Financial market research and analysis

The UK services sector expanded unexpectedly faster in April. Solid data wet the appetite in the pound, which started the session on a negative note. The GBPUSD recovered to 1.2895, after trading at 1.2830 ealier.

FTSE rallied on cheaper pound and solid corporate results at the London open.

Energy stocks (+2.02%) lead gains, as financials (+1.51%) joined the rally.

HSBC (+3.30%) reported $5.94 billion profit beating $5.30 billion forecast by analysts. The cost saving program is on track according to the bank, it will continue removing the low-return, risk-weighted assets. Although HSBC disappointed some investors who were hoping a new share buyback announcement, the surprise rise in the first quarter profit pleased investors.

Randgold (+1.89%) rallied as the first quarter profit rose by 28%. Gold production increased by 10% year-on-year. Randgold made a solid start to the year, along with the recovery in gold prices. The recent bearish reversal in the gold markets encouraged day-traders’ to sell the top. Randgold surged by 4.70% before rapidly giving back the majority of the earlier gains.

Glencore (-1.30%) couldn’t avoid the sector-wide sell-off despite raising the profit forecast for its trading division and revising up its dividend outlook. The quarterly copper production contracted by 3%, as coal production improved 4%.

Anglo American (-2.49%) and BHP Billiton (-1.22%) plunged as iron ore futures lost up to 7% and copper futures extended losses past 2% in the session.

Macron wins the final debate

Emmanuel Macron faced Marine Le Pen in the final televised debate before the second round of the election due on May 7^th. Both candidates attacked each other aggressively, yet nothing unknown to us came out of the duel.

According to the opinion polls, Macron has been the winner of the final debate. The overall expectations have not changed: 60% of participants are expected to vote for Emmanuel Macron on Sunday.

The EURUSD took over the 1.0900 level as the US dollar pared gains. Wednesday night debate between Macron and Le Pen gathered little attention from the markets. The 1.10 mark remains on the radar. Decent call options trail above 1.0920/1.0950 at today’s expiry.

Fed June rate hike probability tops to 90%

The US dollar appreciated on slightly better than expected ADP report that showed that the US economy added 177’000 private jobs in April versus 175’000 expected, and hawkish Federal Reserve (Fed) expectations following this week’s FOMC meeting.

The Fed maintained the rates unchanged as expected and delivered a more hawkish than expected accompanying statement. According to the Fed, the US consumer spending is solid, the business investment is firm and the inflation is "running close" to the policy target. US policymakers see the soft first quarter growth (advance Q1 GDP +0.7%) as "transitory" and remain optimistic on recovery.

Although there has been no hint regarding the timing of the next move, all elements point at a Fed action sooner rather than later. The probability of June interest rate hike is now priced in at 90% by the US sovereign markets. This means that there is a tacit settlement between the Fed and the market that the next interest rate hike is due on June, unless there are new developments on the fiscal and political legs that would require a big step back from the FOMC members.

The US final durable goods orders data is also due today. Softness has already been factored in the prices at the preliminary read and should trigger little price action at the release.

The April nonfarm payrolls data is due on Friday. According to analysts’ forecast, the US may have added 190’000 new nonfarm jobs last month, versus the unexpectedly low figure (98’000) printed a month earlier.

US dollar reverses trend against gold, yen

The post-FOMC rally in the US dollar breached important technical levels against gold and the yen.

Gold broke the $1’257/1’252 support, took away the $1’245 (50% retracement level on March – April rise) and tanked to $1’235, a stone’s throw higher than the 1’233 Fibonacci support (61.8% retracement). The MACD (Moving Average Divergence Converge) is about to step into the bearish zone following this year's biggest decline, suggesting a stronger negative momentum in the gold market in the coming days. The next natural target for the short gold positions is the $1’220/1’218 (100-day moving average / minor 76.4% retrace). Offers are touted pre-$1’248/1’251 (50 and 200-day moving averages respectively).

The USDJPY cleared offers at 112.15 (major 38.2% retracement on December – April decline) and rallied past the 100-day moving average (112.50). The MACD gains positive momentum, suggesting that the rise could gather further momentum to 113.37 (50% retrace), 114.60 (major 61.8% retrace) before the 115.00 mark. Intra-day support is eyed at 111.80. Japan is closed today and tomorrow due to bank holiday.

Aussie down on plunging iron ore, softer trade terms

Australian trade surplus fell faster than expected in March, due to the sharp downside correction in commodity prices. Iron ore futures dropped 7% in Asia.

 The AUDUSD tanked to 0.7405 (100-week moving average) on plunging iron ore prices solid USD demand and softer-than-expected trade terms. The negative momentum suggests an extension of losses toward 0.7384 (major 61.8% retrace on December – March rise). Light 0.7400-put options are due at today’s expiry. Resistance is eyed at 0.7500/0.7540 (option barriers / 200-day moving average).

Facebook overweight at 89.6% of big players’ lists

Facebook topped the first quarter sales estimates and recorded a significant 17% jump in monthly users to 1.94 billion. This equals 25% of the world population.

FB shares dropped 4.2% in extended trading as the company warned that revenues could be ‘meaningfully’ lower as it will stop increasing the frequency of the commercial spots in the news feed. There is indeed a natural limit to the number of ads that Facebook could add on its feed; too much ad would simply drive users away. On the other hand, we could think that investors may have overreacted to the warning, given that Facebook is increasing the size of its community, which means that the ads will be seen by an increasing number of users all over the globe. Hence, focusing on quality rather than the quantity of ads could keep the positive income trend in place.

Facebook is still a widely treasured company. According to a Bloomberg survey, 89.6% of analysts from the world’s leading financial institutions including J.P. Morgan, Nomura and Macquarie overweight the FB shares, 8.3% remain on hold with a twelve-month average target price of $164.49.