Correlation – USD & US 10-year yield

Posted on | by Leon Hinde | Leave a Comment on Correlation – USD & US 10-year yield

With the USD struggling to move higher as 10-year bond yields move back over 2.50%, some market commentators are calling the USD rally over. We don’t necessarily agree with that assessment but we do recognize that the USD/10-year yield correlation has changed.

The first few days of the Trump administration has been received by the FX market with a mix of relief and fatigue. The lack of follow through on his more aggressive campaign proposals in the area of international trade has been a source of relief.

At the same time, the FX market has traded in a less sensitive pattern to the lack of consistency amongst the views of top administration officials with regard to the USD policy. The net result of the mix of fatigue and relief has been a broad unwinding of bullish USD positions  and higher volatility across the major FX pairs.

Although the USD policy hasn’t been discussed directly, it seems the new administration is willing to talk the USD down. This lingering political risk in the USD has seen a rapid breakdown in the percentage correlation between the USD and 10-year yields. 

On November 1st, the directional correlation between the USD and the US 10-year yield was 93%. This means that the USD was moving higher as US yields moved higher on a 93% correlation. However, as of this Tuesday, this correlation has dropped to just under 50%.

It’s difficult to determine how long this condition might last. Considering  two of the biggest current drivers in the FX market are policy comments from the new administration (which aren’t scheduled) and the steady increase in US equity prices, which seem to be moving further into over-valued territory.

It seems reasonable to expect in the near-term that US equity prices will correct from the recent all-time highs and 10-year yields to find some resistance in the 2.60% area. In this case, the directional impact in the USD would be a bit clearer to map. In general, when the market moves into a “risk-off” phase, the USD will firm against all G-7 pairs except the JPY.

The two key data points in the US today will be the Durable Good orders and Advanced GDP. Both of these data sets have the potential to rattle the market if they print wide of expectations. Between the two, we believe the risk with the GDP number is asymmetrical to the downside. In other words, the “risk-off” trade will be greater on a weaker print than the “risk-on” impact of as better report.

ASX200 – XJO Technical Review

Posted on | by Leon Hinde | Leave a Comment on ASX200 – XJO Technical Review

The XJO has bounced off Monday’s low of 5600 points. A combination of the US indices trading modestly higher and the short term oversold conditions in the Australian banks, lead to the minor rally in the XJO. However, with relatively weak top line revenue growth in the US, we still remain cautious on the expected price action in the week ahead.

A break above 5830 will be bullish and a rollover in price around 5750 followed by a later break of the 5600 support will be quite negative.

Chart – XJO

 

 

Colgate Shares Post 1-Year Low On Weak Guidance

Posted on | by Todd | Leave a Comment on Colgate Shares Post 1-Year Low On Weak Guidance

Shares in Colgate-Palmolive had their biggest one-day drop since July 2010 on weak Q4 sales and negative forward guidance for low growth in 2017.

The company reported Q4 EPS of 68 cents per share on net income of $606 million compared to estimates of 75 cents per share.

Company sales were reported at $3.72 billion, below the year-ago number of $3.89 billion, and below the street’s estimate for Q4 sales of $3.9 billion.

The worst part of the report was the announcement that the company expects 2017 EPS to be flat and in the low single digits on an adjusted EPS basis.

Our Algo Engine generated a buy signal at or near the recent $65 low and with the weakness in the overnight earnings result, we recommend running a stop-loss on a break below 63.50

Chart – Colgate

 

A Big Q4 Miss For Chevron

Posted on | by Todd | Leave a Comment on A Big Q4 Miss For Chevron

Shares of Chevron lost over 2% today to $113.80 as the energy giant reported Q4 earnings results which missed estimates by a wide margin.

The company announced Q4 EPS of 22 cents per share, on revenue of $31.5 billion. Analysts had expected the firm to report EPS of 64 cents per share on revenue of $33.3 billion.

In the year-ago period, Chevron reported a loss of $588 million, or 31 cents per share just as crude oil prices were hitting a 12-year low near $27.00.

We expect Chevron’s share price to closely track the price of crude oil going forward, and would look for the next area of support to be near the November price breakout range of $105

Chart – Chevron

BHP Production Results

Posted on | by Todd | Leave a Comment on BHP Production Results

BHP’s recent production results were on the weak side, with lowered expectations in metallurgical coal, energy coal and copper.

The firm has cut its guidance for copper production by 2%, but has maintained their FY 2017 production guidance for other commodities. Copper and energy coal were the weakest spots, with those numbers missing analysis’ forecasts by 11% for both commodities.

Metallurgical coal output was 7% weaker than forecast, while Iron-ore and petroleum production was broadly inline with expectations.

Based on these numbers, BHP will need to deliver a significant uplift in production rates during the 2nd half of 2017 for copper and coal if the upper-end of their guidance is to be achieved.

We believe that BHP is up for the task. At current prices, shares are trading on +11% free cash flow and have a positive chart pattern over the last 12 months. Despite the weaker production result, we see scope for a move to $28.00 in the medium-term.

Chart – BHP

US Earnings Results: Google, Ford and Intel

Posted on | by Todd | Leave a Comment on US Earnings Results: Google, Ford and Intel

Shares of Alphabet, the company formerly known as Google, fell over 3% as their Q4 EPS announcement fell short of the street’s expectations.

The search-engine giant posted earnings of $9.36 per share on expectations of $9.64. The company generated $5.33 billion in net income, which was up 8.3% against the same period last year. Revenues for Q4 were $26.06 billion, up 22% from last year.

We expect to see initial support for Google to be found in the $820.00 area.

Chart – Google

 

Ford Motor Company reported Q4 and full-year 2016 earnings earlier today, and the automaker missed by a narrow margin.

Ford’s  Q4, earnings were $0.30 per share. Analysts had expected $0.31 per share.

Revenue for the quarter was $38.7 billion, higher than expected. For the full year 2016, revenue was $151.8 billion, and net income was reported at $4.6 billion, down $2.8 billion from a year ago.

The stock has risen 8% in the past three months but fell 3% today to close at $12.30.

Our Algo Engine triggered a short signal on the 9th of December at $13.20. Momentum continues to look weak.

 

Shares of Intel traded over 3% higher and nearly reached a new five-year high of $38.00 as Q4 earnings and revenue both beat analysts’ expectations.

The chip-maker posted Q4 EPS at 79 cents per share on quarterly revenue of $16.37 billion. The street was expecting EPS of 74 cents on revenue of $15.75 billion.

The key growth sector for the firm has been the data center group, which posted an 8% year-over-year increase to $4.7 billion.

We view the growth prospects for Intel favorably and look for a price target of $46.00 over a 3-month horizon.

Chart – Intel