The Reserve Bank of New Zealand (RBNZ), showing concern about inflation, made another 50bsp hike during May taking its Official Cash Rate to 2.0%. The hawkish tone and actions of the RBNZ paired with fears the US economy could tip into a recession by the end of the year have helped the NZD regain some composure over the past couple of weeks.
The NZDUSD made a significant bounce at around 0.62000 after its descent during the first few weeks of the month. Now, the NZD is showing some sign of weakness as it again attempts to breach the 0.63100 resistance level.
During last week, we saw mixed data for the Kiwi dollar. The Business NZ Services Index showed a significant increase of 55.2 versus the previous data of 52.2, which indicates a stronger expansion in the services area. But on the other hand, Westpac Consumer Sentiment recorded the lowest reading ever of 78.7 since the survey began in 1988 which shows pessimism towards economic growth and low consumer confidence.
On the daily chart, the Williams Alligator Indicator is showing a strong downtrend signal as the price stays below the green 5-period moving average (alligator’s lips). While the the red 8-period moving average (alligator’s teeth) and the blue 13-period moving average (alligator’s jaw) are separated by a large distance giving us another strong bearish trend signal.
However, a staunch support level might appear at the 0.62100 area. Given the fundamental analysis and a strong downtrend signal from the alligator indicator, a possible break out to the downside below the strong support zone may push the pair to the 0.60000 psychological price area.
Wall Street has officially fallen into a bear market as investor sentiment is hammered by soaring inflation, rising interest rates and worries about a looming recession in the world’s largest economy.
A bear market occurs when a stock index like the S&P 500 falls by 20% over a sustained period from a recent high. Conversely, a bull market happens when stocks rise 20% from a recent low.
On June 13, the S&P closed in bear market territory for the first time since March 2020, as it slipped 3.9% to 3,749.63, its lowest since March 2020, and the second bear market of the pandemic era. The S&P sank deeper on Thursday, June 16, to close at a new low since December 2020.
The last time that US stocks entered a bear market was in March 2020 at a time when many nations implemented lockdowns to prevent the spread of COVID-19 cases. That period marked the first time in 11 years that the Dow Jones Industrial Average entered a bear market, with the S&P 500 and the Nasdaq following suit.
Stocks shed a third of their value in 33 days at the time, according to data compiled by Ed Yardeni, an economist who tracks stock swings. It took six months for the S&P to recover, helped by government stimulus and policy actions by the Federal Reserve, according to The New York Times.
During bear markets, investors — of stocks, cryptocurrencies, and 401k plans — become more anxious and make the common mistake of liquidating their assets over fears that a rebound would be unlikely.
While fear of losses are understandable, investors should know that bear markets, crashes and corrections are inevitable and are all a feature of financial markets and not a bug in the system.
There have been 14 bear markets since the World War II, including the current one, and recoveries take 23 months on average, The Washington Post reported last week, citing Sam Stovall, chief investment strategist at CFRA.
"These things have to happen every once and a while for the system to function properly and wash out the excesses,” fund manager Ben Carlson said in his book called A Wealth of Common Sense. Carlson said investors have to mentally prepare themselves for dealing with losses.
Long-term investors, such as those who ought to keep their investments for retirement purposes, may take advantage of the current bear market to buy the dip as stocks tend to offer strong returns in the long run.
Morgan Stanley last month released a list of some high-quality stocks to buy to weather the bear market.
The list includes Abbott Laboratories (NYSE:ABT), The Coca-Cola Co. (NYSE:KO), Linde plc (NYSE:LIN), Becton, Dickinson and Company (NYSE:BDX), Johnson Controls International plc (NYSE:JCI), Anthem Inc. (NYSE:ANTM), The Procter & Gamble Company (NYSE:PG), Comcast Corp. (NASDAQ:CMCSA), Exxon Mobil Corp. (NYSE:XOM), and Mastercard Inc. (NYSE:MA).
The bank kept an Overweight rating on all these stocks.
However, dip buyers should not fall victim to temporary bear market rallies. Rallies in the middle of bear markets are common.
Divesting stocks during a bear market is also common as it helps investors stem further losses, although the move could prevent them from recouping losses and cashing in on future gains.
Chad Langager, co-founder of Second Summit Ventures, suggests diversifying portfolios between a variety of asset classes, not just the stock market.
Nearly 70% of academic economists recently surveyed by the Financial Times in partnership with the Initiative on Global Markets at the University of Chicago’s Booth School of Business expect the US economy to fall into a recession in 2023.
Of those that expect the next US recession to begin next year, most predict the downturn to start in the first and second quarters.
In the first quarter of this year, the US economy shrank 1.5% year over year, the first drop in GDP since the second quarter of 2020 at the height of the lockdowns. And while many economists expect a recovery in the current quarter, uncertainties continue to cloud their outlook due to geopolitical issues and supply chain bottlenecks that can be partly attributed to the lockdowns in China.
While the US unemployment rate in May was steady for the third straight month at 3.6% and non-farm payrolls rose by 390,000 last month, some Fed officials fear that their efforts to counter inflation by raising interest rates may lead to higher unemployment, The Wall Street Journal reported last week.
“We definitely could see unemployment moving up somewhat, but not in a huge way,” New York Fed President John Williams told reporters over a month ago. About a week later, Powell told WSJ in an interview that achieving a “soft landing” does not mean that the unemployment rate needs to remain at 3.6%, "which is a very, very low rate.”
Former New York Fed chief Bill Dudley in early May said it is “very, very unlikely” that the Fed can tame inflation without sparking recession as the central bank still needs to push the unemployment rate.
Getting unemployment to just 4.25% would be a "masterful performance by the central bank,” Fed governor Christopher Waller said in a speech less than a month ago.
While many experts believe the probability of a recession is increasing, some are still hopeful that the Fed can achieve its inflation targets without a recession, citing the continued strength of the labor market and more than $2 trillion in excess cash on household balance sheets, according to Bloomberg.
Moody’s Analytics chief economist Mark Zandi is optimistic that the Fed can pull it off.
“I still think we’re going to navigate through without a recession. But obviously it’s going to be very, very tight because risks are very high,” Bloomberg quoted Zandi as saying.
Former Fed official and Deutsche Bank economist Peter Hooper was among the early ones to predict a recession, although he says he can still see some scenarios for avoiding one, while Goldman Sachs Chairman Lloyd Blankfein, in a tweet earlier this month, said riskier times are ahead, but the economy “may land softly.”
"Dial back a bit the negativity on the economic outlook. If I’m managing a big company of course I’m prepping for the worst. But the economy is starting from a strong place, with more jobs than takers, and is adjusting to higher rates,” Blankfein said.
The US is set to release its advanced estimate for second-quarter GDP next month, which would provide more hints into whether or not the world’s largest economy is set to log its first economic downturn since the Great Recession between 2007 and 2009, which was the longest downturn since the Great Depression of the 1930s.
This year has been no joke for the US stock market.
Of the 24 weekly candles that make up this year's chart on the S&P 500 (SPX), only 7 have finished bullish. The Dow jones Industrial Average (US30) and the Nasdaq Composite (NAS100), the US’s 2 other major indices, have followed similarly in 2022. We have not seen drastic falls like this in quite some time. Even with the sharp decline experienced during the beginning stages of the pandemic in 2020, it did not last as long as its current state of decline.
The US Federal Reserve raised its benchmark interest rates by 75-basis points last week, their largest single hike since 1994. That action by the Fed helped push stocks down further. But not before one session of growth, on the day of the announcement, which was attributed to investor confidence that the Fed is taking inflation more seriously and is willing to implement drastic measures to settle the economy.
Looking at Nasdaq and the SPX weekly charts these are a couple of things that stick out. One thing is the drop both indices made during the spring of 2020 when the pandemic hit the market. While the S&P 500 made a lower low, the NAS100 did not. Here the Nasdaq was tipping its hat to the strength it would show over the next year as its percentage gains outperformed the SPX.
But as the saying goes, the bigger they are the harder they fall, and we now have the NAS100 down 30% year-to-date, while the SPX is down 23%. But does the MACD indicator suggest that these indices might pull up even with one another in the future?
The Moving Average Convergence Divergence (MACD) is one of the most popular indicators used by stock traders.
The histogram portion of the MACD is an indicator for momentum by visualising the divergence of a short-term and a long-term moving average. In the MACD applied to the charts below, we can see the red histogram bars possibly shrinking in comparison to the last push down in the NAS100. As prices are still falling heavily, this may indicate that momentum is slowing. For the SPX, the red histogram bars are effectively flat, if not growing slightly. The question that springs to mind here is whether the SPX downward momentum is about to outpace the NAS100?
The Sterling has appreciated almost 8.5% against the Japanese yen since May 12, and the steep climb may have begun to look overdone as the price retraces back for the past days.
The Bank of England (BOE) hiked its benchmark interest rate by 25-basis points during its policy meeting on Thursday to balance the risk of high inflation, but the concern that the UK economy may face a considerable risk of stagflation particularly as consumer confidence falls to record lows remains. UK GDP for April also posted a surprise contraction of 0.3% marking its second consecutive month of negative growth. Political uncertainty and the dovish tone seen in their previous meeting with all these factors may have a negative impact on the GBP.
The Bank of Japan (BOJ) is up next with its policy meeting to take place in the lead into Friday. Japan’s finance minister Shunichi Suzuki said this Tuesday that they are monitoring the forex market with a greater sense of urgency and is poised to act if necessary. The BOJ’s shares concerns with the government over JPY’s rapid depreciation and potentially judging JPY weakness as no longer positive for Japan’s economy.
Looking at the current price action on the daily chart, we can see that a double top pattern with a bearish RSI divergence hitting the upper trend line resistance of the WM channel gives us a signal of a bearish pullback and is now currently sitting at the middle trend line which acts as a minor support. A sustained break at this point could mean the pair potentially target a lower trend line area of the WM channel at around 156.50 area.
Looking at the bigger picture, we can see that the current trend is still slightly bullish even in a case of deep pullback towards 156.50 area, and a long-term bullish signal will be if the pair bounces back to WM channel support zone.
Apple Inc. (NASDAQ:AAPL) is planning to offer buy now, pay later (BNPL) services in the US despite concerns of a potential market squeeze as more providers have a crack at the sector amid growing consumer borrowing and spending.
Apple intends to launch its BNPL offering later in 2022 through its Apple Pay mobile payment and digital wallet service. To be called Apple Pay Later, the offering will have the tech giant underwrite loans and provide funds for users, as well as absorb any losses that may be incurred whenever borrowers miss their repayment obligations.
Apple's BNPL comes at a time when the shares of fintech companies providing similar services have underperformed due to various concerns with the payment scheme. Some names that have underperformed S&P 500 financials recently are Affirm Holdings (NASDAQ:AFRM), Australia’s Zip Co. (ASX:ZIP), PayPal (NASDAQ:PYPL) and Block Inc. (NYSE:SQ), which acquired Afterpay.
These names are making up a shrinking portion of the BNPL playing field, as more players enter the game, there are also concerns about further market share and pricing squeezes. Furthermore, there are other unique risks associated with the service — credit-linked fears that have never been tested during a downturn.
Amid all concerns, Apple obtained lending licenses through a subsidiary in most states across the country, giving it the go-ahead to offer Apple Pay Later.
Around this time in 2021, 14 companies have already launched BNPL services in the US. The country was leading the world in terms of BNPL providers, followed by Europe. The appeal of the service has also infiltrated other markets, with growth observed in Australia, New Zealand, India and other parts of Asia.
The sector is exhibiting no signs of slowing down despite all the risks associated with it.
With plenty of established players already in the game, however, there seems to be limited space for fresh entrants — even when it is a big name like Apple.
In the US, most of the market is divided between Klarna, Afterpay and Affirm, leaving other players to compete over around a quarter of the market. These three, plus PayPal, generated combined revenue of more than $3.2 billion in 2021.
"The market for BNPL is maturing, and unless a new player has a differentiated approach and can offer additional services to both consumers and merchants, it will be tough for new entrants," said Melissa Guzy, co-founder and managing partner at fintech-focused venture capital firm Arbor Ventures.
The good thing for Apple is that it is not entirely new in the game. In 2021, it had a partnership with market leader Affirm. The partnership, which launched in Canada, allowed users of Affirm's PayBright to purchase Apple devices over a 12- or 24-month period.
"What is clear today is that a new entrant will need a significant amount of capital from the start for marketing and winning a position on the checkout page," Guzy noted.
Some other relatively new players in the BNPL playing field are financial heavyweight Mastercard and card network Visa. Within existing players, there was also a spate of consolidations including PayPal's $2.7 billion purchase of Japan-based BNPL platform Paidy and the former Square Inc.'s $29 billion acquisition of Afterpay.
With all the attention on the BNPL sector, one is left to wonder how traditional lenders play into this evolution of payment services. Well, they are not to be left behind, with many launching their own BNPL services especially as along with the growth of the sector is the shrinking of credit card volumes.
Banks are keen to tap into the market and with mobile apps already in place, they are eager to capitalize on the client base they already have. And why wouldn't they, right? According to Insider Intelligence, the BNPL offering will account for $680 billion of transaction volume worldwide by 2025.
While participation in the sector is quickly becoming a necessity for lenders that are in danger of losing customers to these alternative forms of financing, it is still best that they go about it in smart and strategic ways.
Some lenders, such as Australia's Westpac Banking Corp. (ASX:WBC) teamed up with existing BNPL service providers to get a feel of the sector. Meanwhile, others are coming up with differentiated offers they believe will appeal to customers such as the Royal Bank of Canada and its PayPlan offering in partnership with digital payments company Bread. In the US, Barclays partnered with Amount to offer merchants point of sale (POS) financing under the merchant's own brand.
Regardless of how they choose to do so, banks will certainly not miss out on the chance of riding the growing popularity of BNPL. They could not ignore the continuous growth of this payment scheme and rather than resist it, the best play for traditional lenders is to find new avenues where they can stamp their brand and continue to evolve with ever-changing technologies and customer behaviors.
In what could be the biggest shake-up of US equity market rules, the US Securities and Exchange Commission (SEC) is considering a total ban on the payment for order flow (PFOF) practice, which has been growing in recent years to the detriment of small firms and other mom-and-pop investors.
Payment for order flow, which is when market makers pay brokers to execute their clients’ orders, is already banned in Canada, the UK, and Australia.
A formal proposal will likely be filed this fall. SEC Chair Gary Gensler said the ban is not off the table, noting that PFOF exists with "inherent conflicts."
In December 2020, PFOF also put Robinhood Markets in a tight spot after it was ordered to pay a fine when the practice raised costs for investors using the online brokerage.
Also part of the potential changes, the SEC intends to make it mandatory for market makers to disclose more information regarding the fees that these firms earn and the timing of trades.
In considering the changes, Gensler said he "asked staff to take a holistic, cross-market view of how we could update our rules and drive greater efficiencies in our equity markets, particularly for retail investors."
Fundamentally, the potential changes would change the business model of wholesalers and impact brokers' ability to offer commission-free trading to retail investors.
PFOF was put on the spotlight in 2021 when a group of retail investors went on a buying spree of "meme stocks" like GameStop (NYSE:GME) and AMC Entertainment Holdings (NYSE:AMC), squeezing hedge funds that had shorted the shares.
Recognizing the dangers of these “meme stocks,” the regulator recently released a 30-second game show-themed public service campaign against investing in these assets amid their growing popularity, particularly among retail investors.
The video ad titled "Meme Stocks" is part of the commission's series of public service videos called "Investomania" and is aimed at helping investors "make informed investment decisions and avoid fraud." The series previously warned against the dangers of investing in crypto assets, margin calls, and guaranteed returns.
Despite the good intention of the campaign, it sparked an outcry from Redditors, particularly members of the wildly popular subreddit WallStreetBets where users discuss the next stock to pump up.
One user said the SEC did not offer warnings before the 2008 crash, the dot com bubble, and the 1980s recession, "so why warn about meme stocks?"
The release of the SEC’s campaign against meme stocks came a year after the commission said it is observing markets for signs of any disruptions, "manipulative trading, or other misconduct" following a meme stock rally at the time.
In another exercise of the SEC's regulatory powers, the watchdog was reported as also looking into potential violations that might have resulted in the collapse in May of the TerraUSD stable coin.
Bloomberg News, citing a person familiar with the matter, reported on June 10 that the regulator's enforcement attorneys are investigating whether Terraform Labs, the firm behind the coin also known as UST, breached federal investor-protection rules in how it marketed the coin, which was supposed to keep a 1-to-1 peg to the US dollar through an algorithm and trading in a related token called Luna.
Unlike other stablecoins, UST relied on an algorithm, not a central issuer, to maintain its peg.
If a probe is indeed pursued, this will not be the first time Terraform Labs will be summoned by the regulator. The SEC has ordered the company's CEO, Do Kwon, to turn over documents and provide testimonies regarding the Mirror Protocol, which is a non-custodial trading platform used for trading Mirrored assets, or mAssets, that are meant to be synthetic versions of stocks like Tesla and Apple.
Kwon filed an appeal against the subpoena but was overruled on June 8 by a US District Court of Appeals.
The USDCHF can be relatively slow-moving compared to other major forex pairs. However, we have seen some significant moves since March this year. In fact, the most recent April monthly candle was the largest bodied candle in almost seven years. Albeit April’s candle moved in the USD’s favour rather than the francs. In April, The USDCHF opened at 0.922 and closed at 0.973.
As of writing, the USD is again approaching parity with the Swiss franc, trading at 0.998. Last month, the pair was rejected at 1.001 and closed lower on the month (0.959). This movement occurred after inflation in Switzerland rose faster than expected and landed further outside the Swiss Central Bank’s (SNB) target of 0-2% per annum. With inflation in Switzerland at a 14-year high of 2.9%, the Swiss Central Bank’s rhetoric concerning interest rate hikes has ramped up. But, Switzerland still has the lowest interest rate in the world (-0.75%), and the SNB’s rhetoric has been mild and equivocal, especially compared to the US Federal Reserve. Thus the USDCHF has forced its way into parity territory in June.
A monthly time-frame analysis indicates that the pair may be able to sustain a push through this zone of resistance at parity for June and beyond.
The Coppock Curve indicator, found on the graph above, helps gauge long-term trends. When we see the Coppock Curve move above zero, it is to be interpreted as a continuing uptrend. It is not typically used on the smaller time frames because it doesn’t show accurate divergence signals.
The Coppock Curve is just below 10 on the monthly time frame, which is the highest it has been since January 2015. After which, the curve plummeted. Those familiar with forex history may know of the SMB’s decision that day. After that event, the Coppock Curve still indicated rising prices with this pair, which ultimately came true for almost the next two years.
The Japanese yen's weakness is obvious across all its pairs, including against the Canadian dollar. The CADJPY has displayed a strong bullish uptrend after its breakout above the 92 price level, on a monthly time frame, and is now facing a historical resistance in which to overcome.
Looking at the CADJPY on the chart below, we can see that the price is currently at the supply area based on the Supply and Demand indicator and has a strong resistance at 103.381. Historically, the price has rejected at that price level and moved back lower to the decade-long demand zone at around 74.580.
Traders are on the lookout right now at this strong monthly supply zone as this could be a good opportunity to take an upside position for a breakout or take a sell to the downside if it rejects at the supply zone.
If an upside break does occur, will the CADJPY continue all the way to the next supply zone starting at 115.530? The possibility of this might be dependent on the fundamental factors, including whether Japanese authorities intervene in the currency market.
The Bank of Japan has vowed to maintain its ultra accommodative policy, in stark contrast to the actions taken by other major central banks. As a result of bank’s inaction, it will be up to the Ministry of Finance to intervene in the currency market if the JPY continues its rapid depreciation.
The Singapore dollar has shown great strength for the past 12 months against the Great British pound, underpinned by the Singaporean economy growing 7.6% and expectations for it to continue growing the rest of this year. Adding to the strength of the Singapore dollar in recent weeks is China starting to lift its strict lockdowns, as China is Singapore’s third largest trading partner.
Looking at the weekly chart of the GBPSGD, we can easily see the strength of Singapore weighing this pair down. The GBPSGD has recently taken out the low from June 2020 and is possibly targeting the March 2020 next.
With an Aroon indicator on the chart of GBPSGD, we can look at the portions highlighted within the two circles and their corresponding trends in the chart above. The Aroon indicator is typically used for spotting trends and the strength of trends by following the movement of an orange ‘Up’ line and a Blue ‘Down’ line.
Within the first circle, the rising Up and Down lines suggest a weak trend for the corresponding chart. As such, the uptrend quickly petered out and entered a period of consolidation and a quicker reversal.
Within the second circle, we can see the Down line cross below the Up before reversing its trajectory. This movement in the Aroon indicator corresponds with the attempted bullish push in the GBPSGD. Once the Aroon lines reversed, The bullish push disappeared, and a strong bearishness entered the GBPSGD, and did so until the start of May. Currently, we can see that the two Aroon lines are separated by quite some distance. It may be worth keeping track of the Aroon lines to determine how close the GBPSGD wants to move toward that March 2020 low, if its downward trend holds.