HYCM Market Insights & Trading Tips

Seasonal Insights: Allianz SE 27.11.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Is Allianz SE a great buy on seasonal demand? Watch it on Youtube.


Allianz SE is a European multinational financial services company with headquarters in Munich, Germany. It has a very strong time of year where it has gained 11 times out of the last 14 years between November 26 and Dec 29. The largest rise was in 2008 when it made a maximum +36.89% gain. The maximum drop was in 2018 when it fell -9.16%. Will Allianz rise this time?

Trade Risks: The main risk to this trade is if there is heavy equity selling on month end flows or risk off trading on rising COVID-19 lockdowns.

Seasonal patterns are technical signals which often have a fundamental background. Seasonal patterns work across various markets for a number of reasons: Weather patterns, harvest periods, timing of interest payments, regular fund inflows, tax payments, investor sentiment and more. Seasonality is based on historical data, but not every year is the same, so use with investor discretion.

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Will another US mortgage crisis hit markets in 2021?
by Giles Coghlan, Chief Currency Analyst, HYCM

Dave Burt thinks it’s possible

There is a growing risk of defaulted mortgages from the US and the alarm bell is being sounded by one of the traders who shorted the subprime bond market and made millions during the US mortgage bubble of the early 2000’s. At that time US citizens were taking cheap mortgages, but then defaulted on them ultimately causing a crash in the US housing market. The ripple effect was felt all over the world.

At that time Dave Burt was credited with having great information to inform shorting subprime bonds. He knew what was going to happen in terms of mortgage loans zip code by zip code. Dave Burt now thinks that risk is growing once again.

Burt can see two problems ahead

This he sees coming from two sources: Climate change on the one hand and COVID defaults on the other.

Climate change

Dave Burt’s view is that flood, fire and wind risk all end up adding to a home’s cost. Higher insurance, higher taxes and uninsured losses all add up over time. As these incremental costs rise eventually the value of the home goes down and the homes are then at higher risk of default. Previously ‘solid’ mortgages look weaker. Who wants a negative equity situation? It’s is easier to simply default and walk away. Burt now sees about 33% of US homeowners vulnerable to big losses in the value of their homes due to climate change. If true, that is a huge figure.

COVID-19 risk

About 3 million mortgages are currently in Gov’t or private sector COVID bailout programmes. There are no guarantees that these borrowers will be able to keep up repayments on their loans. So, if these homes start defaulting then the current high home prices will start to fall. Defaulting mortgages causes other property prices to drop in surrounding homes. According to Bloomberg there are around 5.8 million Americans who are expecting to potentially face eviction by the end of this year. They consider themselves somewhat or very likely to face eviction. Furthermore, around half of households behind on rent or mortgage payments in Arkansas, Florida, and Nevada think there is a strong chance of eviction by early January. The CDC’s temporary suspension on evictions is due to end December 31. There may be trouble ahead in the US housing market and this is a theme to keep on track of.


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Market Mood XAUUSD 30.11.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for the XAUUSD.



Gold has continued to track lower over the last couple of weeks and the next medium term support level below is at $1750. With US interest rates set to remain low over the next three years, large levels of QE from the FED, new US fiscal stimulus approaching and strong demand from Chinese Lunar New Year should support gold into year end and early 2021.

Therefore expect XAUUSD buyers from $1750.

Trade Risks:

1. The main risk to this trade is if there is heavy equity selling on month end flows or risk off trading on rising COVID-19 lockdowns.
2. Watch out for further heavy gold outflow from ETF’s spilling over into the spot gold market.

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USD weakness ahead
by Giles Coghlan, Chief Currency Analyst, HYCM

The USD tends to fall in December. It has good reasons for USD weakness heading into year end. This USD weakness which expresses itself through the Dollar Index is due to taxation issues. Furthermore, it is a pattern that has repeated itself over the last 50 years and you can see the outflows here in December below. The largest fall in the Dollar Index was -6.43% in December. The Dollar Index lost value 32 times out of the last 49 years.



What happens is that in December large US companies move money to daughter companies in order to save taxes. In January the money comes swiftly back into the US. This double edged pattern is solid and here is the seasonal outline over the last 25 years. Remember that Seasonal patterns are technical signals which often have a fundamental background. Seasonal patterns work across various markets for a number of reasons: Weather patterns, harvest periods, timing of interest payments, regular fund inflows, tax payments, investor sentiment and more. Seasonality is based on historical data, but not every year is the same, so they must be used with investor discretion.

So this seasonal trend would favour further falls in the DXY heading into year end. With reasons to sell the USD abounding on the reflation narrative this now could be a great time to sell the Dollar Index. With price technically sliding below the key trend line going back to 2011 sellers at market have a relatively small risk marked on the chart.

Furthermore, any deeper retracements offer potential places of better value to go short in the DXY. Another way of expressing this dollar short could be via a NZDUSD or AUDUSD long.

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Seasonal Insights: Alphabet 01.12.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Will buyers step in to Alphabet again this year? Watch it on Youtube.



Alphabet has shown gains from November 30 through to December 26 over the last 10 years gaining in 9 out of the 10 years. The largest gain was in 2010 with a +8.40% rise. The losing year was in 2018 and marked a drop of -5.57%.

Trade Risks:

1. The main risk to this trade is if there is heavy equity selling or risk off trading on any rising COVID-19 lockdowns.
2. Also any news that is bad for Alphabet.

Seasonal patterns are technical signals which often have a fundamental background. Seasonal patterns work across various markets for a number of reasons: Weather patterns, harvest periods, timing of interest payments, regular fund inflows, tax payments, investor sentiment and more. Seasonality is based on historical data, but not every year is the same, so use with investor discretion.

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European indices surge in November: More to come?
by Giles Coghlan, Chief Currency Analyst, HYCM

November was a record breaking month that saw around $1.7 trillion added to European equities. Furthermore, many strategists see this as just the start of a new trend. Goldman Sachs, JPMorgan, Citigroup, Credit Suisse, Bank of America, or BNP Paribas all expect far more outperformance from value stocks in the coming months.

The Stoxx Europe 600 Index has surged nearly 15% in November. Value and cyclical sectors like banks, insurance, and auto shares are all helping to drive prices higher. In fact the biggest sectors showing recoveries are airlines, energy, and banks. Airlines making a whopping 43% gain, energy 35% and banks 34%. The world is preparing for people to start flying again, constructing, and banks to start paying out dividends.




The reason for the surge

Two bits of good news have been why the November surge has taken place. A Biden Presidency and COVID-19 vaccines are all helping the industries that suffered the most during the pandemic. The previously unloved value stocks, which investors dropped, have strongly helped European equities as their popularity returns.



This change in the global outlook does now make for a buy on the dips scenario for European indices. Looking at EuroStoxx a return to the broken trend line marked on the chart would be a decent value area to enter looking ahead to 2021. It also corresponds with the 50% Fib level. The main risks to this outlook would be if we see a strong return of the virus resulting in extra lockdowns in Europe. However, now that a vaccine roll out looks pretty imminent it is not unreasonable to assume that any retracements are short lived as investors focus on the bigger picture of a return to global growth.




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For every trader, a different broker works fine. Just because a broker worked for me, it might not work for you. Do your own research and make your own decisions. It is what will make you profitable.

Seasonal Insights: S&P500 02.12.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Can we expect seasonal buyers for the S&P500? Watch on Youtube.



The so called ‘Santa Rally’ is a strong time of year for the S&P500. Over the last 70 years the S&P500 has gained between December 15 and January 01for a total of 54 years. The average return has been +1.61%.The largest gain was a whopping +8.53%. Will vaccine optimism this year help investors.

Trade Risks: The main risk to this trade is if there is heavy equity selling or risk off trading on any rising COVID-19.

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Australia’s ASX to ignore China tensions?
by Giles Coghlan, Chief Currency Analyst, HYCM

One news report you may have missed over the last few months have been the growing tensions between Beijing and Canberra. These have come as a response to Australia’s PM who wanted an independent enquiry into the outbreak of COVID-19 earlier in the year. This consequence of this request was that Beijing demonstrated it can impact Australia’s economy if it wanted to by imposing tariffs across a number of different Australian imports. However, despite the tariffs imposed and threatened the general market reaction has been one of indifference. The tariffs have been largely ignore. The consensus view is that this dispute will eventually blow over.

So, until evidence to the contrary, the market reaction does seems to be to ignore the tensions and buy into the dips. According to Bloomberg Australian equity investors are far more likely to focus on the improving domestic economy of the country and its strong COVID-19 response than the dispute between Beijing and Canberra. It seems to be seen as a political move without a real financial bite.

Treasury Wine Estates

Treasury Wine Estates have been hit recently on China’s decision to finally impose anti-dumping duties on a listed Australian Company. However, the market as a whole has remained positive and came close to erasing its 2020 losses last week amid rising coronavirus optimism. Let’s take a look at Financials.

Financials

30% of Australia’s benchmark, the ASX200, is made up by financials. The hope of an improving economy, a strong COVID-19 response, and global growth potential on vaccine optimism have also seen financial surge more than 17% in November. In addition to this there has been a 30% gain in energy stocks. This has helped the ASX reach its best monthly gain on record.

Materials

Materials are the second biggest weighting on the ASX index. A large amount of that is tied up in iron ore majors like BHP Group, Rio Tinto and Fortescue Metals none of which are likely to be subject to duties in the same way that Treasury Wine has been.
So for now the row between China and Beijing can be ignored until it spills over into larger listed Australian companies. It it does spill over watch out for risk off sentiment dragging equities lower.

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Week Ahead 07.12.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Alongside rising equites this week saw further outflows in the US dollar. There are good reasons for USD weakness heading into year end. USD weakness in December, which expresses itself through the Dollar Index, is mainly due to US taxation issues. It is a pattern that has repeated itself over the last 50 years. The largest fall in the Dollar Index was -6.43% in December. Statistically, the Dollar Index has lost value 32 times in December over the last 49 years. Will that pattern repeat itself again this year? At the time of writing the OPEC+ decision is undecided, but that will govern near term oil prices.

Other key events from the past week

1. Equites surge: Record inflows, November 30. World equity markets saw record inflows in November on vaccine optimism. Most major analysts expect buyers on dips in the major indices heading into 2021 on global recovery hopes.
2. GBP: Brexit drama continues, December 01. On Tuesday news that the EU and UK were entering ‘the tunnel’ saw the GBP strengthen. However, on Wednesday, the EU’s chief’s Brexit negotiator said major differences remains. Expect more GBP volatility next week.
3. AUD: Interest rate decision, December 01. Rates were kept unchanged at 0.10% as expected and the RBA stated it was not expecting to raise the cash rate for the next 3 years. However, Governor Lowe said Australia had ‘turned a corner’ on the economy.

Key events for the coming week

1. CAD: Interest rate decision, December 09. The Bank of Canada are expected to keep rate unchanged at 0.25% next week . However, with a global recovery anticipated, will the BoC surprise markets with an upbeat outlook?
2. EUR: Interest rate decision, December 10. The ECB is expected to expand its PEPP program €500 bln and extend it by 12 months. 80% of those surveyed by Reuters expect alterations to the TLTRO’s terms. Will the ECB cut rates too?
3. S&P500: Santa rally coming? December 04. Over the last 70 years the S&P500 has gained between December 15 and January 01. It has risen in 54 years out of those 70 years. The largest gain was a whopping +8.53%. Will vaccine optimism this year help investors to repeat the pattern?

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Market Mood S&P500 03.12.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for the S&P500 on Youtube.


US stocks continue to move higher on global vaccine optimism. November saw a great month for the world’s major indices and hopes of further Fed easing should keep stocks supported medium term. The US fiscal stimulus package is also a great boost for US stocks and the anticipation of coming stimulus is another catalyst for growth.

Therefore, expect S&P500 buyers.

Trade Risks: The main risk to this trade remains to be if there is risk off trading on any rising COVID-19 lockdowns.

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NZDUSD longs looking good?
by Giles Coghlan, Chief Currency Analyst, HYCM

The RBNZ has been slowly reducing market expectations that they will move to negative interest rates next year. Not that long ago, back in October, the RBNZ was encouraging markets to expect the RBNZ to use negative interest rates. However, that has all changed now. You can catch up here by reading where the RBNZ are now at and how they got here by reading my latest central bank piece for December and looking at the RBNZ. This shift from the RBNZ has resulted in NZ 10Y bond yields spiking higher. Furthermore, since November, the prospect of both a Biden Presidency and a global vaccine means that pro-cyclical currencies like the AUD and NZD should gain.

The USD is also now entering a historically weak time of the year where the USD tends to weaken. Check out the historical data on the chart. It is also unsurprising that the seasonals for the NZDUSD pair tend towards strength more times than weakness with such.



So, this should mean that the NZDUSD is supported into 2021 and this could be a good time to benefit from global growth expectations. Expect buyers on the dips over the next couple of weeks. This outlook would change if we saw any strong shift in risk sentiment. Although unlikely at this stage there could be some negative sentiment on any news that COVID-19 lockdowns are increasing. However, vaccine hopes are only growing each day and this should keep the mood positive into year end. Another area to watch is that tensions between China and Australia don’t drift over into tensions with New Zealand.

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Market Mood BTCUSD 04.12.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for Bitcoin on Youtube.


Bitcoin continues to rip higher and knock on the overhead resistance at $20,000. The increasing popularity of BTCUSD is still growing with more and more conservative investors adding some Bitcoin to their portfolios. The renowned Hedge fund manager Paul Tudor Jones is bullish on Bitcoin and Bloomberg intelligence had a piece looking at BTCUSD at $100,000 within 5 years!

Therefore, expect BTCUSD buyers from near term support.

Trade Risks: The main risk to this trade remains volatility in the BTCUSD market on profit taking at elevated levels/ at new all time highs.

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RBA’s December meeting?
by Giles Coghlan, Chief Currency Analyst, HYCM

In the final meeting of the year the Reserve Bank of Australia kept interest rates unchanged at 0.10% as investors were expecting. The RBA also maintained the 3yr bond yield target at 0.10. The board also said that it was not expecting to raise interest rates for at least the next 3 years and is prepared to do more if warranted by the spread of COVID-19. The Board recognised that ongoing fiscal and monetary support will be needed for some time. You can download the full statement here.
The key point to recognise is that the Board also noted that Australia’s economic recovery is now underway and that recent data was better than expected. This was reinforced by the better than expected GDP data last week printing +3.3% q/q vs +2.5% expected. This is a positive print. This optimistic perspective was echoed by the Australian Treasurer Frydenberg who said that the recession is technically over and the economy is ‘coming back’.

What does this mean for traders?

The RBA’s assessment does tend towards pessimism and caution considering that data is improving for Australia. They are a central bank, so they need to plan for the worst. However, the hopes of an effective vaccine and the fact that Australian households income went up during the crisis (through Gov’t support) even while output went down means that people can spend. Yes, unemployment is still elevated, but a vaccine means that jobs should start appearing again for those looking for work. Here are key points for traders:

1. The RBA is not now expected to cut rates. The next move will be up and that is good news for the AUD.
2. The bias is to the upside now for the AUD.
3. The recent strong rise in commodities (Iron Ore, Copper, etc) on global growth hopes will further support the Australian economy.
4. Rising wages and labour data will be key to confirming this more positive outlook. If we see good jobs and labour data then expect rapid AUDUSD gains.
5. Expect AUDUSD buyers on dips now heading into 2021 unless global conditions weaken again.

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Seasonal Insights: Netflix 07.12.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Can we expect Netflix buyers? Listen on Youtube.



Netflix has been a fantastic stock to own during the COVID-19 lockdowns. Known as a ‘stay at home stock’ its gains have been notable this year. The question now is whether there is one last push for Netflix as we head into February next year. In the last 14 years Netflix has gained a stunning average return of +26.18% in the time between December 04 and February 28. The largest gain was +117.06% in 2012 and the largest loss was -28.66% in 2015. Not for the feint hearted, but is there one last push in the stock left?

Trade Risks: The main risk to this trade is if there is selling in the tech stocks as ‘stay at home stocks’ get sold on hopes of a return to normality post COVID-19.

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Euro Stoxx ‘Santa Rally’?
by Giles Coghlan, Chief Currency Analyst, HYCM

The Euro Stoxx has had a great rally over the last 30 years between December 14 and January 01 you can see that the gains have been the main order of the day. To be precise there have been 27 years of gains with only 6 years of losses. Now the greatest loss was in 1990 with a -5.6% drop. On the other hand The largest gain was in 1998 with a whopping +16.35% profit.

So, based on the balance of probabilities we would favour more upside again this year during this time.

The factors in favour are:

1. Global optimism on vaccine hopes,
2. Return to growth expected next year,
3. Plenty of European stimulus with the ECB set to expand PEPP.

The factors against further growth are:

1. Any rising COVID-19 cases,
2. Slow down in European growth.

However, one key irony to be aware of here is that if the situation for Europe gets worse then the upside for Euro Stoxx looks even better. Why? It just means more stimulus. This would be a case of ‘bad news’ being ‘good news for stocks. The Santa rally is a really well known pattern in the markets So, could this be a great time to buy Euro Stoxx 50?

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Market Mood DXY 08.12.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for the DXY on Youtube.



Most analysts are expecting a strong run lower in the USD for 2021. The key drivers are the reflation narrative regarding global growth, large QE purchases from the Federal Reserve, low interest rates expected until 2023, and an upcoming Biden Presidency which walks back some of the US protectionist policies from under President Trump. In this environment it is reasonable to expect further USD downside.

The most prudent approach looks to be selling DXY rallies.

Trade Risks:

1. The main risk to this trade is if there is a return to risk off trading which would strengthen the USD.
2. Any indication that the Federal Reserve will be raising interest rates sooner than 2023 will strength the USD and invalidate this outlook.

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Copper poised for a pullback?
by Giles Coghlan, Chief Currency Analyst, HYCM

Joe Biden has said that he will spend around $2 trillion over four years to improve infrastructure, create zero-emissions, public transport and create clean energy jobs. The coming Biden Presidency stands to encourage significant green tech spending. Copper is a key commodity in the green tech energy sector due to the amount it is used for conducting and wiring, so the more green tech that is invested in the more demand there will be for copper.

Copper demand accelerated on Pfizer vaccine hopes

Copper demand has been accelerated by vaccine hopes. The Pfizer/BioNtech vaccine news from November 09 means that global growth is expected to now recover into 2021. According to Citigroup Inc they warn that Copper’s rally of about 15% since the end of October has sent Copper’s 14 day RSI index above the 70 level. According to Citigroup this is a signal that a pullback could be ahead. Take a look at the chart below to see the point that are making.


Now it is worth bearing in mind that just because the RSI is overbought doesn’t mean a pullback is definitely coming. However, it is worth looking where medium term buyers might step back in. Copper is a key commodity for global growth and green technology, so it is reasonable to expect medium term buyers from value. The place marked on the bottom chart detail some places where buyers can define their risk.


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Seasonal Insights: Cisco Systems 09.12.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Can we expect Cisco Systems buyers? Listen on Youtube.



Cisco Systems is an American multinational technology conglomerate with its Head Quarters in Silicon Valley. It typically has a strong period of year between December 08 through to January 06 making an average of +2.41% a year over the last 15 years. It has gained 12 times and lost value only three times during this period. Will US stimulus hopes boost the US stock again this year?

Trade Risks:

1. The main risk to this trade is if there is selling in equity markets on risk aversion.
2. If the US stimulus bill gets delayed again and the US administration has a shutdown that will invalidate this seasonal outlook.

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Gold ETF flows send out a message
by Giles Coghlan, Chief Currency Analyst, HYCM


Gold has been bought as a recession buster and as an asset to hold during global low interest rates over the last year. However, the announcement of the Pfizer vaccine on November 9 sent gold plunging lower and the largest single day loss in gold futures markets in 7 years. Why? A return to normal life will bring higher interest rates and gold will not be so attractive when interest rates rise.

Gold’s outlook

The outlook for gold is still good for buyers. The Federal reserve is planning on keeping interest rates low until 2023, so the low rates is supportive of gold.
However, timing is the issue here.

A possible gold long into year end on strong seasonal demand from around December 26/27 would tie in with a pick up in seasonal demand from China. See here for a great explanation of that. One signal to look out for is the end to outflows from gold ETF’s. Remember, during the crisis, the slack from a drop in jewellery demand was picked up by ETF flows. Here is what they are saying:

1. According to a Bloomberg terminal piece from last week gold ETF’s has just recently seen their longest run of declines since Trump’s victory in 2016. Since October there have been $7.9 billion worth of outlfows. So there is no sign of outflows slowing. They are increasing.



2. Remember that ETF’s have a large impact on prices. One week’s flow in ETF’s gives a very good indication of what happens next in terms of gold spot prices. As buyers of physical metal they have a greater impact on market tightness than the futures market according to Bloomberg. So ETF flows matter for a spot price. They are not the only influence, but a key one.

3. With point 2 in mind, since the invention of gold ETF’s in 2003 holdings they have moved in the same direction as price in every year bar one.
4. ETF flows tend to trend, see chart above, so this means selling could last for months.

In summary, it is right to look at the ETF flows to see a hint at where gold is heading. The ETF sector has a lot to sell, the movement in ETF’s show a propensity to trend, and they often have the largest impact on prices.

A slowing in gold ETF selling heading into December end is the message I need to re-engage gold longs. Until then the best plan seems to be to listen to the gold ETF message and stay neutral.

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