December 13, 2016 at 9:45 am #1590
Bank Shares Overshadow Weak Mining Sector, Powering FTSE 100 Index
U.K. shares turned higher on Monday thanks to gains in banking stocks that outweighed declines in mining shares.
The advance of London-listed banks’ equities was bolstered by upbeat sentiment from other European counterparts, after Italy’s largest bank by assets, UniCredit SpA UCG said on Tuesday it planned to cut jobs further and sell its assets in order to reinforce its capital base. In addition to the job cuts that had already been planned, UniCredit is about to cut another 6,500 jobs by 2019, bringing total reductions to 14,000, or 10% of its workforce.
The bank, which has a market capitalization of just under EUR15 billion, stated to launch a EUR13 billion ($13.8 billion) rights issue by the end of March and shed EUR17.7 billion of gross bad loans by bundling them into securities to be sold to investors.
Shares of Lloyds Banking Group added1.38%, Standard Charterer gained 1.04% while Barclays PLC moved up 0.53%. Royal Bank Of Scotland Group also picked up 0.4% and HSBC Holdings PLC ticked 0.92% higher.
However, mining shares capped the index’s rally today as metals prices fell on the back of a stronger U.S. dollar. Antofagasta PLC fell 2.26%, Rio Tinto PLC lost 2.01% and BHP Billiton PLC shed 0.96%. Precious metals producer Fresnillo PLC and Randgold Resources PLC were on a decline in the wake of sliding gold prices.
On the economic data front, the Office for National Statistics reported that the U.K.’s annual inflation climbed to its highest annual rate in more than two years. The CPI index rose to 1.2% in November, the highest rate since October 2014. The Bank of England is scheduled to release its last policy decision of 2016 on Thursday, with markets widely expecting that the bank will keep its key interest rate unchanged at 0.25%.
Fig: FTSE 100 Index H4 Technical Chart
The U.K.’s benchmark rebounded from nearly one-week low at 6868.00 and has broken above the resistance at 6920.00. The bullish momentum has been powered by the short-term MA20 which helped the index reverse higher on Tuesday. As indicated by the RSI that is heading to the overbought zone, the FTSE 100 index may surge higher to retest the 7000.00 threshold.
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Dow Jones Sets New Record, Attempting 20,000 Threshold
U.S. shares set a new round of intraday records on Tuesday with Dow Jones Industrial Average nearing the 20,000 milestone ahead of the Federal Reserve’s two-day meeting stating today.
The benchmark jumped more than 0.6 percent to 19,940, heading for a seventh-straight session of gains. The rally was led by shares of International Business Machines Corp., Nike Inc. and Apple Inc. which rose more or less than 2 percent each. Indeed, at the time of writing, International Business Machines Corp. added 2.37%, Nike Inc. gained 1.85% and Apple Inc. climbed 2.15%.
Investors are focusing on the Fed’s coming interest-rate decision which is widely expected to witness a change by a quarter percentage point. Markets will also closely scrutinize the Fed’s President Janet Yellen’s remarks for clues to the central bank’s plans for 2017.
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Global shares were cautious ahead of the U.S. presumed second rate hike in the last ten years later Wednesday. The MSCI Asia Pacific Index edged 0.1 percent higher with Australia’s S&P/ASX 200 Index rising 0.7 percent. Hong Kong’s Hang Seng Index was also a rise but Japan’s Topix and the Shanghai Composite Index dropped 0.1 percent and 0.5 percent, respectively. European equities opened lower while U.S. futures indexes declined.
The U.S. dollar swung between gains and losses before the Federal Reserve’s expected interest-rate increase announced in late U.S. session. The greenback may have a muted reaction to the Fed’s decision to make a change to its key rates but will vacillate in a much wider range following Chair Janet Yellen’s subsequent press conference.
Crude oil fell on Wednesday on the back of a report that showed an unexpected climb in U.S. crude supplies for the week ended Dec. 9. The American Petroleum Institute late Tuesday post an increase of 4.7 million barrels in U.S. stockpiles last week, contrasting to forecasts calling for a stockpile decline of 1.7 million barrels by economists. Government’s official data will be released later today.
The Bank of Japan “tankan” survey published on Wednesday found big Japanese manufacturers’ sentiment improved for the first time in six quarters to hit a one-year high while service-sector confidence was unchanged from three months ago. Falls in the yen and a pick-up in overseas growth brought the index measuring big manufacturers’ business sentiment to plus 10 from plus 6 three months ago, which is the highest level since December 2015.
Fig: GBPCHF H4 Technical Chart
GBPCHF has broken below a couple of moving averages following a retreat from the resistance at 1.28880. The pair is likely to extend its downtrend after falling into a correction at around 1.27850. RSI index which is below 50 and is pointing down signals a strengthening bearish force.
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Fig: Natural gas H4 Technical Chart
Natural gas has been on a decline since the start of this week. The steady downtrend has sent the price to the lowest level since December 02nd. While the RSI index that gauges that relative strength between buyers and sellers are sliding, signaling a strengthening bearish momentum. The short-term MA20 has crossed over the long-term MA50 from above, suggesting further declines.
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Fig: SILVER H4 Technical Chart
Silver bounced back after failing to broken below the short-term MA20. The price action has also crossed over the long-term MA50, which confirms a reversal into an uptrend. The RSI index has moved past the central line, supporting further advances. The metal may attempt the resistance at 17.200.
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Fig: DAX 30 Index H4 Technical Chart
Germany’s DAX 30 index rebounded from the 11300.00 threshold after a sharp rise that brought the market into the overbought zone. Profit taking has just helped send the market escape from the overblown state. However, the short-term MA20 may continue to support the bullish force, signaling a rebound around 11150.00.
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Crude Prices Keep Declining Despite A Draw In U.S. Inventories
Oil futures recovered from some of their earlier losses on Wednesday following weekly report from the U.S. government that showed a draw in domestic crude inventories.
The U.S. Energy Information Administration on Wednesday reported crude oil inventories of the country fell for a fourth week in a row, retreating by another 2.6 million barrels for the week ended Dec. 9. The EIA’s report has dispelled concerns over rising output from the U.S. on the back on soaring oil price as the API on Tuesday had posted nearly 5 million barrel build expectation.
However, price remained weak as data from the Organization of the Petroleum Exporting Countries and the EIA both showed record output of the group in November.
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Monetary Policy Divergence Between FED And SNB Sends USDCHF To Multi-Month High
USDCHF took off to the highest level since late January on Thursday after the Federal Reserve officials on Wednesday raised interest rates for the first time since last December and forecast a more aggressively economic tightening program for 2017.
The pair soared around 1.5% from 1.0103 to 1.0255, the level not seen since January 29th, after the U.S. central bank lifted its target for overnight borrowing costs by 0.25 percentage point to a range of 0.5 percent to 0.75 percent. According to a statement following a two-day meeting in Washington, the Federal Open Market Committee cited “realized and expected labor market conditions and inflation” as reason for this time’s rate hike.
The Fed is widely believed to shift from easing monetary policy toward a tightening territory, as its two main goals which are inflation and labor are moving towards its target. While inflation expectations have increased “considerably”, the labor market is tightening. The central bank stated that it expects three rate increases in 2017, up from two in its September forecasts.
On the other hand, the Swiss National Bank kept interest rates unchanged on Thursday at record low levels to keep a lid on the “significantly overvalued” Swiss franc. Given political uncertainties including upcoming elections in several countries in the euro area and the exit negotiations between the UK and the EU presumed to be triggered next March, the Swiss franc has strengthened against its major peers. A strong franc is considered to be negative for Switzerland’s export-based economy, as it pushes up the price of Swiss products and slashes profit margins of companies.
The SNB expects its willingness to intervene in the foreign exchange market will make Swiss franc investments less attractive and thus curb the demand for the currency. The divergence in monetary policies between the U.S. Fed and the SNB may send the pair higher.
Fig: USDCHF D1 technical chart
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