weekly market outlook - Swissquote

WEEKLY MARKET OUTLOOK 25 -1 July 2018

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WEEKLY MARKET OUTLOOK

25 -1 July 2018

WEEKLY MARKET OUTLOOK - An Overview

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Economics

Central Banks are Still Important to FX- Peter Rosenstreich

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Economics

Toward Sustainable Rise In Oil Prices - Vincent Mivelaz

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Themes Trading

Cybersecurity

Disclaimer





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25 -1 July 2018

Economics

Central Banks are Still Important to FX

While potential US-China-EU trade war continues to grab the headlines, central bank policy is driving FX midterm positioning. Last week, the BoE kept policy rate unchanged as widely expected. However, the surprise came from the voting margin, which shift towards a hike. Chief economist Andy Haldane voted for an interest rate hike moving the vote to 6-3 from 7-2. In a hawkish skew, the MPC clearly view the current soft activity in 1Q was transitional, despite indication that weak manufacturing output is not the result of harsh winter conditions. Insight into members thinking, forced markets to reprice the probability of an August hike from 35% to 56%. This puts the likelihood of interest rate move by November at 70%. However, judging by limited reaction in GBP, markets are not completely convinced.

In regards to the ECB, Draghi & Co. was able to sell the markets a dovish message. Markets have been focused on the statement that policy rates will remain stable “at least through the summer of 2019,” notwithstanding Draghi already indicating that this statement had been deliberately ambiguous. Overall, comments from generally quiet ECB policymakers have just further confused investors. But below the bluster seems to be an effort to keep focus on ending asset purchase and away from interest rates. This strartety makes sense given the markets obsession with rate and bullish effect on Euro. As with the Fed, the ECB will need to quietly steer interest rate higher without alerting the FX market.

Last spring the MPC had also voted 6-3 for a hike, yet within two months, the voting had regressed to 9-0 for no tightening. On one hand, with the 2019 Brexit deadline quickly approaching, UK political disorder has a significantly higher cost. On the other, the BoE statement provide some unexpected comments including news the threshold for normalization has been lower. The accompanying statement read, “MPC now intends not to reduce the stock of purchased assets until Bank Rate reaches around 1.5%, compared to the previous guidance of around 2%."With our general view, we believe that central bank are shifting toward “normalization” is less a reaction to economic data but rather a desire to secure policy tools. Given this view and the MPC indication that August remains a potential date to hike rates, we believe that the BoE will likely increase rate by 25bp this summer. Sterling traders are underpricing the risk of near term policy action. We anticipate GBPUSD to extend bullish rally to 1.3600 in current conditions.





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25 -1 July 2018

Economics

Toward Sustainable Rise In Oil Prices

Friday’s long awaited OPEC meeting finally took place with delay this morning and ended on a positive note, along with a new country at its board, The Republic of Congo. The Organization of Petroleum Exporting Countries finally reached an agreement of principle, though the exact production amount and the specific breakdown by member remain absent of the official communique. This agreement, which seemed unhoped following Iranian Oil Minister Bijan Namdar Zanganeh comment on Thursday that the OPEC would not convince him not to use his veto during the assembly, finally came into force, thanks to Saudi Arabia and Russian strong commitment to support the increase. Following the announcement, both Brent Crude and West Texas Intermediate (WTI) rally continued, trading at 75.24 and 67.27 at the top of the summit, a rise of +2.95% and +2.60% respectively (year-to-date: +12.60% and +11.11%) due to higher demand expectations for the coming periods.

instability respectively). In fact, 50% of OPEC members spare capacity (production capacity – effective production) remains below 60’000 B/D. Planned on 3 December 2018, the Next OPEC Ministerial Meeting remains far away and anything could happen since then. Many parameters such as the US-Iran sanctions or the US shale infrastructure constraints could drastically change the tendency. For these reasons, under current scenario settings, we would support prices of $70 and $63 for Brent Crude and WTI respectively for the second half of 2018, as third quarter seasonal demand peak remains. The impact of further US sanctions towards Iran would “naturally” tighten total oil production supply (Iran accounting for 12% of OPEC total production). We would also interpret a rise of 600’000 B/D as rather weak, as it weighs less than 0.50% of world daily production, thus, supporting an upward bias for the oil industry in general.

Although a “common” agreement appear to have been found, the odds are pretty clear that only a minority of members are going to be the big winners of this increase, as the big leaders Saudi Arabia and Russia (as a non-member), the two largest oil producers before the US, have the production capabilities for ramping up the production above current level. For sure, nominal production estimates of OPEC – non-OPEC members of 1 million B/D to up to 1.5 million B/D according to Russian Energy Minister before the summit seem overstated. Experts are rather counting on an effective production of no more than 600’000 B/D, a number that Saudi oil minister seems to support. Indeed, multiple OPEC members such as Angola and Venezuela continue to face structural hurdles that prevent them from increasing their capacity of production (e.g. offshore drilling platform investment shortage and economic





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25 -1 July 2018

Themes Trading

Cybersecurity

News of cybercrime has become commonplace. On May 12, a piece of malicious software known as “WannaCry” spread across global computer networks. In only 48 hours it infected approximately 230,000 computers. WannaCry knocked out computers at Britain’s National Health Service (NHS), Russia’s interior ministry, Telefónica and Hainan Airlines, among others, rendering them useless and demanding ransom payments from their operators. Wannacry was not nearly as damaging as other malware such as Conficker, ILOVEYOU, Anna Kournikova and MyDoom, which have reportedly caused billions in damages. Regrettably, the frequency, sophistication and impact of cybercrime are only increasing as society increases its dependence on computers. Consequently, companies that are in the business of cybercrime prevention are looking at a massive growth opportunity. Spending on cybersecurity is expected to exceed $90 billion in 2017, rising to $170 billion by 2020. In this cybersecurity theme, we have included hot areas of growth in analytics, threat intelligence, and mobile and cloud security.

The Cybersecurity Certificate is available for trading at : https://www.swissquote.ch/url/investment-ideas/themes-trading





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25 -1 July 2018

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