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Week in Review

The Week in Review: US Stocks Bounce Back with All Eyes On France

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Weekly Recap

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Asset Current Value Weekly Change
S&P 500 2345 0.85%
DAX 12105 -0.50%
WTI Crude Oil 49.61 -8.12%
GOLD 1285.50 -1.14%
Bitcoin 1229 4.19%
EUR/USD 1.0728 1.21%

 

Global stock markets had an unusually mixed week as European equities were under pressure before the close French presidential election. The latest polls showed a welcome gain for the favored candidate Macron, who will most likely face Marine Le Pen in the second round. Amid the European tensions, the major US benchmarks ended the period higher, with technology stocks leading the way once again. Japanese stocks were helped by the correction in the Yen, while British equities lost ground following Theresa May’s surprise announcement about a snap UK election in June.

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Monthly progress of the main global indices, Comparison Chart (% gains)

Oil turned lower after two bullish weeks, and WTI Crude plunged back below the $50 per barrel level towards the end of the week, as the jawboning of some of the OPEC nations was overshadowed by the gloomy fundamental picture. Gold also declined during the week, although because of different reasons, as safe-haven assets retreated from their recent highs despite the continued verbal battle between North Korea and the US. As Donald Trump turned surprisingly active on geopolitical issues, he put pressure on China to take up a role in dealing with the “Korean problem”. If the superpowers finally decide to neutralize the communist leadership in one form or another, markets will likely experience another risk-off period.

Cryptocurrencies had a consolidation week as most of the major altcoins were trading in ranges throughout the period. Ethereum, Ripple, Litecoin, and Monero all traded without a clear direction, although Ripple and Litecoin remained way more volatile following their strong moves. Bitcoin enjoyed a bullish move following the Easter weekend, as it broke the $1215 resistance and touched $1250 on Friday for the first time in more than a month. Ethereum Classic and NEM were among the major movers on the upside, while Dash drifted lower after hitting level $75 again.

Economic numbers were also mixed, but the most awaited releases were mostly negative surprises. US data took a nosedive, with the Philly Fed Index, Housing Starts, and Capacity Utilization all missing the consensus estimates. British Retail Sales were also much worse than expected, putting further pressure on the local market. The Eurozone PMIs were a relatively bright spot, and Chinese Industrial Production gave some hope to investors that the slowdown in the country is, at least, contained.

Technical Corner

The NASDAQ has retained its leading role among the global benchmarks, despite the recent geopolitical fears, as it got very close to hitting a new all-time high, “under the radar”. The DAX decoupled from the NASDAQ in recent weeks, as European traders took a cautious stance before the French election. The tech benchmark is in a slightly advancing trend channel that defines the consolidation zone below the April highs.

The US Tech Index, 4-Hour Chart

The 5500 level might be in the focus in the coming week, especially if the week begins with a relief rally after the elections. Primary support is found at 5400, while the low from last week near 5350 cold provide short-term support as well, with a more important level near 5315. The relative strength of the index is a bullish sign for the broader market, as the NASDAQ is usually a good indicator of the risk appetite of traders.

Key Economic Releases of the Week

Day Country Release Actual Expected Previous
Tuesday US Building Permits 1.26 million 1.25 million 1.22 million
Tuesday US Housing Starts 1.22 million 1.25 million 1.30 million
Tuesday US Industrial Production 0.50% 0.50% 0.0%
Wednesday EUROZONE Final CPI 1.50% 1.50% 1.50%
Wednesday US Crude Oil Inventories -1 million -2.2 million
Thursday US Philly Fed Index 22.0 25.6 32.8
Thursday US Unemployment Claims 244,000 241,000 234,000
Thursday US BOE Governor Carney Speech
Friday GERMANY Services PMI 54.7 55.5 55.6
Friday GERMANY Manufacturing PMI 58.2 58.1 58.3
Friday EUROZONE Services PMI 56.2 56 56
Friday EUROZONE Manufacturing PMI 56.8 56.1 56.2
Friday UK Retail Sales -1.80% -0.30% 1.40%
Friday CANADA CPI 0.20% 0.40% 0.20%
Friday US Existing Home Sales 5.71 million 5.61 million 5.48 million
Thursday CANADA Building Permits (monthly) -2.50% 5.40%
Thursday US Initial Jobless Claims (weekly) 234,000 251,000 258,000
Friday CANADA Employment Change 19,400 5,700 15,300
Friday CANADA Unemployment Rate 6.70% 6.70% 6.60%
Friday US Hourly Earnings 0.20% 0.20% 0.20%
Friday US Employment Change 98,000 175,000 235,000
Friday US Unemployment Rate 4.50% 4.70% 4.70%

 

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Week in Review

Weekly Analysis: European Stocks Hit New Highs in a Historic Period for Cryptocurrencies

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Weekly Recap

Asset Current Value Weekly Change
S&P 500 2398 0.88%
DAX 12675 1.76%
WTI Crude Oil 46.47 -5.75%
GOLD 1228.00 -3.21%
Bitcoin 1570 16.11%
EUR/USD 1.0998 0.91%

Global stock markets had a surprisingly quiet week, despite Federal Reserve’s meeting and the US Employment Report, which usually cause volatile episodes all over the world. The major indices were mixed with the European exchanges outperforming their peers by a wide margin. US equities showed weakness “under the hood”, as several broad indices underperformed the leaders of the market. This divergence might be the precursor of a risk-off period, although the second round of the French election will likely be a positive influence in the first days of the week.

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Traditional currencies were little changed amid the cryptocurrency-surge, as the Fed’s rate hike strategy seems unchanged, and the uptick in the US economic numbers halted the ongoing depreciation of the US Dollar. The Yen was among the weakest majors, while the Pound gained ground on most of its peers. Commodity currencies took a huge hit in this week, although the Canadian Dollar recovered strongly on Friday thanks to the rebound in the price of oil. Oil suffered a “liquidation-event”, as it plunged below its 5-month lows and crashed as low as $44 per barrel. Gold also fell sharply, and ended the week near the $1225 level, as the positive global sentiment hurt safe-haven assets.

 

WTI Crude Oil Futures, Daily Chart Analysis

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Cryptocurrencies

The cryptocurrency market had a euphoric week, as the strong rally in Bitcoin and the continued surge in almost all other major coins propelled cryptocurrencies to the headlines of the mainstream media. BTC hit a high near $1600 on all of the major exchanges before entering a fierce and volatile correction towards the end of the week.  The total capitalization of the market reached as high as $46 billion, an incredible 40+% jump in once week. Litecoin and Ripple were the other stars of the week, closely followed by NEM and Ethereum. Monero also performed well, while Dash and Ethereum Classic were the laggards of the period, although the latter held on well to its recent lofty gains.

Litecoin, 4-Hour Chart Analysis

Economic Numbers

The holiday-shortened week proved to be the most bullish regarding economic news in a while, with the US and British numbers providing plenty of positive surprises throughout the period. The Fed’s interest rate decision was in line with expectations, while the Employment Report was back on track, with a Non-Farm Payroll growth of 211,000 and the lowest Unemployment Rate since 2008, at 4.4%. Manufacturing PMIs were mixed globally, with the Chinese and US numbers slightly missing the consensus estimates, while the British number coming in much higher than expected.

On a negative note, the fall in commodities is suspicious for the global economy, especially after the huge Hurray following Trump’s victory. All in all, modest growth is expected to continue, although the very high level of debt in virtually all major countries, coupled by the record low level of interest rates makes the “growth story” very fragile.

Technical Corner

S&P 500, 4-hour Chart Analysis

The S&P 500 remained in a tight range throughout the week as it failed to follow through the surge of the gap of the previous Monday. This slightly negative behavior might lead to a break-down in the coming days, although a push to new highs is also in the cards following the last minute surge on Friday. The MACD indicator drifted back to neutral territory thanks to the sideways price action, with a possibly developing advancing trend-line being just below the current levels. The current pattern will likely resolve soon, and Sunday run-off in France could provide a trigger for the next directional move.

Key Economic Releases of the Week

Day Country Release Actual Expected Previous
Monday UK Treasury Sec Mnuchin Speaks
Monday US Personal Spending 0.00% -0.10% 0.20%
Monday US ISM Manufacturing PMI 54.8 56.6 57.2
Tuesday CHINA Manufacturing PMI 50.3 51.4 51.2
Tuesday AUSTRALIA Base Interest Rate 1.50% 1.50% 1.50%
Tuesday UK Manufacturing PMI 57.3 54 54.2
Wednesday UK Construction PMI 53.1 52.1 52.2
Wednesday EUROZONE Prelim GDP 0.50% 0.50% 0.40%
Wednesday US Crude Oil Inventories -0.9 million -3.3 million -3.6 million
Wednesday US ISM Non-Manufacturing PMI 57.5 56.1 55.2
Wednesday US ADP Employment Report 177,000 178,000 263,000
Wednesday US FOMC Statement
Wednesday US Base Interest Rate 1.00% 1.00% 1.00%
Thursday AUSTRALIA Trade Balance 3.11 bill 3.3 bill 3.57 bill
Thursday UK Service PMI 55.8 54.6 55.0
Thursday CANADA Trade Balance -0.1 bill 0.3 bill -1 bill
Thursday US Initial Jobless Claims (weekly) 238,000 246,000 257,000
Thursday US Trade Balance -43.7 bill -44.9 bill -43.6 bill
Thursday EUROZONE ECB President Draghi Speaks
Friday CANADA Employment Change 3,200 20,000 19,400
Friday CANADA Unemployment Rate 6.50% 6.70% 6.70%
Friday US Employment Change 211,000 194,000 98,000
Friday US Unemployment Rate 4.40% 4.60% 4.50%
Friday US Hourly Earnings 0.3% 0.30% 0.20%
Friday US FED Chair Yellen Speaks

 

The Story of the Week: Something Smells Fishy in China…

 

Long-Term Chart of the Shanghai Composite

We have been monitoring Chinese stocks in recent weeks, as the global rally since the French elections failed to ignite an advance in mainland China. In fact, the Shanghai Composite had scary declines in the wake of the crumbling of the interbank lending system, and the “shadow banking system” in the country. While this might sound technical, it is a very simple thing; the major Chinese banks are losing trust in each other and refusing to lend money to one another. Why is that? Because they fear (actually they know) that there is a huge problem in the banking system of the country.

Some experts argue that the country is in the “Mother-Of-All-Credit-Bubbles” that has been blown by the government in order to maintain growth in the country. Sure, the volume of construction projects that has been driving growth in recent years is borderline insane; and those projects were running on borrowed money, with, sometimes, very bleak return prospects. The chart above shows that non-financial credit in the country went up almost 5-times in 8 years until 2015, and that trend continued in the past year as well.

If we look around, we can see that besides stocks several related assets are showing signs of distress as well, such as commodities, commodity-related currencies, and Chinese corporate bonds. That said it’s hard to say that the bubble is popping right now, and that a US-style credit crisis is imminent. Credit bubbles tend to go on for much longer than expected even in free economies, let alone in a country which is centrally governed by people who get scared if the GDP growth rate falls below 5%.

As China expert Kyle Bass notes in this video, the re-structuring of the system is inevitable, and it will cause huge waves globally, but the timing of it is more than tricky. On another note, the coming Chinese credit crisis won’t mark the end of the China or the global economic growth, but it will be a huge bump on the road, with lots financial pain.

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Analysis

Weekly Analysis: Stocks and Cryptocurrencies Surge as the Eurozone is Saved (For Now)

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Current Value Weekly Change
2380 1.30%
12470 2.11%
49.19 -1.45%
1269.50 -1.71%
1318 7.85%
1.0898 1.63%

 

Traders could almost hear the collective sigh of relief in the financial world, as the French election removed the risk of an imminent political crisis in the Eurozone. Global stock indices surged to new bull market and all-time highs in the aftermath of the referendum, with the European indices understandably leading the way higher. The NASDAQ also continued to outperform the other majors, boosted by corporate earnings, while the Nikkei ignored the pronounced weakness in Chinese stocks, as Japanese traders celebrated the decline in the Yen. The markets held up well throughout the week, although a lot of stocks failed to join the party, and the weak economic numbers in the US caused a dip towards the end of the week.

Not surprisingly European currencies were the strongest this week, but on an interesting note, the Pound fared better excluding the Monday morning gap higher. The currency remains in a robust short-term uptrend since the announcement of the snap elections in June. The Dollar index remains near its 5-month lows, thanks to the recent strength in the Euro, although the Yen was heavily sold this week, as the demand for safe-haven assets dwindled. Gold was also the victim of the positive sentiment, but it remained relatively strong and gained ground near the end of the period, following the slightly dovish meetings of the European Central Bank and the Bank of Japan. Oil remained under pressure despite the rally in risk-on assets and finished the week near the $49 support after several days of choppy trading.

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Dollar Index, Daily Chart Analysis

Cryptocurrencies

The cryptocurrency market had another blowout week, as not only did Bitcoin hit a new all-time high, but several other currencies experienced fierce break-outs. The change in the value of the market reflected the buzz, as the sum of the coins’ market capitalization topped $34 billion, just a few weeks after reaching $30 billion for the first time. Ethereum, Ethereum Classic, and NEM were among the notable winners of the week, as all of them surged to new highs. Towards the end of the week, even the previous laggards among the majors, such as Ripple, Monero, and Dash rallied strongly. Ripple and Dash are flying high so far in weekend trading as well, being up by more than 30%, and 20% respectively. Litecoin failed to rise above last weekend’s highs but it remains just below those levels after a choppy consolidation week.

Economic Numbers

The US economy provided another round of reality check for bulls, as almost all of the major releases posted significant negative surprises. Although the numbers themselves were not terrible by any means (excluding the three-year low in GDP growth), the string momentum that carried the Trump-rally to new highs earlier on this year seems to be fading. While markets don’t expect a rate hike on next week’s Federal Reserve meeting, the additional tightening steps could also be in danger should these tendencies continue. The German IFO index as among the positive surprises, boosting the Euro on Monday, but the British GDP reading also missed expectations, with only the Eurozone inflation number providing evidence of growth.

Technical Corner

S&P 500, 4-hour Chart Analysis

The S&P 500 finished the week slightly lower following the negative GDP surprise, but the “election-gap” is still well below the current levels. As the strong rally in the NASDAQ couldn’t carry the index above its prior high, it seems likely that it will test the 2355 level in the coming days. The long-term picture remains bullish despite the current weakness, and with strong support zones found near 2332 and just below the 2300 level.

Key Economic Releases of the Week

Day Country Release Actual Expected Previous
Monday GERMANY IFO Business Climate 1.26 million 1.25 million 1.22 million
Monday CANADA Wholesale Sales (monthly) 1.22 million 1.25 million 1.30 million
Monday US FOMC’s Kashkari speaks 0.50% 0.50% 0.0%
Tuesday UK Public Sector Borrowing 1.50% 1.50% 1.50%
Tuesday US CB Consumer Confidence -1 million -2.2 million
Tuesday US New Home Sales 22.0 25.6 32.8
Wednesday AUSTRALIA CPI (quarterly) 244,000 241,000 234,000
Wednesday CANADA Core Retail Sales
Wednesday US Crude Oil Inventories 0.50% 0.60% 0.50%
Thursday JAPAN Monetary Policy Satement -0.10% -0.30% 1.70%
Thursday EUROZONE Base Interest Rate -3.6 million -1.1 million -1 million
Thursday EUROZONE Monetary Policy Satement
Thursday US Core Durable Goods 0 0 0
Thursday US Initial Jobless Claims (weekly)
Thursday US UOM Consumer Sentiment -0.20% 0.40% 0.50%
Friday UK Prelim GDP 257,000 241,000 244,000
Friday GERMANY Retail Sales 0.30% 0.40% 0.60%
Friday US Advance GDP 0.10% 0.10% 1.80%

 

The Story of the Week: Volatility and Short-Interest Near Record Lows on Wall Street

 

Volatility minimums and market tops in the S&P 500

The Volatility Index (VIX) which is one of the simplest measures measuring fear among investors is close to its multi-decade lows. Several commentators draw the conclusion that this has to mean that investors are too bullish, and participants are all in on the long side, so a market decline is inevitable. While the logic might be intriguing, and, in fact, several other measures point to a way overvalued market in the US, don’t fall into the trap of this simple conclusion. Looking at the history of the VIX, we can see that it did a poor job in forecasting the previous two bear markets, and you could even argue that according to this indicator, we are still in for years and years of advances.

On another note, short interest is also hitting record lows, as bears seemingly capitulated after 8-years of gains, and this week’s post-French-election euphoria delivered another blow for the remaining short sellers. The $1 million dollar question is, of course, that are these extremes any indication of a long-term top or not? The correct answer is the usual maybe… Trying to find the “ultimate indicator” (look at this great article on the infamous Hindenburg Omen) is generally a bad idea, but every once in a while all indicators will nail the top. This doesn’t mean that the current overvaluation and these signs of capitulation together shouldn’t be taken seriously, but using more robust methods, like trend analysis should be your primary tools, even if they won’t point out the exact tops and bottoms.

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Week in Review

The Week in Review: Bitcoin Surges as Syrian War Looms

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Weekly Recap

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Asset Current Value Weekly Change
S&P 500 2355 -0.30%
DAX 12225 -0.71%
WTI Crude Oil 52.23 2.78%
GOLD 1257.50 0.81%
Bitcoin 1090 10.10%
EUR/USD 1.0599 -0.53%

 

The second quarter started with a hectic week for global financial markets, as the central banks remained in the center of attention before the US missile attack in Syria took over the headlines. Stocks remained stable with a slight rotation between the main indices, as the previously strong DAX and Eurostoxx 50 were among the weaker benchmarks during the period. The Fed’s and the ECB’s meeting minutes were the most anticipated announcements of the week (dwarfing even the expectations regarding the usually crucial US employment report), and the US Dollar came out as the strongest currency after the choppy period, as the Fed still seems to be the most committed to raising interest rate and tackling inflation.

Crude oil was among the winners of the period, despite the rally in the Dollar. Gold had a mixed week, as it finally topped $1260, but plunged back below the crucial resistance on Friday as stock markets recovered, possibly pointing to a more significant correction ahead. The Euro was very weak in the second half of the week, as the dovish comments from Mario Draghi cooled down expectations regarding an imminent monetary tightening in the Eurozone. The Pound also lost ground against its major peers although British equities were holding up well.

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Gold Futures, 4-Hour Chart Analysis

Bitcoin and Litecoin dominated the cryptocurrency market, as the stellar weekend rise of Ripple was halted by a deep correction. Bitcoin rose back near the $1200 level just two weeks after testing the 880 level, while Litecoin hit $12.50 following a strong breakout from below the $4.50 zone. Ethereum traded sideways throughout the week above the $40 level, while Monero drifted lower after a failed rally attempt. Dash found support near the $60 level after rising 5-fold from $20 to $100 between the end of February and mid-March.

The UK provided a number of negative surprises on the economic front this week, as the manufacturing PMI, the construction PMI, manufacturing production, and industrial production all disappointed, with only the services segment showing strength. US and other European numbers were mixed, but remained mostly in line with the stable growth narrative. The ISM non-manufacturing PMI provided the biggest negative surprise, but it still shows robust growth in the sector. US initial jobless claims dipped lower after a worrying jump, although the employment report was mixed once again. Canada is still a bright spot globally, despite the weakness in the local real estate market.

Technical Corner

Range contraction was the name of the game for the most watched stock index in the world, as last week’s bounce stalled out near the upper boundary of the dominant technical pattern (a so-called Megaphone). The benchmark got stuck in a narrow interval towards the end of the week, and this phenomenon often precedes a significant move, as the “tension” in the market grows. The MACD also shows how compressed the recent days were for US stocks, as the indicator didn’t leave the neutral zone, and failed to give a meaningful signal in any direction.

S&P 500, 4-hour Chart

The S&P 500 finished the week right in the middle of the crucial 2350-2355 support/resistance zone that played a key role in recent weeks. The recent all-time high near the 2400 level is the most important resistance ahead, while the 2332 support could also be in play next week, should the index leave the current holding pattern on the downside. The financial sector that we have been monitoring recently also traded in a narrow range throughout the week, so the first few sessions could be critical next week.

Key Economic Releases of the Week

Day Country Release Actual Expected Previous
Monday AUSTRALIA Retail Sales (monthly) -0.10% 0.30% 0.40%
Monday UK Manufacturing PMI 54.2 55.1 54.6
Monday US ISM Manufacturing PMI 57.2 57 57.7
Tuesday AUSTRALIA RBA Rate Decision 1.50% 1.50% 1.50%
Tuesday UK Construction PMI 52.2 52.5 52.5
Tuesday CANADA Trade Balance -1 billion 0.7 billion 0.8 billion
Tuesday US Trade Balance -43.6 billion -46.7 bill -48.5 bill
Tuesday US Factory Orders (monthly) 1.00% 0.90% 1.2%
Wednesday UK Services PMI 55 53.5 53.3
Wednesday US ADP Employment Change 263,000 184,000 298,000
Wednesday US ISM Non-Manufacturing PMI 55.2 57 57.6
Wednesday US Crude Oil Inventories 1.6 millon -0.1 million 0.9 million
Wednesday US FOMC Meeting Minutes
Thursday GERMANY Factory Orders (monthly) 3.40% 3.50% -0.80%
Thursday EUROZONE ECB Meeting Accounts
Thursday CANADA Building Permits (monthly) -2.50% 5.40%
Thursday US Initial Jobless Claims (weekly) 234,000 251,000 258,000
Friday CANADA Employment Change 19,400 5,700 15,300
Friday CANADA Unemployment Rate 6.70% 6.70% 6.60%
Friday US Hourly Earnings 0.20% 0.20% 0.20%
Friday US Employment Change 98,000 175,000 235,000
Friday US Unemployment Rate 4.50% 4.70% 4.70%

 

The Story of the Week: Quarterly Performance of Asset Classes

Performance of different asset classes in Q1, Source: Deutsche Bank

If you follow financial markets on a daily basis, it is sometimes inevitable that you lose track of the big picture. As the first quarter of 2017 ended last week, we take a look at the performance of the major global asset classes with the help of Deutsche Bank’s cheat sheet. Generally speaking, the quarter was quiet, as volatility remained tame, especially in the US where the Volatility Index (VIX) hit record lows, as the S&P 500 didn’t fall by 1% for more than a 100 trading days in a row.

Interestingly commodities are found on both ends of the performance chart, as Crude Oil was the worst performing asset thanks to the technical breakdown of the last week of March, while precious metals sit at the top of the list after a healthy rally. Emerging markets were also among the best places for investors in the quarter with the Brazilian Bovespa Index yielding more than 10%.  The Hang Seng (Hong Kong) and the DAX were the strongest major indices, but the FTSE and the main US benchmarks also performed well. Russian equities lagged their global counterparts as the weakness in oil coupled with the increasing political tensions weighed on the country’s assets.

Looking at currencies, the Dollar’s correction was the main theme of the quarter, as the greenback retreated a bit, off its multi-decade highs against the Pound and the Euro after the post-election euphoria faded away. Donald Trump’s first months in office were less significant to financial markets than most analysts expected, although the media-hype was constant. US indices hit all-time highs throughout the period as the global bull market turned 8 on the 6th of March.

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