Key Events This Week: OPEC+ Dispute Rolls Along

Monday, July 5

  • OPEC+ talks to resume?
  • Composite/services PMIs for China, Eurozone, UK
  • US markets closed

Tuesday, July 6

Wednesday, July 7

Thursday, July 8

Friday, July 9

Oil markets left in limbo

Recall that, on 1 July, OPEC+ had been due to announce its decision over output levels for August. The alliance of 23-nations is now embroiled in a spat over the duration of its existing production plans. This leaves global markets unsure over how much oil it will get next month and beyond.

According to media reports, Saudi Arabia and most of OPEC+ have an agreement until the end of 2022. The UAE however is reportedly holding out, only agreeing to a supply increase over the next few months but demanding better terms for next year.

To be clear, such delays and differences within OPEC+ are not new, and at least markets are cognizant that there are a few more weeks to settle this dispute. That’s why Brent prices appear unfazed by the heightened OPEC+ uncertainty during the Asian morning session.

If this impasse extends without a deal to gradually raise output (said to be anther 400k bpd next month), OPEC+ is bound to keep its output levels at current levels.

This means the world cannot get the oil it’s craving for, which could send oil prices skyrocketing even higher!

However, there is a bigger threat that could play out when the current deal ends in April 2022. If the OPEC+ alliance breaks down, that could threaten a repeat of the 2020 price war that saw every major oil-producing nation fending for itself and pumping at will.

Thanks to the global economic recovery, the world needs more oil now – that much is clear.

But consider this worst-case scenario: OPEC+ unravels at a time when more Iranian oil supplies come back to the market, pending a US-Iran nuclear deal, while the delta variant of the coronavirus reinforces lockdowns in major economies. If this trifecta of negative risks become reality, that could trigger another capitulation in oil prices, undoing much of the tremendous gains it has achieved (293.4%) since recovering from the depths of April 2020.

Need a recap on all things OPEC? Check out our ‘Markets Extra’ podcast:

(28 June 2021) OPEC Preview: Could a cautious cartel pave the way for $100 Brent?

(25 Feb 2021) What do OPEC+ and “Guardians of the Galaxy” have in common?

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: Brent Oil Awaits Opec+ Decision, NFP May Dictate Usd’s Next Move

Monday, June 28

  • Fed speak: New York Fed President John Williams
  • European Commission’s summer economic forecasts

Tuesday, June 29

  • Fed speak: Richmond Fed President Thomas Barkin
  • ECB President Christine Lagarde speech
  • Germany CPI
  • Eurozone economic confidence
  • US consumer confidence

Wednesday, June 30

Thursday, July 1

Friday, July 2

  • ECB President Christine Lagarde speech
  • Eurozone PPI
  • US nonfarm payrolls

Commodities spotlight: Brent oil

OPEC+ is set to make another key decision on 1 July: whether or not to pump out more oil in August.

Analysts surveyed by Bloomberg expect the cartel to raise their collective output levels by another 550,000 barrels per day (bpd) in August. However, even such a hike is expected to leave global markets in a deficit, which could translate into more upside for oil prices.

As things stand, Brent prices are trading at their highest levels since October 2018. However, judging by its relative strength index, which has crossed the 70 mark to indicate overbought levels, Brent appears ripe for an adjustment in the near-term. Such a pullback would then clear some of the froth to pave the way higher for Brent oil.

However, the uncertainty over the US-Iran nuclear talks still looms over Thursday’s meeting. A US-Iran nuclear deal could see Iran resuming oil exports and upsetting the cartel’s supply plans. It remains to be seen how OPEC+ continues restoring its supplies into the world while taking into account this wildcard.

Still, come Thursday, a smaller-than-expected output hike of fewer than 550,000 barrels per day in August could send Brent prices even higher and closer to the psychologically-important $80/bbl mark.

Strike three for US nonfarm payrolls?

The US nonfarm payrolls has disappointed markets for the past two straight months. As things stand, economists are forecasting 700,000 jobs were added in the US labour market this month. If so, that would the highest NFP print in three months, since the March figures.

In the leadup to that tier-1 economic release, this USD index, which is an equally-weighted index comprising 6 major currency pairs, has settled into a more “normal” conditions since pulling back from overbought levels.

However, another lackluster NFP print could give the Fed more runway before having to ease up on its asset purchases, which could prompt the greenback to unwind more of its recent gains and test its 100-day simple moving average (SMA) as the next support level.

Still, the greenback could be jolted by another US jobs shocker this Friday.

A June hiring surge in the US could ramp up expectations for the Fed’s tapering once more. Such a narrative could call upon this USD index’s 200-day SMA as a key resistance level once more.

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: Another Hawkish Surprise?

Monday, June 21

  • Fed speak: St. Louis Fed President James Bullard, Dallas Fed President Robert Kaplan, New York Fed President John Williams
  • ECB President Christine Lagarde speech

Tuesday, June 22

  • Fed Chair Jerome Powell testimony before US House subcommittee
  • Fed speak: San Francisco Fed President Mary Daly, Cleveland Fed President Loretta Mester
  • Eurozone consumer confidence

Wednesday, June 23

  • Fed speak: Fed Governor Michelle Bowman, Atlanta Fed President Raphael Bostic, Boston Fed President Eric Rosengren
  • Markit PMIs: US, UK, Eurozone

Thursday, June 24

  • BOE rate decision
  • Germany IFO business climate
  • US weekly jobless claims
  • Fed speak: Philadelphia Fed President Patrick Harker, Atlanta Fed President Raphael Bostic, St. Louis Fed President James Bullard, New York Fed President John Williams

Friday, June 25

  • Fed speak: Cleveland Fed President Loretta Mester, Boston Fed President Eric Rosengren
  • US personal income and spending, PCE inflation, consumer sentiment

The Fed’s switch in tact has send the buck soaring, as dollar bulls rejoice at the thought of a better-than-expected US economic recovery prompting the Fed into sooner-than-expected action.

However, from a technical perspective, the USD index is having a breather at the time of writing. This index is trying to pull back from overbought conditions, having broken above the upper bound of its Bollinger band while its 14-day relative strength index attempts to retrace back to the sub-70 region.

Note that this USD index is an equally weighted index comprising six major currency pairs, as opposed to the benchmark DXY which has different weightings for its 6 constituents (Euro being the largest at 57.6%, and the Swiss Franc accounting for just 3.6% of the DXY).

Still, should Fed officials tow a hawkish line over the coming days, in light of what had transpired at last week’s FOMC meeting, that could spell further gains for this USD index, potentially seeing it match its year-to-date high.

‘Markets Extra’ podcast: Fed discos to taper-town

BOE to follow Fed’s cues?

This change in approach by the Fed could prompt the Bank of England to follow suit, framing the BOE’s policy commentary in a new light. Note that UK inflation climbed above the central bank’s target for the first time in two years, with the CPI coming in at 2.1% year-on-year in May. This could hasten the BOE’s attempts to rein in surging consumer prices.

Overall, markets remain optimistic about the UK economic reopening considering its elevated vaccination rates. Still, the spread of the Delta variant remains as a source of concern, having pushed back the full reopening of the UK economy which was initially due to happen today.

It remains to be seen how the BOE will interpret such risks, and how it will impact Sterling.

GBPUSD has tumbled under the weight of the soaring greenback in recent sessions, having broken below its 100-day simple moving average (SMA), though finding support for the time being around the 1.38 mark which proved reliable in March as well as end-May. Stronger support may arrive at the 1.3670 region.

To be clear, the BOE is widely expected to leave its policy settings untouched this month, just as the Fed did. However, it’s the signaling of its future policy intentions that could rock markets once more.

Should the hawkish voices at the Bank of England also grow louder, emulating their peers from across the pond, that could allow GBPUSD to find a firmer footing above its 100-day SMA.

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Markets Awaiting Next Catalyst

Dollar direction

The dollar has a small bid this morning trading just above 90 in the DXY but within this week’s range so far with no clear move lower after the nonfarm payrolls second monthly miss in a row. It seems the jobs report was not strong enough to price in a change to Fed rhetoric which many of the dollar bulls were expecting, and not weak enough for markets to turn lower.

Some market watchers are asking if we have hit the goldilocks scenario with the economy neither too hot nor too cold, but just about right. For the greenback, the fall in yields brings little support, though yesterday’s follow-through selling has not been totally convincing.

Sterling uncertain

The UK is due to fully reopen on June 21 but there are now doubts about whether this will happen as speculation is growing that this date may be put back two weeks. Although major parts of the economy are up and running already, the psychological impact of a delayed move plus the possible uncertain date of the “new reopening” is giving GBP bulls cause for thought. The UK government is set to announce its decision next Monday, 14 June, so GBP may be choppy into this date.

Cable is stuck in its 1.41-1.42 range with the 1.42 test last week being strongly sold into. The more we trade sideways and compress within narrow bands, the stronger the resultant breakout will be when it comes. Resistance sits at the high from last Monday at around 1.4250 while a strong close below last week’s low at 1.4082 needed to encourage the sellers to come out in force.

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events this Week: US CPI to Inflate Expectations for Fed Tapering?

Markets appeared primarily to have latched on to the headline NFP figure of 559,000, which was below the forecasted figure of 675,000.

That jobs report alleviated some of the concerns that the Fed may have to move up its timeline for its eventual tapering of its asset purchases.

That slight respite in the ongoing inflation debate allowed the Nasdaq 100 to claim its biggest single-day gain in two weeks, while the Dollar unwound much of its pre-NFP gains.

Still, there were signs of underlying cost pressures from Friday’s jobs report.

The average hourly earnings of American workers climb by more than expected in May, while the unemployment rate also fell to 5.8% last month, compared to April’s 6.1%.

Although markets were able to ignore such inflation cues for now, focusing instead on the fact that some 7.6 million Americans remain out of work compared to pre-pandemic levels, it does not mean that the inflation debate has disappeared from market chatter.

In fact, this coming Thursday’s US consumer price index announcement could set tongues wagging once more, amidst all the other potential market-moving events lined up over the coming days:

Monday, June 7

  • Germany factory orders

Tuesday, June 8

  • Eurozone Q1 GDP (final)
  • Germany industrial production
  • Japan Q1 GDP (final), trade balance

Wednesday, June 9

  • Bank of Canada rate decision
  • EIA crude oil inventories
  • China CPI, PPI

Thursday, June 10

  • European Central Bank rate decision
  • US-Iran nuclear talks resume
  • OPEC’s monthly Oil Market Report
  • US inflation, initial jobless claims

Friday, June 11

  • G7 summit begins
  • UK industrial production
  • US consumer sentiment

Considering all the inflation markers due mid-week out of the world’s two largest economies (US and China), the ECB meeting is likely to fade into the background.

The European Central Bank is widely expected to leave its bond purchases program unchanged this month.

That sets up the euro to be more reactive to Dollar-events, with EUR/USD attempting to take advantage of the dollar’s disappointment following the NFP miss. The world’s most-traded currency pair is trying to reclaim the 1.22 mark, having recently found support at the 1.21 Fibonacci line.

Should the US May consumer price index register a lower month-on-month reading than the forecasted 0.4%, that could prompt investors into thinking that the Fed would be less inclined to adjust their support measures for financial markets. Such a narrative could lead to more weakness in the greenback, which in turn should translate into gains for the rest of the FX universe.

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Dollar Respite From Manufacturing Data

It seems the overheating economy is not easing up just yet, though many economists expect that may happen during the second half of this year.

Equity markets were generally higher but the US closed mixed with value stocks such as financials and industrials back as the leaders while tech and healthcare fell. Asian stocks, aside from Japan touched a three-month peak before profit-taking in recently strong Chinese markets pulled it lower. Momentum has clearly ebbed from stock markets as investors worry that a stronger-than-expected rebound means sooner-than-expected monetary policy tightening.

The spotlight has been shining once again on gains in retail-investor driven “meme stocks”. AMC Entertainment rose more than 20% and is up more than 1,400% for the year while the infamous Gamestop surged over 12%. Short sellers are suffering as the Reddit crowd redirect their focus on these heavily shorted companies and move away from cryptocurrencies.

Booming commodities help European markets

Base metals are on the march again as copper closes above $10,000 for a third straight day and iron ore futures rebound. The OPEC+ meeting also passed with a lower-than-expected supply increase and the market has less concern over future Iranian supply as demand gathers pace through the summer months. Oil has pushed to recent highs with commodities in general seen as a good hedge against inflation.

Big commodity companies are enjoying this resurgence in commodity prices, with European stock market posting new record highs. The eurozone’s factory activity also helped yeseterday, rising to 63.1 in May, the highest since the survey began in June 1997.

Virus and reopening key for GBP

GBP/USD climbed to its highest level since April 2018 yesterday morning following a broadly weaker dollar tone and comments from the Bank of England’s deputy Governor acknowledging the potential for more sustained inflation and increasing optimism about the economic recovery. But dollar buying and increasing concern that the grand reopening in the UK slated for June 21 could be delayed due to the Indian Covid variant saw GBP sink back below 1.4150.

PM Johnson is due to give a press briefing later today so the threatened sterling breakout is on ice. Support rests at the bottom of the recent range around 1.41 while the bulls await a sustained push above 1.42 to continue the 15-month bullish trend.

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Data in the Driving Seat

The dollar sold off yesterday and is moving lower again this morning as US equity futures are in the green, while Asian stocks are generally better bid.

Asian manufacturing figures out earlier today largely decelerated but remain above the key 50 threshold. The China Caixin PMI increased slightly to 52.0 in May, but firms continue to struggle with increasing raw material costs with the input costs index in China reaching the highest level since 2016.

Euro inflation rising

The eurozone CPI figures have just been released, with the May flash estimate registering a slightly better-than-expected 2% year-on-year growth for the first time since November 2018. Much of the increase is still driven by energy base effects, though core inflation came in at 0.9% year-on-year, right in line with market expectations. While the European Central Bank has oft repeated that it’s still premature to consider easing up its support measures, that stance may have to be massaged should consumer prices continue hitting or even exceeding the central bank’s medium-term target.

With next week’s ECB meeting looming, EURUSD has struggled to firm above 1.22 convincingly, with two attempts last week failing to hold. However, Friday’s price action was more constructive with lower prices being snapped up by buyers and printing a bullish hammer candlestick. The ISM manufacturing report out of the US is also released later, which is set to rise a bit from an already high level.

RBA opts not to rock the boat

Meanwhile overnight the RBA did very little and pointed to their July meeting as the next point where they reassess their quantitative easing (QE) and yield curve control (YCC) stimulus programmes. They did use slightly more positive labour market language by saying that progress in reducing unemployment has been faster than expected. On the flip side, they mentioned the ongoing uncertainty of further virus outbreaks though the hope here is that vaccinations will overcome this concern in time.

AUD/USD initially popped higher above 0.7760 but has since given back these gains.

Oil breaking higher

The US Memorial holiday traditionally starts the summer driving season stateside, which obviously has big implications for demand. But all eyes are on the OPEC+ meeting today with the possibility of hiking oil output again as the global recovery is widely expected to gather more pace in the coming months and stockpiles to be drawn down.

Any signs that the group hold output steady for now would likely provide more support to oil and oil-sensitive currencies like the CAD.

The year-to-date March high for Brent at $71.03 is firmly in view and then the spike high in April 2019 at $74.70, if bulls can hold prices up here and we get helpful news from the cartel.

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: Us Jobs Report Offers Next Marker in Inflation Debate

At the time of writing, US futures are holding steady even as US and UK markets will be closed on Monday.

What is an index and why it matters? A chat with Nasdaq

sp500mdaily_232

Wall Street’s so-called “fear gauge”, the VIX index, ended the trading week below the psychological 16 level. Another week of calm could send it to a new year-to-date low, below the 15.38 level set on 14 April.

Much could depend on how markets react to scheduled events this week:

Monday, May 31

  • US, UK markets closed
  • Japan industrial production, retail sales, consumer confidence
  • OECD economic outlook

Tuesday, June 1

  • Manufacturing PMI: China, Eurozone, UK, US
  • RBA policy decision
  • BOE Governor Andrew Bailey speech
  • Fed speak: Fed Governor Lael Brainard
  • OPEC+ meeting

Wednesday, June 2

Fed speak:

  • Philadelphia Fed President Patrick Harker
  • Chicago Fed President Charles Evans
  • Atlanta Fed President Raphael Bostic
  • Dallas Fed President Robert Kaplan

Thursday, June 3

  • Services/composite PMIs: China, Eurozone, UK, US
  • US initial jobless claims
  • Fed speak: Fed Vice Chair for Supervision Randal Quarles, Philadelphia Fed President Patrick Harker

Friday, June 4

  • Panel discussion with central bank heads: Fed Chair Jerome Powell, ECB President Christine Lagarde, PBOC Governor Yi Gang
  • Eurozone retail sales
  • US nonfarm payrolls

US jobs report key for Dollar direction (DXY)

The US nonfarm payrolls print is scheduled for the first Friday of every month. The figures due on 4 June carries greater weight, following the shockingly-low figures posted on the first Friday of May.

Markets would interpret another lower-than-expected jobs tally to mean that the Fed might be more willing to maintain its support measures until the job market is on a more solid footing. Hence, another lackluster jobs report could see the dollar index (DXY) relinquish the 90 handle once more.

However, a non-farm payrolls report that exceeds market expectations would be taken as a sign that the tightening labour market could further boost inflationary pressures.

Recall that this past Friday, the April US core PCE inflation’s 3.1% surpassed the market-expected 2.9%. That was the highest year-on-year print since 1992, albeit with the low base effects in play.

A bumper NFP this Friday could spur another selloff in US Treasuries, sending its yields surging, which in turn would offer tailwinds for the dollar.

Commodity spotlight – Oil (Brent)

OPEC+ is slated to decide on Tuesday whether to further loosen the oil taps over the coming months. At a time when markets are already bracing for more oil shipments out of Iran pending their nuclear talks with the US, more incoming global supplies would dampen oil prices further.

Over on the demand-side, watch the global PMI readings and the latest OECD economic outlook for the latest signs of a demand recovery. China’s manufacturing PMI released this morning shows that the sector is still firmly in expansionary territory in May, having posted a reading above 50 every month since February 2020.

Should markets grow confident that global demand can absorb the incoming supplies, this might help Brent oil claim a stronger hold on the $70/bbl handle.

Written on 31/05/21 06:00 GMT by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Gold hits $1900. What’s next?

A sinking dollar, real yields in deeply negative territory and Fed officials singing from the same sheet are all creating an attractive environment for gold bugs.

Fed’s chorus of patience

The latest surge in the yellow metal comes in response to the series of Fed speakers this week who have been talking down the prospect of an extended period of inflation which means the central bank can be patient in adjusting its super accommodative policy. Governor Brainard kicked off the continued dovish take on rising prices by saying that she still did not see longer term inflation expectations rising substantially and the Fed had tools to affect those if they did.

Similarly, Atlanta Fed President Bostic stated that higher price levels do not seem to be “enduring”. More recently, vice chair Clarida continued the coordinated inflation pushback though he did mention that the tapering of asset purchases may happen “in upcoming meetings”.

Of course, gold trades on the interplay between inflation and interest rates and yields have been subdued at best lately, with rates effectively staying lower for longer at present. We’ve also seen a drop in inflation protected US 10-year government bonds this week further boosting gold and fueling the strong break to the upside.

A softer dollar helps the bugs

While Fed officials push back on inflation concerns, so the dollar, which is a key driver for gold. The buck has suffered as low yields and the steady global recovery make non-dollar investments attractive for investors seeking to diversify away from the greenback for better returns. The widely watched dollar index is now approaching the year-to-date lows seen in early January, as Wall Street analysts breathe a sigh of relief that their 2021 predictions of a weaker dollar start to become a reality.

Positive on the year

If the psychological $1900 level is taken out, bulls will aim for the major retracement level (61.8%) of the August to March correction at $1922.70 ahead of this year’s high around $1959. Support sits at the 50% retracement level at $1875.72 with the 200-day moving average below here just above $1840.

The downward trendline from the August highs is key with bulls keen to consolidate above here in order to push for more upside. The daily RSI is overbought and approaching 80 so some consolidation should be expected in the near term, especially if the dollar finds some buyers.

Written on 27/05/2021 07:00 GMT by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM

Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.

Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 81% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Trade Of The Week: Amazon To Announce MGM Purchase?

According to Bloomberg, Amazon could announce a deal to snap up the Metro-Goldwyn-Mayer movie studio (the one with the roaring lion as its mascot) by today. The deal could be worth nearly US$9 billion for the stable of content belonging to the film studio, which includes popular franchises such as James Bond, Robocop, and Rocky.

Media reports on this potential takeover have lifted Amazon’s stock prices, having gained in three of the past 4 sessions. Yet, looking at the longer-term trend, the stock is in need of a bigger catalyst to break out of its sideways trend and prompt its 50-day simple moving average (SMA) to have greater liftoff above its 200-day counterpart.

Amazon’s stocks have found its presence above $3500 to be fleeting. Since posting its highest-ever closing price on September 2nd, 2020, the stock is now lower by 8.11%. In contrast, the S&P 500 has gained over 17% since, while the Nasdaq 100 has added almost 10% during that same period (2 Sept 2020 – today).

Sign of the times: teenager takes over near-centenarian

For context, the purported $9 billion price tag is just about 12% of the $73.27 billion in cash and equivalents that Amazon had as of end-March. In return, its 15-year-old streaming platform gets to add another 4,000 films and 17,000 episodes of TV shows belonging to the 97-year-old film studio.

Having struggled to notch a mainstream hit, the acquisition could also grant Amazon access to the loyal followings of Mr. Bond and Mr. Balboa, not to mention also fans of Dr. Hannibal Lecter of Silence of the Lambs.

Note that Amazon’s subscription services accounted for 7% of its total revenue in Q1 2021, a share that has remained relatively stable over the past couple of years. This relatively small piece of the overall pie whoever is important to expand its subscriber tally and keep their eyeballs glued to Amazon’s platforms.

This deal also harbours the potential for revenue-generating spinoffs, promising a broader reach for Amazon’s Prime Video, a perk for Prime’s subscribers which already number at some 200 million.

Streaming wars heat up

If this deal happens, it would only underscore Amazon’s ambitions to be a major contender against streaming giants such as Netflix and Disney+. And Amazon hasn’t been afraid to spend so it can beef up.

In 2020 alone, Amazon spent $11 billion on content for its video streaming and music services. The company has also secured exclusive rights to NFL games on Thursday nights, stretching over the course of a decade beginning with the 2023 season, which would cost about one billion dollars per year. And don’t forget that Amazon has a multi-season series of “The Lord of the Rings” in the pipeline as well (think being able to impulsively buy LOTR merch while binge-watching this LOTR series).

Still, markets would be well aware that the streaming wars are far from over.

Recall that just last week, AT&T announced that it would spin off its media operations in order to combine it with Discovery and form a new media company which would be home to the likes of CNN, HBO, Cartoon Network, the Food Network, and the Animal Planet. That would create a formidable $130 billion player in the streaming wars.

According to Bloomberg data, there have been about $80 billion worth of media takeover deals announced year-to-date. That promises heightened competition for streaming platforms.

How might Amazon’s stock prices react?

It remains to be seen whether the official announcement of the deal will actually take place. Even then, it is unlikely to significantly reduce the 8% gap between current prices and the record high.

Note that even Amazon’s blowout Q1 results announced on 30 April didn’t lead to sustained gains; Amazon is down 6.4% on a month-to-date basis. To be fair, for the same month-to-date period, Disney is also down by more than 6%, while Netflix is faring relatively better having shed 2.06%.

For the longer-term, there apparently is still plenty of love for Amazon; the stock makes up more than 5% of the portfolios of over 70 hedge funds.

However, for the immediate term, it’ll likely require a lot more than just this MGM takeover for Amazon’s stocks to post a new record high.

Open your FXTM account today


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: Can US Stocks Halt Weekly Losing Streak?

Despite crypto’s continued wild sings through the weekend, US equity futures are attempting to gain liftoff during the Asian morning session on Monday, as stocks attempt to halt two consecutive weeks of declines:

Here are the key scheduled events that could influence market sentiment this week:

Monday, May 24

  • Fed speak: Cleveland Fed President Loretta Mester, Kansas City Fed President Esther George, Atlanta Fed President Raphael Bostic, Fed Governor Lael Brainard

Tuesday, May 25

  • Germany Q1 GDP (final print)
  • US new home sales, consumer confidence

Wednesday, May 26

  • RBNZ decision
  • Wall Street bank CEOs testify in Senate
  • Fed Vice Chair Randal Quarles speech

Thursday, May 27

  • Wall Street bank CEOs testify before House committee
  • China industrial profits
  • Germany consumer confidence
  • US initial jobless claims, Q1 GDP (second print)

Friday, May 28

  • Eurozone economic confidence, consumer confidence
  • US personal income/spending, consumer sentiment

Dollar plagued by inflation fears (DXY)

The dollar index is hanging on to the psychologically important 90 handle at the time of writing. However, the downward trend since end-March looks firmly intact, with DXY poised to test the year-to-date low.

The inflation outlook is likely to remain the dominant theme in global financial markets, as investors try and gain more clues from the scheduled Fed speak and US economic data releases due in the final trading week of May.

More signs of consumer prices making a roaring comeback, with a tolerate Fed remaining off in the sidelines, could prompt more dollar weakness in the week ahead.

Commodities to have larger say on kiwi than central bank (NZDUSD)

The Reserve Bank of New Zealand is unlikely to adjust its official cash rate mid-week, although it could provide upward revisions to its economic forecasts. While a more bullish economic outlook could help push the New Zealand dollar higher, it has to shake off its correlation with commodity prices which are still coming off their peaks.

Despite having weakened against all of its G10 peers except for the Norwegian Krone last week, NZDUSD remains within the 0.71-0.73 range that it adhered to for much of the first quarter of 2021 as well. NZD bulls will be hoping for commodity prices to stabilize in order to offer support for the kiwi, which has been relying on its 50-day simple moving average to buttress prices over the past month.

Consider also the FXTM New Zealand Dollar index, which is an equally-weighted index comprising:

  • NZDUSD
  • NZDCHF
  • EURNZD
  • GBPNZD
  • AUDNZD
  • NZDCAD

This index is on an obvious downward trajectory, and should this momentum persist, that could result in a new year-to-date low.

Commodity spotlight – Oil (Brent)

Brent oil registered its biggest weekly decline since March.

Oil bulls are hoping that the optimism surrounding the global demand recovery will be enough to offset concerns surrounding more incoming Iranian supply, should the US-Iran nuclear deal be restored.

From a technical perspective, its 50-day simple moving average (SMA) appears to be holding as a key support level once more. The week ahead could prove telling whether the 50-SMA can continue guiding Brent higher like it has in the past two months, despite the declines in the broader commodities complex.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Stocks Bounce, Dollar Fades

Growth and cyclicals led the way with Tech especially buoyant and the Nasdaq now posts small gains for the week with the index trading above its 100-day SMA. Sentiment and volatility appear to have stabilised although the VIX remains above 20 and gold is still holding its recent gains.

On the flip side, the dollar sunk back to its lowest levels since February with US bond yields are also fading back to near the lows for the week. The market now believes there will be little action from the Fed over the next few months, with the potential for more taper talk only later this year, perhaps at the Jackson Hole symposium in late August.  This means deeply negative real rates will linger and with it the dollar may struggle to retrace meaningfully in this environment.

Bouncing retail sales end a good week of UK data

Allied to the strong employment and inflation figures out earlier in the week, the UK enjoyed another set of robust retail sales data. The headline came in at +9.2% versus the expected 4.5% m/m although there were lower revisions to the previous reading. The reopening of non-essential stores saw consumers flock back to physical stores and this rising consumer confidence should remain solid over the summer. The recovery in the UK is taking shape and this may add pressure to the Bank of England to begin tapering, although the Indian variant of Covid-19 is grabbing the headlines.

EUR/GBP – tale of the vaccines

EUR/GBP is at an interesting juncture, trading around its 50-day SMA at 0.86. After the big move higher at the start of April, prices have been stuck in a 100- point range, give or take, as the vaccine rollouts in both regions has taken on several twists and turns, but mainly positively for Europe. Bears are desperate to reassert their authority so need to see 0.8560 broken to head for the recent lows below 0.85, while the euro supporters will be cheered by the just released PMI data which beat forecasts as the region continues to reopen from restrictions.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Wow! The Risk Rollercoaster Calms Down …

Stock markets went full circle, selling off aggressively as the sharp moves lower in the crypto space took the breath away. But the dip buyers were out in force and with the strong bounce back in cryptos, so risk assets went bid too with US equities posting minimal losses into the close.

US stock futures are modestly lower with the Vix, Wall street’s fear gauge, moving above 23.

Fed timeline

Meanwhile, during all that excitement, the dollar climbed off the floor thanks to the headlines in the FOMC minutes, which mentioned that there was some taper talk among participants. Bond yields moved higher but importantly, the 5-year part of the curve, which is most Fed-sensitive, has retraced most of its move this morning while emerging market FX sold off less than 1% in the aftermath of the minutes release.

The reality is that the Fed will want to see a number of strong jobs reports before any more forewarning about tapering and even then, it is expected to take three quarters to slow its bond buying. Add to that probably the same time frame again before a first rate hike and we are into the first half of 2023 – which is when the market is actually pricing it in.

The greenback found support again at the February lows which corresponds to the early May highs in EUR/USD. Buyers have stepped in today and will again aim for 1.22446 if bullish momentum picks up. The trendline from the end of March low is acting as good support so far this month with the 100-day SMA just above 1.20.

Crypto deleveraging

Intense selling in Bitcoin saw it down over 30% intraday at one point and touching $30,000, before rebounding quite unbelievably back towards $40,000. Other digital coins like Ethereum also got hit, losing a quarter of its value before easing back to losses over 20 per cent. More than $8.6 billion of positions have been liquidated in the last 24 hours.

The worry for crypto fans is that the China clampdown is the start of a wider one by western regulators too. The worry for institutional fund managers is that these assets involve extended leverage so in prolonged periods of volatility, we could get a broader scale of position adjustment in other markets.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Risk On The Defensive

Bitcoin has caught the headlines this morning after falling below $40,000. Two weeks ago, the world’s most popular cryptocurrency was trading close to $60,000 but Elon Musk’s “did he or didn’t” (sell Tesla’s holding) tweet plus a China ban on financial services offering crypto services has hurt the crypto. Prices have just bounced off the widely watched 200-day SMA.

Focus on FOMC Minutes

This current cautious environment is generally good for the dollar which has halted the run of four days of losses so far today. The downtrend from the end of March peak is strong though, with the FOMC minutes released later today not expected to upset markets a great deal. The focus is on interpreting the Fed members’ thinking on the upbeat economic picture and the current assessment of “transitory” inflation drivers. Notably, this April meeting saw Chair Powell state in the press conference that “now is not the time to talk tapering” so the dollar may have a tough time looking for many positives in the minutes.

It’s those “base effects” again…

UK inflation data jumped this morning with the headline more than doubling to 1.5% from 0.7%. For sure, energy prices were helped by the regulator lifting the household cap, but the increase was well known, like in every country’s CPI figures. Going forward, energy prices and reopenings are expected to push inflation higher in the coming months. Wage pressures will also be important as the jobs market comes to terms with the ending of the furlough scheme in September.

GBP/USD had enjoyed three days of gains, propelling it to levels not seen since February. Bulls would like to hold onto last week’s highs around 1.4160 but the bounce from the more important 1.40 support mark should stay the course.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

6 Reasons Behind Gold’s Recent Climb

From a technical perspective however, a near-term pullback may be healthy and necessary in order to clear the path for further gains. After all, its 14-day relative strength index has been flirting with the 70 mark, which typically denotes overbought conditions.

That isn’t to take anything away from spot gold’s start to the trading week – one that gold bulls will be savouring.

Bullion has punched decisively above its 200-day simple moving average, having built on a series of higher highs since forming a double bottom in March, even threatening to fall into a bear market (20% drop from its record high). It dipped below the $1680 line on a couple of occasions in March, only to go on and advance by more than 9% since.

“Perhaps most importantly, gold prices this week have broken out of the downtrend it has adhered to since posting its record high back in August 2020.”

Why are gold prices climbing?

1) Investors’ desire to hedge against inflation
The precious metal is traditionally seen as a way to preserve one’s wealth during times when the prices of goods and services climb higher, eroding consumers’ purchasing power along the way. With markets having grown more concerned about the prospects of faster US inflation, it has helped boost gold prices.

2) The weaker dollar
Gold tends to have an inverse relationship with the US dollar. In other words, as the buck goes up, gold goes down, and vice versa. With that in mind, the greenback has been declining for a third consecutive day, with the dollar index (DXY) falling by about one percent since last Thursday.

3) Stabilizing US Treasury yields
Recall throughout the first quarter, Treasury yields spiked higher which roiled various asset classes, including the zero-yielding yellow metal. However, of late, 10-year Treasury yields haven’t strayed too far away from the psychologically-important 1.60% line over the past month, while real rates on the same tenor are falling back deeper into negative territory. All that has created a more conducive environment for gold to explore more of its upside.

4) Volatility in cryptocurrencies
In recent months, markets had been questioning gold’s suitability as an inflation hedge, with some segments of the market apparently preferring alternative assets. However, given the volatility seen in the likes of Bitcoin of late, it appears that investors are flocking back towards an asset that has stood the test of time.

5) ETF inflows
The flow of funds in and out of gold ETFs have had a major say on spot prices. According to Bloomberg data, these bullion-backed ETFs have been adding on troy ounces of gold for a 7th straight day, which is the longest streak of additions since 6 January. Although on a year-to-date basis these ETFs have net sold about 6.63 million ounces of the precious metal, recent purchases suggest that investors are coming round after a tumultuous Q1.

6) A dovish Fed
Policymakers at the world’s most influential central bank, the Federal Reserve, have repeatedly assured markets that the inflation surges are likely to be temporary. Hence, the Fed is in no rush to pull back its support for the financial markets, nor bring forward any US interest rate hike. Although markets took some time to buy into that messaging, the repeated assurances by Fed officials have enabled gold prices to climb higher.

What else could move gold prices this week?

  • The minutes from the latest FOMC meeting, to be released on Wednesday, could offer more clues about the Fed’s inflation outlook. More signs that the Fed is willing to tolerate an inflation overshoot could spur on gold bulls.
  • Thursday’s weekly US jobless claims could be key as well. Another better-than-expected reading on the labour market could prompt investors to raise their expectations for faster US inflation, adding to gold’s gains in the process.
  • The rest of the week is also set to feature more speeches and appearances by Fed officials. Any hint about the Fed’s outlook on the US economy and consumer prices, and the eventual policy response by these central bankers, could also move gold prices and the dollar.

Could we see $2000 gold?

Markets are currently pricing in just an 8.4% chance that spot gold would breach the $2000 mark by the end of this quarter.

While there appears to be plenty of tailwinds in play at the moment, gold prices still have another 7% to make up for before reaching that psychologically-important mark.

“Gold bulls would need a significant ramp up in any of the 6 reasons listed above in order to close that gap and achieve the $2000 handle once more.”

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: Reopening Optimism vs. Inflation Fears

Despite the buy-the-dip action in the latter half of last week, benchmark US stock indices remain off their respective record highs:

  • Dow Jones = 1.14% lower since 7 May
  • S&P 500 = 1.39% lower since 7 May
  • Nasdaq 100 = 4.62% lower since 16 April

“Investors are still having to digest the prospects of the global economic recovery.”

China continues to take significant strides into the post-pandemic era, registering year- on-year gains in April for industrial production (9.8%) and retail sales (17.7%), while the unemployment rate moderated further to a better-than-expected 5.1%.

Across the Pacific, investors witnessed a lower-than-expected print for April retail sales data, suggesting that the easiest parts of the US economic recovery are over. The world’s largest economy may have to slog the rest of its way into the post-pandemic era. April’s major US economic prints, from nonfarm payrolls to inflation figures, bamboozled many economists.

“This suggests a bumpy ride ahead for risk assets, as markets remain sensitive to the shifting narrative surrounding the global economic recovery, and the outlook for central bank policy adjustments.”

Here’s what could influence market sentiment this week:

Monday, May 17

  • Fed speak: Fed Vice Chair Richard Clarida, Atlanta Fed President Raphael Bostic

Tuesday, May 18

  • Fed speak: Dallas Fed President Robert Kaplan, Atlanta Fed President Raphael
  • Bostic
  • Eurozone GDP

Wednesday, May 19

  • FOMC minutes
  • Fed speak: St. Louis Fed President James Bullard, Atlanta Fed President Raphael
  • Bostic
  • US President Joe Biden speech
  • CPI: Eurozone, UK

Thursday, May 20

  • China loan prime rate
  • ECB President Christine Lagarde speech
  • US weekly jobless claims

Friday, May 21

  • Fed speak: Atlanta Fed President Raphael Bostic, Dallas Fed President Robert
  • Kaplan, Richmond Fed President Thomas Barkin
  • PMIs for US, Eurozone, UK
  • UK retail sales

The reopening battle (GBPUSD)

Today, the UK will embark on step three of its 4-step “roadmap out of lockdown”, removing more of its social distancing measures. Across the pond, New York City, New Jersey and Connecticut will also resume more economic activities over the coming week.

“It remains to see which is the stronger force: the optimism surrounding the UK economic recovery which has boosted the pound, or the US inflation fears that have helped the dollar regain ground.”

That could determine whether GBPUSD can keep its head above the psychologically-important 1.40 level in the coming days.

Break it up you two (EURUSD)

While many of us remain socially-distanced, the 50-day and 200-day simple moving averages for EURUSD were hugging each other all of last week, only for the 50-SMA to start pulling away above its 200-day counterpart.

“Such a technical event could herald more gains for the world’s most traded currency pair.”

Stronger-than-expected economic data out of the Eurozone this week could serve as the fundamental catalysts for more euro gains, as long as the dollar behaves and Treasury yields don’t go on another surge.

Commodity spotlight – Gold

Gold is currently testing its 200-day simple moving average as a resistance level, creating a larger gap above the psychologically-important $1800 mark. However, with its 14-day relative strength index flirting with overbought levels once more, a near-term pullback could be in order.

The latest FOMC minutes to be released this week, along with the scheduled Fed speak, could offer more clues about policymakers’ views on the US inflation outlook.

Further gains for the greenback on rising inflation fears could drag bullion back to sub-$1800 levels again.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

A Sea Of Red

Prospects of sustained higher inflation can depress stock prices by lowering the real returns from dividends as interest rates are raised. Gold and oil are being sold too while Bitcoin is trading below $50,000 after it was down nearly 10% overnight after Elon Musk revealed Tesla would no longer be accepting the cryptocurrency as payment for its vehicles.

Rising rates means bond yields go up and the 10-year US Treasury is holding its gains from yesterday trading around 1.70%. This is currently also supporting the dollar with the DXY approaching 91 and the 100-day moving average just above here, which will act as solid resistance.

Buy the dip?

Stock market bulls have been euphoric in recent weeks with record high prints in many of the main global market indices made as recently as last week. But there has been a lot of internal rotation going on with the Dow and its breadth of industrial and financial stocks holding up better than the tech-laden Nasdaq. Ultimately, those stocks pegged to the economic cycle and reopening have now priced in much of the recovery, so valuations have certainly become “frothy”.

The bullish trendline from the November low in the Dow comes in around 33,175 and along with the 50-day moving average just above, should offer good support. There is still an abundant amount of liquidity in stock markets generally and any imminent tightening from the Fed seems unlikely.

USD/JPY perks up

USD/JPY is closely tied with the yield on the US 10-year Treasury bond and has touched mid-April levels today near to 110. If surging prices continue to push those yields up towards the March highs at 1.77%, then markets will see 110 and the cycle high at 110.955 in due course. The 50-day moving average offers first support to the bulls around 109 which is where the 23.6% Fib level of this year’s low to high move resides.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Inflation Angst Roils Markets

On Wednesday, the Dow fell 1.99% to register its largest single-day loss since January, wiping out all of its month-to-date gains, while the S&P 500 and the Nasdaq dropped by more than two percent respectively.

The MSCI Asia Pacific index followed suit on Thursday morning by erasing all of its year-to-date gains.

Markets spooked by higher-than-expected CPI

Wednesday’s US inflation data release shoulders much of the blame for extending this week’s selloff. The headline consumer price index increased by 0.8% compared to the month prior, which was its highest print since 2009. Meanwhile, the core CPI, which strips out food and energy, saw its highest reading since 1982 with a 0.9% rise month-on-month.

Global investors have been caught in the whirlwind of US economic data – from last Friday’s utterly disappointing nonfarm payrolls, to Wednesday’s higher-than-expected inflation prints – which have resulted in a volatility spike. Yesterday, the VIX index soared past its 200-day moving average to reach its highest levels since March.

Inflation reaction differs between markets and Fed … for now

The latest inflation prints are stoking market fears that runaway prices may crimp the ongoing economic recovery, while potentially forcing the Fed’s hand to intervene by reining back its support measures.

US stocks and Treasuries have tumbled under the weight of uncertainty over the inflation outlook and its implications on the Fed’s policy timelines. 10-year Treasury yields made another run for the psychologically-important 1.70% mark, which in turn lifted the US dollar along the way, while the breakeven rates on the same tenor have reached a new 8-year high.

Shortly after the April CPI figures were released, Federal Reserve Vice Chairman Richard Clarida sought to repeat the central bank’s view that such readings on inflation are set to be “transitory” and that policymakers remain some ways from paring down its asset purchases. It’s a message that markets clearly have a tough time swallowing, as they continue to question policymakers’ will to sit on their hands and ride this out.

More volatility ahead?

These concerns could be further stoked by the incoming US economic data releases, including today’s weekly jobless claims and PPI figures, as well as Friday’s announcements on retail sales, industrial production, consumer sentiment and inflation expectations.

Still, considering the extent of the reaction thus far, market moves may be relatively muted over the coming days. At the time of writing, the futures contracts for the Dow, S&P 500 and Nasdaq 100 are all in the green, as US equities try to nurse their wounds after the recent bruising selloff.

What is clearer is that the US inflation outlook remains the major theme in play for global markets, with investors ever willing to adjust their expectations, and subsequently their asset allocations, according to the shifting nuances in this ongoing debate.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Can GBP Hold On To Recent Gains?

However, even though momentum still points northwards, Sterling’s gains may have arrived too much too soon. After flirting with overbought territory earlier this week, with its 14-day relative strength index about to hit the 70 level, the currency pair is now easing slightly. Going by that technical indicator, this currency pair is perhaps biding its time before emulating the 1.42 level.

Looking on either side of the English Channel, EURGBP also appears stretched, with the currency pair closing below the lower bound of its Bollinger band over the past two days. As we have already witnessed on multiple occasions in recent months, a close below the lower bound is typically followed by a rebound for EURGBP. Should that happen once more, the currency pair could well test the 0.872 resistance level which has frustrated Euro bulls throughout April.

Keep in mind that the Bank of England announced last week that it will pare back its bond purchases by a billion pounds to 3.4 billion pounds per week (though not amounting to “tapering”, as per the central bank’s assertions). Recall also that the BoE sounded particularly upbeat after its policy meeting, upgrading its 2021 growth forecast to 7.25% GDP, with officials expecting UK consumers to spend twice as much of their pent-up savings.

All that had served as a tailwind for GBP, helping it advance against all of its G10 peers so far this month.

The Pound is also the best-performing G10 currency against the US dollar on a month-to-date basis.

Potential Pound catalysts today

From a fundamental perspective, the Pound is about face several key events that could influence its performance over the near-term:

  • Q1 GDP
  • March industrial production and trade deficit
  • BOE Governor Andrew Bailey speechMarkets are expecting a preliminary Q1 GDP contraction of 6.1% compared to the same period in 2020, while industrial production is forecast to have grown 2.9% year-on-year. Better-than-expected prints could help Sterling restore more of its gains from earlier this week, as markets price in the rosier outlook. However, a wider-than-expected trade deficit could fuel concerns over Britain’s funding gap, which some reckon could sour sentiment surrounding Sterling and prompt fund outflows from UK assets.

“It remains to be seen whether BoE Governor Bailey would offer any fresh clues about the central bank’s policy outlook, following his comments already made last week.”

Bigger event lies across the pond

Still, arguably the most important piece of economic data for global markets today is the US consumer price index for April. Markets are likely to pay less attention to the year-on-year figure, which is forecasted to post a 3.6% year-on-year increase, and instead focus more on the month-on-month comparisons (0.2% for headline CPI; 0.3% for core CPI).

Already it’s the angst surrounding the US inflation outlook that has roiled the markets. The Dow fell 1.36% on Tuesday to post its worst day since late February. US tech stocks have been whipsawed, commodities have surged to fresh record levels, and Treasury breakevens have advanced to multi-year highs.

“As the debate rages on and the US inflation outlook dominates market chatter, broad asset classes might just have to endure more volatility over the immediate term.”

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

US indexes fall as Big Tech tumbles

However, it only lasted a few hours, before the index ended 0.1% lower. From a technical perspective, it was ripe for a pullback, given that its 14-day relative strength index had breached the 70 mark which signals overbought levels.

Monday’s drop was far more noticeable in US tech stocks, with benchmark indexes dragged lower by tech megacaps:

  • Microsoft: -2.09%
  • Alphabet: -2.56%
  • Apple: -2.58%
  • Amazon: -3.07%
  • Facebook: -4.11%
  • Tesla: -6.44%

Note that these six stocks listed above account for nearly a quarter (23.3%) of the S&P 500’s total market cap, while accounting for more than half (56%) of the Nasdaq 100. In other words, the performances of these individual stocks, due to their sheer size, has a major impact on how the broader index performs.

Given the higher concentration of tech stocks on the Nasdaq 100, it was yesterday’s biggest loser of the three main benchmark US indexes. The Nasdaq 100 fell by 2.63% to post its biggest single-day loss since 18 March 2021.

The futures contract for the Nasdaq 100 has now broken below its 100-day simple moving average (SMA). Tech aficionados would point to the fact that, since the market rout in March 2020, this index’s foray below its 100-day SMA has been fleeting. After that single day loss of 3.13% on 18 March 2021, the Nasdaq 100 went on to advance by almost 10% and post a new record high a month later (16 April).

Some traders are raising their bearish bets on the Nasdaq 100, while pulling funds out of the sector. In short, tech stocks appear likelier to experience larger bouts of volatility compared to other sectors.

“Over the immediate term, with momentum now pointing firmly south, there’s likely to be more near-term declines for the Nasdaq 100 before the dust settles.”

Why are tech stocks falling hard?

This is likely due to two major concerns:

  1. Investors now deem the valuations of tech stocks to be overextended and are finding fewer catalysts that can spur these stocks higher.
    The Nasdaq 100 currently has a PE ratio of 35.63. That’s in contrast to the S&P 500’s PE ratio of 30, and the sub-27 ratio for the Dow. The higher the PE ratio, the more “expensive” the stock is deemed to be.
    Hence, with concerns that these valuations are no longer justifiable, in light of the anticipated reopening of the US economy, many investors have instead engaged in the “reflation trade” at the expense of tech stocks which had a remarkable 2020.
  2. Markets are also growing more concerned about the threat of faster US inflation.
    This is evident in the breakeven rates for 10-year US Treasuries, which hit a fresh 8-year peak on Monday before moderating slightly since.
    Despite the sluggish April US nonfarm payrolls figures released this past Friday, some investors are holding fast to the notion that the trillions of dollars in stimulus spent by the government and the central bank is bound to show up in the inflation data. Such an inflation overshoot might force the Fed to pull back its support for financial markets sooner rather than later. And when policymakers start signalling for sure that they’re ready to pare back their bond purchases, there is likely to be an almighty reaction in US stocks, especially sectors that are showing signs of too much froth like tech.

The jury is still out about the US inflation outlook, and what that might mean for the Fed’s timeline before unwinding its stimulus measures. While such uncertainty may well trigger further bouts of volatility in equities, steadier hands may find more gains to be had from US stocks in the interim.

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Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.