Will Silver Outperform Gold In Q3 2021?

Sentiment towards the precious metals complex turned bullish after Fed Chair Jerome Powell stated that the rising cases of the Delta variant may weigh on a recovery in the labour market and that the central bank was still “along away” from considering raising interest rates.

The main takeaway from the Federal Reserve’s July policy meeting was that the central bank remains firmly committed to their massive quantitative easing program, while allowing inflation to run hotter than usual, for some time yet.

Currently, Silver prices are trading near $25 an ounce, which presents an incredible opportunity for traders to gain exposure in the metal before it really takes off.

Silver is not only an excellent inflation hedge, but it’s also a key component in everything from electric vehicles, renewable energy to 5G technology. Based on our proprietary research, photovoltaic demand for silver could exceed 3000 tonnes in 2021, while the 5G rollout – which is only just beginning – will be a major driver of demand for years to come.

Goldman Sachs see silver prices rising to $33 an ounce in H2 2021, boosted both investment and industrial demand for the precious metal – and our research suggests similar.

In my opinion, Silver is still definitely the best trade right now and any substantial pullbacks should be viewed as buying opportunities heading into August.

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

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

The Inadvertent Debt/Inflation Trap – Is It Time To Face The Music?

What happens to a global economy after 10+ years of global central bank efforts to support a recovery attempt after a massive credit/debt collapse originates from a prior credit/debt housing bubble?  What happens to global economies when they become addicted to easy money policies and central bank activities that support greater and greater risk-taking? What is the end result of these actions after more than 10+ years of excess and central bank support for the markets?

Let’s play this out a bit to think about how the current market environment may be similar to what happened in the mid/late 1990s and see if we can come to any real conclusions. Remember, we are using our research and technical analysis skills to play a “what if” scenario in this research article.  Our current trading systems have not warned us of any major Bearish price trends of price collapses that may take place. Our systems are still trading the US markets based on current market trends.  This research is completely speculative in the sense that we are trying to identify “what if” scenarios based on events in the recent past.

One thing that our research team has been discussing over the past 8+ months, since shortly after the US elections in November 2020, is the idea that the new US President/US Federal Reserve may engage in policies that are initially perceived as supportive of the global markets in a post-COVID world – yet may engage in very dangerous end results.  An example of this is the continued stimulus efforts for a world that has somewhat moved beyond the initial COVID shock and has transitioned into a new form of economic activity.  Another example would be the US Federal continuing to act in a manner to support the US equities market while Inflation and consumer activity have recently shown extreme pricing/buying activities.

One idea that my research team suggested is this activity may be similar to President Ronald Reagan’s Star-Wars project in how Reagan was able to prompt a spending excess between the US and Russia which eventually broke the Russian economy.  The process between that event and what is happening right now are strangely similar.

The Strange Outcome Of Global Central Bank Policies – The US Is The Clear Winner

The US and many foreign central banks have pushed the envelope of easy money policies over the past 8+ years by continuing to run programs to support a stronger economic outcome.  The focus has been on creating an inflationary target to start a more traditional shift away from the ongoing easy money policies.  Inadvertently, these global central banks may have created and supported one of the biggest asset shifts/bubbles in the past 50+ years.

The COVID-19 virus event may have actually pushed the US Federal Reserve and foreign global central banks into an inadvertent process of creating a massive inflation trap at a time when the global economy and corporate world was banking on much more mild inflationary trends.  The reflation trade that came after June 2020 is likely to have pushed assets, commodities, credit & debt cycles beyond any conceivable scope of reason, while putting unimaginable pressure on foreign central banks in Asia, South America, Africa, and most of the emerging markets.

The incredible rally in commodities, asset values (homes, stocks, US equities, and others) prompted capital to shift towards the strongest and most capable outcomes on the planet.  This created a liquidity trap in many foreign markets where traders moved assets into US equities, Cryptos, US ETFs, and other assets while shunning less dynamic and secure global assets.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/07/2021-07-16_WorldMarketCap-1.jpg

(Source: https://data.worldbank.org/indicator/CM.MKT.LCAP.CD)

What has transpired over the past 10+ years is that the US equities markets have risen to levels above the 2007~08 peak levels. US equities have also continued to skyrocket higher as foreign investors seek to move assets into US Dollar-based equities and ETFs, and away from stagnant, under-performing local equities and assets.  Currently, the US stock market total capitalization makes up nearly $48T of the total global market capitalization. The next closest foreign market exchange is China, which makes up nearly $12T in total capitalization.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/07/2021-07-16_GlobalStockMarketCap-2.jpg

(Source: https://www.advratings.com/companies/the-largest-stock-exchanges)

When one takes into consideration the massive expansion of state, corporate, consumer, and global credit/debt that has taken place over the past 10+ years in China (and the risks associated with servicing that debt as well as increased commodities/asset costs which have taken place over the past 24+ months) one starts to consider if China may suddenly turn into Russia of the late 1990s.

At that time, the inflation rate in Russia reached over 120% and took place after a number of key economic events set up an almost perfect storm. The aftermath of this event continued to create moderate global market crisis events.

  • 1973 & 1979 Energy/Oil Crisis
  • 1982 US Interest Rate Peak/Recession
  • 1983 Israel Bank/Stock Crisis
  • 1987 Black Monday
  • 1991 India Economic Crisis
  • 1994 Mexican Peso Crisis
  • 1998 Russian Financial Crisis

Although the names and dates of these events are much different than what is set up today, imagine the 1973/79 oil/energy crisis was the peak in oil prices in 2018.  Imagine the 1982 peak in US interest rates was the peak in interest reached in 2018.  Imagine the Israel Bank/Stock Crisis and the 1987 Black Monday was the 2020 COVID crisis.  Imaging the 1991 India Economic Crisis, and 1994 Mexican Peso Crisis were the post-COVID economic and current crisis events that have taken place over the past 14+months throughout the world.

Now, imagine that China is the new 1998 Russian Financial Crisis taking place.  One of the biggest and strongest economies in the world is now at risk of entering a severe inflationary period where excess credit/debt of the past few decades may be washed away – just like what happened in Russia.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/07/russia_inflation_rate2.jpg

(Source: https://www.timetoast.com/timelines/financial-crisis-1900s-2017)

Lastly, remember what came about after these events took place and how isolated the world was from the Russian economic collapse in the late 1990s. The world is not so isolated any longer.  If China initiates a credit/debt crisis event, there is a very strong likelihood that the global markets will react to this event moderately violently.

The Hang Seng Index May Foretell A Collapse In The Making

The typical process of the unwinding of this excess credit/debt/liability usually takes place in a common process.  First, individuals, corporations, and state-run agencies load up on cheap debt while inflation and costs are relatively consistent.  Then, as the economy heats up, inflation, commodity prices, and equipment/material costs begin to skyrocket – eating into operational profits for these entities. Meanwhile, the need to service the debt/credit persists.  As fractures in the system become evident (usually starting with isolated debt defaults by some large entities), investors start pricing greater risks into the credit/debt markets – further complicating the issues for these entities that are burdened with excess debt and diminishing profit margins.

Looking at the Russian Inflation Rate chart, above, any type of major inflationary increase will usually push these entities over the edge in terms of sustainability.  Once the cost of refinancing the debt and ongoing profit margins have been squeezed beyond limits, the crisis escalates to a point of implosion.

https://www.thetechnicaltraders.com/wp-content/uploads/2021/07/HSI_W_F.png

Given the rise in Real Estate, Commodities, Oil/Energy costs, and other factors, we believe this event may be unfolding right before us in current market trends.  China may be the focus of what Russia was in the late 1990s with extensive credit/debt issues, massive imports of raw materials, commodities, and food, and extensive global foreign debt/credit issues related to the Belt Road project.  If a global event were to unfold, which we are only speculating MAY happen at this point, China and Asia would become the focal point for this process.

More than ever, right now, traders need to move away from risk functions and start using common sense.  There will still be endless opportunities for profits from these extended price rotations, but the volatility and leverage factors will increase risk levels for traders that are not prepared or don’t have solid strategies.  Don’t let yourself get caught in these next cycle phases unprepared.

Want to know how our BAN strategy is identifying and ranking various sectors and ETFs for the best possible opportunities for future profits? Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

As something entirely new, check out my new initiative URLYstart to learn more about the youth entrepreneurship program I am developing. This is an online program of gamified entrepreneurship designed to introduce and inspire kids to start their own businesses. Click-by-click, each student will be guided from their initial idea, through the startup process all the way to their first sale and beyond. Along the way, our students will learn life lessons such as communication, perseverance, goal setting, teamwork, and more. My team and I are passionate about this project and want to reach as many kids as possible!

Have a great day!

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

U.S. Equity Funds See Biggest Outflow in Six Weeks – Lipper

According to Refinitiv Lipper data, investors sold a net $10.4 billion in U.S. equity funds in the week, the most in six weeks.

The United States is seeing large COVID-19 outbreaks in parts of the country with low vaccination rates, leading to a surge in hospitalizations and deaths in recent weeks.

Financial sector funds saw net selling of $2.4 billion, while other cyclical sectors such as industrials and mining funds also posted outflows.

Tech sector funds drew in $1.6 billion, the biggest weekly net inflow in five months.

Investors bought U.S. government and municipal funds worth a net $3.1 billion in the week.

On the other hand, U.S high-yield bond funds saw outflows of $1 billion.

U.S. money market funds received a net $4.64 billion, after six straight weeks of inflows.

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

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Kirsten Donovan)

Sterling Drops as COVID ‘pingdemic’ Hits Rebound in July

Friday’s monthly purchasing managers’ index (PMI) data gave the first clear evidence of the scale of the impact.

The IHS Markit/CIPS flash composite PMI dropped to 57.7 in July from 62.2 in June. A reading above 50 indicates growth in the economy but the reading was the lowest since March and a sharper fall than most economists had forecast in a Reuters poll.

By 11:00 GMT, the pound was 0.2% lower versus the dollar at $1.3738, and down my a similar magnitude against the euro at 85.63 pence per euro.

Still, the pound has proven relatively resilient this week to a broader selloff in many currencies — it is now nearly flat against the dollar — on the back of concerns about the spread of the Delta variant of the coronavirus.

The government said on Thursday daily testing would be rolled out to allow staff in key sectors to keep working instead of having to self-isolate automatically after exposure to someone who had tested positive for COVID-19 — a system that has caused huge disruption.

Official data on Friday showed British retail sales resuming their post-lockdown recovery in June after a surprise fall in May. Retail sales rose by 0.5% in June from May — a Reuters poll of economists had pointed to a 0.4% month-on-month increase in retail sales volumes in June.

MUFG analyst Derek Halpenny said he remained positive on sterling but that appetite for short-term buying was limited as investors wait to see whether there has been a decisive break in the link between rising COVID-19 cases and hospitalisations thanks to Britain’s rapid vaccine rollout.

“We remain GBP bullish over the medium-term but that view incorporates assumptions like COVID risks receding and the NI (Northern Ireland) protocol issue being resolved,” he said, referring to the dispute between the United Kingdom and the EU over post-Brexit trading arrangements for Northern Ireland.

Sterling had been a standout performer in 2021 thanks to Britain’s relatively fast rollout of vaccines, which has accelerated the pace of reopening, but in recent weeks it has lost some of those gains.

At $1.37 it remains up just 0.6% for the year versus the dollar and off three-year highs of above $1.42 touched in February.

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

(Reporting by Tommy Wilkes; editing by Philippa Fletcher and Louise Heavens)

Bond Buying Flows Surge as Funds Reverse Reflation Bets – BofA

BofA’s number crunchers who analyse weekly investment flow figures from EPFR said funds had bought $8.4 billion worth of bonds overall including $2.6 billion of U.S. government bonds.

The figures cover the week up to Wednesday and therefore the powerful rally in bond markets on Monday when the resurgence in global COVID cases seemed to suddenly ignite fears about the likelihood of economies being able to return to normal.

There had also been the largest withdrawal from U.S. stocks in 6 weeks at $2.6 billion and the largest outflow from European stocks and gold since March at $700 million and $1 billion respectively.

It hasn’t been all gloom though. BofA estimated that funds have pumped $3.3 billion into stocks worldwide, although the fact $1.6 billion went into tech and $1.5 billion went into healthcare stocks again highlights the virus’ impact.

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

(Reporting by Marc Jones; Editing by Saikat Chatterjee)

 

The Delta Variant Spreads. Will It Mutate Gold?

So, were you hoping that the epidemic was over? After all, millions of people got vaccinated, and the economy is booming. Restrictions have been generally lifted, the Fed removed the parts related to the pandemic from its monetary policy statement… why bother then?

The answer is: Delta. And I’m referring to the Sars-Cov-2 variant that causes Covid-19. As you know, viruses mutate from time to time as they spread and replicate. Delta is one of such mutations. Most mutations are not dangerous or even dumb (they weaken the viruses). But the problem with Delta is that it’s “the fastest and fittest” of all coronavirus variants, as the WHO described it. Just think about Rambo on steroids or a witcher that has just taken all his potions. Oh… Anyway, you got the point.

In particular, Delta is much more contagious than the original strain, and is spreading about twice as fast. A person infected with the classic version of the coronavirus can spread it to 2.5 other people, while a person with Delta can infect 3.5-4 other people. Delta might also be more severe and more lethal than the original strain.

The good news is that many people have been vaccinated and the vaccines (especially the mRNA-type) protect nicely against Delta. However, the bad news is that many people still haven’t gotten the shots, for many reasons. The tricky part here is that, given the high transmission rate of Delta, we would need 90% or even more people to be vaccinated to reach herd immunity, which is still a song of the future.

High transmissibility is the reason why Delta has become the dominant strain in the globe. It also increases the risk of further, potentially even more dangerous, mutations (more transmissions, more chances to evolve into Terminator). In other words, Delta’s fast transmission could reignite the pandemic. As the chart below shows, this is actually already happening.

As one can see, Delta reversed the trend of the declining number of new cases, spreading particularly quickly in the United Kingdom. But the U.S. Covid-19 cases also soared, surging 70% last week, while deaths went up 26%.

Implications for Gold

What do rising cases of Delta mean for gold? Well, I would say that Delta is fundamentally positive for gold and could mutate it into a more bullish strain. If the pandemic accelerates, governments may reintroduce some of the sanitary restrictions or even lockdowns. A new wave of the epidemic would also increase the chances of a big infrastructure bill in the US and other fiscal stimuli, while the Fed would likely remain dovish for longer than it would without Delta. So, inflation could intensify even further, while the real interest rates would drop. Therefore, concerned investors would turn to inflation hedges and safe havens such as gold.

However, what’s described above is the medium-term effects that Delta would cause if it triggered a new wave of cases and restrictions. In the short run, however, gold may decline, as worried investors would sell the assets and turn to the US dollar. This is what we saw in March 2020 but also on Monday (July 19, 2021). As the chart below shows, the London price of gold has declined, as the stronger greenback counterweighted the decline in the equities (Dow plunged more than 2%) and bond yields.

Furthermore, the next Great Lockdown is unlikely. Even if the government reintroduces some restrictions, their economic impact will be much smaller than during the earlier waves, as economies have adapted to operating under the epidemiological regime. Importantly, a new wave would be mainly limited to unvaccinated people, which would reduce the burden of health care systems and chances of hard lockdowns.

However, Monday’s equity selloff suggests a change in the market narrative. Investors have possibly realized that they had too optimistic expectations – economic growth may actually be slower than they thought. They have priced in a very strong recovery, which doesn’t have to materialize if a new pandemic wave hits the economy. Slower growth plus high inflation equals stagflation, gold’s favorite environment.

Having said that, it may take a while until gold rallies, as the end of reflation trade may also imply that some investors will sell commodities, including, to some extent, gold. Also, please note that the optimism and gains have quickly returned to the stock market, so the economic impact of Delta may be limited.

If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

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

Arkadiusz Sieron, PhD
Sunshine Profits: Effective Investment through Diligence & Care

 

Halliburton Stock Gains After Q2 Earnings Top Estimates; Target Price $33 in Best Case

Halliburton, one of the world’s largest providers of products and services to the energy industry, reported better-than-expected earnings in the second quarter, sending its shares up over 3% on Tuesday.

The Houston, Texas-based energy company said its profit rose to $227 million, or $0.26 per share, up from $170 million, or $0.19 per share, seen in the previous quarter. That was higher than the market expectations of $0.22 per share.

The company reported total revenue of $3.7 billion, up from $3.5 billion registered in the previous quarter. Operating income was $434 million in the second quarter of 2021 compared to operating income of $370 million in the first quarter of 2021.

Following the upbeat results, Halliburton shares jumped 3.6% to $20.07 on Tuesday. The stock rose over 6% so far this year.

Analyst Comments

Halliburton (HAL) laid out an above-consensus multi-year financial view, suggesting high confidence in the ongoing recovery. Growth contemplated is broad-based, high-margin, and FCF generative. For the near-term, though, guidance continues to be reasonably conservative and more in-line with our expectations,” noted Connor Lynagh, equity analyst at Morgan Stanley.

“Relative positioning less favorable vs. some global peers: Though it has decreased in absolute size, HAL still remains more NAm-focused vs. peers, where we see greater headwinds to value creation and returns improvement. Risk-reward relatively balanced: We see relatively balanced risk-reward for HAL’s shares and believe a more significant capex shift back into its core markets would be required for meaningful outperformance vs. the group.”

Halliburton Stock Price Forecast

Ten analysts who offered stock ratings for Halliburton in the last three months forecast the average price in 12 months of $25.94 with a high forecast of $33.00 and a low forecast of $16.50.

The average price target represents a 29.25% change from the last price of $20.07. From those ten analysts, five rated “Buy”, five rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $28 with a high of $40 under a bull scenario and $15 under the worst-case scenario. The firm gave an “Equal-weight” rating on the energy company’s stock.

Several other analysts have also updated their stock outlook. Evercore ISI raised the target price to $38 from $29. Piper Sandler lifted the target price to $25.50 from $25.30. ATB Capital Markets upped the target price to $29 from $27.50. BofA Global Research increased the price objective to $33 from $28.

“Modest 2Q beat and 3Q guide which again appears to reflect conservative margins, but the real news was that HAL introduced a 2023 outlook implying ~$4B of EBITDA vs $3.5Bcons and our $4B. Investors wonder if HAL is being too aggressive guiding to ’23 given the industry’s typical lack of visibility. It will be interesting to see if OFS peers endorse this view in the coming days,” noted Marc Bianchi, equity analyst at Cowen.

Check out FX Empire’s earnings calendar

Powell Gave Congress Dovish Signs. Will It Help Gold?

Last week, Powell testified before Congress. On the one hand, Powell admitted in a way that inflation had reached a level higher than expected and is above the level accepted by the Fed in the longer run:

Inflation has increased notably and will likely remain elevated in coming months before moderating.

It means that the Fed was surprised by high inflation, but it doesn’t want to admit it explicitly. Instead, Powell admitted that inflation would likely stay at a high level for some time. The obvious question here is: why should we believe the Fed that inflation will really moderate later this year, given that the US central bank failed in forecasting inflation in the first half of 2021?

What’s more, Powell acknowledged that he hasn’t felt comfortable with the current level of inflation:

Right now, inflation is not moderately above 2%; it is well above 2%. The question is, where does it leave us six months from now? It depends on the path of the economy.

It means that, at some point in the future, if high inflation turns out to be more persistent than expected, the Fed will act to bring inflation back to lower levels. However, nobody knows when exactly it could happen – and I bet that, for political reasons, it would happen rather later than sooner.

Indeed, even though inflation turned out to be higher than previously thought, Powell downplayed the danger of rising prices, reiterating the view that inflation is transitory. In particular, Powell maintained that recent price hikes were closely related to the post-pandemic recovery and would fade after some time:

The high inflation readings are for a small group of goods and services directly tied to reopening.

I dare to disagree. It’s true that the hike in the index for used cars accounted for one-third of the June CPI jump. But two-thirds of 5.4% is 3.6%, still much above the Fed’s target! Anyway, in line with its narrative, the Fed doesn’t see a need to rush with its tightening cycle. After all, the US labor market is – according to Powell and his colleagues from the FOMC – still far from achieving “substantial further progress”, with 7.5 million jobs missing from the level seen before the start of the pandemic. So, the tapering of quantitative easing is – as Powell noted – “still a ways off”. So, overall, Powell’s remarks were dovish and positive for the yellow metal.

Implications for Gold

What does Powell’s recent testimony imply for the gold market? Well, the yellow metal initially rose after his appearance in Congress. This is probably because investors bought the narrative about transitory inflation and decided that monetary taps would stay open for a long time and tapering would start later than investors expected in the aftermath of the recent dot-plot. The rising cases of the Delta variant of the coronavirus is another reason why investors could bet that the Fed would maintain its accommodative monetary policy. So, the bond yields declined, while the price of gold increased as the chart below shows.

However, gold’s reaction was disappointingly soft given the dovishness of Powell’s remarks, and the yellow metal declined again later last week amid some better-than-expected economic data. It seems that there is hesitancy among precious metals investors about whether or not to take a more decisive step with purchases of gold. The reason is probably that, sooner or later, the interest rates will have to rise in response to inflation. It means that the opportunity costs of holding gold will increase, exerting some downward pressure on gold.

Nevertheless, the real interest rates should remain low, so gold prices shouldn’t drop like a stone. Actually, in the longer run, when inflation creates some economic problems while the economic growth slows down, the yellow metal could finally benefit from the stagflationary conditions.

If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

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

Arkadiusz Sieron, PhD
Sunshine Profits: Effective Investment through Diligence & Care

USD/INR: Rupee Extends Losses, Falls 8 Paise in Early Trade

The Indian rupee opened lower, depreciating by 8 paise against the U.S. dollar in early trade Tuesday as strong greenback and volatility in the domestic equity market continued to pressurize the battered Asian currency.

The rupee hit a three-month low on Monday as traders moved to the safety of the U.S. dollar amid rising COVID-19 cases that threaten to derail the global economic recovery.

The dollar to rupee conversion today rose to 74.95 against the U.S. currency, up from Monday’s close of 74.87. The rupee has lost over 170 paise in June – posting the biggest monthly drop since March 2020, the early days of the pandemic, and weakened over 60 paise so far this month.

“The rupee witnessed sharp depreciation against the dollar in the last session and lost 55 paise amid a strengthening dollar index. The safe-haven US dollar moved higher against a basket of major currencies on Monday as investors grew nervous about a raging coronavirus variant that could threaten the outlook for a global economic recovery. The greenback jumped even as the US 10-year Treasury yield dropped to a more than the five-month low of 1.176%,” noted analysts at ICICI Direct.

“The USD to INR has moved higher towards 75 levels surpassing its highest Call base. Continued up move towards 75.50 is expected in the coming sessions. The dollar to rupee July contract on the NSE was at 75.02 in the last session. The open interest fell almost 1% for the July series while August series OI increased by almost 60%.”

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, was trading nearly flat at 92.894 – not far from this year’s high of 93.437.

The world’s dominant reserve currency, the USD, is expected to rise further over the coming year, largely driven by the Fed’s expectation of two rate hikes in 2023. A strengthening dollar and growing risk that the Federal Reserve would tighten its monetary policy earlier than expected would push the USD to INR pair higher.

It is worth noting that sustained foreign fund outflows, higher oil prices, and firm U.S. dollar will continue to weigh on the rupee.

Global oil benchmark Brent futures traded 0.12% higher at $68.70 per barrel at the time of writing. Earlier this month, oil prices spiked to a three-year high of $77.84 per barrel as OPEC+ failed to reach an agreement. Higher oil prices would push up the inflation expectations and widen India’s trade deficit, which could hurt the Indian rupee.

The benchmark equity indices BSE Sensex was trading 290 points or 0.56% lower at 52,262.45, while the broader NSE Nifty slumped 95.90 points or 0.61% to 15,655.35. Foreign institutional investors were net sellers in the capital market on Monday as they offloaded shares worth Rs 2,198.71 crore, as per exchange data.

United Airlines Shares Slump Ahead of Q2 Earnings

United Airlines shares slumped over 5% on Monday ahead of the second-quarter earnings results, where the major U.S. airline company is expected to report a loss for the sixth consecutive time of $4.21 as the aviation service provider continues to be negatively impacted by the ongoing COVID-19 pandemic and travel restrictions.

However, that would represent a year-over-year improvement of about 55% from -$9.31 per share seen in the same quarter a year ago. The Chicago, Illinois-based airlines would post revenue growth of over 250% to $5.25 billion, up from $1.48 billion a year ago.

Due to the ongoing COVID-19 crisis, the company reported losses in all four quarters, posting an average negative earnings surprises of 5.39%.

At the time of writing, United Airlines shares traded 5.19% lower at $43.60 on Monday.

United Airlines Stock Price Forecast

Fifteen analysts who offered stock ratings for United Airlines in the last three months forecast the average price in 12 months of $60.46 with a high forecast of $78.00 and a low forecast of $43.00.

The average price target represents a 36.94% change from the last price of $44.15. From those 15 analysts, four rated “Buy”, ten rated “Hold” while one rated “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $70 with a high of $96 under a bull scenario and $30 under the worst-case scenario. The firm gave an “Equal-weight” rating on the Airlines’ stock.

Several other analysts have also updated their stock outlook. Jefferies lowered the target price to $50 from $55. Evercore ISI slashed the target price to $55 from $66. Bernstein increased the target price to $76 from $67. Cowen and company lifted the target price to $72 from $65. Berenberg upped the target price to $50 from $48.

Analyst Comments

“We like United Airlines (UAL) confidence in providing a 2023 cost guide which includes a goal to permanently reduce $2 bn of cost and at least match 2019 margins. The market is also very keen to see UAL’s go-to-market strategy on the revenue side as travelers return,” noted Ravi Shanker, equity analyst at Morgan Stanley.

“However, the legacy network footprint is a slightly bigger overhang than its network peers and the cap structure will likely take years to normalize, which could remain overhangs on the stock.”

USD/INR: Rupee Slumps 25 Paise, Further Downside Risks Remain

The Indian rupee opened lower, depreciating by over 25 paise against the U.S. dollar in early trade Monday as firm greenback and weakness in the domestic equity market continued to pressurise the battered Asian currency.

The dollar to rupee conversion today rose to 74.8125 against the U.S. currency, up from Friday’s close of 74.56. The rupee has lost over 170 paise in June – posting the biggest monthly drop since March 2020, the early days of the pandemic, and weakened about 49 paise so far this month.

“The rupee continued to trade in a range and last Friday ended almost flat, down 2 paise. The dollar posted modest gains on stronger-than-expected US June retail sales data. The dollar also garnered some support from a fall in the S&P 500 to a one-week low, which boosted the dollar’s liquidity demand,” noted analysts at ICICI Direct.

“The USD to INR is seeing contracting volatility while the trading range has been narrowing for a few sessions. Looking at the writing in OTM Call we feel upsides seem limited. The dollar to rupee July contract on the NSE was at 74.71 in the last session. The open interest fell 1.8% for the July series.”

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, was trading 0.25% higher at 92.911 – not far from this year’s high of 93.437. That gain was largely driven by safe-haven buying as rising COVID-19 cases threaten to derail the global economic recovery.

“Although the cautious tone by Fed Chair Jerome Powell about the risks of persistent inflation and the need to taper asset purchases was not enough to trigger a sustained recovery in risk sentiment late last week, we look for a limited upside to trade weighed dollar this week,” noted analysts at ING.

“Not only it is a fairly calm week on the US data front (suggesting limited catalysts for a domestically driven USD rally), but the possibly cautious/dovish ECB on Thursday can provide a boost to cyclical FX, which would also spill over into the USD crosses (though EUR/USD would still decline).”

The world’s dominant reserve currency, the USD, is expected to rise further over the coming year, largely driven by the Fed’s expectation of two rate hikes in 2023. A strengthening dollar and growing risk that the Federal Reserve would tighten its monetary policy earlier than expected would push the USD to INR pair higher.

It is worth noting that sustained foreign fund outflows, higher oil prices, and firm U.S. dollar will continue to weigh on the rupee.

Global oil benchmark Brent futures traded 1.54% lower at $72.46 per barrel at the time of writing. Earlier this month, oil prices spiked to a three-year high of $77.84 per barrel as OPEC+ failed to reach an agreement. Higher oil prices would push up the inflation expectations and widen India’s trade deficit, which could hurt the Indian rupee.

The benchmark equity indices BSE Sensex was trading 599 points or 1.13% lower at 52,547.89, while the broader NSE Nifty slumped 170.55 points or 1.07% to 15,752.40. Foreign institutional investors were net sellers in the capital market on Friday as they offloaded shares worth Rs 466.30 crore, as per exchange data.

Earnings to Watch Next Week: IBM, Netflix, Coca-Cola, Twitter, Intel and American Express in Focus

Earnings Calendar For The Week Of July 19

Monday (July 19)

IN THE SPOTLIGHT: IBM

The Armonk, New York-based technology company is expected to report its second-quarter earnings of $2.32 per share, which represents year-over-year growth of over 6% from $2.18 per share seen in the same quarter a year ago.

The world’s largest computer firm would post revenue growth of about 1% to $18.24 billion. In the last four consecutive quarters, on average, the company has delivered earnings of over 5%.

The better-than-expected results, which will be announced on Monday, July 19, would help the stock recover its last year’s losses. IBM shares rose about 12% so far this year.

“We expect IBM to marginally beat the consensus estimates for revenues and earnings. The company has reported better than expected earnings figures in each of the last four quarters while revenue beat consensus in three of the last four quarters,” noted analysts at Trefis.

“In the past year the company has increased its investment in R&D and capex and since October has acquired seven companies focused on hybrid cloud and AI. As the pace of vaccination increases and countries are opening up, we expect the momentum to continue in the second-quarter FY2021 results as well. Our forecast indicates that IBM’s valuation is around $140 per share, which is in line with the current market price of $140.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JULY 19

Ticker Company EPS Forecast
TSCO Tractor Supply $2.97
PPG PPG Industries $2.20
JBHT J B Hunt Transport Services $1.57
CCK Crown $1.78
STLD Steel Dynamics $3.38
PACW Pacwest Bancorp $0.99
WTFC Wintrust Financial $1.59
FNB FNB $0.28
SFBS ServisFirst Bancshares $0.93
IBM IBM $2.32
PLD ProLogis $0.45
ACI AltaGas Canada $0.68
ZION Zions Bancorporation $1.29
NVR NVR $72.35
ELS Equity Lifestyle Properties $0.28
AN AutoNation $2.67

Tuesday (July 20)

IN THE SPOTLIGHT: NETFLIX, UNITED AIRLINES HOLDINGS

NETFLIX: The California-based global internet entertainment service company is expected to report its second-quarter earnings of $3.18 per share, which represents year-over-year growth of 100% from $1.59 per share seen in the same quarter a year ago.

The streaming video pioneer would post revenue growth of about 19% to around $7.3 billion. In the last four consecutive quarters, on average, the company has delivered earnings of over 5%.

“Areopening consumer and the lingering effects of 2020’s production delays suggest risk to consensus 2Q/3Q estimates. However, more content is on the way, supporting an increase in net additions in 4Q21/’22. In this cross-asset report, we reiterate OW on shares and reiterate our recommendation to buy 10Y bonds in credit,” noted Benjamin Swinburne, equity analyst at Morgan Stanley.

“We believe share performance is highly dependent on increasing global membership scale. Proven success in the US and initial international markets provides a roadmap to success in emerging markets, and scale should allow NFLX to leverage content investments and drive margins. Higher global broadband penetration should increase the NFLX addressable market, driving member growth and providing further opportunity given NFLX’s global presence. Longer-term, we see the ability to drive ARPU growth, particularly given increased original programming traction.”

UNITED AIRLINES HOLDINGS: One of the largest airlines in the world is expected to report a loss for the sixth consecutive time of $4.21 in the second quarter of 2021 on July 20 as the aviation service provider continues to be negatively impacted by the ongoing COVID-19 pandemic and renewed travel restrictions.

However, that would represent a year-over-year improvement of about 55% from -$9.31 per share seen in the same quarter a year ago.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JULY 20

Ticker Company EPS Forecast
DOV Dover $1.82
OMC Omnicom $1.38
SBNY Signature Bank $3.14
PM Philip Morris International $1.54
HCA HCA $3.16
SYF Synchrony Financial $1.38
KEY KEY $0.54
ALLY Ally Financial $1.50
MAN ManpowerGroup $1.41
GATX GATX Corp $1.03
BMI Badger Meter $0.46
ONB Old National Bancorp $0.40
FMBI First Midwest Bancorp $0.38
NFLX Netflix $3.18
CNI Canadian National Railway USA $1.49
CMG Chipotle Mexican Grill $6.50
IBKR Interactive Brokers $1.03
UAL United Airlines Holdings -$4.21
PNFP Pinnacle Financial Partners $1.44
RXN Rexnord $0.50
UCBI United Community Banks $0.62
SNBR Scs Group Plc $1.07
FULT Fulton Financial $0.33
RUSHA Rush Enterprises $0.79
ISRG Intuitive Surgical $3.07
UBS UBS Group $0.42
TRV Travelers Companies $2.38
HAL Halliburton $0.22
CFG Citizens Financial $1.10
SNV Synovus Financial $1.03
IRDM Iridium Communications -$0.06
NEOG Neogen $0.14
EXPO Exponent $0.42
RNST Renasant $0.77

Wednesday (July 21)

IN THE SPOTLIGHT: COCA-COLA

The world’s largest soft drink manufacturer is expected to report its second-quarter earnings of $0.56 per share, which represents year-over-year growth of over 30% from $0.42 per share seen in the same quarter a year ago. The company’s revenue would grow over 30% to $9.4 billion.

“We are Overweight Coca-Cola (KO) after significant stock underperformance given COVID impacts on KO’s on-premise eating / drinking out business (~40% of sales) and gas & convenience (~10%) with gov’t mandated restaurant closures and reduced foot traffic. COVID impacts drove a large -9% organic sales decline in 2020, but we forecast a recovery to ~8% organic growth in 2021/2022 with a post-COVID recovery in away-from-home,” noted Dara Mohsenian, equity analyst at Morgan Stanley.

“We believe Coke’s LT topline growth outlook is above peers, with strong pricing power, and favorable strategy tweaks under Coke’s CEO, including increased innovation and a cultural shift towards a total beverage company.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JULY 21

Ticker Company EPS Forecast
JNJ Johnson & Johnson $2.29
ASML ASML $2.98
KO Coca-Cola $0.56
ANTM Anthem $6.34
NDAQ Nasdaq Omx $1.72
RCI Rogers Communications USA $0.62
NTRS Northern $1.71
BKR Baker Hughes Co $0.16
MTB M&T Bank $3.65
MKTX MarketAxess $1.72
LAD Lithia Motors $6.01
HOG Harley Davidson $1.21
BOKF BOK Financial $1.83
STX Seagate Technology $1.84
KNX Knight Transportation $0.88
CCI Crown Castle International $0.68
CSX CSX $0.37
DFS Discover Financial Services $4.01
EFX Equifax $1.71
GL Globe Life Inc $1.83
LVS Las Vegas Sands -$0.15
SEIC SEI Investments $0.91
WHR Whirlpool $5.95
GGG Graco $0.61
REXR Rexford Industrial Realty $0.09
OMF OneMain Holdings $2.12
THC Tenet Healthcare $1.07
FR First Industrial Realty $0.22
SLM SLM $0.37
LSTR Landstar System $2.33
SLG SL Green Realty $0.17
VMI Valmont Industries $2.50
RLI RLI $0.75
UFPI Universal Forest Products $1.56
STL Sterling Bancorp $0.50
UMPQ Umpqua $0.45
FTI FMC Technologies -$0.01
CNS Cohen & Steers $0.82
MC Moelis & Company $0.83
TCBI Texas Capital Bancshares $1.24
BXS BancorpSouth $0.67
PLXS Plexus $0.91
NVS Novartis $1.54
SAP SAP $1.44
TXN Texas Instruments $1.83
EBAY eBay $0.95
KMI Kinder Morgan $0.19
URI United Rentals $4.90
IPG Interpublic Of Companies $0.43
FNF Fidelity National Financial $1.41
CMA Comerica $1.60
MTG MGIC Investment $0.42
FCFS FirstCash $0.60
CVBF CVB Financial $0.35
PTC PTC $0.63
PPERY PT Bank Mandiri Persero TBK $0.18

Thursday (July 22)

IN THE SPOTLIGHT: TWITTER, INTEL

TWITTER: The online social media company that enables users to send and read short 140-character messages called “tweets”, is expected to report its second-quarter earnings of $0.07 per share, which represents year-over-year growth of over 105% from a loss of -$0.16 per share seen in the same quarter a year ago.

The San Francisco, California-based company would post revenue growth of about 55% to $1.06 billion.

“Lack of Negative Revisions and Relative Valuation: Valuation continues to be expensive, but we think investors are likely to continue to pay a premium for TWTR given 1) continued turnaround progress and 2) platform scarcity,” noted Brian Nowak, equity analyst at Morgan Stanley.

“Execution Risk Remains Around Driving Advertiser ROI: Advertiser ROI has clearly improved on Twitter, but the company needs to improve ad targeting and measurability to compete with the larger players. To do that it will have to further personalize the content that users see and use its data more effectively, both of which remain key strategic challenges (and priorities) for management.”

INTEL: The California-based multinational corporation and technology company is expected to report its second-quarter earnings of $1.07 per share, which represents a year-over-year decline of about 14% from $1.23 per share seen in the same quarter a year ago. The company’s revenue would fall over 10% to $17.73 billion.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JULY 22

Ticker Company EPS Forecast
ULVR Unilever £1.29
PSON Pearson £8.40
ABB ABB $0.36
CBSH Commerce Bancshares $1.02
DOW Dow Chemical $2.36
DHR Danaher $2.05
FITB Fifth Third Bancorp $0.81
FAF First American Financial $1.70
RS Reliance Steel & Aluminum $4.73
T AT&T $0.79
WBS Webster Financial $0.99
UNP Union Pacific $2.54
BKU BankUnited $0.86
SNA Snap-On $3.21
ABT Abbott $1.02
NEM Newmont Mining $0.81
MMC Marsh & McLennan Companies $1.42
BIIB Biogen $4.60
TRN Trinity Industries $0.09
DGX Quest Diagnostics $2.86
ALLE Allegion $1.30
CLF Cliffs Natural Resources $1.52
TPH Tri Pointe Homes $0.81
VLY Valley National Bancorp $0.29
EWBC East West Bancorp $1.39
DHI DR Horton $2.82
SON Sonoco Products $0.86
POOL Pool $5.49
WSO Watsco $3.01
SAFE 3 Sixty Risk $0.33
CSL Carlisle Companies $2.22
WRB W.R. Berkley $0.98
SAM Boston Beer $6.69
SIVB SVB Financial $6.42
CE Celanese $4.34
RNR Renaissancere $4.62
TWTR Twitter $0.07
INTC Intel $1.07
WSFS Wsfs Financial $0.90
GBCI Glacier Bancorp $0.72
ABCB Ameris Bancorp $1.20
OZK Bank Ozk $0.92
ASB Associated Banc $0.47
FFBC First Financial Bancorp $0.52
VICR Vicor $0.33
VRSN Verisign $1.36
COF Capital One Financial $4.57
INDB Independent Bank $1.08
ASR Grupo Aeroportuario Del Sureste $36.49
SKX Skechers USA $0.51
RHI Robert Half International $1.05
FE FirstEnergy $0.57
SNAP Snap -$0.18
AEP American Electric Power $1.12
LUV Southwest Airlines -$0.27
AAL American Airlines -$2.12
DPZ Dominos Pizza $2.86
ALK Alaska Air -$0.62
NUE Nucor $4.76
BX Blackstone $0.78
FCX Freeport-McMoran $0.75
SASR Sandy Spring Bancorp $1.20
GPC Genuine Parts $1.52
ORI Old Republic International $0.53
HTH Hilltop $1.03
CROX Crocs $1.54
BCO Brinks $0.98
FFIN First Financial Bankshares $0.38
CNA Centrica £1.80

Friday (July 23)

Ticker Company EPS Forecast
HON Honeywell International $1.94
SLB Schlumberger $0.26
AXP American Express $1.63
KMB Kimberly Clark $1.74
NEP Nextera Energy Partners $0.61
ROP Roper Industries $3.67
RF Regions Financial $0.53
NEE NextEra Energy $0.69
AIMC Altra Industrial Motion $0.81
GNTX Gentex $0.44
FBP First Bancorp FBP $0.22
VTR Ventas -$0.08
GT Goodyear Tire & Rubber $0.16
ACKAY Arcelik ADR $0.48
MGLN Magellan Health $0.60
SXT Sensient Technologies $0.78

 

Cintas Tops Q4 Earnings Estimates; Target Price $400

Cintas Corp, which provides products and services to businesses, reported better-than-expected earnings in the fiscal fourth quarter and said its revenue rose to $1.84 billion compared to $1.62 billion in last year’s fourth quarter.

The company said its diluted earnings per share (EPS) were $2.47 in the fourth quarter of fiscal 2021, an increase of 83.0% from last year’s fourth-quarter diluted EPS of $1.35. That was higher than the Wall Street consensus estimates of $2.31 per share.

Cintas predicted earnings in a range of $10.35 to $10.75 per share on revenues between $7.53 billion and $7.63 billion for the fiscal year 2022. That was lower than the market expectations of $10.03 per share on revenues of $7.66 billion for the year.

Cintas Corp shares traded 3.18% higher at $380.92 on Friday. The stock rose about 8% so far this year.

Analyst Comments

“4Q above MSe, but FY22 guidance was underwhelming with rev and EPS 1% below our forecast. Guidance does imply margin expansion, however, despite inflationary pressures seen in the industry. price target to $353, though stay EW as multiple remains full,” noted Toni Kaplan, equity analyst at Morgan Stanley.

“We think fundamentals will perform well in a cyclical recovery given CTAS‘ recent history of outperforming labor growth. MS economists are forecasting significant employment growth in coming quarters, with the ending 2022 unemployment rate only 0.7% above 2019 levels. With a strong balance sheet, potential M&A could be extremely accretive to CTAS earnings. Though valuation is high relative to history, we do not see a near-term catalyst to cause the multiple to contract.”

Cintas Corp Stock Price Forecast

Eight analysts who offered stock ratings for Cintas Corp in the last three months forecast the average price in 12 months of $400.67 with a high forecast of $425.00 and a low forecast of $353.00.

The average price target represents a 4.97% change from the last price of $381.69. From those eight analysts, five rated “Buy”, three rated “Hold” while one rated “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $353 with a high of $601 under a bull scenario and $209 under the worst-case scenario. The firm gave an “Equal-weight” rating on the company’s stock.

Several other analysts have also updated their stock outlook. Jefferies raised the target price to $425 from $400. JPMorgan lifted the target price to $430 from $390. Credit Suisse upped the target price to $375 from $350. CGRA increased the target price by $16 to $366. BofA Global raised the price objective to $358 from $353.

“What to do with CTAS shares: Buy more if you believe the company can consistently deliver 6-8% organic growth and that post-COVID-19 outsourcing picks up on uniform rental. We also believe the under-levered balance sheet is underappreciated in terms of larger-scale M&A,” noted Hamzah Mazari, equity analyst at Jefferies.

Check out FX Empire’s earnings calendar

IBM Q2 Earnings to Rise 6%; Target Price $151

The Armonk, New York-based technology company, IBM, is expected to report its second-quarter earnings of $2.32 per share, which represents year-over-year growth of over 6% from $2.18 per share seen in the same quarter a year ago.

The world’s largest computer firm would post revenue growth of about 1% to $18.24 billion. In the last four consecutive quarters, on average, the company has delivered earnings of over 5%.

The better-than-expected results, which will be announced on Monday, July 19, would help the stock recover its last year’s losses. IBM shares rose about 12% so far this year.

Analyst Comments

“We expect IBM to report in-line 2Q results with upside risk from FX. While largely negative CIO survey data and recent headlines leave us more cautious ST, our LT outlook is unchanged. We view CEO Arvind’s sustainable growth strategy positively and believe the stock set-up improves in 2022,” noted Katy L. Huberty, equity analyst at Morgan Stanley.

“We expect Cloud & Cognitive Software and GBS to continue improving through 2021 as IT spend returns, but still believe 2021 is a challenging year for IBM given the upcoming Infrastructure Services spin. Near-term, we expect IBM to be pressured by greater recurring revenue mix vs. peers as IT spending recovers, tough 1H21 mainframe compares, and the fact that spin transactions historically don’t outperform until post-close. Results from our AlphaWise CIO surveys also point to lower spending intentions with IBM despite the Red Hat deal. While we view IBM’s go-to-market changes, M&A, and partnership investments positively, we require further evidence of improvement before getting constructive.”

IBM Stock Price Forecast

Eight analysts who offered stock ratings for IBM in the last three months forecast the average price in 12 months of $151.75 with a high forecast of $175.00 and a low forecast of $121.00.

The average price target represents an 8.05% change from the last price of $140.45. From those eight analysts, four rated “Buy”, three rated “Hold” while one rated “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $152 with a high of $205 under a bull scenario and $78 under the worst-case scenario. The firm gave an “Equal-weight” rating on the technology company’s stock.

Several other analysts have also updated their stock outlook. Credit Suisse Group lifted their price objective to $165 from $160 and gave the company an “outperform” rating. Stifel Nicolaus lifted their price objective to $151 from $147 and gave the company a “buy” rating. BMO Capital Markets lifted their price target to $150 from $138 and gave the company a “market perform” rating.

“We expect IBM to marginally beat the consensus estimates for revenues and earnings. The company has reported better than expected earnings figures in each of the last four quarters while revenue beat consensus in three of the last four quarters,” noted analysts at Trefis.

“In the past year the company has increased its investment in R&D and capex and since October has acquired seven companies focused on hybrid cloud and AI. As the pace of vaccination increases and countries are opening up, we expect the momentum to continue in the second-quarter FY2021 results as well. Our forecast indicates that IBM’s valuation is around $140 per share, which is in line with the current market price of $140.”

Check out FX Empire’s earnings calendar

Sterling Slips Against Dollar, Heads for Worst Week in a Month

The pound fell 0.3% against the dollar at $1.3805, and was poised for a similar weekly loss, which if sustained would be its worst since mid-June. The U.S. dollar gained 0.1% against a basket of currencies on Friday.

The pound fell slightly against the euro to 85.53 pence, moving further away from 3-1/2-month highs hit earlier this week.

Solid U.S. data and a shift in interest rate expectations after the Federal Reserve in June flagged sooner-than-expected hikes in 2023 have lent support to the greenback in recent weeks.

Against a stronger dollar, the pound struggled to gain ground on the back of growing market speculation that the Bank of England could halt its bond-buying programme early because of an unexpectedly sharp rise in inflation.

Investors were having to balance the prospect of tighter BoE policy, which is supportive for the pound, with concerns about the economic fallout from the rapid spread of the COVID-19 Delta variant and from the end of fiscal support measures such as the job furlough scheme, which will end in September.

“COVID cases are surging and the impact on the economy could prove more considerable than expected,” MUFG analysts wrote in a note. “The job furlough scheme unwind could therefore be more disruptive than expected.”

Market players on Friday said sterling was unlikely to see stellar gains without interest rate hikes, even with an early end to its bond-buying.

“As long as there is no mention of a rapid normalisation of interest rates, only limited sterling strength is justified,” Commerzbank analysts wrote in a note.

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

(Reporting by Tom Wilson; Editing by Ana Nicolaci da Costa)

 

USD/INR: Rupee Remains Range-Bound, Likely to Turn Volatile

The Indian rupee opened marginally lower but remained range-bound in lackluster trade against the U.S. dollar in early session Friday amid volatility seen in the domestic equity market.

The dollar to rupee conversion today opened at 74.54 against the U.S. currency, up from Thursday’s close of 74.5375. The rupee has lost over 170 paise in June – posting the biggest monthly drop since March 2020, the early days of the pandemic, and weakened about 19 paise so far in this month.

“The rupee traded in a narrow and tight band throughout the day. Yesterday, it managed to sustain well above 74.50 levels and ended with gains of 4 paise. The Dollar index posted moderate gains. A drop in US weekly jobless claims to a new pandemic low supported gains in the dollar along with hawkish Fed comments,” noted analysts at ICICI Direct.

“The USD to INR is seeing contracting volatility while the trading range has been narrowing for a few sessions. We feel the rupee should move towards 74.4 levels in the coming days whereas upsides seem limited. The dollar to rupee July contract on the NSE was at 74.65 in the last session. The open interest fell 3.2% for the July series.”

The dollar index, a measurement of the dollar’s value relative to six foreign currencies, was trading 0.05% lower at 92.583 – not far from its three-month high of 92.844.

The world’s dominant reserve currency, the USD, is expected to rise further over the coming year, largely driven by the Fed’s expectation of two rate hikes in 2023. A strengthening dollar and growing risk that the Federal Reserve would tighten its monetary policy earlier than expected would push the USD to INR pair higher.

It is worth noting that sustained foreign fund outflows, higher oil prices, and firm U.S. dollar will continue to weigh on the rupee.

Global oil benchmark Brent futures traded nearly flat at $73.48 per barrel at the time of writing. Last week, oil prices spiked to a three-year high of $77.84 per barrel as OPEC+ failed to reach an agreement. Higher oil prices would push up the inflation expectations and widen India’s trade deficit, which could hurt the Indian rupee.

The benchmark equity indices BSE Sensex was trading 25.4 points or 0.05% higher at 53,188.10, while the broader NSE Nifty advanced 12.75 points or 0.08% at 15,936.00. Foreign institutional investors were net sellers in the capital market on Thursday as they offloaded shares worth Rs 264.77 crore, as per exchange data.

Stocks, Yields Slip as Investors Await Next Catalyst

The number of Americans filing new claims for unemployment benefits fell to a 16-month low last week as the U.S. labor market steadily gains traction while other data showed import prices rose solidly in June but have probably peaked.

Wall Street traded lower even as the four largest U.S. consumer banks posted blockbuster second-quarter results earlier this week that were above analysts’ estimates.

Investors are looking for visibility into future earnings as stocks have already surged in anticipation of stellar growth.

“We had the rally going into the earnings season. Now that we’re actually here, we’re seeing some softness. I wouldn’t be surprised if we don’t see a lot of strength during this reporting season,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.

Analysts expect strong earnings, with IBES data from Refinitiv showing consensus looking for a 65.8% gain from a year ago, making corporate guidance more important than results.

‘NAME OF THE GAME’

Energy and technology stocks led the decline on Wall Street, with defensive consumer staples and utilities the only two of 11 S&P 500 sectors to gain. Staples have pricing power that could help Procter & Gamble Co, Coca-Cola Co and others rise, once it is clear their margins remain intact, said Tom Hayes, founder and managing member of Great Hill Capital LLC.

“Guidance is the name of the game. A lot of good news is already baked into the market and even with strong guidance, you may get a breather here,” Hayes said.

The MSCI world equity index, which tracks shares in 50 countries, closed down 0.33% to 723.66 after touching a record high on Wednesday. Europe’s broad FTSEurofirst 300 index closed down 0.92% at 1,761.30, less than 20 points from an all-time peak set Monday.

Losses in Europe were broad-based, with economically sensitive stocks such as banks, automakers and travel down between 0.3% and 1.6% as investors grew wary of rising COVID-19 cases and their potential economic impact.

Official data showed that the United Kingdom reported the highest daily increase in COVID-19 cases since Jan. 15.

On Wall Street, the Dow Jones Industrial Average eked out a 0.15% gain but the S&P 500 fell 0.33% and the Nasdaq Composite slid 0.70%.

Shares in emerging markets rose, bucking the global trend, with MSCI’s index gaining 0.77%.

The 10-year Treasury note fell 5.9 basis points to yield 1.2972%, while the dollar index, which tracks a basket of six currencies, rose 0.19% to 92.586.

The rally in U.S. and European bond prices, which show the inverse of yields, suggested growing investor caution.

The dollar has climbed in recent weeks as investors take stock of the Fed’s increasingly upbeat assessment of the U.S. economy, which for some investors has brought forward the timeframe for its next rate rise. Rates have fallen on Japanese buying and investors selling long-dated maturities for shorter-duration government debt, which has pushed prices up.

The euro fell 0.21% at $1.1810, while the yen traded slid 0.18% at $109.7900.

Oil prices fell as investors braced for increased supplies after a compromise agreement between leading OPEC producers and after a surprisingly low weekly reading on U.S. fuel demand.

Brent crude fell $1.29 to settle at $73.47 a barrel, while U.S. crude slid $1.48 to $71.65 a barrel.

Gold hit a one-month peak, spurred by Federal Reserve Chair Jerome Powell’s dovish comments that squashed market interest rates.

U.S. gold futures gained 0.3% to $1,830.00 an ounce.

COVID-19 VARIANT FEARS

China’s economic data showed average growth surpassed the first quarter, while June retail sales and industrial output beat expectations. But it also showed authorities, which only last week injected 1 trillion yuan into the financial system, will ensure that conditions stay loose.

The World Health Organization (WHO) COVID-19 dashboard reported the first weekly rise in global deaths from the virus in 10 weeks and a 5.6% jump in daily case numbers on Wednesday.

“The market is fearing the Delta variant could take a hold of different economies so you are almost seeing that we are back to the ‘bond yields lower, tech doing well’ scenario,” said Justin Onuekwusi, portfolio manager at Legal & General Investment Management.

The likes of Amazon and Google are up 6-8% this month, while China’s biggest tech firms Alibaba and Tencent have surged more than 12% since China’s central bank made a supportive policy tweak for the first time in nearly a year on Friday.

The Chinese yuan dipped to 6.4628 per dollar in Asia after hitting a three-week high of 6.4508 overnight.

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

(Additional reporting by Sujata Rao; Editing by Will Dunham, Alex Richardson, Barbara Lewis and Gareth Jones)

Delta Airlines on Road to Recovery; Target Price $58

Delta Airlines, one of the major players in the United States aviation industry, reported a profit for the first time since late 2019 in the second quarter as federal relief helped cover losses.

The Airline company which provides scheduled air transportation for passengers and cargo reported posted a profit of $652 million. The airless company said a quarterly adjusted loss came in at $1.07​​ per share, better than the Wall Street consensus estimate of $1.36​​ per share loss.

The Atlanta-based airline said its revenue for the three months ended June 30 fell to $7.13 billion, down from the $12.54 billion seen in the same period a year ago. However, that was higher than the market consensus estimates of $6.22 billion.

At the time of writing, Delta Airlines shares traded 2.51% higher at $41.69 on Thursday.

Analyst Comments

Delta Airlines’ (DAL) 2Q print, 3Q guide and more importantly, mgmt. commentary on key themes like corporate, international and costs show that the recovery remains on track (and may be running closer to the bull case). This establishes a good baseline for the rest of Airlines earnings season,” noted Ravi Shanker, equity analyst at Morgan Stanley.

“3Q guidance compares well to MSe and cons. 3Q capacity is expected to be down 28-30% (vs. MSe 29%), revenues down 30-35% (vs. MS/cons down 36/34%) vs. 2019. Mgmt guided to positive MSD pre tax margins for the September quarter despite what management characterized as good guy cost inflation items related to ramping up capacity which runs counter to normal seasonality (3Q CASMxF +11-14% vs. MSe +8.4%). However, mgmt. reiterated the target of CASMxF below 2019 levels by December and said 4Q would be positive pretax as well. CEO Bastian said that they are not seeing any impact of the new COVID variant on booking trends so far.”

Delta Airlines Stock Price Forecast

Twelve analysts who offered stock ratings for Delta Airlines in the last three months forecast the average price in 12 months of $58.00 with a high forecast of $73.00 and a low forecast of $45.00.

The average price target represents a 38.13% change from the last price of $41.99. From those 12 analysts, ten rated “Buy”, two rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $73 with a high of $96 under a bull scenario and $35 under the worst-case scenario. The firm gave an “Overweight” rating on the airlines’ stock.

Several other analysts have also updated their stock outlook. Bernstein raised the target price to $65 from $64. The Goldman Sachs Group increased their price target to $47 from $35 and gave the stock a neutral rating. Deutsche Bank raised shares to a buy rating from a hold rating and set a $55 price objective.

Check out FX Empire’s earnings calendar

What Does The Fed Mean By “Transitory Inflation” And Why Is It Important To Understand?

As the markets react to the somewhat shocking CPI and Inflation data while Q2:2021 earnings continue to roll across the news wires, we wanted to take a minute to explore the recent Fed comments related to “Transitory Inflation” and what that really means.

For those of you not familiar with the word ‘transitory’ (in conjunction with inflation) according to the Merriam-Webster Dictionary, Transitory means:

The COVID-19 Cycle Phase Setup

The COVID-19 market collapse happened at a time when the general US stock market was continuing to transition into stronger upward price trending and where consumers were engaging in the economy at fairly strong levels.  Initial Jobless Claims in November and December 2019 averaged near 221k per week. Real Consumer Spending averaged more than 2.80% throughout all of 2019.  The Consumer Price Index (a measure of price inflation) averaged only 0.18% throughout all of 2019.  One could say jobs were strong, consumers were spending moderately robustly and inflation concerns were relatively mild or non-existent.

All of that changed in 2020 as news of the COVID-19 virus started spreading across the globe. By mid-February, we were starting to see COVID cases through many areas of the world with little information about how dangerous this virus was or what types of risks we were facing.

President Trump, and other world leaders, acted to try to stop the spread of the virus first by shutting down international travel to and from some countries. Next, the States started locking down business and other aspects of society and suddenly, weekly jobless claims jumped to more than 3 million by March 26, 2020, alone.  By the following week, the jobless claims jumped to over 6.6 million. Real Consumer Spending dropped from +1.8 in January 2020 to -34.6 in June 2020.  CPI stayed relatively flat for the first 5+ months of the COVID virus event.  This suggests that inflation was not a real concern at that time.

By April 2020, the US Government and many foreign nations had a real problem on their hands.  A spreading COVID-19 virus, millions of people out of work, economies shutting down and a real lack of infrastructure to deal with this problem.

The US Federal reserve and the US Congress jumped into help US citizens (and others) with the first round of stimulus and new Executive Orders to help prevent collateral damage to the most at-risk people. But the time these support systems start reaching Americans, the country had lost more than 40 million jobs and Real Consumer spending fell to -34.6%.  From an Economist view, this spells real trouble.  From a Month-over-Month or Year-over-Year perspective, it looks pretty dang ugly.

And that leads us to the reason why the US Federal Reserve is expecting Transitory Inflation over the next few months – it’s all in the cycle phases and what’s to come.  What they are not telling you is that over the next 12+ months, we are likely to go through a series of highs and lows while the cycle phase reverts back to more normalized levels. We all need to get ready for the potential of some really big swings in the US major indexes, major sectors, asset values, and the global markets over the next 12 to 24+ months.  We are not even close to the end of this new cycle rotation at this stage.

Cycle Components: Amplitude and Wavelength

All Sine Waves function on two core components, Amplitude and Wavelength.  Amplitude is measured as the crest or trough value furthest away from a centerline.  Wavelength is measured by the amount of time it takes for two consecutive crests or troughs to complete.  Wavelength can also be considered as “time”.

Elevation is the total range measurement from trough to crest along the Amplitude scale.

A Dampening Sine Wave Structure – The Cause Of Transitory Inflation & Other Issues

The way I like to explain a Dampening Sine Wave Structure to people is to think of a very calm pond or small body of water and what happens on the surface when you toss in a fairly large rock.  First, the rock impacts the surface and displaces the water creating a trough and the initial “impulse wave”.  This disruption of the fluid dynamics of water then creates a Dampening Sine Wave process of reverting back to normal water levels/activity – such as we see in the example below.

The example, below, also aligns with the COVID market collapse and the subsequent recovery/reversion process that is likely to continue to play out over the next few months and years. Allow me to explain.

When COVID-19 disrupted the global economy, it was just like a big rock landing in a fairly small pond – it disrupted the normal economic activity by a fairly large degree.  Then the US Federal Reserve and other Global Central Banks jumped in with liquidity and other efforts to attempt to minimize the damage to the global economy.  In a way, this activity actually amplifies the Amplitude range of the subsequent cycle phases – not the initial downside cycle phase.  It does this by over-leveraging and hyper-inflating certain sectors/assets with new/easy money policies.

I believe the recovery from the March 2020 lows has been amplified by the continued efforts of the US Federal Reserve and Global Central Banks to prompt a very large recovery phase (upward crest), indicated on the chart below as “New Current Peak in Sine Wave Structure”.

After this crest peaks and rolls over, we’ll start a move that will likely attempt to bottom well below normal economic levels (possibly 10% to 20% below normalized historical levels) and may result in a deleveraging/price exploration event that many traders/investors are not prepared for.  In fact, over the next few years, we may see multiple various forms of this repeating cycle phase continue to roil the markets until we settle back into more normalized market trending.

So, by definition, I believe the Transitory Inflation suggestion by the US Federal Reserve relates to these Dampening Sine Wave cycle phases (above) and is why traders may not be prepared for what the Federal Reserve expects.

If I’m right, the US Federal Reserve and the Global Central Banks may still have quite a bit of work ahead to continue to navigate these cycle phases and the risks associated with each event cycle.  We may watch asset values peak and revalue over and over again throughout the next 7+ years as these phases continue to play out.  If another COVID variant hits the globe again, which may further amplify these cycle phases, we may start a new secondary Dampening Sine Wave cycle that will further complicate the recovery process going forward.

No matter how it plays out, these cycle phases suggest the markets are going to be full of big trends, various appreciation and depreciation phases, and the US Fed and Global Central Banks will be trying to navigate some very difficult times ahead.  Traders and Investors should look forward to some incredible setups and trends over the next 2 to 5+ years and get ready for the current crest to peak before the end of 2021.  Just like that first big climb of a roller-coaster – when you reach the peak, the real fun is just getting started.

Want to know how our BAN strategy is identifying and ranking various sectors and ETFs for the best possible opportunities for future profits? Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

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Have a great day!

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Pound Drops on Anxiety Over Impending End to UK COVID Curbs

Markets globally were in an uncertain mood as robust economic data and company earnings on one hand are offset by rising virus caseloads, especially across Asia.

Britain is set to drop all COVID-linked activity curbs from next Monday, including mandatory mask-wearing. While two-thirds of British adults are fully vaccinated, scientists warn another wave of infections, especially from the more transmissible Delta variant, is inevitable when restrictions end.

The anxiety seems to be outweighing signs the economy is bouncing back strongly from the lockdowns. Data showed 356,000 jobs were added in June from May and the fastest headline wage growth in the year to May since records began in 2000.

The figures come after data on Wednesday showed inflation at 2.5% in the 12 months to June, surging above the central bank’s target. Markets now price the Bank of England to raise interest rates to 0.25% by August 2022.

But by 0835, sterling eased 0.3% against the dollar at $1.382, retreating further from two-week highs hit at the start of the week. Versus the euro too it slipped 0.3% at 85.6 pence, edging off 3-1/2-month highs touched on Wednesday.

Sterling feels like it’s pricing in that the economy is reopening too early,” said Justin Onuekwusi, portfolio manager at Legal & General Investment Management.

He said markets were also pressured by signs of disagreement between the central government on one hand and regional and transport authorities on the other, with the latter group keen to still maintain some restrictions.

“A few months back it looked like the UK was way ahead in term of vaccinations but what the market was not anticipating was the rise in the Delta variant,” Onuekwusi added.

There are concerns too about the end of job subsidies which supported 2.4 million jobs at the end of May but are being phased out by end-September and will likely boost unemployment again.

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

(Reporting by Sujata Rao; editing by Angus MacSwan)