GroundStone Holdings Morning Newsletter

[GroundStone Holdings]

Daily Macro View - Trade tensions cooling

Daily Insights

Trade tensions cooling. China has resumed soybean purchases for the first time since tariffs were put in place, and more corn shipments could be next according to a Bloomberg report overnight. China also indicated it would provide greater market access to foreign companies, consistent with the Trump administration’s goal to level the playing field. These developments follow reports earlier in the week that China would lower tariffs on imported autos, contributing to cooling tensions and increased optimism the two sides can find middle ground and reach a deal even as the conflict over the arrested Huawei executive escalates.
May survives but Brexit uncertainty remains. Theresa May won a no confidence vote, though by a narrow enough margin that her ability to push through her Brexit plan remains very much in doubt. Still, the result increases the odds of a market-friendly outcome: either an orderly exit or no exit at all, as opposed to a disorderly exit (so-called “hard Brexit”). Economic risk to the U.K. is high, but as the March 2019 deadline approaches, a deal becomes increasingly likely.

ECB threads the needle? Weaker growth in Europe was not enough to scare the European Central Bank (ECB), which announced this morning it will stick to its plan to end its asset purchase program this month despite expectations the central bank will lower its economic growth and inflation forecasts. The ECB also maintained its interest rate guidance to keep rates unchanged at least through the summer of 2019 but will reinvest maturing debt beyond that time frame. The message may be dovish enough for markets, but not too much so as to increase anxiety around the economic outlook.

Initial jobless claims fall. Weekly initial unemployment claims came in at 206K, below the 226K expected and last week’s revised 233K. The four-week moving avg., a better gauge of labor market trends, also declined ~4K to ~225K after increasing nine of the past 10 weeks. Continuing claims (1661K) came in above expectations (1649K), but have trended lower this year and remain near year-to-date lows. Overall, the data suggest the labor market, and by extension the U.S. economy, remain in good shape.

 

[GroundStone Holdings]

Morning Technical Newsletter - Dollar Higher Despite 2019 Uncertainty

Dollar Higher Despite 2019 Uncertainty
During the Friday trading session in Asia, the US Dollar moved higher against major peers as market focus shifts to next week's expected Fed rate hike. Analysts say that gains are certain to be limited, however, given the uncertainty of the outlook for the US economy and the interest rate outlook. The Federal Reserve's last 2018 policy meeting is scheduled to begin December 18th and continue through to the 19th. In the Eurozone, the Euro came under pressure after Mario Draghi commented on concerns for the Eurozone's outlook. Renewed concerns for a possibly hard Brexit have also weighed on the Pound.

As reported at 10:20 am (JST) in Tokyo, the USD/JPY was trading at 113.4660 Yen, down 0.1160%; the pair has ranged from 113.424 Yen to 113.666 Yen. The EUR/USD was trading at $1.1135, down 0.02% while the GBP/USD was trading lower at $1.2628, down 0.26%.

Kiwi Lower at RBNZ Announcement
In New Zealand, the Reserve Bank of New Zealand announced that they were considering doubling their capital requirements for banks in order to ensure that any potential shocks to the New Zealand economy and financial system could be weathered. The RBNZ news sent the Kiwi Dollar lower, with the NZD/USD pair trading down at $0.6797, a loss of 0.86%; the pair had earlier hit a low of $0.67919. The RBNZ said it hopes to minimize the impact of its proposal by implementing a 5-year transition period; capital requirements would vary from between 20% and 60%, resulting in a rise to borrowing costs. The proposal will now be put forward for consultation.

DXY:

Intraday target: $98.00
Long-term target: $100



EUR/USD:

Intraday target: 1.1250
Long-term target: 1.0800



APPLE:

Intraday target: $160
Long-term target: $100



SPX:

Intraday target: $2552
Long-term target: $2000



GOLD:

Intraday target: $1230
Long-term target: $1183



USOIL:

Intraday target: $49.00
Long-term target: $43.00



BITCOIN:

Intraday target: $2800
Long-term target: $2000



ETHEREUM:

Intraday target: $80
Long-term target: $60

 

[GroundStone Holdings]

Education post 23/100 – How to trade with Fundamental analysis?

Fundamental analysis is a way of looking at the forex market by analyzing economic, social, and political forces that may affect the supply and demand of an asset.

If you think about it, this makes a whole lot of sense! Just like in your Economics 101 class, it is supply and demand that determines price, or in our case, the currency exchange rate.

Using supply and demand as an indicator of where price could be headed is easy. The hard part is analyzing all of the factors that affect supply and demand.

In other words, you have to look at different factors to determine whose economy is rockin’ like a Taylor Swift song, and whose economy sucks.

You have to understand the reasons of why and how certain events like an increase in the unemployment rate affects a country’s economy and monetary policy which ultimately, affects the level of demand for its currency.

The idea behind this type of analysis is that if a country’s current or future economic outlook is good, their currency should strengthen.

The better shape a country’s economy is, the more foreign businesses and investors will invest in that country. This results in the need to purchase that country’s currency to obtain those assets.

In a nutshell, this is what fundamental analysis is:


For example, let’s say that the U.S. dollar has been gaining strength because the U.S. economy is improving.

As the economy gets better, raising interest rates may be needed to control growth and inflation.

Higher interest rates make dollar-denominated financial assets more attractive.

In order to get their hands on these lovely assets, traders and investors have to buy some greenbacks first. As a result, the value of the dollar will likely increase.

You will know who the Fed Chairman is and how retail sales data reflects the economy. You’ll be spitting out global interest rates like baseball statistics.

But for now, just know that fundamental analysis is a way of analyzing the potential moves of a currency through the strength or weakness of that country’s economic outlook. It’s going to be awesome, we promise!

 

[GroundStone Holdings]

Education post 24/100 – How to trade with Sentiment Analysis?

Earlier, we said that price action should theoretically reflect all available market information. Unfortunately for us forex traders, it isn’t that simple.

The forex markets do not simply reflect all of the information out there because traders will all just act the same way. Of course, that isn’t how things work.

This is why sentiment analysis is important. Each trader has his or her own opinion of why the market is acting the way it does and whether to trade in the same direction of the market or against it.

The market is just like Facebook – it’s a complex network made up of individuals who want to spam our news feeds.

Kidding aside, the market basically represents what all traders – you, Warren Buffet or Celine from the donut shop – feel about the market.

Each trader’s thoughts and opinions, which are expressed through whatever position they take, helps form the overall sentiment of the market regardless of what information is out there.

The problem is that as retail traders, no matter how strongly you feel about a certain trade, you can’t move the forex markets in your favor.

Even if you truly believe that the dollar is going to go up, but everyone else is bearish on it, there’s nothing much you can do about it (unless you’re one of the GSs – George Soros or Goldman Sachs!).

As a trader, you have to take all this into consideration. You need to perform sentiment analysis.

It’s up to you to gauge how the market is feeling, whether it is bullish or bearish.

Then you have to decide how you want to incorporate your perception of market sentiment into your trading strategy.

If you choose to simply ignore market sentiment, that’s your choice. But hey, we’re telling you now, it’s your loss!

Being able to gauge market sentiment aka sentiment analysis can be an important tool in your toolbox.

Later on in school, we’ll teach you how to analyze currency market sentiment and use it to your advantage, like Jedi mind tricks.

 

[GroundStone Holdings]

Daily Macro View - Daily Insights

Daily Insights

Still range-bound. While markets are moving lower in early trading today, this week’s action has been relatively muted compared to the past several months. We remain encouraged by the S&P 500 Index’s ability to hold support and continue to believe that a potential triple bottom is in play, as discussed earlier this week in our Weekly Market Commentary. This retest of the lows is typically an important part of the bottoming process, and the bullish momentum divergence (as measured by Relative Strength Index 14) strengthens the case that the S&P 500 will have another shot at resistance near 2817. In order to finally break out to the upside, we will be looking for strong buying interest in equities, specifically a surge in one-month highs for individual stocks and leadership from more beaten-up, cyclical sectors such as financials and industrials.

Weak foreign data weighing on stocks. Industrial production growth in China slowed to 5.4% year over year in November (below the 5.9% expected), while retail sales also fell short of analysts’ expectations (+9.0%) with the 8.1% growth marking the lowest reading since May 2003. Fixed asset investment was a bright spot, however, continuing its rebound off August lows. In Europe, services and manufacturing PMIs out of France, Spain, and the Eurozone composite all disappointed and come in the wake of yesterday’s European Central Bank meeting in which officials confirmed their intent to end quantitative easing. Overall, the data support our preference for U.S. equities over foreign, however, emerging markets remains attractive despite the lackluster Chinese data as government officials use all tools at their disposal to support economic growth and our expectations for a meaningful trade deal with the U.S. within the next few months supports our positive bias as well.

U.S. retail sales strong. In contrast to Chinese data, U.S. retail sales figures for November rose 0.2% on top of the upwardly revised 1.1% increase seen in October, topping forecasts and pointing to a healthy U.S. consumer. Sales in the control group, a subset used by analysts to gauge underlying consumer demand, coming in at 0.9%, more than doubled projections. The better-than-expected gains may help to alleviate concerns about a slowing U.S. economy given consumer spending accounts for ~2/3 of GDP, and should also keep the Fed on track to hike rates for the fourth time this year when it meets next week.

Worry is increasing and that could be a good thing. There are signs that sentiment is near a washout. For instance, the recent American Association of Individual Investors (AAII)sentiment poll had the most bears since April 2013. Flows saw extreme panic last week as well, as according to Lipper data, weekly outflows of US-based stock funds was an all-time record last week ($46 billion). From a contrarian point of view, this could be a positive for a meaningful low to occur.

 

[GroundStone Holdings]

Morning Technical Newsletter - Pound Higher But Traders Wary

Pound Higher But Traders Wary
Though higher now, the Pound Sterling remains within striking distance of a 20-month trough, despite calls for another Brexit referendum by some politicians. The Prime Minister is likely to continue to have a deadlocked Parliament with the March deadline for the Brexit looming in the mirror. Theresa May has publicly stated that she is against a second referendum, saying it would be too divisive. Critics are divided in the possible outcome, however, with some agreeing with Ms. May and others suggesting that the risk of a hard Brexit would then be minimized. Regardless, FX traders are sitting on the sidelines on this one, with trade for the GBP/USD pair within a narrow trading band.
As reported at 11:39 am (GMT) in London, the GBP/USD was trading at $1.2624, up 0.30%; the pair has ranged from $1.2575 to $1.2631 in today's session. The EUR/GBP was trading at 0.8983 Pence, down 0.03%; the pair is moving off the session low of 0.89660 Pence while the peak was recorded at 0.89950 Pence.

Euro Higher Despite CPI
In the Eurozone, inflation data fell below expectations for November. Eurostat reported that personal CPI fell to 1.9% on a year-over-year basis, while Core CPI was flat at 1%. On a monthly basis, personal Core CPI was recorded at -0.3%, below the predicted -0.2%. Core inflation data strips out volatile components such as food and energy costs. The EUR/USD was trading at $1.1342, up 0.26%; the pair has ranged from $1.3001 to $1.3444 in this trading session.

DXY:
Intraday target: $96.90
Long-term target: $100

EUR/USD:
Intraday target: 1.1400
Long-term target: 1.0800

APPLE:
Intraday target: $160
Long-term target: $100

SPX:
Intraday target: $2552
Long-term target: $2000

GOLD:
Intraday target: $1250
Long-term target: $1183

USOIL:
Intraday target: $47.00
Long-term target: $43.00

BITCOIN:
Intraday target: $3250
Long-term target: $2000

ETHEREUM:
Intraday target: $90
Long-term target: $60

 

[GroundStone Holdings]

Daily Macro View - After nearly 10 years of witnessing the U.S. economy

Daily Insights

After nearly 10 years of witnessing the U.S. economy and stock market recover-and thrive-investors are starting to wonder if we’ve seen all this expansion and bull market have to offer. At LPL Research, we believe there’s more room to run, and don’t expect an impending recession or bear market in 2019. However, it is a good time to start thinking about what the next phase for the economy and markets may look like. The intention here is not to start worrying or assuming the worst, but to remind ourselves that slowdowns and declines-even recessions and bear markets-are a normal part of our market cycle. And even more importantly, if we’re prepared for any downturns, we can be better positioned to weather any challenges that may be ahead.

Key themes from the Outlook:

Policy. The Federal Reserve is expected to slow its pace of interest rate hikes next year, while fiscal policy should remain supportive of economic and profit growth. Uncertainty regarding trade policy remains a risk, although we expect an eventual resolution.

Expect volatility. Market volatility will likely persist in 2019, as investors digest the many forces impacting the economy, interest rates, and corporate profits. Focusing on the fundamentals and remembering the importance of diversification will be key to navigating any volatile times.

Look for an elongated cycle. Despite periodic slowdowns, business spending was solid in 2018 and is expected to remain so in 2019. Business spending remains a key factor supporting economic growth as we look for this cycle to elongate.

Economic and market forecasts for 2019:

U.S. economy. Consumer spending, business investment, and government spending should provide continued support for gross domestic product growth of 2.5-2.75%.

Interest rates and bonds. A rising rate environment may prove challenging for bonds, and we expect flat returns for the benchmark Bloomberg Barclays Aggregate Index. Our year-end 2019 forecast for the 10-year U.S. Treasury yield is 3.25% to 3.75%.

Corporate profits and stocks. Expectations for still-solid corporate profits and steady economic growth support our forecast of an 8-10% return for the S&P 500 Index. We forecast a 6-7% increase in S&P 500 earnings in 2019.

The week ahead. A slew of data is due out in the U.S., though the highlight of the week will be the Federal Reserve’s monetary policy meeting on Tuesday and Wednesday. A rate hike is expected, so market participants will instead be looking for any indication of the future path of the policy rate for 2019. In Europe, economic data is headlined by third-quarter GDP, along with producer price data, from France and the UK. In Asia, all is quiet out of China, though core inflation data from Japan will garner attention.

 

[GroundStone Holdings]

Morning Technical Newsletter - Despite Uncertainty Ahead, Pound Moves Higher

Despite Uncertainty Ahead, Pound Moves Higher

The Pound Sterling continues to move off of the recently struck 20-month trough after it was confirmed that the Prime Minister will ask for the British Parliament to approve her latest Brexit proposal next month. Analysts caution that Theresa May will be fighting the fight of her life in order to get her deal through given that she still needs to find the backing of members from her own party. Ms. May has already postponed the vote once, after party members cautioned her that the proposal would be voted down. What is different this time around is that the Prime Minister is working to get the backing of the European Union to acknowledge that they will not accept a “managed no deal;” essentially, the EU will say it is all or nothing which analysts say could make Ms. May's proposal appear the better option.
As reported at 11:45 am (GMT) in London, the GBP/USD was trading at $1.2698, a gain of 0.675%; the pair has ranged from a session peak of $1.2706 to a low of $1.2610. The EUR/GBP is trading at 0.8976 Pence, down 0.22%, and off the session low of 0.89715 Pence.

Outlook for Brexit Still Dubious
There are also some hopes that a Brexit delay could be agreed to if the Prime Minister does not get Parliamentary support, or even perhaps that a second referendum could be pushed through. Analysts warn that the specter of a no-deal Brexit could be catastrophic for the Pound, with perhaps as much as a 10% loss as a result. They also warn that the UK's competitiveness as it relates to the rest of the world will have suffered tremendous damage as the result of a no-deal.

DXY:
Intraday target: $96.90
Long-term target: $100

EUR/USD:
Intraday target: 1.1340
Long-term target: 1.0800

APPLE:
Intraday target: $160
Long-term target: $100

SPX:
Intraday target: $2550
Long-term target: $2000

GOLD:
Intraday target: $1252
Long-term target: $1183

USOIL:
Intraday target: $46.86
Long-term target: $43.00

BITCOIN:
Intraday target: $3250
Long-term target: $2000

ETHEREUM:
Intraday target: $90
Long-term target: $60

 

[GroundStone Holdings]

Daily Macro View - Investors piling into bonds, high-yield issuers staying away

Daily Insights

Investors piling into bonds, high-yield issuers staying away. According to Bank of America Merrill Lynch’s December survey, pessimism among investors is at its highest level in a decade, with November seeing the largest one-month rotation into bonds since the firm started its survey in 2001, though participants remained underweight fixed income in aggregate. At the same time, the Financial Times is reporting that no company has borrowed funds in the $1.2T U.S. high-yield corporate bond market this month. Should the trend continue, it would mark the first month since November 2008 that not a single high-yield bond priced in the market. The moves broadly reflect concerns that a marked slowdown in global growth could be on the horizon; however, while we expect GDP to moderate in developed economies, we see global growth holding near 3.7% in 2019, led by the U.S. and emerging markets economies.*

Housing industry showing signs of life. Data out this morning showed housing starts unexpectedly increased 3.2% in November (est. -0.9%), building permits jumped 5%, and housing completions increased modestly. The positive figures following yesterday’s NAHB Housing Market Index, which came in at its lowest level since May 2015. Tomorrow’s existing home sales report will likely garner outsized attention as investors continue to gauge the status of the overall housing market, which has struggled to keep pace with growth in the overall economy.

Fed meeting preview. The Federal Reserve (Fed) kicked off its final meeting of 2018 today. Financial markets, however, are pricing in expectations for next year as investors’ anxiety about the Fed’s exit from accommodative monetary conditions increases.

 

[GroundStone Holdings]

Morning Technical Newsletter - Pound Loses Momentum After Data

Pound Loses Momentum After Data
After three days of gains, the Pound Sterling seems to have lost some positive momentum after the release of the latest inflation data for the UK. A slew of data was released this morning, with generally mixed results, none of which will help cement the likelihood that the Bank of England might change their rate outlook for 2019. Producer Price inputs and outputs were generally better than expected in November, while the retail price index was flat on an annual basis and below expectations on a month-to-month basis.

As reported at 11:39 am (GMT) in London, the GBP/USD was trading at $1.2638, down 0.07%; the pair is moving off the session peak of $1.2679, while the low was recorded at $1.2632. The EUR/GBP is trading at 0.9021 Pence, a gain of 0.39%; the pair has ranged from 0.89826 Pence to 0.90237 Pence in today's session.

Inflation Inches Closer to BoE Target
What market players were waiting for was personal inflation, which largely disappointed; the UK Office of National Statistics reported that CPI met expectations, in general. Core CPI for November (annually) came in at the predicted 1.8%, down from 1.9% in the previous reading, while CPI (annually) came in at the expected 2.3%, down from 2.4% previously. The Bank of England has a 2% target for CPI, and as it approaches that it could begin to put a dent in expectations that the central bank might continue with a tighter monetary policy.

DXY:

Intraday target: $97.20
Long-term target: $100



EUR/USD:

Intraday target: 1.1340
Long-term target: 1.0800



APPLE:

Intraday target: $160
Long-term target: $100



SPX:

Intraday target: $2500
Long-term target: $2000



GOLD:

Intraday target: $1238
Long-term target: $1183

USOIL:

Intraday target: $46.00
Long-term target: $43.00



BITCOIN:

Intraday target: $3600
Long-term target: $2000



ETHEREUM:

Intraday target: $100
Long-term target: $60

 

[GroundStone Holdings]

Daily Macro View - Fed decision

Daily Insights

Fed decision. The Federal Reserve (Fed) wraps up its two-day meeting this afternoon and will announce its rate-hike decision at 2pm eastern. Market expectations for an increase are north of 70% but have fallen over the past week, along with equities, as oil continues to slide (details below) and geopolitical uncertainties persist.

Oil stabilizes after 7% tumble. WTI crude oil is near flat this morning after falling 7.2% yesterday to <$47/bbl amid a lack of clarity on the recent OPEC+ production cut agreement, a report from the EIA suggesting U.S. shale producers will likely continue to increase output, and a surprise build of 3.45M bbls (vs. expected 3.1M drawdown) in the API weekly inventory report. Despite expectations for a ramp-up in U.S. supply, it will be difficult for prices to remain in the $40 range since even the most productive regions in the U.S. will struggle to break even around current levels. We believe fair value is in the $60-70/bbl range, however, we don’t expect to return to those levels in the near term, and volatility is likely to persist as markets strive towards balancing supply and demand.

Will Santa come? December is off to a very rocky start, as after 10 trading days it was the worst start for the month of December for the S&P 500 Index since 1980. The good news is in 1980 the S&P 500 bounced more than 6% the remainder of the month, but will we see a Santa Claus rally this year? It is important to note that the majority of the equity strength in December takes place during the second half of the month.

 

[GroundStone Holdings]

Morning Technical Newsletter - Fed Announcement Spooks Traders

Fed Announcement Spooks Traders

Asian markets were broadly lower on Thursday after the U.S. Federal Reserve raised interest rates a quarter point on Wednesday and indicated that there will be two more rate hikes in 2019. The announcement crashed trader hopes for a dovish policy outlook and sparked a selloff on Wall Street on Wednesday that spread into Asia on Thursday.

As of 2:13 p.m HK/SIN, the Nikkei 225 was down a whopping 3.07 percent. Hong Kong’s Hang Seng Index was down 1.05 percent, South Korea’s Kospi was down 1.14 percent and Australia’s ASX 200 had eased 1.34 percent. Both of China’s benchmark indexes, the Shanghai Composite and the Shenzhen Composite were also lower, down 0.50 percent and 0.20 percent respectively.

The Fed’s comments were in-line with expectations, though it’s downgraded expectations for 2019 still troubled traders. The Fed had originally projected three rate hikes for 2019, and it reduced the number to two in light of tightening financial conditions and concerns about the global economy. The Fed did assure traders that it will “continue to monitor global economic and financial developments and assess their implications for the economic outlook” – a note that was aimed to be comforting, though is to be expected from the U.S. central bank.

Oil prices continued their decline on Thursday after a positive U.S. trading session on Wednesday. The move lower resulted from fresh concerns about oversupply and the outlook for the global economy. This week’s volatility in the oil markets has encouraged investors to close their positions and is reducing liquidity in the market. With the markets easing into holiday mode, commodity traders may opt to stand to the side until the new year when OPEC’s production cuts come into effect and the holiday slump has passed. U.S. WTI futures were trading at $47.10 per barrel while Brent crude futures were down 1.54 percent to $56.36 per barrel.

DXY:

Intraday target: $96.70
Long-term target: $100



EUR/USD:

Intraday target: 1.1320
Long-term target: 1.0800



APPLE:

Intraday target: $150
Long-term target: $100



SPX:

Intraday target: $2413
Long-term target: $2000



GOLD:

Intraday target: $1251
Long-term target: $1183



USOIL:

Intraday target: $44.00
Long-term target: $43.00



BITCOIN:

Intraday target: $3600
Long-term target: $2000



ETHEREUM:

Intraday target: $100
Long-term target: $60

 

[GroundStone Holdings]

Daily Macro View - Fed hikes again, but lowers projections

Daily Insights

Fed hikes again, but lowers projections. The Federal Reserve (Fed) hiked interest rates yesterday, but lowered its projections for future rate increases in a nod to both the hawks and the doves. Still, the S&P 500 Index slid 1.5% for the day after being up about 1% pre-announcement (more below), closing down for a seventh straight Fed day.

Oversold conditions may support a bounce. Higher selling volume, credit spread widening, falling Treasury yields, and weakness in transports and semiconductors presented strong evidence of investor disappointment with the Fed announcement yesterday. Many price-based metrics suggest we may get a bounce, including just 22% of S&P 500 stocks sitting above their 200-day moving average, advancing volume drying up, more extreme put/call readings, and increasing use of cash as a safe haven. With the S&P 500 near 2500, the next support level is 2450, followed by 2375; resistance on the upside is 2650/2700. Clearly the bond market is screaming “stop” to the Fed with the 10-year Treasury yield down to 2.75% and some additional yield curve narrowing.

Volatility perspective. The average annual peak-to-trough decline since 1980 has been 14%, very close to what investors have had to stomach in 2018. Average volatility feels worse than average, but putting market swings in context can be reassuring. In a midterm election year the average decline is slightly larger (16%), while even in up years, the average peak-to-trough decline has been 11%. Keep in mind that since WWII, the S&P 500 has never declined in the 12 months following a midterm election (18 for 18), and no recession has occurred when earnings rise, as we expect in 2019-our forecast calls for a 6-7% increase in S&P 500 earnings next year.*

Non-recessionary bears are rare and not much worse than this. Over the past 40 years, the S&P 500 has experienced only one decline >20% that was not accompanied by a recession based on closing prices and that was 1987. It did come very close three times, falling 19% peak-to-trough in 1978, 1998, and 2011. No one can predict with certainty how far this latest selloff will go but fundamentals, including a low probability of recession in 2019, and historical perspective suggest much of this selloff may be behind us.

Valuations have come down significantly. The benefit of market declines is of course that stocks get cheaper. How much cheaper have they gotten? After trading at a price-to-earnings ratio (PE) just under 19 only 11 months ago (based on next 12 month’s consensus earnings estimates from FactSet), the S&P 500 PE has fallen to 15, slightly below the long-term average. Given low inflation and still-low interest rates, and our still positive earnings growth outlook, we believe stocks are below fair value.

We continue to under-emphasize developed international stocks in our 2019 Outlook. Growth in Europe has been slowing and may struggle to reach even 2% in 2019, while political risk is rising. Meanwhile, growth in Japan is also lagging, despite stimulus and corporate reform efforts.

Favor emerging market equities for 2019. We favor emerging markets (EM) over developed international equities for their solid economic growth trajectory, favorable demographics, attractive valuations, and prospects for a U.S. trade agreement with China, with a bias toward emerging Asia. GDP growth in China, as well as broader EM, is likely to more than double the pace of developed international economies in 2019, and we believe political uncertainty is actually higher in Europe than in EM.

 

[GroundStone Holdings]

Morning Technical Newsletter - Yen Higher on Risk Aversion

Yen Higher on Risk Aversion
Safe haven currencies, predominantly the Japanese Yen, were driven higher during the Asian trading session, largely on an increase in risk aversion after the US Dollar Index fell as well as another major rout on Wall Street. The subdued outlook of the US economy and the interest rate environment is also weighing on the greenback. The Federal Reserve had signaled the likelihood that there would be far less interest rate increases in the coming years than they had originally foreseen. That helped to push US Treasury yields on longer-term instruments toward a 9-month low.

As reported at 10:2 am (JST) in Tokyo, the USD/JPY was trading lower at 111.16 Yen, a loss of 0.1078%; the pair is moving away from the session trough of 111.089 Yen. The EUR/JPY was trading at 127.306 Yen, down 0.09, while the GBP/JPY was trading at 140.7600 Yen, down 0.07%.

Short Wait for Sentiment Shift
Positive sentiment for the greenback is also eroding under the threat of a federal government shutdown, and the latest surprise defection from the Trump administration. The Secretary of Defense, James Mattis, handed in his resignation to the president today, citing policy differences. Analysts say they don't foresee a market shift to a more positive outlook until after the new year, and believe that equities will largely dictate direction for safe haven currencies as well as the US Dollar.

DXY:

Intraday target: $96.70
Long-term target: $100



EUR/USD:

Intraday target: 1.1320
Long-term target: 1.0800



APPLE:

Intraday target: $150
Long-term target: $100



SPX:

Intraday target: $2413
Long-term target: $2000



GOLD:

Intraday target: $1251
Long-term target: $1183



USOIL:

Intraday target: $44.00
Long-term target: $43.00



BITCOIN:

Intraday target: $3600
Long-term target: $2000



ETHEREUM:

Intraday target: $100
Long-term target: $60

 

[GroundStone Holdings]

Daily Macro View - Daily Insights

U.S., China talks progress as Chinese economic slowdown continues. In a tweet over the weekend, President Trump suggested that a “deal is moving along very well” after a call with Chinese President Xi Jinping. Though the president indicated “big progress is being made,” skeptics abound that a comprehensive agreement is imminent. However, China is feeling increased pressure to make a deal as momentum in the economy continues to falter. In the latest sign, official Purchasing Managers Index (PMI) data for December showed manufacturing activity unexpectedly contracted for the first time since July 2016, while a sub-index for new orders fell for the first time in more than a year. While we remain optimistic that an agreement will be reached in 2019, possibly ahead of the March 1 deadline imposed by President Trump, our expectations that a wide-ranging deal can be secured ahead of initial face-to-face negotiations, set to begin January 7, is unlikely.

Government shutdown drags on as squabble continues over border wall. Funding for a wall on the U.S.-Mexico border remains the key sticking point in a budget battle in Washington that has served to erect a wall between Congressional republicans and democrats. Per the norm, markets have largely ignored the squabbling, given the negligible economic impact. However, to the extent it could serve as a preamble to a meaningful debt ceiling debate next summer, when interest payments on U.S. Treasuries could be at stake, the situation bears monitoring.

Weekly commentaries focus on market volatility. The S&P 500 Index came about as close as possible to the technical definition of a bear market last week without officially registering one. On the economic front, increased uncertainty around policy risks has contributed to sharp market declines, but growth expectations continue to hold steady in the U.S. and have declined only modestly globally. Overall, we encourage investors to remain focused on the fundamentals supporting growth in the economy and corporate profits, and stick with long-term strategies despite historic volatility.

 

[GroundStone Holdings]

Morning Technical Newsletter -Traders Remain Cautious as New Year Rolls In

Asian trading on the first day of 2019 reflected just how skittish traders are about the state of the current global economy. Oil prices opened lower, prompted by fears of a global supply glut and concerns that a global economic slowdown will decrease demand. Gold prices were higher, not surprisingly, as traders flocked to the safe-haven commodity. Asian markets were also swimming in a sea of red on Wednesday afternoon.

On Tuesday, President Xi Jinping on China sent a message to US President Donald Trump to mark 40 years since the establishment of open diplomatic relations between the countries. In his note, he urged cooperation between the US and China, and lauded the historic progress made between the two countries in the past 40 years. Trump replied that he will continue to prioritize a constructive relationship between the countries. Still, despite this diplomatic dance, little progress has been made in thawing the trade tensions between the countries, and traders have taken note.

Oil prices were down more than 1 percent in the mid-afternoon in Asia. US WTI futures were down 1.08 percent to $44.92 per barrel, while Brent crude futures were 1.26 percent lower, to $53.12 per barrel as of 2:06 p.m. HK/SIN. The drop comes following reports that factory activity in China, the world’s biggest oil importer, contracted in December. Oil prices ended lower in 2018 for the first time in 3 years. Brent was down nearly 20 percent for the year, while US WTI futures lost nearly 25 percent.

In the Asian stock markets, all major indexes were down in the afternoon, with Hong Kong’s Hang Seng Index the biggest loser, down 2.74 percent. South Korea’s Kospi was down 1.70 percent, Australia’s ASX 200 was down 1.57 percent, and the Shanghai Composite was down 1.29 percent. Japan’s Nikkei 225 eased 0.31 percent.

DXY:

Intraday target: $97.00
Long-term target: $100



EUR/USD:

Intraday target: 1.1350
Long-term target: 1.0800



APPLE:

Intraday target: $150
Long-term target: $100



SPX:

Intraday target: $2413
Long-term target: $2000



GOLD:

Intraday target: $1300
Long-term target: $1183



USOIL:

Intraday target: $40.00
Long-term target: $27.00



BITCOIN:

Intraday target: $3615
Long-term target: $2000



ETHEREUM:

Intraday target: $130
Long-term target: $60

 

[GroundStone Holdings]

Daily Macro View - Slew of manufacturing PMI

Daily Insights

What happened? Investors are still scratching their heads after a tumultuous Q4 that dragged the S&P 500 Index down >13% to finish 2018 in negative territory (-4.4%), its worst yearly return since 2008.

Slew of manufacturing PMI. Markit Manufacturing PMI reports from a dozen countries, including the U.S. and China, showed overall activity remains steady and in expansionary territory across most of Europe, while Asia weakened last month. In a sign that it’s likely faring worse in the trade spat, Chinese data fell into contractionary territory in December for the first time in 19 months. The slowdown comes as gov’t officials are already tapping the brakes on the economy through deleveraging, among other initiatives, and the drop in Chinese activity reverberated around the region as other export-oriented countries posted weaker-than-expected figures as well. With the U.S. remaining firmly in expansionary territory, it bodes well for face-to-face trade negotiations slated to start next week.

 

[GroundStone Holdings]

Global Tech Stocks Tank Following Apple Decline
Apple shares plummeted nearly 8 percent in late trading on Wednesday after the company cut its outlook, and as a direct result, other tech shares sank, setting of another wave of concern among investors. As a result of Apple’s decline, tech ETFs and mutual funds fell swiftly, and futures point to a lower open on Wall Street on Thursday. Asian shares were broadly lower on Thursday, following a day of losses on Wednesday, with the ASX 200 the only major index to head higher. Australia’s benchmark index was up 1.36 percent as of 1:55 p.m. HK/SNI

China’s benchmark indexes, the Shanghai Composite and the Shenzhen Composite, were down 0.15 percent and 0.01 percent respectively, while Hong Kong’s Hang Seng Index was 0.68 percent lower.

Despite Apple’s most recent struggle, some analysts remain bullish on the stock, predicting that Apple will be one of the best FAANG performers this year. Still, it can take time, anywhere from a quarter to a full year, to really see a rebound.

Forex Flash Crash
Apple’s announcement on Wednesday set off a ‘flash crash’ in the currency markets, with the dollar falling to 104.96 yen, its lowest point since March 2018. The greenback later recouped some of its losses. The flash crash was largely seen in currencies that trade against the yen, and the currency breached key technical support levels as traders flocked to the safe-haven currency. Adding to the steep movements was a lack of liquidity in the markets as Japan is still on New Year’s holiday.

The dollar was lower against most of its trading partners on Thursday, with the dollar index falling 0.29 percent by the early afternoon to trade at 96.54 .DXY. The euro gained 0.14 percent against the dollar, to trade at $1.1357, while the British pound eased 0.51 percent to trade at $1.2543.

DXY:

Intraday target: $97.00
Long-term target: $100



EUR/USD:

Intraday target: 1.1280
Long-term target: 1.0800



APPLE:

Intraday target: $150
Long-term target: $100



SPX:

Intraday target: $2413
Long-term target: $2000



GOLD:

Intraday target: $1300
Long-term target: $1183



WTICOUSD:

Intraday target: $40.00
Long-term target: $27.00



BITCOIN:

Intraday target: $3615
Long-term target: $2000



ETHEREUM:

Intraday target: $130
Long-term target: $60

 

[GroundStone Holdings]

Daily Macro View - Could Santa save January?

Daily Insights

Could Santa save January? The well-known Santa Claus rally is considered to be in the last five days of the year and the first two days of the following year (ending today). Stocks have gained nicely over these last six days, and that could bode well for the rest of the month. The past five times Santa didn’t come (and U.S. stocks fell in this seven-day period), the S&P 500 Index actually fell during the month of January.

We continue to under-emphasize developed international stocks in our 2019 Outlook. Growth in Europe has been slowing and may struggle to reach even 2% in 2019, while political risk is rising, notably in Italy and the United Kingdom. Meanwhile, growth in Japan is also lagging, despite stimulus and corporate reform efforts. Consensus forecasts are calling for 2.1% real gross domestic product (GDP) growth in the developed world in 2019, specifically 2.6% in the U.S., 1.8% in the European Union, and 0.9% in Japan (source: Bloomberg).

Stick with emerging market equities for 2019. We favor emerging markets (EM) over developed international equities this year (with a bias towards emerging Asia) for suitable investors for EM’s solid economic growth trajectories, favorable demographics, attractive valuations, and the prospects for a U.S. trade agreement with China. GDP growth in China, as well as broader EM, is likely to more than double the pace of developed international economies in 2019, and we believe political uncertainty is actually higher in Europe than in EM. Though 2018 was a very difficult year for EM (down 15%), the economic and earnings growth outlooks, likely supported by more stimulus measures from China, and low valuations (below 11 times earnings estimates for the next 12 months, based on FactSetdata).

Trade impact clearly evident. The official Chinese Manufacturing Purchasing Managers’ Index (PMI) for Dec of 49.4 is nearing the 2011 and 2016 lows at 49.0. Meanwhile, the broader Caixin Manufacturing PMI measure came in at 49.7, its first sub-50 reading since 2016, with particular weakness in new export orders. Export weakness, coupled with anecdotal evidence of slower growth in China from corporate America (see Apple news overnight), highlight the impact of the U.S.-China trade dispute. We continue to expect the dispute to be resolved over the next several months.

 

[GroundStone Holdings]

Morning Technical Newsletter - Yen Pauses after Solid Push Higher

Yen Pauses after Solid Push Higher
With global growth worries still putting a damper on market sentiment, the Japanese Yen has only just retreated after earlier moving higher against the US Dollar. In general, analysts say that the latest data from the US will likely weigh on the greenback, with US factory activity reported as weaker than analysts had predicted. All of that has led investors to conclude that the US Federal Reserve is unlikely to push ahead with a 2019 rate increase and may, in fact, consider lowering them perhaps as soon as 2020. With concerns of an economic slowdown in both China and the US weighing on FX markets, the safe haven Yen has become the beneficiary of market jitters.

As reported at 10:50 am (JST) in Tokyo, the USD/JPY was trading at 108.0790 Yen, up 0.3892% and moving off the session trough of 107.517 Yen. The EUR/JPY was trading at 123.2070 Yen, a gain of 0.44%, while the GBP/JPY was at 136.6070 Yen, up 0.43%.

China Caixin Helps Aussie & Kiwi
In Asian, the AUD/USD was higher at $0.7021, up 0.27%, pushed higher after the latest economic news out of China. It was reported that the Caixin Services PMI reading for December was upbeat at 53.9, well above the 52.9 expected which would have been a fall from November's reading of 53.8. The NZD/USD was higher at $0.6699, up 0.0871%. The Aussie and Kiwi dollars generally move higher when news out of China is positive, given their strong reliance on China's economy as a major trading partner.

DXY:

Intraday target: $97.00
Long-term target: $100



EUR/USD:

Intraday target: 1.1340
Long-term target: 1.0800



APPLE:

Intraday target: $130
Long-term target: $100



SPX:

Intraday target: $2413
Long-term target: $2000



GOLD:

Intraday target: $1280
Long-term target: $1183



WTICOUSD:

Intraday target: $46.00
Long-term target: $27.00



BITCOIN:

Intraday target: $3615
Long-term target: $2000



ETHEREUM:

Intraday target: $130
Long-term target: $60