Another hectic week lies ahead for markets
as traders and investors navigate the Federal Reserve’s policy
statement on Wednesday, Friday’s monthly U.S. job creation report, and
earnings from about one quarter of companies in the S&P 500.
Companies expected to report quarterly results include Twitter, eBay, LinkedIn, Yelp, ExxonMobil, Chevron, ConocoPhillips, MasterCard, Merck, GlaxoSmithKline and Bristol-Myers Squibb.
continue to sell so-called “momentum” stocks and buy the shares of more
solid companies that have old fashion things like actual sales, revenue
and profits – and many of them also often pay dividends like public
companies are supposed to.
Monday brings earnings from Charter Communications, Herbalife and
Hartford Financial among others, as well as updates on U.S. pending home
sales and business inventories.
Tuesday sees an update on U.S. consumer confidence and a huge day for
earnings, including results from Twitter, eBay, Merck, Bristol-Myers
Squibb, Aflac, Coach, Cummins, DreamWorks Animation and MGM.
Wednesday afternoon brings the Federal Reserve’s policy statement,
when markets will react like hair triggers to chair Janet Yellen’s every
nuance on the future direction of interest rates — these need to return
to normal, higher levels soon – and the pace at which the Fed will
continue to reduce its unusual monthly bond-buying stimulus measures
which have helped keep rates near zero for long periods.
The bookies on Wall Street know that the cheap money to make bets has
to be taken away at some stage but still their high-frequency trading
set-ups are programmed to react to Yellen’s statements like this
information is somehow new.
Wednesday also sees earnings from MetLife, AllianceBernstein, Weight
Watchers, Royal Dutch Shell, GlaxoSmithKline, Yelp, Time Warner, and
news and information giant Thomson Reuters.
Other economic indicators due Wednesday include a private sector read
on the job market from ADP, an early read on first quarter Gross
Domestic product, and the purchasing managers index.
Thursday brings earnings from Kellogg, Kraft, LinkedIn, Chicago’s CME
Group, Expedia, Domino’s Pizza, MasterCard and energy giants ExxonMobil
Friday brings what should be the biggest news of the week, the April
job creation report, with analysts expecting good news to confirm the
economic recovery is continuing.
Friday also sees earnings from Chevron, CVS Caremark – and possibly
even Warren Buffett’s Berkshire Hathaway as it starts its annual weekend
shareholders’ jamboree meeting in Omaha, Nebraska.
Oil Futures Tumble on Record Inventories
Oil futures fell as domestic inventories hit record peaks, while fears
over supply disruptions kept world prices unchanged for the most part.
June delivery light sweet crude slid $1.34 or 1.3% on Friday to settle
at $100.60 per barrel on the New York Mercantile Exchange, the lowest
trading price since April 7. Prices plummeted 2.7% for the week.
Supplies of crude oil stand at 397.7 million barrels, the highest
inventories since 1982 when the US Energy Information Administration
started to monitor weekly data. The stockpiles have soared in 13 of the
past 14 weeks, according to Wall Street Journal.
As per data that’s posted monthly since 1920, the supplies are at a peak last witnessed in 1932.
"The inventories have really been key this week. Right now, it almost
seems like the U.S. is choking on crude oil,” said Oliver Sloup of
US oil production has surged in recent times as advanced technology has
made it possible for producers to reach trapped supplies.
However, demand for crude oil drops in spring as refiners halt
processing to carry out seasonal maintenance. Analysts anticipate that
inventories will drop later in the spring after refineries resume
increased production before the summer, which witnesses heightened
Gasoline prices shed as much as 0.9%, losing for the third consecutive day.
Gasoline for May delivery plunged 0.67 cent to $3.0828 per gallon as
of 10:12 am on the New York Mercantile Exchange. The amount traded was
54% above the 100-day average. Stockpiles for the commodity hit 210
million barrels last week after losing 274,000, less than the 1.65
million drop a Bloomberg survey had estimated.
On average, the US pump price slid 0.8 cent to sell at $3.693 per
gallon, a high last seen 13 months ago, as shown in data from AAA in
Florida. Prices have added 18.1 cents since a year ago.
Are stock and forex markets interlinked?
THE recent appreciation of the rupee and the consequent
swings in stock exchanges brings interesting observations for businesses
In volatile and less integrated
financial markets in developing countries, the important question is:
whether there exists a volatility transmission between the stock and
foreign exchange markets.
This article aims at examining the
dynamics of volatility transmission between the stock and foreign
exchange markets in Pakistan, because the interdependence between
exchange rates and stock prices has important implications.
example, increase in stock prices would attract capital, which increases
the demand for domestic currency and causes the exchange rate to
In particular, this study addresses the nature of volatility spillover between the two markets with reference to Pakistan.
use data that covers three important market events that influenced the
dynamics of stock and foreign exchange markets: the nuclear tests of May
1998, the terrorist attacks of September 11, 2001, and the global
financial crisis sparked by the US sub-prime market failure in the
middle of 2007.
Such market events can influence the underlying
dynamic relationship between the equity and forex markets. This study
empirically examines the short-run dynamic relationship between stock
and exchange rate, which is useful for financial managers in making
informed investment decisions.
Like many other developing
economies, Pakistan has gone through a series of institutional and
financial reforms since 1990 to reduce financial imbalances, enhance
efficiency and depth of financial markets, and modernise the domestic
The liberalisation of stock markets resulted in
a sharp increase in inflow of portfolio investment, which not only
helped in raising the investable funds, but also produced wild swings in
stock market indices.
Despite the ongoing political crisis and a
credit rating downgrade by Moody’s, Pakistan stood out as the best
performing Asian Market in July 2012, as measured by the Morgan Stanley
Capital International (MSCI) index.
Similarly, the foreign
exchange market has also showed a high degree of volatility since 1998.
For example, the rupee depreciated against the dollar from Rs43.19 in
1998 to Rs61.41 in 2001-02, and to Rs94.10 a dollar in August 2012.
Currently, the rupee-dollar parity stands at about 99.
rate uncertainty may likely transmit shocks to stock markets. Therefore,
awareness about inter-market volatility transmission is critical for
the pricing of securities within and across markets for trading, hedging
strategies and formulation of regulatory policies and portfolio
Furthermore, the link between stock and foreign
exchange markets could be used to predict the future path of exchange
rates, which provide could guidance to multinational corporations to
manage their exposures with respect to risk that exchange rate
The results of empirical analysis suggest
that exchange rate return produces no significant impact on stock
return, whereas stock return exerts significant negative effects on
exchange rate changes. Our results also depicted that 9/11 and the
global financial crisis had little influence on Pakistan’s foreign
exchange market. In contrast, the stability of the stock market was
significantly influenced by the May
1998 nuclear tests.
The results support the existence of
bidirectional volatility spillovers and asymmetric effect from stock
returns to exchange rate changes.
Overall, these results show a
significant information flow between the two markets, and that these
markets are interdependent. This interdependence employs and confirms
the volatility transmission between these two markets, as well as the
recent appreciation in the rupee and its impact on the stock market.
This is also confirmed with empirical results.
It appears from
the analysis that structural shifts on the global and domestic fronts
increases volatility of stock and foreign exchange markets. Therefore,
there is a need to enhance the shock absorptive capacity of financial
markets, especially during periods of crisis. To this end, the
authorities may take appropriate measures to broaden the financial
markets because Pakistan’s
financial markets lack connectivity in terms of returns.
example, reduction in capital gain tax may weaken the monopoly power of
big investors and provide investment prospects, like in small and medium
enterprises, mutual funds and IPOs to small investors to participate in
stock market activities.
The authorities could also develop a
framework for bringing down transaction time for settlement of
securities, increase liquidity and market capitalisation, establish
equity funds, encourage diversification of equity portfolios and adopt
modern ways of transacting.
On the foreign exchange market front,
authorities may take appropriate measures against those commercial
banks (i.e. authorised forex dealers) responsible for unnecessary rupee
depreciation against the dollar and other foreign currencies, and
restore the exchange rate as well as financial stability.
may monitor the impact of stock price fluctuations on foreign exchange
market, because investment earnings and the behaviour of international
investors heavily depend on forex market trends.
An evidence of
bidirectional volatility spillover across the markets indicates some
degree of market inefficiency and uncertainty, which may shake
investors’ confidence. It is, therefore, imperative to regulate and
monitor both markets in order to minimise the adverse effect of
volatility on investment decisions.
Trading the News: U.K. Gross Domestic Product (based on dailyfx article)
The advance U.K. 1Q Gross Domestic Product (GDP) report may generate
fresh highs in the GBP/USD as the stronger recovery in Britain puts
increased pressure on the Bank of England (BoE) to normalize monetary
policy sooner rather than later.
Why Is This Event Important:
A pickup in economic activity may heighten the bullish sentiment
surrounding the British Pound as it puts increased pressure on the Bank
of England (BoE) lift the benchmark interest rate off the record-low,
and Governor Mark Carney do little to halt the appreciation in the
sterling as it helps to achieve the 2% target for inflation.
The resilience in private sector consumption along with the ongoing
improvement in the labor market may prompt a marked pickup in the growth
rate, and an upbeat GDP report may spur fresh highs in the GBP/USD as
it raises the outlook for growth and inflation.
Sticky price growth paired with efforts to cool the housing market may
generate a weaker-than-expected GDP print, and a dismal development may
spur a larger correction in the GBP/USD as it drags on interest rate
How To Trade This Event Risk
Bullish GBP Trade: U.K. Economic Recovery Accelerates
1Q 2014 U.K. Gross Domestic Product (GDP)
GBPUSD M5 : 35 pips price movement by GBP - GDP news event
The GBPUSD pair was almost unchanged on the hour and day following
fourth quarter GDP results for 2013. The that print the pair traded
lower until February 5th and has been on the rise ever since. The
breakdown of the results show that distribution, hotels % restaurants
outperformed last quarter while electricity/gas, forestry & fishing
lagged compared with the third quarter. Current market expectations are
calling for a 0.9% QoQ and 3.2% YoY rise.
EUR/USD mocks at Draghi's efforts and set sights at 1.3880 resistance
EUR/USD is climbing higher in Asia as the pair moved to 1.3861 after opening at 1.3849Risk vs. inflationEUR/USD
lived through a volatile session on Monday as the pair slumped to
intraday lows early in Asia on the back of further Russia- Ukraine
crisis escalation, but reversed losses and pushed to 1.3878 when the
European players joined the game. Ironically, German Import Price Index
came out lower than expected (-0.6% m/m, -3.3% y/y against forecasted
-0.1% m\m, -2.7% y/y), increasing chances that today’s CPI will fail to
meet expectations and put more pressure on ECB. Though markets seemed to
look the other way. Today the European session starts with German ПАЛ
Consumer Confidence index that is expected to stay unchanged at 8.5 in
April. Strong figures might support EUR and push it yesterday’s high at
1.3878, though the investor are more likely to be focused on CPI data
published later during the day. April y\y figure is expected to climb to
1.3% from 0.9% in March, but negative surprises are possible. If the
data fails to live up to expectations EUR/USD may dip to 1.3820 and then
to the key support level of 1.3800. What are today’s key EUR/USD levels?Today's
central pivot point can be found at 1.3848, with support below at
1.3817, 1.3782 and 1.3751, with resistance above at 1.3883, 1.3914, and
1.3949. Hourly Moving Averages are bullish, with the 200SMA at 1.3824
and the daily 20EMA neutral at 1.3816. Hourly RSI is bullish at 53.
EUR/USD drops to 1.3850 on EMU data
The single currency is now reverting the early upside, dragging the EUR/USD back to the 1.3850 area after softer EMU releases.
EUR/USD deflates on dataThe pair is now giving
away some gains after EMU’s M3 Money Supply expanded below estimates at
an annual pace of 1.1% during March vs. 1.4% forecasted and February’s
1.3%. Private Loans followed suit, contracting 2.2% in a year to March,
missing forecasts for a 2.1% contraction. Previous releases showed the
German Consumer Confidence gauged by the Gfk Survey matching estimates
at 8.5 for the month of May. “Looking at the latest money and credit
growth data there remains a compelling case for further monetary easing
by the ECB. However, with inflation expected to bounce this month and
economic activity continuing to recover, we suspect that the ECB will
stick to its strategy of verbal intervention at next week’s press
conference and refrain from taking further policy action”, commented
Martin van Vliet, Analyst at ING Bank NV.EUR/USD levels to watchAs
of writing the pair is up 0.05% at 1.3858 with the next resistance at
1.3880 (high Apr.28) ahead of 1.3906 (high Apr.11) and then 1.3925 (high
Mar.19). On the flip side a breakdown of 1.3832 (daily cloud top) would
aim for 1.3824 (10-d MA) and finally 1.3815 (low Apr.28).