Govt. shutdown to slide dollar lower

EUR/USD notched up to its fifth-straight weekly win, and ended the week at 1.2225, despite attempts by the European Central Bank (ECB) officials’ to supress investor expectations that the central bank would announce plans to slow down its massive stimulus programme at next week’s meeting. Moreover, we could again see the dollar being offered in the coming week, given the US Government shutdown further supporting rally in the pair. Investors would keenly eye the ECB rate announcement and press conference in the week ahead, to gain more clues about the ECB stimulus programme. The uptrend for the EUR/USD is very much intact, and it has clearly broken the resistance at 1.2089 on the weekly chart.

Cable supported by Soft Brexit hopes

The sterling enjoyed a pretty bullish week as it ended the week above the 1.38 region and seems all set to break through the 1.40 region in due course of time. Moreover, the economic shutdown that we are witnessing in the US is likely to dictate the move in the pair, and we could see the dollar being offered in the coming week. Further, the pound is being lifted on the anticipation that it would be able to get a soft Brexit arranged in their talks with their Eurozone counterparts. Historically oversold condition for the pound, along with the weakening dollar supports the uptrend for GBP/USD pair.


Tax reforms boost profits higher

Markets yawn as the US government shutdown commences. Backed by generic optimism surrounding the 2017 fourth quarter earnings results, the US 30 is expected to continue its rally. The recent tax reforms lowering the corporate tax rate is likely to boost profits. Due to the tax windfall companies are expected to spend about one-third on wages, one-third of capital investments and remaining on share buybacks. Due to this, hopes of a long lasting positive impact of the tax cut on the economy are rising. Expectations of higher profits and continued economic growth are perhaps a reason behind continued rally in the stock market, with all of the main benchmarks sitting at record levels. This week we have nine US 30 components scheduled to announce earnings- backed on which we expect the index to rise higher.

Coalition talks supports Germany

Germany stocks were higher after the close on Friday, boosted by gains in the Basic Resources, Consumer & Cyclical, and Transportation & Logistics sectors. Across the European stock markets, shares climbed to highs last seen in 2008 buoyed by higher confidence in corporate earnings and increasing optimism around global economy strength which continued to boost a bull market. The stock markets even shrugged off worries of a possible U.S. government shutdown. On the political side, we believe, positive comments from senior members of Germany’s Social Democrats (SPD) should lead to a further rally in the index. The members informed on Saturday that they are confident that the party would permit the start of formal coalition talks with Chancellor Merkel’s conservatives this weekend at a special congress.

Cloud provides upside potential

Going forward, SAP looks positioned for a pick-up in growth. A key part of this has been the substantial investments in the cloudcomputing business, including acquisitions for companies such as SuccessFactors, Concur and Ariba. But this strategy isn’t just about traditional tasks of cost management and compliance; SAP also is investing heavily in analytics and machine learning to help businesses make better decisions.The technology even has unexpected uses. For example, the SAP platform has helped doctors with genome sequencing to fight cancer.The core business should continue to throw off hefty cash flows, allowing for continued R&D and M&A. We believe SAP is a good long term buy.

Good earnings expected

While Starbucks (SBUX) underperformed the market in 2017, hurt by its curtailed growth projections, it could get a boost when it reports fourth-quarter earnings next week. Analysts expect the coffee giant to report earnings per share of 57 cents, up from 52 cents a year ago, on revenues of $6.2 billion. Although the company's third-quarter report didn't thrill investors, there are still analysts who are bullish on the stock. Certainly, the benefits of lower corporate taxes for restaurants have been well reported, but they expect about half of those savings or less to flow to the bottom line, allowing for Starbucks to reinvest the cash in its business. Their bull case rests with the stock trading at a low 20s valuation, with limited earnings downside.


Gold bulls feed off Bond bears

Gold prices have turned bullish after a dull second half in the previous week. Gold is inversely proportional to the vulnerability in US dollars. In the wee hours of Saturday, the US government went on a shutdown, furloughing a large percentage of its state workers. Even though this has a minor impact on financial markets as observed previously, gold prices are also getting an edge at the expense of climbing bond yields. On Friday last week, the 10-year US Treasury bond yields gave a breakout on the upside jumping 2.646%, highest since 2014. Along with this, Gold prices thrive on the specter of high government debt, which in turn leads to availability of more money in the market and thus higher inflation. The Trump administration tax cut, which is expected to increase US debt adding $1.7 trillion over the next decade, has hit the right chord to help Gold.


Production cut to continue through 2018

Past week there were speculation on OPEC ending its oil cut earlier than expected, due to the already rallying prices. However a meeting set out on 21st January 2018 clarified OPEC’s stance on the Oil Cuts. As per the oil ministers of Saudi Arabia and Oman, the crude market will take all of 2018 to reach at its normal levels of demand and supply. The OPEC and its allies see merit in maintaining their output limits into 2019 and would not consider an exit strategy from their existing cuts agreement. This view is further supported by the lower crude oil inventory data published by U.S. Energy Information Administration on Thursday that crude oil inventories dropped to -6.9 Million Barrels Versus Analyst expectations for a decline of -1.4 Million Barrels. All to these fundamentals suggest higher crude oil prices for the upcoming week.

Stocks tightest in 11 years

World wheat stocks could end 2018-19 at their tightest in 11 years, the International Grains Council said, expanding on forecasts of a fall in output by 6m tonnes. Inventories were seen falling by 4m tonnes in both Russia and the US, and by 2m tonnes in the European Union. The Senates failure to reach a compromise on Friday, the federal offices that support the agro commodities may be dark throughout the weak. The National Association of Wheat growers issued a statement about the partial shutdown noting that failing to fund the government has impacts for farmers across the country. Growers won't have access to data and reports needed for planting and harvesting, farm loans and credit, and other critical services needed to run their operations.

Further failure to act on a funding bill which holds several beneficial programs for wheat growers could raise the wheat prices over the weak.


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Source: Matrix PR