13 December 2017

Market Update – Mid August 2015

18 August 2015

This is my second markets update this year, and the tune hasn’t changed so much since the first one back in February of 2015. This article is mostly based on fundamentals, although technicals were (as they should be) highly taken into consideration

Forex

I am still bullish on the USD as I have been throughout the entire year. This is on the back of the strength in the US economy, with the unemployment rate at low lows below 6%, growth forecasts better than most major economies and inflation getting back on track – Which is all leading to the expected interest rate hike this year that is expected to be in September or June. This all supports a stronger dollar, although I am not sure how it will perform after the hike.

I am also bullish on the GBP, the English economy is also getting back on track and is set to also raise interest rates, although the latest MPC shows signs of a delayed hike which was initially expected to be this year. It now looks like that hike will be next year. Overall, the UK economy is also quite healthy and just like the US economy, they too are moving towards tightening their belts rather than creating stimulus.

I am still bearish on the EUR, the Greece saga may look like it’s over, but let me not get into that one. The Euro-zone is still trying to recover from the financial crisis and unlike the UK and US, it’s still in high risk of deflation, it’s a fragile economy that is struggling to get better, the ECB is trying to create stimulus through Quantitative Easing, which is set to run until next September, and maybe beyond that if needs be says Mario Draghi. This supports a weaker EUR, which also supports exports and economic growth for them. There is still a chance of seeing parity between the Euro-Dollar pair which is the most traded currency pair in the world, currently trading around 1.11$/EUR.

I am bearish on the commodity currencies; this is obviously on the back of the collapse in the commodity market, amongst other reasons per economy:

AUD – The Australian Dollar has been hurt by the decline in Gold prices, the Reserve bank has also been more dovish, creating stimulus in the economy, although they have recently shown signs that they’re happy with the AUD at current levels (0.74 against the USD). The currency is also affected by the Chinese economy which is their biggest trade partner, the Chinese economy has been slowing down and has even led their central bank to devalue the Yuan to boost exports. NZD – a similar story applies to the New Zealand Dollar, which is taking a blow from the prices of Milk. When your biggest money bringer falls, many other things fall such as employment and GDP, this applies to all the commodity currencies I’m mentioning here. CAD – The Canadian is taking a blow on the massive slide in oil prices that’s trading at lows not seen since 2009

Favoured trades:

Long USD/CAD (current: 1.31), target of 1.35/1.37
Long GBP/CAD (current: 2.05), target 2.12/3
Short AUD/USD (current: 0.74), target 0.70/0.68
Long GBP/AUD (current: 2.12), target 2.25/2.4
Short NZD/USD (current 0.66), target 0.62/0.60
Long GBP/NZD (current: 2.4), target 2.9/3

I am more neutral on the JPY, with a little Bearish bias on the bank of Japan market on monetary easing. USD/JPY (current 124.5) could reach 130.

Commodities

I am bearish on Gold and Silver, they could reach 1000$ and 13$ respectively.

I am also bearish on US oil, which could break below 40$ very soon. With many Oil companies saying they are still profitable even with 30$ per barrel and oil production continuously increasing at record highs.

Stock Market

Just like before, I still favour the US tech shares.

Facebook (current: 95) could break 100$, Apple (current: 116$) should get back to its highs above 130$ and beyond.

Netflix, Google, Tesla, Nike and JP Morgan are also strong favourites. With Google (soon to be called Alphabet) as my top pick, followed by Facebook then Nike, then Apple.

I am overly optimistic over the stock market though, this is due to the slowing global economic market and the signs of exhaustion of the bull run of the market.

Indices

Dax (current: 11 000) could get to 12 000 and above

Nikkei 225 (current: 20 550) could get to 22 000

S&P 500 (current: 2090) could get to 2 300, Dow (current 17 500) could get to 19 000

Overall as you can see, I still feel that we are still in a bull market, but my confidence in the bull run has decreased

Financial markets trading can result in a loss of all your invested capital.


Theo Mbadaliga
Dosiusbald Holdings (PTY) LTD
theo.mbadaliga@gmail.com
@DosiusBald

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