Trading
Dow hits new high – Time to buy or time to sell?

Have you ever thought of trading the markets but don’t know how? Below, Dave Evans, Analyst at BetOnMarkets discusses the opportunities in the current markets:
Despite Obama being unable to use a Jedi mind meld to force a budget deal through congress and the fact that Italy is without a working government, Stock markets have continued to push higher.
The Dow Jones hit an all time high this week, and why European indices are some way off their peaks, the rising tide is lifting most boats in the harbour. As markets continue to climb a wall of worry, the perennial question remains – Are stock markets overbought or is this a time to get back into equities?
One popular measure of market value is the Price/ Earnings ratio, but there are problems with this – primarily that share prices can fall a lot quicker than earnings do. This led to some instances during the credit crunch where bank stocks looked cheap based on this measure when in reality, they couldn’t be cheap enough. It was Yale economist Robert Shiller who thought of a way of measuring the Price/ Earnings ratio differently. Instead of just comparing last year’s earnings to today’s price, he used an inflation adjusted 10 year average, producing the so called P/E 10 ratio. Shiller’s P/E 10 is a much more stable and potentially more useful measure of stock market value.
Where are we now and what does this tell us?
The Shiller PE ratio at the close for the major US index, the S&P 500 was 23.72. To put this into perspective, the average ratio since 1881 has been around 16. The ratio reached a peak of 44.20 at the height of the tech bubble and a low of 15.0 at the lows of the recent credit crunch.
So markets are certainly not as expensive as they were during the crazy dot com era, but they still have a Shiller ratio that is higher than it has been 80% of the time since 1926. This matters because the 10 year forward looking returns for stock markets has an inverse relationship with the PE ratio. As the ratio gets higher, the expected 10 year returns get lower and vice versa. A Shiller PE ratio of around 15 has led to average real 10 year returns of 8% per annum, while a ratio of in the current region of 23.72 has led to an average return of just 0.9% per annum.
Expensive, but not a time to sell
So US stock markets are relatively expensive by historical standards, but there are times when markets can remain expensive and keep moving up. The Shiller ratio first signalled that US markets were expensive in the mid 1990s, but the market didn’t top until after 2000 and even then, the 2002 low was well above the mid 90s highs. It is almost impossible to time markets like this to perfection, but one handy additional barometer is the 10 month moving average.
Both major bear markets in the last decade were confirmed early by the price closing below its 10 month moving average. Incidentally, this is something that hasn’t happened since 2011 on the S&P 500 and the early part of 2012 for the FTSE 100.
So while it may be prudent to reduce exposure slightly at these levels, these relatively expensive markets may have further upside yet.
Where to look for a bargain in Europe
European stock markets could offer the best opportunities going forward, as these markets are currently seeing low Shiller P/E ratios and rising levels of confidence in recent months.
Here is our pick of the options:
France CAC 40: Shiller Ratio – 12.60
The main benchmark French CAC 40 is home to the likes of Total and L’Oreal. Markets weren’t too impressed with new President Hollande when he first came to power. His left leaning policies have since been pared back however, with the CAC hitting its highest levels since July 2011 recently and well above its 10 month average.
Netherlands AEX25: Shiller Ratio – 11.3
The AEX is home to the Dutch listing of Royal Dutch Shell and giant conglomerate Unilever. Like the French CAC, the AEX is some way off its all time highs and though it does seem cheap by historical standards is heavily weighted towards one company – Royal Dutch Shell.
Germany DAX 30: Shiller Ratio – 14.8
Home to the likes of Siemens and BMW, the German DAX and indeed the German economy has been a bright light shining undimmed throughout the European crisis. The Shiller ratio is slightly below average by historical standards, while stock market is within sight of all time highs. The Dax 30 could have the best set up here as a market hitting new highs, but one that is not expensive by historical standards.
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Trading
Cryptocurrencies: the new gold?

By Gerald Moser, Chief Market Strategist, Barclays Private Bank
Time to add to a portfolio?
There has been a lot of talk about bitcoin, and cryptocurrencies in general, being a “digital” gold. Similar to gold, there is a finite amount, it is not backed by any sovereign and no single-entity controls its production. But for bitcoin to be considered in a portfolio and to become an investable asset, similar to gold, the asset would need to improve the risk/return profile of that portfolio. This seems a tall order.
While it is nigh on impossible to forecast an expected return for bitcoin, its volatility makes the asset almost “uninvestable” from a portfolio perspective. With spikes in volatility that are multiples of that typically experienced by risk assets such as equities or oil, many would probably throw the cryptocurrency out of any portfolio in a typical mean-variance optimisation.
Poor diversifier
And while bitcoin’s correlation measures are relatively supportive, it seems to falter when diversification is most needed, such as during sharp downturns in financial markets. Looking at weekly return correlations since 2016 shows that bitcoin is not strongly correlated with any assets (see below). It is however only second to US high yield in its correlation with equities. US Treasuries, gold and US investment grade were better diversifiers than bitcoin when it comes to equities.

Source: Bloomberg, Barclays Private Bank
Furthermore, looking at global equity corrections since 2015 (see below), it is noticeable that bitcoin has performed even worse than equities over the last three corrections. And while gold and fixed income provided some relief during those corrections, bitcoin compounded the loss that investors would have incurred from equities exposure.

Source: Bloomberg, Barclays Private Bank
The fact that cryptocurrencies also fluctuate alongside equities suggests that investment in bitcoin is more akin to a bubble phenomenon rather than a rational, long-term investment decision. The performance of the cryptocurrency has been mostly driven by retail investors joining a seemingly unsustainable rally rather than institutional money investing on a long-term basis.
Several studies around market structure have shown that emerging markets with high retail/low institutional participation are more unstable and more likely subject to financial bubbles than mature markets with institutional participation. And while more leading financial houses seem to be taking an interest in cryptocurrencies, the market’s behaviour suggests that the level of institutional involvement is still limited. Another issue is around its concentration: about 2% of bitcoin accounts control 95% of all bitcoins.
In summary, difficulty to forecast return, lack of diversification and high volatility makes it hard to consider bitcoin as a standalone asset in a diversified portfolio for long-term investors.
An inflation hedge?
Another point widely quoted in favour of cryptocurrencies is that they provide an inflation hedge. This might be a valid point, if inflation stems from fiat currency debasement. As mentioned above, a currency’s worth comes from the trust economic agents have in it. If unsustainable amounts of debt and large money creation shatter belief in sovereign-backed currencies through spiralling inflation, cryptocurrencies could be seen as an alternative.
Regardless of its price, bitcoin’s production is set on a precise schedule and cannot be changed. If oil or copper prices go up, there is an incentive to produce more. This is not the case for cryptocurrencies. In a very specific and highly hypothetical scenario of all fiat currency collapsing, this could be positive. But other real assets such as precious metals, inflation-linked bonds or real estate usually provide a hedge against inflation.
Other considerations
Bitcoin’s technology should theoretically make it extremely secure. As there is no intermediary, each transaction is reviewed by a large number of participants which can all certify the transaction. However, there have been frauds and thefts from exchanges. Another point to consider is the risk of “losing” bitcoins. According to the cryptocurrency data firm Chainanalysis, around 20% of the existing 18.5m bitcoins are lost or stranded in wallets, with no mean of being recovered. As there is no intermediary, there is no backup for a lost bitcoin.
From a sustainability point of view, adding cryptocurrencies to a portfolio will make it less green. Mining and exchanging them is highly energy intensive. According to estimates published by Alex de Vries, data scientist at the Dutch Central Bank, the bitcoin mining network possibly consumed as much in 2018 as the electricity consumed by a country like Switzerland. This translates to an average carbon footprint per transaction in the range of 230-360kg of CO2. In comparison, the average carbon footprint of a VISA transaction is 0.4g of CO2.
Beyond energy use, the mining process generates a large amount of electronic waste (e-waste). As mining requires a growing amount of computational power, the study estimates that mining equipment becomes obsolete every 18 months. The study suggests that the bitcoin industry generates an annual amount of e-waste similar to a country like Luxembourg.
Cryptocurrencies are here to stay
Innovation in digital assets continues rapidly and will likely drive increased participation, both from retail and institutional investors. The underlying blockchain technology behind bitcoin was meant to disrupt a few different industries. While results have not lived up to the initial hype, more sectors are investigating the use of the technology.
And with Facebook announcing a stablecoin, or a cryptocurrency pegged to a basket of different fiat currencies, central banks have accelerated the movement towards central bank digital currencies. Those could improve payment systems resilience and facilitate cross-border payments.
Trading
Energy stocks drag down FTSE 100, IG Group slides

By Shivani Kumaresan
(Reuters) – London’s FTSE 100 slipped on Thursday, weighed down by falls in energy stocks as oil prices slid after a surprise increase in U.S. crude inventories, while IG Group tumbled on plans to buy U.S. trading platform tastytrade for $1 billion.
The blue-chip FTSE 100 index lost 0.4%, while the domestically focussed mid-cap FTSE 250 index also slid 0.4%.
Energy majors BP and Royal Dutch Shell fell 3.2% and 2.5%, respectively, and were the biggest drags on the FTSE-100 index. [O/R]
“What is holding back the UK is a lack of tech stocks to capture the ‘rotation’ back into tech seen since Netflix results,” said Chris Beauchamp, chief market analyst at IG.
“Stock markets overall are much quieter today, looking so far in vain for a new catalyst for further upside.”
The FTSE 100 shed 14.3% in value last year, its worst performance since a 31% plunge in 2008 and underperforming its European peers by a wide margin, as pandemic-driven lockdowns battered the economy and led to mass layoffs.
British Prime Minister Boris Johnson said it was too early to say when the national coronavirus lockdown in England would end, as daily deaths from COVID-19 reach new highs and hospitals become increasingly stretched.
IG Group tumbled 8.5% after announcing plans to buy tastytrade, venturing into North America after a stellar year for the new breed of retail investment brokerages.
Ibstock jumped 7.3% to the top of the FTSE 250 after the company said fourth-quarter activity benefited from better-than-expected demand for new houses and repairs.
Pets at Home Group Plc rose 2.2% after reporting an 18% jump in third-quarter revenue, boosted by higher demand for its accessories and veterinary services as more people adopted pets during lockdowns.
(Reporting by Shivani Kumaresan in Bengaluru; editing by Uttaresh.V and Mark Potter)
Trading
Wall Street bounce, upbeat earnings lift European stocks

By Amal S and Sruthi Shankar
(Reuters) – European stocks rose on Wednesday after Dutch chip equipment maker ASML and Swiss luxury group Richemont gave encouraging earnings updates, while investors hoped for a large U.S. stimulus plan as Joe Biden was sworn in as president.
The pan-European STOXX 600 index closed 0.7% higher, getting an extra boost as Wall Street marked record highs.
All eyes were on Biden’s inauguration as the 46th U.S. President, with traders betting on a bigger pandemic relief plan and higher infrastructure spending under the new administration to boost the pandemic-stricken economy.
Tech stocks rallied to a two-decade peak in Europe after ASML Holding NV rose 3.0% to all-time highs on better-than-expected quarterly sales and a strong order intake for 2021.
Meanwhile, Richemont rose 2.8%, after posting a 5% increase in quarterly sales as Chinese splashed out on Cartier, its flagship jewellery brand.
Britain’s Burberry jumped 3.9% after it stuck to its full-year goals, saying higher full-price sales would boost annual margins, while Asian demand remained strong.
The pair boosted European luxury goods makers that are heavily reliant on China, with LVMH and Kering gaining between 1% and 3%.
“Any sign that retail spending is picking up in China is going to be a boost to the Western markets and those heavily exposed to it,” said Connor Campbell, financial analyst at SpreadEx.
The European Central Bank is set to meet on Thursday. While no policy changes are expected, the bank could face more questions about an increasingly challenging outlook only a month after it unleashed fresh stimulus to bolster the euro zone economy.
“With the new round of easing measures fully in place and no new forecasts to be presented tomorrow, it should be a fairly uneventful day for the euro,” ING analysts said in a note.
Italy’s FTSE MIB gained 0.9% and lenders rose 1.6% after Prime Minister Giuseppe Conte won a confidence vote in the upper house Senate and averted a government collapse.
Conte narrowly secured the vote on Tuesday, allowing him to remain in office after a junior partner quit his coalition last week in the midst of the COVID-19 pandemic.
Daimler AG jumped 4.2% after its Mercedes-Benz brand unveiled a new electric compact SUV, the EQA, as part of plans to take on rival Tesla Inc.
Germany’s Hugo Boss added 4.4% after Mike Ashley-led Frasers said it boosted its stake in the company.
(Reporting by Sruthi Shankar and Amal S in Bengaluru; Editing by Shailesh Kuber and Arun Koyyur and Kirsten Donovan)