European Equities: Economic Data, Geopolitics, and COVID-19 News in Focus

Economic Calendar:

Wednesday, 26th August

French Consumer Confidence (August)

French Jobseekers Total

Friday, 28th August

GfK German Consumer Climate (Sep)

French Consumer Spending (MoM) (Jul)

French GDP (QoQ) (Q2) Final

The Majors

It was a mixed day for the European majors on Tuesday. The DAX30 and EuroStoxx600 slipped by 0.04% and by 0.30% respectively, with the CAC40 ended the day down by 0.01%.

Following the disappointment of August’s private sector PMIs, economic data was skewed to the positive on Tuesday.

Optimism towards successful treatment of COVID-19 and easing tensions between the U.S and China were also positive.

Concerns over the Eurozone economy, however, limited the upside on the day.

The Stats

It was a relatively busy day on the Eurozone economic calendar. Key stats included 2nd estimate GDP numbers for the 2nd quarter and IFO Business Climate figures from Germany.

According to Destatis,

  • The German economy contracted by 9.7% in the 2nd quarter, revised up from a 10.1% contraction. In the 2nd quarter, the economy had contracted by 2%.
  • Household final consumption slumped by 10.9%, with the gross fixed capital formation in machinery and equipment down by 19.6%.
  • Gross fixed capital formation in construction fell by 4.2%, reversing most of a 5.1% increase from the 1st
  • Providing support, however, was a 1.5% rise in the final consumption expenditure of the general government.
  • Trade with foreign countries also weighed. Exports of goods and services slid by 20.3%, with imports down by 16.0%.
  • In the same quarter, a year earlier, the economy contracted by 11.3%, which was revised up from an 11.7% contraction.

From the IFO, the Business Climate Index rose from 90.4 to 92.6. Economists had forecast a decline to 92.2.

According to the August survey,

  • In manufacturing, the business climate saw improvement, supported by a pickup in company assessment of their current situation. While many companies still considered their current situation as poor, their outlook improved.
  • The Business Climate Index for the service sector saw a large increase in August. Both the current situation and outlook sub-indexes were on the rise.
  • By contrast, the upward trend in trade’s business climate index flattened. While companies were more satisfied with their current situation, pessimism over their outlook remained.
  • The IFO Business Expectations sub-index rose from 97.0 to 97.5, with the Current Assessment sub-index rising from 84.5 to 87.9.

From the U.S

It was a relatively quiet day on the economic calendar. Key stats included August consumer confidence figures and housing sector numbers for June and July.

In August, the CB Consumer Confidence Index fell from 91.7 to 84.8. Economists had forecast a rise to 93.0.

From the housing sector:

  • New home sales rose by 13.9% in July, following a 15.1% jump in June. Economists had forecast a 1.3% rise.
  • On an annualized basis, new home sales stood at 901k, up from 791k in June. Economists had forecast 785k new home sales.
  • Year-on-year, the S&P/CS HPI Composite – 20 n.s.a rose by 3.5% in June, following a 3.6% rise in May.

The housing sector numbers had a muted impact on the European majors, however.

The Market Movers

For the DAX: It was a mixed day for the auto sector on Tuesday. Continental rose by 0.94% to buck the trend on the day. BMW and Daimler fell by 0.26% and by 0.64% respectively, with Volkswagen declining by 0.13% on the day.

It was another bullish day for the banks, however. Deutsche Bank and Commerzbank ended the day with gains of 0.59% and 0.66% respectively.

From the CAC, it was a mixed day for the banks. Soc Gen fell by 0.30%, while BNP Paribas and Credit Agricole rose by 0.21% and by 0.26% respectively.

It was also a mixed day for the French auto sector. Peugeot slipped by 0.67%, while Renault rose by 0.14%.

Air France-KLM rose by 1.29%, following on from Monday’s 2.09% gain, while Airbus SE ended the day down by 0.75%.

On the VIX Index

It was a 3rd consecutive day in the red for the VIX. Following on from a 0.75% loss on Monday, the VIX fell by 1.52% to end the day at 22.03.

The S&P500 and NASDAQ rose by 0.36% and by 0.76% respectively, while the Dow fell by 0.21%.

A combination of easing tensions between the U.S and China and positive COVID-19 news provided support for the majors.

An easing in the number of new COVID-19 cases and hopes of successful treatment and vaccine were positives.

On the geopolitical risk front, there was also news of the U.S and China making progress on trade talks and reaffirming commitment to the phase 1 trade agreement.

VIX 26/08/20 Daily Chart

The Day Ahead

It’s a relatively quiet day ahead on the Eurozone economic calendar. Key stats include French consumer confidence and job seeker totals.

We can expect both sets of numbers to have an influence on the CAC40 in the early part of the European session.

Later in the day, durable goods and core durable goods orders from the U.S will also influence the European majors.

Away from the economic calendar, chatter from Beijing and Washington and COVID-19 news will also need monitoring.

The Futures

In the futures markets, at the time of writing, the DAX was up by 2.5 points, while the Dow was down by 51 points.

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

S&P 500 Price Forecast – Stock Markets Initially Rally but Gives Up Gains Early

The S&P 500 has initially tried to rally during the trading session on Tuesday but gave back quite a bit of the gains as we have formed a less than desirable candlestick. That being said, it looks as if the three 450 level is going to offer a significant amount of resistance, but more importantly we have the support level near the 3400 level. I think that a couple of hammers that were formed previously before breaking above that level shows just how much interest there is in this market, so I like the idea of buying a dip that shows some type of bounce.

S&P 500 Video 26.08.20

At this point in time, it is likely that the market will continue to be very noisy, but I do think that we are going to go looking towards the 3500 level. With that being the case, it is very likely that we will continue to see a lot of choppy and volatile trading, but at the end of the day with Jerome Powell speaking at Jackson Hole this week, it is likely that there will be some type of dovish statement that could help the stock market as well. The market has been relentless in its move higher, but now needs to retest the previous all-time high at the 3400 level to get a lot of confidence flowing into the market and thereby sending stocks much higher. The pullback that we are seen during the Tuesday session is typical and a completely normal.

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

Chipotle Mexican Grill At Resistance After Big Breakout

Chipotle Mexican Grill Inc. (CMG) met Q2 2020 earnings and revenue estimates in July, prompting a sell-the-news reaction that held short-term support. Revenue fell 4.8% year-over-year, with comparative sales slumping badly in May and June but rising 2% in June. The popular fast food chain noted a healthy sales escalation throughout July, with a 6.4% increase in comparative restaurant sales.

Chipotle Posts Impressive Return Since 2018

Chipotle Mexican Grill operates 2,580 Mexican-themed fast food restaurants in the United States, along with 39 international locations. The stock was a top NYSE and restaurant sector performer until 2015 when it got blamed for a major food poisoning outbreak that uncovered questionable sanitizing procedures. The downtrend finally bottomed out at a 6-year low in 2018, giving way to a strong recovery that’s gained more than 500% in the last 2½ years.

Bernstein raised their target from $1,300 to $1,600 on Tuesday, with analyst Sara Senatore noting that, “Chipotle Mexican Grill appears to have taken the first small steps toward the margin part of the recovery path with delivery fees; we expect modest pricing could also play a role as could a slacker labor market. Even relatively modest fees support margins. Mobile order ahead has also tripled; reduced delivery support will likely translate into ordering channel shift, not lost traffic.”

Wall Street And Technical Outlook

Wall Street consensus rates the stock as a ‘Moderate Buy’, with an even split of 15 ‘Buy’ and 15 ‘Hold’ recommendations. No analysts are recommending that shareholders sell their positions and move to the sidelines. Price targets currently range from a low of $751 to a street-high $1,600 while Chipotle Mexican Grill is now trading $60 above the median $1,207 target. This placement could put a lid on returns, especially with the astronomical 140.46 price-to-earnings ratio (P/E).

The stock broke out above the 2015 high near 750 in August 2019 and failed the breakout in the first quarter’s pandemic swoon. It bounced back to the rally high in May and broke out once again, entering a rising channel that’s contained price action into August. Fortunately for bulls, this pattern significantly lowers risk because stops can be placed relatively close to price action, allowing an easy exit during the first stages of an intermediate correction.

Best Buy Q2 Sales Rose about 6% But Warns of a Slowdown in Q3; Shares Down About 8%

Best Buy Co Inc, an American multinational consumer electronics retailer headquartered in Minnesota, said its comparable sales rose about 6% in the second quarter but cautioned about a slowdown in the third quarter as the company faced a risk of higher unemployment, lower fiscal stimulus and supply chain issues due to COVID-19 pandemic, sending its shares down about 8% on Tuesday.

The technology retailer said its enterprise comparable sales rose 5.8%, which was higher than the market consensus of 3.7% growth. Overall revenue increased about 4% to $9.9 billion and revenue in the U.S. increased by 3.5% to $9.13 billion versus last year. The increase was primarily driven by comparable sales growth of 5%, which was partially offset by the loss of revenue from 25 permanent store closures in the past year.

Best Buy said in the U.S. online revenue increased 242.2% to $4.85 billion on a comparable basis primarily due to higher conversion rates and increased traffic. As a percentage of total revenue in the U.S., online revenue increased to approximately 53.1% versus 16.1% last year. Best Buy’s net earnings climbed 81.5% to $432 million in the quarter.

“Expectations were clearly high heading into Best Buy’s print, and we think their results and early 3Q look met expectations. With the stock having moved up significantly recently, it’s unclear how much is left in the near term, and we could see some profit-taking,” said Michael Baker, MD and senior research analyst at D.A. Davidson.

“But, we continue to like this story as trends accelerate and the company remains very well positioned for the new ‘stay, play, earn and learn’ from home normal, or ‘work, learn, connect and cook’ at home, as Best Buy states it,” Baker added.

Best Buy’s shares traded about 8% lower at $109.19 on Tuesday. However, the stock is up over 30% so far this year.

Executives’ comments

“Enterprise revenue growth was almost 4%, even though our stores were open by appointment only for the first six weeks of the quarter. Specifically, enterprise sales growth was approximately 16% in the last seven weeks of Q2 after we opened our stores and the strength continued into August, with sales up approximately 20% for the first three weeks of Q3,” said Corie Barry, Best Buy CEO.

“As a result of the ongoing uncertainty, we are not providing financial guidance today. However, I would note that we are planning for Q3 sales to be higher compared to last year but likely will not continue at the current quarter-to-date level of approximately 20% growth. Also, as our stores are fully reopened, we are planning for Q3 SG&A expense to be more in line with last year’s third quarter,” Best Buy CFO Matt Bilunas said.

Best Buy stock forecast

Fourteen analysts forecast the average price in 12 months at $110.00 with a high forecast of $135.00 and a low forecast of $92.00. The average price target represents a -6.28% decrease from the last price of $117.37. From those 14 analysts, nine rated “Buy”, five rated “Hold” and none rated “Sell”, according to Tipranks.

Best Buy had its price target raised by Telsey Advisory Group to $120 from $105. They currently have an outperform rating on the technology retailer’s stock. Morgan Stanley gave a target price of $85 with a high of $105 under a bull-case scenario and $60 under the worst-case scenario.

Other equity analysts also recently updated their stock outlook. Piper Sandler lifted their price objective on shares of Best Buy to $127 from $112 and gave the company an overweight rating.

We think it is good to buy at the current level and target $130 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst view

“Best Buy is a best in class retailer led by a capable management team, and we are positive on the longer-term opportunity for the business and stock. BBY’s leading position in a healthy category and strength in key Retail fundamentals including merchandising, labour management, supply chain and omni-channel underpin our view,” said Simeon Gutman, equity analyst at Morgan Stanley.

“The shorter-term outlook seems less favourable, with a high level of uncertainty around sales/margin trends in 2020-2021. This keeps us Equal-weight rated,” he added.

U.S. Stocks Set To Open Higher As Trade Deal With China Is In Good Shape

U.S. And China Confirm Progress On Phase 1 Trade Deal

S&P 500 futures are gaining ground in premarket trading as U.S. and China trade officials confirmed that Phase 1 trade deal was progressing well.

Not surprisingly, coronavirus pandemic put significant pressure on the implementation of the deal but it looks like China is increasing its efforts to stay in line with the original agreement.

This news is a major relief for the world markets which were worried that the continued deterioration of U.S. – China relations could jeopardize the important trade deal and hurt the world economy at a time when it tries to recover from the coronavirus shock.

Interestingly, the news has put some pressure on precious metals. Gold and silver, which have recently enjoyed a major boost from safe-haven buying, have lost momentum and are under pressure today.

Oil In Spotlight As Tropical Storm Laura May Become A Major Hurricane

Oil prices continue to get support from storm news as Tropical Storm Laura is forecasted to turn into a major hurricane.

Oil producers have already shut more than 1 million barrels per day of oil production in the U.S. Gulf of Mexico, and traders focus on whether the storm deals any damage to the existing infrastructure.

While the hurricane news are a positive catalyst for oil in the near term, oil price upside remains limited as market participants are concerned with the negative impact of COVID-19 on oil demand.

New Home Sales Are Set To Increase by 1.3%

Today, the U.S. will report New Home Sales data for July. New Home Sales are expected to grow by 1.3%, continuing the positive trend seen in June when New Home Sales increased by 13.8%.

The recent data on Building Permits and Housing Starts showed strong growth, and analysts expect that a combination of low interest rates and increased demand for living space amidst the pandemic will coninue to push New Home Sales higher.

A better-than-expected New Home Sales report will likely provide additional support to stocks which are eager to rise on any good news as the current upside trend remains very strong.

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

Daily Gold News: August 25 – Gold Going Sideways Since Last Wednesday’s Decline

The gold futures contract lost 0.40% on Monday, as yellow metal extended its short-term consolidation following the recent decline below $2,000 price level. Gold reversed lower on August 7 after much better than expected Nonfarm Payrolls release, among other factors. The following upward correction reached a local high of $2,024.60 a week ago on Tuesday.

Gold is unchanged this morning, as it is trading within a mentioned short-term consolidation. What about the other precious metals? Silver lost 0.47% on Monday and today it is 0.1% lower. Platinum lost 0.09% and today it is 1.5% higher. Palladium lost 0.68% on Monday and today it’s 0.2% higher. So precious metals’ prices are mixed this morning.

Yesterday we didn’t get any important economic data releases. The markets will be waiting for Thursday’s-Friday’s Jackson Hole Symposium’s outcomes.

But today we will also get the important CB Consumer Confidence number along with New Home Sales and Richmond Manufacturing Index at 10:00 a.m.

Below you will find our Gold, Silver, and Mining Stocks economic news schedule for the next two trading days:

Tuesday, August 25

  • 2:00 a.m. Eurozone – German Final GDP q/q
  • 4:00 a.m. Eurozone – German ifo Business Climate
  • 9:00 a.m. U.S. – HPI m/m, S&P/CS Composite-20 HPI y/y
  • 10:00 a.m. U.S. – CB Consumer Confidence, New Home Sales, Richmond Manufacturing Index

Wednesday, August 26

  • 8:30 a.m. U.S. – Durable Goods Orders m/m, Core Durable Goods Orders m/m

What future gold price behavior may be? Let’s take a look at our proprietary Gold True Seasonality for the third quarter of 2020 where we combined the regular seasonality with the effect of the expiration of options and accuracy estimation. The yearly seasonal pattern of the price of gold was calculated using a 18-year-long period from 2002 to 2019 and then adjusted for the expiration of options that we observed between 2009 and 2019.

We can see that gold is usually going higher in the end of August. However, notice the declining accuracy in that period too. Then in September the market is trading within a consolidation.

Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!

Paul Rejczak
Stock Selection Strategist
Sunshine Profits: Analysis. Care. Profits.

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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.

Phase One Trade Deal Optimism Lifts Asia-Pacific Shares

The major Asia-Pacific stock indexes finished mixed but mostly higher on Tuesday after the U.S. and China indicated progress in trade talks, and as hopes of new coronavirus treatments boosted broader sentiment among global investors.

The upbeat sentiment in Asia on Tuesday followed reports that top U.S. and Chinese officials see progress in resolving concerns around the Phase 1 trade deal reached between the two countries in January, Reuters reported.

The markets have also been supported by broader optimism about medical solutions to end the coronavirus pandemic. U.S. regulators on Sunday authorized the use of blood plasma from recovered COVID-19 patients as a treatment option, helping the S&P 500 1% higher to another record close overnight.

In the cash market on Tuesday, Japan’s Nikkei 225 Index settled at 23296.77, up 311.26 or +1.35%. Hong Kong’s Hang Seng Index finished at 25486.22, down 65.36 or -0.26% and South Korea’s KOSPI Index closed at 2366.73, up 36.90 or +1.58%.

China’s Shanghai Index settled at 3373.58, down 12.06 or -0.36% and Australia’s S&P/ASX 200 finished at 6161.40, up 31.80 or +0.52%.

Global Airline Shares Jump

Shares of airlines in the Asia Pacific region rose on Tuesday, following their counterparts in the United States. The move was driven by the positive coronavirus developments.

In Hong Kong, shares of China Eastern Airlines jumped 4% while China Southern Airlines surge 5.19%. Similar gains were seen in Japan, where ANA Holdings soared 7.18%. Meanwhile in Singapore, Singapore Airlines added 3.26%.

South Korean Stocks See Biggest Gain in a Month on Trade Hopes

South Korean shares posted their sharpest gain in nearly a month, after the United States and China indicated progress in their trade talks and daily COVID-19 infections in the country eased from their peaks.

Top U.S. and Chinese officials see progress on resolving issues over the Phase 1 trade deal reached in January and both sides are committed to the success of the agreement, the U.S. Trade Representative’s Office said.

South Korea reported 280 new infections as of midnight Monday, a drop in daily new cases from 397 as of Saturday midnight.

In other news, the Bank of Korea is expected to keep interest rates on hold on Thursday as it weighs concerns about rising household debt and property taxes.

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

Intuit Climbs After KeyBanc Ups Price Target

Intuit Inc. (INTU) shares jumped 3.38% Monday after KeyBanc reiterated its ‘Overweight’ rating on the accounting software maker’s stock and lifted its 12-month price target to $350 from $315. The upgrade implies a 5% premium to Monday’s $333.12 close.

Analyst Josh Beck says his analysis of Key First and IRS data prompts a more positive bias on TurboTax fundamentals. Beck also argues the company has synergy opportunities through its recent acquisition of Credit Karma – a fintech startup with more than 37 million active users. In February, Intuit announced that it had bought the firm for $7.1 billion to bolster its personal finance offerings.

As of Aug. 25, 2020, Intuit’s shares have an $86.87 billion market capitalization, offer a modest 0.66% dividend yield and trade 28% higher on the year. Over the past three months, they have gained 16%. From a valuation standpoint, the stock trades at about 40 times future earnings, above its longer-term multiple of 30 times.

Upbeat Earnings Expected

Analysts expect Intuit to post fiscal Q4 earnings of $1.20 per share when the company reports its quarterly results after the closing bell on Tuesday. This compares to a loss of 9 cents a share in the year-ago quarter. Meanwhile, the Street tips revenues to come in at $1.55 billion, indicating year-over-year (YoY) top-line growth of 55.8%. The postponement of IRS tax filing from the third quarter to the fourth is likely to have provided a considerable tailwind during the period.

Wall Street Ratings

Analysts remain bullish, impressed by financial software company’s opportunity to grow its QuickBooks Online subscriber base. Currently, the stock receives 12 ‘Buy’ ratings, 6 ‘Hold ratings, and just 2 ‘Sell’ ratings. Price targets range from as high as $350 to as low as $220, with the median consensus pegged at $308.

Technical Outlook and Trading Tactics

Intuit shares broke above an ascending triangle pattern last week, with gains accelerating on above-average volume yesterday after the KeyBanc price upgrade. Given the relative strength index (RSI) sits in overbought territory, traders should consider waiting for a pullback entry instead of chasing recent gains.

Look for buying opportunities near $313.50, where the stock finds support from the triangle’s upper trendline. Traders who enter at this level should consider placing a stop-loss order below the 50-day simple moving average (SMA). Set a profit target that is at least twice the amount risked. For instance, if using a $15 stop, consider targeting a move of at least $30.

Scentre Group Posts AU$3.6 Billion Loss in H1 as COVID-19 Pandemic Bites

Scentre Group, the owner of Westfield-branded shopping malls in Australia and New Zealand, reported an interim loss of AU$3.6 billion in the first half of 2020 amid rising concerns given the negative effects of COVID-19 crisis and the impact on tenants’ ability to pay rent.

The owner of over 40 Westfield malls said it also took AU$232.1 million credit charge relating to COVID-19. Overall revenue slumped 16% to AU$1.1 billion and funds from operations plunged 46% to AU$361.9 million.

Scentre reported a net loss for the six months to June 30 from a net profit of AU$740 million in the year-ago period, due to AU$4.1 billion downward revaluation of its assets.

For the six-month period, the Group collected 70% of gross rental billings and for the months of June and July 2020, gross rental billings collections were over 80%. In-store sales, Scentre’s retail partners were impacted by the pandemic and the associated restrictions on people movement.

In-store sales for the retail partners that traded throughout the six-month period were 8.1% lower compared to the previous corresponding six-month period in 2019. Speciality in-store sales were 12.1% lower for the six-month period compared to the previous corresponding period.

Scentre Group’s shares gained about 4% to AU$2.09 on Tuesday. However, the stock is down over 40% so far this year.

Executive comments

“As customers are returning to our centres, more than 93% of retail stores are open across the portfolio (excluding our Victorian centres). Portfolio occupancy was 98.8% at the end of June 2020. We launched Westfield Plus, our membership customer engagement platform, at Westfield Newmarket in New Zealand in late 2019 and recently introduced the program in Australia. We now have more than 500,000 members on Westfield Plus and this continues to grow,” Scentre Group CEO Peter Allen said.

“The shopping centre industry has provided over AU$1.6 billion of support for retailers during the pandemic. Our industry is unique in that it has provided, and self-funded, a level of financial support beyond any other industry as well as most government pandemic support packages. We have agreed arrangements with 2,438 of our 3,600 retail partners, including 1,624 SME retail partners,” Allen added.

Scentre stock forecast

Morgan Stanley target price is AU$2.71 with a high of AU$3.95 under a bull-case scenario and AU$1.70 under the worst-case scenario. Other equity analysts also recently updated their stock outlook. Jefferies lowered their price target to $2.00 from $2.28; retained ‘Hold’ rating.

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

Analyst view

“We believe Scentre Group is better placed to recover from a COVID-19 world than other retail-dominant REITs. Across its portfolio, its malls are located in wealthier areas (by house price), with stronger incomes, and among the highest median population densities in surrounding areas,” said Simon Chan, equity analyst at Morgan Stanley.

“Its discretionary bias means that it is more leveraged to the well-being of consumers than other portfolios. However, we have factored for this by assuming that rent after COVID-19 will be reset to 15% lower, allowing for an economic decline. In our view, what’s priced in is worse than we think our analysis justifies,” he added.

Upside and Downside risks

Upside: 1) A sustained recovery in speciality retail sales, to 3-4% p.a. 2) A pickup in development activities, including third-party activity. 3) Strong recovery trajectory after COVID-19 issues – highlighted by Morgan Stanley.

Downside: 1) Rise in Interest rates at both at the short and long end of the curve. 2) Further deterioration in the shopping habits of consumers – towards omni-channels. 3) Retailers continuing to rationalise store networks. 4) Prolonged COVID-19 impact.

European Equities: Economic Data from Germany and the U.S in Focus

Economic Calendar:

Tuesday, 25th August

German GDP (YoY) (Q2) Final

German GDP (QoQ) (Q2) Final

German IFO Business Climate Index (Aug)

Friday, 28th August

GfK German Consumer Climate (Sep)

French Consumer Spending (MoM) (Jul)

French GDP (QoQ) (Q2) Final

The Majors

It was a bullish start to the week for the European majors on Monday. The DAX30 and CAC40 rallied by 2.36% and by 2.28% respectively, with the EuroStoxx600 rising by 1.58%.

There were no stats to spook the markets, following Friday’s disappointing PMI numbers. The lack of economic data left the news wires to provide direction.

News from the U.S of the FDA approving the use of the blood plasma of cured COVID-19 patients to treat the virus delivered support.

Reports of the U.S administration considering fast-tracking a COVID-19 vaccine from the UK added to the upbeat mood. Trump may be looking to force the FDA to approve a University of Oxford vaccine to be distributed across the U.S.

The Stats

It was a particularly quiet start to the week on the Eurozone economic calendar. There were no material stats to provide the European majors with direction.

From the U.S

It was also a quiet day on the economic calendar, with no material stats from the U.S to provide direction late in the session.

The Market Movers

For the DAX: It was a bullish day for the auto sector on Monday. Daimler rallied by 3.76%, with BMW and Continental gaining 2.24% and 1.59% respectively. Volkswagen saw a more modest 0.43% gain on the day.

It was a particularly bullish day for the banks. Deutsche Bank jumped by 4.41%, with Commerzbank gaining 2.61%.

From the CAC, it was a bullish day for the banks. Soc Gen rallied by 4.19% to lead the way. BNP Paribas and Credit Agricole rose by 2.62% and by 2.90% respectively.

It was also a bullish day for the French auto sector. Peugeot rose by 3.94%, with Renault rallying by 6.38%.

Air France-KLM rose by 2.09%, following on from Friday’s 1.78% gain, with Airbus SE rallying by 4.37%.

On the VIX Index

It was a 2nd consecutive day in the red for the VIX. Following on from a 0.79% loss on Friday, the VIX fell by 0.75% to end the day at 22.37.

The S&P500 and NASDAQ rose by 1.00% and by 0.60% respectively, with the Dow gaining 1.35%.

Following last week’s positive private sector PMI numbers from the U.S, COVID-19 treatment news delivered support.

VIX 25/08/20 Daily Chart

The Day Ahead

It’s a busy day ahead on the Eurozone economic calendar. Key stats include 2nd estimate GDP numbers for the 2nd quarter and August IFO Business Climate figures from Germany.

Last week, while Germany saw service sector activity growth ease, manufacturing sector activity picked up in August.

Positive business sentiment figures and an upward revision to GDP numbers would provide further support.

From the U.S, expect August consumer confidence figures to also provide direction late in the European session.

Away from the economic calendar, the markets will need to continue to monitor geopolitics and COVID-19 news.

The Futures

In the futures markets, at the time of writing, the Dow was down by 10 points.

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

Roku Stuck In Neutral After Second Quarter Bounce

Roku Inc. (ROKU) is the global leader in the rapidly-growing connected TV market (CTV), boasting an installed base of 43 million customers. Wall Street analysts expect the company, which has traded publicly for less than three years, to grow at an annual 30%+ rate in the next one to three years, underpinned by ad spending that may double from the current $8 billion. This volatile growth play could benefit from this revenue expansion and trade well above current price levels in coming years.

Roku Expects To Lose Money Until 2021

Even so, Roku sold off on August 5th despite beating Q2 2020 profit and revenue estimates by wide margins. Shareholders, who have suffered through an endless string of losses since the 2017 IPO, walked away after the company said it expects to lose money through year’s end. The stock currently sports a market cap of $18.28 billion and the COVID-19 pandemic has lowered advertising revenue because many small businesses have been forced to cut back.

Deutsche Bank analyst Jeffrey Rand just issued a ‘Buy’ call with a $185 target, proclaiming the company is “the market leader in the CTV market, with close to 50% market share of global CTV streaming hours, and is seeing strong growth opportunities as more consumers and advertisers spend time and money on streaming content. It’s done an impressive job building out the largest installed base in the industry and monetizing it through its Platform business.”

Wall Street And Technical Outlook

Wall Street consensus currently rates Roku as a ’Moderate Buy’ based upon 10 ‘Buy’, 6 ‘Hold’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $65 to a street-high $208 while the stock is now trading more than $13 below the median $160 target. There’s plenty of potential upside in this placement but prospective investors may wish to sit on their hands until a positive catalyst shows up on the newswire.

Roku posted an all-time high at 176.55 in September 2018 and sold off to an 11-month low in March 2020. A two-legged recovery rally stalled 10 points under the prior high in July, giving way to a trading range with support near 144. The stock has been testing range support for the last two weeks, setting the stage for a bounce that could eventually reach the 2018 high, or a breakdown that targets the psychological 100 level.

S&P 500 Price Forecast – Stock Markets Break Out Again

The S&P 500 has rallied a bit during the trading session on Monday as we have cleared the 3400 level. At this point in time, the market is likely to go looking towards the 3500 level, a large, round, psychologically significant figure that a lot of people will be paying attention to. Because of this, I think it is only a matter of time before we get there, and at this point I believe that short-term pullbacks continue to be buying opportunity. Furthermore, Jerome Powell is speaking at Jackson Hole later this week and will probably say or do whatever it takes to keep Wall Street going.

S&P 500 Video 25.08.20

What is particularly interesting is the fact that we had formed a couple of hammers during the previous couple of sessions, showing that there was a real push to break out. Now that we are finally done that, expect a short-term pullback and then a continuation of what we had seen previously. As long as the US dollar remain somewhat on the back foot, that should continue to push this market higher.

Beyond that, we are in an uptrend anyway so there is no point in fighting it and the fact that we have wiped out the coronavirus meltdown suggests that the market is looking forward towards life without the pandemic, and the only fundamental analysis at this point is whether or not the central banks will continue to devalue currency. It looks as if there is absolutely no hint that they are going to change anytime soon so I remain bullish and buy on dips.

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

Estee Lauder’s Price Target Raised to $233 on Strong Skincare Business, $275 in Best-Case Scenario: Morgan Stanley

Estee Lauder’s, one of the world’s leading manufacturers and marketers of quality skincare, price target was raised to $233 from $196, largely driven by expectations of higher growth in the skincare business, according to Morgan Stanley equity analyst Dara Mohsenian, who also said key value drivers will remain intact in the long-term post-COVID-19 crisis.

Estee Lauder’s shares traded about 3% higher at $212.59 on Monday. The stock gained more than 50% since March low and is up over 3% so far this year.

On August 20, the Estee Lauder reported net sales of $14.29 billion for its fiscal year ended June 30, 2020, a decrease of 4% from $14.86 billion in the prior-year period. The net sales decline was driven by retail store closures as a result of the global spread of COVID-19 that was partially offset by the tremendous acceleration online.

However, skincare net sales grew across most regions, led by Estee Lauder and La Mer. The category increased 26% in the first half of the fiscal year and was the most resilient category globally during the pandemic. Origins also increased net sales.

The company forecasts long-term growth of 6% to 8%, 50 basis points of operating margin expansion and double-digit adjusted diluted earnings per share growth in constant currency after a period of normalization as the impacts of COVID-19 subside.

“We also continue to believe that Estee Lauder’s (EL) recent mix shift to its skincare business is underappreciated by the market, as EL’s mix has rapidly shifted to this segment at 101% of EL’s profit mix in FY20, or even 75% in FY19 pre-COVID, vs ~50% historically in FY16-17. We view skincare as a crown jewel, as it is both a much higher growth area within the beauty category over time given a consumer focus on health/wellness and anti-ageing, as well as greater pricing power with high barriers to entry, which also gives us confidence in the sustainability of higher topline growth/margin over time. EL’s skincare business grew at a 10% sales CAGR in the last decade pre FY20, 12% in the last five year and 19% in the last three years,” said Dara Mohsenian, equity analyst at Morgan Stanley.

“Premium skincare is a higher-growth, higher-margin category, outperforming premium make-up and mass skincare category growth globally, giving us greater confidence that EL’s momentum is supported by secular trends. Looking at global premium skincare growth weighted by EL’s geographic mix, the category has posted robust +6.5% growth over the last 10 years, with at least +4% growth for every year since the turn of the decade, and growth of more than +5% for all but one year in the same time frame. Given Euromonitor excludes travel retail growth, we think that these numbers actually understate premium skincare growth, and we note that EL has continued to gain significant skincare market share even as the category has become increasingly competitive,” Mohsenian added.

Morgan Stanley target price under a bull-case scenario is $275 and $158 under the worst-case scenario. Several other equity analysts have also updated their stock outlook. RBC raised to outperform from sector perform and upped target price to $240 from $194. Estee Lauder Companies had its price target raised by equities research analysts at Citigroup to $220 from $194. The firm presently has a “neutral” rating on the stock. Stifel Nicolaus lifted their price objective on Estee Lauder Companies from $185.00 to $235.00 and gave the company a “Buy” rating.

Fourteen analysts forecast the average price in 12 months at $221.50 with a high forecast of $244.00 and a low forecast of $180.00. The average price target represents a 2.93% increase from the last price of $215.20. From those 14, 11 analysts rated ‘Buy’, two analysts rated ‘Hold’ and one rated ‘Sell’, according to Tipranks.

“We are Overweight Estee Lauder (EL) as we view long-term EL growth as more robust and sustainable than peers with its large exposure to the high growth, high margin skincare segment, e-commerce and expansion opportunity in China, and a potential rebound in near-term COVID impacted business. We assume EL recovers to pre-COVID EPS levels by FY22, with margins supported by cost-cutting,” Morgan Stanley’s Risinger added.

“We view EL’s valuation as compelling, corroborated by our DCF analysis. Sum-of-parts valuation vs peers similarly points to the upside.”

Upside risk: Lower than expected COVID impact, particularly in China/travel retail, a category growth rebound in prestige beauty, market share gains in key categories, favourable FX movements -highlighted by Morgan Stanley.

Downside risk: Prolonged COVID-19 impacts, China results slow with tariff/boycott risk, category growth deceleration, macro conditions worsen, market share losses, competitive pricing, and unfavourable FX.

E-mini NASDAQ-100 Index (NQ) Futures Technical Analysis – Needs to Stay Above 11562.00 to Sustain Rally

September E-mini NASDAQ-100 Index futures are set to open at an all-time on Monday on bets that technology focused companies will emerge stronger from the pandemic and the economy will return to growth on continued monetary and fiscal support.

Helping to boost prices on Monday is the news that the FDA approved for emergency use antibody-rich blood plasma on COVID-19 patients. Further aiding the rally was a report that the Trump administration is considering fast-tracking an experimental COVID-19 vaccine being developed by AstraZeneca Plc and Oxford University for use in the United States before election.

At 13:07 GMT, September E-mini NASDAQ-100 Index futures are trading 11688.75, up 126.75 or +1.10%. Earlier in the session, the futures contract reached a new record high at 11695.75.

NASDAQ Stocks in the News

Apple – Today is the “record date” for Apple’s recently announced 4-for-1 stock split, applying to shareholders of record as of the close of business today. The shares are set to begin trading on a split-adjusted basis on August 31.

Moderna – Moderna said enrollment levels for its late-stage 30,000 patient COVID-19 vaccine trial have passed the 40% mark. The drugmaker began the study last month and expects to complete enrollment in September.

Microsoft – Microsoft said in a court filing that Apple’s actions against Fortnite creator Epic Games will hurt the entire videogame industry. Apple removed Epic’s games from its app store for violating its payment rules.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed earlier today when buyers took out last week’s high at 11573.50. The main trend will change to down on a move through 10845.50.

The minor trend is also up. The minor trend will change to down if 11221.50 fails as support. This will also shift momentum to the downside.

Daily Swing Chart Technical Forecast

The rally continues to be driven by headlines about a coronavirus treatment or vaccine. Look for higher-highs and higher-lows to signal the uptrend remains intact.

A higher-high, lower-close will signal that the selling is greater than the buying at current price levels. This chart pattern won’t change the trend to down, but it could signal the start of a short-term correction.

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

E-mini S&P 500 Index (ES) Futures Technical Analysis – Needs to Close Over 3392.50 to Sustain Momentum

September E-mini S&P 500 Index futures are trading sharply higher ahead of the opening on Monday as the country’s top drug regulator’s approval for emergency use of antibody-rich blood plasma on COVID-19 patients lifted treatment hopes and spurred bets of a quicker economic recovery.

At 13:40 GMT, September E-mini S&P 500 Index futures are at 3420.00, up 27.50 or +0.81%. Its new record high is 3424.00.

The U.S. Food and Drug Administration’s move to use plasma from recovered patients was hailed by President Donald Trump and came a day after he accused it of impeding the rollout of treatments for political reasons.

Among stocks, Apple Inc gained another 1.8% premarket and was on track to open above $500 per share for the first time. The iPhone maker became the first public U.S. company to cross $2 trillion in market value last week.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed earlier today when buyers took out last week’s high at 3396.25.

The main trend will change to down on a trade through 3195.00. This is highly unlikely but due to the prolonged move up in terms of price and time, the index is vulnerable to a closing price reversal top. This chart pattern won’t change the trend to down, but it could signal a short-term correction.

The minor trend is also up. A trade through 3344.75 will change the minor trend to down. This will shift momentum to the downside.

Daily Swing Chart Technical Forecast

In this momentum and headline driven market, the only thing at this time that bullish trend traders need to worry about is a close below Friday’s finish at 3392.50. This will be the first sign of weakness today, but it will not signal a change in trend.

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

U.S. Stocks Set To Open Higher As S&P 500 Is Ready To Settle Above 3400

FDA Approves Emergency Use Of Blood Plasma From Recovered Patients To Treat COVID-19

S&P 500 futures are gaining ground during the premarket trading session as traders cheer the decision of U.S. Food and Drug Administration to approve the use of recovered patients’ blood plasma to treat COVID-19.

Although the market’s attention is mostly focused on potential vaccine candidates, any good news on the coronavirus treatment front also help stocks.

At this point, S&P 500 looks ready to settle above 3400 and continue its upside move, and positive news on the healthcare front serve as an additional catalyst for the market.

Waiting For Clues From The Fed

The unprecedented monetary stimulus is the main driver behind the current market rally. The market’s optimism will be tested this week as Fed Chair Jerome Powell will provide his view on the current situation during the Jackson Hole Economic Policy Symposium on Thursday.

FOMC Minutes from the most recent Fed meeting did not contain any indication that the Fed was ready to adopt an inflation target and try to push inflation above 2% to facilitate economic recovery.

However, investors and traders will be waiting for signs that the Fed is ready to use additional measures to support the economy. Fed’s support is especially important for the market at a time when U.S. Republicans and Democrats failed to reach consensus on the new coronavirus aid package.

Oil Gains Ground As More Than Half Of U.S. Gulf Of Mexico Oil Production Is Shut Down Due To Storms

WTI oil is gaining ground as oil producers had to shut down more than half of U.S. Gulf of Mexico oil production due to two storms in the region. These storms are Hurricane Marco and Tropical Storm Laura.

The shutdown of more than 1 million barrels per day (bpd) of U.S. oil production may put more pressure on crude oil inventories which will be bullish for oil.

Major oil stocks like Exxon Mobil or BP are already gaining ground in premarket trading and are set to be active today.

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

Daily Gold News: August 24 – Gold Slightly Higher as Stock Markets Rally

The gold futures contract gained just 0.03% on Friday, as it traded within a short-term consolidation following the recent decline below $2,000 price level. Gold reversed lower on August 7 following much better than expected Nonfarm Payrolls release, among other factors. The following upward correction reached a local high of $2,024.60 last Tuesday.

Gold is 0.4% higher this morning, as it is trading along Friday’s daily high. What about the other precious metals? Silver lost 1.53% on Friday and today it is 0.1% lower. Platinum lost 0.09% and today it is 1.5% higher. Palladium lost 0.30% on Friday and today it’s 0.6% higher. So precious metals’ prices are retracing some of their recent declines this morning.

Friday’s U.S. Flash Manufacturing PMI/ Flash Services PMI releases have been better than expected. And global financial markets went risk-on, as stocks extended their rally.

Today we won’t get any important economic data releases. The markets will be waiting for Thursday’s-Friday’s Jackson Hole Symposium’s outcomes.

Below you will find our Gold, Silver, and Mining Stocks economic news schedule for the next two trading days:

Monday, August 24

  • 9:00 a.m. China – CB Leading Index m/m

Tuesday, August 25

  • 2:00 a.m. Eurozone – German Final GDP q/q
  • 4:00 a.m. Eurozone – German ifo Business Climate
  • 9:00 a.m. U.S. – HPI m/m, S&P/CS Composite-20 HPI y/y
  • 10:00 a.m. U.S. – CB Consumer Confidence, New Home Sales, Richmond Manufacturing Index

Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!

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

Paul Rejczak
Stock Selection Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

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.

 

Blackstone to Buy Takeda Pharma’s Japanese Consumer Healthcare Business for $2.29 billion; Target Price $60

U.S. investment fund Blackstone Group said on Monday that it will acquire Takeda Pharmaceutical’s Japanese consumer healthcare business for $2.29 billion, marking Blackstone’s second private equity transaction in Japan’s healthcare sector following the acquisition of AYUMI Pharmaceutical last year.

Takeda anticipates a pre-tax gain of about JPY 140.0 billion on the sale of shares of the subsidiary, to be recognized when the transfer of shares is executed and completed. Takeda anticipates Reported Net Profit attributable to owners of the Company to increase by about JPY 105.0 billion.

Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. is acting as an exclusive financial advisor to Blackstone, while Simpson Thacher & Bartlett LLP and Anderson Mori & Tomotsune are acting as legal advisors.

Blackstone’s shares closed 0.91% higher at $52.97 on Friday. However, the stock is down about 5% so far this year.

Executives’ comments

“We are privileged to announce this partnership and invest in the company’s plans to become the leading consumer healthcare business in Japan. TCHC is well-positioned to grow its established brands in Japan and launch new and expanded product offerings. We see tremendous potential for TCHC in Japan and throughout Asia, and we are confident that Blackstone’s global network and expertise in the sector can accelerate TCHC’s growth,” said Atsuhiko Sakamoto, Head of Private Equity in Blackstone Japan.

“Throughout decades, TCHC’s brands including Alinamin have earned the trust and confidence of consumers in Japan. We believe the active and strategic investment by Blackstone will enable TCHC to maximize its potential. Blackstone is one of the world’s leading investment firms and has rich experience in the healthcare sector, and we are confident this will help TCHC further develop its products and brands and strengthen the business overall,” said Milano Furuta, Chairman of the Board, Takeda Consumer Healthcare Company.

Blackstone stock forecast

Nine analysts forecast the average price in 12 months at $61.88 with a high forecast of $65.00 and a low forecast of $54.00. The average price target represents a 16.82% increase from the last price of $52.97. From those nine analysts, five rated “Buy”, four rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley target price is $65 with a high of $100 under a bull-case scenario and $20 under the worst-case scenario. Blackstone Group had its price target lowered by UBS to $63 from $65

Other equity analysts also recently updated their stock outlook. Deutsche Bank raised the price target to $54 from $49, Citigroup upped their price target to $58 from $57, JP Morgan increased their price target to $58 from $54 and Credit Suisse raised to $65 from $64.

We think it is good to hold for now as 50-day Moving Average and 100-200-day MACD Oscillator signals a mild selling opportunity.

Analyst view

“Best-in-class private markets franchise with significant brand power, $156 billion of dry powder and strong mgmt company balance sheet uniquely position Blackstone to capitalize on a challenging recession backdrop and drive above peer growth,” said Courtney Yakavonis, equity analyst at Morgan Stanley.

“Fundraising machine that should raise over $211 billion in 2020-21, supported by newer initiatives (i.e., Infrastructure, Core+ RE, Tac Opps, Secondaries, longer-dated PE, Asian PE etc.) and existing strategies. We view Blackstone as best positioned for the secular growth story in alternatives given their leading businesses in every major category that should command a premium multiple,” he added.

Upside and Downside risks

Upside: 1) Ramping cash performance fees in newer funds/strategies incl: BCP VI, VII, Tac-Opps, BREP VIII. 2) Growth in Fee-Related Earnings from fee activation of newly raised funds. 3) Faster penetration of retail channel – highlighted by Morgan Stanley.

Downside: 1) Deeper recession that delays harvesting of investments and dampens returns which lowers cash earnings. 2) Regulatory risk: Increased political and regulatory scrutiny of the private equity business model.

Asia-Pacific Shares Boosted by COVID-19 Treatment Hopes; Cautious Tone Ahead of Powell Speech

The major Asia-Pacific stock indexes finished higher across the board on Monday led by a surge in newly listed stocks on China’s NASDAQ-style ChiNext, however, the gains suggest investors bought with caution as they continued to monitor developments on the coronavirus pandemic. Investors are also anticipating U.S. Federal Reserve Chair Jerome Powell’s remarks at the Jackson Hole central bankers’ symposium later in the week.

In the cash market on Monday, Japan’s Nikkei 225 Index settled at 22985.51, up 65.21 or +0.28%. Hong Kong’s Hang Seng Index finished at 25551.58, up 437.74 or +1.74% and South Korea’s KOSPI Index closed at 2329.83, up 25.24 or 1.10%.

China’s Shanghai Index settled at 3385.64, up 4.96 or +0.15% and Australia’s S&P/ASX 200 finished at 6129.60, up 18.40 or +0.30%.

ChiNext Finishes Higher

The ChiNext rose 2.251% to close at about 3,028.86. The first batch of firms listing on the NASDAQ-style board under its revised IPO system made their debut on Monday and saw staggering gains. Contec Medical Systems jumped more than 1,000% on the day while Ningbo KBE Electrical Technology surged more than 740%.

Under the new listing system, stocks on the ChiNext will be allowed to trade freely in the first five days from their debut. Following which, new regulations will allow stocks on the board to gain or lose up to 20% in a session, as compared with 10% previously.

Asian Stock Investors Pin Hopes on Coronavirus Treatment

Asian shares advanced for a second straight session on Monday, underpinned by coronavirus hopes after U.S. regulators authorized the use of blood plasma from recovered patients as a treatment option.

The announcement from the U.S. Food & Drug Administration of a so-called “emergency use authorization” came on the eve of the Republican National Convention, where Donald Trump will be nominated to lead his party for four more years.

Equity traders are pinning hopes on a report that the Trump administration is considering by-passing normal U.S. regulatory standards to fast-track an experimental coronavirus vaccine from the UK for use in America ahead of the presidential election.

Fed Chair Powell to Speak at Jackson Hole Symposium

Looming large over this week is a keenly anticipated address by Federal Reserve Chair Jerome Powell at the Kansas City Fed Jackson Hole symposium, where he will talk on the Fed’s monetary policy framework review.

Powell’s speech takes on more significance after the Fed disappointed investors last week. The Fed’s July meeting minutes last week barely made a mention of its policy outlook while failing to drop any hints of further accommodation by policymakers at their September 18 meeting.

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

Blame it on The Nasdaq

US data announced this week showed a significant recovery in building permits and housing, building permits (MoM) for July surged to 18.8% compared to the previous 3.5%, Housing Starts data revealed 22.6% which is 5.1% higher than the previous month, existing-home sales data were as well positive reported beyond expectations.

Despite the negative Jobless claims and Philadelphia Fed Manufacturing PMI reported on August 20, Manufacturing PMI and Services PMI demonstrated a significant improvement, which led major US Indices to surge whereas S&P500 and Nasdaq100 reached the all-time high.

US stocks continue hitting records, Tesla surged by 24.19% breaking the significant $2000 per share value, and is now worth more than $382 billion surpassing Walmart by nearly $10B. Nasdaq’s top company by market cap – Apple gained 8.23% hitting the $2127B in capitalization. Tesla and Apple remain the top popular shares last week based on Robinhood data.

S&P500 closed above the all-time high, some might think that there is a possible double top pattern, economic recovery of the US indicates that the index may continue the run towards $3500.

Nasdaq owes its gains not only to Tesla and Apple, but there are also other tech companies that surged last week and during the pandemic, such as NVIDIA, AMD, Qualcomm, Microchip Tech, Texas Instruments.

An hourly chart demonstrates that the correction is most likely will happen as the price touched the dynamic resistance and the fifth wave of an ending diagonal is about to complete at 11600. Ending diagonal is a trend reversal pattern, which usually demonstrates exhaustion of bulls, note the evening star doji, though the closing is above the previous close, it still shows uncertainty and exhaustion.

NDX chart by TradingView

How is it related to cryptocurrencies and Bitcoin?

Bitcoin and Ethereum price actions are considered as cryptocurrency market movers. Since Bitcoin is nowadays considered as the digital Gold and Ethereum as a digital Silver, their price action now is correlated to US data which effect Gold. Gold was ever since used as a safe-haven to hedge funds during the uncertain times and inflation, so is Bitcoin now.

An hourly chart of Bitcoin indicates that the price could decline further to towards $11200 – $11160 to complete the Head and Shoulders pattern, another pattern to watch is an ending diagonal which is yet to be completed as well. Bitcoin remains below the major resistance level of $11700 an in order to show another bull run it must break the dynamic resistance (ending diagonals upper edge) and close above the 11700, however testing 11200 might bring another stimulus for bulls.

BTCUSD price on Overbit

Ethereum plummeted to $380 after reaching the year’s maximum at $446.67, loosing 9.7% this week only. Digital Silver price is following a similar ending diagonal pattern, and if the upper dynamic resistance and a static resistance of 397 is not overpassed, ETH might continue the drop towards a major support at $380, and if that support is broken, towards $370 – 369.

ETHUSD price on Overbit

Unlike Bitcoin, Gold lost only 0.20% in price for the week. A significant drop was on Wednesday August 19 ahead of US data announcements, where the precious metal lost 3.67% after gaining 2.97% on Monday and Tuesday.

Head and shoulders pattern is identified on an hourly chart of Gold and the price might continue the drop down to $1881.60 – 1880, where if the support laid on those level withheld the price might retrace towards 2014 and if above towards 2046, where the bearish pattern will be completed.

Gold price on Overbit

Since Gold and Silver prices demonstrate similarities in their price action, the same Head and Shoulders is visible on an hourly chart of XAGUSD. The price is below the dynamic support of August 12 which might signal to a further decline down to $25.30.

Silver price on Overbit

The price continues the short-term downtrend move inside a descending channel, which in other had forms another controversial to the H&S pattern of Bullish Flag.

Silver price on Overbit

If bulls are able to push the price above the dynamic support and if the dynamic resistance is overtaken at $27, the bullish run might proceed towards $28 – 28.50.

Key takeaways for the upcoming week would be announcements from Eurozone, Great Britain, China and the US.

Important announcements to watch:

Tuesday, August 25, 2020

German GDP (YoY) as per Second quarter data is expected to be -11.7%, 9.8% lower than the previous -1.9%

German GDP (QoQ) as per Second quarter data is expected to be -10.1%, 7.9% lower than the previous -2.2

US CB Consumer Confidence (August) is expected to be 93, 0.4 points higher than the previous 92.6

US New Home Sales (July) is expected to be 786K, 10K higher than the previous 776K

Wednesday, August 26, 2020

US Core Durable Orders is expected to be 2.1%, 1.5% lower than the previous 3.6%

Thursday, August 27, 2020

US GDP (QoQ) as per 2nd Quarter is expected to be -32.6%, 0.3% higher than the previous -32.9%

US Initial Jobless Claims is expected to be 1,000K, 106K lower than the previous 1,106K

US Pending Home Sales (MoM) as per July is expected to be 4.5%, 12.1% points higher than the previous 16.6%

Asides from the data to be announced, there are other important events to trace.

Republican National Convention, which will be held on Monday, in which delegates will determine the nominees for the upcoming presidential elections. Markets will be watching this event closely as during the current campaign Democrats are having an edge over republicans.

Source: Yahoo Finance

Another major event would be an annual Jackson Hole conference this Thursday, August 27, where FED Chairman Jerome Powell will speak about current economic situation, inflation targets and possibly share preliminary focus on interest rate change.

The economic state and inflation in the US once again are an important constituent of the Global economy and global markets, all these events will be decisive for the mid-term price movements for the US Indices, commodities and cryptocurrencies.