Newsletter for 24th of July

EVENTS & FINANCIAL NEWS

CURRENCIES

The U.S. dollar rose to eight–month highs against the euro on Wednesday as worries over tougher sanctions on Russia and their potential impact on fragile euro zone growth weighed on the single currency. The dollar could only post modes gains, however, as attempts to push the euro below a key technical level at $1.3450 failed. The greenback had taken out some technical barriers on Tuesday after U.S. inflation data showed prices increasing, though the increase was more subdued than some had expected. Dollar gains were more subdued on Wednesday with no major economic releases and before the Federal Reserve is due to meet next week. Further escalation of tensions between Russia and Ukraine could weigh further on the euro if more trade sanctions are enforced on Russia. The Australian dollar was the largest mover of the major currencies, gaining 0.69 percent to US$0.9455 after a higher-than-expected reading of a key gauge of underlying inflation in June in Australia dented market speculation of future rate cuts. The U.S. dollar meanwhile gained 0.17 percent against the British pound to US$1.7034, after BOE minutes failed to boost expectations of an interest rate hike by year-end. The dollar index was steady on the day at 80.714.

STOCKS

U.S. stocks ended mostly higher on Wednesday with the S&P 500 closing at a record on Apple's bullish results, though Boeing weighed on the Dow and conflicts in Ukraine and the Gaza Strip kept the broader market's gains in check. Apple Inc gave one of the biggest lifts to the market, rising 2.6 percent to $97.19 as concerns faded about the iPhone maker's margins. Microsoft Corp rose 0.1 percent to $44.87 after the company said it aimed to get its money-losing Nokia phone unit to break even within two years. Facebook Inc posted stronger-than-expected revenue growth and its stock climbed 3.5 percent to $73.80 in extended-hours trading. TripAdvisor Inc shares tumbled 9.4 percent to $97.25. The Dow Jones industrial average fell 26.91 points or 0.16 percent, to end at 17,086.63. The S&P 500 gained 3.48 points or 0.18 percent to close at 1,987.01, surpassing the record set on July 3. The Nasdaq Composite added 17.68 points or 0.4 percent, to 4,473.70. Boeing Co fell 2.3 percent to $126.71. The U.S. aircraft maker reported a 52 percent jump in quarterly profit,but investors were spooked by rising costs in its military tanker program. PepsiCo rose 1.9 percent to $90.82. Puma Biotechnology nearly quadrupled, up 295.4 percent to $233.43 on heavy volume.

METALS

Gold fell for a second day on Wednesday as gains in U.S. equities and dearth of new developments from conflicts in Ukraine and the Middle East prompted investors take profits. Sluggish physical demand in Asia in the seasonally quiet summer period is also weakening support for any price rally, dealers said. Spot gold has traded within its narrowest monthly range in nearly five years so far in July, as strong equity markets divert investment interest from gold. Spot gold was down 0.2 percent at $1,304.55 an ounce. U.S. COMEX gold futures for August delivery settled down $1.60 an ounce at $1,304.70, with trading volume about 30 percent below its 30-day average, preliminary Reuters data showed. Among other precious metals, spot silver was unchanged from Tuesday's close at $20.88 an ounce. Spot platinum slipped 0.2 percent to $1,476.20 an ounce, while spot palladium was down 0.2 percent at $868.43 an ounce. Data released on Tuesday showed palladium shipments from top producer Russia to Switzerland, a major refining and trading hub, dropped in June after rising sharply in the previous two months. Palladium prices hit 13-year highs this month, in part due to concerns that supply of the metal from Russia may be threatened by its stand-off with the West over Ukraine.

ENERGIES

Crude oil futures rose on Wednesday, as oil stockpiles in the United States fell more than expected and geopolitical tensions in Eastern Europe and the Middle East persisted. U.S. crude's gains outpaced Brent's for most of the session, after a government report showing that U.S. crude stocks fell by 4 million barrels last week, but Brent caught up as traders covered short positions ahead of the close. The U.S. EIA also reported crude oil inventories at Cushing, Oklahoma, the delivery point of the U.S. crude contract, fell by 1.45 million barrels. Brent crude for September delivery rose 70 cents to settle at $108.03 and continued to climb in post-settlement trade to stand at $108.19. U.S. crude for September delivery rose 73 cents to $103.12 a barrel. U.S. crude's discount to Brent dropped to $4.51 earlier in the session, near a three-month low, as high domestic refinery utilization rates signaled strong near-term demand for crude oil and low inventories at Cushing. It ended the day at $4.91. Brent has fallen about 7 percent since mid-June as low profit margins have crimped European refiners' demand for crude. Fuel storage tanks that supply Tripoli were hit on Wednesday in clashes between rival Libyan militias, igniting a huge blaze near the international airport. WASHINGTON - U.S. Treasury Secretary Jacob Lew will deliver remarks at the Inaugural Rural Opportunity InvestmentConference hosted by the White House Rural Council. WASHINGTON - Energy Information Administration issues weekly U.S. underground natural gas stocks - 1430 GMT.

DISCLAIMER - The information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified.Century Financial Brokers L.L.C. (CFB) assumes no responsibility for errors, inaccuracies or omissions in these materials, nor shall it be liable fordamages arising out of any person's reliance upon this information.

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Australia's Economic Outlook, AUD/USD

Australia's CPI gained more than expected, sending the Australian dollar to its highest in two weeks, hence being an obstacle to further monetary policy easing.

The big price increases were focused in health care, especially private health insurance, the purchase costs of new homes and a tax-driven spike in tobacco. 

As a consequence, accelerating inflation poses a dilemma for RBA, as it would prefer a weaker currency due to slowdown in growth and government spending cuts.

The central bank aims for inflation of between 2 percent and 3 percent on average. Most likely, RBA will keep current rates on hold at least through 2014 to ensure the recovery remains on track even though inflation is at the upper end of the target.

RBA is trying to revive the economy away from the mining regions, where investments are fading, and stimulating growth in manufacturing, residential construction and retail.

Locking up inflation is the strength of the local dollar which is suppressing import prices while also forcing domestic businesses to stay competitive. That is one reason wage growth has slowed to just 2.6 percent a year, while unit labor costs have gone flat as productivity improved markedly. 

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Apple signals new products are near with larger iPhone.

Apple Inc. (AAPL) signaled that the long wait for new products is nearing an end.

With bigger-screen handsets in development, Apple said yesterday that shoppers are delaying buying new iPhones, which will weigh on sales in the current quarter ending in September. Yet rather than dissuade buyers from procrastinating, Apple stoked anticipation for new devices on a conference call, with Chief Executive Officer Tim Cook talking about an incredible pipeline that we can’t wait to show you, and finance chief Luca Maestri declaring it would be a very busy fall.

Looking ahead to new gadgets is the main reason investors barely reacted to Apple’s fiscal third-quarter results yesterday. The world’s most valuable company posted a 12 percent rise in net income to $7.75 billion and a 6 percent revenue increase to $37.4 billion, with strong iPhone and Mac sales making up for a drop in iPad demand.

Apple has released new iPhones each September for the past two years.

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Apple Earnings Preview: Will Apple be able to meet Wall Street expectations?

Tuesday afternoon, all traders especially tech traders would have their eyes wide open while Apple posts its Q3 earnings. This quarter is usually quite slow on sales for apple due to the estimated product refresh during the end of the year before the holiday season. Expectations would be quite high from Apple this time around as we saw a massive beat last earnings and the surge in the share price over the past few months.  Below are the results that the company has posted in the past.

Past Results	Q3 2012	Q3 2013	Q2 2014
Revenues ($B)	$35.02	$35.32	$45.65
EPS	$9.32	$7.47	$11.62
EPS – split adjusted	$1.33	$1.07	$1.66
Gross Margin	42.81%	36.87%	39.32%
Operating Margin	33.04%	26.05%	29.78%
Profit Margin	25.19%	19.53%	22.40%

During the last earnings here’s the guidance from Apple for fiscal Q3, 2014:

Guidance	Q3 2014
Revenue ($B)	$36 - $38
Expected EPS – split adjusted	$1.23
Gross Margin	37% - 38%
Operating expenses ($B)	$4.4 – $4.5
Other Income	$200m

Estimating the Q2 diluted share count according to the guidance we came up with the figure of $1.23, thus any EPS number that is projected between $1.08 and $1.23 would be seen as growth year on year for Q3. On the product side we could see a growth on the sales numbers on the iPhone due to addition of carriers like China Mobile and new products like the iPhone 5c added in the phone line- up. The iPad could see a rise in sales numbers as compared to the last years as the sales fell short of estimates last year due to problems in inventories. Reports suggest PC sales to have increased thanks to the strong ecosystem of Apple whereas the iPod could see a strong decline in its product line up due to Apple moving towards wearables in the near future. Will Apple beat its earnings tomorrow? What are your thoughts on the earnings? 

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John Helms for 21st of July 2014

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Alibaba seen presenting IPO discount to escape listing flop.

Alibaba Group Holding Ltd. (BABA) may price its initial public offering about 22 percent below analyst valuations, according to a survey of estimates, a move that could avoid repeating the listing flop of Facebook Inc. (FB)

China’s biggest e-commerce company may set the IPO value at $154 billion, according to the average estimate of five analysts surveyed by Bloomberg. The same analysts see the post-listing valuation as $198 billion. 

Alibaba’s IPO may be the biggest in U.S. history when it lists on the New York Stock Exchange as the company attracts investors keen to tap into the surging Chinese economy and the world’s biggest pool of Internet users. Valuations of the company surged from $62.5 billion about a year ago after earnings nearly tripled, with a listing discount seen as a way to avoid the plunge that greeted Facebook’s debut in 2012.

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The Road Ahead for the British Pound.

The Sterling has been the talk of the town for months now as it has been breaking multi year highs to reach its current price. None the less, the next question is what to do now?

The British pound continues to see mixed conditions against the US dollar gains witnessed earlier in the week as the USD strengthened across the board.  The mixed picture for GBP/USD actually fits in with the viewpoint at Scotiabank that holds a year-end forecast for the pair to end at current levels.

The recent short-term forecast for the pound dollar rate has been mixed with about of weakness taking us up to the Tuesday positive inflation report. However, with such a strong inflationary reading would suggest near-term forecasts are due to be revised higher as short-term resistance levels continue to be breached.

In the longer term, the break of the major resistance at 1.7043 calls for further strength. Resistances can be found at 1.7332 (see the 50% retracement of the 2008 decline) and 1.7447 (11/09/2008 low). A support lies at 1.6923.

Adding to the positive technical picture facing cable is the underlying fundamental picture which suggests interest rate rises will start to happen within months - rising interest rates are a currency-positive. All indications from Governor Carney are that interest rate hikes are likely to begin earlier than the market expects but prove slow and cautious.

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