Long AMD on higher Bitcoin price
By Peter Rosenstreich
The mind-numbing hype over cyptro-currencies has opened opportunities in other sectors. Chipmakers, which had become a boring commodities industry characterized by its cyclical nature, have been rejuvenated. Demand for specialized processors used in cryptocurrency mining and gaming PCs has pushed sales and significantly improved profit margins. AMD's Computing and Graphic segment, which includes the new Ryzen processors and Vega graphics processors, saw its Q2 revenues increase by 19% to USD 1.22bn above the USD 1.16bn expected. In addition, AMD raised its 2017 annual revenue forecast based on Q3 sales, which it now sees increasing 23% from Q2. The chipmaker is also expanding services to miners via EPYC datacenters products.
While AMD stock is trading close to an all-time high on a valuations basis, and profitability remains allusive, this long play is based on outlook for cyptro-currencies and gaming. We don’t believe that the crypto-currency "gold rush" has reached its exhaustion point yet and demand for CPU by miners will remain strong. The cost of mining and its strategies varies considerately, with significant start-up costs, but we estimate that mining ventures should remain profitable (around 50% of market prices). Ethereum cryptocurrency miners favors AMD's $200-$300 video card as the most cost-effective tool. Miners are about to engage in a rapid escalation of computing power and services as competition for altcoins goes ballistic.
Bitcoin at $2700 and Ethereum at $200 will further attract “speculators” and drive demand for AMD products. Nvidia also provides miner and gamer hardware and has strongest performers gaining by 54% since the beginning of 2017.
Russia: Rate decision over sanctions fears
By Yann Quelenn
The US dollar is trading sideways around 60 ruble, and this may not last long as the USD/RUB pair is under pressure. While Russian economic data is improving, there are other geopolitical issues that may have strong consequences on the future of the Russian economy. Indeed, the US Senate has finally approved legislation for further strengthening of Russian sanctions, which puts Donald Trump in a difficult position. Trump can now either sign the bill or veto it – all of this with the backdrop of a campaign under investigation.
Some say that there are now growing risks that Russia, under the US sanctions, could face decades of low growth. Other economic fundamentals such as low oil prices, which remain below USD50, are also weighing on the Russian economy. Inflation, even though declining currently, is still very high and could likely end up at 5% before year-end (4.4% at the moment). We believe that the Central Bank of Russia has some room for normalizing its monetary policy. In addition, the CBR needs to guarantee price stability because of sanctions which will drive policymakers not tighten rates. As a result, key rate is then set to remain at 9%.
We target 58 RUB/USD in the medium-term as we consider the ruble is still a good carry trade with existing, but limited downside risks.
US data in focus as USD extends losses
By Arnaud Masset
Durable goods orders printed well above median forecast, suggesting a solid recovery in June after two months of contraction. The headline gauge increased 6.5% m/m versus 3.9% expected and an upwardly revised figure of -0.1% in May. The upside surprise was essentially due to a sharp bounce in new orders for aircraft, thanks to the Paris Air Show (23-25 June).
Excluding the volatile transportation components, core durable goods orders came in below estimates, printing at 0.2% m/m versus the 0.4% expected and 0.6% from the previous reading.
Overall, the report suggests that the manufacturing activity continues to expand at a moderate pace, while the anaemic demand for consumer goods, such as vehicles and electronic products signals household consumption is not ready to take off yet, which is of bad omen for inflation.
Talking about inflation, the core personal expenditure index for Q2 is due for release later today. The gauge is expected to have increased 0.7% (SAAR), down from a rise of 2% in Q1.
Although the slowdown in inflation pressures has already been documented through the last months, financial markets are not immune to sharp adjustments should the gauge surprise in either direction. US Q2 GDP is anticipated to have accelerated to 2.7% (q/q annualised) compared to a reading of 1.4% in the previous quarter, mostly due to heightened expectations for personal consumption: - 2.8% (saar) consensus and 1.1% in Q1.
On Friday, EUR/USD stabilised at around 1.17 after printing a multi-year high at 1.1777 on Thursday. The broad-based dollar weakness of the recent months was enhanced by the Fed’s dovish statement released on Wednesday. Investors will have to wait September to get further clarity on both the ECB and Fed’s thinking, which means the market will become more sensitive to economic data than usual, especially to inflation figures.