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Thread: Daily global macro overview with Nigeria-Forex forum.

  1. #221
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    Global macro overview for 15/06/2018.

    The European Central Bank kept interest rates unchanged (reference: 0.0%, deposit: -0.4%) in line with expectations, but decided to extend the asset purchase program with a monthly rate of EUR 15 billion from October to the end of December 2018 after which the program will be terminated. It is a slightly hawkish signal, though partially discounted by the market participants.

    In line with expectations, the ECB lowered GDP forecasts in 2018 to 2.1% y/y from 2.4%, but maintained estimates for 2019 and 2020. Higher oil prices influenced the inflation projection to 1.7%. in 2018 and 2019 from 1.4% predicted earlier. Although the ECB raised inflation projections (2018 - 1.7% vs 1.4%, 2019 1.7% vs 1.4%), it is still a result much below the target ceiling of 2.0%, which is targeted by ECB Council.

    Draghi's assessment of the economic situation has mutually exclusive elements. On the one hand, the ECB president claims that the core strength of the economy has not changed, although he stressed that data weakness may last longer than suggested by new forecasts, especially in some countries may cover the entire second quarter. In addition, Draghi warns against underestimating the existing risks for the outlook business.

    During the Q & A series, most of the question concerned the date of the first interest rate increase. Draghi reminded that the ECB only stated that rates would remain unchanged at least until the end of the summer of 2019. The Council did not discuss when to make the first hike. The Council believes that the condition of the economy allows QE to end, but the risks for prospects mandate a gentle policy on interest rates. Draghi says in his own way that the economy is fine, but not so much as to discuss rates.

    In conclusion, yesterday's ECB meeting supposed to be a hawkish demonstration of the strength of the European economy and the central bank's plans for the future. As a result, however, the whole situation was read by the market as a mix of uncertainty and dovish signals that led to the breaking of important technical levels in terms of Thursday's session.

    Let's now take a look at the EUR/USD technical picture at the H4 time frame. The reason for the depreciation of the European currency was the "sale of facts" after the "earlier purchase" of rumors and some key information provided by the central bankers in their remarks. The price has fallen more than 250 pips, from the level of 38% Fibo at 1.1855 to 1.1592. Currently, the price is still trending down despite the oversold market conditions it approaches the technical support at the level of 1.1509. Any violation of this level would only accelerate the sell-off towards the level of 1.4444.

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  3. #222
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    Global macro overview for 18/06/2018.

    I have the uncomfortable feeling that the market has underestimated both the importance of the Federal Reserve decision in June and the decision of the European Central Bank. Both regulators in a probably coordinated way decided to turn the taps with cheap money soon.

    In my view, global investors have underestimated the consequences of the recent Fed and ECB monetary policy decisions and here is why:

    First, changing the Fed's policy should guarantee a continuation of the bear trend in the debt market. The still ridiculously low yields on US bonds will probably grow with interest rates in the Federal Reserve. In such an environment it would be strange if the dollar did not gain against the euro, yen or pound, not even mention emerging currencies.

    Secondly, the Fed's will probably not go unnoticed in Europe and Asia. The ECB, the Bank of Japan, and the Bank of England can not afford to disregard the Americans and will soon be taking their first steps towards ending the unprecedented monetary expansion. We already have the first effect - the ECB announced the end (conditional, but still) of its own QE together with December 2018.

    Thirdly, the more restrictive (or rather more normal) Federal Reserve policy is a disastrous news for emerging markets. If the American investors will be able to safely earn 3-4% in Treasury securities in America, they will probably withdraw the cash invested in risky assets in some kind of Poland, Thailand or Brazil. The effects of the Fed's actions have already been experienced by residents of Argentina and Turkey, where local currencies suffered a breakdown. The market participants have observed the retreat of foreign capital from the emerging markets from mid-April. Higher US rates will probably only consolidate or even strengthen this move.

    Fourthly, the risk of collapse in US share prices is on the rise. This is partly because the growing profitability of Treasuries increases the profitability of the alternative to extremely overvalued shares, but also partly because some investors can compensate for losses in emerging markets by realizing profits from US shares. And with the automatic investment systems, a ready recipe for Wall Street busting. A foretaste of what may happen, we already had in February.

    In conclusion, if the most important central banks have actually started a coordinated retreat from the ultra-low monetary policy, then the bull market days are numbered. The more so that the bull is no longer young: the bull market in America is already 9 years old, which is a very old age for this species. Also, indices in Europe have many years of strong growth behind them. The scale of the coming breakdown will be directly proportional to the credit excesses of the last decade, which are unprecedented in history. Central banks, restoring long-sighted normality, simultaneously prepare a powerful crisis, during which 2008 will be a nice memory. Investors should therefore be prepared for a strong sell-off of both stocks and bonds. A strong dollar will put pressure on emerging markets. It's time to fasten your seatbelt and go on defensive positions.

    Let's now take a look at the SP500 technical picture at the H4 time frame. The market has opened gap down at the level of 275.24 and it looks like the bears want to test the recent breakout above the old resistance zone (now support) between the levels of 273.42 - 274.15. The key level to the upside is still seen at the level of 280.61, but so far the momentum is weak and the market conditions are now overbought, so this situation a corrective pull-back down is being favored.


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