In past weeks we have experienced somewhat positive signals from the macroeconomic data released in the US.
There has been some pleasant surprises that have helped support the optimistic sentiment currently prevailing in the stock markets, such as the better-than-expected readings from the US trade deficit, suggesting that the recent improvement in the trade gap has had a positive effect on growth in the gross domestic product.
In addition, Americans' spending kept growing at a healthy pace in March and February, and the latest government data on retail sales showed consumers are still confident about the economy.
In the weeks to come, investors will be looking for guidance in the coming corporate earnings of the US. Already last week some of the Blue Chips, or large capitalization stocks, announced their first quarter earnings results for 2007.
Upbeat earnings
Luckily the earnings were upbeat and the majority of investors felt comfortable buying into the equity markets. The overall earnings reporting period is expected to be pretty weak.
The earnings growth from big US companies for the first quarter is currently forecasted to be lower than other quarters in the past.
Many analysts predict that markets will be benefited regardless, since companies will not have a difficult time impressing investors as the expectations of earnings are so low anyway.
The most bullish investors believe that there is plenty of cash in the sidelines that will be invested in the markets during the next week of earnings season, unless there is really much lower corporate earnings than forecasted.
Other less optimistic economists believe the market will be highly volatile during the earning season and will move sideways, guiding itself solely on results from individual earnings reports.
The BUX, index of the Budapest Stock Exchange (BSE), hit its 12-month this week as it reached beyond 25,100 points on Monday.
The BSE continues to be positively favored by the optimism currently prevailing in the global equity markets, as the US recuperates from its equity looses of February and March, and investors continue pouring cash into emerging markets such as BSE. The big winners for last week in the BSE were MOL, the oil and gas refinery, and OTP, the largest Hungarian bank.
Oil stock MOL gained more than 5% last week. Monday it went through the psychological level of Ft23,000, which is an important resistance level.
OTP Bank gained close to 4%. The Hungarian bank stock reached the psychological level of Ft9,000.
When the stocks reach psychological levels or resistance levels many prearranged stop sell orders are triggered. Investors use a "sell stop" hoping to gain momentum if the price reaches a particular price.
If it exceeds the level indicated (Ft9,000 for OTP or Ft23,000 for MOL), it will automatically trigger a market order and will be executed at the best price immediately obtainable. When so many "stop sell orders" are triggered it pushes the price of the stock lower on heavier temporary selling pressure. That is the reason that stocks have a difficult time overcoming the resistance or psychological levels. I expect optimism to continue to prevail in the global equity markets as investors already expect lower corporate earnings.
In the coming weeks, everyone will be looking for guidance in the coming corporate earnings announcements and other macroeconomic data that could move the markets upward.
In terms of Hungarian stocks, I think MOL and OTP will continue recording gains. Watch for prices of oil as they will determine the movement of MOL's stock. On the other hand, OTP might be further favored by the amicable sentiment on global stock exchanges.
Monday, 23 April 2007
Wednesday, 4 April 2007
Iran, Amex and possible BSE benefits
Crude oil rose above $66 a barrel last week, closing at its six-month high, on concerns about Iran's geopolitical tensions, which increases the likelihood of a disruption of shipments from the Persian Gulf.
Iran ranks as the world's fourth-largest oil producer behind Russia, Saudi Arabia, and the United States.
Iran also has the world's second-largest reserves of natural gas, behind Russia.
However, the United States gets less than 20 % of its oil from the Mideast, and has an embargo on all Iranian oil.
So why do events in the Middle East have such an impact on US oil prices? With worldwide demand for oil running high, and supplies barely able to keep up, an interruption of Iranian exports has investors nervous.
Experts claim that Iran needs to export oil just as badly as the world needs to buy it, making a complete shutdown unlikely.
Nevertheless, traders fear the country could use oil as a weapon, withholding it in retaliation for sanctions or a military strike on its nuclear program.
In addition, the summer driving season is coming and the market is speculating on whether we will have adequate gasoline supply.
However, many believe that the gasoline supply is sufficient and the real reason behind the higher prices is that there is lots of cash or liquidity in the financial systems, and investors simply just want to buy securities that could over-perform, which have lately been the gas and crude stocks.
Many traders think that the price of oil goes even higher once the commodity-contract passes the psychological level of $65.
Once the price goes above $65 many prearranged stop buy orders were triggered.
Investors use a buy stop hoping to gain momentum if the price reaches a particular level.
Stop buy orders
If the price exceeds the level indicated ($65 for example), it will automatically trigger a market order and will be executed at the best price immediately obtainable.
When so many "stop buy orders" are triggered, it pushes the oil price even higher on heavier temporary buying pressure.
Generalizing, we could say that non-commodity companies traded on the market have an indirect relation to oil prices.
When oil prices increase, corporate profits suffer (if we assume all other factors remain unchanged), because companies must pay more for their energy use.
In addition, higher oil prices dampen consumer confidence, which could consequently lead to decreased sales and lower company profits. But, although higher prices are bad for corporations, emerging markets like the Budapest bourse could, theoretically, benefit from higher oil prices.
Hedge funds had a large influence, because they continued buying energy shares in order to satisfy their need for higher risk emerging assets.
If Hungary's regional neighbors like Russia perform well, it is expected that the Budapest Stock Exchange (BSE) will also benefit.
The price of MOL, the largest Hungarian oil and gas refiner, rallied last week on higher price gains from oil and gas companies in the US and Russia.
Its most significant trading session was last Friday (Mar 30), when it closed 3.5% higher on the day, and it continued recording gains for this week on still high oil prices.
Iran ranks as the world's fourth-largest oil producer behind Russia, Saudi Arabia, and the United States.
Iran also has the world's second-largest reserves of natural gas, behind Russia.
However, the United States gets less than 20 % of its oil from the Mideast, and has an embargo on all Iranian oil.
So why do events in the Middle East have such an impact on US oil prices? With worldwide demand for oil running high, and supplies barely able to keep up, an interruption of Iranian exports has investors nervous.
Experts claim that Iran needs to export oil just as badly as the world needs to buy it, making a complete shutdown unlikely.
Nevertheless, traders fear the country could use oil as a weapon, withholding it in retaliation for sanctions or a military strike on its nuclear program.
In addition, the summer driving season is coming and the market is speculating on whether we will have adequate gasoline supply.
However, many believe that the gasoline supply is sufficient and the real reason behind the higher prices is that there is lots of cash or liquidity in the financial systems, and investors simply just want to buy securities that could over-perform, which have lately been the gas and crude stocks.
Many traders think that the price of oil goes even higher once the commodity-contract passes the psychological level of $65.
Once the price goes above $65 many prearranged stop buy orders were triggered.
Investors use a buy stop hoping to gain momentum if the price reaches a particular level.
Stop buy orders
If the price exceeds the level indicated ($65 for example), it will automatically trigger a market order and will be executed at the best price immediately obtainable.
When so many "stop buy orders" are triggered, it pushes the oil price even higher on heavier temporary buying pressure.
Generalizing, we could say that non-commodity companies traded on the market have an indirect relation to oil prices.
When oil prices increase, corporate profits suffer (if we assume all other factors remain unchanged), because companies must pay more for their energy use.
In addition, higher oil prices dampen consumer confidence, which could consequently lead to decreased sales and lower company profits. But, although higher prices are bad for corporations, emerging markets like the Budapest bourse could, theoretically, benefit from higher oil prices.
Hedge funds had a large influence, because they continued buying energy shares in order to satisfy their need for higher risk emerging assets.
If Hungary's regional neighbors like Russia perform well, it is expected that the Budapest Stock Exchange (BSE) will also benefit.
The price of MOL, the largest Hungarian oil and gas refiner, rallied last week on higher price gains from oil and gas companies in the US and Russia.
Its most significant trading session was last Friday (Mar 30), when it closed 3.5% higher on the day, and it continued recording gains for this week on still high oil prices.
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