Financial market research and analysis

Cheap oil is taking its toll on the FTSE. Royal Dutch Shell (-1.59%) and BP (-0.59%) are among the leading losers in London as WTI traded below the $40 mark for the first time since April. Crude is down by more than 20% since its June peak, $51.23. The gap between the supply and demand pushed oil back into the bears’ arms.

Gold is trending higher for the third consecutive session in a row. The fading rate hike expectations from the Federal Reserve (Fed) increased the appetite in gold holdings. Gold is set to grasp the $1375/1400 levels. The ETFs increased their holdings in gold to the highest levels since mid-2013, and there is certainly more potential on the upside.

Fresnillo (+1.20%) doubled its core profits in the first half of 2016 ($165.6mn vs. $76.4mn a year earlier) as gold rebounded by 30% after hitting a bottom on December 2016, and silver gained more than 50% over the same period. The company raised its gold-output forecasts as gold production rose 23% year-on-year. Investors are not fully convinced however. Out of fifteen analysts listed on Bloomberg, only one recommends buying Fresnillo shares; seven stay on hold while seven prefer selling with a twelve month target price at 1585p.

Sterling is consolidating gains above the 200-hour moving average, 1.3168, against the US dollar, as we are heading toward ‘Super Thursday’. The gains in sterling are expected to remain capped below the 1.32 – 1.33 area. The probability of a rate cut this week is being priced in at 96.6%, and the market sees another 30% chance for a second cut to happen before the end of the year.


EM in focus as G10 high yielders fade

The Reserve Bank of Australia (RBA) cut its overnight cash rate by 25 basis points to a new record low of 1.50%. AUDUSD tanked to 0.7491, yet rapidly rebounded above the 200-hour moving average, 0.7510. Australian stocks fell 0.84% as the RBA’s rate cut was broadly priced in and failed to revive further enthusiasm.

The premium on Australian bond yields, compared to US bond yields, has been narrowing and could, according to many, disappear in the mid-term. This is bad news for carry traders looking for decent yields in a nearly-zero-rate environment. As a result, investors will be gradually directed toward higher risk currencies to chase returns. This will certainly translate into a higher price volatility both in G10 high yielders and the emerging market currencies.

In this perspective, the lira is consolidating gains against the US dollar. The USDTRY managed to correct down to the 3.00 level after approaching the 3.10 amid last months’ coup attempt. The USDZAR traded below the 14 level for the first time since November 2015, while the USDBRL has managed to pare nearly half of 2014 – 2016 losses.