Market Review 15-01

Market Review 15-01

Forex News

British Pound Edge Up Ahead of Key Brexit Vote

From: Investing.com

The British pound was in focus and traded slightly higher against the U.S. dollar on Tuesday in Asia ahead of a vote on U.K. Prime Minister Theresa May’s Brexit Deal.

The U.K. parliament is expected to vote down May’s Brexit plan later in the day. While the defeat is widely anticipated by the market, it could still trigger a volatile knee-jerk market reaction if May loses the vote by a wide margin, analysts said.

“Losing by 100 or more votes is a major defeat but there’s some talk that she could lose by 200 votes. A major loss will lead to a knee jerk decline in GBP that could take GBP/USD below 1.25 and EUR/GBP above 91 cents,” said Kathy Lien, managing director of currency strategy at BK Asset Management in a note.

The GBP/USD pair last traded at 1.2897 by 12:16 AM ET (05:16 GMT), up 0.3%.

Meanwhile, the USD/CNY pair was little changed at 6.7684 after Beijing vowed tax cuts on a larger scale to help support its slowing economy.

Separately, the People’s Bank of China’s (PBOC) Deputy Governor Zhu Hexin said on Tuesday that he is confident that the PBOC could keep the Yuan stable despite cuts in banks’ reserve requirement ratio (RRR).

Citing the latest announcement from the PBOC, Reuters reported that the central bank had slashed the RRR today as the second round of a cut already announced earlier.

The central bank set the yuan reference rate at 6.7542 today vs the previous day’s fix of 6.7560.

On Monday, data showed China’s exports in December unexpectedly shrank the most in 2 years, putting Chinese equities under pressure.

The U.S. dollar index that tracks the greenback against a basket of other currencies was flat at 95.183.

“There is a strong dislike for the dollar given Fed expectations, but at the same time there is not a compelling replacement,” said Sim Moh Siong, currency strategist at Bank of Singapore. “Over the next 6-12 months, the dollar should trend lower.”

Federal Chairman Jerome Powell and several other officials reiterated last week the U.S. central bank could afford to be patient on monetary policy given that inflation remains stable.

Elsewhere, the AUD/USD pair and the NZD/USD pair both gained 0.3%.

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Gold edges higher as China surprises with dismal data

From: Marketpulse.com

Gold has started the week with slight gains in the Monday session. In North American trade, the spot price for one ounce of gold is $1290.67, up 0.22% on the day. There are no U.S. indicators on the schedule. On Tuesday, the U.S. releases PPI reports and the Empire State Manufacturing Index.

On Monday, China released unexpectedly weak data, with exports down 4.4 percent from a year earlier and imports plunging 7.6 percent. The slowdown in China has taken a toll on corporate profits, with Apple and Jaguar Land Rover posting revenue warnings. Investors will be keeping a close eye on Chinese numbers, and further signs of a slowdown from the world’s second largest economy could raise risk apprehension and bolster safe-haven gold.

Gold is sensitive to moves in interest rates, and the Fed’s surprisingly dovish stance could boost gold prices. Fed Chair Powell is now preaching prudence and patience, and the minutes from the Fed’s December meeting, released Wednesday, noted that low inflation levels meant that the Fed could “afford to be patient about further policy firming”. Even more striking, the minutes revealed that at the December meeting, some policymakers opposed a rate hike, arguing that inflation was too low to warrant higher rates. On Thursday, Fed Chair Jerome Powell said he was “very worried” about the massive U.S. debt and reiterated that the Fed would remain patient on monetary policy. Given that further interest rate hikes would hurt the debt burden of corporate borrowers, Powell’s remarks on the debt could be a sign that the Fed will take a pause on rate hikes in the near future, and perhaps even entertain a rate cut this year. The sharp U-turn on monetary policy by the Fed could continue to weigh on the U.S dollar for the near future, and that could spell gains for gold.

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Stock Market News

Here’s what to expect as S&P 500 earnings growth estimate gets cut in half

From: Marketwatch.com

Fourth-quarter earnings growth for S&P 500 companies might appear robust on its own, but investors should also consider that growth in context, as it is expected to slow to less than half the average of the first three quarters.

FactSet publishes a “blended growth” percentage change for earnings per share, representing a blend of year-over-year growth of actual results already reported and the average estimates of surveyed analysts of upcoming results.

For the fourth quarter, the blended growth consensus for the S&P 500 was 10.6% through Friday. That compares to the average reported growth of 25.5% for the first three quarters of the year, and would represent the lowest expected growth since 7.3% in the third quarter of 2017.

And for the first time since Q3 2017, the growth won’t be unanimous: The utilities sector is the only one of 11 S&P 500 sectors expected to report an earnings decline.

The expected growth is also down from the 16.31% that was expected at the end of the third quarter, as concerns over the negative effects of a strengthening U.S. dollar, rising input costs and worries over a trade the trade war with China pulled down analyst projections.

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China worries weigh on Wall Street, earnings expectations fall

From: Reuters.com

U.S. stocks declined on Monday as an unexpected drop in China’s exports reignited worries of a global economic slowdown and prompted caution among investors as the corporate earnings season kicked off.

Data showed that China’s exports unexpectedly fell the most in two years in December and imports also contracted. The drop pointed to further weakening of the world’s second-largest economy and faltering global demand.

Chipmakers, which get a sizable portion of their revenue from China, took a hit, with the Philadelphia SE Semiconductor Index .SOX down 1.6 percent. The technology sector’s .SPLRCT 0.9 percent fall was the biggest drag on the S&P 500.

The Dow Jones Industrial Average .DJI fell 86.11 points, or 0.36 percent, to 23,909.84, the S&P 500 .SPX lost 13.65 points, or 0.53 percent, to 2,582.61 and the Nasdaq Composite .IXIC dropped 65.56 points, or 0.94 percent, to 6,905.92.

As worries over global growth have mounted, lofty expectations for U.S. corporate growth have subsided. Analysts now estimate that S&P 500 earnings will grow 14.3 percent year-over-year for the fourth quarter, whereas in October they forecast a 20.1-percent jump, according to IBES data from Refinitiv.

“It will be a big thing to see if the Chinese slowdown is real, or if it is an excuse for some companies not to hit the high growth seen last quarter,” said Craig Birk, chief investment officer at Personal Capital in San Francisco. “If things are really slowing down, you’ll start to see it show up this quarter in earnings.”

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Cryptocurrency News

Russia Is Considering a Shift to Bitcoin to Limit the Impact of U.S. Sanctions, Report Says

From: Fortune.com

Russia is reportedly planning to replace the U.S. dollar with Bitcoin as its reserve currency in a bid to limit the impact of US sanctions imposed on the country.

Last week, the cryptocurrency news site Micky quoted a Russian economist with ties to the Russian government as saying that U.S. sanctions on the country are forcing Russia and certain oligarchs to “dump U.S. assets and U.S. dollars and invest hugely” in Bitcoin.

Vladislav Ginko, an economist at the Russian Presidential Academy of National Economy and Public Administration, a state-funded institution, said the transition from dollars to Bitcoin could begin in February. “I believe that [the time] is coming when other countries will start doing that and Russia has a brilliant chance to invest into heavily oversold Bitcoin,” Ginko said.

Congress has imposed sanctions on Russia following the assertion of US intelligence agencies determined that the country interfered with the 2016 Presidential election and again in the wake of the poisoning of former Russian military officer Sergei Skripal.

Russian President Vladimir Putin has expressed interest in Bitcoin, saying last June that the cryptocurrency “has its place in the world.” A report in the Telegraph said that from dollars to Bitcoin may involve an intermediary cryptocurrency, likely a token created by a Russian bank, before Russia could buy Bitcoin through a crypto exchange.

On Monday, Mickey also reported “a large and unusual increase” in the volume of OTC Bitcoin purchases placed by Russian nationals, indicating further interest in Bitcoin inside Russia. Bitcoin was trading at $3,649.78 late Monday, up 4% in the previous day.

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