Archives of “July 14, 2020” day

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Fear and Greed

  
Analysis, Education
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Greed and fear are borne from the same parents. They feed on each other. A falling market prompts more selling just as a rising market feeds on itself. 
It’s a concept that I just had to learn myself.

Why do stocks that are undervalued continue to be undervalued? 

Why do stocks that are overvalued continue to be overvalued? 

These momentum types of traits are of the same nature.

Fear prompts more aggressive panic selling ; that’s why stocks that are already slumping continue to be sold and enter a vicious cycle ;

Could be margin calls causing them to fall even further . 

 This same self reinforcing process operates in the same way on why stock prices can be propelled into the stratosphere. A great story can go on forever whenever the herd mentality is strong. Investors copy each other buying and selling. Greed prompts more euphoria until the loudest and most vociferous voice of the bull market must admit that the honeymoon is over and when it happens; it is a sobering and humbling experience.
When these happen; the most conservative option is to cut costs and hope for the best.

European shares end the session with declines

  
Analysis, Global Indices
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UK FTSE outperforms

The European shares are ending the session with declines.  The UK FTSE 100 the better than others on the GBPs weakness.
The provisional closes are showing:
  • German DAX, -1.06%
  • France’s CAC, -1.25%
  • UK’s FTSE 100, -0.10%
  • Spain’s Ibex, -1.02%
  • Italy’s FTSE MIB, -0.7%
In the European debt debt market, the benchmark 10 year yields are ending lower across the board. Declines range from -2.7 basis points to -3.6 basis points:
UK FTSE outperforms_

In other markets as European traders look to exit:

  • spot gold is trading up $6.05 or 0.34% at $1808.82. The low extended to $1790.79. The high for the day is near current levels at $1809.74
  • WTI crude oil futures are trading up $0.31 or 0.77% at $40.41 for the August contract. The September contract is also higher by $0.33 or 0.82% at $40.65
In the US stock market the Dow industrial average outperforms while the NASDAQ index get whipped around and volatile trading. The current snapshot shows
  • S&P index up 12.8 points or 0.41% at 3168.16
  • NASDAQ index down 2.6 points or -0.02% at 10391.16
  • Dow industrial average up 288 points or 1.11% at 26374
The NASDAQ index has whipped around in with the low falling -2.01%. The high extended up 0.42%.  The point range is around 250 points from low to high.

OPEC: Sees demand falling 8.95 mbpd this year, rising by 7 mbpd in 2021

  
Analysis, Crude
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Highlights of the OPEC monthly oil report

  • Sees 2020 demand -8.95 mbpd vs -9.07 in prior report
  • Sees US output down 1.37 mbpd this year; +0.24 mbpd next year
  • Oil stocks are 210 million barrels above 5-year avg
  • Efficiency gains and remote working to cap demand rise in 2021 to below 2019 levels
A separate report, citing delegates, sees OPEC+ June compliance at 107%.

UK government announces ban to Huawei from the country’s 5G networks

  
  Analysis
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Confirmation by UK culture minister, Oliver Dowden

Huawei
  • Telco companies to be barred from buying Huawei equipment from 2021
  • UK pledges to remove Huawei equipment by 2027
  • Huawei ban will delay, add costs to 5G rollout
  • The requirement will be set out in law

Dowden is alluding to the fact that US sanctions have made it hard to come to a decision to continue dealing with Huawei, but this just adds to the divide between the UK and China as well amid the recent Hong Kong row.

But in any case, this will also just heighten tensions between China and the US, UK further.

Germany July ZEW survey current situation -80.9 vs -65.0 expected

  
Analysis, Economy

Latest data released by ZEW – 14 July 2020

  • Prior -83.1
  • Expectations 59.6 vs 60.0 expected
  • Prior 63.4
What stands out in this report here is that any rebound in economic sentiment remains tepid at best and while expectations are still elevated, they have dropped off slightly – a hint that optimism about the future is becoming more measured.
On the latter, it would be a focal point moving forward as that will more or less give an idea about the pace of the recovery and this early stutter isn’t all too encouraging.

Eurozone May industrial production +12.4% vs +15.0% m/m expected

  
  Analysis
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Latest data released by Eurostat – 14 July 2020

  • Prior -17.1%; revised to -18.2%
  • Industrial production WDA -20.9% vs -18.9% y/y expected
  • Prior -28.0%; revised to -28.7%

Factory output rebounded in May but not as robust as anticipated, with the annual reading highlighting the plight faced by the euro area economy despite the gradual easing of lockdown measures. June should also reflect a rebound but new normal conditions and the pace of the recovery will likely only be seen in July to August or later in Q3.

UK 2-year bond yields briefly fall below that of Japan’s for the first time ever

  
  Analysis
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The Japanification of the gilt market continues

UK Japan

Japan is pretty much the benchmark for low-to-no yields in the global bond market and when another country reaches that point, it sort of rings an alarm bell to investors that there isn’t much attractiveness/value in said yields anymore.
UK long-term yields fell below their Japanese counterparts at the end of last month but now we’re seeing the front-end of the curve follow suit as well.
The rally in gilts could either be suggestive that investors are fine with being more risk averse or that those buying are pretty much stuck due to regulatory constraints.
But whatever the case is, don’t expect value investors to be searching for scrumptious returns in the UK any time soon. In turn, that may be another reason to add to the list of headwinds for the pound and the UK economy in general.

Risk ahead for the EURO this week

  
Analysis, Forex
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ECB policy review and European summit

German bunds were trading at -0.46% yesterday on the 10 year chart which is 10bps lower than a Bloomberg modelled curve mentioned on the Bloomberg Live Blog yesterday. This is most likely due to positioning ahead of the European Council’s summit.

On Friday and Saturday of this week EU policy makers will meet to discuss the proposed €750 billion recovery plan.The big questions is whether nations like Austria, Denmark, Sweden, Netherland and Finland will block the plan. The  issue is that these countries are opposed to the idea of large handouts on principle.However, despite their reluctance, the present crisis means their reticence may be seen as mean spirited in a time of shared humanitarian crisis. The pressure is for the countries concerned about the ideas of grants rather than loans to approve this proposed fund.On July 10 we had a German official state that Netherlands is unlikely to block the EU recovery fund which is supportive of the fund being accepted.

On Thursday we have the ECB rate meeting with little change expected. With the PEPP program increasing by €600 billion euros last month  it is unlikely that we see any changes to the PEPP program on Thursday.

The risk

If the recovery fund is rejected by the frugal four expect immediate downside for the EUR. However, given that the second day of the meeting is taking place over the weekend this is going to be weekend risk for the EUR.

ECB policy review and European summit

Nikkei 225 closes lower by 0.87% at 22,587.01

  
Analysis, Global Indices

Asian equities follow the declines from Wall Street overnight

Nikkei 14-07
It is a bit of a soggy mood in Asian trading with stocks ending on a weaker note, as we see the Hang Seng down by 1.7% and the Shanghai Composite also down by 2.0%.
This follows the late drop in US equities overnight, where the Nasdaq fell by a little over 2%. So far today, US futures are keeping little changed and that is more reflective of the current risk mood in the market.
Major currencies are keeping in narrow ranges as such, with EUR/USD seen at 1.1340 within a 15 pips range and AUD/USD at 0.6942 within a 23 pips range.
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