HYCM Market Insights & Trading Tips

Bank of England: Holding steady with signs of hope
by Giles Coghlan, Chief Currency Analyst, HYCM

At the last Bank of England meeting, the Monetary Policy Committee (MPC) voted unanimously to keep interest rates at 0.10% and bond purchases unchanged at £20 billion per month.

Vaccine progress

There had been thoughts that perhaps the BoE would be more positive as the UK’s vaccination program is coming along well. Over half of the UK adult population has now received at least one dose. Furthermore, the latest US phase III AstraZeneca trial shows that the vaccine has a 100% efficacy in preventing severe disease.

Bank of England see hopeful signs ahead for the globe

1. Global GDP growth stronger than expected
2. US fiscal stimulus package should provide further global support. The BoE report had considered only around a $1 trillion package according to their minutes. See here at the top of page 5 (confusingly labelled page 2, but is actually page 5 of the PDF). So, this much larger than expected package was expected to boost the UK’s economy as well as the globe.
3. Longer-term yields have been rising across the world reflecting the above.
4. There was also a note about the cost of shipping containers rising, but that prices had somewhat stabilised recently.

Bank of England see hopeful signs ahead for the UK

1. UK GDP which fell by 2.9% was less weak than expected, but GDO Is still around 10% below its 2019 Q4 level.
2. 2021 Q2 could see ‘slightly stronger’ consumption growth, but unsure if this will impact the medium-term forecast. (so this is being downplayed).
3. CPI expected to turn to around 2% in the Spring as the impact of lower oil prices fall away.
4. Non-essential retail and outdoor hospitality to open no earlier than April 12 and entertainment and non-self-contained accommodation no easier than May 17.
5. A Bank of England survey saw that 15% of households would be spending more after restrictions eased and 40% said they would spend less.
6. UK redundancy numbers as measure by HR1 notifications continued to be relatively muted through the first quarter.
7. UK trade in goods volumes has fallen substantially in January. Exports and imports fell around 19% and 21% respectively. (Some disruption around the UK-EU transition period end were cited).

The takeaway of this report is that the Bank of England is pretty neutral, but with signs of hope on the horizon. If they start to materialise then that should support the GBP against weaker currencies like the Euro with present market conditions. You can read the full statement here.

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Understanding the USD as it changes with the narratives
by Giles Coghlan, Chief Currency Analyst, HYCM

At the start of the COVID-crisis, we saw the USD and US 10 year yields move in negative correlation to one another. When 10-year yields rose, the USD fell. Why was this? This is because both were acting as safe-havens. A worried world wanted to buy US treasuries (this causes bond yields to fall) and they wanted the USD as the most liquid currency.

What changed?

Then in March, the world started to focus on the US growth story. This more optimistic footing allows US 10 year yields to rise alongside the USD.

Why has the above changed again?

Germany in extended lockdowns, oil prices falling, AstraZeneca roll-outs slowing + health scares have all led to the reflation trade being questioned. So, this is why we are seeing the COVID relationship between the US 10 year yields and the USD return.
So, in summary.

A worried world:

1. Rising US 10 year yields – falling dollar
2. Falling US 10 year yields – rising dollar

A world focused on US recovery:

1. Rising US 10 year yields – rising dollar
2. Falling US 10 year yields – falling dollar

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March central bank overview
by Giles Coghlan, Chief Currency Analyst, HYCM

Major central bank rundown

The central banks are listed below with their current state of play. The link for each central bank is included in the title of the bank and the next scheduled meeting is in the title too.

Reserve Bank of Australia, Governor Phillip Lowe, 0.10%, Meets 06 April

Holding the line

There were no surprises at the last RBA rate decision earlier this month. The Cash Rate and the 3-year yield target were both kept at 0.10%. The level of bond purchases was unchanged too and stays at $100 billion AUD. The RBA also recognised that the domestic economy was recovering more quickly than expected and most firms had begun loan repayments now. The RBA’s did outline their near term focus before considering raising rates. Firstly, they want to see gains in employment and a return to a tight labour market. Secondly, inflation needs to be in the 2-3% target range. Crucially, this is not expected to occur until 2024.

Economic forecasts

The unemployment level is projected to stay around 6% for 2021 and down to 5.5% at the end of 2022. CPI inflation is expected to rise temporarily due to some short term factors and GDP is anticipated to grow by 3.5% over 2021 & 2022. The RBA can say that rates won’t rise until 2024. However, if the market questions the credibility of the RBA expect strong AUD gains pricing in a rate hike. Remember the RBA will not want to be perceived to move ahead of the Federal Reserve. The RBA brought forward bond purchases in response to the rapidly rising bond yields. The RBA was prepared to do so again if necessary. So, similar to the ECB (see below), the pace of bond purchases can be accelerated to match rising yields. All in all no surprises and the AUD should remain supported on deeper dips against the CHF and the JPY. No change expected from the RBA at the next meeting though recent Australian data has been encouraging, especially employment.

Read the full RBA statement here

European Central Bank, President Christine Lagarde, -0.50%, Meets April 22

Pressured by slow vaccine roll-out

At their last meeting this month the ECB kept interest rates unchanged as expected. They also kept the size of the bond purchases (PEPP) unchanged at €1.85 trillion. However, like the RBA, they expect the pace of the bond purchases to be at a faster rate during the first months of the year. The ECB agreed on a monthly PEPP purchase target lower than 100 billion euros, but higher than the 60 billion seen in February. A sources piece after the ECB decision stated that there were different opinions over whether the recent rise in yields needs to be unwound. Remember that by speeding up bond purchase that keeps the yield lower. So, the ECB is divided the same way the market is divided. Is the rise in yields a sign of an economic recovery or a threat to the economic recovery? The pick up in the speed of bond purchases is seen as enough to halt any disorderly action in the bond market for now. For 2021 inflation was upgraded to 1.5% from 1.0%, but longer-term inflation kept at 1.4% for 2023. So, a short term and temporary inflationary move higher is expected similar to what the RBA expect.

The ECB’s actions were not particularly surprising. However, if the bond purchases accelerate to 100bln and, this is the crucial part, remain accelerated then that should have a more negative impact on the EUR. There is around €1 trillion of the €1.85 PEPP package still to purchase, so the ECB has plenty of room to speed up (or slow down) bond purchases. The slowing down of PEPP purchases is also an option which Lagarde reminded the market of, so two-way risks here. However with Germany recently extending their lockdown and the vaccine rollout dragging for Europe that would favour EURUSD sellers, especially with the FED being pretty indifferent to rising US10 year yields.

Read the full ECB statement here

Bank of Canada, Governor Tiff Macklem, 0.25%, Meets April 21

Optimistic, but cautious over low paid employment

Interest rates were unchanged on March 10 at 0.25% and bond purchases are to continue at the pace of $4billion per week. However, the Bank of Canada still doesn’t want to bring rate hikes for-ward and the Governing Council expects that economic slack will not be absorbed until 2023. The economy is currently 1% higher than the BoC had anticipated and in terms of tone one of the most optimistic central banks. The BoC expect inflation to move above 2% towards 3% temporarily over the coming months. This inflation is expected to be driven by the prices of numerous goods and services that fell sharply during the pandemic and rising oil prices. Another central bank seeing inflation higher, at least temporarily.

One of the major concerns of the BoC rate meeting was over job losses. These are concentrated among low age workers, young people and women. This theme was picked upon by Deputy Gover-nor Schembri the day after the rate meeting who said that the labour market remains a long way from a full recovery.

Read the Deputy Gover-nor Schembri statement here

The housing market has seen strength in Canada. This is due to low-interest rates encouraging house purchases. People are also seeking more space in lockdowns. GDP grew by +9.6% in Q4 2020 led by strong inventory accumulation. GDP growth in Q1 2021 is now expected to be positive.

Personal savings are up, like much of the developed world. However, the BoC are unsure exactly how these savings will be spent in the future. There is obviously a more cautious tone around, so people will be slower to spend savings. The things most people seem to be doing with their savings now in Canada according to the BoC is: putting it in the bank as deposits (personal deposits up by $150 billion), paying off debt, buying houses (fuelling the strong housing market), and buying financial assets and retirement plans. What happens with the excess savings is important as it is enough to impact the direction of the Canadian economy. So this is why the BoC asked respondents what people would do with their savings. 5% plan to spend it all in 2021 and 14% plan on spending some. This survey was conducted in November. The BoC is working on a boost per capita to consumption of $500, but if the outlook around COVID-19 rapidly improves then more of those savings will come on line. You would expect people to be more cautious in November than now.

The BoC are optimistic, but recognise risks. Oil prices are supportive and the economy is not expected to shrink now for Q1. For now, expect CAD buyers on dips. Note the strong employment data on March 12 as Canadian employers get going again. Also, notice how there was a good pick up in jobs amongst the BoC’s target group of low wage workers. This will have reassured the BoC. The next move from the BoC will be mentioning the tapering of bond purchases. This in fact happened shortly after typing that last sentence and the BoC announced the discontinuation of market functioning programs for COVID on Tuesday. This opens up the path for bond tapering. As long as there are no further negative surprises, and if oil stays broadly supported CAD strength against the EUR would be worth considering.

Read the full BoC statement here

Remember that stronger oil supports the CAD as around 17% of all Canadian exports are oil-related. There is a negative correlation between USD/CAD and oil has broken down recently. Canada’s top export is Crude Petroleum at over $66 billion and around 15.5% of Canada’s total exports.

Federal Reserve, Chair: Jerome Powell, 0.125%. Meets April 28

Federal Reserve holds to the script of ‘no rate rises until 2024’

The rate was unchanged 0.25% and QE was unchanged at $120 billion per month. The headline was that the median dot plot saw ‘no interest rate rises until 2024’. However, the dot plot changed slightly with more board members now seeing sooner interest rate rises. Although the continued rise higher in yields post FOMC is showing the market is focused on sooner than expected rate hikes for now.


However, the Fed does see improved growth prospects. Some upward projections for growth and inflation and reductions in unemployment expected. The main message from Powell was that ‘the very worst economic outcomes had been avoided’. GDP for 2021 was revised higher to 6.5% from 4.2%. Unemployment for 2021 was revised lower to 4.5% from 5.0% and Inflation revised up to 2.4% from 1.8% (to reflect expectations of transitory inflation like the RBA, the BOC and the ECB).
In summary, the Federal Reserve stuck to the dovish script. Still, no rates expected until 2024. That’s what the Fed think. However, the market was not so convinced. Eurodollar futures see a rate hike on March 2023 and three rate hikes for that year. See Justin’s post here the morning after the FOMC. So the question is, ‘has the market misunderstood how dovish the Fed is going to be?’. Or has the ‘Fed got behind the market?’. All in all the shift in the dot plot tells you that if economic conditions continue to improve then the Fed will raise rates sooner than 2024. This has resulted in some USD strength post the FOMC and subject to any new developments it is reasonable to expect some USD strength into the next meeting from here. The USD strength this week was mainly on risk-off flows, so that was why the US was rising despite the US 10 year yields falling.

Read the full Fed statement here

You can read an article here on how the Fed uses the dot plot if this is new to you.

Bank of England, Governor Andrew Bailey, 0.10%, Meets May 06

Prior to the latest BoE meeting on March 18, there was a tail risk of a rate hike coming into the markets. The GBP has been strongly supported over the last few weeks and the last meeting continues to provide a reason for optimism regarding GBP strength. The major headlines for the Bank Of Eng-land struck me as pretty neutral. However, the minutes and the statement in full read pretty upbeat. At the last Bank of England meeting, the Monetary Policy Committee (MPC) voted unanimously to keep interest rates at 0.10% and bond purchases were unchanged at £20 billion per month as expected. There had been thoughts prior to the meeting that perhaps the BoE would be more positive as the UK’s vaccination program is coming along well. Over half of the UK adult population has now received at least one dose. Furthermore, the latest US phase III AstraZeneca trial shows that the vaccine has a 100% efficacy in preventing severe disease. As the BoE looked overseas there was a generally upbeat tone. Global GDP growth is stronger than expected. The BoE expected that the US fiscal stimulus package should provide further global support. The BoE report had considered only around a $1 trillion package according to their minutes. See here at the top of page 5 (confusingly labelled page 2, but is actually page 5 of the PDF). So, this much larger than expected package was expected to boost the UK’s economy as well as the globe. There was no worry about the rising bond yields and that was just seen as a natural consequence to improved conditions (don’t tell that to the Fed). There was also a note about the cost of shipping containers rising, but that prices had some-what stabilised recently. This was all before the latest Suez crisis, so that is arguably a greater issue to world trade as shipping containers have to take a two-week long detour around the bottom of S.Africa.

Domestically the BoE were pretty upbeat too. UK GDP which fell by 2.9% was less weak than expected, but GDP Is still around 10% below its 2019 Q4 level. 2021 Q2 could see ‘slightly stronger’ consumption growth, but unsure if this will impact the medium-term forecast. (so this is being down-played). CPI expected to turn to around 2% in the Spring as the impact of lower oil prices falls away. However, the latest UK CPI reading was lower than expected. Non-essential retail and outdoor hospitality to open no earlier than April 12 and entertainment and non-self-contained accommodation no earlier than May 17. A Bank of England survey saw that 15% of households would be spending more after restrictions eased and 40% said they would spend less. Economist Andy Haldane sees the change of a ‘rip roaring’ UK economy with a large build-up of UK savings at around £150 billion.

One area of potential concern is that the UK trade in goods volumes has fallen substantially in January. Exports and imports fell around 19% and 21% respectively. (Some disruption around the UK-EU transition period end were cited). This is one area that I don’t have a proper handle on. Yes, a no-deal Brexit has been avoided, However, EU-UK trade is being hampered and to what extent this will continue is an area I unclear on, but warrant further research. Any helpful info that you have, please leave for readers below.

The takeaway of this report is that the Bank of England has signs of hope on the horizon. If they start to materialise further then that should support the GBP against weaker currencies like the euro with present market conditions. EURGBP remains a sell on rallies higher for now.

Read the full BoE statement here

Swiss National Bank, Chair: Thomas Jordan, -0.75%, Meets March 25

The SNB interest rates are the world’s lowest at-0.75% due to the highly valued Franc. As an export driven economy they hate a strong CHF and are doing their best to make it as unattractive as possible. The market generally ignores this and keeps buying CHF on risk aversion which has been here in one form or another since around 2008/2009 if the EURCHF chart is anything to go by. However, we are seeing some CHF weakness naturally creep in as the world begins to tentatively imagine a COVID-19 free world and the potential for safe haven CHF holdings to drop. A quick glance at CHF pairs we show this to be the case.

Earlier this week on March the SNB left rates unchanged. The inflation forecast was revised ever so slightly higher due to strong oil prices. The forecast for 2021 is +0.2% & +0.4% for 2022. Growth for 2021 is still seen between 2.5% -3.0%. The statement once again struck a tone of optimism vs ‘who knows what will really happen’ with upside and downside risks stated.

The SNB continue to intervene in the FX markets. The Swiss are always mindful of the EURCHF exchange rate because a strong CHF hurts the Swiss export economy. This is why the opening paragraph, and sentence number two, reads: ‘Despite the recent weakening, the Swiss franc remains highly valued’. The SNB want a weaker CHF. The rest of the world wants CHF as a place of safety in a crisis, so we have this constant tug of war going on.

Read the full SNB statement here

For more details on the sight deposits check out SNBCHF.com, This site called the removal of the floor back in 2015, so well worth checking out.
The bottom line here is no real change from last meeting. However, note that a currency like CAD could offer some decent upside against CHF over the coming months as the BoC prepare to taper. The SNB are still content to be the lowest of the central bank pack and dissuade would be investors by charging them for holding CHF.

Bank of Japan, Governor Haruhiko Kuroda, -0.10%, Meets March 19

The Bank of Japan met March 19. The Bank of Japan is another very bearish bank, but the latest meeting saw a small shift in their policy. The BoJ kept rates unchanged at -0.10%. The Yield Curve Control is expanding its flexible target to be +/- 25bps vs +20 bps prior, but the 10 yr JGB yield tar-get remains at 0.0%. The ETF target was removed and the BoJ is only to buy ETF’s linked with the TOPIX. This resulted in the Nikkei falling on the news, although these adjustments were not a big surprise to the markets. All in all there is not a major shift here, as the BoJ remain prepared to step in to support equity markets if needed. Kuroda said that the domestic economy remains in a severe state, but the trend is picking up.

Read the BoJ statement here

Reserve Bank of New Zealand, Governor Adrian Orr, 0.25%, Meets April 14

There were no major changes in the latest RBNZ meeting and Governor Orr did his part to try and talk down the NZD. The key issue for New Zealand is if their economy accelerates sharply that will benefit the NZD. Too much NZD strength hurts New Zealand exporters, so the RBNZ have an interest in trying to discourage NZD strength. However, the reality is that the market looked through the dovishness from the meeting as expected. Interest rates were kept unchanged at 0.25% as expected. Annual CPI now seen at 1.5% and TWI at 74.9% vs 71.5% expected. No additional stimulus required, but current monetary policy assumed to be staying at the same level for a ‘prolonged period’. Large Scale Asset Purchases (LSAP) were kept the same at $100 billion.

The RBNZ statement recognised the uptick in activity both globally and within New Zea-land. However, the statement acknowledged the problem with the strength of the NZD. This was always going to be the RBNZ’s challenge with this meeting. How do you recognise a strengthening economy without rapidly strengthening the NZD. Well, it is done by stressing the uncertainties that are ahead. So, it is unsurprising that the RBNZ said that the economic outlook was still considered uncertain by the RBNZ.

One of the helpful developments for the RBNZ was the police shift that took away from the RBNZ the mandate to keep house prices from rising too quickly. Earlier in the year this had been made their mandate and supported NZD higher as markets knew the RBNZ would be pressured to raise interest rates. That pressure went with the Gov’t announcement a few days ago that aims to contain the rising house prices. This dragged the NZD lower as a key pressure was now removed from the RBNZ and the dovish leaning can now be more easily enjoyed. House prices around the world have been supported by low mortgage rates, so this may be a pattern that other Govt’s follow.

Read the RBNZ statement here

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Seasonal Insights FTSE 100 29.03.21
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest seasonal insights for the FTSE 100 on Youtube.



Medium-term buyers in major world indices are still expected due to the large US stimulus package passed ($1.9 trillion) and potentially still to come ($3 trillion). This means that any medium-term dips lower major equities should find buyers.

The UK FTSE 100 index is entering into a strong time of year where it tends to see seasonal gains. Over the last 15 years, the FTSE 100 has risen 12 times between March 25 and April 30. The average return over the last 15 years has been +2.64%. The maximum profit was +10.17% in 2009. There have been 3 losses in the last 15 years. The largest drop was in 2012 with a -2.74% fall.

This seasonal period is one of the strongest patterns for the FTSE 100 and is only to be surpassed by the November to December period over the last 15 years.

Trade Risks:

1. There is a growing risk that investors consider equity markets overbought and that could see a correction. It is hard to know when that correction will come, but investors need to be aware of the potential risk.
2. There is also a risk that a breakdown in the EU-UK trade relationship drags on UK stocks as post Brexit arrangements are still not fully formed.
3. Finally, any new strong COVID-19 variant could invalidate this outlook and cause FTSE100 selling.
4. Month-end flows are expected to see falls in equity markets and demand in the bond market.

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Market Mood EURNZD 29.03.21
by Giles Coghlan, Chief Currency Analyst, HYCM

EURNZD sellers ahead? Listen on Youtube.

Attached Image (click to enlarge)

The eurozone is struggling to roll out vaccines and there is a growing risk of a third wave embracing the eurozone. This will mean a slower re-opening of European Countries and is likely to weaken the euro. The more serious the latest case count rise becomes, the weaker the euro will likely become.

In contrast, the RBNZ has enough vaccinations for its entire country. Remember that New Zealand has been one of the best nations in handling COVID-19 infection rates.

This means that the next week could see EURNZD sellers on pullbacks as a potential divergence further opens up between the eurozone and New Zealand.

Trade Risks:

1. Any significant improvement in the outlook for Europe and the spread of COVID-19 will invalidate this outlook.
2. Any negative developments for New Zealand will also negate this outlook.

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Week Ahead 29.03.21
by Giles Coghlan, Chief Currency Analyst, HYCM

Risk markets hesitated early midweek as a string of negative news broke. Europe was struggling to distribute its vaccine, the third wave of COVID-19 threatened to slow down the eurozone economy, the Suez Canal was blocked, and oil prices fell sharply. However, the saving grace came in the form of much better than expected European PMI’s which halted a strong risk-off mood midweek and rising oil prices on news from Reuters that OPEC+ is ‘likely’ to extend production cuts. As we approach the turn of the month we can typically expect strong inflows into equity markets, which should support the major indices as long as the risk tone does not seriously turn sour. Be careful as the market is in the balance.

Other key events from the past week

1. EUR: PMI data, Mar 24: European PMI data breathed a hint of optimism into markets on Wednesday morning with strong prints across the board. However, watch out for signs of rising COVID-19 cases to weigh on the EURUSD.
2. CHF: Interest rate, Mar 25: The Swiss National Bank has the lowest interest rates of all the major central banks and kept rates unchanged at negative -0.75%. The SNB reminded markets it remains prepared to intervene to weaken the CHF. Remember, a weak CHF helps the Swiss export-based economy.
3. USD: US 10 y, Mar 26: US 10 year yields pulled back sharply this week as the market stabilised from its recent sell-off in bonds. As long as yields can stay below 2% then most investors think equities can rise alongside US 10 year yields.

Key events for the coming week

1. EUR: COVID case rise, Mar 29: Europe is currently behind the US in its vaccination program speed and is at risk of a third wave outbreak. If COVID-19 cases rise further next week that will most likely keep selling pressure on the EURUSD.
2. CAD: GDP, Mar 31: Expectations are rising that the Bank of Canada will start tapering their bond purchases. Strong GDP data will mean that anticipation will grow and that should support the CAD further, especially against the Euro.
3. USD: Non-Farm Payrolls April 02: US employment data is a key focus for the Federal Reserve. A strong print on Friday will add weight to the case for earlier US interest rate hikes and will likely support the USD.

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Four reasons oil faces headwinds
by Giles Coghlan, Chief Currency Analyst, HYCM

One of the key factors that has been driving the perceived inflation scare has been the rise in oil prices. However, there are a number reasons for oil’s rise to face headwinds over the coming weeks. Take a look at these reasons below.

1. According to Bloomberg, the Chinese storage capacity for oil is near capacity. The low prices for oil had been an opportunity to buy it in cheap, but the tanks are nearly full.
2. The dollar keeps rallying. Either expectations of faster interest rates or safe-haven flows kept the USD supported last week. This is a headwind for oil.
3. Shale can come back online as oil prices rise. If shale supply grows that is another headwind for oil prices.
4. Rising COVID-19 cases in Europe, The more these cases build, then the less oil needed as lockdowns return for the eurozone.

The driver for higher oil prices is that OPEC may roll over production cuts if the oil prices keep drifting lower. That can limit falls, but eventually, the supply will need to come back online.

Inflation fears

For years markets have expected rising inflation. However, globalisation has largely kept that under control. It is worth noting that US core CPI is pretty flat and not showing signs of rising inflation. Recent data from the UK and Canada have shown the same thing. Inflation is pretty flat and weaker oil prices take away a key driver. Worth noting. US CPI below:

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Market Mood EURGBP 30.03.21
by Giles Coghlan, Chief Currency Analyst, HYCM

EURGBP sellers ahead? Listen on Youtube.

Attached Image (click to enlarge)

The UK has now vaccinated over 50% of the UK adult population. The UK stay at home order has now lifted and there are strong levels of savings amongst UK citizens which could give a sizeable boost to the UK economy.

In contrast, the eurozone is struggling to roll out vaccines and there is a growing risk of a third wave embracing the eurozone. This will mean a slower re-opening of European Countries and is likely to weaken the euro. The more serious the latest case count rise becomes, the weaker the euro will likely become.

This means that the EURGBP could see sellers on retracements over the coming week.

Trade Risks:

1. Any negative developments for the UK in terms of the vaccine rollout.
2. Any significant improvement in the outlook for Europe and the spread of COVID-19 will invalidate this outlook.

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Seasonal Insights S&P500 31.03.21
by Giles Coghlan, Chief Currency Analyst, HYCM

Time for S&P500 buyers? Listen on Youtube.

Attached Image (click to enlarge)

US President Biden has said that 90% of the US should be vaccinated by April 19. This fast rollout of the vaccine in the US is a strong tailwind for the US. On top of this President Biden has plans for a $3 trillion stimulus package which should further underpin stocks.

The S&P500 is entering into a strong time of year where it tends to see seasonal gains. Over the last 25 years the S&P500 has risen 19 times between April 01 and May 01. The average return over the last 25 years has been +2.41%. The maximum profit was +14.58% in 2020. There have been 6 losses in the last 15 years. The largest drop was in 2002 with a -5.24% fall.

This seasonal period is one of the strongest patterns for the S&P500 and is only to be surpassed by the November to December period over the last 25 years.

Trade Risks:

1. There is a growing risk that investors consider equity markets overbought and that could see a correction. It is hard to know when that correction will come, but investors need to be aware of the potential risk.
2. There is also a risk that another break out of COVID-19 could slow down the US recovery.
3. Finally, any new strong COVID-19 variant could invalidate this outlook and cause S&P500 selling.
4. If the US stimulus bills find roadblocks then that could invalidate this positive outlook for US stocks.
5. Also, be aware that market conditions are not ‘normal’ due to COVID-19 fallout.

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Weakest start to the year for gold for twenty years
by Giles Coghlan, Chief Currency Analyst, HYCM



Gold ETF’s are continuing to fall and the Fed is quite happy to see bond yields rise as a reflection of a more optimistic outlook. Rising yields are a natural drag on gold and as the US economy gets going those expectations of better times are only going to increase and put further pressure on gold. This is reflected in the bad start for gold around the start of this year. It has been one of the worse starts for 20 years. Usually, the start of the year is a strong time of demand for gold as the Chinese Lunar New year attracts gold buyers.

ETF demand just keeps falling

The bad start of the year for gold is also reflected in the falling ETF levels. Remember that gold ETFs tend to trend, funds have a lot to get rid of, and ETFs tend to have a decent impact on spot prices So, falling levels of exchange-traded funds impacts the gold prices. This is also in start contrast to the rise in gold ETFs that we saw last year which was instrumental in supporting gold prices.



From a seasonal perspective gold’s strong time of the year has passed. In the last 10 years, gold has been flat between April and June, but there are definitely bearish factors above that can weigh on prices. So, taking a balance off factors would mean it is sensible to look for key areas to short gold from as long as these factors remain.


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Seasonal Insights DAX 05.04.21
by Giles Coghlan, Chief Currency Analyst, HYCM

Attached Image (click to enlarge)

Attached Image (click to enlarge)

Listen on Youtube

The DAX is approaching a very strong time of year having risen every single year during April. Last year brought 13.80% returns, whilst the lowest gain was 2.05% in 2017. News from President Biden that 90% of the population will be vaccinated by April 19th is supportive for risk assets that will support equities like the DAX. A $2 trillion USD stimulus package should further underpin global stocks.

DAX is being supported by a sharp rise in Volkswagen shares following last month’s reveal that they plan to compete with Tesla in the electric vehicle sector.

Key Trade Risks:

1. Many investors consider the equity markets overbought so a correction may be coming.
2. Another breakout of COVID-19 could slow down European companies.
3. Any new strong COVID-19 variant may invalidate this outlook.
4. The US stimulus bill could find roadblocks and put pressure on global stocks like the DAX.

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Strong DAX seasonals
by Giles Coghlan, Chief Currency Analyst, HYCM

There is a general enthusiasm for German stocks despite the recent set back in terms of COVID-19 across the eurozone. Taking a look at the seasonals we have the following data from April 06 – April 30 over the last 10 years.

The DAX has been helped higher by the run-up last month in Volkswagen stocks as it makes a move for the electric car market. In fact, the rising DAX futures the day after further lockdowns were announced in France was an important affirmation that investors are happy to keep buying German stocks even with an impending third wave of infections.



The average gain has been +2.63% and the maximum profit was +7.81% last year. The only year of loss was in 2015 with a drop of -5.52%. The win ratio is 90% and you can see the further breakdown here of the max drop during those periods. Aside from the year of loss in 2015, the largest drawdown was -3.54% in 2014. So, the pattern is skewed to the upside for the DAX. View in Seasonax.



The only area of concern is further lockdowns across the eurozone. However, it hasn’t held the DAX back so far, so perhaps investors are just content to keep looking to the time when the virus is finally under control. Any return back down to 1460 would offer good value to buyers and provide a key area to define and limit risk. The upside surprise would be if there was a sudden increase in the speed of vaccinations across the eurozone. So, two way risks here along with the strong seasonals.


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RBA: Are they too negative?
by Giles Coghlan, Chief Currency Analyst, HYCM

The Reserve bank of Australia interest rate decision was as expected. The cash rate was kept at 0.10% and the 3 year bond yield target was also held at 0.10%. This was as expected and the focus was always going to be on the central banks future guidance.

A gain in optimism from the RBA

The board recognised that the recovery in Australia had been stronger than expected. The unemployment rate has fallen to 5.8% in February. At the previous RBA meeting the board had seen unemployment around 6.0%, so 5.8% is at the lower end of what they had been expecting. However, the RBA still stated that unemployment is too high and that spare capacity will keep wage pressure subdued and therefore not generate a longer term rise in inflation.

The three-year bond target remains the RBA target. Later in the year the RBA will consider whether to keep the 2024 bond target or shift to the next maturity. Bond purchases are continuing as per schedule with the RBA ready to make further bond purchases if necessary.

House prices gain

House price gains were noted as increasing and the RBA will be keeping an eye on this. As a reminder, remember that low financing conditions has been boosting house prices across the world.

2024 is still seen as the earliest date for rate rises and the RBA repeated that inflation needs to rise into that 2-3% target range. Once again the RBA does not want to nudge ahead of the Federal Reserve.

You can read the full RBA statement here.

Key point to note

Any further improvement in the labour market will be a big tick for the RBA and is worth watching out for at the next labour data point on Thursday, April 15. A strong rise in labour data can help the RBA change their forward guidance and lift the AUD.

Key charts to watch

The general point to be aware of is that the RBA could end up being too cautious. While they are stressing uncertainties, the general picture is of a faster than expected recover. This means that the risk is that the RBA is too cautious. In terms of a currency pair to trade further AUD gains particularly against the EUR can reasonably expect. The EUR is pressured by rising COVID-19 cases in Europe, so expect sellers on rallies higher.


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Week Ahead 12.04.21
by Giles Coghlan, Chief Currency Analyst, HYCM

This week saw equity markets continue to move higher. The broad case remains that monetary stimulus and fiscal stimulus support will keep dip buyers engaged in the major indices. The main case against equity buying would be if there was the emergence of a brand new COVID-19 variant that was resistant to existing vaccines. Aside from general support in equity markets, there was a strange reaction in the USD to last week’s strong US data. It fell alongside US 10 year yields, which was somewhat unexpected. The USD will be a key theme to watch going forward.

Other key events from the past week

1. AUD: Interest Rate Statement, April 06: The RBA kept to their dovish outlook this week. However, the risk here is that the RBA has been too dovish and the RBA may be caught out with a strong AUD if the economic recovery continues.
2. FTSE100: UK investment, April 07: The FTSE 100 saw strong bids as investors start to move further into expectations of a swift UK recovery on a fast vaccine roll-out program. Will the FTSE 100 reach 7400 this month?
3. USD: US 10 yields fall, Mar 26: US 10 year yields moved lower this week and that has caused dollar buyers to pause. The key level is the 93.00 handle on the Dollar Index, so that is where buyers and sellers can limit risk.

Key events for the coming week

1. USD: Inflation, April 13: The Federal Reserve has said that they will allow inflation to run higher before raising rates, as they expect a temporary spike in inflation. However, expect the market to test that statement if inflation runs higher next week. A high inflation print would be expected to be USD positive.
2. NZD: Interest Rate Statement, April 13: Expectations are the RBNZ will keep interest rates unchanged. However, will the RBNZ change their forward guidance next week and lift the NZD higher?
3. USD: US 10 year yields, Mar 26: Will the USD bear trend resume next week or will buyers step in? Analysts are divided on the near term path of the dollar and it will be a key theme to watch next week.

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Market Mood EURGBP 08.04.21
by Giles Coghlan, Chief Currency Analyst, HYCM

EURGBP sellers ahead? Listen on Youtube.



The UK is poised to enter its second stage of reopening on April 12 as restaurants and bars re-open. The IMF on Tuesday this week have announced that they expect the UK economy to grow faster than the US and Eurozone in 2022 with a growth of +5.3% forecast in 2021 and a 5.1% forecast for 2022. As vaccinations pick up in the UK normal activity is expected to resume and this should help boost UK consumption.

In contrast, the IMF saw a slower growth for the eurozone compared to the UK. The eurozone is struggling to roll out vaccines and there is a growing risk of a third wave of COVID-19 cases. This will mean a slower re-opening of European Countries and is likely to weaken the euro. The more serious the latest case count rise becomes, the weaker the euro will likely become.

This means that the EURGBP could see sellers on retracements over the coming few days.

Key Trade Risks:

1. Any significant improvement in the outlook for Europe and the spread of COVID-19 will invalidate this outlook
2. Any slowdown in either the speed of the UK’s vaccination programme or the re-opening plan will invalidate this outlook.

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ING: USD due a correction lower
by Giles Coghlan, Chief Currency Analyst, HYCM


The move higher in the USD since the start of the year has been a bear market bounce according to the investment firm ING. Their call is based on the view that the current correction higher in the USD will provide some decent levels to rejoin the USD as a core seller.
Some of the reason for their position is as follows:

1. Bond markets have sold off as confidence in a global recovery has grown. However, this rise will be limited in the near term.
2. Their macro team does not buy into the inflation threat perspective.
3. They are waiting for a sufficient inflation premium to be priced into bonds so that pro-cyclical currencies (like AUD & NZD) can advance again. This would support pairs like the AUDUSD and NZDUSD.

They see the dollar rally as a bear market bounce and remain fully invested in a Q2 story of a broadening global recovery to lift all currencies – including the EUR. They see a EURUSD correct dip to 1.17/1.18 to be followed by a recovery to 1.25 in the summer. They also like GBP strength. It is worth mentioning that their piece was before the COVID-19 surge in eurozone cases, so that may skew the pitch on this as it was their March outlook. ING see equity and commodity gains having much further to run, which would of course be helped by a weaker USD.

Looking at the Dollar Index

The Dollar has moved up to the key 93 level and is capped by the key multiyear trend line marked on the chart. This level remains key and as long as sellers can keep price below the trend line then that opens up the way back down to a retest of 89.00 if ING’s outlook is correct. A key risk that can be seen to their view is that bond tapering starts to be spoken about soon and that should be USD positive.

Read their full piece here

Seasonal Insights Nasdaq 09.04.21
by Giles Coghlan, Chief Currency Analyst, HYCM

Nasdaq a buy on the dips? Listen on Youtube



The Nasdaq is approaching a very strong time of the year. Over the last 35 years, the Nasdaq has risen 26 times between April 14 and June 05. The largest gain was in 2003 with a +18.85% return. The biggest loss was -13.12% in 2010. One major factor to consider is that the Nasdaq is largely driven by tech stocks. Apple, Microsoft, Amazon, Tesla, and Facebook are the 5 largest members of the index.

You can see that the index is heavily concentrated with technology companies but also includes companies from other sectors. It is often used as a barometer of the health of the technology sector. Over the COVID-19 induced lockdowns the NASDAQ has seen very strong gains as the so-called ‘stay at home’ stocks saw investor demand. As the world went digital the Nasdaq has gained.

Trade Risks:

1. There is a growing risk that investors consider equity markets overbought and that could see a correction. It is hard to know when that correction will come, but investors need to be aware of the potential risk.
2. There is an upside risk that another break out of COVID-19 could speed up further growth from tech stocks.
3. Any delay in the US stimulus packages could result in general weakness in the US stock market. The Nasdaq would also suffer sharp losses in such an event.

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What does a taper tantrum mean for assets?
by Giles Coghlan, Chief Currency Analyst, HYCM

The team over at ING have put together a helpful piece on what they expect assets to do when the Fed start tapering bonds. For the uninitiated tapering of bonds simply means when the Fed makes fewer bond purchases.

A key part of ING’s piece is looking back to 2013 when the so-called ‘taper tantrum’ occurred after the Fed started discussing the reduction of its US Treasury debt purchases. The takeaway that stands out is that gold was the big loser with a fall of nearly 20% between May 01 and September 05 closely followed by EM currencies.


Size of the tantrum

In 2013 the size of the taper tantrum was 150 bps as the 10 year rose from 1.5% to 3% over the course of around 5 months. The key to a ‘tantrum’ is the speed and violence of the move. So, the key here is how far and how fast the bond yields move higher.

ING’s base case is to see US 10 year yields at 1.75% for the year-end. They recognise the risk that 1.75% could be reached in the middle of this year.

Commodities

The obvious application is that commodities will come under pressure in a taper tantrum repeat. Gold will be the obvious loser, but other commodities are expected to fall. However, oil has separate drivers alongside OPEC+ etc, so bear that in mind.

Emerging markets

In 2013 the so-called ‘fragile five’ (Brazil, Indonesia, India, Turkey and S.Africa) saw a rough 18% decline against a strengthening dollar. ING see the most vulnerable as the ZAR due to its strong gains in 2021. They also see CNY, TWQD and KRW as vulnerable in a taper tantrum scenario. Finally, ING sees EURUSD gaining as a 2H global expansion would favour cyclical currencies like the EUR. Also worth thinking about AUD and NZD strength too.


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Platinum demand remains
by Giles Coghlan, Chief Currency Analyst, HYCM

In Q4 2020 Platinum posted a deficit of 170 koz as strong demand in the auto, industrial and jewellery sector sustained strong investment demand for Platinum.


Supply is weak

The deficit for the Platinum market was the largest on record with a 2020 total of -932 koz. Total demand dropped by 7%, the sharp decline in mining supply of 20% (1203koz), and the total supply fell by 1413 koz.

A deficit is set to remain

As economies get back to normal on the global vaccination programme the demand for platinum is forecast to increase by 3% and supply to recover to 17%. The net result, however, is still to be a deficit of -60Koz in 2021 with a third annual deficit.


Platinum seasonals are unspectacular. The time of year to note for Platinum is at the start of the year and you can use the previous link to search the instrument courtesy of Seasonax.

So what?

The strong time for Platinum looks to have now passed, (which was the start of the year). However, there may still be some dip buyers on retracements to key technical areas due to the supply deficit forecast this year.

Platinum is worth making a note to revisit at the end of the year when the seasonals are stronger.

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How far can stock markets rise?
by Giles Coghlan, Chief Currency Analyst, HYCM



Markets are getting nervy after stocks have been on a great run higher since March last year. Record highs, and strong stock returns lead many to say, ‘when will the rise halt?’ Of course, this is impossible to say. However, here are a couple of thoughts.

Summertime sadness for stocks?

Firstly, the old saying, ‘Sell in May, and go Away’ is based on statistical data. Stock markets tend to not gain between May and November. So, if there was a seasonal time to jump ship it would be at some point heading into the summer. A summer correction would make sense and would be in line with the general ebb and flow of markets.

The US wants to keep stocks supported

According to one estimate on Bloomberg Market’s Live blog, U.S Households own ~30% of the entire country’s equity. This means that the US have a strong incentive to keep US stock markets supported. Any dip lower will simply find buyers. Any further dip lower, of any concern, will only find further even more buyers.
Here are a few other thoughts about the recent stock rise that have come up in conversation over the last few days:

1. Aren’t indices in a strange period of seeing 20% per annum rises? Surely, this is unsustainable?
2. The S&P500 has risen from ~2200 to around ~4100 over the last recent period, Surely this is unsustainable?
3. With the dot plot likely to shift on an improving US recovery, surely we go back to normal 3-7% p.a returns?

So, the question is, where do we go from here? How leveraged are some of these recent stock buyers? Finally, check out a piece by Ray Dalio he wrote in February asking whether or not the US is in a stock bubble through his studies of previous bubbles.

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