Blog

Not the start to the week that traders were hoping for. After Friday’s brief rally, Asian stocks took another tumble on Monday with indexes in all major countries, including Hong Kong, Taiwan, and Australia off by more than 1% triggered by financial and tech selloffs. Japan’s Nikkei also fell more than 1% following one of its worst weeks of the year.

Financial Sector Hit Hard

After upbeat Q3 earnings reports from US banks like JPMorgan and Citibank, financial stock was among the worst hit this Monday morning across Asia. Mitsubishi UFJ saw a decline of 1.98%, and Mizuho Financial was also down by 1.60%

Japan’s Softbank stock was hit hardest and down more than 5% this Monday. Fears of the bank’s close investment ties to the Saudi government surrounding global outrage over a journalist’s disappearance are thought to have triggered the plunge.

Hong Kong Suffering Tech Selloffs

Hong Kong stocks also took a drop following Friday’s bounce, with the Hang Seng HSI, off by about 1%, with tech selloffs leading the downward spiral. Among the biggest losers, there was social media giant Tencent, dipping by 2.5%, and AAC Tech, a smartphone component maker, falling by more than 4%.

In China, the markets were mixed. The Shanghai Composite was down 0.3% but the Shenzhen Composite was up 0.4%. Tech stocks also weighed heavily on Taiwan’s Taiex, pulling it down by 1.44%, and South Korea’s Kospi down 0.3%, led by tech heavyweights like Samsung taking a hit.

Australian Markets Also Down

Australian stock markets also saw a similar spiral down by over 1% with the financial sector leading the trend. The Commonwealth Bank of Australia, Australia and New Zealand Banking Group ANZ, and Westpac Banking were all down over 1% at the time of writing. Last week was New Zealand’s worst in eight and a half years according to Market Watch.

After an unexpected bearish start to the week’s trading in Asia, the question now is how will Europe and Wall Street open this Monday morning?

Images from Shutterstock.

Yields of Italian Bonds Climb to Multi-Year Highs – Stocks Are Under Pressure

Matteo Salvini is not known for his restraint. On Monday, the Italian Deputy Prime Minister called for a verbal sweep of European Union Commission President Jean-Claude Juncker and Economic Commissioner Pierre Moscovici.

“The enemies of Europe are those sealed in the bunker of Brussels.”

These were his words at a press conference that Salvini held together with the head of the French right-wing populist, Marine Le Pen. The governing coalition in Rome, populist five-star movement and right-wing, is currently in the midst of Brussels’ budget policy for 2019.

The EU complains that the structural deficit, which excludes one-time effects and cyclical fluctuations, is increasing by 0.8% of annual economic output. However, the Commission has called for a 0.6% reduction in this deficit.

It is this disagreement that immediately led to negative effects on the financial markets last Monday. Yields on 10-year Italian bonds climbed to a four-and-a-half-year high.

“We are a bit surprised by the strength of the reaction in bond markets, but it appears the market is jumping to the conclusion that the European Commission will take a hard-line stance when Italy submits its budget.”

Said Antoine Bouvet of the investment bank Mizuho.

Higher refinancing costs can also hit Italian banks hard. According to calculations, the core capital of the institutions has already declined in the second quarter.

Italian banks traditionally hold the promissory notes of their country. If the prices of the securities fall, this will affect the capital calculations of the banks. On the stock market, the prices of some institutions declined. This also weighed on the lead index: It’s about to fall into a bear market.

Authorities Monitor Liquidity of Italian Banks

Given the turbulence of the past few days on the financial markets, there was a more intense observation of the Italian banks, it was reported on Tuesday. The audits cover both customer deposits and the interbank market. There is no reason to be alarmed.

European Banking Supervisors Taking Banks’ Liquidity Under Scrutiny

The budget dispute between Italy and the European Commission pushed the yield on the Italian 10-year bond to 3.72%, the highest level since February 2014. Italian banks are vulnerable here as they hold €375 billion of domestic bonds worth about ten% of their assets.

Depreciation on the value of bonds could tie up much of the banks’ equity, which is then no longer available for loans. According to CNBC, one of the Italian crisis banks, Banca Carige, met representatives of the European Central Bank on Wednesday.

The government in Rome wants to increase new debt in the coming year to 2.4% of the gross domestic product. This is three times as much as planned by the previous government.

The EU Commission has raised concerns and investors are also worried. Italy’s European Affairs Minister Paolo Savona said that if the pressure of the markets becomes too strong, there may be changes to the draft budget.

Chart of Italy Stock Market (FTSE MIB) 
Chart of Italy 10-Year Bond Yield Overview

After one of the worst weeks of the year for traders and tech billionaires alike, signs of a possible recovery were already showing last Friday. But, what’s in store for the week ahead? With several important developments on the horizon, here’s a market roundup of what you need to know before heading into next week.

Market Roundup for the Coming Week

Italian Budget Deficit

The deadline for EU countries to submit their draft budgets to the European Commission for the coming year is Monday, October 15. All eyes will be on Italy as the Mediterranean country is expected to present a plan for a 1.7% GDP structural deficit for the next three years. This won’t go down well with the Commission and could put significant pressure on the euro.

Brexit

Ever since the British public was given a voice, politicians and individuals alike wished they’d shut back up. Brexit negotiations so far have been like watching a slow-motion train crash with UK Prime Minister Theresa May leaping from one cringeworthy catastrophy to another.

Next week is a big one on the Brexit timeline with investors nervously viewing a trembling pound on Tuesday as the EU’s chief Brexit negotiator heads to Luxembourg for the latest round of damning criticism.

If this date sounds familiar, it’s because October 16 was the original deadline to sign off on the UK’s exit deal.

But since there is no deal so far agreed, that timeline had been kicked down the road for later this year. However, the UK pound is likely to react to Tuesday’s outcome, even if the talks are not definitive.

US Federal Reserve

After a largely unpopular move to hike interest rates that saw the stock markets around the world take a tumble, the minutes of the Fed’s meeting last month are available on Wednesday.

In spite of widespread criticism most notably from President Donald Trump, the emphasis will likely be on the plan to raise rates gradually over the coming year as opposed to the “out of control” rises accused of.

Investors also await news about the health of the housing market, consumer markets, and industrial production. Despite astronomical losses from many US retailers including Sears, retail sales rose by 0.6% in September, along with purchases triggered by Hurricane Florence.

China

With the trade dispute between Washington and Beijing, investors will be awaiting China’s third-quarter reports nervously. Asian stocks also took a tumble last week and the figures released are expected to indicate a cool-off in growth, down slightly from the second quarter.

US Business

JPMorgan led the way with solid third-quarter earnings, followed up by Wells Fargo, and Citigroup. However, as earnings season kicks off in earnest, 54 US companies on the S&P 500 will announce their third-quarter earnings next week, including Morgan Stanley, American Express, and Johnson & Johnson.

With plenty to look out for in the week ahead, one thing is for certain: Traders and shareholders everywhere will be hoping for a better seven days than the ones coming to a close.

Images from Shutterstock.

Do you want to be a trader? Do you fancy learning how to trade in stocks or bond? If yes, then you have a lot to learn. But first, you’ll need to get acquainted with the terminologies of the trading world.

Trading requires consistent buying and selling of stock, commodities, currency pairs, etc., This is with the aim of accruing or generating profits. Also, a trader is responsible for connecting buyers and sellers so that assets can be exchanged. This is where the trader gets paid for playing the middleman role.

Want to Be a Trader? You’ll Need to Know This

Trading Terms

While you may aspire to be successful as a trader, it’s also important you get acquainted with the world of investing. Gain a clear understanding of a huge number of trading terms. Just like every other industry or field, trading also has its own lexicon.

From beginners to experienced traders, knowing these words is one the salient rules if you want to be a trader. Having a full vocab in trading can keep you grounded in the industry, and give a sense of knowing what it is you are doing.

Here are some of the words to keep in mind so that when you come across them, they won’t seem like jargon.

Acquisition

Acquisition occurs when the shares of a company are purchased by another company, be it in part or in full, for the purpose of controlling the target company. An acquisition is said to take place when a company acquires more than 50% ownership in a target company. In order to consolidate the acquisition process, the acquiring company often purchases the stocks and assets of the target company.

When this is done, the acquiring company has the power to make and take decisions on the newly acquired assets without seeking approval from the shareholders of the target company. A good example is the acquisition of AT&T by Comcast.

There is a number of reasons why companies perform an acquisition. These range from achieving economies of scale, increased synergy, to ramping up market share, new niche offerings, or cost reductions.

Companies seeking expansion to other countries may also consider it imperative to purchase an existing company operating in their country of interest. It’s a viable way of gaining access into a foreign market.

The purchased enterprise is already an established entity with its own personnel, brand name, and other intangible assets which gives the acquiring company a strong foothold to kick-start operation.

Arbitrage

Arbitrage is the simultaneous purchase and sale of an asset in order to cash in on the difference in price. It is a trade that thrives on exploiting the price differences of identical or similar financial instruments on different market platforms or in different forms.

Arbitrage thrives as a result of market inefficiencies. A situation where all markets were perfectly efficient would erase the occurrence of arbitrage. It’s considered a risk-free profit for the trader since the security purchased is sold at a higher price.

It also provides a mechanism that ensures the deviation of prices from the fair value is relatively minimal for long time frames.

Bear Market and Bull Market

A bear market is one in which the sector is rising or is expected to rise. While it’s difficult to predict when exactly a bull market will occur, it is often a result of investor confidence in an asset or market.

This is because “bulls” are currently in control and are making aggressive moves in the market. Conversely, if the market is on a downward trend, it is called a “bear market” because prices are dipping and investors are selling off their shares.

CPI

CPI is an acronym for Consumer Price Index. It’s an average of several consumer goods and services that are used to indicate inflation. Movements in CPI are usually projected in percentages–positive movements will indicate inflation, while a movement that negates positive movement means deflation. Central banks make CPI announcements on a regular basis. If you want to be a trader, you’ll need to stay on top of CPI.

ECB

This refers to the European Central Bank, the central bank for the eurozone. The ECB is responsible for setting monetary policies which are highly relevant to traders, as ECB has a significant impact on the value of the euro and European companies.

Also, the ECB’s remit extends to countries that use euro as their currency.

Fibonacci Retracement

A Fibonacci Retracement is an essential technical analysis tool, used to gather insight into when to place and close trades or place stops and limits. Fibonacci retracements mostly depend on the mathematical principle of the golden ratio.

Drawing of six lines across an asset’s price chart: one at its highest point (known as 100%), one at its lowest point (0%), one at its midpoint (50%), and then three at 61.8%, 38.2%, and 23.6% are used to calculate Fibonacci retracement levels.

Gamma

Derived from Delta—which is responsible for measuring the impact of a change in the price of an underlying asset— it is seen as the movement of a delta regarding the cost of the underlying asset.

Hawks and Doves

These terms are used by analysts and traders to categorize members of Central Bank committees by their probable voting direction ahead of monetary policy meetings. Hawks are members who vote for rigid monetary policy at the expense of economic growth.

This translates to a higher interest which could discourage borrowing and encourage saving. Doves, on the other hand, are members who vote for a more flexible monetary policy that keeps interest rates low. This is, in turn, can boost economic growth, increase spending, and increase employment.

This is just a brief introduction to the words you’ll need to know if you want to be a trader. We hope you’ll find these definitions useful and don’t forget to keep yourself abreast of more trading terminologies to make you understand how the trading system works.

Images from Shutterstock.