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Category Archives: Trader’s Desk

End of the Year Rallies – Equities Indexes & The Bund in review

13th November 2015 by | Trader's Desk | No Comments

Now is the time to make previsions for the end of the year and I will here detail my

views on the major Equities Indexes and on the Bund.

The ECB’s President, Mr Mario Draghi, has already paved the way for a bullish end of

the year with his latest statements about a possible QE extension. The volatility has

also dipped sharply since the August decline, mainly due to China’s woes. Finally, the

bigger timeframes still look incredibly bullish and I won’t be the one to fight such

trends, whether in Equities or Bund.

ES long term

The S&P500 December 2015 Future has retraced recently from 2110 to a very

interesting level of 2065-2070 and I am long from here, and will eventually add to the

position at around 2050. My fist target will be 2090 and then a new all-time high at

around 2125.

ES 240

I assume that traders will keep on supporting the DAX on dips and suspect that they

will see the 10.700 – 10.900 range as an ideal region to add to long positions. The DAX

index could even drop lower, to 10.550-10.600 without altering the trend. I am

personally building a long position from the 10.750 area, and will add at 10.650 if we

reach that level.

DAX 60M

In the longer run and with better data coming out of the U.S. such as wage growth

reaching a 6 year high by increasing 2.5% year on year, the likelihood of stock markets

globally remaining upbeat rises. If it is the case that the market reaches and breaks the

top of the descending trendline at 11.150, there will not be any major technical

resistance level until we reach first the July high of around 11.800, and probably later

print a new all-time high above 12.500.

Dax long term

A push higher at this time of the year is also consistent with seasonality as traders get

in line to take advantage of the Christmas rally effect. The biggest risk we can see

ahead of us is a Fed rate hike. The first rate hike tends to cause a pullback in equity

markets and the market also tends to be shaky on fear of what that first rate hike may

bring. But, in the end, a rate hike is the sign that the economy is recovering well and

shouldn’t be seen as the end of the world, especially if the pace of rate hikes remains

very slow in the next few years, as I think it will be.

Finally, regarding the Bund, the 10 years Yield has reached yesterday an interesting

level at 0.7% and I have shorted that trendline you can see in the graph (so long Bund

at around 155.25).

10 year German Yield screenshot

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

I am expecting the yield to go back towards the 0% level, due to QE extension (and

Bund December 2015 Future contract to retest 159 and 160 my next targets).

Bund long term

Happy Trading!

Perspective on China: Growth, only child, environment, the Chinese five-year plan

30th October 2015 by | Trader's Desk | No Comments

The Chinese Communist Party (CCP) direction meets this week in camera to set the broad political and economic guidelines for the next five years, while the country is engaged in a laborious rebalance of its growth model.

These are the main questions at the heart of discussions on the five-year plan covering the period 2016-2020.

What growth target?


Yuan Growth
The second world economy is experiencing a significant slowdown in growth, which is expected to fall this year to the lowest in a quarter century. The regime had set a goal for 2015 of about 7%.
“Beijing should significantly degrade its ambitions for 2020 – the leaders could agree on a flexible annual target by 6.5%, with the possibility of revising down this figure, as long as the job market stays around current levels”, according to Nomura bank’s analysts.
President Xi Jinping recently assured that “a growth rate of around 7% would be sufficient to achieve the goal of doubling by 2020 China’s GDP compared to 2010”.
The new goal could however only be unveiled in March, after validation by the Chinese parliament.
The credibility of official statistics remains debated, and many experts predict a more pronounced economic slowdown.

What could be the “new normality”?

Beijing assumes “the new normality” of slower growth, which is the result of its efforts to rebalance its economic model in favour of domestic consumption and the service sector, while reorganizing the huge state sector.
These guidelines, endorsed the end of 2013, should be confirmed at the meeting.
The five-year plan should further increase the share of services in GDP, which already grew from 44% to over 51% between 2010 and 2015 and confirmed the goal of doubling household incomes between 2010 and 2020.

Towards made “by” China?

Chinese manufactured exports are struggling, because of a mixed international situation but also by increased competition. There is also high inflation on the cost of Chinese hand force.
In this context, Beijing openly calls for an upgrade of the Chinese industry to the electronic and new technologies.

What about financial reforms?

Liberalizing furthermore the financial sector reform is also highly expected, especially on the convertibility of the yuan, with the possibility of cancelling controls on capital movements in 2020. Finally, further opening of financial activities with foreign institutions and the private sector could be considered.

Cleaning up without coal?

China Pollution Tourism

Pollution of air is a sensitive subject for China’s opinion, and important decisions should be taken.
Another problem is about coal, highly polluting, which still represents about 70% of China’s energy mix, in the absence of other sources of energy in sufficient quantities, and despite a nuclear fleet in full extension.
China has also committed to a peak in emissions in 2030.

End of one-child policy?

Already eased two years ago, official experts have recently called to urgently allow all couples to have two children in order to slow down the aging population and the alarming gender imbalance.
Since late 2013, the Chinese can have two children if one parent is an only child.

UK and China recently engaged

Uk and China agreeing
President Xi visited the UK a few weeks ago and agreed up to £40 billion deals. These deals will create around 30.000 jobs in the country. UK and China commit to building a global comprehensive strategic partnership for the 21st Century. The two sides recognise the global significance and strategic importance of stronger UK-China relations in promoting global peace, stability and prosperity. Both sides reiterate that they are determined to support each other’s prosperity and development and to work together for the benefit of global peace, security and development.
 


 



European Central Bank vs Federal Reserve

27th October 2015 by | Trader's Desk | No Comments

YellenAndDraghi
Two of the largest economies are facing the biggest decisions of 2015, one preparing to ease monetary policy further, one preparing to tighten monetary policy, but what is the final factor and who will react?

The European Central Bank’s Mario Draghi in his press conference has almost guaranteed a second wave of stimulus for the Euro area in December of this year. December is also the next potential meeting that Fed Chair Yellen could raise interest rates in the US for the first time since 2006. We’ve known for a while, 2 of the world’s largest central banks are pulling monetary policy in opposing directions, however acting in the same month could send EURUSD to a new low.

December, historically a low volatility month, could potentially have the 2 biggest policy changing decisions of 2015 to end the year with a bang for the various financial markets.

A summary of what we know

  • Low Oil prices and EURUSD trading around 1.1700 (high of 6month range) counteracts the European Central Bank’s stimulus program
  • Pressure and volatility surrounding China and the already strong dollar has delayed the Fed hiking already

What’s happened recently?

  • After the dovish September FED meeting, EURUSD traded near the high of its 6month range, threatening European inflation making exports more expensive.
  • After ECB QE2 announcement, EURUSD traded to a 2 month low, making the dollar stronger and could influence the Fed’s thinking on monetary policy to delay further.
  • Global equities have continued to rally, oil prices have dropped to below $50 a barrel.

What are the possible outcomes?

  1. The Fed hike in December
  2. The Fed don’t hike in 2015, due to a strong dollar, push back forecasts, sending EURUSD higher, forcing the ECB to act.
  3. ECB ease further in December
  4. ECB cap euro strength after a Fed hike by cutting the deposit rate further
  5. The continued rally in global equity markets gives the Fed a cover to hike rates

eurVSusd
The outcome either way will be a split in transatlantic policy or a united extension of “easy money”.

EURUSD currently trading around 1.1050, with a latest Fed meeting schedule for released tomorrow at 6:00pm UK time.

 
 


 



Technical and Fundamental view of the Aussie

20th October 2015 by | Trader's Desk | No Comments

aussie_dollarThe uncertainty surrounding the monetary policy of the world central banks has seen the Aussie (Australian Dollar) rally in the last couple of weeks. The Federal Reserve remains to hold rates, The EU and Japan have undertaken further QE and the Bank of England has eased monetary policy, increasing the demand for the commodity currencies.

A statement from RBS highlights the fears the global economy face surrounding ‘QE Infinity’, an ‘open-ended’ easing program which has no set size and duration. The recent GDP print from China was also favorable to Australia, better than expected at 6.9% with a 6.8% forecast (although a miss on the 7.0% target).

Aussie_captureOn the swing side, this flow of money into Australia is causing an appreciation in the AUDUSD which is detrimental to the already sluggish Australian economy. An appreciation in their currency is causing a decrease in demand for manufacturing, education and tourism, the 3 standalone lights in a stagnating economy (outside mining). Continuing strengthening of the AUDUSD would increase the chance of a rate cut at the next meeting. 3,10 and 20 year government bonds have slipped, increasing demand and the chance of a rate hike currently stands at 28%.

At the October 6th meeting it was announced that the economy is ‘stabilizing in markets outside mining’ and that ‘’the Bank had not changed its view of the economy significantly, and arguably it now had greater confidence in the continuing moderate expansion of the economy with the removal of the qualifier “most of” when describing information suggesting a moderate expansion.”
Technically I see AUDUSD trading to 0.7614 in the medium term. If this was to happen quickly, a cut could become far more likely and so a sharp and hard pullback could be seen should this occur. Levels to watch on the way up are 0.7420-50 and 0.7580.

 


 



Live from trader’s desk $USDX – 08.10.15

8th October 2015 by | Trader's Desk | No Comments

I stay fundamentally long on the dollar index. I just bought this ascending trendline, and that could potentially be a good spot to anticipate a break-out of the triangle.

Raphael Daune.
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