Athena Wealth Management. May 2017 Investment Research Report

Transcription

1 Athena Wealth Management May 2017 Investment Research Report

2 Summary Generally, market optimism still prevailed in May. MSCI emerging market index recorded a growth of 2.80%, performing better than MSCI World Index which only gained 1.78% this month. With the new President in office and high hopes placing on the new administration, South Korea performed the best. It recorded a growth of 6.44%. The worst performed market was Russia which recorded 5.77% loss. 1 Gold closed at $1268 on the last day of May. It is currently trading on the support line, while $1215 acted as a strong support level for gold (Fig.2). Oil failed to break above $52, and broke down from the ascending channel during the month. The U.S. Dollar Index fluctuated in between 97 and 100 levels. Fig. 1 Equity Markets Comparisons

3 Russian equity erased all the gains from Trump s rally since November 2016 (Fig.3). The relationship between Washington and Moscow did not improve greatly because of President Trump. They seemed to have even bigger dispute over the Syrian issue. Additionally, oil price continued to drop even after the OPEC oil cuts deal was extended. This affected the Russian equity adversely. MICEX closed at 1900 on the last day of May, hitting a new 6-month low. MACD divergence could now be observed, yet, it remained uncertain if there would be a reversal in Russian equity. In the long-run, unless Trump has a free hand to lift the economic sanctions on Moscow, Russian equity s outlook is not so optimistic. Fig.2 Gold Daily Chart 2 Fig. 3 MICEX Daily Chart

4 This Month s Hot Topic: The Trump-Russia Story The story began with the dismissal of the FBI Director - James Comey on 9 th of May. The White House stated this decision was made based on the recommendations from the Justice Department. Yet, Comey was the one who had led the FBI s investigation into the ties between the Trump s campaign and Russia in the 2016 U.S. Presidential Election. During an interview, he admitted the investigation was a catalyst to this decision. He described the accusation as made up story and stated regardless of recommendation from the Justice Department, he was going to fire Comey anyway. The drama intensified as Trump leaked classified information with Russia about the Islamic States. Even the Republicans refused to back him in this issue. Later, Reuters even found out Trump s campaign had at least 18 undisclosed contacts with Russia during the last seven months of the 2016 Presidential Election. Fig.1 S&P500 Daily Chart 3

5 Not only did the investors fear a more divided congress would further hinder the progress of Trump s promised reforms, but they also feared he would be impeached for jeopardizing national security. After the news got out, the fear index (the CBOE's Volatility Index) jumped. And, S&P 500 and Dow Jones both lost 1.8% of their values in a single day (Fig.1). Other than the U.S. equities, the U.S. dollar was adversely impacted as well. US Dollar continued to depreciate against Japanese Yen throughout the month. As shown in Fig.2, after a false breakout, USD/JPY is still moving within the descending channel. And, up till now, no technical indicators show there would be a chance of reversal. Fig.2 USD/JPY Daily Chart 4

6 Eurozone Market Fig. 1 Eurozone Consumer Confidence The economy of Eurozone continued to improve. DAX gained 1.42% and once again hit its new record high. CAC also gained 0.31% in the month. The newest set of data provided supports for the relevant economic growth. Consumer Confidence Level increased from -3.6 to -3.3 (Fig.1). Unemployment rate also decreased from 9.4% to 9.3% (Fig.2). It is the lowest rate since March Fig. 2 Eurozone Unemployment Rate 5 Eurozone composite PMI remained unchanged at the all-time high level, at 56.9 (Fig.3). While the manufacturing sector grew at an even quicker pace, the service sector nearly remained unchanged from the previous high level. All these data showed that, not only did Eurozone recover from the previous trough, it continued to deliver more than satisfactory performance. Fig. 3 Eurozone Composite PMI

7 As we can see in Fig.4, EUR/USD has been rising throughout the month. After retracing to Fibonacci 23.6% retracement level, EUR/USD continued to test the upside. The major resistance level at the present moment is Eurozone finally was walking out the nightmare as the anti-eu parties lost in the elections one after another. The victory of Macron marked the final relief to the Eurozone. Even though the Eurozone finally sees some lights no matter in the political aspect or the economic aspect, the terror attacks are getting more frequent than ever before. It is certain that these attacks would harm the stability in Europe and affect the tourism industry adversely. Travel and tourism industry accounts roughly 10% of EU s GDP. These attacks undoubtedly add a layer of uncertainty on the economic outlook of European countries. Fig. 4 EUR/USD Daily Chart 6

8 U.S. Market Fig. 1 US Composite PMI The new set of data showed the U.S. was still growing steadily. U.S. composite PMI rose from 53.2 to 53.9 in May (Fig.1). Whereas manufacturing PMI remained rather stable, services PMI rose to 4-month high to 54. Fig.2 US Initial Jobless Claims 7 Generally speaking, the initial jobless claims data in May performed quite well. It was below 240 thousand throughout the month, only with the exception of the last week of May (Fig.2). U.S. non-farm payrolls fell from 174 thousand to 138 thousand (Fig.3). It failed to meet the expectations and disappoints the market. While the retail sector showed no signs of improvement, sectors like professional and business services and health care continued to be the major contributing sectors to the job gains. Fig. 3 US Non-Farm Payrolls Even though the non-farm payrolls data was disappointing, based on other strong economic data, we still believe U.S. economy has an optimistic outlook.

9 During the month, U.S. Dollar Currency Index broke the support line, and found new support near 96.9 level. It is possible the index will retest the support line once again, which means it may go up to the level of As shown in Fig.4, the MACD line in was about to cross the signal line, meaning USD may have a rebound in the near future. But it is also possible that after touching the 23.6% retracement level, i.e. 97.6, USD will continue its downward trend. The next support level, once 96.9 is broken, will be 96. Fig. 4 DXY Daily Chart 8

10 China Market Fig. 1 China Manufacturing PMI The newest set of data implied China s economy remained stagnant. 9 The manufacturing sector even showed signs of contraction. Manufacturing PMI in May decreased to 49.6 from 50.3 in the previous period (Fig.1). And, reading below 50 usually represents contraction. It reached 11-month low. Buying activities decreased, even input and output prices had entered contractionary territory. The situation has started to get worrying. The services sector on the other hand performed pretty well. The newest services PMI rose from 51.5 to 52.8(Fig.2). It was the highest reading since January. Fig. 2 China Services PMI

11 Zhengsheng Zhong, the Director of Macroeconomic Analysis at CEBM Group commented The improvement in the services sector bolstered the Chinese economy in May. However, the rapid deterioration in the manufacturing industry is worrying. We need to closely monitor whether the diverging trends in manufacturing and services will widen further." As shown in Fig.3, SHCOMP stood firm above 3,000 during the month. Now, the price is moving within the ascending channel, which seemingly is also the bear flag. It is possible for the price to go lower after breakout from the flag. Yet, 3,000 would still be the major psychological support level. And, it is also worth noting that RSI is holding quite well, thus, we also cannot rule out the possibility of a potential upward move. Fig. 3 SHCOMP Daily Chart 10

12 Others: A Cloudy Future for Oil Facing increasing global over-supply of oil, OPEC and its allies extended the oil production cuts for another nine months. Yet, the extended deal failed to impress the market, no matter on the time frame and the scope. Before the meeting, oil price rose for days, and reached as high as $52. After the meeting, it dropped to below $50. Buy the rumor, sell the news was the perfect description for what had happened. Even now the OPEC extended the cut deal, the future outlook of oil is still clouded. We can get a glimpse of the seriousness of the situation from the Fig.1. U.S. drilling shows no signs of slowing down ever since May And Fig.2 shows how the U.S. oil stockpiles have been affecting the oil prices. So far, the U.S. oil production is the only bear factor for oil. The U.S. became the major determinant of how oil price is moving. Fig. 1 U.S. and OPEC Oil Production 11 Fig. 2 US stockpiles and Oil Price

13 As shown in Fig.3, on the last day of May, oil was still standing on the support line. Yet, it is expected to break the support line soon. And it is possible for the price to go as low as $46.86 (the Fibonacci 61.8% retracement level). It seems that the signal line will cross the MACD line from below, which means, oil will soon have another round of downward movement. To conclude, as long as the U.S. production remains unconstrained, it is hardly possible for oil to sustain above $50. Unless the political situation in Middle East became even more unstable, or the OPEC and its allies increased the scope of oil cuts, we would hold pessimistic view towards oil price. Fig. 3 Crude Oil - Daily Chart 12

14 Disclaimer: All information contained in this document is for information purpose only. The contents of this document are based upon sources of information believed to be reliable but no guarantee is given as to their accuracy or completeness. Neither Athena Best Financial Group, nor its subsidiaries, nor its related companies, nor any of their officers, directors or employees accepts any liability or responsibility in respect of the information expressed herein. Athena Best Financial Group will not be liable for any claims or lawsuits from any third parties arising from the use or distribution of this document. This document does not constitute an offer to anyone, or a solicitation by anyone, to subscribe for any investment products or services. Nothing in this document should be construed as advice and is therefore not a recommendation to buy or sell. Past performance is not necessarily a guide to future performance. Investors may not get back the full amount invested, as prices of shares and the income from them may fall as well as rise. Performance shown on this document is for reference only. Actual performance may differ depending on the actual investment date and charge of the related financial product. For products that involve mirror funds, the actual performance may also differ. 13