Aluminum bouncing off supports

  • Aluminum has seen a strong bounce off converging supports around $1,978 – $1,998 with weekly momentum turning higher from the most stretched levels seen since the multi-year bear market lows were put in (2015)
  • Headline risk could continue to push Aluminum higher from here with initial resistance around the recent trend high of $2,290 and through there additional levels converge around $2,450

Insurance industry hit by massive 2017 catastrophic event costs

Hurricanes Harvey, Irma and Maria pushed economic losses for insurers to a record $144 billion last year, according to Swiss Re. Wildfires in California, thunder storms, windstorms and other severe weather events in the U.S. and around the world also contributed to claims (Bloomberg).

Volatility suggests short-term EUR support, but medium-term downside scenario still well in place

1month EURUSD risk reversal vol retested its important zero level and now starts to move higher – this suggests that we could see further EUR strength over coming days. Near term resistance at around 1.2440 should limit EUR strength and could offer an attractive opportunity for building an exposure to play EURUSD downside. Nevertheless, EURUSD is expected to continue trading within its 2018 range as the old paradigm of risk off and risk on does not really playout as it used to. Thus, EURUSD seems comfortable in a 1.2200/1.2500 range and it’s tempting to fade rallies.

Furthermore, if today’s tone of the ECB meeting account is consistent with positive messaging heard from the central bank over the past few days, EURUSD could re-visit the top of its range. Despite today’s modest setback, euro bulls should be feeling cautiously optimistic in their view, especially in light of what they’ve heard from the ECB this week. Although there was pushback on Nowotny’s hawkishness, the general tone of communications from the central bank has been positive, downplaying the recent soft patch in economic data. Draghi’s comments yesterday – expressing confidence wages will pick up, and that the economy will keep improving – are music to the ears of EUR bulls (Bloomberg).

 

Recent European economic data shows an increased probability of a weaker Euro over the coming weeks

Over the last 10 years, Citigroup’s Eurozone economic surprise index turned negative for a prolonged period 9 times, while in 6 cases EURUSD turned negative as well. Since mid February 2018, the economic surprise index has moved into negative territory which increases the probability of seeing a weaker Euro in the coming weeks.

This view is further supported by the fact that net EUR long holdings are still at a historical extreme level which suggests that the recent Euro strength could come to an end.

European stocks face mounting pressure from economic data

Equities in Europe may not be able to dismiss disappointing economic data much longer unless the relationship between the two completely breaks down. While the Stoxx Europe 600 Index is up about 4 percent from this year’s low on March 26, Citigroup’s euro-zone economic surprise index has continued to slump, falling to its lowest since 2012. Despite the outlook for euro-area economic and earnings growth remaining positive, its period of peak acceleration seems to have passed.

AUD is showing signs of strength – risk reward favours being long

AUD has generally been an under-performer relative to NZD and CAD – and that may continue to be the case going forward – however, it looks likely to us that AUD will also benefit from the macro tailwinds supporting the other G10 commodity currencies and therefore it should outperform USD and JPY.

AUDUSD has found support at the 76.4% retracement of the December 2017-January 2018 rally at 0.7652. In addition, it will confirm a double bottom off there with a close above 0.7727 which, if seen, would target 0.78.

AUDUSD remains in a steady though gradual uptrend and with the trend line across the lows coming in just below current levels at 0.7617 risk/reward is attractive for longs.

 

Hershey (HSY) suffers from rising cocoa prices and is not able to convince investors about its transformation strategy

Since January 2018, cocoa prices have risen more than 30%, and thus, have negatively affected Hershey’s core business: confectionery, and in particular chocolate. Furthermore, Hershey’s ambition to move into the snack business with its $1.6 billion acquisition of popcorn maker Amplify Snack Brands as its latest step to overcome the slow growth of U.S. confectionery sales is not able to spur investors’ confidence.

As a consequence, today UBS slashed its rating to sell with a price target of $90.00. The move to the downside is pretty convincing as it comes on trading volume that is more than six times the 20-day average for this time of day, according to Bloomberg data. Hershey’s stock is now down 11% over the past 52 weeks compared to a 12% gain for S&P 500 . 

History tells April is typically kind to GBPUSD

  • April tends to be a month in which the Pound outperforms its major rivals as a result of dividend repatriation flows
  • Since 2000, GBP strengthened versus the USD in 16 out of 18 cases, while the last negative year was in 2004
  • Based on this fact, being long GBPUSD in April seems to be high probability trade