The Global Perspective and How Markets Are Reacting…..

The end of April was a particularly interesting time for investors. The month was packed chockablock full of quarterly earnings reports from listed companies on Wall Street. The vast majority of the data provided by these financial reports was lacklustre, with earnings targets falling shy of actual numbers. Major companies in Apple Inc. (AAPL), Alphabet Inc. (GOOG) and Microsoft (GOOG) disappointed investors, and it was the massive decline suffered by Apple that really weighed heavily on sentiment going into the final stretch. However, amid all the doom and gloom there have been some notable developments taking place in the commodities markets. Gold has been a stellar performer for 2016, with gains in the region of 20% for the year to date. On Friday alone (29th of April 2016) gold spiked 2.2%. For the month of April, the precious metal rose by 5%. Gold is currently trading at a 15-month high largely on the back of risk-averse sentiment in the markets. The Bank of Japan (BoJ) policy of negative interest rates has not helped calm market anxieties, since the JPY is currently trading at 106.3603. A strong Japanese yen is perceived negatively for the USD and this has resulted in a rush for gold. Recent US data releases point to the negative performance of certain sectors of the economy, with the following factors weighing heavily on economic performance:

• Consumer spending increased by just 0.1% in March month-on-month
• US consumer sentiment declined from 91 in March to 89 in April 2016
• The GDP from January through March grew by a paltry 0.5% annual rate, or 0.1% for the quarter

It is against this backdrop that traders and investors are making their decisions in May.

1 – Commodities: Gold Bugs Remain Bullish in Q2

Gold is currently trading at $1,292.76 per ounce, up $3.56. The 0.28% increase on Friday the 29th April marked a 2.2% increase in the price of the precious metal on the day. Gold is currently up 3.15% for the past 30 days and 10.31 % for the past 6 months. For the year to date however, the yellow metal is up almost 20%. But it’s not only gold that is rallying in the precious metals department – it’s silver too. Silver futures also hit their highest levels for the month at $17.980 per ounce, up 2%. With the USD under severe pressure, dollar-denominated commodities like gold and silver are rallying. The US dollar index fell accordingly and was last trading at 93.082 in line with expectations of the greenback. Weakness with the USD is attributed to the decision by the BoJ (Bank of Japan) not to announce additional stimulus. The gold price is fast approaching the key $1,300 resistance level and silver is headed towards the critical $18 per ounce level.

2 – Currencies: Weakness in the USD/JPY Pair Persists

The USD/JPY pair has come under increasing pressure after the Bank of Japan bucked expectations and decided not to increase quantitative easing. This current week marks the strongest performance of the JPY since 2008. The withholding of further stimulus measures by the Bank of Japan caused the JPY to strengthen relative to the USD, as evidenced by the chart above. Based on prevailing trader sentiment, the pair is exceptionally bearish with S1 at 107.91, S2 at 107.65 and S3 at 106.30. Resistance levels are as follows: R3 at 113.79, R2 at 112.62 and R1 at 111.90. The USD is retreating, and this is clear from the declines in the US dollar index. Weakness in the greenback is being caused by several reasons, notably the Fed decision not to hike rates and the decision by the Bank of Japan. Dollar weakness is equally evident in the recent surge in the gold price.

3 – Indices: Bears Maul the USD Index

The US Dollar Index is currently trading at 93.082, down 0.72% leading into today. The Index has shed 0.679 points on the back of the Bank of Japan decision and the aftermath of the Fed decision on Wednesday the 27 April where rates were left unchanged in the 0.25% – 0.50% range. The year-to-date return for the US Dollar Index is -5.63% and the 52-week high is 92.621 on the low end and 100.510 on the high end. Based on present trends the index is moving sharply lower and will continue to do so at least until the next Fed rate hike. Global confidence in the US economic recovery is fast declining. This is the 3rd month of declines for the greenback, after the 24-month rally that began midway through 2014. A weak USD is invariably good news for the EUR and the JPY. For 2016, the USD has plunged 5.9%.

4 – Stocks: Bullish Sentiment for the Alphabet Inc (GOOG)

Alphabet Inc (GOOG), is trading at $693.01 per share, up $1.99 or 0.29%. The stock is down 8.68% for the year-to-date, exacerbated by the recent earnings reports. As can be seen from the recent plunge on Thursday, April 21 2016 Alphabet Inc slid from a high of $759.14 to $691.02 on April 28, 2016. Analysts are overwhelmingly bullish on the stock however, with a mean recommendation of 1.7 for the week The stock has a high price target of $1,080 per share and a low of $800 per share. This indicates that the stock is currently undervalued.The last 3 upgrades/downgrades of the stock since August 19, 2015 have all been bullish with Atlantic Equities, Goldman and Pivotal Research Group initiating overweight and/or buy ratings. The company’s strengths can be seen in the following sectors:

• Good valuation
• Manageable debt levels
• Sound financial position
• Solid revenue growth and net income