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11 Jul 2017
By Ipek Ozkardeskaya
GBP buoyant into MPC members' speeches
Cable shortly slipped below 1.2860 (major 38.2% retracement on June 20 – 29th rise) on Monday. The Bank of England (BoE) hawks could see short-term dip-buying opportunities before the BoE Deputy Governor Broadbent and the bank’s chief economist Andy Haldane’s speeches due today. Haldane has recently expressed his preference for raising the interest rates to cool down the inflationary pressures in the UK. If Broadbent also gives the slightest hint of higher rates, the BoE hawks could come back in force and give a decent lift to the GBP-bulls, who have recently failed to fight back the resistance at 1.2980/1.3000 zone. There are no option barriers at 1.30 mark. In contrary, decent call options are waiting to be exercised at 1.30 at Tuesday and Wednesday expiries. The key resistance stands at 1.3045 (major 38.2% retracement on post-Brexit sell-off & 2017 resistance).
The majority of the FTSE sectors took advantage of softer pound and firmer commodities on Monday. The FTSE 100 closed at its 100-day moving average (7370p).
Marks and Spencer (-0.50%) sales missed the estimates in the first quarter as home & clothing sales declined by 1.2% versus 1% fall projected, food sales unexpectedly fell by 0.1% against +0.6% growth estimated. Wm Morrison (+2.22%) and Tesco (+1.55%) diverged positively after being upgraded to outperform and neutral respectively at Exane.
Pearson gained up to 2.97% at the London open on the back of an agreement to sell 22% of its shares in Penguin Book for 1 billion dollar in an effort to reinforce its balance sheet. Pearson will return 300 million pounds to shareholders through a share buyback operation.
Gains at the open remained capped at 7386p at the time of writing. The direction in the pound market could influence the short-term appetite in the UK stocks. More than half of FTSE 100 companies’ revenues are denominated in foreign currencies, which explains the negative relationship between the value of the pound and the price of the pound-denominated UK stocks.
A short-term bearish reversal in GBPUSD, which should involve a slide below the 1.2860/1.2855 zone, could encourage an extension above the 7400p. A recovery above the 1.2925 (minor 23.6% retracement) should reinforce the resistance at 7400p.
Mid-East oil becomes less consecutive due to OPEC restrictions
The WTI crude (+0.65%) trades timidly below the $45 level on discussion that potential caps on Nigerian and Libyan oil production couldn’t suffice to reduce the global glut. In addition, the downside risks increase on fresh news that Indian Oil Corp, India’s biggest refiner, will buy 1.6 million barrel of Mars Blend from the Gulf of Mexico in October due to its more competitive price. This could be the beginning of more trouble for the OPEC’s strategy, given that OPEC efforts to cut production have done little to reduce the global supply, yet apparently have pushed the Middle East prices relatively higher due to restricted regional extraction. This situation could wane speculations of cooperation in the future and continue weighing on energy prices.
USD lethargic before Janet Yellen’s testimony
Global sovereign rates are slightly softer and the demand in the US dollar remains lethargic as the US congress returns. President Donald Trump urges congressional Republicans to pass the healthcare bill, yet there is no consensus. On the other hand, the probability of a concrete legislation on ‘phenomenal’ tax cuts is fading for 2017. The fading fiscal outlook takes the pressure off the Federal Reserve’s (Fed) shoulders.
Fed Chair Janet Yellen will speak before the Congress at her semiannual testimony on Wednesday and Thursday. She will likely reiterate the possibility of an additional 25 basis point hike in 2017 and hint at the balance sheet normalisation plans. However, she may refrain from providing further details on the size and the timing of the portfolio normalisation and keep the Fed-hawks on the sidelines for the moment.
Gold tests $1'200 support
Gold extended losses to $1’204 on Monday. The key support is eyed at $1’200 and $1’195 (March low). The temporary pause in global yield rally could lend a support at this level. Breaking below $1’195 could encourage a further decline to $1’180 (January low).
USDJPY, a step closer to 115.00
The USDJPY advanced to 114.48 in Tokyo. The divergence between the US-Japan yield curve and stronger positive trend hint at a further rise to 115.00 mark. Support is eyed at 113.00 / 112.80 (minor 23.6% retracement on June – July rise & 200-day moving average).
Nikkei (+0.57%) and Topix (+0.72%) gain on softer yen.
The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please note that 71% of our retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing money.
