GBP/USD heads into the new week trading south of 1.2600
- A new week sees little data early on for the GBP and plenty of Brexit headlines to gum up the wheels for bullish hopefuls.
- PM May’s newest challenge will be to face down growing calls for a second Brexit referendum.
GBP/USD heads into the new trading week on the wrong end of 1.2600, trading into recent lows as Brexit continues to hang off of the Pound, dragging the GBP into the downside as cracks continue to widen as the UK barrels into a messy Brexit showdown in March.
PM May attacks second Brexit referendum proposal
UK Prime Minister Theresa May finds herself back at square one after a couple of weeks of intense distractions, surviving a no-confidence vote from within her own Tory party last week following the PM’s last-minute decision to pull her largely-despised Brexit withdrawal proposal from a parliamentary vote the week before as the divorce deal looks all but guaranteed to die on the floor of the UK’s House of Commons. With the EU warning in no uncertain terms that there will be no further negotiations for concessions or further discussions in general surrounding Brexit, all that PM May has left to do is let her current proposal face a parliamentary vote, but Mrs. May’s camp is looking to wind down the clock on Brexit further in hopes to corral further support from the UK’s parliament, hoping that a lack of time before next March’s deadline will see the UK’s naysayers more agreeable.
The economic calendar is free and clear of UK data for Monday, and with little meaningful data to come from Monday’s US market session, investors will be facing a fresh blast of Brexit headlines for the new week, although Europe’s CPI reading early today could see broader markets take a turn for the risk-averse if inflation measures confirm traders’ fears about an economic slowdown coming in for a landing on the European continent.
GBP/USD levels to watch
As noted by FXStreet’s own Valeria Bednarik, action towards the low end continues to mark out shorting opportunities on the GBP/USD pairing:
The GBP/USD pair bottomed at 1.2479 last week, its lowest since April 2017, bouncing up to 1.2686 after PM May survived to the no-confidence vote, resuming its decline afterward. The mentioned high was way below the weekly one at 1.2759, indicating that market players still see recoveries as an opportunity to sell. According to the daily chart, the bearish trend is set to continue, as the pair is developing well below its 20 DMA, which extends its slump below the 200 EMA, while technical indicators resumed their declines within negative levels after a modest bounce from nearly oversold readings. In the 4 hours chart, the price settled below a directionless 20 SMA, while technical indicators hold within bearish ground, the Momentum heading lower and the RSI hovering around 45, all of which maintains the risk skewed to the downside.
Support levels: 1.2545 1.2510 1.2475
Resistance levels: 1.2620 1.2665 1.2700
EUR/USD Trades Flat Amid Mixed Equities & Broad Based Demand For US Greenback
EUR/USD suffered a contracting triangle breakdown on Friday, courtesy of heightened global growth fears and resulting risk aversion in the equities. The pair is now trading flat as investors look to FOMC meet for forward guidance.
The American dollar could continue to draw bids, sending the EUR/USD pair lower toward the recent low of 1.1215 if the global equities remain risk-averse on mounting global growth fears. Friday’s softer-than-expected economic data from China revived fears of a global economic slowdown and dampened investors’ appetite for perceived riskier assets. The global flight to safety bolstered the US Dollar’s relative safe-haven status and lifted the greenback to 1½ year high, prompting some aggressive selling around the EUR/USD pair. The shared currency was further weighed down by disappointing German and Euro-zone PMI prints for December, showing a notable slowdown in both the manufacturing and the services component. The data reaffirmed ECB’s dovish shift on Thursday and forced investors to scale back expectations for a rate hike next year, which was has since weighed down the common currency significantly making the pair breakout below 1.13 handle.
EURO’s Upside To Be Limited Ahead of US FOMC Statement
However mixed data outcome in US macro calendar which saw PMI’s and Industrial/Manufacturing production data fall despite upbeat retail sales data hinted at slowdown in business growth which weighs down prospect for fed rate hikes in 2019 capping EUR/USD’s decline and helped the pair rebound from the lows and settle above 1.13 handle as market closed for the week. While broad based demand for USD weighs down EURO, the pair has managed to trade flat through Asian market hours as trading session began for the week. As of writing this article, the EUR/USD pair is trading flat at 1.1307 up by 0.01% on the day. While the pair is displaying positive bias, the upside is likely to remain limited ahead of key event of the week – FOMC update which will determine the future of US Greenback.
With a 25bps rate hike largely factored in by the market, the medium to long-term USD trajectory will be affected and guided by the Fed’s forward guidance. When looking from a technical perspective, Friday’s downfall confirmed a near-term bearish breakthrough a symmetrical triangular formation and thus, increases prospects for an extension of the bearish momentum towards challenging yearly lows, around the 1.1215 region. A follow-through selling pressure has the potential to continue dragging the pair, even below the 1.1200 handle, towards testing its next support near the 1.1160 region. On the flip side, any attempted recovery might now confront some fresh supply near the ascending trend-line support break-point, now turned resistance, currently around the 1.1325 region, above which a bout of short-covering could lift the pair further towards the 1.1365-70 strong horizontal resistance.
Stock Market News
Nissan board aims to boost governance post-Ghosn at Monday’s meeting
Nissan Motor’s board is expected to meet on Monday, its first since firing chairman Carlos Ghosn last month, to decide on ways to improve governance at the automaker amid rising tensions with alliance partner Renault.
The board is due to meet some time after 4:00 p.m. (0700 GMT), according to sources familiar with the matter, requesting anonymity as the meeting was confidential.
A panel of external directors tasked with picking an interim replacement for Ghosn have put off their selection, deciding to prioritize putting in place measures to improve governance, one of the sources previously said.
Ghosn was arrested on Nov. 19 by Japanese authorities over his alleged financial misconduct. The once-revered boss of Nissan was officially charged in a Tokyo court last week and remains in detention. The Japanese automaker was also indicted for its role in the scandal.
Nissan’s board is set to boost the number of external board members and set up a committee to oversee compensation, the source said.
Critics have said Nissan lacked adequate governance, with few truly independent voices on the board capable of questioning leadership and looking out for regular shareholders’ interests.
Its current three external board members include retired Renault executive Jean-Baptiste Duzan, considered to represent the views of the French automaker which is Nissan’s biggest shareholder. The other two external board members are former bureaucrat Masakazu Toyoda and racing car driver Keiko Ihara.
Nissan is 43.4 percent owned by Renault. While almost 60 percent bigger by sales, it remains the junior partner in their shareholding hierarchy with a smaller reciprocal 15 percent non-voting stake in the French firm. Renault’s biggest shareholder is the French state with 15 percent.
Ties between the Nissan and Renault, both of which were led by Ghosn, have been strained since his arrest.
Thierry Bollore, the French group’s deputy CEO, asked Nissan in a Dec. 14 letter to call an extraordinary shareholders meeting, a source said on Sunday, confirming a report in the Wall Street Journal.
A Renault spokesman declined to comment.
Nissan said it could not comment on the content of communications between the companies.
“Nissan has communicated actively and transparently with Renault regarding this matter, and will continue to do so. We remain steadfast in our commitment to the alliance,” it said
The letter was vague about its purpose, saying only that it would “allow for appropriate disclosure and discussion of governance and other matters”.
It added that the indictment of Nissan “creates significant risks to Renault, as Nissan’s largest shareholder, and to the stability of our industrial alliance”.
While Nissan ousted Ghosn days after his arrest, the Renault board at a Dec. 13 meeting reiterated its decision to keep him in office. Renault directors have yet to be given access to Nissan’s findings, which are being closely held by Renault lawyers.
The call for a shareholder meeting will likely be seen as an attempted show of force by Renault’s interim management, led by Bollore and Mouna Sepehri, Ghosn’s long-standing chief of staff who also heads legal affairs and communications.
The board of Mitsubishi Motors, which is the third member in the alliance, is also meeting on Monday, the sources said. Mitsubishi declined to comment.
3 Top Commodity Stocks to Buy in 2019
Commodities are the base products, pulled from the Earth beneath us, that allow material things to be created. The commodity category covers a broad range, from oil to iron ore to gold. Without these products you wouldn’t have cars, buildings, or the fancy electronics increasingly dominating the world. If you are looking to cash in on these fundamental materials, then three of the top commodity stocks to look at in 2019 are ExxonMobil Corporation (NYSE:XOM), BHP Group Limited (NYSE:BHP), and Franco-Nevada Corporation (NYSE:FNV).
Diversified, conservative energy giant
Exxon’s core business is drilling for oil and natural gas, key energy sources that power everything from cars to planes to the power plants that generate electricity. Oil and gas have been, and still are, key to economic growth, supporting living standards in developed markets and helping to raise the living standards of those in developing markets.
Exxon’s business spans the entire value chain, from upstream (drilling) operations through downstream (refining and chemicals) businesses that create the products, such as gasoline, that actually get used in day-to-day life. This diversification helps provide balance, since oil price swings can be dramatic and swift, as the recent oil price drop clearly demonstrates. Low oil prices hurt the upstream side of Exxon’s business, but as oil is also a key input on the downstream side, low oil prices are a net benefit on the other side of its operation.
In addition to diversification, Exxon is also highly conservative with its balance sheet. Long-term debt only makes up around 10% of the capital structure, placing the energy giant at the low end of its peer group on the leverage front. It is, essentially, designed to handle the ups and downs of the energy sector. Nothing proves that more than the incredible 36 consecutive years of annual dividend increases the company has amassed. And the stock looks relatively cheap today, trading with a yield (around 4.1%) that’s higher than it has been since the 1990s and a price to tangible book value that’s lower than it has been since around that same time.
Getting it right this time around
BHP, formerly known as BHP Billiton, is one of the world’s largest commodity producers, with material operations in iron ore (roughly 40% of underlying EBITA in fiscal 2018), copper (28%), coal (19%), and energy (14%). It also has a potash mine under consideration that, if built, would be among the largest in the world. The company, however, has recently gone through a big overhaul, jettisoning non-core mining assets (via the spin off of South32) and selling its onshore U.S. drilling business.
The goal of these moves was to streamline BHP down to just a few key investments, and within those investments to focus on just its best opportunities. In fact, the company recently held a conference dedicated to explaining its updated views on capital allocation. Management basically admitted that it hadn’t been a particularly good steward of shareholder capital during the last downturn in the highly cyclical commodity space, and explained why its new approach would be more robust.
The changes highlighted include the streamlining and capital allocation efforts noted above, but also a renewed focus on maintaining a strong balance sheet. To that end, BHP has cut long-term debt by 25% over the last two fiscal years. Long-term debt now makes up around 30% of the capital structure, a very reasonable figure that puts the company’s leverage toward the low end of its closest industry peers.
With positions in some of the world’s most important commodities, BHP looks like it is in fighting condition for the next commodity cycle. Adding to the allure is the stock’s over-5% yield.
Going at things a little differently
The last company up is Franco-Nevada, which doesn’t mine or drill for anything. It’s what’s known as a streaming and royalty company. Effectively, it provides cash to commodity producers, notably gold and silver miners and oil drillers, in exchange for the right to purchase these commodities at reduced rates in the future (or for a preset piece of the sales price in the case of royalty deals). This saves Franco-Nevada from having to worry about the complications of working the assets in which it invests. Moreover, the company tends to have generally wide margins in both good markets and bad since the prices it pays are usually set as a percentage of current spot prices.
To give you an idea of just how protected the company is from commodity volatility, it has increased its dividend every year since going public in 2007. That’s 11 years and counting, a period which included a deep commodity downturn. It’s also interesting to note that Franco-Nevada has no long-term debt, generally preferring to issue shares as it inks new deals. This conservative approach makes a lot sense: The best investment opportunities for Franco-Nevada will be during downturns, since that’s when miners are most desperate for cash and more willing to ink streaming and royalty deals. Maintaining a rock-solid balance sheet makes getting access to cash in downturns easier.
Precious metals (largely gold) are the big commodity here, making up between 80% and 90% of the company’s revenues over time. However, Franco-Nevada used the last oil downturn to opportunistically grow in the energy space, so there’s some oil and gas exposure here too. That differentiates it from other streaming companies that are focused only on metals. Franco-Nevada is also one of the most diversified streaming companies, with 51 producing mines, 58 producing oil and gas assets, and over 260 other assets in some stage of development or exploration.
Although Franco-Nevada’s 1.4% yield seems miserly compared to those of Exxon and BHP, it is actually a fair yield compared to its own history. And if you are looking for a way to invest in precious metals but want to sidestep volatility, the company’s streaming model, strong financial foundation, and highly diversified portfolio are a great way to do it.
3 ways to play commodities in 2019
If you are looking to invest in commodities, an approach that balances risk and reward is key, as the sector is prone to swift and volatile ups and downs. Exxon, BHP, and Franco-Nevada are all conservatively financed and pretty well diversified, and they all offer investors a fair amount of income via dividends to help you stick around through the inevitable volatility you’ll face. If you are looking for a commodity stock, all three should be on your short list today.
Hong Kong Exchange ‘Hesitant’ to Approve Bitmain IPO
The Hong Kong Stock Exchange (HKEX) is reluctant to approve the initial public offering (IPO) applications of Chinese bitcoin mining equipment manufacturers, according to a person involved in the talks.
Following the 2017 cryptocurrency market boom, mining giants Canaan Creative, Ebang and Bitmain applied in May, June and September of this year, respectively, to sell shares on the HKEX. Bitmain’s bid, in particular, was seen as a watershed moment, as it marked the first time a major crypto startup sought to go public.
But the 2018 bear market has underscored the sharp ups and downs of the crypto space, making the exchange nervous about listing such companies, the source told CoinDesk. Canaan Creative’s application has already lapsed, and the other two face a high bar in convincing HKEX.
“The exchange is very hesitant to actually approve these bitcoin mining companies because the industry is so volatile. There’s a real risk that they could just not exist anymore in a year or two,” said the person, who requested anonymity because the information is private, adding:
“The HKEX doesn’t want to be the first exchange in the world to approve this and have one die on them.”
An HKEX spokesperson said the exchange does not comment on individual companies or individual listing applications. Bitmain declined to comment, citing its pre-IPO quiet period, while Canaan Creative and Ebang did not respond to CoinDesk’s inquiries by press time.
Stepping back, the IPO process in Hong Kong starts with a company filing a draft prospectus with the HKEX. Then the exchange will begin back-and-forth talks and questions with the applicant.
If the application is approved by both the HKEX and the Securities and Futures Commission (SFC) – Hong Kong’s financial regulator – the case will proceed to a listing hearing, during which the offering size and share price are decided and then made public.
However, if an applicant does not make it to a listing hearing after six months from filing, the application will lapse, meaning the case is no longer active, though the applicant could choose to later reactivate the case if it still wishes to pursue the fundraising.
Canaan’s application lapsed in November after the firm failed to make it to the listing hearing six months from its May filing. Ebang, which submitted on June 24, is only two weeks away from the six-month window ending. Bitmain, the best known of the bunch, is almost halfway through the six-month period.
“Right now, I don’t think that any of them could make it to the listing hearing,” said the source, noting that both HKEX and the SFC must sign off. “If either one doesn’t approve it, you can’t make it to the listing hearing.”
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