Century Financial Weekly Market Report – 5th Nov

18

Currencies

Head and Shoulder pattern break

The US Federal Reserve left its monetary policy unchanged, as expected and on its way to raise rates next December. There were no fresh economic forecasts or an accompanying press conference, but the statement showed that policymakers see solid US economic growth, acknowledging at the same time that inflation remains soft. The greenback held on to gains because US President Trump finally nominated Jerome Powell as next Fed’s head, also as the market anticipated, someone who is expected to keep the Central Bank in the current path.

The ECB is marching towards tapering at much slower pace, while German and European inflation released this week was softer-than- expected, supporting the ECB’s case of trimming QE in phases. Technically EUR/USD daily chart looks like breakdown from Head and Shoulder pattern neckline.

We are bearish on EUR/USD

Equities

Japan breaks out to the upside

Japanese stocks have rallied bolstered by the domestic economy’s emergence from a multiyear deflationary spiral, plus structural and economic reforms by Prime Minister Shinzo Abe, who was just re- elected in a landslide that should give him an even stronger mandate for further reforms. The global economic recovery also has helped, because exporters and manufacturers account for twice the share of the market in Japan than they do in the U.S.

A decade ago, the gap in return on equity between Japanese and European companies was 10 points—and an even wider 12 points with U.S. companies. Now, Japanese companies have a slightly higher return on equity than European peers, and the gap with American companies has shrunk by more than a third.

Stronger economic data to propel Germany

German stock markets have also been buoyed by strong German numbers, and with the economy expected to record a healthy fourth quarter, the Germany 30 rally could continue.

In Germany, retail sales rebounded in impressive fashion, gaining

0.5% after two straight declines. On an annualized basis, retail sales gained 4.1%, indicative of strong consumer spending. Germany Preliminary CPI edged down to 0.0%, shy of the forecast of 0.1%. This follows two consecutive readings of 0.1% and points to continuing low inflation in an otherwise robust economy.

After months of speculation, the ECB announced last week that it will begin tapering its asset purchase program, from EUR 60 billion/mth to EUR 30 billion/mth. The program, which was scheduled to end in December, has been extended to April 2018. This should be bullish for Germany 30.

Markets poised for new highs

With results in from more than three-quarters of the S&P 500

Materials companies’ earnings, which have benefited from higher commodity prices tied to the weaker dollar, have had a high percentage of beats as well. S&P 500 companies with 50 percent or more of sales coming from outside the United States have estimated profit growth of 16.7 percent for the third quarter.

Momentum is strong and the stock market, by all appearances, has become a perpetual motion machine that won’t even let a controversial tax plan or a change atop of the Federal Reserve derail it.

Metals

Harmonic Pattern

The Bear Bat Pattern is a reversal pattern composed of four legs, marked X-A, A-B, B-C and C-D. Using Fibonacci levels applied from point X back to point A, the price is expected to reverse from 88.6% of XA or 161.8% or 261.8% from CD. To find B, the Fibonacci levels from X to A are inserted and B is formed at 38.2%. To find point C, the Fibonacci levels from point A to point B are inserted and point C will be formed between 38.2% or 88.6% Fibonacci ratio of the AB leg. Once point C is formed, D is approximate 161.8% or 261.8% of BC or it can be 88.6% of XA. As the pattern is completed at point D or the zone in which reversal may occur, one can start taking the position as the trend is set to change. Currently the D leg is under formation and we can expect the prices to soar high.

Strong Dollar

Last week with the release of the Republican version of U.S. tax reform, the Fed dropping hints of a December rate hike in its November monetary policy statement and President Donald Trump’s nomination of Federal Reserve Governor Jerome Powell to be the next Fed chair dollar looks to be firm. On Friday, gold was initially boosted from worse-than-expected U.S. jobs numbers in October, but even this wasn’t enough to sustain the move.

U.S. economic news was supportive for the most part, the Non-Farm Payrolls report was somewhat disappointing. The Non-Farm Employment Change came in at 261K, under the 312K estimate. Average Hourly Earnings were flat at 0.0%, below the 0.2% estimate. The Unemployment Rate fell from 4.2% to 4.1%. U.S. Consumer Confidence rose to 125.9, beating the 121.1 estimate. ISM Manufacturing PMI came in slightly below the estimate. Weekly Unemployment Claims were better than expected. ISM Non-Manufacturing PMI was better than expected at 60.1.

We are bearish on gold for the week.

Energies

Dryness in Brazil delaying sowings

The US Department of Agriculture next Thursday will unveil its monthly Wasde global crop supply and demand report, whose data are taken as benchmarks by investors worldwide. There has been plenty of talk that the USDA in its report will cut its estimate for the US soybean yield this year.

There remain worries over dryness in Brazil delaying sowings for crop to be harvested early in 2018. Forecasters expect the region to receive some rain in the next week or so but the amounts are not enough to definitively increase moisture. The market is not going to relinquish its concerns until that happens. Analysts also are already cutting their Brazilian soybean crop forecasts because planting had been delayed in Mato Grosso and other regions.

Decline in Oil rig count

OPEC and the International Energy Agency (IEA) started reporting stronger-than expected global oil demand growth and an accelerated pace of inventory declines, the market sentiment began to change. As 2018 and the November 30 OPEC meeting draw nigh, the cartel is said to be favoring a 9-month extension of the deal through the end of next year. The possibility of such supply restriction throughout the whole of 2018 combined with expectations of strong oil demand growth and concerns over few new sources of supply due to years of underinvestment after the 2014 oil price crash has prompted some analysts to warn that fear of the glut will turn into fear of a supply crunch next year.

US shale activity has been declining as a reflection of rising costs, a drop in initial well productivity, increased break-even outside the sweetest geological spots, and cash-flow constraints at unsustainably low prices.

Baker Hughes US oil rig count came in at 729 vs 737 prior week.

About Century Financial Brokers:

Established in 1989, Century Financial Brokers L.L.C.is the region’s leading financial brokerage firm and a well reputed online trading service provider in the United Arab Emirates. Since inception, Century continues to have a strong commitment and dedication towards providing superior and personalized customer experience, and empowering its customers through education, training and support, in line with the values and beliefs of its founder, Mr. Sulaiman Baqer Mohebi, a dynamic and visionary business leader.

Century operates on the world’s leading platform which also provides a wide-range of financial instruments, covering 6 asset classes, across 100 markets worldwide with products ranging from Currencies, Commodities, Indices, Metals, Energies, and Inter-Bank Money Markets for both local and expatriate investors, to meet their diverse trading and investment needs.