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Euro punches past 1.17 on solid PMIs

The euro has started the week on a positive note, extending the gains seen on Friday. EUR/USD has pushed into 1.17-territory and is trading at 1.1715,…

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This article was originally published by Market Pulse

The euro has started the week on a positive note, extending the gains seen on Friday. EUR/USD has pushed into 1.17-territory and is trading at 1.1715, up 14% on the day.

PMIs point to solid growth

The German economy is the bellwether for the entire eurozone, so investors were keen to see the flash PMI reports for Germany’s manufacturing and services sectors for August. The readings continued to point to strong expansion, although the July figures showed an easing in the rate of expansion. Manufacturing PMI dipped to 62.7 (Jul. 65.9), while Services PMI ticked lower to 61.5 (Jul. 61.8).

The PMI Manufacturing release was the lowest in six months, as manufacturers reported material shortages, which has weighed on factory production output. Meanwhile, services was just shy of the July record, as employment levels rose and demand for goods increased.

The solid PMIs have helped the euro extend its gains, after a rough week against the dollar in which the euro slipped 0.8%. Can the euro continue to recover? We are seeing a risk-on mood in the Asian markets on Monday after last week’s fall in risk appetite saw the US dollar make strong gains against the majors. If investor risk appetite continues to improve, the euro could make a move towards the 1.18 line.

Inflation has jumped in the eurozone, with CPI rising 2.2% in July, its highest level in three years. Taking a page out of the Fed playbook, the ECB has reiterated the higher inflation is transitory, and as a result of this stance, the markets don’t expect any rate hikes for the next three years. In July, President Christine Lagarde said that the ECB would not hike rates until inflation remained ‘sustainable’ at 2%, and nobody is holding their breath for this target to be reached or breached anytime soon.

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EUR/USD Technical

 

  • There are resistance lines at 1.1779 and 1.1859
  • On the downside, we find support lines at 1.1642 and 1.1585

Economics

Top Shipper Warns Commodity Freight Rates About “To Go Parabolic”

Top Shipper Warns Commodity Freight Rates About "To Go Parabolic"

Similar to container rates, dry bulk shipping rates are poised to move…

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Top Shipper Warns Commodity Freight Rates About "To Go Parabolic"

Similar to container rates, dry bulk shipping rates are poised to move higher on limited vessel capacity and robust demand, according to Genco Shipping President and CEO John Wobensmith, who spoke with Bloomberg

"I think rates can go higher from here," Wobensmith said. "You do get to a point, and you've seen this in containers, where you hit a certain utilization rate, and you start to go parabolic on rates. I think we're getting close to that period."

He said, "fundamentally, you've got demand outstripping supply growth," adding that freight agreements are above $20,000 for 1Q, a level not seen seasonally in a decade. 

More than 5 billion tons of commodities, such as coal, steel, and grain, are shipped worldwide in bulk carriers in a given year. A move higher in the Baltic Dry Index (BDI) indicates increasing commodity demand on top shipping lanes. 

Lending credit to Wobensmith's argument is BDI on a seasonal basis that shows demand is currently outpacing vessel supply and pressuring rates higher. 

He doesn't expect bulk carrier rates to experience a significant reversal until early next year as demand troughs seasonally. "You need very little demand growth to just continue to build off what we've seen this year," he said. "It's more about higher highs and higher lows than anything else."

China's credit impulse needs to turn higher for the commodity boom and bulk carrier rates to stay elevated. 

Besides China, passage of a US infrastructure bill could be the fiscal injection that could also spark higher commodity prices, thus continue driving bulk carrier rates higher. 

All of this is feeding into inflation that the Federal Reserve convinces everyone it's only "transitory." 

 

 

Tyler Durden Thu, 09/16/2021 - 16:50
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Economics

Ethereum 2.0 Has What It Takes to Knock Bitcoin off Its Perch

Ethereum (CCC:ETH-USD), the world’s second-largest cryptocurrency, is more than just an internet token. It is the top smart contract and decentralized…

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Ethereum (CCC:ETH-USD), the world’s second-largest cryptocurrency, is more than just an internet token. It is the top smart contract and decentralized application network, with more use cases than other digital assets.

Source: shutterstock

As it moves to a proof-of-stake model, the network’s capacity will increase substantially and significantly reduce its energy requirements. Therefore, ETH-USD represents the cream of the crop as far as crypto investing is concerned.

The ETH token has shot up more than 380% in value since the beginning of the year. At the same time, industry stalwart Bitcoin (CCC:BTC-USD) is only up about 60% in the same period.

The Ethereum platform is undergoing major changes to increase its scalability, transaction throughput and efficiency while reducing its gas fees. The platform has already shown significantly more real-world utility than its peers, and future upgrades will create more divergence between them.

The London and Shanghai Hard Fork

The whole crypto sector has been buzzing since the release of Ethereum’s London hard fork. This is a major step towards Ethereum 2.0 and introduced some critical changes to the network.

Most notably, it updated the fee structure to an algorithmically determined model. It involves a base fee, which is usually 25% to 75% transaction value, and a priority fee that incentivizes miners to put a particular user’s transaction first.

In contrast to the first-price auction model the platform ran on previously, the new model was said to significantly boost efficiency. However, the base fee is burned after each transaction is complete, making ETH a deflationary asset. The currency’s supply is likely to reduce overtime, pushing its price higher.

The Shanghai hard fork is the next and perhaps final upgrade that will wrap up the Ethereum 2.0 update. It will go live anytime between the end of this year and early to mid-2022. The update is likely to merge Ethereum’s mainnet and Beacon Chain to implement proof-of-stake protocol.

Ethereum Has an Abundance of Use Cases

Bitcoin, the undisputed leader in the crypto space, is more of a safe haven asset for investors against fiat currencies. However, Ethereum is an ecosystem that is powering the digital economy.

Aside from the typical staking involved with most cryptos, it is the foundation for decentralized finance (DeFi) protocols. These are based on smart contracts, which execute when a predetermined criterion is met. Crypto investors have at least 7.7 million ETH tokens in DeFi protocols at this time.

Moreover, Ethereum is a dominant force in the nonfungible tokens, or NFT, space. NFTs are unique tokens that can represent avatars, art, music and other related items.

The NFT market has been booming this year, and Ethereum has been powering those transactions. Virtually every NFT exchange uses ETH to conduct these transactions on their respective platforms.

Ethereum is also a base layer for stable coins such as Tether (CCC:USDT-USD), pegged to the US dollar. More than 50% of transactions in Tether are based on Ethereum.

2.0 Can Help Ethereum Outpace Bitcoin

Ethereum has been on quite a roll in the past year. Since the pandemic began, major institutional investors have loaded up on the crypto, which propelled its price up more than 2,700% since January 2020.

With Ethereum 2.0 around the corner, its value is expected to rise even further. The platform will become more robust than ever before, offering even more utility for its user base. Hence, ETH-USD is perhaps the hottest crypto to invest in these days.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University. 

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Economics

It May Take Time for General Electric to Surge Again

General Electric (NYSE:GE) stock is up about 90% in the past year, but it has been treading water around a split-adjusted $100 per share since the spring….

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General Electric (NYSE:GE) stock is up about 90% in the past year, but it has been treading water around a split-adjusted $100 per share since the spring. After fully pricing in expected earnings growth in 2022, investors have been hesitant to bid up the industrial giant’s shares much higher.

Source: Sundry Photography / Shutterstock.com

Last month, I said investors should wait for lower prices before buying due to the risk of earnings falling short of expectations. But after giving the situation another look, two other catalysts could help prevent GE stock from falling below $100 per share.

The first is GE’s pending sale of its aircraft leasing unit, a move that could help unlock shareholder value. Second, a possible ramp-up in spending by the federal government could give GE stock an indirect boost as well.

Now, don’t take this to mean I think shares will pop in the coming months. Instead, it’s a situation where strengths and weaknesses cancel each other out. There’s enough to keep GE stock steady around $100 to $105 per share. Just not enough to send it higher in the near term.

GE Stock Already Trades on Next Year’s Results

The key issue with General Electric today is that upcoming earnings growth is already accounted for in its valuation. The consensus estimate projects the company will generate around $4.33 per share in earnings in 2022.

At today’s prices, that gives GE stock a forward price-to-earnings (P/E) ratio of around 24.5. That’s in line with the valuation of a similar name, Honeywell (NASDAQ:HON), which trades at 23.9 forward earnings. But other diversified industrial companies trade at even lower valuations, such as 3M (NYSE:MMM), which has a forward P/E ratio of 16.9.

It goes without saying that General Electric needs its earnings to meet or beat these estimates. If the company disappoints, GE stock could take a big hit.

In the past, I have questioned whether General Electric’s earnings will come in above $4 per share next year, mostly due to the risk of inflationary pressures. Inflation that ends up being more than just “transitory” could affect performance across all its business units.

A repeat of last year’s Covid-19 lockdowns, due to the Delta variant, is a big risk as well. This would be a major setback for the recovery of the company’s flagship aviation unit.

That said, there are a few positives to counter these negatives. They may not be enough to send shares higher soon, but they could help prevent GE stock from falling below $100 per share.

Plenty in Play to Keep GE Stock Steady

As I mentioned above, there are two positive catalysts on the horizon for General Electric.

The first catalyst is the pending sale of its aircraft leasing unit. As Barron’s reported on Aug. 27, Barclays analyst Julian Mitchell sees this as something that could result in “valuation upside.”  According to Mitchell, once GE sells this unit, investors may be more willing to value the company at a higher multiple in line with its peers in the aviation, healthcare and renewable energy sectors.

Admittedly, it’s questionable whether this happens. Given Wall Street’s preference for pure plays, a diversified company like General Electric will likely have a hard time getting to a price on par with its sum-of-the-parts valuation.

Fortunately, the second catalyst seems more likely to play out.

As fellow InvestorPlace contributor Larry Ramer wrote on Sept. 3, both the infrastructure bill and the proposed federal budget could provide an indirect boost to GE’s power and renewable energy segments. Additionally, the desire of the Biden administration and Congressional Democrats to expand government healthcare spending may benefit the company’s healthcare unit.

Strength in these areas could counter any further headwinds with the company’s aviation unit. This, in turn, may ensure that General Electric’s turnaround carries on, its earnings soar above $4 per share next year, and the company’s current valuation stays intact.

The Bottom Line on GE Stock

Despite my prior pessimism, there may be enough in play to ensure GE stock stays at its current price levels. But with regards to its next move higher, that may take time.

Shares are fully priced based on 2022 projections. Earnings will need to come in at or above the high end of analyst estimates, currently at $4.88 a share, in order for the stock to see another immediate boost.

In the long run, GE stock could continue to rise. But in the short term, expect shares to hold steady at or around today’s prices.

On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

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