In response to feedback, we would like to introduce a new section in our daily – Currency Watch, a new service for our members who are interested in FX markets – see below for our views on EUR/USD .
Global markets were stronger on Friday, with the US market (S&P 500 index +1.01%) closing at a fresh all-time high.
Strong corporate earnings continue to drive market strength, Snap surged +24% and Twitter was up 3% on their results due to solid digital advertising spending driving earnings. Likewise, Facebook and Google were higher who both report this week and investors are anticipating a similar earnings beat.
Nearly a quarter of the S&P 500 having already reported, and 88% of those that have reported have delivered a positive surprise. That would mark the highest percentage of reported surprises within the S&P since 2008 if that figure holds throughout the earnings season.
European stocks jumped on Friday, with the Stoxx 600 index up +1.1% higher, as investors digest strong results with autos jumping 2.6% to lead gains as almost all sectors closed in positive territory.
Telstra (TLS:ASX)
Telstra confirmed it has been in discussions about a potential deal to make an investment in a telecommunications company, Digicel Pacific in the South Pacific region in partnership with the Australian Government. Telstra added that if a deal were to eventuate it would be with financial and risk management support from the government.
Given Telstra's restructure and infrastructure asset sales we maintain a positive view and BUY rated. We anticipate a healthy capital 's return and Telstra's dividend remains attractive at 4.2%.
Australia & New Zealand Market Movers
The Australian market rose on Friday (ASX 200 index +0.1%) shrugging off lockdown concerns to reach a new record high.
Healthcare and tech stocks led the market higher being more defensive and immune to lockdown restrictions; such as CSL, Xero and Next DC climbing and outperforming last week.
Energy stocks fared the worst, being most sensitive to rise in COVID cases as well as travel and lockdown restrictions. The NZ government announced a pause on the travel bubble sending most travel stocks lower other than Sydney Airport holding firm given potential takeover bids.
The New Zealand market was a touch higher on Friday (NZX 50 index +0.1%) as New Zealand investors took a more cautious tone investing in a defensive manner.
Market heavyweight Fisher and Paykel healthcare jumped +3.2% doing most of the heavy lifting as the rise in covid cases saw investors flocked to the respirator manufacturer. Other defensive holdings more immune to covid and travel restrictions were also higher, Contact Energy and Spark both up +1.3%. A2 Milk led the market down -2.3%, while travel stocks like Auckland International Airport (-2%), Tourism Holding (-1.7%), and Air NZ (-1.3%) were weaker as the trans Tasman bubble was put on hold, and as lockdowns in NSW are set to be longer than expected.
Currency Watch – EUR/USD
There are a few reasons traders are turning bearish on the EUR/USD, following last weeks break and close below 1.180, technical signals, coupled with guidance from the ECB could well point to more weakness on the Euro.
As cited in the chart, the major currency pair recently experienced a break of a sloping trend line on the daily time frame, and a confirmed bearish condition, with the 50 DMA dropping below the 200 DMA. The pair now trades at a near term support area above the 1.1775 mark, however, there is easily space to slide towards the 1.1700 yearly low threshold, following that, the pair enters contention areas around the 1.1615 and 1.1500 levels, respectively September 2020 lows and March 2020 highs. So sell low, and cover even lower? That could be the best strategy for trading the European Central Bank's upcoming decision with EUR/USD. While the common currency has been holding up better than some of its peers, this could be due to pre-ECB tensions rather than any material advantage. Apart from the theoretical long-term goals, the most recent data suggest price rises are decelerating once again. The headline Consumer Price Index dipped to 1.9% in June, compared with 5.4% in the US. Core CPI edged lower to 0.9% – and has never received a post-pandemic boom.
With the ECB signalling no curb to bond buying, unlike the Federal Reserve or other Central Banks, this could create a decent interest rate divergence trade heading into the end of this year, and potential shorts below 1.15 or even 1.10 by mid next year.
3 Things Markets will be Watching this Week
- Key events this week include huge week for earnings in the US with 180 members of the S&P 500 index scheduled to provide quarterly updates including Tesla, Apple, Microsoft, Alphabet, Amazon, PayPal and Caterpillar.
- The latest US Federal Reserve decision Wednesday. Economic data; CPI (inflation) prints in the Eurozone and Australia, 2nd quarter economic growth (GDP) data in the US and Eurozone.
- Locally, earnings season kicks off with Rio Tinto’s 1st half result along with a host of quarterly production reports and AGM’s to be held including Macquarie Group, Mainfreight and Ryman Healthcare.