SIM INC Monthly Market Analysis Report Month: September 2016

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1 SIM INC Monthly Market Analysis Report Month: September 2016 S&P500 Analyst: Brandon Toh GBPUSD Analyst: Teo Meng Zhong, Jason Tan USDJPY Analyst: Chua Kim Siew, Kelvin Liau, Michelle Ong

2 Disclaimer Any names of financial assets listed during the sessions are for educational purposes only. It is not an offer to solicit any buying or selling of shares. Any recommended trades or investment undertaken will be of your own responsibility and will have nothing to do with SIM Group, SIM-INC, or any of the members from the Trading and Research Department We are not a licensed trader or remisier and are therefore not allowed to make any buy or sell calls in relation to and financial asset. If you wish to invest or trade, please consult your licensed remisier or broker. Any names of companies listed here are not an advertorial of the Club s products or services and solely for educational purposes only. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. 2

S&P500 U.S Consumer Confidence Highest Since Recession At 104.1, an increase from 101.8 signalling higher consumer confidence which could result in higher consumption spending to U.

3 S&P500 U.S Consumer Confidence Highest Since Recession At 104.1, an increase from signalling higher consumer confidence which could result in higher consumption spending to U.S GDP growth Revised up 1.4% in Q2 Increase of 0.3% from its second estimate of 1.1% Consumer spending has continued to boost growth although less than expected Key Takeaways from Janet Yellen's Testimony A new form of capital cushions for the giant banks called a "stress capital buffer" Fed wants to make stress tests easier for all but giant banks as stress tests are costly for giant banks. U.S economy adding about 180,00 jobs a month this year. Unemployment rate hasn't fallen over that time as people are going back into the labor force 3

4 More research about raising inflation target, she adds that the 2% inflation target is not a ceiling but a target. Yellen says productivity growth is needed for real wage growth, and there hasn't been productivity growth of late. Inflation has not reached 2% target despite Fed's efforts Rate Hike could increase market's view of the economy as it would be a signal to the market that the economy is strong And a possibility of driving inflation higher Sell off in Treasuries as Stock Climbs on Deutsche Bank's Speculation. Sources say Bank AG will play less than half of the initial penalty imposed by the U.S. Sparking rally in stocks sending Treasuries tumbling as Risk appetite returned to the markets S&P 500 rose 0.8 percent to 2,

5 Summary Markets are more sure of Rate Hike in December this year, implies 59% chance of move as compared to 41% a year ago. Volatility (VIX) is currently trading at and is expected to increase next week as volatility increases. High volatility is expected as jobs data( unemployment non-farm payroll data) is scheduled to be released next Friday 07/10/16 Risks Key risks coming into the next trading will be jobs data being released on Friday Unemployment as well as non-farm payroll will be the reasons moving the markets Volatility will increase as uncertainty increases from the Presidential elections Technical Insights: S&P 500 INDEX 5

6 U.S stocks climbs on Friday resulting in S&P 500 rallying to a close of , 0.8% higher Rally occurred on news of Deutsche Bank penalty reduction by more than 50% from 14billion to 5.4 billion settlement Despite the bullish news, the Index failed to clear its previous high at showing some bearishness. Resistance level has also been tested over the year and not breached Price action also shows that the ranges is contracting, lower highs and higher lows, which is possibly due to the uncertainties of the Fed decision to hike rate as well as the presidential election However the support level has not been tested as much as resistance, and as liquidity should be on the downside due to the bullishness of the market. The resistance is stronger as compared to the support for this index, and as the range is contradicting, there will be a huge movement in the following week due to uncertainties as well as jobs data Conclusion It is likely that the S&P 500 might turn into a bearish trend as with Rate Hikes, it would mean gains for S&P 500 due to Fed Signal to the market that the economy is strong. However the market should have already priced into the market and the real effects of a rate hike has not been yet priced in. The real effects would include stocks falling due to lesser cash from the effects of higher interest rates This coincides with the current technical insights in that S&P 500 in that it is bullish as resistance levels has been respected and main bulk of liquidity is on the downside. Current Sentiment: BULLISH 6

USDJPY In the last week of September, US Federation Reserves and Bank of Japan made important announcements regarding US and Japan respectively.

7 USDJPY In the last week of September, US Federation Reserves and Bank of Japan made important announcements regarding US and Japan respectively. These announcements have impact the USD/JPY market and would be analyzed based on fundamental and technical analysis below. 1. MULTI TIMEFRAME TECHNICAL ANALYSIS 1.1 MONTHLY ANALYSIS Price has been dropping consistently for the past 16 months as plotted with a downward trend line. The highest price point was on the 5 th of June 2015 with a price of to a price of as of 30 th September That is a massive 19.4% drop. The support at around 115 from May 2015 till February 2016 changed to resistance as the pair plunged down deeply. It has been dropping consistently for another 5 months with its support at 106. At the end of June 2016, the pair 7

8 plunged once more leading the support into resistance again. This trend is likely to continue again. As shown with the Bollinger band indicator, the band is plunging down from November The stock price has hot the band limits several times and it shows several trend reversals. As it is calculated via moving average and standard deviation, it is likely to see the price dropping even further in the future. In conclusion, based on technical analysis on monthly charts, it is recommended to hold. 1.2 WEEKLY ANALYSIS Based on the weekly chart view, an obvious descending triangle can be observed. In most cases, this indicates that the downside momentum is likely to become stronger- prices will eventually break the support line and continue to fall. However, in some cases, the prices may be too strong and prices will bounce off the support line and push prices up. In conclusion, weekly chart shows that market is unclear of their next move but tilts towards a bearish trend. 8

9 1.3 DAILY ANALYSIS 4-hour daily time frame chart show that support level remains hovering above 100 level indicating that it is still massively supportive. On 28 th Sep, the shortterm moving average (MA) crosses above the longer-term MA indicating a bullish trend. This is further supported by piercing candlestick pattern (30 th Sep) which predicts a reversal from previous downwards trend substantiated by a hanging man (29 th Sep). Further gains could be see as the resistance level is likely to be tested. Overall, based on the 4-hour charts, it seems as if the market is still indecisive but tilted towards bullish trend. 9

10 2. FUNDAMENTAL ANALYSIS 2.1 US FED RATE: FED s target of 2% still a long way ahead 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% US Inflation Rate (%) Jan Feb Mar Apr May Jun Jul Aug Consumer Price index (2016) From the chart above, it is observed that August inflation was 1.06%, which is still below FED expectation of 2% but nonetheless, welcome. The rise in inflation, when comparing to July inflation rate of 0.84%, was mainly due to the increase in healthcare cost. Jan Feb Mar Apr May Jun July Aug Similarly, the cost of living has increased as rental price saw a spike and it is expected to continue to increase. Rentals grew by 0.1% from July to August, causing a hike in national 10

11 median rent prices of $1,120 for a 1- bedroom and $1,300 for a 2-bedroom. However, this is seen as an overheating market and is likely to face a slowdown in October. Lastly, Consumer Price Index increased slightly by 0.2 in August to 2,3%. This is expected to continue increasing. All in all, the Fed maintains an interest rate of 0.5% due to disappointing economic result in August and Yellen expects strong consuming data before signalling a hike in rates. The decision to keep interest rate fixed has allowed the US economy more rooms for expansion until the next meeting in December. 2.2 UNEMPLOYMENT RATE IN US Unemployment rate (%) Jan Feb Mar Apr May June July Aug Total nonfarm payroll (2016) Jan Feb Mar Apr May Jun Jul Aug The unemployment rate maintains at 4.9% while total Nonfarm payroll rise by 151,000 in August. Despite more jobs being created and unemployment rate fallen below 5% since the financial crisis in 2008, it is still underperforming. Noticeably, the unemployment rate for people with less than a high school diploma jumped to 7.2% in August from 6.3% in July. 11

12 Manufacturing payroll falls by 14,000, the weakest among the other sectors while the strongest payroll increments came from the service sector of 150,000 in August. Therefore, the unemployment rate for the upcoming month is likely be moderate. 2.3 BoJ SEMPTEMBER ANNOUNCEMENT During the monetary policy meeting on 21st September, BoJ introduced a new framework for monetary easing- Qualitative and Quantitative Easing (QQE) with Yield Curve Control. BoJ has taken a longer-term view of increasing inflation index and is now focused on tweaking its policy framework with sustainability in mind. The first part of the policy focuses on interest rates. Its short-term policy suggests that interest rate will remain unchanged at -0.1%. The long-term interest rate indicates that the bank would purchase Japanese Government Bonds (JGBs) so that the 10-year JGB yield will remain more or less at the current level (i.e. 0%). The second part of the policy states its inflation-overshooting commitment. BoJ pledged to strengthen price stability till at least 2%, in order to maintain it at a stable rate. Market is not convinced by BoJ s new QQE plan and has began to test the central bank by pushing JGB to as low as -0.09% on Wednesday. Thus, much work and communication will have to be done to deploy this massive stimulus program. 2.3 Conclusion Analysis of both USD and JPY zone BANK OF JAPAN (BOJ) Federal Reserve (USD) Commentaries Sentiment Commentaries Sentiment Japan s unemployment rate has remained at a steadily low 3.1% as of latest (July) Bullish Deutche Bank s scandal US economy badly affected Bearish 12

13 There is no more tool that Japanese Central Bank could use any longer to make Yen depreciate Bullish Dec rate hike as US is most likely to increase the interest rate by the end year Bearish Yen regarded as a safe haven (China market slowing down, US presidential election, Brexit uncertainty) Bullish US employment has been increasing Bearish 3. EVENTS FOR OCT 3-7: MONDAY: US Data release: - Manufacturing PMI (sept) TUESDAY: WARSAW - National Bank of Poland holds its monetary policy council meeting (to Oct. 5) Google smartphone unveil WEDNESDAY: US Data release: - Trade balance (Aug) FRIDAY: NEW YORK - Federal Reserve Bank of Cleveland President Loretta Mester speaks on "Fed Communications" before the Shadow Open Market Committee Fall Luncheon Meeting WASHINGTON Annual Meetings of the International Monetary Fund and the World Bank Group. 13

14 US data release: - Employment change (Sept) - Unemployment rate (Sept) - Wholesale trade sales (Aug) - Consumer credit (Aug) 4. CONCLUSION With contributing factors such as the possibility of US rate hike in Dec and sideways consolidation that favours the downside, it is likely that the bearish trend in USDJPY will continue. Many experts predict that USDJPY might even break the 100 mark in the coming weeks due to the increasing fear and worry in the market. Hence, we recommend to sell USDJPY. However, Yen s role as a safe haven asset would show a strong bullish signal in times of future market uncertainty and reverse all previous trends and predictions. Proceed any position with caution. 14

15 GBP/USD Summary - Chance of October rate hike is probable but unlikely - Volatility expected to remain similar for the next week - GBP/USD likely to remain in its post Brexit trading range Fundamental analysis On Wednesday, GBP/USD pair was trading within a narrow range and is currently at the point of writing this article, trading at the bottom weekly range. Having posted a high of on 5 th September, the highest since Brexit news was released with a low of The currency is unable to breakthrough either side of the range and is likely to continue ranging. Market seems to be waiting for critical news before breaking out. The bearish trend is expected to continue after consolidation phase. Traders should look for new short positions and reversal to the downside with extreme caution exercised due to US presidential election during November. The release data of Gross Domestic Product seems to be unimpressive as the market does not have a clear impact on USD despite positive data. With interest rate hike just around the corner as end of the year is drawing nearer. Market seems to be on the side line waiting for the news to price in as GBPUSD ranges. OPEC Meeting After the meeting on 29 th September, OPEC had managed to reach a compromise to cut oil production which would be executed in November, OPEC has reached a deal to limit oil production from 33.24million barrels/day to 32.5m barrels/day. The market reacted in no time with oil prices jumped more than 5%. Many economists had also expressed that they were impressed OPEC had managed to reach a compromise after years of wrangling. The GBP/USD pair extends its retreat from OPEC deal-led risk-on rally, and now heads south in a bid to test support region. The bearish pressure behind the currency intensified over the night. Moreover, the latest leg lower in 15

16 the GBP/USD pair can be partly attributed to renewed strength witnessed in the US dollar index. Non-farm payroll and GDP potential U.S. unemployment stands at 4.9 percent, near what many Fed officials believe represents a fully employed economy. While a further drop to perhaps 4.5 percent would deliver a healthy boost to inflation. For now, the 4.5 percent unemployment region is a reasonable guess about where the economy could stabilize without overheating. Total nonfarm payroll employment in the United States increased by 151,000 in August of 2016, much lower than an upwardly revised 275,000 in July and below market expectations of 180,000. As it is lower than economists expectations, traders will sell U.S dollars hence, there might be a temporary rally which we will elaborate later in the Technical Analysis. Nonfarm payroll expectations for October has been expected to be at 189,000 according to consensus opinion. However, this seems highly unlikely as the US economy is most likely going to overheat with inflation if unemployment rate falls below 4.5% The US economy have expanded about 1.4% this quarter which is better than a the estimate of 1.1%. This is the strongest growth rate in three quarters as consumer spending continue to boost. With the increase in GDP, this might signify a stronger USD due to better economic outlook. 16

17 Rate hike On Tuesday, top federal reserve policymaker John Williams, also known as Yellen s best friend, has remarked that the Federal Reserve can raise interest rates without threatening the U.S. economic recovery, therefore, he would be in support of an interest rate increase, depicting that it would not stall, slow or derail the economic expansion. However, possibility of a rate hike is still not probable in the month of october as according to the latest CNBC Fed Survey, where 90 percent of the 41 respondents say the Federal Reserve won't increase interest rates at its September meeting, which has been proven. But 88 percent say the hike is coming in December. Expect the Fed to stay on the sidelines until after the election so they cannot be characterized as impacting the election in any way," said John Roberts, senior vice president and director of research of Hilliard Lyons. Hence, a rate hike is only possible after the election due to uncertainty with the new leader of the United States. Technical outlook: 17

18 GBPUSD have been bearish ever since the announcement of Brexit, market seems to be overreacting after the news and consolidation have formed. Price has been sideways since July 2016 until now and this should continue until further key news like USD rate hike or US Presidential Election on November. The general sentiment is still towards the downside, but there seems to be a temporary rally pending due to the higher low forming. Price might move about 200 pips toward the upside before finding any key resistance at the 50 Moving Average. Conclusion It is highly possible that GBPUSD will continue the bearish trend, but unlikely in the next few weeks. Presidential election is just around the corner, market seems to be uncertain about the future of United States Rate hike have yet to happen, which create a lot of anticipation as the market ranges Cutting in oil production as the result of OPEC meeting kick-started the volatility in the market GDP seems to be hovering around the 1% to 1.4% from the latest data, despite the positive data Dollar Index seems to be hovering around 95.5 region. 18

19 Trading and Research Department Top(left) : Brandon Toh, Teo Meng Zhong, Chua Kim Siew, Lynn Ho, Tiffany Lo, Kenny Teo, Kelvin Liau, Andy Lim Bottom(left): Jeffrey (Deputy Director), Marcus Alexander Yip (Director), ZhiAn, (Deputy Director) 19

SIM INC Monthly Market Analysis Report

SIM INC Monthly Market Analysis Report Month: November 2016 GBPUSD Analyst: Jason Tan, Teo Meng Zheong USDJPY Analyst: Chua Kim Siew, Kelvin Liau, Michelle Ong Disclaimer Any names of financial assets