Currencies

Pound is undervalued

Pound Sterling is still trading at a steep discount to fair value, since improving UK economic fundamentals mean the British currency is well positioned for a rebound to higher levels over the longer term. The UK current account deficit fell to its lowest level since 2011 during 2017, coming in at £82.9 billion or 4.1% of GDP, as UK earnings from overseas assets rose during the year and UK government payments to the EU and spending on foreign aid were a fraction lower. This is a marked improvement on the +6% of GDP deficit that was seen in 2015. Meanwhile, RBA is approaching a very gradual approach to raising rates as they don’t want to burden borrowers with higher rates. We would recommend a buy on GBP/AUD as on the charts also it is near support level.

Equities

Macro-economic data suggests bullishness

After turning a deaf ear to a robust earnings season amidst a threemonth correction, the market finally shrugged off its fears and rallied by more than 2%. Major Wall street indices advanced by more than 2% last week, with Dow getting most of the attention as it closed in the green each day. The Dow rose for seven straight sessions through Friday-its longest such streak since November. Data on producer & consumer prices suggested inflationary pressure are still soft, reassuring investors that prices are not rising at pace that would force the FED to accelerate its pace of rate hikes. Friday's consumer sentiment data also came in at a strong 98.8, suggesting that markets remain bullish on the future of the economy. Earnings reports of the first quarter have also remained strong with more than 75% of companies reporting earnings surprises. Since taking the 200 Day Moving average support, Dow has edged above the 50 day moving average and broke the trend line resistance as well, suggesting further upside potential.

Good earnings makes Allergan a buy

Allergan (AGN) announced its first quarter earnings near April end and there was nothing in the report that alerted a possible downswing in the current valuation. Allergan surpassed Wall Street analysts’ estimates for earnings per share (or EPS) and revenues, reporting EPS of $3.74 on revenues of $3.7 billion during 1Q18. The revenues were up by 2.8% yoy. Looking ahead to the 2018 year, the company raised its revenue slightly, in the range of $15.15 billion – $15.35 billion. Earnings may top $2.81 a share, compared to $2.21 previously. In the current period (Q2), Allergan forecasts EPS of $0.48 – $0.69 a share. Allergan stock is worth a second look. In addition, Allergan plans to buy back $1.5 billion worth of stock this year and pay down debt. The company is also making bolt-on acquisitions that could add to growth. Allergan shares at $153, are trading well off their highs of $ 256 and is a good buying dip opportunity. Technically, Allergan shares have made a double bottom, indicating room for further upside potential.

Metals

$1300 critical support for Gold

Gold prices traded in the range of $1305 to $1318 for the major part of the week, as dollar held above the 93 mark. However, some weakness in dollar during the latter half of the week helped the yellow metal to break the short term trading range on the upside. This week’s gain for gold, puts it near 8-month high in euro and British pound, and it hit 2-year high in Aussie terms. Technically, prices are trying to carve out a bottom as it has held on against the rise in the dollar. Going by the gold to silver ratio chart, it can be seen that a move above 80 is not sustainable and has led to short term bottom in gold prices. According to Heikin- Ashi candlestick as long as prices hold above $1302 a swift rally higher can be seen. On the higher side $1325 is likely to be an important resistance, a move above which can push the prices higher towards $1340 - $1350

Palladium fundamentals are positive

Increased demand from the auto sector was one factor that impacted palladium prices in 2017. Palladium is actually taking some market share away from platinum in the world of catalytic converters. So that’s what we see as driving the palladium price. Palladium is primarily used in gasoline-powered vehicle autocatalysts, while platinum is used mainly in autocatalysts for diesel-powered vehicles. Gasoline-powered engines are popular in the sizable car markets of the US and China, boding well for demand. Diesel vehicles will still be around for a while, but their share in Europe, the largest market, is estimated to decline from around 45 percent at present to as little as 35 percent in 2025. We are giving a buy on Palladium as fundamentals are positive.

Energies

Rising supplies bearish for crude

In last month’s report, OPEC said that it expects non-OPEC supply to grow by 1.71 million barrels per day in 2018. On Wednesday, the IEA will publish its monthly oil market report. Traders would again look out for changes in supply and demand expectations. Last month, the IEA left the global demand forecast unchanged in 2018 at 1.5 million barrels per day, slightly less than OPEC’s expectations. Technically, prices on weekly chart appear to be completing a larger degree move which began from low of $42.05 in 2017. On daily chart we are witnessing completion of bearish crab harmonic pattern, along with second degree divergence in RSI (14) on the 240 minute chart. Prices have formed a bearish engulfing candlestick pattern on daily chart which requires confirmation in form of a close below $70.50. A move below $70.50 would push the prices lower towards $67.50 which is likely to act important support level from a medium term perspective. On the higher side $72.50 is likely to act as resistance for the week.

US Sugar production revised lower

The U.S. Department of Agriculture in its May 10 World Agricultural Supply and Demand Estimates report forecast 2018-19 U.S. sugar production at 8,981,000 short tons, raw value, down 2.9% from a record 9,252,000 tons forecast for 2017-18 and only slightly above 8,969,000 tons in 2016-17. Beet sugar production for next year was projected at 5,036,000 tons, down 3.5% from a record 5,221,000 tons expected this year, which was raised 82,000 tons from the April forecast. Cane sugar production for next year was forecast at 3,945,000 tons, down 2.1% from 4,031,000 tons this year. U.S. sugar ending stocks for 2018-19 were forecast at 1,542,000 tons, down 359,000 tons, or 19%, from 1,901,000 tons forecast for 2017-18, which was raised 42,000 tons, or 2.3%, from April. We are bullish on these factors.

Rising demand supports cocoa prices

2017-18 production was forecast by the I.C.C.O. (International Cocoa Organization (I.C.C.O.) to drop 2.3% due in part to lower outturn in the Ivory Coast and Ghana, the world’s two largest producers, as the result of lower farm-gate prices, less crop inputs (fertilizer and pesticides) and adverse weather. A surplus of 105,000 tonnes was forecast for 2017-18, and global ending stocks were forecast at 1,830,000 tonnes, up 6%. However, some private forecasters expect an even sharper drop in 2017-18 production. Demand remains the key factor, and that part of the equation is the most difficult to determine or predict. Global cocoa bean grindings, an indication of demand, were forecast by the I.C.C.O. at 4,487,000 tonnes in 2017-18, up 2% from last year.

 

Source: Matrix PR