Gold Price Prediction – Prices Consolidate Despite Declining US Yields

Gold prices moved lower consolidating its recent gains after hitting a fresh 8-year high on Wednesday. The dollar rebounded on Thursday which generated some mild headwinds for gold prices. The 10-year US treasury yield dropped sharply declining to 60-basis points and closing at the 3rd lowest level in history and the lowest close since mid-April. Fear that COVID continues to spread through the United States, is weighing on future growth prospects.  US jobless claims were smaller than expected showing that the declines in the job market have likely stabilized.

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Technical Analysis

Gold prices rallied consolidated and moved lower on Thursday after hitting fresh 8-year highs on Wednesday. Prices are now poised to test target resistance near the August 2011 highs at $1,921. Support is seen near the 10-day moving average at 1,783 and additional support is seen near the 50-day moving average at 1,735. Short term momentum has turned negative and continues to whipsaw making new signals almost daily. The current reading on the fast stochastic is 89, down from 94 on Wednesday and still well above the overbought trigger level of 80 which could foreshadow a correction. Medium-term momentum remains positive as the MACD (moving average convergence divergence) histogram prints in the black with an upward sloping trajectory which points to higher prices.

US Jobless Claims Beat Expectations

The Labor Department reported that weekly jobless claims were lower than expected last week. Claims for the week ended July 4 totaled 1.314 million, compared with the 1.39 million expected. The total marked a decrease of 99,000 from a week earlier. The four-week moving average of claims, fell 14,000 to 1.43 million. Continuing claims fell sharply, dropping 698,000 from a week earlier to 18.06 million. The previous week’s total itself was revised down by 530,000. Wall Street had been expecting 18.9 million continuing claims.

Retail Traders & Investors Squeezed to Buy High-Risk Assets Again

Yes, we certainly live in interesting times.  This, the last segment of our multi-part article on the current Q2 and Q3 2020 US and global economic expectations, as well as current data points, referencing very real ongoing concerns, we urge you to continue using common sense to help protect your assets and families from what we believe will be a very volatile end to 2020.  If you missed the first two segments of this research article, please take a moment to review them before continuing.

On May 24th, 2020, we published this research article related to our super-cycle research. It is critical that you understand what is really happening in the world as we move through these major 21 to 85+ year super-cycles and apply that knowledge to the data we have presented in the first two segments of this research post.  Within that article, we quoted Ray Dalio from a recent article published related to his cycle research.

“In brief, after the creation of a new set of rules establishes the new world order, there is typically a peaceful and prosperous period. As people get used to this they increasingly bet on the prosperity continuing, and they increasingly borrow money to do that, which eventually leads to a bubble.

As prosperity increases the wealth gap grows. Eventually, the debt bubble bursts, which leads to the printing of money and credit and increased internal conflict, which leads to some sort of wealth redistribution revolution that can be peaceful or violent. Typically at that time late in the cycle, the leading empire that won the last economic and geopolitical war is less powerful relative to rival powers that prospered during the prosperous period, and with the bad economic conditions and the disagreements between powers, there is typically some kind of war. Out of this debt, economic, domestic, and world-order breakdowns that take the forms of revolutions and wars come new winners and losers. Then the winners get together to create the new domestic and world orders.”

That rather chilling statement suggests one thing that we all need to be aware of at this time: what the current and future economic cycles will likely present and how the world will navigate through this process of a cycle transition.

In our opinion, the massive cycle event that is taking place may not disrupt world order as Mr. Dalio suggests.  There is a very strong likelihood that credit/debt processes may become the “collateral damage” of this cycle transition, but not much else changes.  The world order and powerful nations across the globe are keenly aware that starting WWIII because of a credit/debt crisis is not in anyone’s interest.  The world has enough capability to address these concerns without blowing the planet to pieces in the process.

Our super-cycle research suggests we have entered a period that is very similar to 1919~1920 – a “roaring good time” most likely has already extended beyond reasonable levels.  Our research suggests a massive peak in cycle events near 2023~24 after an already substantial support cycle from 2007~08 to 2023~24.  This span of time, roughly 17 years, is very likely to be a blend of the Unraveling & Crisis phases of the super-cycle. We believe the broader Crisis phase will continue to transition throughout a span of time lasting well into 2031~2034.  This suggests we may have another 11 to 15+ years of a massive unwinding cycle throughout the globe.

SUPER-CYCLE RESEARCHER DATA FROM OUR RESEARCH TEAM

Our research team believes the COVID-19 virus event sent these super-cycles into Warp-Speed recently.  The US stock market was poised to rally early in 2020 and may have experienced a multi-year rally had it not been for the COVID-19 disruption that took place in Mid-February.  The destruction of the economy related to the COVID-19 shutdown is still playing out.  Recent news suggests 41% of businesses that closed on Yelp have shut down permanently.  Now, consider that this means for consumers and local governments related to earning and revenue capabilities?  Workers have been fired and have completely lost earnings capabilities.  Business owners now face credit/debt issues and possible bankruptcies.  Local governments have lost revenue from taxes, payroll, sales, and fees and permits.  This destructive cycle continues until the economy has shed the “excess” within all segments of core economic function.

MORE DATA & MORE PREDICTIONS

Within the first two segments of this article, we’ve highlighted numerous data points and charts to more clearly illustrate the current global market environment.  We have to consider the reality of what is happening on the ground throughout the world and, in particular, what is happening in the US and most major economies right now.  If 30 to 40%, or more, of local businesses, are closing permanently, this suggests that 30 to 50% of tax revenues for local governments will also vanish.  It also suggests that these displaced workers and business owners will need to find new sources of income/revenue over the next 12+ months.

As much as we would like to think a “V-shaped” recovery is highly likely, it’s not going to happen is 30 to 50% of the US economy is suffering at levels being reported currently.  Yes, you could have investors pile into the US stock market because they believe the US economy is the most likely to develop a strong recovery in the future, but that will likely happen after the excess has been processed out of the economy through a business/credit contraction phase.  The current stock market valuation levels seem to ignore the fact that consumer and business activity has likely collapsed by a minimum of 25 to 45% (or more) over the past 90+ days – and may not recover to levels anywhere near the early 2020 economic activity levels.

Still, if you listen to the news and watch the data related to the real estate market, you would think there has been no disruption in the US economy.  Supposedly, homes are still selling quickly and the market is very robust.  The Case-Shiller 20 city home price index is well above 220, the highest levels ever reached for this index.  This suggests home prices have risen to levels that are likely 15% to 30% higher than the peak levels in 2006-2007 – yet we’ve just experienced a massive economic disruption across the globe where 25% to 45% (or more) of our economic earning and income capability has vanished.  Read between the lines if you must – something doesn’t seem to be reporting valid data at the moment.

The Consumer Price Index has recently started falling.  The only times in history where the CPI level has initiated substantial downward trends are throughout major recessionary or contraction economic phases.  It is very likely that the decrease in the CPI level is reflecting a supply glut pricing effect as a result of the COVID-19 shutdown process.  When consumer activity drops dramatically while supply channels continue as normal, a supply glut happens.  When this happens, price levels must adjust and address the over-supply of goods and raw materials stacking up in warehouses, containers, and ships.

If the consumers earning and spending capabilities are disrupted long enough, the manufacturing and supply side of the equation can’t react fast enough to the immediate decline in demand.  Therefore, the supply glut continues for a period of time as manufacturers attempt to scale-down the production levels to address for proper demand levels.  Obviously, lower demand equates to lower sales volumes and lower-income levels for manufacturers and sales outlets.  This translates into layoffs at the factories, sales outlets, and all levels in between.  The cycle continues like this until an equilibrium is reached between supply and demand.

This translates into lower-earning expectations for much of the US and foreign markets compared to previous expectations.  While the S&P 500 stock price levels have recovered to nearly the early 2020 price levels, it seems rather obvious to us that Q2 earnings data will likely shock the markets with dramatically lower results and forward expectations – in some cases these numbers may be disastrous.

When Nike released their Q4 (May 2020) earnings and showed a nearly $800 loss because of the early COVID-19 shutdown, this should have presented a very real understanding of how all levels of retail, manufacturing, and consumer services would also likely show a dramatic economic contraction taking place.  Currently, we are watching for news of new US businesses entering the bankruptcy process.  This recent article suggests business bankruptcies are skyrocketing higher – yet are still below the 2008~09 levels.  Please keep in mind that we are only 90+ days into this COVID-19 virus event – so this data is still very early reporting.

Still, the numbers are very telling…

“US filings totaled 3,427 on June 24, according to data from Epiq seen by the Times. The reading also closes in on the financial-crisis reading of 3,491 companies entering bankruptcy in the first half of 2008. “

If you are reading the same data I read from that statement, the difference between the 2008 levels and current levels is only 64 additional bankruptcies in the US – less than a 2% difference in total bankruptcies.

The reality of the current market conditions is that we are only 90+ days into this processing of all this new data and attempting to understand what is likely to become a new operating norm for global economies.  In 2008-09, the unwinding process took place over a full 12 to 16-month process.  The recovery process too much longer – more than 5+ years.  Currently, the unwinding process of the COVID-19 collapse took less than 30 days and the recovery process took a little over 90 days.

If our research team is correct, the speed at which the current recovery took place is nothing more than a reactionary recovery to a problem that was sudden and full of uncertainty.  The Q2 data will likely solidify the uncertainty and unknowns into very real economic values (losses) and may shock the US stock market into a downward price reversion phase.

We believe one of the best hedging tools any skilled technical trader can use right now is Gold and Silver (Precious Metals).  We continue to urge our friends and followers to maintain a portion of our portfolio in precious metals as a hedge against risk and unknowns throughout most of 2020 and beyond.  If the Q2 data does what we believe it will do, shock the markets, then a moderately violent and volatile downside price move is pending.  Simply put, you can’t destroy 25 to 45% of an active economy and displace millions of workers while sustaining high price valuations – unless you have a bubble-like euphoric investor mentality.  That, ladies and gentlemen, is exactly what we believe is happening right now.

The super-cycle event that took place between 1920 and 1929 was nothing more than a euphoric bubble-like event where investors and traders had “no fear”.  Everyone was leveraging everything they could to try to jump into the markets because they believed nothing could stop the rally.  Keeping this in mind, you may want to read this recent research post about parabolic bubbles we published on June 23, 2020.

When bubbles burst, most commonly done when investors suddenly come to their senses in terms of real valuation expectations, the downside price moves can be extremely distressing.  We urge you to properly understand that may happen with Q2 earnings data and new announcements.  We also urge you to understand the COVID-19 virus event may have moved the super-cycles into some type of “warp-speed”.  If our research is correct, we could be speeding towards a massive unwinding/crisis cycle phase very similar to 1929~1945.

Please read all the previous segments of this article and please properly position your portfolio to protect your assets.  There will be lots of other trades in the future for all of us.  These bigger price moves are not suddenly going to end because of Q2 or Q3 data.  Be patient and stay protected.  Q2 data is almost here and we are about to see some realization of the COVID-19 economic destruction process.

Get our Active ETF Swing Trade Signals or if you have any type of retirement account and are looking for signals when to own equities, bonds, or cash, be sure to become a member of my Passive Long-Term ETF Investing Signals which we are about to issue a new signal for subscribers.

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

 

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

NOTICE: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only.  Our research team produces these research articles to share information with our followers/readers in an effort to try to keep you well informed.

 

USD/CAD Daily Forecast – U.S. Dollar Gains Ground As Virus Worries Return

USD/CAD Video 09.07.20.

WTI Oil Falls Below The $40 Level And Puts Additional Pressure On The Canadian Dollar

USD/CAD managed to rebound from the support level at 1.3500 but stays below the 20 EMA at 1.3590 as the U.S. dollar is gaining ground against a broad basket of currencies while oil is under pressure.

Earlier, the U.S. dollar experienced weakness as the market mood was positive following the release of better-than-expected U.S. Initial Jobless Claims and Continuing Jobless Claims reports.

The Initial Jobless Claims report showed that 1.31 million Americans filed for unemployment benefits in a week. Meanwhile, Continuing Jobless Claims dropped to 18.1 million as some workers managed to find new jobs.

However, market sentiment changed quickly after the release of U.S. employment reports as traders focused on the worsening coronavirus situation in the U.S. On Wednesday, the U.S. has registered more than 60,000 new cases of the disease.

Renewed worries about potential lockdowns increased demand for safe haven assets and provided support to the U.S. dollar.

At the same time, the Canadian dollar found itself under pressure as WTI oil fell below the key $40 level. There was no specific catalyst for this move, and it looks like general virus worries put pressure on oil.

Canadian oil benchmarks mostly trade in sync with the leading world benchmarks like Brent and WTI so the downside move of WTI oil is negative for the Canadian dollar.

Technical Analysis

usd cad july 9 2020

USD to CAD continues to trade in a range between the support at 1.3500 and the resistance at the 50 EMA at 1.3590. Recent trading sessions have been volatile but USD to CAD did not manage to get out of this range.

In case USD to CAD manages to settle above the 20 EMA, it will likely develop upside momentum and head towards the next resistance level at the 50 EMA which has declined to 1.3665.

On the support side, USD/CAD will need to settle below 1.3500 to gain downside momentum. A move below this level will be a material bearish development for USD/CAD which will head towards the next support level at 1.3440.

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

Health Concerns Hammer Stocks, Dollar Jumps 

Europe

Traders in Europe are paying close attention to developments in the US. According to Reuters, 42 of the 50 states in the US registered an increase in the number of new cases yesterday, so that is influencing sentiment on this side of the Atlantic.

Grafton Group shares are in demand today as the company confirmed that trading in June was better than expected. The group, like its peers, remarked on the pent up demand as a result of the lockdown. Revenue last month increased by 11.4% to £247.8 million. It is worth noting the company made an acquisition last July, so the numbers were a bit misleading, but nonetheless, demand was robust.

The pandemic had a negative impact on the business as revenue for the six month period fell by over 19% to £1.06 billion, but traders are focused on the rebound in activity since things have gone back to normal. Grafton is in a strong position in terms of liquidity as it has access to £658 million, so there are no concerns on that front. No guidance was issued on account of the uncertainty. In April, it was announced that directors would be taking a pay cut, and because of the strong trading last month, the cut has been reversed, and that is a sign the company is over the worst of the crisis.

Rolls Royce shares had a volatile start to the trading session on the back of its first half update. The engineering giant has been hit hard by the pandemic as air travel has been severely impacted, so in turn demand for aircraft engines has tumbled. In May, the group announced plans to cut up to 9,000 jobs from its workforce of 52,000. At the back end of last week, the group said it was exploring its options in regards to strengthening its balance sheet, and traders took that as a sign that even more restructuring plans would be mapped out.

This morning, the group said it cut costs in the first half by £300 million, and it will cut costs by another £700 million by the end of the year. Its pro-forma liquidity position stands at £8.1 billion. The stock initially traded higher as dealers were encouraged by the cost cutting plans, but the positive move didn’t last long. Traders latched onto the fact that cash outflow was £3 billion in the first half and that an additional £1 billion would flow out in the rest of the year. Looking further down the track, the company expects cash consumption to significantly reduce. Rolls Royce is targeting free cash flow of at least £750 million in 2022.

Vistry, the housebuilder, saw a doff-off in completions in the first half as the lockdown disrupted activity, but demand is respectable and the order book is healthy. In terms of forward sales, including partnerships, the group has £1.26 billion worth of work in the pipeline, and that has taken the light off the underperformance in the first half.

Revenue from house building in the six month period was £344 million, and that was a big fall from the £854 million registered last year. The fall in revenue from the partnership’s unit was less severe. Efficiencies from integration are improving at a faster rate than expected. The net debt position was cut to £355 million from £476 million in May. The sizeable fall in debt should take some pressure off the company in terms of interest rate payments.

Persimmon issued an update covering the first six months of the year. It was similar to that from Vistry, whereby there was a fall in the number of houses it completed, but the order book is robust. Revenue in the six month period was £1.19 billion, which was a 32% fall on the year. Average selling prices ticked by 3.7% to £225,050. The order book is up 15% on the year at £1.86 billion. The economic climate is uncertain, but the housebuilder confirmed that cancellations are at historic lows.

The housebuilding sector as a whole is higher today on the back of yesterday’s announcement from Rishi Sunak, the Chancellor of the Exchequer, the stamp duty threshold will be lifted from £125,000 to £500,000.

SAP shares hit a record high as its preliminary second quarter results were well-received. Revenue increased by 2% to €7.64 billion. Operating profit rose by 7% to €1.96 billion. The group confirmed that full-year earnings will be €8.1-€8.7 billion.

Boohoo shares are back in fashion after a torrid few days. The group is still carrying out an investigation into its UK supply chain. There has been an allegation that the group was connected to a supplier who paid its staff below the minimum wage, something Boohoo has denied.

US

The S&P 500 is showing a loss of over 1% as the health crisis is hanging over sentiment on Wall Street. Lately, the tech sector has been booming, but even the NASDAQ 100 is 0.35% lower this afternoon.

The initial jobless claims reading fell from 1.41 million to 1.31 million. It has dropped for 14 weeks in a row. The continuing claims update came in at 18.06 million, and that was a fall from the previous reading of 18.76 million. It is clear that the labour market in the US is improving, but the pace of progress is slow. Several US states have either paused or reversed the reopening of their economies so that is likely to hold back the jobs market.

Walgreens Boots Alliance shares are in the red as the third quarter EPS was 83 cents, while equity analysts were expecting $1.19. Revenue was slightly higher on the year as it was $34.63 billion, fractionally topping forecasts. Same store sales in the US increased by 3%, and traders were anticipating a decline of 0.2%. The UK business suffered amid the lockdown even though stores remained open as it was deemed an essential service. The group is cutting costs on account of the economic environment. Boots will cut 4,000 jobs.

Carnival Corp shares are up today as it was announced that its Germany subsidiary, AIDA, will recommence three cruises from August. The business has to restart from somewhere, and even if that is a low point, but at least it projects a positive message.

The recent rally in Chinese stocks has spilled over to the US, as stocks like NetEaseJD.Com and Alibaba have listings in New York too. Recently, the China Securities Journal published a bullish article about domestic equities, and the positive sentiment is still doing the rounds.

Bed Bad & Beyond shares have tumbled on the back of the latest quarterly update. Revenue fell by 49% to $1.31 billion, undershooting the $1.39 billion forecast. The loss per share narrowed to $1.96, but equity analysts were predicting a loss per share of $1.22. The company plans to close roughly a fifth of its namesake stores over the next two years.

It was reported that Wells Fargo is planning on cutting jobs, the group will post its latest quarterly numbers next week.

FX

The US dollar index fell to its lowest level in nearly one month in this session, but it has since rebounded as traders are in risk-off mode. EUR/USD is down today on account of the move in the greenback. The latest trade data from Germany showed that imports and exports in May increased by 3.5% and 9% respectively. Both readings showed huge rebounds on the month, but the levels missed economists’ forecasts of 12% and 13.8% respectively.

GBP/USD was higher earlier, but the turnaround in the greenback hit the currency pair. Political uncertainty exists in regards to the UK’s post-transition period relationship with the EU, but the pound has been gaining ground this week. According to a report from the FX options market, there has been an increase in the number of bullish trades on GBP/USD.

Commodities

Gold is just about above the $1,800 mark. Yesterday the metal hit its highest level since September 2011 and it remains in its uptrend. The commodity has been popular lately as it attracted safe-haven flows but that isn’t the case today on account of the upward move in the dollar. European and most US equity markets haven’t retested their June highs as health fears continue to circulate, and that has helped gold in the past month.

Oil prices are in the red today as fears that US demand will dwindle on account of the pandemic has impacted the energy market. The EIA report yesterday showed that gasoline inventories in the US fell by over 4.8 million barrels, a sign that people were driving more. The finer details showed that areas where lockdown restrictions were reintroduced, saw a fall in consumption, so traders are mindful of that today.

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

By David Madden (Market Analyst at CMC Markets UK)

Oil Under Pressure As Some Traders Lose Patience Waiting For An Upside Breakout

Oil Video 09.07.20.

Oil Does Not Have Enough Near-Term Catalysts To Get Above $41

Oil traded in a very tight range for six sessions in a row and a move out of the range between $40 and $41 was long overdue.

Currently, it looks like the first move may be to the downside as oil is trying to settle below the $40 level.

On Wednesday, the U.S. has reported more than 60,000 new cases of coronavirus, and some traders fear that the continued deterioration of the virus situation may lead to new lockdowns.

In addition, the recent inventory report did not provide reasons for optimism as crude inventories increased by 5.7 million barrels. Gasoline inventories decreased by 4.8 million barrels but that’s normal for the driving season. In fact, I’d bet that many traders expected to see better inventory dynamics.

Oil is a volatile commodity and it cannot stay glued near one level for many days. Ultimately, it will have to follow the path of least resistance. At this point, the risk may be shifting to the downside as the oil market simply lacks additional catalysts to continue the upside move, and a healthy correction may be due.

OPEC+ Will Not Extend Current Production Cuts For August

On July 15, the market monitoring panel of OPEC+ will meet to discuss the recent developments in the oil market. Currently, OPEC+ has agreed to cut production by 9.6 million barrels per day (bpd) until the end of July.

In August, production cuts will decrease to 7.6 million bpd so an additional 2 million barrels of oil will be supplied to the market.

The main intrigue is whether OPEC+ will prefer to provide additional support to the market and extend current cuts for August.

In my opinion, this will not happen. OPEC+ countries are struggling from lower levels of production while some countries like Russia may have problems maintaining current production cuts for technological reasons.

In addition, the U.S. domestic oil production has recently jumped from 10.5 million bpd to 11 million bpd. OPEC+ would not like to provide a “free lunch” for the U.S. oil industry and support prices when the market share of its competitor grows day by day.

In this light, oil will need healthy upside in demand to get above the recent trading range since some of the curtailed supply will soon return to the market.

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

Natural Gas Price Fundamental Daily Forecast – EIA Number Should Be Slightly Below 5-Year Average

Natural gas futures are trading higher on Thursday shortly before the release of the government’s weekly storage report. After a relatively flat performance on Wednesday, prices moved higher, boosted by new overnight forecasts calling for hotter temperatures.

At 13:32 GMT, August natural gas is trading $1.869, up $0.045 or +2.47%.

Short-Term Weather Outlook

According to NatGasWeather for July 9 to July 15, “Upper high pressure continues to stretch from Texas to the Great Lakes and across the Mid-Atlantic states and coast with very warm to hot highs of upper 80s to mid-90s. It’s also hot over much of the West with highs of 90s and 100s besides the cooler Northwest. Heavy showers continue over the Southeast as a weather system exits, although still warm & humid with highs of mid-80s to lower 90s. A fresh weather system will push into the Great Lakes and Ohio Valley this weekend with comfortable highs of 70s to 80s, although countered by very hot conditions over Texas, the Southwest, and Southern Plains with 100s. Overall, national demand will be high.”

Energy Information Administration Weekly Storage Report

The EIA is set to release its weekly storage report for the week-ending July 3 at 14:30 GMT.

NatGasWeather says, “For today’s EIA weekly storage report, survey averages favor a build of +56-58 Bcf, slightly smaller than the 5-year average of +68 Bcf. It was hotter than normal over much of the eastern 2/3 of the U.S., while cooler than normal over most of the West. We expect +53 Bcf, a touch to the bullish side.”

Bloomberg analysts are looking for an injection ranging from 55 Bcf to 62 Bcf, with a median of 59 Bcf. A Reuters poll predicts a range of 51 Bcf to 65 Bcf with an average of 58 Bcf and the Wall Street Journal forecasts a range of 51 Bcf to 63 Bcf with a median of 57.

Daily Forecast

The early price action suggests an upside bias today. The weather models maintain a “solidly hot U.S. pattern” over the next 15 days, particularly for the period starting next Thursday and extending through July 23, NatGasWeather said. “The European model continues to run hotter than the GFS by more than 10 CDD, but both show widespread highs of 90s and 100s and humid conditions that will push the heat index into the dangerous 100-120 range. We continue to expect this hot U.S. pattern will last through the end of July.”

The main trend is up according to the daily swing chart.

Look for an upside bias on a sustained mover over $1.848 with targets coming in at 1.924, 1.960 and $1.982.

A sustained move under 1.848 will be a sign of weakness, but the trigger point for an acceleration to the downside is $1.785. This could lead to a test of $1.721 to $1.672.

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

Walmart Premium Service Could Ignite Buying Interest

Dow component Walmart Inc. (WMT) rallied nearly 7% in Wednesday’s U.S. session after a Recode report alleged the retail giant will launch a premium delivery service that competes head-to-head with rival Amazon. Com Inc. (AMZN). If confirmed, the Walmart+ service will launch later this month, adding to online market share that’s been growing at a torrid pace since 2016, when the company acquired Jet.Com.

Walmart Pandemic Sales Surge

Walmart rocketed higher in March, picking up brick and mortar sales from hundreds of smaller retailers forced to close down as a result of the pandemic.  Online sales boomed as well in the first quarter, posting a phenomenal 74% year-over-year growth rate, underpinned by millions of folks forced to surf the web to buy household essentials. The stock posted an all-time high in April but price action has been sluggish in the last three months, with market players reallocating their buying power to reopening plays.

UBS analyst Michael Lasser upgraded the stock in June, citing bullish earnings expectations as a result of an “enhanced productivity loop, e-commerce scale, and accelerated technology deployment.” He wrapped up his upbeat report, noting that Walmart “offers the prospect of best-in-class consistency in an uncertain environment. We believe these elements will enable WMT shares to maintain a premium multiple, especially as the gap between the leaders and laggards in retail widens.”

Wall Street And Technical Outlook

Wall Street consensus translates into a “Strong Buy” recommendation, with 19 ‘Buy’, and 4 ‘Hold’ ratings. No analysts are recommending that shareholders sell the stock at this time. Price targets currently range from a low of $120 to a street high $150 while the stock is now trading about $13 below the median $138 target. This bullish placement bodes well for continued gains in the third and fourth quarters.

Heavy second quarter selling pressure mars an otherwise bullish technical outlook. Walmart pulled back about 16 points off the April peak into June, where it carved a small basing pattern that’s now acting as a platform for higher prices.  However, accumulation-distribution readings fell to a 15-month low at the same time and the stock will need to find new sponsorship to power a sustained uptrend toward 150. As a result, sidelined investors may wish to wait for a breakout above the April high at 133.

Silver Price Daily Forecast – Silver Tests The Major Resistance At $19.00

Silver Video 09.07.20.

Silver Investment Demand Increases By 10% In The First Half Of This Year

Silver is testing the major resistance level at $19.00 as gold continues its upside move while the U.S. dollar loses ground against a broad basket of currencies.

Spot gold has recently crossed the $1800 mark and continues to move higher. Gold’s upside is a major positive catalyst for all precious metals as it attracts more investment into the segment.

In fact, recent data from The Silver Institute indicated that silver investment demand increased by 10% in the first half of 2020. Industrial demand declined but started to pick up from May as economies began to reopen.

Importantly, The Silver Institute predicts that global silver mine supply will drop by 7% in 2020 which is bullish news for silver, especially if industrial demand gets closer to normal levels.

Gold/silver ratio continues its downside move and has settled below 96. Before the pandemic, gold/silver ratio was lower than 90 so there is certainly more room for downside if the market situation normalizes.

Today, silver gets additional support from the U.S. dollar which remains in a downside trend. The U.S. Dollar Index has declined below 96.5 and looks ready to test the 96 level. Weaker U.S. dollar is bullish for silver as it makes it cheaper for buyers who have other currencies.

Technical Analysis

silver july 9 2020

Silver gained significant upside momentum and tries to get above the major resistance level at $19.00. RSI is not in the extremely overbought territory so silver may have more room to run in case gold continues its upside move while the U.S. dollar declines against a broad basket of currencies.

In this case, silver will get above $19.00 and head towards the next resistance level at $19.50. Such a move may be fast since silver’s momentum is strong.

On the support side, the nearest support level for silver is located at the previous resistance near $18.50. A move below this level will open the way to the next support level at the 20 EMA at $18.00.

From a big picture point of view, silver’s upside trend looks solid as it is supported by both technicals and fundamentals.

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

Gold Pulls Back from Record Highs, as U.S Jobless Claims Falls

As data obtained from the U.S. Labor Department showed the number of Americans applying for Jobless claims plunged to 1.314 million in the period ending July 3, triggering a positive signal that the labor market is recovering amidst the COVID-19 pandemic onslaught.

Spot gold was little changed at $1,811 per ounce at 2. 06GMT. it earlier soared to its highest point since September 2011 at $1,817.71 yesterday.

“The combination of global central bank easing, geopolitical risks, the persisting pandemic impact, and global recession could continue to push gold prices higher in the medium term,” said Bank of China International analyst Xiao Fu.

Gold is still blinking bright as regions around the world’s largest economy showing health crisis and a dysfunctional system in its political landscape with the outbreak of racial division, making the execution of an efficient and wide-sweeping health care policy almost impossible in America.

Though the race by many leading U.S drug makers in producing the COVID-19 vaccine, in the present condition, it’s proving very difficult for the world’s largest economy to curb the onslaught of COVID-19 than other emerged economies.

In addition, the yellow metal still possesses bullish sentiment, with the present financial market volatility on-going around the world, especially in the emerged markets like the United States, Western Europe, China, coupled with the resurgence of COVID-19 caseloads and the stern warning made by the World Health Organization, that reinstatement of lockdown procedures might take effect in some geopolitical zones around the world.

However, in the short term, the Gold spot price will experience some profit-taking, especially under the $1,815 resistance levels, triggered by the greenback strengthening, as global investors rush into U.S money markets, thereby pushing the price of gold sport around the $1805 in the near term.

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

The Renewed S&P 500 Upswing Is Knocking on the Door

As expected, the S&P 500 closed back above the mid-June highs resistance yesterday. The volume slightly rose but I wouldn’t read too much into it – after all, the early June highs of around 3230 should provide for a bit stiffer battle. How the market reached the current 3160-ish levels, is what counts more.

And after the daily ride higher throughout the Independence Day week, we’re experiencing a shallow sideways correction now. When we look in retrospect, will it remind us of bullish flag? In other words, can we expect the market to power higher and soon?

I think so. Higher stock prices are likely despite the high yield corporate bonds having lagged yesterday, or the investment grade corporate bonds suffering a rare daily decline. Market reaction to today’s unemployment claims won’t probably support the bulls to a great extent, yet I expect the push higher in stocks to continue.

In today’s analysis, I’ll cover the reasons why, and also discuss the non-confirmations that I would like to see resolved constructively.

I think the breakout will be confirmed shortly, and that the bulls will prevail in the clashing narratives and facts on the ground:

(…) I say so despite the uptrend in new U.S. Covid-19 cases that has many states stepping back from the reopening, rekindling lockdown speculations. I say so despite the Fed having its foot off the pedal in recent weeks, which makes for more players looking at the exit door as the rising put/call ratio shows.

The dollar is taking it on the chin, and emerging markets are seeing stellar gains, boding well for the U.S. markets. V-shaped recovery being real or not, corona vaccine hype or not, stocks love little things more than the central banks standing ready to act. And the punch bowl isn’t about to be removed any time soon.

The only policy risk is a lockdown miscalculation – did you see how the ASX 200 Composite (take that as Australia’s S&P 500) took to Victoria’s 6-week lockdown institution? Thankfully for the U.S. economy, Larry Kudlow (speaking for Fox Business) is in no mood for a second nationwide lockdown.

Yes, corona cases are rising, but testing has risen too. What about deaths? As the below CDC chart seen on OffGuardian shows, any news of their spike would be an exaggeration, as Mark Twain would probably say.

Food for thought and inquisitive minds. Sticking with the markets, let’s check upon yesterday’s S&P 500 performance.

S&P 500 in the Short-Run

I’ll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

On Wednesday, prices rose back above the horizontal line connecting mid-June tops, on a not so extraordinary volume. But is that a necessarily bearish omen? I don’t think so – the swing structure gives the bulls the benefit of the doubt. Please note that in the latter half of May (when stocks were peeking above the late April highs), the volume on those days wasn’t outstanding either.

Such were my yesterday’s thoughts as to the daily indicators:

(…) Both the CCI and Stochastics keep supporting the upside move – it’s only the RSI that feels tired. This doesn’t concern me that much – it’s not flashing a bearish divergence, it isn’t languishing at an extreme reading. In short, it doesn’t preclude the rally from going on once the current breather is over.

And until I see credible signs that the markets are getting spooked by corona, botched policy responses or anything else, there is little point in acting as if the sky is falling. It isn’t the case – to be clear, the time to turn really bearish would come, but we’re not there yet.

Whenever markets start acting jittery, it pays to remember the big picture:

(…) Recapping the obvious, stocks are on the upswing after the bears just couldn’t break below the 200-day moving average, which means that the momentum is with the bulls now. The daily indicators keep supporting the unfolding upswing, and volume doesn’t raise red flags either.

Let’s check the credit markets’ message next.

The Credit Markets’ Point of View

Yes, high yield corporate bonds (HYG ETF) scored an upswing yesterday, but are still trading below Monday’s closing prices. Please visit this free article on my home site so as to see more of the discussed charts. To justify turning more bullish on stocks, renewed animal spirits in the junk corporate bonds arena would be needed.

And not only in junk corporate bonds – it’s that the investment grade ones (LQD ETF) have wavered yesterday. But similarly to the HYG ETF move, the volume in LQD ETF hasn’t been remarkable, which is why I am not jumping to conclusions (and definitely not bearish ones) just yet.

The respective ratios (HYG:SHY and LQD:IEI) mirror that short-term indecisiveness perfectly. A daily increase in one, and a daily decline in the other. The overreaching dynamic is though one of an uptrend, which is why I look for the daily non-confirmation to be resolved with an upside move.

Encouragingly, the ratio of high yield corporate bonds to all corporate bonds (PHB:$DJCB) has turned higher yesterday. That’s a gentle nod in favor of the HYG:SHY ratio’s upswing.

As said, I don’t see a proof that the sky is falling – should I see one, I’ll change my mind and let you know about it. With the Fed waiting in the wings, the path of least resistance remains higher. And don’t forget about the infrastructure bill or the second stimulus check either.

If you look at the HYG:SHY chart with the overlaid S&P 500 closing prices, you’ll see that stocks didn’t really get more extended than they were since the late June bottom. While this condition might not last all too long into the future, I don’t expect stocks to be brought immediately down courtesy of this factor alone.

From the Readers’ Mailbag

Q: Although SPX and NDX keep rallying as you predicted, RUT is not participating much and most of the stocks other than major stocks are not rising with the index. Does that concern you? When do you think RUT will participate in the rally in significant way? Does it have to wait until COVID second wave is resolved in some way or after the second quarter reports are out?

A: Thank you, technology (XLK ETF) has indeed reached new 2020 highs yesterday, and it’s leading the index higher. In a sign of confirmation, semiconductors are also challenging their early June highs.

Russell 2000 (IWM ETF) has been indeed underperforming since the March 23 bottom. But the caption says it all – both indices have been climbing higher nonetheless. Of course, the S&P 500 outlook would be more bullish if e.g. IWM ETF traded also above its 200-day moving average.

Given the unfolding S&P 500 upleg and recovering risk appetite (see e.g. the PHB:$DJCB ratio, or the room for growth in XLF:XLU and XLY:XLP), I think it’s a question of time when Russell 2000 breaks above its 200-day average too.

But this isn’t strictly about the underperformance for any S&P 500 investor to get spooked by. I would focus on whether I see signs of distribution in the IWM ETF. There are none currently.

If I saw IWM ETF weakening while the individual stock heavyweights in the S&P 500 went higher still, that would be concerning. That’s because once the smallcaps roll over to the downside, the S&P 500 would follow eventually as the generals wouldn’t just prop it up indefinitely. And this isn’t happening.

I think the Covid-19 second wave fear is a distraction – smallcaps can rise regardless. Any policy missteps would be more concerning for small- and medium-sized businesses. The same goes for the Q2 earnings and the usual games around bringing down previously upbeat expectation in order to have a better chance to exceed them. In other words, it’s the P that counts for more in the P/E ratio.

Summary

Summing up, Tuesday’s decline in the S&P 500 was indeed merely of short-term nature, and the credit markets tentatively support the stock upswing to go on. Market breadth isn’t at daily extreme readings, emerging stocks are outperforming, and the dollar isn’t an obstacle to further stock gains. I look for the breakout above short-term resistance formed by the mid-June tops to succeed shortly as the rally’s internals including technology, semiconductors and risk-on metrics are improving.

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

 

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

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All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be 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, Monica Kingsley and her 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. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she 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. Monica Kingsley, 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.

 

Walgreens Boots Flips to Loss in Q3; Target $50 in Bull Case and $30 in Bear

Walgreens Boots Alliance Inc, a global retail pharmacy provider, reported a loss in the third quarter compared with a profit a year earlier, hammered by non-cash impairment charges of $2 billion in Boots UK as the ongoing COVID-19 pandemic severely impacted businesses worldwide.

The company reported an operating loss of $1.6 billion, compared to operating income of $1.2 billion a year ago; Adjusted operating income decreased 46.5% to $919 million on a reported basis, down 46.4% on a constant currency basis, the company said.

Walgreens’ loss per share was $1.95, compared to earnings per share of $1.13 a year ago; Adjusted EPS decreased 43.8% from $1.47 to $0.83, down 43.4% on a constant currency basis; Results reflected $0.61 to $0.65 per share estimated operational impact from COVID-19.

Both operating income and adjusted operating income included an adverse impact of $700 million to $750 million from the above items, or $0.61 to $0.65 per share, excluding impairment charges. Walgreens Boots Alliance Inc also announced plans to reduce 4,000 workforce at pharmacy chain Boots UK.

Executive comment

“Prior to the pandemic our financial performance for fiscal 2020 was on track with our expectations. However, this unprecedented global crisis led to a loss in the quarter as stay-at-home orders affected all of our markets. I’m very proud of how all of our teams mobilized and adapted to deliver essential services in our communities across the world,” Executive Vice Chairman and CEO Stefano Pessina said in a press release.

“Shopping patterns are evolving more rapidly than ever as consumers further embrace digital options, spurring us to accelerate our ongoing investments in digital transformation and neighbourhood health destinations. This includes our two recent announcements: a significant expansion of our primary care clinics collaboration with VillageMD, and our strategic partnership with Microsoft and Adobe to launch a personalized omnichannel healthcare and shopping experience.”

Walgreens Boots’ stock price forecast

Four analysts forecast the average price in 12 months at $47.75 with a high forecast of $50.00 and a low forecast of $45.00. The average price target represents a 12.91% increase from the last price of $42.29. All four analysts rated ‘Hold’, none rated ‘Buy’ or ‘Sell’, according to Tipranks.

Morgan Stanley target price is $45 with a high of $58 under a bull scenario and $30 under the worst-case scenario. BofA Global Research cuts price objective to $43 from $44 and Mizuho cuts target price to $48 from $53 and Cowen and Company cuts price target to $48 from $54.

It is good to hold now as 50-day Moving Average and 100-200-day MACD Oscillator signals a selling opportunity.

Analyst view

“Walgreens Boots Alliance operates a top 2 retail pharmacy chain in the U.S. as well as Boots Pharmacy and Alliance drug distribution in Europe. FY20 guidance calls for a turnaround in core US business but delivering on EBIT outlook relies on improving fundamentals which are out of the company’s control, including better script trends, brand inflation, and front end,” Ricky Goldwasser, equity analyst at Morgan Stanley noted in June.

“Walgreens has the balance sheet to deploy capital into M&A, as well as the strategic optionality to potentially reposition its portfolio of assets in a changing healthcare marketplace. Unveiling a new strategy that provides a roadmap to future growth is a potential catalyst for shares,” she added.

The Remarkable Gold Index Sign Vs. the Miners’ Strength

We started yesterday’s Gold & Silver Trading Alert with the Gold Miners Bullish Percent Index, and we’ll start today’s analysis in the same way. We’ll do so, because we received a question about whether gold miners stayed overbought for a long time, while they kept pushing to new highs – just like what markets sometimes do (especially the general stock market) when a given indicator (say, RSI) is already overbought.

In short, no.

The only other case when the index was at 100, was in mid-2016. We marked this situation with a vertical dashed line. Did miners continue to move higher for a long time, or did they move much higher? No.

Precisely, the index reached 100 on July 1st 2016, and gold mining stocks moved higher for two additional trading days. Then they topped. This was not the final top, but the second top took miners only about 5% above the initial July high.

This year, the index reached the 100 level on July 2nd – almost exactly 4 years later, and once again practically exactly in the middle of the year. Yesterday was the third day after this move. It’s not justified to assume that the delay in the exact top would be 100% identical, but it seems justified to view it as similar. Two-day delay then, and three-day delay now seem quite in tune.

There’s also one additional case that we would like to emphasize and it’s the previous high that the index made on November 9, 2010. That was the intraday top, so there was no additional delay. There was one additional high about a month later, in December, but miners moved only about 1.5% above the initial high then.

One might ask if mining stocks are really overbought right now given the unprecedented quantitative easing, and the answer is yes. Please note that in 2016 the world was also after three rounds of QE, which was also unprecedented, and it didn’t prevent the miners to slide after becoming extremely overbought (with the index at the 100 level). The 100 level in the index reflects the excessive optimism, and markets will move from being extremely overbought to extremely oversold and vice versa regardless of how many QEs there are. People tend to go from the extreme fear to extreme greed and then in the other way around, and no fundamental piece of news will change that in general. The economic circumstances change, but fear and greed remain embedded in human (and thus markets’) behavior.

It’s unlikely that gold miners would wait as long before declining profoundly, or that there would be another move higher before the bigger decline. Why? We already wrote about that this week – for instance, because of gold’s long-term turning point and because of USD’s mid-year turning point:

Gold’s very long-term turning point is here and since the most recent move was to the upside, the implications are bearish. They are particularly bearish since gold just invalidated the tiny breakout above its November 2011 high.

Naturally, everyone’s trading falls within their responsibility, but in our opinion, if there ever was a time to either enter a short position in the miners or to increase its size if it wasn’t already sizable, it’s now. We made money on the March decline and on the March rebound (buying miners on March 13th), and it seems that another massive slide is about to start. When everyone is on one side of the boat, it’s a good idea to be on the other side, and the Gold Miners Bullish Percent Index literally indicates that this is the case with mining stocks.

We used the purple lines to mark the previous price moves that followed gold’s long-term turning points, and we copied them to the current situation. We copied both the rallies and declines, which is why it seems that some moves would suggest that gold moves back in time – the point is to show how important the turning point is in general.

The take-away is that the long-term turning point is a big deal, and that gold could fall significantly before it soars due to its extremely positive fundamental outlook. This also means that the downside target of $1,400 or slightly lower (the 2016 – 2018 highs) is well within the range of the possible moves.

Thank you for reading today’s free analysis. Please note that it’s just a small fraction of today’s full Gold & Silver Trading Alert. The latter includes multiple details such as the interim target for gold that could be reached in the next few weeks.

If you’d like to read those premium details, we have good news. As soon as you sign up for our free gold newsletter, you’ll get 7 access of no-obligation trial of our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

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

Przemyslaw Radomski, CFA
Editor-in-chief, Gold & Silver Fund Manager
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are 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 deemed to be accurate, Przemyslaw Radomski, CFA 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. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA 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. Przemyslaw Radomski, CFA, 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.

 

The Dollar is Sold through CNY7.0 as Chinese Equities Continue to Rally

US shares are little changed after yesterday’s 0.8% rally in the S&P 500 and new record high close in the NASDAQ. Bonds are sidelined. Asia Pacific yields edged higher, but mostly flat in Europe. The US 10-year benchmark is hovering around 65 bp. The dollar is on its back foot, trading heavily against most major and emerging market currencies.

Sterling and the Swedish krona led the majors with a 0.20-0.25% gain through the European morning. The dollar punched below CNY7.0 for the first time in almost four months. Gold is holding above $1800 an ounce and looks set to push higher above $1818 seen yesterday. Oil is little changed as the August WTI contract is confined to a narrow range (~$40.60-$41.00)

Asia Pacific

As widely anticipated, China’s CPI firmed to 2.5% in June from 2.4%. This was in line with expectations. Food prices are still an important culprit. They are up over 11% year-over-year. The 81.6% increase in pork prices accounts for 2.05 percentage points of CPI. Non-food prices rose 0.3% year-over-year. Producer prices showed somewhat less deflation. PPI fell 3% year-over-year after a 3.7% decline in May. We anticipate more stimulus, but it may be targeted rather than broadly delivered.

Japan reported core machinery tool orders rose 1.7% in May. It follows a 12% slump in April. Economists had projected another decline. The rise in new orders was driven by the service sector, which underscores the weakness in the manufacturing sector seen in other economic reports. Manufacturing orders fell.

Home loan values fell by 11.6% in Australia. This was more than twice the decline expected by the median forecast in the Bloomberg survey. It is the third decline in the past four months. Meanwhile, tensions are rising between Australia and China. It suspended the extradition treaty with Hong Kong while seeking to draw Hong Kong residents that want to flee in light of the new security lows, and have begun strengthening its ability to resist Beijing’s cyber attacks.

The dollar has been confined to about a fifth of a yen range above JPY107.20. There are nearly $800 mln in options that expire today struck between JPY107.10 and JPY107.25. There is also a $1.1 bln option at JPY107.50 that will be cut today. The Australian dollar is firm and managed to briefly trade above $0.7000 for the first time since June 11.

However, here too, a consolidative tone persists. Support is seen in the $0.6960-$0.6970 area. Downward pressure on the dollar against the Chinese yuan has been building, and today it broke out. The greenback fell to CNY6.9825, its lowest level since mid-March. It had been sold through the 200-day moving average (now about (CNY7.0420) and has barely looked back. The next important technical area is near CNY6.95.

Europe

The ECB’s figures showed grew by almost 72 bln euros last week to a record high of nearly 6.29 trillion euros or 53% of GDP. The increase was split between asset purchases (~33 bln euros) and the revaluation of gold (~39 bln euros). In comparison, the Federal Reserve’s balance sheet is about a third of the US GDP. Data out later today will show whether its balance sheet shrank again as it has over the past three weeks.

The Bank of England’s balance sheet is a little more than 30% of GDP. The Bank of Canada has been more aggressive than many may realize, and its balance sheet is now almost 25% of GDP. The Bank of Japan’s balance sheet is nearly 120% of GDP. The balance sheet expansions have two functions: Stabilize markets and ensure an easy monetary setting in an extremely low-interest-rate environment.

Sterling rallied in a soft dollar backdrop yesterday and is extended those gains today. They may and may have been encouraged by the additional measures announced by Sunak, the Chancellor of the Exchequer. These included a reduction in the VAT for hospitality and tourism and a cut in the tax on home purchases (up to GBP500).

What will catch the eye of some policy wonks elsewhere, including in the US is the offer to pay the company 1000 pounds per employee that returns form furlough. Meanwhile, the UK’s International Trade Secretary formally warned that the post-Brexit border plan, particularly how Northern Ireland is treated by risk being challenged before the World Trade Organization.

German trade figures show the world’s third-largest economy is recovering. The trade surplus nearly doubled to 7.1bln euros in May from April. Exports rose 9% in May, a dramatic improvement after a 24% slump in April, even if not the 14% the Bloomberg polls showed was the median forecast. Imports rose by 3.5% after declining by 16.2% in April.

The euro rose to a high near $1.1370 in Asia before falling to session lows in early Europe near $1.1320. It is likely to base ahead of $1.1300, where there is a 1.8 bln euro expiring option. There is nearly a billion euro option at $1.1375 that also expires today. The euro has been in a large $1.1170-$1.1400 range since the end of May. Sterling is at its best level since mid-June, reaching $1.2650 in the European morning. Today is the fifth consecutive advance in sterling that began close to $1.2440. The next target is in the $1.2680-$1.2700, which houses the mid-June high and the 200-day moving average. The June high was set near $1.2815.

America

The EIA reported more than twice the 2 mln barrel build that the API estimated. The 5.6 mln barrels that went into inventory was the most in four weeks. Cushing accumulated 2.2 mln barrels, the first addition in nine weeks. The larger than expected inventory build plays on fears that the new virus outbreaks are disrupting demand.

Weekly US jobless claims are on tap. Although economists expect some improvement, they have recently been over-estimating the decline. This is the first report that covers the start of Q3 (week through July 4), and despite the holiday-shortened week, it is expected that nearly 1.4 mln people applied for unemployment insurance for the first time.

Canada reports June housing starts. A small uptick is expected. Yesterday’s fiscal update pointed to a 16% budget deficit this year (1.5% in 2019), and the debt rising to almost 50% from 31%. Its debt to GDP would still be the lowest within the G7. June jobs will be reported tomorrow. The median forecast in the Bloomberg survey is for about 700k increase, which follows a nearly 290k rise in May.

June inflation likely ticked up in Mexico from the 2.84% year-over-year increase in May. The central bank would probably feel more comfortable if the headline pace remained below the 3% target. It could slow its willingness to cut the overnight target rate of 5.0%. That said, the Banxico does not meet again until mid-August, giving it plenty of time to monitor the situation. Separately, Brazil’s Senate approved a bill that the central bank has advocated that is designed to make it more efficient for financial institutions in Brazil to hedge their foreign currency exposures.

The US dollar is slipping through its 200-day moving average against the Canadian dollar near CAD1.35 in the European morning after posting an outside down day yesterday. There is an option for almost $790 mln at CAD1.3500 that expires today. Nearby support is seen around CAD1.3470. Like yesterday, the dollar is consolidating in the upper end of Tuesday’s range against the Mexican peso when it almost MXN22.87. The next area of support is seen between MXN22.44 and MXN24.53.

U.S Dollar under Pressure, Currency Traders await U.S Job data

At about 10.40 am GMT the U.S dollar index which tracks the American dollar against a bouquet six other major currencies fell by 0.1% at 96.252, dropping over 1% over the last week.

Currency traders are looking through massive US data report suggesting that mid-June was fantastic in the high-frequency metrics, and things might fall short from the present due to Covid-19 onslaught particularly as global investors envisage further stimulus packages

Specifically, the American dollar seems to be losing strong support in the short term on carryover buying, as comments made by regional Fed Presidents, cautioned that the U.S economy may be at its peak

We could see a further weakening of the greenback near time, with the dollar turning lower overnight, meaning that the U.S dollar index might break strong support levels of 96 in the near term as the primary motivator for such downside remains to economic uncertainty strengthened by the COVID-19 pandemic

“Investors are growing more confident that this stock market rally is not going to end any time soon, “said Edward Moya, senior market analyst, at OANDA in New York. “And that’s pretty much based on expectations that you’re going to continue to see a strong global stimulus response over the coming weeks and months.”

Lingering worries about the surge in COVID-19 caseloads could help some emerged market currencies like the Euro to remain at a tight range, as the American dollar’s losses gradually increase currency traders’ bias, in favoring risky bets on the long-term economic growth.

Bearing this in mind, currency traders and investors will focus will turn their attention to the unemployment data scheduled to be out in few hours from now. have now been forced to slow down or reverse reopening.

People Worry Again. Will They Buy Gold?

The U.S. is still knee-deep in the first wave of Covid-19. So, gold should be still knee-deep in the bullish wave.

“Really not good.” This is how Anthony Fauci, the U.S. leading infectious disease expert and the member of the White House Coronavirus Task Force, described the current state of the epidemic in America.

Fauci is right. Please take a look at the chart below. As one can see, the number of new daily confirmed cases of Covid-19 has surged recently, surpassing the April peak and jumping above 50,000. Since the beginning of the pandemic, almost 3 million Americans have become infected with the coronavirus and more than 130,000 people already died in the U.S. because of it.

The surge in U.S. coronavirus cases has made people worry again. Raphael Bostic, Atlanta Fed President, said on Tuesday:

We are hearing it more and more as we get more data. People are getting nervous again. Business leaders are getting worried. Consumers are getting worried. And there is a real sense this might go on longer than we have planned for.

Indeed, more and more states and countries are rolling back the economic re-openings or even re-imposing lockdowns. For example, Melbourne, Australia’s second biggest city, ordered its residents to stay in their homes for six weeks amid the resurgence of infections. In the U.S., New York expanded its travel quarantine for visitors from three more states, while Florida’s greater Miami area rolled back its reopening.

However, the White House pushes the country to fully reopen, as President Trump said on Tuesday that the U.S. is “not closing, we’ll never close”. Given the resurgence in new cases, such calls are controversial. The full lockdown is, of course, absurd, and the incidence of deaths from Covid-19 are declining, but this is because the new infections occur mainly among young people. But if the coronavirus spreads wider, the daily number of deaths may rise again.

Implications for Gold

What does it all mean for the gold market? Well, data shows that current pandemic will remain active for longer than many people anticipated. As Fauci noted, America is “still knee-deep in the first wave and unlike Europe, U.S. communities never came down to baseline and now are surging back up.” This is great news for gold prices. The longer the outbreak of Covid-19 lasts, the longer the safe-haven demand for gold will remain elevated. Moreover, until the health crisis is fully resolved, the economic activity will be subdued, while both the Fed and the Treasury will stick to the ultra-easy monetary and fiscal policies. After all, a resurgence in coronavirus cases makes Americans more cautious, hampering consumer spending and GDP growth. It will also make the disconnect between the real economy and financial markets even larger. Importantly, some of the government stimulus programs will expire at the end of July, so either the U.S. economic growth will slow down or we will see more fiscal and monetary measures. Given the upcoming presidential elections, the new round of support is likely, which should raise worries about the level of the U.S. fiscal deficit, federal debt and inflation, supporting the gold prices.

Not surprisingly, gold has been gaining recently. As the chart below shows, the price of the yellow metal has jumped above $1,800 yesterday (the chart paints future prices, but spot prices also surpassed this important psychological level).

Of course, it remains to be seen whether the price of gold will stay above $1,800 for long. But even if it retraces some gains in the near future, the further march upward is a matter of time in the current macroeconomic environment.

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

 

Arkadiusz Sieron, PhD

Sunshine Profits: Analysis. Care. Profits.

GBP/USD Extends Higher and is on Pace to Post a Fifth Straight Day of Gains

The British pound has rallied against all of its major counterparts in the week thus far. The pound to dollar exchange rate has benefited from a weaker dollar and encouragement that the UK is willing to go to lengths to help the economy recovery from the negative impacts of the Coronavirus.

Chancellor Rishi Sunak delivered his summer statement which contained further easing measures such as a cash bonus for companies to hire trainees and an incentive to keep companies from letting go of staff. There was also a scheme to encourage citizens to dine out in August and a VAT cut for certain sectors.

The greenback briefly dipped to lows not seen in 4-weeks in early day trading as equities have bounced back. The S&P 500 (SPY) closed for a three-quarters percent gain on Wednesday, wiping out losses from the prior day.

Volatility may slow into the US session as the economic calendar is relatively light for today. The main focus will be on the weekly US jobless claims report which is expected to show 1.4 million new people filing for unemployment benefits.

Technical Analysis

GBPUSD 4-Hour Chart

GBP/USD has shown strong momentum after the early week break above major resistance at 1.2500. The pair now faces a hurdle near 1.2650 that had held it lower twice in April, each time leading to a notable decline.

In addition to the horizontal level, the 200-day moving average has once again come into play. The indicator currently resides at 1.2687, slightly higher from where it was in April.

Aside from a brief rally above the moving average in June, the pair has not been able to trade above it on a sustained basis since March.

The 1.2650 area will be in focus during the US session. This level could cause the pair to pare back some of its recent gains.

Bottom Line

  • GBP/USD has extended higher to resistance at 1.2650 which has been a major hurdle for the pair in the past.
  • Sterling is outperforming the majors as investors are encouraged by the continued efforts from the UK government to get their economy on track.

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

EUR/USD Daily Forecast – Euro Eases Lower After Touching 4-Week High

A weaker dollar has benefited EUR/USD and most of the major currencies, causing a rally to 1.1370 in the pair earlier today during the Asian session.

The exchanged rate has pared back some of its gains since then but continues to hold above the 1.1300 handle. A range that began in early June remains intact and highlights major resistance between 1.1380 and 1.1400.

With a relatively light economic calendar in the session ahead, it remains to be seen if the currency pair can extend on the earlier momentum. The highlight today will be the weekly unemployment claims report which analysts expect will show an additional 1.4 million jobs lost in the United States.

US equity markets bounced back which has been weighing on the dollar. The S&P 500 closed for three-quarters of a percent gain on Wednesday to erase losses from the previous day. This has led the dollar to turn lower against most its major counterparts with the trade-weighted index (DXY) briefly trading at a 4-week low earlier in the day.

Earlier in the week, the European Commission downgraded its economic forecasts for this year and next year as the easing of lockdown restrictions is taking longer than they had earlier assumed. The markets appear to have shrugged off the news with the single currency showing the second largest gain for the week among the majors.

Technical Analysis

EURUSD Daily Chart

EUR/USD shows upward momentum but is seen once again battling resistance that had held it lower in late June.

With the broader range intact, the pair is at risk of further losses in the session ahead. Although it should be noted that the short-term momentum this week has been to the upside.

If EUR/USD is able to overcome resistance at 1.1330 on a sustained basis, the next level of upside interest falls at the 1.1400 handle. Support for the session ahead is seen at 1.1289.

Bottom Line

  • The dollar has come under pressure as risk sentiment has improved since yesterday which has underpinned the EUR/USD exchange rate.
  • The economic calendar is light in the session ahead, the highlight will be the US jobless claims report.

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

Did COVID Kill LNG Natural Gas Dreams?

The current minimum amount of positive figures or green shoots are swiftly removed by new depressing figures of crude oil stock volumes in USA or lower estimates of OECD and MENA region GDP figures for 2020. The total impact is still unclear, but one thing has become obvious, energy demand and supply is under pressure, but not yet balancing out the right way.

At present, the main focus when talking about energy demand destruction is on crude oil and its products. Clearly, oil is struggling, but its sister, natural gas is totally on life-support.

The Golden Age of Gas, as presented by the International Energy Agency at the beginning of the 21st Century, seems to be a very short Age, as we are now entering a possible Ice Age of Gas. Demand worldwide is fledgling, main consumer markets are showing no increased demand figures, while the future demand is in doubt.

With being promoted worldwide as the energy transition fuel, natural gas and LNG have been promoted exponentially. The world’s leading oil and gas companies, such as Shell, ENI, Total, in cooperation with national oils QP, ADNOC, Gazprom and others, all have made the ‘rational’ choice to invest in the natural gas E&P sectors from the end of the 1990s onwards.

Success seemed inevitable, as natural gas or LNG was the preferred fuel of choice.

Nobody expected however a main competitor on the horizon, US shale gas. The latter’s revolutionary capture of the global market destabilized the projected gas market fundamentals and brought price levels down substantially. Demand still grew, as prices were very competitive, but supply continued to outpace it.

Still, investments in on- and offshore gas projects kept pouring in, as seen in East Med, offshore Nile Delta Egypt, Australia and Qatar. The global gas market shook on its fundamentals. The emergence of COVID-19 however could be a major shock to its total future. At present, a long list of gas producers is filing for bankruptcy, such as US company Chesapeake and more than 200 US shale producers, or are considering a total reassessment of ongoing and future investment projects.

The Golden Age of Gas has become an Ice Age of Gas.

The latter is for sure the case for LNG projects worldwide, that are not only confronted by COVID-19 but a total out of touch with the market supply volume the coming years. Without COVID-19 the market already would have been hitting a major slump due to overproduction and sluggish demand growth.

New projected production volumes, especially in East Med, Mozambique, Brazil, Australia and even in the GCC (Qatar, Saudi Arabia, Abu Dhabi), are going to be very hard to sell at commercial price levels. Some even expect that if no real measures are being taken, and production expansion continues, major LNG and gas producers could be facing the same dark scenarios as WTI in April. Negative prices are not out of reach, if the market refuses to go to a restructuring very soon.

Non-American gas producers should understand that with oil prices hovering around $40 per barrel Brent additional shale oil and gas production will come again online. Higher price settings for crude oil and NGLs will boost US shale gas production for sure. Without increased US domestic demand the only way is out, entering the global markets.

Future investment projects in Qatar, Saudi Arabia and East Med, are facing enormous challenges. Qatar’s LNG strategy has been working for decades, proponing the Peninsula into the Ivy League of gas producers, but now could become a boomerang full of pain. The end to the Qatari production moratorium, in principle a wise choice, however has come at the wrong time. Demand for these additional volumes doesn’t exist.

The multibillion investments presented by Doha in E&P and additional LNG carriers could be a major blow to its commercial existence. The same is the case for the high-profile East Med gas adventures of Egypt, Israel and Cyprus. The continuing exploration success stories presented by Italy’s ENI, French major Total and others in Egypt or Cyprus have become a new version of a Pyrrhic victory. Giant reserves are being found, LNG production is available, but customers are hiding or retreating even. Domestic regional demand will not be enough to counter supply, while European customers can receive LNG volumes at lower prices.

This time success or a Golden Age scenario has turned into a major black hole. Investments are made, commitments are there, reserves proven but demand is down, due to a virus. Not even Asia’s gigantic markets are able to take advantage, as their own situation is also dire.

Some analysts warned already in the 1990s that the high profile transition from oil to gas producer, as stated by Shell, BP and others, could backfire. Current financials are not yet showing it in full, but profit margins of the main gas producing oil majors will be lower for a longer time. No option anymore to counter lower gas prices by higher oil margins, as they have lost a pivotal oil market position since years.

National oils, especially QP, ADNOC or its counterparts Gazprom and others, are in the same boat. Gazprom reported, as shown by Russia’s Federal Customs Service (FCS), that it being hit by lower export gas prices and volumes. FCS data show that the company’s gas export revenues in the first five months of the year plunged 52.6% to $9.7 billion, while shipments declined 23% to 73 billion cubic meters (Bcm). May’s export revenues came to $1.1 billion – which is 15% lower than April. Physical exports were down 1.7% m-o-m to 11.9 Bcm. When compared to 2019 figures, Gazprom’s May 2020’s export revenues were 61% lower and volumes were 24% down.

Going for the well-known transition fuel natural gas is currently putting these companies on a rowing boat and not anymore a speedboat. Profitability of the natural gas upstream and downstream sector has always been low, especially when looking at the crude oil hey-days. Investors now also will start to reassess their involvement.

Lower ROIs, a bleaker future than presented and a still continuing immense gas supply glut, is not something investors are happy about. Seems that IOCs and NOCs are now looking at a home-made Sword of Damocles. COVID-19 even can make it worse if major economic policies, such as the EU’s Green Deal, are going to be implemented earlier. Without even the option of being the energy transition’s fuel of choice, natural gas could be put on a slow burner for the next decade. The current bearish gas market, due to prices averaging under $2/MMBtu in 2020, no light is at the end of the tunnel.

LNG’s overall situation is even worrying, as costs are higher than commercials are offering at present.

Worldwide LNG projects are also partly doomed, as LNG price settings are either putting projects on ice or major delays of FID is to expected. Global Energy Monitor reports in its Gas Bubble 2020 report that LNG projects that are still within the pre-construction phase have experienced a “widespread pullback, including the quiet abandonment of a large number of projects.” The same report reiterated that for the period between 2014 and 2020, the failure rate for proposed LNG export terminal projects is 61%.

It also identified 29 LNG export terminal projects that have since 2014 either been delayed, cancelled, abandoned or are facing substantial challenges. The report also states that in total, companies had announced plans to build $758 billion of projects that are as yet in the pre-construction phase. But with 20 projects now in jeopardy, including nine in the United States, that planned capital outlay could be reduced by $292 billion, or 38%, if the delays persist indefinitely.

Uber Beefs up for Food Fight with $2.65B Acquisition

After the announcement, Uber’s stock jumped six percent on Monday, bringing its advance to nearly 129 percent since its record low on March 18. Having gained over 10 percent since the extended 4th of July weekend, Uber’s shares have also outpaced the week-to-date gains seen respectively in the S&P 500 and the Nasdaq.

Shareholders are hoping that this acquisition would also bolster Uber’s plans for reaching its first-ever quarterly profit, with such ambitions derailed after its global ride-hailing business fell by 70 percent in the wake of the pandemic. Gross bookings registered its first-ever quarterly drop in the January-March period this year, as the orders to stay at home dealt a massive blow to the travel and transportation industry.

Growing appetite for food deliveries, and more

The pandemic however boosted demand for food deliveries, which soared by 52 percent in gross bookings to US$4.68 billion in Q1. The segment also accounted for 23.1 percent of Uber’s gross revenue for the quarter, higher compared to the 18 percent contribution in the prior three-month period, according to Bloomberg data. Postmates’s food-delivery bookings rose about 67 percent in Q2, according to Uber CEO Dara Khosrowshahi.

Set against such a context, it’s of little wonder that Uber is willing to place a bigger bet on the food deliveries segment, as its core offerings contend with the strong headwinds stemming from the pandemic. And with this consolidation in the food deliveries space, there could eventually be some upward pressure on prices as the market discovers its new equilibrium, which bodes well for this Uber segment’s top line.

Beyond bolstering its food deliveries segment, Uber is also hoping to leverage on Postmates’s strength in its online delivery offerings, which brings groceries and daily essentials, among other things, right to customers’ doorsteps. Also this week, Uber rolled out its in-app grocery delivery services for select Latin American and Canadian cities, as it partners with Cornershop, the Chile-based grocery delivery startup in which Uber agreed to take up a majority stake last year.

Uber’s emphasis on delivery-as-a-service should give the company another leg to stand on in its quest for profitability, especially if changed consumer habits from the lockdown-era (i.e. customers are less wiling to venture out of their homes) become sticky.

A sure path to profitability?

Back in May, Khosrowshahi said that the initial timeline for churning out the company’s first-ever adjusted quarterly profit has been pushed back from this year to 2021. To hasten its path to profitability, Uber has reduced over US$1 billion in expenses, getting rid of some non-core businesses while having shed more than a quarter of its staff.

While awaiting the potential synergies to materialize from this combo of profitless companies, with the deal only expected to be sealed in the first quarter of 2021, shareholders are likely to keep themselves busy in the interim, assessing how Uber is faring amid the double-edged sword that is the global pandemic. The impact of Covid-19 is likely to be more pronounced in Uber’s Q2 earnings release slated for August.

It remains to be seen whether shareholders will have the patience to wait for the promise of things to come, and potentially send Uber’s shares much higher from current levels. If it’s anything like I’ve discovered during quarantine, the wait can sometimes be agonizing, akin to trying to supress one’s hunger pangs while waiting for the food delivery order to arrive.

Written on 07/09/20 09:00 GMT by Han Tan, Market Analyst at FXTM


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Twitter Shares Climb On Subscription Service Speculation

Twitter, Inc. (TWTR) climbed over 7% Wednesday on speculation that the San Francisco-based company plans to launch a subscription service. The social media giant posted a job advert for an engineers to work on a subscription platform. “We are building a subscription platform, one that can be reused by other teams in the future,” the listing stated, per The Verge. The new web engineers will work on the company’s Gryphon team, which collaborates closely with the payroll team and the Twitter.com group.

According to Bloomberg, a person familiar with the matter said the company is exploring alternative revenue sources. The social media firm currently generates about 85% of its revenue from advertising. Therefore, a subscription service would help diversify the top line as businesses rein in their marketing budgets amid ongoing uncertainty. Despite Twitter adding 14 million new users in the first quarter, its revenues rose just 3% from the March 2019 quarter, the smallest increase in over two years.

Through July 8, Twitter stock is up 10.48% year to date, with the shares surging 27% in the past three months alone. The company looks fully priced from a valuation front, given it trades 52% above its five-year forward earnings multiple.

Wall Street View

Rosenblatt Securities analyst Mark Zgutowicz outlined to clients what a Twitter subscription service may look like. For instance, he believes the firm would be more likely to launch an offering utilizing its data and analytics, rather than moving to paid tiers for Twitter usage.

Sentiment among analysts skews toward a bullish outlook, with 24 ‘Hold’ ratings and nine ‘Buy’ ratings. Only four research gurus recommend selling Twitter stock. Furthermore, look for a string of analyst upgrades if the company does indeed announce a subscription service. Wall Street has a 12-month consensus price target of $33.14 – indicating 6% downside from Wednesday’s $35.41 close.

Technical Outlook

Twitter shares have formed a loosely constructed inverse head and shoulders pattern over the past nine months. The price tested the formation’s neckline in Wednesday’s trading session on the highest volume in nearly two years. Also, a likely cross of the 50-day simple moving average (SMA) above the 200-day SMA early next week adds to the bullish technical landscape. A clean breakout above $37 could see buyers run the stock up to around $46, where price encounters resistance from the 52-week high. Alternatively, a failure to push through this closely-watched resistance level could trigger a fall to horizontal trendline support at $28.5.

TWTR Chart