President Trump further fuels US-China tensions

Posted on September 8, 2020 by Exclusive Capital Research Team

Market Brief, Tuesday, 8th of September, 2020

The major US indices recovered some of the last week’s sharp losses which saw some of the worst 2 day declines in history. The Nasdaq traded higher around the 11500 levels, up from last weeks low of just under 11200 led by some gains in tech-giants. The S&P is also above last week’s worst levels currently trading around 3434.

US President Trump made comments about the decoupling of the US economy from China saying that it would not lead to any monetary losses. There was also mention of massive tariffs and prohibition of federal contracts to US companies outsourcing to China.

In Asia, equity markets traded mostly positively following their US counterparts with China underperforming due to President Trump’s comments. The Hang-Seng and Shanghai comp is down by 0.6 and 0.3% respectively.

In the FX space, the dollar index reclaimed the 93 levels and saw some mild gains with its main counterparts the EURUSD trading below the 1.18 handle and GBPUSD trading around 1.3130.

WTI and Brent continued their recent slide down to 39$ per barrel and 42$ per barrel respectively which sees them trading at 2-month lows.

U.S dollar consolidates from positive labour report

Posted on September 7, 2020 by Exclusive Capital Research Team

Market Brief, Monday, 7th of September, 2020

On Friday, the US dollar held its ground among its counterparts with a string of better than expected Jobs data. With positive signs across the board, the most significant was the unexpected rise in average hourly earning giving additional value to job creation and unemployment rates.

The pound remains buoyant further to FEDs dovish approach to Inflation. Potential Hazards are likely to be recent developments from spikes in COVID- 19, Ongoing Brexit negotiations, and the government’s response to the current furlough scheme which ends in October. Any future political decisions are likely to have an impact.

EUR/USD keeps its range trade intact below mid-1.1800 despite the German Industrial Production disappointment. The Euro is still in the overbought territory due to ongoing global uncertainty and an ongoing Euro exchange is not a concern for any imminent changes in Monetary policy. A slight pullback back may be seen this week as traders anticipate the minutes from this week’s ECB meeting and any comments on quantitative easing.

WTI witnesses fresh selling while flashing $39.35 as a quote during the pre-European trading on Monday. The energy benchmark earlier dropped to $38.80 before recovering to $39.78.

And finally gold trades in waiting with prices slightly lower as the markets await political decisions on global stimulus and political out outcomes.

The Fed’s new policy framework

Posted on September 7, 2020 by George Kessarios

Analyst Insights, Monday, 7th of September, 2020

The key takeaway from Fed chairman Powell’s speech at the annual Jackson Hole, Wyoming, conference, was that the Fed will not be crashing the economy in the future.

In the past, and the name of low inflation, the Fed (and most central banks) have been crashing economies by raising rates to cool down the economy. And after the crash, they then lowered rates and initiated accommodation measures to reinflate the economy all over again. I never understood this logic, and was always a proponent of higher inflation tolerance, and lower rates even in the face of inflation.

While currently there is no inflation to be seen, and chances are inflation will take a long time to average above 2%, nevertheless this new policy framework should be good for equities.

And while equities today are probably ahead of themselves from a multiple perspective, the fact that the central bank won’t cause technical recessions in the name of lower inflation, will probably keep multiples buoyant.

Yes, this is a reversal from Paul Volcker’s strategy of the 1980s, but today inflation has been tamed and this new framework is probably overdue.

The bottom line is that we are entering a new era insofar as central bank policy. While it’s too early to tell how this new policy will work, I guess that long term, it should benefit equities.

Beware of the winner’s curse

Posted on September 4, 2020September 4, 2020 by George Kessarios

Analyst Insights, Friday, 4th of September, 2020

In 2010 the number one company in the world was ExxonMobil. Since then, however, it has been one of the worst investments anyone can make and several days ago the company shares will no longer be in the Dow Index.

If you aren’t impressed with ExxonMobil, I have another one for you. Back in 2005, the most valuable company in the world was General Electric. Since then its stock has fallen more than 70%, not counting inflation and the money you would have made if you were invested elsewhere.

As you might have heard, Apple is the most valuable company in the world today, with a market cap of around 2.2 trillion dollars. Please also note that the trailing PE multiple of Apple is around 40.

If we look at the historic multiple of Apple in the chart, for the most of the last decade it ranged between 10-20. Why has Apple’s multiple expanded so much? I don’t have an answer for you. I am also not saying that history will repeat itself and Apple is destined to become another ExxonMobil or GE.

However, with the multiple expansion being the main reason for Apple’s share rise, as is the case for the entire tech sector, it does no harm to be prudent and take some money off the table if you have many of these high flying names.

Because while history does not repeat itself, if often rimes, and in ways we cannot imagine.

US stock markets fall off their record highs aggressively

Posted on September 4, 2020September 4, 2020 by Exclusive Capital Research Team

Market Brief, Friday, 4th of September, 2020

The major US indices declined sharply following a nosedive in the tech-sector with risk-off sentiment prevailing as market participants are awaiting today’s payroll data. The Nasdaq declined by more than 6% even though it is now off its worst levels.

In Asia, equity markets followed the decline of their US counterparts with the ASX down 3%, and the Nikkei down 1.3%. In China, the Hang Seng and Shanghai composite were down by 1.8 and 1.4% respectively following a liquidity drain by the PBOC.

The bloodbath in equities saw bond yields tumble with the US 10 year treasury yields falling back down to 60 basis points and the curve flattening.

The dollar index retraced some of its gains which saw it fall below the 93 levels. This follows the major moves in the equity and bond markets. The EURUSD is currently trading around the 1.1850 level while the GBPUSD around the 1.3280 level.

WTI and Brent continued their recent slide down to 41$ per barrel and 43.65$ per barrel respectively as worries about demand are overwhelming the recent decline in inventories.

Asian Equity Markets higher following US markets

Posted on September 3, 2020September 4, 2020 by Exclusive Capital Research Team

Market Brief, Thursday, 3rd of September, 2020

The major US indices continued their rally which saw them extend their record highs from dovish rhetoric from FOMC members and optimism over a vaccine for Covid-19.

The major Asian equity markets followed suit taking from the strong session in the US with the ASX up 0.8% and the Nikkei up 1.1%. The Japanese index outperformed after Chief Cabinet Secretary Suga confirmed he will be running as party leader. China underperformed with the Hang Seng down 0.4% and the Shanghai Composite down 0.1% from a low liquidity effort.

The ECB’s top official’s rhetoric has shifted saying that the EURUSD rate does matter as it will pressure exports and make way for further stimulus which caused an immediate reaction in the currency pair.

The dollar index found support following the dovish rhetoric from the Fed’s members and the ECB’s focus on the EURUSD rate. It is currently trading just under the 93 level with EURUSD trading around the 1.18 level and GBPUSD around the 1.33 level.

WTI and Brent both sold off despite a big drop in yesterday’s inventory report caused by hurricane Laura as there are concerns about demand. WTI is trading around 41.50 and Brent around 44.30.