Top 4 Trading Options Available this Week – 09/19/2016

The State of the Global Economy and Profitable Trading Opportunities

In July 2016, imports to the US dropped to $225.8 billion, or 0.8%, compared to June 2016. The growth in imports in June was 1.9%. As the world’s second largest importing country, US demand for foreign goods has a sizeable impact on the export potential of emerging market economies. The decline in imports was reported at $1.9 billion, for a total July figure of $184.4 billion. The biggest declines came from pharmaceutical preparations at $1 billion, household goods and cellular phones at $-0.6 billion, and civilian aircraft at $-0.9 billion. There was an increase of $0.1 billion in inbound shipments of services. The vast majority of imported goods into the US fall into the following categories: beverages, feeds and foods at 5%, automotive components at 15%, industrial supplies at 24%, consumer goods at 26%, and capital goods 29%.

The bulk of imports to the US come from the following countries: Germany at 5%, Japan at 6%, Mexico at 12%, Canada at 14.5%, and China at 19%. On 5 October 2016, import data from August will be released and the forecast is $228 billion. Import values have been declining since June 2016 when they were reported at $227.66 billion. The forecast for August import data is $228 billion. Overall, the US economy has been holding steady with a GDP growth rate of 1.1%, an unemployment rate of 4.9%, an inflation rate of 1.1%, and an interest rate of 0.5%. The decline in imports is significant in that it will affect trade with emerging market economies. As the world’s second-largest importer, the US drives global economic activity. It is notable to point out that imports of manufactured goods from China have been declining since March 2016 (in value terms) and when it comes to overall volume, they have been declining since April 2016.

Greenback Strength Fails to Halt Decline in Imports

The US import data is somewhat surprising given that the USD has been stronger of late and the US economic recovery has been robust. The decline in US imports from EM economies has been particularly strong since the start of 2013. The IMF (International Monetary Fund) attributed the import declines to plunging commodity prices and a rampant USD. Emerging market exporters are now realising that demand from developed markets is declining and that future growth prospects will have to come from other sources. Trade in emerging market economies may be impacted by declines in the US manufacturing sector. A paradigm shift has been taking place in the financial markets recently in the sense that the service sector has outstripped goods demand since 2015.

Trading Opportunity #1 – AIG on the Slide

American International Group, Inc.,(NYSE: AIG) is currently trading at $57.90 per share, down 1.18% or $0.69. The company has a market capitalisation of $61.99 billion with a price/earnings ratio of -201.74. The 52-week trading range for the stock is $48.41 on the low end and $64.31 on the high end. The 1-year target estimate price is $64.38. In terms of earnings targets, AIG has underperformed over the past fiscal year. In Q3 2015 the estimated earnings were $1.03 per share, while the actual earnings were reported at $0.52. In Q4 2015, the actual earnings were $-1.10 per share while the estimated earnings were $-0.93 per share.

Fast forward to Q1 2015, the estimated earnings were $1 per share and the actual earnings were $0.65 per share. In Q2 2016, actual earnings bested estimated earnings by $0.98 to $0.93. Last week, AIG decided to sell all of Lloyd’s of London’s insurance operations to a Canadian pension fund (The Canada Pension Plan Investment Board) for an estimated $240 million. Additionally, a $1.1 billion sale has been finalised which will see AIG relinquishing Ascot Corporate Name and Ascot Lloyd’s syndicate (Ascot Underwriting Holding) to the Canada Pension Plan Investment Board. Over the past 1 day, the stock has declined by 1.35%, and for the year-to-date it is down 6.57%, after starting at $61.97 per share and now trading at $57.90 per share.

Trading Opportunity #2 – USD/JPY Currency Pair Gains Traction

The USD/JPY currency pair is trading at 102.1580, up 0.0735% or 0.0750 JPY. Over the past 1 trading day, the pair has gained 0.18%. Over the past 5 trading days this currency pair is down 0.15%. For the year-to-date, the USD/JPY pair is down 15.20%. The greenback to yen exchange rate started 2016 at 120.2880, and the USD has lost approximately 18 Japanese yen in that time. Upcoming economic data releases that could impact the USD/JPY pair are the following:

• The Fed interest-rate decision on Wednesday, 21 September 2016 with expectations of no change in interest-rate at 0.50%.
• The FOMC economic projections for the US economy on Wednesday, 21 September 2016.

From the Japanese perspective, several important data releases will impact on the USD/JPY currency pair, including the following:

• The balance of trade for August on Tuesday, September 20, 2016 followed by exports and imports year on year for August.
• The Bank of Japan interest-rate decision on Tuesday, 20 September 2016 with a consensus forecast of -0.1%.
• The Bank of Japan press conference on Wednesday, 21 September 2016.

Trading Opportunity #3 – Bearish FTSE 100

The FTSE 100 index is currently trading at 6,710.28 down 0.30% or 20.02 points. The 1-year change for the index is still bullish at 7.72%. In terms of its 52-week trading range, the low is 5,499.51 and the high is 6,955.34. Indices in United Kingdom have recorded mixed gains over the last 1 trading day. The FTSE 100 index is down, the FTSE 250 index is up 99.82 points or 0.56% at 17,851.87, and the FTSE 350 index is down 0.15% or 5.73 points at 3,724.58. The FTSE AIM 100 is up 1.20% or 45.82 points at 3,856.33 and the FTSE All Share index is down 0.11% or 4.08 points at 3,670.86. The FTSE techMark 100 index is up 0.82% or 35.86 points at 4,415.25.

An important voice for the UK economy is that of Chancellor of the Exchequer, Philip Hammond. He has been cautious about the manner in which Britain extricates itself from the European Union. His preference is for close ties between Europe and the United Kingdom, but fellow Tory members prefer a clean break. He is also in two minds about whether the United Kingdom should exit the EU customs union. Various high-ranking officials in the government including trade secretary Liam Fox and Foreign Secretary Boris Johnson are in favour of a clean break. This is generating a little anxiety in the financial markets.

Trading Opportunity #4 – Where to next for crude oil?

On Friday, September 16, 2016, the price of Brent crude oil dropped $0.54 or 1.16% to $46.05 per barrel. This marks a 1-month low for the commodity and it is the third time that oil prices have declined in 4 weeks. Prices have been dragged down as a result of increased output from OPEC countries, followed by the closure of a US gasoline pipeline. Crude oil futures indicate a price of $43.03 per barrel for light sweet crude oil with October delivery. Brent crude oil shed 1.8% or $0.82 to close at $45.77 per barrel. OPEC countries, Exxon Mobil Corporation and Royal Dutch Shell plc are going to be increasing output. One of the reasons driving low crude oil prices is strong WTI crude oil production and record levels of output from OPEC. Thus, we can expect crude oil prices to continue to hover in the $45 range this week.