Newsletter 11th Edition 2018
Commodities WTI Oil Forex GBP/USD EUR/USD Stock of the week: Ocado Group Plc , (OCDO:LN) Opinion Articles: Brazil: Justice and Chaos. What is going on?
News Highlights Will India and EU retaliate? A Bearish Gold? China agrees to import more from U.S Indexes FTSE 100 Euro Stoxx 50 S&P 500
TABLE OF CONTENT
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HIGHLIGHTS
Source: Reuters By Fábio Zeferino
Will India and EU retaliate? The EU decided to come out and fight Trump against his aluminium and steel tariffs. We could wonder why, since EU was exempted from these tariffs along with other countries. Is the EU trying to make an example out of the USA for all countries who do not follow the rules of the WTO? Is it a personal matter? Is it because they remain sceptical about the reason why Donal Trump imposed these tariffs? We don’t know yet, but the battle has now extended. India and the EU have already given the World Trade Organization (WTO) list of U.S products that will most likely be sanctioned with high tariffs, obviously as retaliation against U.S President Donal Trump. The EU said Trump's steel tariffs could cost $1.5 billion and aluminium tariffs a further $100 million, and listed rice, cranberries, bourbon, corn, peanut butter and steel products among the U.S. goods that it might target for retaliation. India said it was facing additional U.S. tariffs of $31 million on aluminium and $134 million on steel, and listed U.S. exports of soya oil, palm olein and cashew nuts among its potential targets for retaliatory tariffs.
A Bearish Gold? Since our last newsletter, the safe-haven of the markets, aka Gold, lost about 2,5%, a bit too much for a commodity this important. Hedge funds and other large speculators pared bullish bets on bullion to the lowest in more than two years as the metal fell below $1,300 an ounce for the first time this year, spurring the biggest weekly price decline since December. In the week ended May 15, money managers reduced their net-long position, or the difference between bets on a price increase and wagers on a decline, by 40 percent to the smallest since July, according to U.S. Commodity Futures Trading Commission data released three days later. They pared their long position by 9.2 percent to 107,133 futures and options contracts, the lowest since February 2016. Gold futures for June delivery fell 2.2 percent to end the week at $1,291.30 an ounce on the Comex in New York. That sets the metal on course for its first back-to-back monthly decline since October. Even the metal’s physical demand has been slowing. In the first quarter, global purchases fell 7 percent to 973 tons. That was the lowest for the period since 2008, the depths of the global financial crisis, the World Gold Council said in an emailed report earlier this month.
Source: Bloomberg By Tomás Vendeirinho
iscte trading & investment club
Source: Reuters By Gonçalo Ormonde
China agrees to import more from U.S. China has agreed to significantly increase its purchases of U.S. goods and services but made no mention of a $200 billion target the White House had touted earlier. Beijing and Washington agreed they would keep talking about measures under which China would import more energy and agricultural commodities from the United States to close the $335 bn annual U.S. goods and services trade deficit with China. Washington did not indicate whether the two countries would delay or drop their tariff threats on billions of dollars’ worth of each country’s goods, which has sparked fears of a wider trade war and roiled financial markets. “There was a consensus on taking effective measures to substantially reduce the United States’ trade deficit in goods with China” - the joint statement said. Also “To meet the growing consumption needs of the Chinese people and the need for high-quality economic development, China will significantly increase purchases of United States goods and services.”. Donald Trump has threatened to impose tariffs on up to $150 bn on Chinese goods to combat what his administration says is Beijing’s misappropriation of U.S. intellectual property through joint venture requirements and other policies that force technology transfers. A report by China’s state-run Xinhua news agency described the statement from the two governments as “vowing not to launch a trade war against each other.”. While the statement said the two sides would engage at elevated levels and “seek to resolve their economic and trade concerns in a proactive manner,” it made no mention of tariffs.
Euro Stoxx 50
SX5E:IND - Euro Stoxx 50 Index, between 19th of April and 18th of May 2018
FTSE 100
Euro Stoxx 50 remained relatively constant until the end of this week. But it had a short fall after the outrage that is going on in Italy. Five Star leader, Luigi Di Maio announced Friday that a final government contract has been agreed with Matteo Salvini, leader of the of the anti-immigrant League, having in mind proposals that will pressure public finances. Benchmark 10-year yields touched the highest level in almost a year, while the local share index slumped to the lowest in a month. Which is to be expected, the government will need high yields so that investors will buy their bonds. They have proposed to cut taxes, tear up the pension reform of 2011 and guarantee a minimum income for the poor, while they initially announced that they wanted the Central Bank to forgive their debt. By Fábio Zeferino
UKX:IND - FTSE 100 Index, between 19th of April and 18th of May 2018
INDEXES
The FTSE 100 fall a bit during this week, and specifically during the trading session on Thursday (May 17th), reaching towards the 7725 level. The 7700 level looks very likely to be the “floor” in the market. Longer-term, the market will probably try to go towards the 8000 level, but we have several levels between here and there that could cause reactions. It’s believed that the market should continue to find buyers on dip, as the overall uptrend continues going forward. That it’s not until we break below 7700 level that you would have to “reset”, looking for another support level. The short-term traders will continue to look at small dips as opportunities, and the 7800 level above is the initial target, followed by every 50 points or so until we reach the 8000 level. The entirety of the uptrend is intact if we can stay above the 7500 level, which represents the “hard floor” of the entirety of the uptrend. The GBP/USD has been rather soft overall, and that of course makes British exports cheaper and more. If the case of high level attraction of this index, the FTSE 100 one act any different. By Gonçalo Ormonde
The S&P 500 index got back some of this year losses, recovering about 3,5% since our last newsletter, some of this bullish movement was due to an increase in the Oil prices. Looking at the impact on stocks of a 30%-plus rise in gasoline prices, Jefferies found the S&P 500 has produced a 2.7% average six-month gain, with the energy sector outperforming by around 4% and utilities by 3%. Even though the S&P 500 growth over the past month, the index was off by 0.3 per cent on Friday to end at 2,712.98 falling 0.5 per cent over the week. While financials lagged behind the broader S&P 500 on the day, it was bond proxy sectors that were the biggest losers this week amid a run-up in bond yields that saw the yield on the 10-year briefly push past 3.1 per cent. Utilities fell 3.2 per cent for their steepest one-week drop since December, and pulling of a third consecutive week of losses. The real estate sector also fell by the same margin. By Tomás Vendeirinho
SPX:IND - S&P 500 Index, between 19th of April and 18th of May 2018
S&P 500
The WTI Crude Oil market rallied significantly during the last week as crude oil continues to get a bit of a constant rise from geopolitical tensions and of course the idea of the United States leaves Iranian’s deal taking product off the markets. It’s believed that in short-term pullbacks should continue to buy in terms of opportunities, with the $67 level underneath its massive support and importance. Longer-term, we’re going to assist closer to the $72.50 level, and then perhaps even towards the $75 level after that. The markets will continue to see a lot of volatility, but quite possible the Iranian oil coming off line will be a strong factor to drive down supply overall. By Gonçalo Ormonde
WTI OIL
CL1:COM - WTI Oil, between 19th of April and 18th of May 2018
commodities
The dollar got a strong bullish movement, gaining almost 2%, since the beginning of the month, against the Euro. The ICE U.S. Dollar Index which measures the dollar against six rivals, most notably the euro, was up 0.2% at 93.670. The index hit its highest level in 2018 this week and is on track for a 1.2% weekly gain, its best such stretch since the period ended April 27, according to FactSet data. As of now, the dollar is also on track for its best month since November 2016. Money managers headed for the exits as the dollar advanced to a 2018 high amid expectations the Federal Reserve will raise interest rates again next month, helping push up yields on U.S. Treasuries and hurting the appeal of non-interest-bearing assets like bullion. The euro, weakened against the dollar, changing hands at $1.1769, compared with $1.1794 late Thursday. The shared currency earlier hit a session low of $1.1750, marking its lowest level since Dec. 18, according to WSJ Market Data Group. The European unit is on pace for a monthly fall of about 2.6%, having shed 1.4% this week. By Tomás Vendeirinho
Forex
EURUSD:CUR - EUR/USD X-RATE , between 19th of April and 18th of May 2018
GBP/USD
EUR/USD
GBP/USD: CUR- GBP/USD X-RATE, between 19th of April and 18th of May 2018
The GBP/USD foreign exchange spot suffer a huge hit this last two weeks as the dollar strengthened due to the increase in expectations that FED might raise interest rates again next month, June. Obviously, yields went up, which makes investing in American bonds more attractive. Because of that investors will need to convert more currencies into dollars and that is the reason why the dollar is flexing its muscles against all major and minor pairs. By Fábio Zeferino
Stock of the week
When Ocado Group Plc soared as much as 81 percent on Thursday, the online grocer’s biggest shareholders made hundreds of millions of pounds. Rarely has one day’s trading produced such big winners and losers in a single British stock since this surge wiped out as much as 282 million pounds ($382 million) from the paper value of speculators’ bearish bets. Those with short positions included Marshall Wace, Kairos Investment Management and GMT Capital Corp. The move came after the U.K. company struck a deal to provide its technology to U.S. supermarket owner Kroger Co. It’s the biggest of a series of licensing agreements the company has inked over the last year after struggling for years to find any takers. Ocado said it will begin setting up Kroger with various systems to help it manage warehouse operations, automation, logistics and delivery route planning in the US. The companies will identify three sites in 2018 for development of new "automated warehouse facilities" in the United States, they said in a statement. A total of 20 will be identified in the first three years of the deal. "Ocado believes Kroger to be the grocer best-positioned to win in US grocery and will discontinue discussions with other US-based retailers," the company said in a statement. The shares gave back some of their gains later in the day. Closing at 797.2£-up 44 percent on the day.
By Francisco Semedo
Nuno Santos
Opinion articles
"(...) Lula da Silva surrendered to police on Saturday night to start serving a prison sentence for corruption and money laundering ."
When a huge anti-corruption operation sweeps up a country’s most popular politician, justice is served, but democracy is tested. That is the situation facing Brazil, where Lula da Silva surrendered to police on Saturday night to start serving a prison sentence for corruption and money laundering. Thus, beginning a tumultuous and unpredictable course to elections in October. After looking at this case and watching all the revolt generated in left-wing parties all over the world, there are three main questions we can and should ask: Do the investigations on course, particularly, operation “Lava Jato” (operation car wash) have a political orientation? Is Lula imprisonment unconstitutional? If Lula stays in prison, what future awaits Brazil? The first question is probably the hardest to answer. It is impossible to know what goes inside people’s head, and there is little evidence supporting that the justice system is being influenced by the right-wing parties. However, the numbers almost make us believe that. Since scandals about Petrobras broke out (which covers the entire Brazilian political system), several construction companies executives have been convicted. However, regarding political parties, there has been 5 convictions to Lula’s party (PT) members, 5 other convictions to the current ruling majority and 0 convictions to the main rival of Lula’s party – PSDB. It’s hard to ignore this numbers, especially after the previous PSDB leader – Aécio Neves – has been recorded asking for 2 million Brazilian Reais to Joesley Batista (owner of JBS, a world reference in the food industry). The second question is, in my opinion, a lot easier to answer. However, it is important to refer that I am no expert whatsoever. Brazilian courts seem to have a good case against Lula, with about 15 evidences being presented against him, however, the truth is that the Brazilian former president imprisonment seems unconstitutional.
Brasil: Justice and Chaos. What is going on?
Macroeconomic Researcher
"The decision will deal a serious blow to the political survival of Brazil’s first working-class president and potentially deepen divisions in the country, which has been racked by episodes of political violence ."
The Brazilian constitution states quite clearly that no citizen should be arrested before exhausting all the existing appeals. Lula had pleaded with the country’s supreme court to remain free until he had exhausted all his appeals, but the judges ruled by six to five against his request after 10 hours of debate. The decision will deal a serious blow to the political survival of Brazil’s first working-class president and potentially deepen divisions in the country, which has been racked by episodes of political violence. The third and final question is the most debatable. Brazil’s extreme right-wing voices have been rising in the past years, bringing promises of fighting to death against corruption and restoring old conservative social values. The face of this movement? Jair Bolsonaro. Until now, Lula has been leading the polls with quite an advantage. However, the former president is now out of the race, bringing Bolsonaro to the first place in voting intentions. The economic ideology of Bolsonaro isn’t clear, and some even point out the effort of the candidate in avoiding talking about these issues. His whole campaign has been based in homophobic comments, racism and gender discrimination, following a similar but way more aggressive strategy than Trump. He has even been recorded in the past openly defending a dictatorial system and praising the military dictatorship that ruled the country for over 20 years (1964 – 1985). Hopes are now focused on the candidate that Lula chooses to support. The destiny of Brazil only lies in the hands of the Brazilian people, they will have the last world. Will they pick a candidate that threatens to destroy every social foundation that has been built in the last few decades? Only time will tell, but for their own sake, I hope Brazilians find that extreme populism isn’t the answer.
