builders Jump

Europe

A securities journal that is controlled by the Chinese government ran a front-page editorial which mapped out the prospect of a bullish run in stocks, and that triggered buying in domestic equities. The CSI 300, rallied over 5%, and it closed at its highest level since 2015. The positive mood from China influenced dealers in this part of the world, even though the health crisis is still a major worry. On Saturday, the WHO claimed there was over 212,000 new cases of Covid-19, a new daily record. The Beijing authorities can’t talk up their own market forever, so it is likely in the next few days, the pandemic will be back in centre-stage as far as traders are concerned.

The UK house builders are enjoying a positive move today as it is believed the government will change the stamp duty rules in a bid to encourage activity in the sector. Under the existing scheme, if you purchase a property in England or Northern Ireland worth more than £125,000, you incur stamp duty, unless you are a first time buyer. There is talk the threshold could be raised to £500,000, and it might last for up to six months. There is talk that Rishi Sunak, the Chancellor of the Exchequer, will reveal the plans on Wednesday, with the intention of it being a part of the Autumn budget. Redrow, Vistry and Persimmon shares are in demand today.

Sticking with the house builders topic, Barratt Developments, confirmed that annual completions tumbled by over 29% to 12,604. Average selling prices were a touch higher at £280,000. The lockdown was blamed for the drop-off, but it in starting the new financial year with ‘cautious optimism’, as the full year order book stands at 14,326, up from 11,419 last year. The company has over £300 million in cash, it has access to £700 million in a credit facility, and it is eligible to tap into the Covid Corporate Financing Facility, so it is well positioned to work its way through its busy order book.

Rolls Royce shares clawed back some of the ground it lost on Friday when it announced it was reviewing potential options to strengthen its balance sheet. The engineering giant was already in a weakened position in advance of the pandemic on account of the issues in relation to the Trent 1000 engines.

The company supplies aircraft engines so the travel bans and the bleak outlook for the aviation industry compounded the firm’s problems. At its update in April, the group confirmed its liquidity position stood at £6.7 billion – which was a result of two rounds of financing. The group is clearly comfortable in terms of liquidity, and it seems like some restructuring is in the pipeline. Keep in mind, it warned about cutting 9,000 jobs in May.

DS Smith shares are in the red today as Jefferies downgraded the stock to hold from buy, and cut the price target to 310p from 350p. Last week the company posted a 5% increase in adjusted pre-tax profit, but it cautioned it was too soon to return to paying dividends.

Antonio Horta-Osorio, the CEO of Lloyds, will step down in June 2021. Mr Horta-Osorio has been in the top job for a decade. Under his leadership he turned the group around from a bank which was reeling from the credit crisis, and part-nationalised, to a fully private firm and a dividend payer.

Boohoo shares have fallen out of fashion after it was reported that one of its suppliers paid its staff poorly and the working conditions were substandard too. The group has become very popular recently as its fast fashion strategy combined with its online only model has been a hit with younger consumers.

The much-awaited ‘Super Saturday’ didn’t seem to be that super, as the re-opening of pubs and restaurants wasn’t the big deal that some people were predicting. Restaurant Group and Mitchells & Butlers are in the red.

US

The mood on Wall Street is positive as the US economy continues to rebound. The final reading of the services PMI report for June was 47.9, and keep in mind the May reading was 37.5. The ISM non-manufacturing reading was 57.1 – its highest level since February.

It was reported that Uber has acquired Postmates, the food delivery group, for $2.65 billion. Uber Eats is a direct competitor of the company but it is believed the two businesses will remain separate. There might be a merger of back-end technology. Last month merger talks between Uber and Grubhub fell apart due to antitrust issues, but the latter teamed up with Europe’s Just Eat.

Dominion Resources shares are in the red after it was announced the company has agreed to sell off its gas storage and transition network to Berkshire Hathaway, Warren Buffett’s, investment vehicle, for $4 billion. Mr Buffet’s firm will take on $5.7 billion of the group’s debt too, so the transaction comes to nearly $10 billion. In other news, Dominion and Duke Energy scrapped their plans for the Atlantic Coast pipeline project on account of rising costs.

Amazon shares have topped $3,000 for the first time as the tech giant asserted its dominance during the lockdown. It had the edge retailers that were forced to close.

FX

The risk-on sentiment of traders as weighed on the US dollar. In the past few months, the greenback has become a popular safe-haven play, and given the surge in equities today, we are seeing dealers dump the US dollar. The currency received a nice boost towards the end of last week on the back of the better-than-expected jobs report form the US. Today, currency traders are less interested in the recovery in the US economy, as they are fixated on the overall risk-on mood.

EUR/USD and GBP/USD have been helped by the negative move in the greenback. The UK construction PMI reading for June was 55.3 – it’s highest in nearly two years. The eurozone retail sales update for May was 17.8%, and that was a big improvement from the -12.8% in April.

Commodities

Gold has been nudged up by the dip in the drop in US dollar. The commodity’s inverse relationship with the dollar is working in its favour today. The metal has a history of attracting safe haven funds, but seeing as dealers are keen to take on more risk today, it is likely that gold’s positive move is almost exclusively down to the weakness in the dollar.

The optimism that is doing the rounds in relation to stocks seems to be influencing oil traders too. Equity markets and energy products have broadly moved in tandem in the past couple of months and it seems the lack of nerves in stocks has helped sentiment in WTI and Brent crude. The stark news from the WHO over the weekend that there was a new record set of new Covid-19 cases has been shrugged off by equity and energy traders alike.

For a look at all of today’s economic events, check out our economic calendar.

By David Madden (Market Analyst at CMC Markets UK)

Amazon Overbought And Overloved After Historic Rally

Amazon.Com Inc. (AMZN) emerged as the one of the first quarter’s biggest winners, increasing market share after traditional retailers and shopping malls shut down as a result of the COVID-19 pandemic. However, the e-commerce giant experienced growing pains as a result of the buying surge, limiting some products and delaying shipments. These roadblocks negatively impacted Q1 2020 profits, with $5.01 earnings-per-share (EPS) missing estimates by more than $1.00, despite a 26% jump in revenues.

The company has been pumping capital into infrastructure expansion in the second quarter, forcing CEO Jeff Bezos to warn about operating income. That hasn’t stopped investors from scooping up shares at a rapid pace, lifting the stock above $2,900. A string of Wall Street upgrades continues to stoke the upside despite overbought technical readings, but the lopsided reward-to-risk profile may now be too extreme for most investors.

Amazon Bullish View

RBC Capital analyst Mark Mahaney summed up the bullish view on Amazon in June, lifting his price target by 22% to $3300. He declared the company was a “structural winner” in the pandemic following an annual survey, noting that “results clearly support the idea they are likely the best global play off online retail”.  He notes that Prime subscriptions are adding to the upside as well, stating that “penetration surged to 67% vs. 59% in 2019. We see Amazon rapidly approaching 200 million Prime subs worldwide, up from 150 million in January.”

Wall Street And Technical Outlook

Wall Street consensus has priced Amazon for perfection, with an astounding 39 ‘Buy’ ratings and 2 ‘Hold’ ratings. Just one of the 42 polled analysts advises that investors sell the stock at this time.  Price targets currently range from a low of $1987 to a street-high $3500 while it’s currently trading about $150 above the median $2841 target. These numbers continue to tick higher with price, indicating it can trade even higher as long as the company fires on all cylinders.

Amazon is tough to buy from a technical perspective because relative strength readings have reached extremely overbought levels that have triggered multiple reversals since 2003.  In addition, the rally has stretched to three standard deviations above the 20-month moving average, also indicating the upside may be unsustainable in coming weeks. Sidelined investors are rooting for that to happen because it could set up a low-risk buying opportunity at much lower prices.

Concerned on Parts of Tech Sector, But Sees Continued Growth Tied to Two Megatrends: Fidelity

The recent recovery in stock markets has been at odds with economists maintaining a gloomier global economic outlook. The rally is largely driven by the optimism of economic recovery and a much stronger recovery in the technology sector.

The S&P 500 information technology sector has returned about 10% in 2020, including reinvested dividends. Although during the tech bubble of 1990s the sector has never booked over 14% of the S&P 500’s earnings, its profit contribution surged to more than 20% of S&P 500 net income in recent years.

It is likely that technology will play a significant role across different countries and cultures in future, generating better returns in the long run for these tech companies.

“I remain concerned about the impact of recession on parts of the tech sector, but I see continued growth driven by 2 megatrends: the shift to digital experiences and the shift to cloud computing,” wrote Nidhi Gupta, information technology sector leader and portfolio manager of Fidelity Select Technology Portfolio.

Gupta said she believes in companies that are moving traditional offline experiences online, and firms that are helping these companies to make better business decisions with their data, Fidelity added.

Socialising online and doing some of the things, like watching a movie and shopping with friends, virtually is a long-term megatrend that is expected to remain for years, regardless of global economic conditions amid the COVID-19 crisis. That’s why companies like Netflix, Facebook, Amazon.com, and Latin American e-commerce provider MercadoLibre are favoured.

“A related megatrend is that digital businesses with this treasure trove of data are increasingly looking to cloud computing to draw data-driven insights to improve their businesses. This is happening, via cloud services being offered at all levels of the information technology stack—infrastructure, platform, and software,” the American multinational financial services corporation added.

“Many companies are shedding their hardware and becoming software-led in every way,” Gupta adds. Companies that provide the cloud services to help their customers make better business decisions, which include HubSpot, Microsoft, Salesforce.com, Elastic, and MongoDB – all overweighted fund positions as of May 31.

According to Tipranks’ analyst consensus by sector, 148 technology stocks out of 595 were rated “Strong Buy”, 306 were rated “Moderate Buy”, 122 were rated “Hold”, 19 were rated “Moderate Sell” while none were rated “Strong Sell”.

Amazon.com Announces to Buy Autonomous Driving Startup Zoox

Amazon.com, an American multinational technology company based in Seattle, has announced that it will acquire an autonomous vehicle company Zoox Inc in a deal worth reported to be over a billion dollars, helping in bringing their vision of autonomous ride-hailing to reality.

One of the Big Four technology company, Amazon, has extended its investment in the automobile sector, raising more than $530 million in a funding push for Aurora Innovation last year. However, both the companies did not completely disclose the deal and financial terms; the world’s largest online retailer has acknowledged to pay more than $1 billion to Zoox, a source told The Wall Street Journal.

“Zoox is working to imagine, invent, and design a world-class autonomous ride-hailing experience,” Jeff Wilke, Amazon’s CEO said in a statement. “Like Amazon, Zoox is passionate about innovation and about its customers, and we’re excited to help the talented Zoox team to bring their vision to reality in the years ahead.”

“This acquisition solidifies Zoox’s impact on the autonomous driving industry,” Aicha Evans, CEO of Zoox said in a statement. “We have made great strides with our purpose-built approach to safe, autonomous mobility, and our exceptionally talented team working every day to realize that vision. We now have an even greater opportunity to realize a fully autonomous future.”

However, completion of this transaction is subject to customary closing conditions.

Amazon.com outlook and price target

Forty-two analysts forecast the average price in 12 months at $2,790.75 with a high of $3,400.00 and a low of $1,987.00. The average price target represents a 3.63% increase from Friday’s close of $2,692.87, according to Tipranks. From that 42, 39 analysts rated ‘Buy’, two rated ‘Hold’ and one rated ‘Sell’.

Morgan Stanley target price is $2,800 with a high of $3,300 under a bull scenario and $1,600 under the worst-case scenario. Last week, Suntrust Robinson raised the target price to $3,400 from $2,700, Deutsche Bank raised the target price to $3333 from $2750 and Wedbush raised the target price to $3,050 from $2,750.

It is good to buy at the current level as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst comment

“Amazon’s high-margin businesses continue to allow Amazon to drive greater profitability while still continuing to invest. Amazon Prime membership growth drives recurring revenue and positive mix shift. Advertising serves as a key area for both further growth potential and profitability flow-through.,” wrote Brian Nowak, equity analyst at Morgan Stanley in his June 1 note.

“E-commerce is inflecting and our “shifting consumer spend” framework shows why we expect faster forward growth even if the consumer weakens. We raise estimates, now modeling 25% or 12% e-com growth in ’20/’21. We raise AMZN ests (top OW pick), remain OW WMT, and highlight e-com tailwinds to OW FB/GOOGL,” he added.

US ‘Re-Opening Stocks’ Attracting Buyers; Amazon, Facebook Hit Record Highs

The three major U.S. stock indexes posted their fourth gain in five sessions on Wednesday as investors continued to bet on a swift economic recovery from coronavirus-driven lockdowns and the potential for more stimulus measures from the Federal Reserve. The move took place despite a medical watchdog group downplaying the upbeat coronavirus results from Moderna Inc. that earlier in the week was a catalyst by a spectacular rally.

In the cash market, the benchmark S&P 500 Index settled at 2971.61, up 48.67 or +1.85%, the blue chip Dow Jones Industrial Average finished at 24575.90, up 369.04 or +1.65% and the technology-based NASDAQ Composite closed at 9375.78, up 190.68 or +2.45%.

The Internals

Gains were broad-based, with each of the 11 major S&P sectors on the plus side. The small-cap Russell 2000 Index, which usually leads gains out of a recession, outperformed the large-cap indexes, according to Reuters.

Advancing issues outnumbered declining ones on the NYSE by a 4.05-to-1 ratio; on the NASDAQ Composite, a 3.53-to-1 ratio favored advancers.

The S&P 500 posted 13 new 52-week highs and no new lows; the NASDAQ Composite recorded 74 new highs and nine new lows.

Money Moving into Growth, ‘Re-Opening Stocks’

Since the markets bottomed in late March, technology sector growth stocks have been the catalysts leading the rally. We are now seeing demand for the stocks of companies expected to benefit from the economy re-opening.

Amazon rose 1.98% to hit an all-time high to lead the market higher. Facebook gained 6.04% and reached record levels as well. Stocks that would benefit from the economy reopening also advanced Wednesday. MGM Resorts closed 8.84 higher while United Airlines rose 5.19%.

As states across the country begin to loosen restrictions, hopes for an economic rebound have grown. The NYSE Arca airlines index jumped 5.35% as Delta Air Lines Inc.’s chief executive officer said he was confident travel will return in the next 12 to 18 months.

Moderna Responds to Criticism of Its Coronavirus Results

Moderna would never put out data on its potential vaccine for the coronavirus that was different from “reality,” the biotech firm’s chairman told CNBC on Wednesday.

The comment came a day after health-care publication STAT News reported that some vaccine experts were skeptical of Moderna’s new vaccine data, saying it did not provide critical information to assess its effectiveness. The report sent Moderna’’ stock and the broader U.S. market lower.

Stock Pick Update: May 20 – May 26, 2020

The broad stock market has extended its short-term consolidation in the last five trading days (May 13 – May 19). Almost two months ago on March 23, the S&P 500 index sold off to new medium-term low of 2,191.86. It was a stunning 35.4% below February 19 record high of 3,393.52. The corona virus and economic slowdown fears have erased more than a third of the broad stock market value. Then we saw huge come-back rally, as the index got back above 2,900 mark. Recently the S&P 500 index has been trying to break above the resistance level of around 2,950.

The S&P 500 index has gained 1.99% since last Wednesday’s open. In the same period of time our five long and five short stock picks have lost 0.17%. So stock picks were relatively weaker than the broad stock market. However, our long stock picks have gained 2.14% and they have outperformed the index. Short stock picks have resulted in a loss of 2.48%. The overall results remain relatively better than the S&P 500 index over last months.

If stocks were in a prolonged downtrend, being able to profit anyway, would be extremely valuable. Of course, it’s not the point of our Stock Pick Updates to forecast where the general stock market is likely to move, but rather to provide you with stocks that are likely to generate profits regardless of what the S&P does.

This means that our overall stock-picking performance can be summarized on the chart below. The assumptions are: starting with $100k, no leverage used. The data before Dec 24, 2019 comes from our internal tests and data after that can be verified by individual Stock Pick Updates posted on our website.

Below we include statistics and the details of our three recent updates:

  • May 19, 2020
    Long Picks (May 13 open – May 19 close % change): SLB (+1.42%), CSCO (+2.74%), NWSA (+6.12%), CCI (-1.04%), CB (+1.46%)
    Short Picks (May 13 open – May 19 close % change): AVB (+2.72%), C (+5.79%), AEP (-0.45%), COP (+4.02%), AAPL (+0.32%)

    Average long result: +2.14%, average short result: -2.48%
    Total profit (average): -0.17%

  • May 12, 2020
    Long Picks (May 6 open – May 12 close % change): SLB (+5.17%), WYNN (-2.24%), MLM (-7.68%), MKC (+4.97%), GE (-3.22%)
    Short Picks (May 6 open – May 12 close % change): SYY (-3.33%), CAT (-4.81%), XEL (-7.15%), COG (-6.68%), AMZN (+1.18%)

    Average long result: -0.60%, average short result: +4.16%
    Total profit (average): +1.78%

  • May 5, 2020
    Long Picks (Apr 29 open – May 5 close % change): MPC (+4.50%), GILD (-5.75%), LIN (-3.19%), GE (-7.19%), HIG (-13.29%)
    Short Picks (Apr 29 open – May 5 close % change): UPS (-3.53%), SPGI (-2.59%), SO (-6.06%), COG (-1.16%), AMGN (-1.06%)

    Average long result: -4.98%, average short result: +2.88%
    Total profit (average): -1.05%

Let’s check which stocks could magnify S&P’s gains in case it rallies, and which stocks would be likely to decline the most if S&P plunges. Here are our stock picks for the Wednesday, May 20 – Tuesday, May 26 period.

We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (May 20) and sold or bought back on the closing of the next Tuesday’s trading session (May 26).

We will provide stock trading ideas based on our in-depth technical and fundamental analysis, but since the main point of this publication is to provide the top 5 long and top 5 short candidates (our opinion, not an investment advice) for this week, we will focus solely on the technicals. The latter are simply more useful in case of short-term trades.

First, we will take a look at the recent performance by sector. It may show us which sector is likely to perform best in the near future and which sector is likely to lag. Then, we will select our buy and sell stock picks.

There are eleven stock market sectors: Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Technology, Communications Services, Utilities and Real Estate. They are further divided into industries, but we will just stick with these main sectors of the stock market.

We will analyze them and their relative performance by looking at the Select Sector SPDR ETF’s.

Based on the above, we decided to choose our stock picks for the next week. We will choose our top 3 long and top 3 short candidates using trend-following approach, and top 2 long and top 2 short candidates using contrarian approach:

Trend-following approach:

  • buys: 1 x Energy, 1 x Communication Services, 1 x Technology
  • sells: 1 x Real Estate, 1 x Utilities, 1 x Consumer Staples

Contrarian approach (betting against the recent trend):

  • buys: 1 x Real Estate, 1 x Utilities
  • sells: 1 x Energy, 1 x Communication Services

Trend-following approach

Top 3 Buy Candidates

SLB Schlumberger Ltd. – Energy

  • Stock remains within a consolidation following April’s rebound
  • The resistance level of $19
  • Initial upside profit target level of $22-24

TWTR Twitter, Inc. – Communication Services

  • Potential uptrend resuming following breaking above bull flag pattern
  • Upside profit target levels of $31 and $35
  • The support level remains at $27

CSCO Cisco Systems, Inc. – Technology

  • The market broke above its recent consolidation (bull flag pattern)
  • The resistance levels of $45.50 and $48.00 (upside profit target levels)
  • The support level of $43.00

Summing up, the above trend-following long stock picks are just a part of our whole Stock Pick Update. The Energy, Communication Services and Technology sectors were relatively the strongest in the last 30 days. And they all have gained much more than the S&P 500 index in the same period. So that part of our ten long and short stock picks is meant to outperform in the coming days if the broad stock market acts similarly as it did before.

We hope you enjoyed reading the above free analysis, and we encourage you to read today’s Stock Pick Update – this analysis’ full version. There, we include the stock market sector analysis for the past month and remaining long and short stock picks for the next week. There’s no risk in subscribing right away, because there’s a 30-day money back guarantee for all our products, so we encourage you to subscribe today.

Thank you.

Paul Rejczak
Stock Trading Strategist
Sunshine Profits – Effective Investments through Diligence and Care

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

US Open – Risk, Earnings, Oil, Gold, Bitcoin

The FTSE 100 took a hammering on Friday while many of the bourses were closed which is why it’s not coming under such heavy fire today. There’s some catch-up going on across much of the continent in the aftermath of Trump’s comments on potential Chinese tariffs. The last thing we need right now is a resumption of the trade war.

Earnings ended last week on a sour note, with Amazon and Apple adding a bit of gloom to a season that has, to that point, been given a bit of a free pass. Perhaps this is more of a timing issue than an earnings one but it appears to have contributed to the sea of red we’re now seeing. More earnings to come this week but we are past the peak.

Thankfully, the same appears to be true of the coronavirus itself. Boris Johnson emphasized this last week, even as the UK is on course to overtake Italy with the second-highest number of reported fatalities, behind the US. We should learn a lot more about the lockdown easing process over the coming weeks, although I imagine it’s going to be very flexible as we see what impact it has on the data and healthcare system.

Oil slips as risk appetite dwindle

Oil prices appear to be mirroring sentiment in the markets today, with WTI down 7% on the June contract. A little over two weeks until expiry, we’ll soon see just how at ease traders have become with storage capacity. US production is now around one million barrels a day off its peak but falling very gradually in the last month, only 100,000 barrels per week.

The same isn’t true of rig numbers, which have been plunging so I imagine this will catch up with the production figures and alleviate the storage pressures in time. Whether that will come in time for the June expiry I’m not sure. Should be a fascinating couple of weeks.

Is gold a safe haven again?

Gold has enjoyed a nice bump these last couple of trading sessions. It technically remains range-bound but the move has come alongside stock market declines. I’m not going to speculate just yet about whether its normal relationship with risk has restored, I’ve done that enough over the last couple of months only for it to revert. Whatever is giving it a boost today, only a break of $1,750 will be meaningful, although $1,740 – the most recent peak – will be interesting a could create some excitement.

Bitcoin needs hype to sustain move above $10,000

Bitcoin is holding above $8,500 after peaking around $9,500 last week. It’s often difficult to attribute the moves in bitcoin to anything in particular but the proximity to the halving event seems logical, from the perspective that it gives it exposure rather than anything more fundamental. You would think that anything significant would be priced in by now.

Whether the exposure can see it through $10,000 is one thing, whether it can sustain it is another. We’ve seen it before, the mere act of it rising fast creates the stories which generates the exposure. If that doesn’t happen, any rally may quickly fizzle out and we could find ourselves back at the early April levels.

Economic Calendar

The article was written by Craig Erlam, Senior Currency Analyst at OANDA


This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

U.S. Stocks Set To Open Lower As Trump Threatens New Tarrifs On China

Donald Trump Wants To Punish China For Failure To Contain Coronavirus

U.S. has signed the first phase of a trade deal with China back in January, and tariffs are still applied to many Chinese imports. However, the coronavirus pandemic, which originated in China, may lead to another wave of tariffs.

The desire to hold China to account is growing around the world, but the timing of the additional tariff proposals could not have been worse as the world tries to gradually reopen following the acute phase of the coronavirus crisis.

In addition, China is the only major economy which is mostly back on track after the epidemic, so hurting it would push the world economy deeper into the red zone.

Not surprisingly, the market is nervous about the tariff idea, and S&P 500 futures are down more than 2% in premarket trading.

Apple And Amazon Are Down In Premarket Trading

Apple and Amazon, which are the U.S. market’s second and third companies by market capitalization, have reported their earnings yesterday after the market close.

Both stocks have done well during the current crisis (especially Amazon) and the market’s expectations were very high. The reports were decent but it looks like the market wanted to see a better guidance for the upcoming quarter.

As a result, both stocks are under pressure during the premarket trading session, and their dynamics will have a material impact on the whole market today because of their huge market capitalization.

More Economic Data Ahead

U.S ISM Manufacturing PMI for April is set to be released today soon after the market open. Analysts expect that PMI will come at 36.9 compared to the previous reading of 49.1.

All upcoming economic reports will highlight a huge blow to the economy which was dealt by virus containment measures. The key question is whether the market will continue to shrug off bad data and maintain its current upside trend or if grim economic reports will lead to a pullback.

May is historically not the easiest month for markets, and this fact may also play a role, especially after the major rebound that took S&P 500 from 2200 to above 2900 in a very short period of time.

U.S. Stocks To Watch Today

Gilead Sciences

Gilead‘s remdesivir showed some success as anti-COVID-19 drug in early studies so the company attracts a lot of attention these days.

Gilead has reported its first-quarter results and held its earnings call on April 30 after the market close. The company reported GAAP earnings of $1.22 per share, missing analyst estimates. Revenue of $5.55 billion was higher than analysts expected.

During the earnings call, the company stated that it decided to donate 1.5 million doses of redesivir and that it was too early too talk about the potential pricing of the drug in case additional studies prove that it is effective against coronavirus.

The company’s shares lost some ground in the after hours trading session, but recent trading in Gilead stock has been so volatile that things may change very quickly.

Amazon

Amazon was the leader of the market rebound from mid-March lows, and the stock has just broken to all-time highs as investors and traders viewed the shares as an ideal safe haven asset during the current crisis.

Expectations were sky-high. Amazon reported its first-quarter results on April 30 after the market close. The company’s earnings of $5.01 per share missed analyst estimates by $1.10, while revenue of $75.5 billion was higher than expected.

Amazon stated that coronavirus-related costs will increase as the company has to spend heavily to ensure worker safety. In addition to safety costs, Amazon also  increased wages for frontline workers which will also put pressure on second-quarter results.

It remains to be seen whether the company’s stock will continue its rally after the release of the report but investors and traders can be sure that Amazon’s share price dynamics will heavily impact the direction of S&P 500 today.

Apple

Apple, which is currently the second biggest company by market capitalization in S&P 500, has also presented its quarterly results on April 30 after the market close.

Apple easily beat analyst estimates on both earnings and revenue. In addition, Apple has increased its quarterly dividend from $0.77 per share to $0.82 per share.

However, the company did not present its guidance for the next quarter as the coronavirus pandemic made it hard to estimate demand and shipments.

Apple shares have fully recovered from the downside they experienced during the current crisis so expectations were high. Due to this, the good report has so far failed to provide an additional boost to the company’s shares, and Apple stock was down more than 2% in the after-hours trading session.

The Lockdown, The Fallout and the RoadMap to Recovery

Global Lockdown

In an abrupt and unprecedented manner, the world witnessed a mass halt to global activities due to the pandemic. Governments and central banks rushed in to intervene and support the global economy with unconventional measures to cushion the impact of the coronavirus on their economies and ease market strains.

As the virus spread quickly across the globe, the world forcing employers and employees to work remotely and rethink how to operate in a new ‘virtual reality’. Similarly, investors are faced with a new normal and are at an inflection point where there is a pressing need to reshape their investing strategies.

Oil Crash

The oil price war is over for now and the OPEC+ group has also agreed to a historic production cut in early April; though . Aa little too late considering how the situation unfolded during the month. Oil demand took the biggest hit seen in years at a time where production was reaching new highs.

The world is running out of spare room to store the fast-expanding glut that the pandemic has created. The damage initially caused by the price war was irreversible during such pandemic. The lack of storage capacity triggered a big plunge in crude oil prices.

Crude oil futures markets were in chaos, triggered by the inability of investors or traders to take on physical deliveries of oil barrels. The storage problem is so dire that investors or traders holding oil contracts are willing to sell their contracts at a loss, causing crude oil futures to turn negative for the first time in history.

A situation of more sellers than buyers.

On April 2020, WTI futures for May delivery traded at around negative 37 for the first time ever, reflecting the urgency of sellers to offload their contracts to avoid taking physical deliveries given the pandemic-induced circumstances.

Source: Bloomberg

What to expect in the coming months?

There is no quick fix for rebalancing the oil market. In such volatile markets, it is hard to predict what will happen with the June contract as the storage capacity will remain a primary source of concern.

Oil future prices took another blow when one of the largest oil funds, the United States Oil (USO), filed an SEC filing and revised its investment in oil future contracts to concentrate on contracts that are further out in the future.

Crude oil prices have remained under heavy selling pressure throughout the month. The near-term outlook for the oil market remains grim but investors are hopeful some recovery will take place when:

  • Production cuts will slow down the speed at which storage tanks are being filled; and
  • Major economies will ease lockdowns and activities will gradually pick up.

In the last few days, WTI for June delivery lost more than 15% and is trading at $14.26 a barrel while Brent recovered from earlier losses for June settlement and is trading at $21.42 a barrel.

GDP Contraction

The International Monetary Fund (IMF) has predicted in its 2020 World Economic Outlook that the economic impact of the COVID-19 pandemic might result in the “worst recession since the Great Depression”. The IMF expects the world economy to contract by 3% in 2020 due to the magnitude and speed of the collapse in activity following the various forms of lockdown seen across the globe.

Attention was on the GDP figures of the world’s two largest economies!

Earlier this month, China reported a deep contraction of 6.8% in GDP in the first quarter. It was not surprising given that China exercised strict lockdown measures and put a halt to activities throughout most of the quarter.

China has slowly resumed activities since the beginning of the month as the worst of the pandemic appears to be over. Manufacturing and trade data has been more upbeat which has risen expectations of a gradual return to normal if China avoids another wave of the virus.

Investors will be ending the month with the US GDP report that will show the first wave of the impact of the pandemic. After more than a decade of expansion, the US economy was expected to contract by 4% with a steeper contraction in the second quarter.

As of writing, the preliminary figures show a worse-than-expected contraction of 4.8%, which is the first sharpest decline since the Great Recession.

The figures echoed the IMF warnings!

Earnings Season

Earnings results were widely expected to highlight the pain inflicted by the coronavirus-induced crisis. Even though investors were expecting a tough earnings season with withdrawn forecasts, confusion and uncertainties about the 2020 outlook, the quarterly results are also meant to reveal how certain industries are affected by the virus and how those insulated from the virus are managing the pandemic.

Everything about the pandemic is unpredictable and therefore, companies in every sector are facing the challenges to communicate their guidance. Companies within certain sectors will perform worse than others.

Financials

The earnings season kickstarted with major US banks. As widely expected, banks like JP Morgan, Wells Fargo, Citigroup, Bank of America, Goldman Sachs and Morgan Stanley all reported a significant drop in profits. Overall, the banks made significant provisions for credit losses and saw major declines in asset management revenues.

Banks like Goldman Sachs and Morgan Stanley have flared better and their share price is currently up by 15% or more.

Communication Services

Our attention move to the big tech giants like Alphabet, Facebook and Netflix which have been reclassified to the communications sector in the last few years.

Netflix was among the first few to report its quarterly results. The company reported a $5.8B in revenue with a year-on-year growth of 27.6%. The number of subscribers came above estimates and more than double its target with 15.77 million paid subscribers. The substantial growth came in March when the lockdown and social distancing measures forced many more households to join the TV and movie-streaming service.

However, the company warned that revenue and growth might decline mostly due to probable lift of the confinement measures, a stronger US dollar that is impacting international revenue growth and the lack of high-quality content following the pause in production. Its share price reached a high of around $440, but as of writing, it is currently trading at $411.

Alphabet, Google’s parent company, issued its quarterly results after the bell on Tuesday. The company reported an increase of 13% in revenue for Q1 2020, compared to a 17% increase for the same quarter a year ago and earnings of $9.87 per share. Based on expectations, it was a miss on earnings. However, the company has performed well given the challenges and is cautiously optimistic tones for the second quarter. Alphabet’s share price rose by almost 9% on Wednesday.

Facebook – The social networking giant reported earnings of $4.9B or $17.10 per share for Q1 2020 compared to earnings of $2.43B or $0.85 per share in Q1 2019. The company doubled its earnings. Similarly to its peers, Facebook warned of the unprecedented uncertainty and withdrew its revenue guidance for the rest of the year. Its share price jumped by 6% to trade at $194.20.

Both Google and Facebook have seen a significant reduction in demand for advertising, but the companies still managed to stay massively profitable and adapt in a coronavirus-fueled environment.

Tech Sector

Microsoft released strong results in the third quarter of its fiscal year 2020. Overall, COVID-19 has had a minimal net impact on total revenue. As people around the world shifted to work and learn from home, there was a significant increased in demand for Microsft’s Cloud business to support remote works and learning scenarios. Compared to the corresponding period of last fiscal year:

  • Revenue was $35.0 billion and increased 15%
  • Operating income was $13.0 billion and increased 25%
  • Net income was $10.8 billion and increased 22%
  • Diluted earnings per share were $1.40 and increased 23%

Microsoft did not only top revised COVID-19 estimates but also the earnings that were expected back in January before the coronavirus crisis.

All eyes will be on Apple Inc. which will report earnings on Thursday, April 30, 2020 after market close. Apple’s conference call to discuss second-quarter results will be held on the same say at 2:00 p.m. PT / 5:00 p.m. ET.

Consumer Discretionary

Unlike the consumer staples sector which includes companies that produce or sell essential products, consumer discretionary stocks are mostly companies that do not manufacture or sell essentials. The various forms of lockdowns have left many people without employment. For example, the US economy lost around 20 million jobs over the last few months. It took the US like a decade to add those jobs in the economy.

Amazon.com Inc has always stood out from the lot because of its status as a leading e-commerce retailer. Investors will closely watch its earnings reports for guidance. The company Amazon.com, Inc. will hold a conference call to discuss its first quarter 2020 financial results on April 30, 2020 at 2:30 p.m. PT/5:30 p.m. ET.

Stock Market

Worldwide sharp contractions in the manufacturing sectors, warnings of economic contraction and fears of a recession in the month of April have created panic and volatility in the financial markets.

A look at the All-Country World Index shows that global equities are poised for their biggest monthly gain since the Great Recession. The biggest driver is the unprecedented and unconventional actions by central banks combined with massive fiscal stimulus.

Global equities are surging even though economic data is painting a different picture.

Towards the end of the month, some positive developments on the novel coronavirus cases and the possibilities of earlier opening plans of certain major economies has driven markets higher. Mega-cap stocks like Microsoft, Amazon, Facebook and Google have also contributed to lifting sentiment and drove the rally while smaller-cap companies are bearing the brunt of the pandemic.

The Reopening Plans

There is still hope for the economy despite the tough circumstances. V-shaped or U-Shaped Recovery? New infections have slowed down but there is still no vaccine and economies are at risk of a new wave of infection.

A vaccine could have increased expectations of a swift recovery like a V-shaped immediate recovery in the third quarter or a U-shaped recovery with stability more towards the second half of the year.

However, at the moment, governments are easing lockdown restrictions and investors will be back to a New Normal to replace the current “normal”. The economy is trapped in an unusual type of recession created by the novel coronavirus.

The roadmap to recovery will be progressive and dependent on the governments approaches towards easing lockdowns. It will be different across the globe depending on how governments feel about the situation and the risk of a second wave of the virus.

The path to recovery will be a learning process given the unknown territory!

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Deepta Bolaky, Market Analyst at GO Markets.

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The Great Markets Debates

This is likely reflecting the fact that S&P500 and Nasdaq 100 futures are up 0.8% and 1.1% respectively. Asian markets are responding in kind.

Spot gold is down smalls, although gold futures are modestly higher, but the daily chart of spot gold looks bullish and we are watching for the upside closing break of 1738 for a future move into 1800.

Two important market debates

The two big debates that have been most prevalent through the weekend, or at least that I found most interesting, remain the disconnect between the real economy and asset values. And, where to for the USD. There has also been increased focus on the moral hazard argument, where at a simplistic level the Fed incentivised business to over-lever their balance sheet, and now the Fed is bailing them out or supporting them indirectly. We can also look at the number of countries that are opening their economies, gradually, and the market is eyeing the risk of a second wave, which is another factor that makes it hard to chase risk.

Italy has announced they will start to ease lockdown restrictions on 4 May, joining Spain who will ease movement restrictions on 2 May. France will detail a plan to the world tomorrow to end lockdown next month, while Belgium is due to open shops on 1 May. In the US, a number of states are easing restrictions, and we hope this is the start of more normal times ahead, although the post-virus world throws up many challenges and one focal-point that immediately springs to mind is the blame game and the US (and the world’s) ongoing relationship with China.

The disconnect between economics and asset values will be the focal point this week though.

The data and event risk rolls in and I know investors have written off 2020 as a shocker and are looking more intently into the landscape in 2021, but this argument will be seen case in point this week. On the micro-side of considerations, this week we get to hear from some big-name corporations – Amazon, Tesla, Microsoft, Apple, Boeing, FB, Alphabet, McDonald’s, and Exxon, to name but a few. Earnings expectations have come down and FY20 and FY21 consensus stand at $131 and $165, respectively, but it still means we are going into this week with investors paying 21.6x for 2020 earnings – the highest since December 2001. But they are also paying 17.1x 2021 which is still lofty given the challenges ahead.

At this juncture though, in the battle of liquidity vs earnings, liquidity is winning but these are some big names dropping this week, representing a catalyst for index traders. The NAS100 is the strongest market if looking for a vehicle to express a risk-on bias this week (in index land). However, I think the set-up on the US500 needs attention. On the upside we have downtrend resistance, the 6 March gap and 61.8% fibo to clear and a break here needs to be respected, especially when we’re hearing that the systematic funds will be ramping up outright longs on a break of 3007.

However, on the downside we see price has broken the wedge and the head and shoulder neckline kicks in around 2726. A break here will see buying in the USD, JPY and US Treasuries. I am watching inflation expectations (breakevens) extremely closely, as where they go will underpin where equities and gold go.

On the data docket this week we get:

BoJ meeting – we saw the BoJ meeting and as expected they removed the cap and reverted to unlimited JGB buying. There has been limited reaction in the JPY. I continue to like the JPN225 on a break of 19,886 and will wait for price to compel and the structure to suggest the index is ready to trend.

USDJPY is interesting because it is just so dull – there is literally no range and it feels like it will break hard soon. At this juncture, the market feels this is fair value, but I am watching for a change here.

US – Q1 GDP (consensus at -3.9%), jobless claims (3.5m), FOMC meeting, ISM manufacturing (36.1). I would expect no reaction to Q1 GDP, as Q1 is but a relic in time and we are looking at Q2 and beyond. The FOMC meeting is the main game in town this week and after two emergency meetings, we look at the first scheduled meeting that could move markets.

We should see the Fed tweak the interest it pays banks on excess reserves by 5bp, although, the market is going some way to discounting that and it shouldn’t cause much of a move in the USD. We should also hear more about the targeted level of US Treasury and mortgage buying, with the monthly run-rate closer to $150b, but they will retain an element of flexibility towards this.

As mentioned, the debate as to where the USD is headed is key, and I will put out a note tomorrow on this as it is important. For now, the DXY (or USDX) tracks the regression channel and is not going lower despite USD funding costs (blue – 3m FRA-OIS, yellow – EUR cross-currency basis swaps) falling heavily as a result of the Fed’s swap lines, massive balance sheet expansion and excess liquidity.

Next week we get NFPs and consensus currently sits at 20m jobs lost, with the unemployment rate at 15.1%.

Eurozone – The ECB meeting is the highlight, especially given the recent widening of interbank credit metrics, notably the Euribor-OIS spread (see below), which has pushed into 30bp. The ECB will need to do more and granted the PEPP program (Pandemic Emergency Purchase Program) has been seen as a solid step forward from the bank, this program is going to need to be increased from its current E750B size – although, whether it plays out at this meeting is unlikely. We should see some tweaks to what can be offered as collateral to access PEPP funds, and similar to the Fed the ECB may accept bonds that were downgraded to junk since the start of COVID-19 the so-called ‘fallen angels’.

Whether this Thursday’s ECB meeting (21:45aest) proves to be a vol event is yet to be seen, and we see EURUSD 1-week implied volatility at 9.17%, which implies a move (higher or lower) on the week of 116p.

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I am looking at the EURAUD short idea and watching price action very closely. I do not see the ECB meeting being a huge vol event, but I am loath to hold EUR exposures over this meeting.

China – Manufacturing PMI (30 April- 11am) – consensus at 51.0 (from 52.0). I am sceptical this will be a vol event but may get some headlines.

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Chris Weston, Head of Global Research at Pepperstone.

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