This Week Assets To Watch – 09/12/2016

The Macroeconomic Spectrum: ECB in Focus….

On Thursday, 8 September, Mario Draghi (president of the ECB) indicated that the bank would hold off on additional quantitative easing measures. This comes despite economic forecasts being revised lower through 2018. No mention was made of the €80 billion per month asset purchases program at Thursday’s meeting. According to the ECB president, forecasts for growth were not sufficient to justify further quantitative easing. Instead, the European Central Bank (ECB) stressed that it would continue QE until March 2017, perhaps longer. The GC (Governing Council) of the ECB has maintained the deposit rate at -0.4% and the refi rate at 0%.

The approach adopted by the European Central Bank (ECB) had a positive impact on the EUR/USD pair. The currency pair rallied by 0.8% to 1.1325, and it was up at 0.8490 against the GBP. Currency traders across the board were going long on the EUR following the European Central Bank’s statement about unchanged policies. However, it is possible that an extension to the prevailing €80 billion per month in QE could be forthcoming with the December forecasts. Mario Draghi remains committed to evaluating all options available for the QE program, and it looks likely that a redesign and extension of QE policies is on the cards. The ECB is ready and willing to evaluate all available options. The European Central Bank (ECB) was recently anticipating Eurozone growth to hit 1.7% in 2016, up 0.1% from expectations in June 2016. The figures that have now been released indicate a growth projection of 1.6% for the following 2 years, down from 1.7%.

Inflation Targets and the European Central Bank (ECB)

In terms of inflation targets for 2016, growth is forecast at 0.2%. For 2017, growth is forecast at 1.2%, down from 1.3%. However, for 2018, the ECB is anticipating inflation growth of 1.6%. The majority of economists are of the opinion that the European Central Bank (ECB) will maintain its QE programme well into 2017. One of the problems facing the ECB with its bond buying program is that of scarcity. The rules currently in effect are making it difficult for the ECB to purchase as many assets as it wants, given that there are quotas in place.

Various professors believe that consensus will be hard to come by with the ECB, and the setting up of various committees will allow the GC (Governing Council) to reach consensus by December 2016. According to Draghi, the Eurozone does not face the threat of deflation. He was cautious about economic risks in the Eurozone. Among others, he alluded to the June 23 Brexit decision as a particular sticking point.

1 – Trading Opportunity: FTSE 100 Index

The FTSE 100 index is currently trading at 6,776.95, down 1.19% or 81.75 points. There were 792.45 million shares traded on Friday, 9 September. The index has a 1-year change of 8.80%, with a 52-week trading range of 5,499.51 on the low end and 6,955.34 on the high end. The index initially moved south on Thursday, 8 September following Mario Draghi’s comments. The index slumped 1.19% lower, with just 8 shares ending in the black. This was the largest drop (percentage wise) since 6 July 2016. The worst performing stocks on the day included Tesco plc, down 3%. Additionally, the president of the Boston Fed, Eric Rosengren, was hawkish in his comments about interest rates rising in the US. This also helped to drive the FTSE 100 index lower.

2 – Trading Opportunity: Goldcorp In. (NYSE: GG) Down 3.69%

Goldcorp Inc.,(NYSE: GG) is currently trading at $15.92 per share, down 3.69% or $0.61. At its current price the company has a market capitalisation of $13.58 billion with a price/earnings ratio of -2.97. The 1-year target estimate price is $21.37 per share, with a 52-week high of $20.38 and a 52-week low of $9.46. In Q2 2016, the actual earnings disappointed with $-0.01 versus estimated earnings of $0.02. Much the same has been true for three of the past four fiscal quarters. In Q1 2016, the actual earnings came in at $0.09 with estimated earnings at $0.04. In Q4 2015, actual earnings were reported at $-0.15 with estimated earnings at $0.01.

In Q3 2015, actual earnings were reported at $-0.04 with estimated earnings at $0.04. Various class-action lawsuits have been levelled against Goldcorp Inc. A lawsuit was filed on September 10, 2016, owing to false/misleading statements or nondisclosure about Goldcorp’s mine leaking selenium into the groundwater in Penasquito, Mexico. This lawsuit is going to have a bearish effect on the share price of Goldcorp Inc., which has already been on the decline over the past 5 trading days.

3 –Trading Opportunity: EUR/USD Pair

The EUR/USD currency pair is trading at 1.1225, down 0.35% or $0.0039. The 52-week trading range of the pair is 1.0542 on the low end and 1.1614 on the high end. For the year-to-date, the pair has appreciated by 3.80%, after opening at 1.0859 on January 1, 2016. The pair was boosted recently as a result of ECB policy decisions. That Mario Draghi decided not to lower interest rates was important in helping to stabilise the EUR and keep it steady against the USD.

The outlook for this currency pair is bullish. That the Fed has been procrastinating on raising interest rates is helping the EUR/USD pair to gain momentum. Speculators have adopted a net bullish position on this currency pair moving forward.

4 – Trading Opportunity: Oil Price Remains in No-Man’s-Land

Just recently, talk of an oil production freeze has impacted global markets. Various OPEC/non-OPEC producers including Saudi Arabia and Russia have been in high-level discussions to cut production in order to help prices rally. But Russia and Saudi Arabia remain skeptical about raising prices too far above $60. On Monday, 5 September 2016, a meeting took place between the Saudi Arabian energy minister and the Russian energy minister at the G 20 summit. The officials agreed to work with one another to stabilise oil prices.

The dilemma for OPEC oil producers rests in high prices acting as an incentive to West Texas Intermediate producers (WTI) who will likely raise production as a result. This directly impacts market share and will invariably lead to an oversupply. The secretary general of OPEC, Mohammed Barkindo is expecting the price to rise in the region of $50 – $60 per barrel. For WTI crude oil producers, a price above $60 per barrel is required for new production. There are significant problems with crude oil prices in the sense that decreased production increases prices which then entices more oil producers into the mix. This ultimately increases supply and leads to declines in oil price.