Tuesday, 25 September 2018

Hedge funds, smelling Brexit blood, circle sterling

LONDON (Reuters) - Hedge funds are betting big against sterling, the most since May last year. And following last week’s Brexit debacle in Salzburg, that bet will probably be even bigger now, closing in on the largest on record.

Funds and speculators have been growing increasingly bearish on the pound since April, when it traded above $1.42. Their aggressive selling helped to drive it below $1.27 last month.

They have increased their net short position in sterling in the latest week to 79,258 contracts, according to the latest Commodity Futures Trading Commission figures from U.S. futures exchanges. That’s a $6.51 billion bet against the pound.

But those figures are for the week ending Sept. 18. That was Tuesday, before the European Union summit in Salzburg on Thursday, which laid bare the chasm between Britain and the EU on Brexit.

Talks between the EU and Prime Minister Theresa May on how to manage Britain’s withdrawal from the bloc, which is only six months away, hit a brick wall. The consensus seemed to be that it was a humiliation for May.

She hit back the following day with a defiant speech that cheered the Tory party faithful and eurosceptic elements of the UK media. But as far as the FX market was concerned, it only raised the likelihood of a no-deal Brexit.

Sterling duly tumbled, falling more than two cents against the dollar, or 1.7 percent, marking its biggest one-day fall in nearly two years. There’s every chance hedge funds already betting on the pound falling will have doubled down.

Their net short position of 79,258 contracts is already among the largest since CFTC began compiling data in 1995. The only time it has ever been bigger was the year after the Brexit referendum itself, between July 2016 and May 2017.

The speculative community’s turn against sterling since April has been sharp. Then, they were net long to the tune of 47,702 contracts, a bet worth $4.26 billion. Their $6.51 billion short position now marks a swing of $10.77 billion in five months.

And that may only be the tip of the iceberg. Analysts at one large bank estimate that the CFTC positions are only around 20 to 30 percent of all short positions in the pound across the global currency market.

Bank of New York Mellon’s Simon Derrick said on Monday that the bank’s internal flow data show investors “continuing to shun sterling”. Analysts at JP Morgan are also recommending that clients stay short.

In a note on Friday, Deutsche Bank’s Oliver Harvey said May’s speech was a “material negative” for sterling. A Brexit deal remains his base case scenario, but he recommends selling the pound against the euro “to hedge against an increasing deterioration of Brexit negotiations”.

Sterling’s fortunes against the dollar and hedge funds’ positions have been pretty closely correlated since the Brexit referendum in June 2016. That’s likely to remain the case in the months ahead, and the primary drivers of both are likely to remain Brexit and UK political developments.

Harvey notes that positioning in sterling remains short but well below extremes. It could get worse for the pound before it gets better. “A negative turn in the politics still leaves plenty of downside, in our view,” he said.

The opinions expressed here are those of the author, a columnist for Reuters.

Reporting by Jamie McGeever

Dollar rises before Fed; trade woes check risk appetite

TOKYO (Reuters) - The dollar carved out small gains against the euro and yen on Tuesday as investors looked to policy clues from the U.S. Federal Reserve, which is widely expected to hike rates this week, and as the Sino-U.S. trade dispute kept markets cautious.

The euro edged lower, having hit a 3-1/2-month high in the previous session after European Central Bank chief Mario Draghi expressed confidence in eurozone inflation and wages growth.

Global markets have been sideswiped over the past few months as the intensifying trade row between China and the United States stoked uncertainty about the outlook for global growth and broader monetary policy for some developed and emerging market economies.

On Monday, the United States and China imposed a new round of tariffs on each other’s goods with no sign either side is willing to back down.

The Fed begins its two-day policy meeting later on Tuesday at which it is expected to raise interest rates for the eighth time since late 2015. Markets are also betting on another rate hike before year-end, though the outlook for 2019 is less clear.

“The dollar remains the absolute go to currency when there is any question about risk or stability or any of these geopolitical situations,” said Bart Wakabayashi, Tokyo branch manager at State Street Bank.

“If we have negative news out of the Brexit talks, that’s going to be a huge push for the dollar...If we get some sort of more-than-expected hawkish sentiment out of (the Fed), that should be another push for the dollar,” Wakabayashi said.

The dollar index, which measures the greenback against a basket of six major currencies, was 0.15 percent higher at 94.323.

Against the Japanese yen, the dollar gave up some of its gains after the release of minutes from the July policy meeting by the Japanese central bank.

The minutes showed a few of the Bank of Japan’s board members said the central bank must consider more seriously the potential dangers of ultra-easy policy, such as the negative impact on the country’s banking system.

The greenback edged 0.05 percent higher to 112.86 yen, after briefly reaching as high as 112.96 yen, its highest level since touching 113.18 yen on July 19, in early trade.

The Australian dollar, a proxy of China-related trades and a gauge of broad risk appetite, shed 0.2 percent to $0.7240, extending losses from the previous two sessions.

Speculators have ramped up bets that interest rate differentials between the United States and other major economies, including Japan and Australia, will increase.

For example, net long positions for the dollar have grown to nearly $25 billion according to CFTC data.

The euro was slightly lower at $1.1749 after surging to $1.1815 the previous day, its highest level since June 14, before giving up most of its gains during U.S. trade overnight.

The common currency rose after ECB’s Draghi on Monday described an acceleration in underlying inflation in the euro zone as “relatively vigorous” and expressed confidence that a pick-up in wage growth would continue.

But Draghi reaffirmed the ECB’s pledge to keep rates at their current, rock-bottom level “through the summer” of next year, effectively rebuffing calls from some policymakers to tighten policy more quickly.

“The sentiment of euro area corporates is not as buoyant as before, so I think it’s not the timing for the ECB to be more hawkish,” Yamamoto said.

“The rise of the euro was temporary yesterday because there is an anchor for the interest rate expectation for the euro area.”

Reference: Daniel Leussink

Monday, 24 September 2018

Fed hikes give cash appeal; stocks no longer only game in town

NEW YORK (Reuters) - The U.S. Federal Reserve’s anticipated interest rate hike this week will make cash the most attractive it has been in about a decade and end the era of stocks as the only game in town.

During this bull market which in August broke the record as the longest ever, interest rates were so low that most fixed income assets other than junk bonds yielded less than the inflation rate or the dividend yield on the S&P 500. This drove yield-hungry investors to stocks, the one asset that delivered a real rate of return, or return on investment adjusted for inflation.

“One of the big influences in the market over the last decade has been that bonds as an alternative have been pretty much out of the market,” said Jack Ablin, chief investment officer at Cresset Wealth Advisors in Chicago.

“There is historically a tug of war between stock investing and bond investing and since the financial crises the bond market has been in the tug of war with one arm tied behind its back,” he said.

That may be set to change.

The Fed ended its regime of rate suppression when it stopped expanding its balance sheet and then began raising interest rates in late 2015. Since then, bonds have slowly returned to delivering real returns relative to inflation.

With next week’s anticipated rate action, cash will join the party. A broad array of money market assets should finally regain a real return versus inflation. It will be the first time since early 2008 that money market assets will deliver a real return.

“It certainly gives cash a boost. It gives risk aversion a boost,” said Ablin.

“The regime of safe asset shortages is over. We are now in a safe asset glut regime,” Credit Suisse Group AG analyst Zoltan Pozsar, said in a recent note.

The stock market, meanwhile, is bracing for the rate hike at a time when the forward price-to-earnings(P/E) of 17.2 versus the historic average of 15. This was not a headwind three or five years ago when the competition yielded a negative real return, but that valuation now may look a bit pricey, especially with profit growth expected to moderate after this year’s extraordinary, tax-cut induced showing.

S&P 500 earnings growth should hit its peak for the cycle this year, estimated at 23.2 percent, while growth for 2019 is now estimated at just 10.2 percent, according to Thomson Reuters data.

“As long as earnings growth outpaces the interest-rate rise, stocks should be fine. If earnings growth slows in comparison to the interest-rate rise, then you’ve got an issue,” said Oliver Pursche, chief market strategist at Bruderman Asset Management in New York.

Equity mutual funds posted outflows of more than $1 billion in the week ended Sept. 19, marking the group’s 13th consecutive week of net outflows, according to Lipper data. At the same time, investors have been pouring money into ultra-short obligation funds, in a sign of increased allure of investments with shorter maturities.

The ultra-short obligation funds peer group, used to offset interest rate risk, had net inflows of $614 million in the week ended Wednesday, the 28th straight week of net inflows, Lipper data showed.

Even as cash grows more attractive, analysts do not see stocks falling out of favor soon.

“I think the euphoria around the economy and forward earnings growth is swamping this yield comparison idea that bonds are starting to look more attractive than stocks,” said David Lafferty, chief market strategist at Natixis in Boston.

“I think investors will have real choices to make in the second half of next year as (bond) yields become more attractive and the earnings outlook becomes more fragile,” he said.

Reporting by Saqib Iqbal Ahmed and April Joyner

Dollar snaps losing streak; pound bounces

LONDON (Reuters) - The dollar edged higher on Monday, snapping a two-week losing streak, as investors bought the greenback before a widely expected interest rate hike by the U.S. central bank this week while trade war concerns checked investor appetite for risk.

The dollar had struggled as trade war concerns faded and emerging market central banks led by Turkey took aggressive steps to stabilise their markets.

But the weekend brought tensions back into the spotlight and boosted the dollar after Beijing released a white paper on the trade dispute saying it would seek a reasonable outcome, while also describing U.S. tactics as “bullying”.

With the U.S. Federal Reserve set to increase interest rates by a quarter point for the eighth time since late 2015, speculators ramped up bets that interest rate differentials between the United States and other major economies, particularly Europe, will stretch wider.

“We typically see this brief window before a U.S. rate meeting when hedge funds buy the dollar and the trade war headlines are also aggravating that trend,” said Viraj Patel, an FX strategist at ING in London.

Latest positioning data confirms that trend with net speculative long positions on the greenback increasing by its biggest daily rise in more than two months.

The greenback rose 0.1 percent to 94.37 against a basket of its rivals as net long positions for the dollar swelled to $25 billion according to CFTC data.

The euro held at $1.1745, on some relief that German Chancellor Angela Merkel’s ruling coalition resolved a dispute over the country’s scandal-tainted spymaster on Sunday, ending a threat to the six-month-old government.

The pound was the biggest gainer against the dollar in early London trading with the British currency rising half a percent against the dollar above the $1.31 line after latest comments by British Brexit Secretary Dominic Raab.

Raab said on Monday that he was confident that the United Kingdom will make progress and eventually clinch a Brexit deal with the European Union.

Still, investors remained bearish on the British currency with overall short positions rising to a 4-1/2 month high of $6.5 billion, according to latest CFTC data.

Volumes were relatively thin with many Asian centres closed including Japan, China and South Korea.

Reporting by Saikat Chatterjee

Friday, 21 September 2018

Switzerland tries to stem blockchain exodus by improving access to banks

ZURICH (Reuters) - In an effort to maintain its status as a cryptocurrency hub, Switzerland has taken steps to help blockchain companies access the traditional financial system by making it easier for them to open corporate bank accounts.

Faced with an exodus of cryptocurrency projects from the country due to falling access to the banking sector, the Swiss Bankers Association (SBA) on Friday issued guidelines to banks who may want to do business with the start ups.

Around 530 blockchain startups have settled in Switzerland’s Crypto Valley hub around Zurich and Zug, Oliver Bussmann, head of the Crypto Valley Association said.

The companies need access to traditional banking services to deposit cash, pay salaries and carry out other day-to-day financing activities, but Swiss banks fear falling foul of anti-money laundering (AML) rules and other regulations.

“We believe that with these guidelines, we’ll be able to establish a basis for discussion between banks and innovative startups, making the dialogue simpler and facilitating the opening of accounts,” SBA strategic adviser Adrian Schatzmann told a news conference.

Only a handful of Switzerland’s 250 banks ever allowed companies to deposit the cash equivalent of cryptocurrencies raised in digital fundraisers known as initial coin offerings (ICOs).

Two of those withdrew their services in the last year, with Zuercher Kantonalbank (ZKB), the fourth largest Swiss bank, closing the accounts of more than 20 companies, industry sources told Reuters in July.

The banks are worried because some of the companies that carried out ICOs did not do AML checks on their contributors, meaning the banks themselves could fall foul of AML rules, the sources said.

The new guidelines spell out separate checks that the association recommends when opening accounts for blockchain firms that carry out ICOs and those that do not.

They outline recommended know-your-customer and AML checks for ICOs that raise funds in fiat currencies such as Swiss francs, euros and dollars, and those that raise funds through other cryptocurrencies.

The rules should help banks understand what assessments they should carry out, but will also help blockchain and cryptocurrency firms know what information they must provide, and what measures they must take, to qualify for an account.

“This provides more clarity not only to banks, but also to startups,” Bussmann said.

While initial discussions with the banks have been positive, according to SBA Deputy Chief Executive August Benz, it remains to be seen how they will respond to the new guidelines.

Reporting by Brenna Hughes Neghaiwi

Dollar bounces but still set for biggest weekly drop in seven months

LONDON (Reuters) - The dollar rebounded from early lows and edged higher against most of its rivals on Friday but was still on track for its biggest weekly drop in seven months as stronger equity markets and rising bond yields fuelled a rush to buy riskier assets.

With trade war concerns receding in the background and emerging market central banks led by Turkey taking measures to stabilise their currencies, investors pushed the euro to the $1.18 line for the first time in more than three months.

“This is textbook risk-on behaviour in the markets and, though it is hard to find an immediate catalyst, falling trade conflict concerns and improvement in emerging market sentiment has helped,” said John Marley, a senior currency consultant at Smart Currency Business, and FX risk-management specialist.

Premier Li Keqiang pledged on Wednesday that Beijing will not engage in competitive currency devaluation, a day after his country and Washington plunged deeper into a trade war with more tit-for-tat tariffs.

Global shares hit their highest levels in more than six months on Friday while the MSCI’s broadest index of Asia-Pacific shares outside Japan was up 1.27 percent, partly on expectations that Beijing will pump more money into its economy to weather the trade war.

The dollar index drifted 0.1 percent higher to 94.02 as investors consolidated positions before the weekend, but the greenback was set for its biggest weekly drop since February.

A sell-off in the dollar that began in the late European session on Thursday gathered steam overnight as investors ramped up bets that the U.S. Federal Reserve will be near the end of its rate-rise cycle after an expected increase next week.

Market expectations are for approximately two increases to U.S. interest next year and Russell Investments said that medium-term recession risks in the U.S. economy are now elevated, pointing to a number of indicators such as a tightening labour market.

“The weakness in the dollar is prompting investors to unwind their short bets against other currencies such as the euro, and this move may have further room to run,” said Manuel Oliveri, a currency strategist at Credit Agricole in London.

The dollar’s bounce pushed the single currency back into the red at $1.1768, taking its gains for the week to nearly 1.5 percent.

Amid a bounce in currencies such as the Turkish lira and South African rand, ravaged earlier in the month by trade friction and domestic factors, MSCI’s emerging market currency index climbed 0.4 percent to its highest since late August.

The Australian dollar, a proxy of China-related trades as well as a gauge of risk sentiment, climbed to a three-week high of $0.7297.

The pound was the only notable loser against the dollar, weakening nearly 1 percent to $1.3179 on Brexit concerns.

Reporting by Saikat Chatterjee

Cboe exchange turns to machines to police its 'fear gauge'

NEW YORK (Reuters) - Hard pressed to quash allegations that its popular “fear gauge” is being manipulated, Cboe Global Markets (CBOE.Z) is turning to artificial intelligence to help put those concerns to rest.

The exchange, which owns the lucrative volatility index the VIX .VIX, has taken several steps to confront manipulation claims that have helped drive the Cboe’s stock down about 15 percent this year, putting it on pace for its worst year ever.

In its latest effort to police trading tied to the index, the Cboe is working with FINRA, its regulatory services provider, to develop machine learning techniques to tell whether market conditions surrounding the VIX settlement are potentially anomalous, the exchange told Reuters.

“Incorporating the use of machine learning and AI (Artificial Intelligence) is a logical part of the ongoing enhancement of our overall regulatory program,” Greg Hoogasian, Cboe chief regulatory officer, said in an emailed statement.

Cboe declined to elaborate on when it began using machine learning techniques to monitor VIX settlements.

Any steps, however, may take a while to change investors’ minds on the stock.

“Any time you see controversy over manipulating markets and it involves a company, there are people who will walk away from the stock,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

“It ends up tarnishing the company and subjecting them to legal risk that is very hard to quantify,” he said.

Tuz said Chase Investment Counsel, which owned nearly 19,000 Cboe shares in mid-2017, began selling its stake early this year, shedding the last of it on May 21.

Cboe’s stock performance this year has lagged that of other major exchange operators. Shares of Nasdaq Inc (NDAQ.O) are up about 17 percent, Intercontinental Exchange Inc’s (ICE.N) is up about 10 percent and CME Group Inc (CME.O) shares have risen 18 percent.

Concerns the index was being manipulated surfaced last year after John Griffin and Amin Shams of the McCombs School of Business at the University of Texas, Austin wrote an academic paper that noted significant spikes in trading volume in S&P 500 index options right at the time of settlement.

The paper also compared the value of the VIX at settlement with its value as calculated from S&P 500 options right after the settlement, and showed the two tend to diverge.

Instances of big deviations are taken as evidence by some that unscrupulous traders have been deliberately moving the settlement price.

A stock market fall on Feb. 5 that caused the VIX to surge the most in its 25-year history brought further scrutiny to the index, and led to dozens of lawsuits and ongoing probes into the matter by the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission.

The regulators have yet to comment on the matter and Cboe has denied the manipulation accusations, citing liquidity problems and legitimate hedging activity as reasons for unusual moves on settlement days.

“Only a forensic analysis of those episodes can confirm or refute such a claim,” said Kambiz Kazemi, partner at Canadian investment management firm La Financière Constance.

Meanwhile, the steps Cboe has taken to address the claims of manipulation are going in the right direction, said Kazemi.

The exchange operator recently overhauled the technology behind the auctions, improved the speed with which it sends alerts about auction imbalances, and sought to increase the number of market makers that provide buy and sell quotes for the auction.

Orderly VIX settlement auctions over the last few months have helped take some of the pressure off the Chicago-based exchange operator.

“I think we all will be observing the effects of the Cboe measures in the next few months,” Kazemi said.

VIX and associated products accounted for roughly a quarter of Cboe’s 2017 earnings, analysts estimate, and the controversy around the product has spooked some stockholders.

While financial firms have been using artificial intelligence software for everything from compliance to stock-picking, a growing number of firms have started to use it for market oversight.

Given the huge amount of data involved in market surveillance, machine learning algorithms can be far more efficient than humans in rooting out potential market manipulation, said Richard Johnson, a market structure and technology consultant at Greenwich Associates.

“It’s going to be a must have,” he said.

FINRA, which already monitors Cboe’s market on the company’s behalf, confirmed it was working on machine learning to enhance surveillance of the VIX settlement auctions, but would not offer specifics.

More generally, the Wall Street watchdog is working to use artificial intelligence to catch nefarious activities more quickly, including schemes that may have previously been unknown to regulators, said Tom Gira, who oversees FINRA’s market regulation department.

He said FINRA has begun using machine learning to scan for illegal activities across stock and options exchanges and is in the process of adding a feedback loop to the software that would regularly incorporate analysts’ data and allow the machines to detect ever-changing manipulation patterns.

Reporting by John McCrank and Saqib Iqbal Ahmed

Thursday, 20 September 2018

Dollar stuck near seven-week low as trade war worries fade

LONDON (Reuters) - The dollar hovered near a seven-week low against a basket of major currencies on Thursday, its safe-haven appeal lessened by fading fears about a trade row between China and the United States.

After a knee-jerk reaction to new tariffs announced by Washington and Beijing on Tuesday, currency markets are settling down and expecting the fallout will take some time to show up in corporate earnings and not produce a sharp global shock.

The dollar, which has tended to gain as tensions escalate between the world’s two largest economies, dipped 0.2 percent to 94.410, near its seven-week low of 94.308 touched on Tuesday.

Traders also noted that U.S. macro economic data has remained strong so far despite trade disputes since early this year.

The dollar’s more risk-sensitive rivals held firmer.

Emerging-market currencies strengthened, led by the Indian rupee after China said it would not retaliate with competitive currency devaluations.

Despite its weaker tone on Wednesday, some market participants still see strength for the dollar.

“It is the champion reserve currency and it has the risk-free Fed funds rate. So the currency with the lowest risk is offering the highest yield in G10,” said Andreas Koenig global head of FX at asset manager Amundi.

“As long as this abnormality holds you can’t strategically sell the dollar.”

Investors were also awaiting next week’s Federal Reserve meeting. The U.S. central bank is expected to raise its benchmark rates and shed light on the path for future rate hikes.

Markets were closely watching a European Union summit where Prime Minister Theresa May appealed to fellow EU leaders on Wednesday to drop “unacceptable” Brexit demands that she said could rip Britain apart.

Sterling climbed 0.2 percent against the dollar, having erased most early gains after The Times reported on Wednesday that May had rejected an improved offer from the EU on the Irish border issue.

Economists expect Norway’s central bank on Thursday to deliver the first rate hike since 2011 and say the focus will be on the bank’s interest rate projections.

The Norwegian crown on Thursday approached a seven-week high versus the dollar of 8.1405 crown.

Elsewhere, the Swiss central bank is expected to leave monetary policy unchanged, with markets keeping a close eye on its assessment of the currency.

“Short term the SNB might be able to prevent franc appreciation with the help of interventions, but no doubt it would not manage to do so long term,” said Commerzbank currencies strategist Ulrich Leuchtmann.

“But the likelihood of [long-term] franc appreciation is slim because the euro zone crisis would have to boil up quite significantly for that to happen, and that seems unlikely at present,” he said.

The euro was 0.2 percent higher against the dollar at $1.17

The Australian dollar, a proxy for China-related trades as well as a barometer of broader risk sentiment, held at three-week highs, having gained 1.5 percent so far this week. It stood at $0.7268.

The yen traded at 112.23 to the dollar, staying close to a two-month low of 112.445 touched on Wednesday.

The yen has pulled back slightly this week as investors reassessed the impact of the Sino-U.S. trade war.

The New Zealand dollar jumped after data showed its economy grew at the fastest pace in two years in the second quarter.

The kiwi rose as much as 0.6 percent to a three-week high of $0.6653 and last stood at $0.6651.

Reporting by Tom Finn

World stocks rise as trade relief bounce continues

MILAN (Reuters) - A bounce in world stocks in relief that the fresh U.S. and Chinese tariffs on reciprocal imports were less harsh than feared continued on Thursday, although investors remained wary about the next steps in the US-Sino trade war.

An MSCI index tracking shares in 47 countries rose 0.2 percent, supported by gains in Europe and Asia, but Chinese equities dipped after a rally on bets of government stimulus to limit the economic damage of new trade barriers.

The pan-European STOXX benchmark rose 0.3 percent, while Japan's Nikkei .N225 ended little changed, barely moving after a well-anticipated win by Japanese Prime Minister Shinzo Abe in a ruling party leadership vote.

Markets were also watching a European Union summit where Prime Minister Theresa May appealed to fellow EU leaders on Wednesday to drop Brexit demands that she said could rip Britain apart.

After a knee-jerk negative reaction to the new tariffs announced by Washington and Beijing on Tuesday, markets have been speculating that an immediate escalation could be averted.

U.S. President Donald Trump has not made fresh threats that he would seek to extend tariffs to all Chinese imports.

“Making forecasts on Trump is always a risk but it’s a fact that at the moment the escalation has taken a break,” said Anthilia Capital fund manager and strategist Giuseppe Sersale.

For his part, Chinese Premier Li Keqiang said this week he would not would not weaken the yuan to boost exports.

Broader market sentiment was at odds with a new Reuters poll that showed unanimous agreement that an escalating trade war with China was bad economic policy for the United States and could cause economic growth to slow.

Rob Carnell, chief economist and head of research, Asia-Pacific at ING, said he saw more reasons to take a “glass-is-half-full” approach, given the recent emerging market selloff.

The consensus of the poll for U.S. growth showed a slowdown to 2.0 percent in the final quarter of 2019, less than half the last reported rate of 4.2 percent.

Meanwhile, S&P 500 E-mini futures were little changed following strong gains on Wall Street on Wednesday.

The rally in global stocks has been accompanied a drop in demand for safe-haven assets, boosting U.S. bonds yields and sending the dollar to seven-week lows. The Japanese yen has also been under pressure.

The yield on benchmark 10-year Treasury notes, which on Wednesday touched its highest level since May 18, eased back to 3.0682 percent on Thursday.

This move comes ahead of what is expected to be a hawkish meeting of the U.S. Federal Reserve next week.

All 113 economists in the Reuters poll forecast the Fed would hike rates when it meets Sept. 25-26. It is expected to follow that up with one more before the end of this year, taking the fed funds rate to 2.25-2.50 percent.

The dollar index .DXY, which tracks the dollar against a basket of six major rivals, dipped 0.18 percent at 94.371.

The dollar was 0.04 percent lower against the yen at 112.25 JPY=, while the euro EUR= was 0.26 percent stronger against the greenback at $1.1700.

The pound rose 0.3 percent to $1.3188 GBP=D3 versus the dollar, helped by growing confidence that a Brexit trade deal can be clinched in the coming months.

On Thursday Cabinet Office minister David Lidington said Britain was over 85 percent of the way to agreeing a deal with the European Union on its exit from the bloc.

The Norwegian crown slumped versus the euro after the country’s central bank raised interest rates for the first time in seven years, as expected, but trimmed its policy rate forecasts. The crown fell 0.9 percent versus the euro to 9.5990.

In commodities, news of another drawdown in U.S. crude inventories and signs that OPEC may not raise output enough to compensate for the loss of Iranian exports hit by sanctions, lifted benchmark Brent crude 0.11 percent at $79.49.

Base metals rose, buoyed by relief over trade and a shortage of the metal in top consumer China, with London Metal Exchange zinc hitting its fortnight before paring some gains and trade up 0.50 percent at $2,446 a tonne.

Reporting by Danilo Masoni

Wednesday, 19 September 2018

20 Eye-Opening Trading Quotes From Trading Legends

An Educational Article

We all need a little inspiration and guidance from time to time, and for us traders, who can we best learn from than the biggest trading legends of our time? After all, learning from those who have already achieved what you are trying to achieve is the best way to learn anything.

This article is a resource for all traders to refer to regularly on their trading journey when they need a ‘pep talk’ or to simply be reminded of the proper way to think about and trade the markets. 

You will notice that I have grouped together various quotes that relate to the same trading topic so that you can quickly reference inspiration and insight on the topics you most like. 

The traders quoted in this article are seasoned professionals with the quotes first appearing in our article on How to Trade Like the Market Wizards, based on the Market Wizards books by Jack D. Schwager. I truly hope you utilize this lesson as an on-going learning and inspiration resource….

Thoughts on technical analysis vs. fundamental analysis
The debate between technical analysts and fundamental analysts over which form of market analysis is ‘better’ has been going on for decades.
Let’s check out some famous quotes on this topic from some legendary traders…
“Fundamentals that you read about are typically useless as the market has already discounted the price, and I call them “funny-mentals”.

“I am primarily a trend trader with touches of hunches based on about twenty years of experience. In order of importance to me are: (1) the long-term trend, (2) the current chart pattern, and (3) picking a good spot to buy or sell. Those are the three primary component of my trading. Way down in a very distant fourth place are my fundamental ideas and, quite likely, on balance, they have cost me money”. – Ed Seykota

“I always laugh at people who say, “I’ve never met a rich technician.” I love that! It’s such an arrogant, nonsensical response. I used fundamentals for nine years and got rich as a technician.” – Marty Schwartz

Thoughts on trading robots / mechanical systems
If you’ve followed my blog for any length of time you probably already know how I feel about mechanical trading systems, expert advisors and robot trading software. Let’s check out some famous quotes on this topic from some legendary traders…

“The problem with developing expert systems for trading is that the “rules” of the trading and investment game keep changing. I have spent some time working with expert system developers, and we concluded that trading was a poor candidate for this approach, because trading decisions encompass too many types of knowledge, and the rules for interpreting the information keep changing”. – Bruce Kovner

“It is experience and gut feel. I use all forms of technical analysis, but interpret them through gut feel. I do not believe in mathematical systems that always approach the markets in the same way. Using myself as the “system,” I constantly change the input to achieve the same output – profit!” – Mark Weinstein

“Don’t be fooled by the modern day snake oil salesman approach to trading the Forex market; there’s no easy way to make money as a trader, and indeed I might be one of the few trading educators who will tell you that, but it’s the truth. The ‘easiest’ way to make money is by learning a sound and logical trading method that is either purely or mostly dependent on reading the price action in the market, proper trading psychology and proper money management practices.” – Nial Fuller

Thoughts on trading behaviour / psychology
I’ve written many articles dealing with trading psychology and behaviour and how significant attaining and maintaining the right trading mind-set is. Let’s check out some famous quotes on this topic from some legendary traders…

“I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime. Even people who lose money in the market say, “I just lost my money, now I have to do something to make it back.” No, you don’t. You should sit there until you find something”. – Jim Rogers

“I haven’t seen much correlation between good trading and intelligence. Some outstanding traders are quite intelligent, but a few aren’t. Many outstandingly intelligent people are horrible traders. Average intelligence is enough. Beyond that, emotional makeup is more important.” – William Eckhart (co-founder of Turtle Traders)

“A lot of people seem to be unaware of the fact that they are trading with a mind-set that is inhibiting them from making money in the markets. Instead, they think that if they just find the right indicator or system they will magically start printing money from their computer. Trading success is the end result of developing the proper trading habits, and habits are the end result of having the proper trading psychology.” – Nial Fuller

Thoughts on stop losses
Stop loss placement is a critical piece of the trading puzzle. If you do not know how to properly place stop losses your entire trading approach and money management plan will be spoiled. Let’s check out some famous quotes on this topic from some legendary traders…

“Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I’m getting out before I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis.” – Bruce Kovner

Thoughts on capital preservation, risk management and position sizing
Money management is the key. I know it may sound cliché to you at this point, but it’s only cliché because it’s true and you’ve probably heard it a thousand times from various trading education sources. Let’s check out some famous quotes on these topics from some legendary traders…

“The most important rule of trading is to play great defence, not great offense. Every day I assume every position I have is wrong. I know where my stop risk points are going to be. I do that so I can define my maximum possible draw-down. 

Hopefully, I spend the rest of the day enjoying positions that are going my direction. If they are going against me, then I have a game plan for getting out.
Don’t be a hero. Don’t have an ego. Always question yourself and your ability. Don’t ever feel that you are very good. The second you do, you are dead. My biggest hits have always come after I have had a great period and I started to think that I knew something”. – Paul Tudor Jones

“The key to long-term survival and prosperity has a lot to do with the money management techniques incorporated into the technical system. There are old traders and there are bold traders, but there are very few old, bold traders.” – Ed Seykota

“I prefer not to dwell on past situations. I tend to cut bad trades as soon as possible, forget them, and then move on to new opportunities.” – Ed Seykota
“Either a trade is good enough to take, in which case it should be implemented at full size, or it’s not worth bothering with at all.” – William Eckhardt

“Learn to take losses. The most important thing in making money is not letting your losses get out of hand. Also, don’t increase your position size until you have doubled or tripled your capital. Most people make the mistake of increasing their bets as soon as they start making money. That is a quick way to get wiped out.” – Marty Schwartz

“I’ve learned many things from him [George Soros], but perhaps the most significant is that it’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” – Stanley Druckenmiller

Thoughts on the random distribution of winners and losers in trading
One of the most difficult things for many traders to grasp is that there’s a random distribution of winners and losers for any given series of trades. Meaning, you can’t ever assume you know that THIS trade will be a winner, because any one trade has essentially a random chance of winning or losing. 

A high-probability trading edge is only realized over a large SERIES of trades, this is an important thing to remember. Let’s check out some famous quotes on this topic from some legendary traders…

The key is consistency and discipline. Almost anybody can make up a list of rules that are 80 percent as good as what we taught our people. What they couldn’t do is give them the confidence to stick to those rules even when things are going bad.

“On any individual trade it is almost all luck. It is just a matter of statistics. If you take something that has a 53 percent chance of working each time, over the long run there is a 100 percent chance of it working. If I review the results of two different traders, looking at anything less than one year doesn’t make any sense. It might be a couple of years before you can determine if one is better than the other”. – Richard Dennis (co-founder of Turtle Traders)

Once you begin to realize that any given trade has an equal chance of being a winner or loser, you will stop giving too much emotional and financial importance to any one trade. Once you do this, it opens up the pathway to carefree trading and allows you to truly induce the proper trading mind-set. – Nial Fuller

Thoughts on end-of-day trading vs. day-trading
“For many very, very good reasons, I focus almost entirely on daily charts and end-of-day price data when I analyse and trade the markets. Having a quote machine is like having a slot machine on your desk – you end up feeding it all day long. I get my price data after the close each day. – Ed Seykota

“One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do. Most people – not that I’m better than most people – always have to be playing; they always have to be doing something. They make a big play and say, “Boy, am I smart, I just tripled my money.” Then they rush out and have to do something else with that money. They can’t just sit there and wait for something new to develop.” – Jim Rogers

There is much wisdom to be absorbed from trading legends such as those quoted above. The fastest way to get your trading career off to a successful start is simply by learning from those who have come before you. Don’t try to reinvent the wheel with trading, stick to what works and learn as much as you can from experienced, professional traders like myself and the other traders discussed in this lesson.
I truly hope you’ve found this article useful and that you will refer back to it for insight and inspiration when you need it. 

Reference: Nial Fuller

Investors raise cash buffers as gloom gathers over global economy

LONDON (Reuters) - Investors cut equity exposure this month as they grew more wary that economic growth may slow, but kept a long-standing preference for mega-cap tech stocks, Bank of America Merrill Lynch’s monthly survey indicated on Tuesday.

BAML’s September survey found investors’ outlook on economic growth had worsened significantly, driving them to increase cash holdings.

A net 24 percent of those surveyed expected global growth to slow in the next year, up from 7 percent in August. This was the worst such outlook since December 2001.

A trade war remained the biggest tail risk cited by investors. September was the fourth straight month this was cited as the biggest fear, though its dominance was receding. Fears of a slowdown in China were increasing, as were worries about rising global interest rates.

As a result, the average cash balance climbed to an 18-month high of 5.1 percent, from 5.0 percent in August. Overall allocation to equities fell 11 percentage points to a net 22 percent overweight - near July’s levels which were the lowest in 18 months.

The “most crowded” trade for the eighth straight month was “Long FAANG and BAT” - acronyms for U.S. tech giants Facebook, Amazon, Apple, Netflix and Google, and China’s Baidu, Alibaba and Tencent.

The two other crowded trades were short positions on emerging market equities followed by long dollar.

A divergence in regional preferences yawned ever wider: investors’ allocation to U.S. equities rose to the biggest overweight since January 2015, while allocation to euro zone equities fell to an 18-month low.

The United States was the most favored equity region for a second month running, BAML strategists said. This reflected a decoupling between the strong U.S. economy and the weaker rest of the world.

Investors’ outlook for U.S. corporate profits was at its most favorable in the survey’s history, with the biggest divergence with emerging market profits since January 2014.

Nearly half of investors (48 percent) thought the current decoupling would end, however, due to U.S. growth slowing, while 24 percent saw it continuing.

Just 28 percent saw growth in Asia and Europe accelerating. “Investors are holding on to more cash, telling us they are bearish growth and bullish US decoupling,” said Michael Hartnett, chief investment strategist.

Allocation to emerging stocks tumbled to a 10 percent underweight, the lowest since March 2016. The survey noted a “massive reversal” from the 43 percent overweight measured in April 2018 when emerging markets were the investors’ favorite.

“September rotation shows investors are selling emerging markets, banks and materials in favor of Japan, healthcare and industrials,” wrote the strategists.

The most contrarian trade, they said, is long EM and short U.S., while they also recommended long materials and short healthcare for investors wanting to bet on China stimulating its economy more in the fourth quarter.

While global investors cut their allocation to euro zone equities to the lowest since December 2016, they bought more UK equities.

Amid increasingly intense Brexit negotiations, global investors’ allocation to UK equities rose to a net 24 percent underweight from 28 percent underweight.

While European investors are moving into defensive sectors, sector conviction is low, they added.

European fund managers’ allocation to tech stocks fell to its lowest in nine years, while their weighting in banks hit a two-year low.

“We expect sentiment-driven rallies to be short-lived and see only temporary factors supporting EU financials,” wrote the strategists.

Evidence of earnings growing more than 10 percent would be the biggest catalyst for a sustained rise in European stocks, the survey found.

Reporting by Helen Reid

Tuesday, 18 September 2018

Dollar bounce fades, yuan dips, markets brace for China's response to US tariffs

TOKYO (Reuters) - The dollar was slightly higher on Tuesday and China’s yuan fell as global markets braced for Beijing’s response to new U.S. tariffs on Chinese goods.

The dollar index against a basket of six major currencies was up 0.09 percent at 94.585. The greenback in recent months has benefited from safe-haven flows amid the escalating Sino-U.S. trade conflict.

The index had popped up to 94.607 earlier in the session after U.S. President Donald Trump said on Monday that he will impose 10 percent U.S. tariffs on about $200 billion worth of Chinese imports, effective Sept. 24.

Trump said that if China takes retaliatory action against U.S. farmers or industries, “we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports.

“Of immediate concern to the market is how China responds to the tariffs,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

China’s yuan was a shade weaker at 6.8740 per dollar in onshore trade, though Chinese stocks managed slim gains.

“The dollar’s knee-jerk reaction has subsided somewhat as some equity markets are managing to rise despite the trade news. It appears that a consensus had already been formed beforehand on what the trade announcement would be,” said Shusuke Yamada, currency and equity strategist at Bank of America Merrill Lynch in Tokyo.

The dollar was 0.1 percent higher at 111.94 yen. It had briefly dropped to 111.66 against the yen, another safe-haven currency that draws demand in times of market tensions and risk aversion, before bouncing back.

The Australian dollar, seen as a proxy to China-related trades as well as a barometer of broader risk sentiment, was nearly flat at $0.7176 , having climbed off a low of $0.7144 plumbed earlier in the session.

Some analysts doubted Beijing would be in the mood to hold trade negotiations with Washington in the wake of Trump’s latest decision. U.S. Treasury Secretary Steven Mnuchin last week invited top Chinese officials to a new round of talks, but thus far nothing has been scheduled.

The euro was down 0.05 percent at $1.1678 after rising 0.5 percent the previous day.

The pound dipped 0.1 percent to $1.3147 .

Sterling had gained 0.7 percent on Monday, hitting a six-week high of $1.3165, helped by reports of progress on the Irish border question, an obstacle to Brexit that diplomats will try to overcome this week at a European Union summit.

Emerging market currencies including the Turkish lira, South African rand and the Mexican peso were all slightly lower on Tuesday.

Reporting by Shinichi Saoshiro

Asian shares slip as Sino-U.S. trade tensions intensify

TOKYO/SYDNEY (Reuters) - Asian shares fell and copper prices eased on Tuesday after Washington announced new tariffs on Chinese imports, inflaming trade tensions between the world’s two biggest economies.

U.S. stock futures took a knock as well, with E-Minis for the S&P 500 ESc1 and the Dow Minis both down 0.2 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slipped 0.3 percent with Hong Kong's Hang Seng index .HSI off 0.7 percent and Australian stocks down 0.4 percent.

Chinese shares were a touch lower with the blue-chip index .CSI300 off 0.1 percent while Japan's Nikkei .N225 bucked the trend, gaining more than 1.5 percent.

The sell-off came after U.S. President Donald Trump imposed 10 percent tariffs on as additional $200 billion worth of Chinese imports, and warned of duties on more products if China took retaliatory action.

Trump spared smart watches from Apple (AAPL.O) and Fitbit (FIT.N) and other consumer products such as bicycle helmets and car seats for babies.

“The announcement dashes hopes of any trade negotiations between two rivals. Be prepared for a prolonged period of risk-off,” analysts at ING said in a note.

“Although the levy saw a lower rate, it could foment a response from China which had previously threatened to walk away from the negotiating table,” ING said.

Some analysts said the market reaction was a bit muted because Tuesday’s announcement was in line with expectations and had been baked into prices.

Chinese Vice Premier Liu He was to convene a meeting in Beijing on Tuesday to discuss the government’s response, Bloomberg News reported, citing a person briefed on the matter.

The South China Morning Post newspaper reported, citing an unidentified source in Beijing, that China was reviewing its previous plan to send a delegation headed by Liu He to the United States next week for fresh talks, and was now unlikely to do so.

In currencies, the dollar index gained briefly against a basket of major currencies but was last unchanged at 94.465. .DXY

Against the yen JPY=, the greenback inched up 0.1 percent to 111.94.

The risk-sensitive Australian dollar AUD=D3 shed as much as 0.5 percent on the tariff news to near a recent 2-1/2 year low, then it changed direction and was up 0.2 percent at $0.7193.

The euro EUR= gained a fraction to $1.1693.

The latest tariff news sent some investors to the safety of U.S. Treasuries with 10-year yields coming off Monday’s four-month top of 3.0220 percent as bond prices rose. They were last at 2.9922 percent.

Oil prices fell on worries rising trade tensions could dent global demand for crude.

U.S. crude futures skidded 28 cents to $68.63 a barrel while international benchmark Brent futures LCOc1 lost 43 cents to $77.62 per barrel.

Copper, considered a barometer of global growth, drifted lower for a third straight session.

Reporting by Hideyuki Sano in Tokyo and Swati Pandey in Sydney

Monday, 17 September 2018

High U.S. stock valuations hinge on inflation, interest rates

NEW YORK (Reuters) - Investors are banking on tame inflation and interest rates to support U.S. stock prices and help counter any concerns over an anticipated slowdown in corporate earnings growth next year.

As they have recently, stocks in general are poised to trade at valuations, based on price-to-earnings ratios, higher than they have traded on average since the mid-1980s, investors said.

Yields on U.S. government securities and consumer prices overall have been moving higher, although they remain relatively moderate. Investors said low bond yields mean reduced investment competition for stocks, and relatively subdued inflation supports low interest rates.

“There’s an argument historically with that type of inflation backdrop and rates where they are, that you can justify a higher valuation,” said Walter Todd, chief investment officer at Greenwood Capital in Greenwood, South Carolina.

The ability of stocks to hold relatively high valuations is important because an expected slowdown in corporate profit growth in 2019 could otherwise temper stock returns. Analysts will increasingly focus on next year’s outlook as third-quarter reports arrive next month.

Spurred by corporate tax cuts that took effect this year, earnings of companies on the benchmark S&P 500 index .SPX are expected to climb 23 percent in 2018, and then 10 percent in 2019, according to Thomson Reuters.

Stocks are commonly valued by their forward P/E ratios, meaning their prices divided by earnings estimates for the next 12 months.

The S&P 500’s average forward P/E over the past 33 years has been 15 times earnings estimates, but the index has traded above that level for more than two years, according to Thomson Reuters Datastream.

This year, the index peaked at about 18.5 times in late January before the market’s 10 percent correction, and now trades at about 16.8 times.

More than 60 years of data show that the S&P 500 trades on average at higher valuations when the consumer price index (CPI), a common measure of inflation, is rising annually between 0 to 4 percent, compared to when it is higher or when there is deflation, according to Keith Lerner, chief market strategist with SunTrust Advisory Services in Atlanta.

Annual CPI last topped 4 percent about 10 years ago.

When the CPI increases 0-2 percent, the index trades at 16.6 times forward P/E. At 2-4 percent CPI growth, the average is 16.4 times. In the 12 months through August, the CPI increased 2.7 percent, according to data on Thursday.

Lerner calls a P/E of 16 to 17 times a fair current valuation, with global trade tensions and other issues causing fluctuations within that range.

“The way the market is looking at this is a 16 level on a forward P/E basis is pretty good support,” Lerner said.

Equity strategists at Credit Suisse project the forward P/E will drift higher and end 2019 at 18 times. They project the S&P 500 will finish next year at 3,350, a roughly 15 percent rise from current levels.

Credit Suisse equity strategist Patrick Palfrey said tax cuts and other factors are propping up results in 2018, so next year’s decline in earnings growth is less severe that it seems.

This year’s underlying earnings growth is closer to 9-10 percent, Palfrey said, which would be only slightly ahead of the nearly 8 percent expected by Credit Suisse next year.

Credit Suisse also sees limited risk of a recession on the horizon, Palfrey said.

“The economy actually is still moving at a very healthy clip,” Palfrey said.

While current P/Es are higher than average historically, strategists point to a change in the composition over time of the S&P 500, including a greater weight for higher-valued tech companies, as a reason why those historical comparisons may not be as appropriate.

Another factor is the relative attractiveness of equities to bonds and other assets. For example, the earnings yield, which is earnings divided by a stock’s price, for the S&P 500 is currently 6 percent, against a roughly 3 percent yield for U.S. 10-year Treasuries.

A spike in bond yields would change the valuation equation, could be put to the test as the Federal Reserve is expected to continue its tightening cycle.

Mark Hackett, chief of investment research at Nationwide, said a 4 percent yield on the 10-year U.S. Treasury note would pressure equities, although he doesn’t see that level in the near term.

“Every investment is competition for that next dollar,” Hackett said.

Reporting by Lewis Krauskopf

Sterling rises on Irish border hopes before EU summit

LONDON (Reuters) - The pound rose on Monday, buoyed by reports of progress on the Irish border question, an obstacle to Brexit that diplomats will seek to overcome at a an European Union summit later this week.

Sterling has benefited recently from reports on behind-the-scenes efforts to work out how to manage the Irish border if Britain also leaves the single market and customs union.

A report published by The Times on Monday said that EU chief negotiator Michel Barnier is working on a plan to minimise physical checks at the border between the two Irelands by tracking goods using barcodes on shipping containers.

The first of three summits on the terms of Brexit will be held this week, and EU leaders hope a deal can be struck within the next two months. The talks could determine how orderly Britain’s March 2019 withdrawal will be and what kind of economic impact it and its neighbours face.

“Sterling could out-perform this week if the EU decide to adopt a more flexible stance on Brexit at the EU summit,” said Chris Turner, head of foreign exchange strategy at ING. The pound could rise to 88.50 pence against the euro, he said.

Sterling on Monday traded up 0.2 percent at $1.3086, closing in on a six-week high of $1.3145. It was flat against the euro at 89.02 pence..

Sterling has reversed nearly all of its losses against the dollar in August, when fears of a no-deal Brexit surged and last week it gained 1.2 percent.

Other analysts expressed caution, though.

“The moderate recovery of sterling we saw over the past weeks is justified. But for all those who have to manage their sterling risks beyond the Brexit date, the problem of how to plan ahead persists, of course,” said Ulrich Leuchtmann, a currency strategist at Commerzbank in Frankfurt.

Despite growing confidence Britain can land a Brexit deal, domestic political uncertainty remains high.

Leaders of Germany and Austria said over the weekend they wanted to avoid a hard Brexit at all costs, but the biggest obstacle to a compromise might be hard-line Brexiters in Prime Minister Theresa May’s own party.

Britain’s opposition Labour party will vote against May’s Brexit plans, a senior Labour lawmaker told the Financial Times last week.

The final rounds of Brexit negotiations may determine what the Bank of England does next. Most economists polled by Reuters don’t expect interest rates to rise again until after Britain’s exit.

Reporting by Tom Finn

Sterling slips but still set for big weekly rise

LONDON (Reuters) - Sterling slipped on Friday but remained on track for its biggest weekly rise since March, as worries about emerging markets faded and investors bet Britain would eventually clinch a Brexit trade deal with the European Union.

Britain and the EU are “closing in” on a withdrawal agreement, Brexit minister Dominic Raab said on Friday.

The British currency has become increasingly correlated to risk appetite in recent weeks and concerns over a widening emerging market currency selloff had also weighed on sterling.

Turkey’s sharp rate hike on Thursday, which smoothed investor nerves more broadly, and a Bank of England (BoE) upgrade of UK growth forecasts also helped the pound this week.

On Friday, after initially trading to its highest since July 31, at $1.3145, sterling fell 0.1 percent to $1.3092, pushed lower by a stronger dollar.

Sterling has reversed nearly all of its losses against the dollar in August, when fears of a no-deal Brexit surged.

On a weekly basis, it is up more than 1.3 percent.

“It has been a good week for high beta currencies including the pound, thanks to Turkey and growth upgrades by the Bank of England, but it is still too soon to flip to net long bets,” said Kenneth Broux, a currency strategist at Societe Generale in London.

The BoE voted 9-0 to leave interest rates at 0.75 percent, a month after tightening policy for only the second time since the 2009 financial crisis, and upgraded its forecast for third-quarter GDP growth, to 0.5 percent from 0.4 percent.

Despite growing confidence Britain can land a Brexit deal, domestic political uncertainty remains high.

Britain’s opposition Labour party will vote against Prime Minister Theresa May’s Brexit plans, a senior Labour lawmaker told the Financial Times.

BoE governor Mark Carney told British ministers the UK property market would crash and mortgage rates spiral up if there was a chaotic no-deal Brexit, the Times newspaper reported.

Sterling’s fortunes were more mixed against the euro as lower-than-forecast U.S. inflation data initially pushed the single currency higher. The pound was flat against the euro at 89.14 pence.

In the cash markets, hedge funds remain negative on the British currency, according to latest positioning data, showing a net $5.5 billion outstanding short position though the size of that position reduced slightly last week.

Reporting by Saikat Chatterjee and Tommy Wilkes

Friday, 14 September 2018

Scalping: Small Quick Profits Can Add Up

An Educational Article

Scalping is a trading style specializing in taking profits on small price changes, generally soon after a trade has been entered and has become profitable. It requires a trader to have a strict exit strategy because one large loss could eliminate the many small gains that the trader has worked to obtain. Having the right tools, such as a live feed, a direct-access broker and the stamina to place many trades is required for this strategy to be successful.

Scalping is based on an assumption that most stocks will complete the first stage of a movement (a stock will move in the desired direction for a brief time but where it goes from there is uncertain); some of the stocks will cease to advance and others will continue. A scalper intends to take as many small profits as possible, not allowing them to evaporate. Such an approach is the opposite of the "let your profits run" mind-set, which attempts to optimize positive trading results by increasing the size of winning trades while letting others reverse.

 Scalping achieves results by increasing the number of winners and sacrificing the size of the wins. It's not uncommon for a trader of a longer time frame to achieve positive results by winning only half or even less of his or her trades - it's just that the wins are much bigger than the losses. A successful scalper, however, will have a much higher ratio of winning trades versus losing while keeping profits roughly equal or slightly bigger than losses.

The main premises of scalping are:
Lessened exposure limits risk - A brief exposure to the market diminishes the probability of running into an adverse event.
Smaller moves are easier to obtain - A bigger imbalance of supply and demand is needed to warrant bigger price changes. It is easier for a stock to make a 10 cents move than it is to make a $1 move.
Smaller moves are more frequent than larger ones - Even during relatively quiet markets there are many small movements that a scalper can exploit.
Scalping can be adopted as a primary or supplementary style of trading.

Primary Style
A pure scalper will make a number of trades a day, between five and 10 to hundreds. A scalper will mostly utilize one-minute charts since the time frame is small and he or she needs to see the setups as they shape up as close to real time as possible. Quote systems Nasdaq Level II, Total View and/or Times and Sales are essential tools for this type of trading. Automatic instant execution of orders is crucial to a scalper, so a direct-access broker is the preferred weapon of choice.

Supplementary Style
Traders of other time frames can use scalping as a supplementary approach in several ways. The most obvious way is to use it when the market is choppy or locked in a narrow range. When there are no trends in a longer time frame, going to a shorter time frame can reveal visible and exploitable trends, which can lead a trader to scalp.

Another way to add scalping to longer time-frame trades is through the so-called "umbrella" concept. This approach allows a trader to improve his or her cost basis and maximize a profit.

Umbrella trades are done in the following way:
A trader initiates a position for a longer time-frame trade.
While the main trade develops, a trader identifies new setups in a shorter time frame in the direction of the main trade, entering and exiting them by the principles of scalping.

Practically any trading system, based on particular setups, can be used for the purposes of scalping. In this regard, scalping can be seen as a kind of method of risk management. Basically, any trade can be turned into a scalp by taking a profit near the 1:1 risk/reward ratio. This means that the size of the profit taken equals the size of a stop dictated by the setup. If, for instance, a trader enters his or her position for a scalp trade at $20 with an initial stop at $19.90, then the risk is 10 cents; this means a 1:1 risk/reward ratio will be reached at $20.10.

Scalp trades can be executed on both long and short sides. They can be done on breakouts or in range-bound trading. Many traditional chart formations, such as a cups and handles or triangles, can be used for scalping. The same can be said about technical indicators if a trader bases decisions on them.

Three Types of Scalping
The first type of scalping is referred to as "market making," whereby a scalper tries to capitalize on the spread by simultaneously posting a bid and an offer for a specific stock. Obviously, this strategy can succeed only on mostly immobile stocks that trade big volumes without any real price changes. This kind of scalping is immensely hard to do successfully as a trader must compete with market makers for the shares on both bids and offers. Also, the profit is so small that any stock movement against the trader's position warrants a loss exceeding his or her original profit target.

The other two styles are based on a more traditional approach and require a moving stock where prices change rapidly. These two styles also require a sound strategy and method of reading the movement.

The second type of scalping is done by purchasing a large number of shares that are sold for a gain on a very small price movement. A trader of this style will enter into positions for several thousand shares and wait for a small move, which is usually measured in cents. Such an approach requires highly liquid stock to allow for entering and exiting 3,000 to 10,000 shares easily.

The third type of scalping is the closest to the traditional methods of trading. A trader enters an amount of shares on any setup or signal from his or her system, and closes the position as soon as the first exit signal is generated near the 1:1 risk/reward ratio, calculated as described earlier.

The Bottom Line
Scalping can be very profitable for traders who decide to use it as a primary strategy, or even those who use it to supplement other types of trading. Adhering to the strict exit strategy is the key to making small profits compound into large gains. The brief amount of market exposure and the frequency of small moves are key attributes that are the reasons why this strategy is popular among many types of traders.

Reference:  Vadim Graifer

Sterling buoyed by report on Irish border progress, BoE GDP forecast

LONDON (Reuters) - Sterling extended its earlier gains to move above $1.31 on Thursday after a media report that Britain and the European Union had made progress on the Irish border question, a major hurdle to agreeing a Brexit deal.

A report published by Bloomberg said that the UK had agreed to an EU request for information that could help end a dispute over the Irish border.

The EU has made a so-called “backstop” proposal to guarantee an open UK-EU land border in Ireland a condition for any divorce deal before Britain leaves the bloc on March 29, 2019.

ING analyst Viraj Patel said that if confirmed, agreement over the Irish border would “effectively wrap up the withdrawal agreement and take a no-deal Brexit off the table.”

The pound, already up after disappointing U.S. inflation data hurt the dollar, extended its gains to hit as high as $1.3124, its strongest since Aug. 2 after the Bloomberg report, analysts said.

Against the euro, sterling fell 0.1 percent against a broadly stronger single currency to 89.14 pence.

Sterling was also helped on Thursday by the Bank of England raising its forecast for third-quarter GDP growth, to 0.5 percent from 0.4 percent.

The BoE’s Monetary Policy Committee voted 9-0 to leave interest rates at 0.75 percent, a month after tightening policy for only the second time since the 2009 financial crisis.

Most economists are not predicting a further rate rise until after Britain leaves the EU in March 2019.

“The main message is that they are in wait and see mode,” Lee Hardman, an analyst at MUFG, said.

British government bond yields also rose on Thursday. The yield on the 1.625 percent 2028 gilt, the new 10-year benchmark, hit a high of 1.525 percent at 1413 GMT, shortly after the report on the Irish border talks. As of 1515 GMT it stood at 1.505 percent, up 2 basis points on the day.

The exporter-heavy FTSE 100 stock index was 0.4 percent lower in late European trading.

After plunging in August, sterling has strengthened in recent days on hopes Brussels and London can agree a Brexit trading deal.

Those gains have been tempered, however, by uncertainty over whether Prime Minister Theresa May can convince members of her Conservative Party demanding a sharper break with the EU to get behind her proposals.

Currency traders caution that investors now want to see concrete progress towards a deal rather than headlines before pushing sterling higher.

“Sterling has been pushed around by every bit of Brexit news. My sense is that ahead of the Salzburg (EU leaders’) meeting, I wouldn’t be surprised to see more positive noises from the EU,” said Dean Turner, economist at UBS Wealth Management.

“The key thing to watch is that, if we get a November (EU) summit, which is rumoured at the moment, that should be another positive signal for sterling.”

Reporting by Tommy Wilkes and Saikat Chatterjee

Asian shares rally on trade talk moves, China still cautious

SHANGHAI (Reuters) - Asian shares rose on Friday as the United States and China looked set to launch a new round of trade talks amid an escalating tariff row, while a decisive interest rate hike by Turkey’s central bank also helped support global risk appetite.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 1.2 percent, putting it on track for its best performance in more than two weeks.

Australian shares ended up 0.7 percent, Seoul's Kospi was up 1.4 percent higher and Hong Kong's Hang Seng climbed 0.9 percent.

Japan's Nikkei stock index .N225 ended 1.2 percent higher.

Shares in Europe are expected to follow Asia higher, with spreadbetters tipping London's FTSE .FTSE to open 0.2 percent higher, Frankfurt's DAX .GDAXI and Paris' CAC .FCHI 0.3 percent up each.

But Chinese shares struggled, with the benchmark Shanghai Composite index .SSEC falling less than 0.1 percent, having spent much of the day wavering between gains and losses.

Investors in China were assessing new data showing forecast-topping industrial output and retail sales data for August alongside falling real estate investment. There were underlying concerns that a cooling property market could increase risks for the economic outlook as the trade environment worsens.

China's blue-chip CSI300 index .CSI300 turned around from earlier losses to gain 0.2 percent.

“What the market wants is some degree of certainty,” said Jim McCafferty, head of Equity Research, Asia ex-Japan at Nomura.

“I think everyone knows that the trade deal might not be as optimistic as it might have been in ... June or July, and it might be negative for many Chinese companies. But the fact that there’s no certainty there is one reason that investors are staying on the sidelines.”

News of a possible new round of talks between Washington and Beijing comes even as the trade war between the world’s two largest economies looks set to escalate.

Chinese officials welcomed an invitation from Treasury Secretary Steven Mnuchin for new talks. But U.S. President Donald Trump tempered market expectations, tweeting on Thursday that the U.S. is “under no pressure to make a deal with China.”

The Trump administration is readying a final list of $200 billion in Chinese imports on which it plans to levy tariffs in the coming days, a move that many fear would mark a severe escalation in the trade war and put a significant dent in global growth.

“The news on Wednesday that US officials had invited China to restart trade talks suggests that the announcement of tariffs on $200bn of Chinese imports may be delayed. But we think the chance that fresh talks will defuse trade tensions is low,” Capital Economics analysts said in a note.

The analysts noted that Mnuchin had brokered a deal with China in May that was scuppered days later by Trump.

“As a result, he has little credibility with Chinese policymakers,” they said.

On Friday, the state-run English-language China Daily newspaper said in an editorial that China would not “surrender” to U.S. demands, and that Beijing “will not hesitate to take countermeasures against U.S. tariffs to safeguard China’s interests.”

Chinese State Councillor Wang Yi, the country’s top diplomat, also put trade into the spotlight on Friday, commenting that the current world trade system is not perfect and China supports reforms to it.

Uncertainty around the global outlook for trade was highlighted by the European Central Bank, which on Thursday kept policy unchanged as expected and warned that risks from protectionism were gaining prominence.

But a sharp interest rate hike by Turkey’s central bank to support a tumbling lira boosted risk appetite in emerging markets. In a rare show of independence, the bank raised its benchmark interest rate by 625 basis points, to 24 percent.

The bank raised the rate even after it came under criticism by Turkish President Tayyip Erdogan, who repeated his opposition to high interest rates on Thursday and said high inflation was a result of the central bank’s wrong steps.

Currency crises both in Turkey and Argentina have stoked fears of contagion over the past several weeks, hammering emerging market assets from Indonesia to India to South Africa.

After rising as high as 6.01 to the dollar, the lira was at 6.1050 on Friday.

“The Turkish Central Bank seems to have regained some credibility after hiking rates to an eye-watering 24 percent. This move looks to have reset investor expectations for the lira and let some investors breathe a sigh of relief,” said Hannah Anderson, Global Market Strategist, J.P. Morgan Asset Management.

“However, this is not enough to assuage all investor worries about EM. Individual emerging markets are being buffeted by highly local cross currents in the context of broader negative sentiment around EMs.”

The yield on benchmark 10-year Treasury notes rose to 2.9701 percent compared with its U.S. close of 2.964 percent on Thursday.

The two-year yield, sensitive to expectations of higher Fed fund rates, touched 2.7611 percent compared with a U.S. close of 2.756 percent.

The two-year yield fell Thursday after data showed U.S. consumer prices rose less than expected in August, and underlying inflation pressures also appeared to be slowing, suggesting the Federal Reserve’s pace of rate hikes could slow.

The euro EUR= was up 0.04 percent at $1.1693 after rising on Thursday on comments from ECB President Mario Draghi that focused on healthy domestic fundamentals, including rapid growth in employment and a rise in wages.

The pound GBP= also edged 0.04 percent higher to $1.3110. On Thursday, the Bank of England kept interest rates on hold and highlighted greater financial market concerns about Brexit, a month after raising borrowing costs for only the second time in more than a decade.

The dollar eased 0.07 percent against the yen to 111.84 JPY=.

U.S. crude was 0.3 percent higher at $68.79 a barrel as Hurricane Florence approached the U.S. east coast. Brent crude LCOc1 rose 0.1 percent to $78.27 per barrel.

Spot gold XAU= gained 0.35 percent to $1,205.03 per ounce.

Reporting by Andrew Galbraith

Thursday, 13 September 2018

10 Reasons You’re Not Making Money Trading

An Educational Article

If you aren’t making money trading yet, the good news is that you can easily diagnose what you’re doing wrong. The reasons traders don’t make money are fairly predictable and common. Once you have figured out why you are failing to make money in the market, then you can move on to the all-important task of correcting what you’re doing wrong so that you can hopefully start profiting.
Don’t get discouraged if you’re at a bad place in your trading right now. It takes time, effort and an ability to make mistakes, correct them and move on, in order to make money trading. Hopefully, as you improve and move on you will get better and better at trading and eventually start profiting consistently.
Here are 10 of the most likely reasons you may not be making money yet as a trader and some tips on how you can overcome them…

1) You’re over-trading
I have listed over-trading first because in my opinion it is the most common mistake made amongst traders and is the biggest reason they fail.
I have found that most people don’t even realize they are over-trading, so this problem can be difficult to diagnose at first. Over-trading can be caused by a number of different catalysts, but typically it comes about either from not knowing what your trading edge / strategy really is, not being disciplined enough to follow it, or becoming over-confident. Let’s break down each one of these problems so you can figure out which are afflicting you…

If you don’t know for sure what you’re looking for in the market, meaning you haven’t really learned a solid trading method, you are essentially going to be gambling with no real edge in the market. This causes over-trading because most people trading without a strategy are going to ‘manifest’ trade signals that aren’t actually high-probability events. Essentially, we (humans) have innate tendency to see ‘patterns’ or meaning that isn’t actually meaningful at all. Bottom line, you need to actually learn how to trade, and of course, I recommend you learn my price action method.

If you aren’t disciplined enough to follow your strategy and only trade when a trade signal is present that is in-line with that strategy, you’re going to fall victim to over-trading. So, you can see, it’s not enough to have learned a strategy, you also have to really master a trading strategy and have the discipline to stick to it like glue.

Finally, for those traders who do have a strategy and do follow it for a while with discipline, the last big hurdle to jump over is over-confidence. Over-confidence typically creeps in very quietly, like a thief in the night, ‘stealing’ your trading profits by influencing your behaviour in the market. You have to be EXTREMELY VIGILENT to make sure you aren’t jumping back in the market too soon (over-trading) simply because you have become de-sensitized to the risk in the market as a result of the positive feelings induced by a winning trade or series of winners.

2) You are not managing risk properly
This one is pretty obvious but it’s important to discuss because so many traders don’t manage risk properly. Not managing risk on every trade you take is a sure-fire way to lose money in the market.
If you need more ‘proof’ other than my opinions on this matter, check out a recent article I wrote called 28 motivational trading quotes, in that article you will find many quotes from other professional traders on the importance of risk management in trading.

To put it simply, if you don’t know your personal risk tolerance per trade, which is the amount you are personally OK with potentially losing per trade, you are never going to make money. Furthermore, even if you DO know that amount but you don’t stick to it on EVERY trade you take, you aren’t going to make money trading either.

3) You aren’t preserving trading capital for good trades
How often do you currently think about capital preservation? Do you even know everything capital preservation entails? If your answer to these questions isn’t “Often” and “Yes”, you have a serious problem on your hands.
When I talk about capital preservation, I am basically talking about patience. Having the patience to ‘sit’ on your trading money until a very obvious price action setup forms is essentially what I mean by capital preservation.

Think about the sniper metaphor for a minute. If a sniper in the military went about shooting all his ammo aimlessly, he would not be in a position to take advantage of an ideal situation where the enemy is in his crosshairs perfectly. He would be out of position likely and probably out of ammo. This is a good metaphor for trading because as a trader if you are trading all the time and wasting your ‘ammo’ / trading capital, you will not be in the right trading mind-set to properly take advantage of good trade setups when they form NOR will you have enough trading capital to reap a big reward from them.
If you aren’t preserving your trading capital, you aren’t going to make money as a trader.

4) You trade the news
If you’ve been following my blog for any length of time you probably already know my views on news trading and why I don’t trade the news. But, let me explain briefly how I think trading the news causes traders to lose money.
Let’s look at an example to make this easier…

You are considering taking a perfectly good pin bar trade on the daily chart time frame that is in-line with the daily chart trend. The only thing giving you any hesitation is that a big economic news release that is scheduled to come out tomorrow. You sit there, stewing about, trying to decide if you should take the trade or not, over-thinking, over-analysing because you’re reading everything you can about the expected impact of this news event.

 After much deliberation (and wasted time and mental energy) you decide to sit this trade out because everything you read says the market may move the opposite direction from the direction implied by the price action and technical analysis you’ve done.
Tomorrow comes, the trade is already working out as you expected before the news event is released. Then, the news comes out, BAM, the market is off to the races, screaming 150 pips in the direction you were going to trade, completely opposite to what everything you read said.

You feel like someone just punched you in the gut, you feel angry, stupid and frustrated that you didn’t take that trade because you listened to all those outside opinions.
This is just one example of how news trading and fundamental analysis negatively affects trading performance. I have learned through my experience to avoid news like the plague.

5) You read too many websites and opinions
As I mentioned in the last point, reading too many opinions from other people or websites, etc., can be very detrimental to your trading. Trust me when I say the most frustrating feeling is losing money on a trade because you decided to listen to someone else rather than yourself. Never ignore your gut feel in trading because gut feel comes from trading experience and education.

6) You’re trading with too small of an account
I find that most beginning traders start trading live with too little money. It’s extremely hard to even have a chance at profiting if you are trading with a very small trading account. Anything under $500 is really pointless in my opinion because you will have to risk so little per trade that you won’t really be properly vested in your trading and even if you do hit a winner you won’t make that much to positively reinforce good trading habits.

You don’t want to be that guy who funds his account with $100 every time he blows it out. Be patient, save your money until you have at least $500 to $1,000 or more to fund your account with. In the meantime, learn how to trade properly and demo trade.

7) You aren’t placing stop losses properly
A big, big reason why so many traders lose money is because they don’t understand proper stop loss placement. They are placing stops based on greed rather than on what’s best for the trade. Read that last sentence again.
If you don’t know the difference between a stop placed from greed and one placed from logic and the best thing for the trade, then listen up…
If you say to yourself, “I want to trade 5 lots because that will allow me to make $5,000 on this trade, so I need to use a 50 pips stop loss”, you are placing your stop based on GREED and you probably will lose $2,500 rather than making $5,000.

Placing your stop loss based on logic so that you give the trade the best chance to work out, goes something like this: “I will place my stop loss below this nearby key support level even though its slightly beyond the low of the pin bar I am trading, because that will give the trade the best chance of working out in my favour without prematurely stopping me out”. Now, this line of thinking might mean you have to reduce your position size from 5 lots to 2 or 3, but you have to decide what’s better, making some money although perhaps less than you want and WINNING or losing as you would in the first scenario?

Let’s not forget, placing your stop properly as in the second scenario above, will work to reinforce proper trading habits through positive reinforcement. This builds long-term sustainable trading success.

8) You aren’t disciplined enough
This point is fairly self-explanatory and I did touch on it already. But, to stress its importance let’s cover it briefly.
Basically, how can you possibly expect to make money trading if you are an undisciplined trader who cannot follow a trading strategy or trading plan? You need to be disciplined in following your trading strategy and also in sticking to proper risk management as discussed above. If you don’t do both of those things, you will never make money trading.

9) You aren’t patient enough
I like to think of patience as the best way to understand what it means to be a disciplined trader. We are told from when we are kids we need patience and taught all the value being patient brings us. No doubt from an objective standpoint we all understand patience. Then why as adults trading the markets is it so hard for us to be patient?

Well, the answer is simple as you probably already know; we want to make money, fast. But, unfortunately, the market doesn’t give a crap what you or I want, it’s going to do what it wants regardless of your trades. So, we have to have the PATIENCE to only trade the market when it’s giving us the low hanging fruit trades that are ripe for the picking, and it takes a lot of patience to wait for them.

10) You don’t know what you’re doing
Finally, and perhaps most obviously, how can you expect to make money trading if you don’t have any clue or just aren’t sure of what you’re doing in the market? Do you know what your trading approach is for sure? Are you totally confident in it and in your ability to trade it and its effectiveness? If you aren’t sure of these things, you are never going to make money trading.
The best way to be sure you know what you’re doing in the market is by learning how to trade properly. This is where I come in and where I can help you.

By taking my advanced price action trading course you will not only learn how to trade properly, but I will help you avoid making the above trading mistake.

Reference: Nial Fuller