The South African rand has remained on edge as emerging market currencies slumped after the hawkish Federal Reserve interest rate decision. The USD/ZAR exchange rate rose to a high of 18.35, its highest level since in November. It has risen by 7.3% from its lowest point in October this year.

Hawkish Fed slams emerging market currencies

The USD/ZAR pair has rebounded in the past few weeks after the relatively hawkish Federal Reserve slumped emerging market currencies. For example, the Brazilian real and the Indian rupee have all crashed to a record low this year. 

This performance is because the Fed has largely embraced a higher-for-longer monetary policy approach. In its last meeting of the year, the bank decided to slash interest rates by 0.25% as was widely expected.

The bank also hinted that it would deliver fewer rate cuts than it had previously guided. Instead, officials pointed to just two interest rate cuts in 2025 as they remained concerned about the incoming administration.

Donald Trump has made many policy pledges, most of which will be inflationary. He has hinted that he will cut taxes, deport millions of illegal migrants, and impose tariffs in a bid to lower the large trade deficit.

These policies will likely lead to higher inflation. Tariffs will be passed to American consumers, who will now start paying much more for products. That’s because the US would need substantially higher tariffs to encourage companies to start building in the country.

Deporting illegal migrants will largely be inflationary because these people work in key industries like agriculture and construction. Without enough workers, companies will need to hike wages and prices.

A more hawkish Fed means that emerging market countries like South Africa that have higher exposue to US dollar debt will pay more. That’s because the cost of borrowing in the US has continued rising, with the 30-year and 10-year yields rising to over 4%.

South African interest rates

The USD/ZAR pair also reacted to the political issues in South Africa, where there are risks that the political union between the ANC and the Democratic Alliance will not work out in the long term.

The DA Party has warned Ramaphosa against firing its ministers. These uncertainties are having an impact on the economy. Data released this week showed that a gauge measuring the level of confidence in government policy pointed to uncertainty. 

A recent report showed that the economic recovery was still taking time. The economy contracted by 0.3% in the third quarter as the agricultural sector worsened. It expanded by 0.4% in the first nine months of the year, lower than the expected 1.1%.

The South African Reserve Bank has started to slash interest rates in a bid to boost the economy. It slashed rates by 0.25% in the last meeting in November, bringing the prime rate to 11.25%. It also cut the prime rate by 0.25% to 7.75%.

USD/ZAR technical analysis

The daily chart shows that the USD to ZAR exchange rate has risen in the past few weeks. It has jumped from the year-to-date low of 17 to the current 18.35. The pair is hovering at a key resistance since this price was the highest swing on November 13.

It has moved above the 50-day and 25-day Exponential Moving Averages. Most importantly, it has showed signs of forming a double-top chart pattern, a popular bearish reversal sign whose neckline is at 17.61.

Therefore, the path of the least resistance for the pair is bullish, with the next point to watch being at 18.70, the highest swing on August 2

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Indian power generation major, Tata Power has had a quiet few months at the bourses.

Tata Power’s share price has moderated by around 6% in the past six months.

But, analysts at brokerage firm Sharekhan remain bullish on this Tata Group company.

Tata Power share price prediction

Analysts at the brokerage firm maintained their “buy” rating on the stock with a target price of ₹540 (£5.40).

If the Tata Power share price prediction, it would reflect an around 30% upside from the stock’s current market price of ₹413.

On a year-to-date basis, the Tata Power share price has gone up around 25%.

Why Sharekhan is bullish about Tata Power’s share price

The brokerage’s outlook is based on the company’s focus on expanding its renewable energy and transmission businesses, which are expected to drive sustained earnings growth in the coming years.

During an analyst meeting held earlier this week, Tata Power outlined its growth roadmap for FY30, with an increase in capital expenditure (capex) guidance.

The company has raised its annual capex target to ₹25,000 crore (£2.3 billion), up from ₹22,000 crore previously.

Over the next few years, Tata Power plans to invest ₹1.46 lakh crore, with 60% of this allocation directed towards renewable energy initiatives.

The company’s renewable capacity is expected to more than double, rising from 16.7GW currently to 33GW by FY30.

Operational renewable capacity is also set to increase from 6.7GW to 23GW during this period, further cementing Tata Power’s position in the growing green energy space.

Key highlights from Tata Power’s plan:

• Renewable energy expansion: The company targets a renewable energy capacity of 23GW by FY30, up from the current 6.7GW. This will raise the share of renewable energy capacity in the company’s overall capacity to 65%.
• Rooftop solar: Tata Power is also poised to benefit from the rapid growth in India’s rooftop solar market, which is expected to grow at a 36% compound annual growth rate (CAGR) between FY24 and FY30.
• Transmission growth: The company aims to expand its transmission network, with a projected growth in transmission capacity from 4,633 circuit kilometers (Ckm) to 10,500 Ckm by FY30. This will require a capex of ₹24,850 crore.
• Distribution business and customer base: In distribution, Tata Power plans to increase its customer base from 12.5 million to 40 million by FY30, further enhancing its reach.
• International expansion: The company has signed a memorandum of understanding (MoU) with Druk Green Power in Bhutan for clean energy projects, contributing to its international growth strategy.

Tata Power earnings projections

Sharekhan’s confidence in Tata Power’s future growth is reflected in its earnings projections.

The brokerage expects the company’s EBITDA and PAT to rise by 2.4x and 2.5x, respectively, by FY30 compared to FY24 levels.

Revenue is anticipated to grow by 1.6x, reaching ₹1 lakh crore by FY30.

The focus on renewable energy and transmission is expected to significantly contribute to the company’s long-term growth, with the share of renewables in Tata Power’s PAT projected to increase to 50% by FY30, up from 21% currently.

The post Why this analyst sees India’s Tata Power’s share price racing 30% appeared first on Invezz

The iShares Russell 2000 ETF (IWM) crashed hard after the Federal Reserve delivered a highly hawkish interest rate decision. It slumped by over 3%, reaching a low of $218, its lowest level since November 5. It has dropped by almost 10% from the highest level this year, meaning that it is nearing a short-term correction.

Rotation from bonds delayed

The IWM ETF has plunged after the Federal Reserve delivered a highly hawkish interest rate decision on Wednesday.

On the positive side, the bank decided to cut interest rates by 0.25%, bringing the year-to-date cuts to 1%. However, the Fed also hinted that rates will not fall as fast as what analysts were expecting. 

Instead, the dot plot hinted that the bank will cut rates two times in 2024. In his press conference, Jerome Powell noted that the US was doing well, with the labor market being highly strong. 

Powell’s key concern is that Donald Trump’s policies will have an impact on inflation and economic growth. Trump has pledged to hike tariffs, a move that will lead to more inflation in the long term.

The hawkish Fed decision had a big impact on the stock market as the Dow Jones, Nasdaq 100, and S&P 500 indices fell by more than 2%

One reason for this is that American bond yields have continued to rise this week. This means that the much-anticipated rotation from bonds and money market funds to stocks will take longer. Recent data showed that the total assets in money market funds stood at over $6.77 trillion last week.

The general view is that investors will move from bonds to stocks when interest rates fall and returns in the bond market fades.

The Russell 2000 index also dropped because most of its companies are small and unprofitable, unlike other indices like the S&P 500 and Dow Jones. Historically, these smaller companies underperform the market when rates are high because they have little cash in their balance sheet.

On the other hand, companies like Apple, Berkshire Hathaway, and Microsoft make money when rates are high in the form of interest income.

Also, there are concerns that the American economy will underperform next year because of Trump’s policies. These companies tend to be highly exposed to the American economy.

Top gainers and laggards in the IWM ETF

IWM ETF companies are often highly volatile, with some surging by over 1,000% and others falling by almost 100%. 

Mondee Holdings, a company that provides travel technology solutions, was the worst performer as it crashed by 98% this year. It was followed by Canoo, a company that is building electric vehicles. Canoo stock has fallen by 97% this year and has higher odds of filing for bankruptcy. 

The other notable laggard in the IWM ETF is Luminar Technologies, a company that is working on Lidar solutions for the automobile industry. Virgin Galactic, Chegg, Marketwise, iRobot, Sage Therapeutics, and B. Riley were other notable laggards.

On the other hand, companies like Sezzle, Rigetti Computing, SoundHound, Root, Intuitive Machines, Core Scientific, and CleanSpark were some of the best performers.

Russell 2000 ETF analysis

IWM stock by TradingView

The daily chart shows that the IWM ETF has been in a strong bullish trend in the past few months. It recently jumped to a record high of $245 as the bull market intensified. 

The ETF reversed after it formed a small double-top chart pattern, a popular bearish sign. It has also moved slightly below the 50-day and 100-day Exponential Moving Averages (EMA).

The MACD and the Relative Strength Index (RSI) have all pointed downwards. Most importantly, the fund has formed a broadening wedge pattern, a sign that it may go through a deeper retreat in 2025. This is in line with my last S&P 500 index forecast.

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The USD/PHP exchange rate continued rising and is hovering near its all-time high after the last central bank decisions from the United States and the Philippines. The pair was trading at 59, a few pips below its record high of 59.15. It has risen by 6.40% from its lowest level in October this year.

Federal Reserve interest rate cut

The USD/PHP exchange rate held steady as most emerging market currencies crashed after the Federal Reserve decision. 

In a statement on Wednesday, the bank slashed interest rates by 0.25% for the second consecutive meeting. It has now brought interest rates down by about 1% this year. 

The main change in the Fed statement was that Beth Hammack, a member of the FOMC dissented and voted to leave interest rates unchanged. Also, the dot plot showed that many officials were afraid of delivering more interest rate cuts.

Therefore, officials expect that the bank will deliver just two cuts in 2025, down from the previous guidance of four. These officials are mostly concerned about the impact of Donald Trump on the economy since he has proposed more inflationary policies like tax cuts, mass deportations and tariffs.

The Fed expects that the headline and core inflation will take longer to move to the 2% target than previously thought as housing prices remain stubbornly high. Most officials see these numbers falling to 2% by 2027 instead of the previous 2026.

The Federal Reserve statement led to a strong US dollar as the DXY index jumped to $107.80, its highest level since 2022.

Emerging market currencies were some of the worst-performing currencies as concerns about their debt servicing continued. These concerns rose as US borrowing costs rose after the Fed decision.

Philippines central bank cuts

The USD/PHP exchange rate also reacted to the latest Bangko Sentral ng Pilipinas interest rate decision.

Like most central banks, it decided to slash interest rates by 25 basis points, a move it hopes will help the economy recover. It has now slashed rates three times this year.

The bank has cut rates as the headline Consumer Price Index (CPI) retreated from the 2022 high of 8.7% to a low of 1.9% in August.

Recently, however, inflation has started to creep back up again, with the headline CPI rising to 2.5% in November.

Recent economic data showed that the economic growth has slowed in the past few quarters. It expanded by 5.3% in the third quarter after growing by 6.3% in the previous quarter. Therefore, the bank hopes that the rate cuts will help to supercharge the economy.

USD/PHP technical analysis 

The USD/PHP exchange rate has been in a strong uptrend in the past few weeks. It has risen and reached the key resistance level at 59.10, the upper side of the ascending triangle chart pattern. In most periods, this is one of the most bullish chart patterns. 

The pair has moved above the 50-week and 100-week Exponential Moving Averages (EMA). Also, the Relative Strength Index (RSI)  and the MACD indicators have pointed upwards. 

Therefore, because of the ascending triangle, there is a risk that the Philippine peso will have a bearish breakout in 2025. If this happens, the next USD/PHP level to watch will be the psychological point at 65. 

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The Super Micro Computer (SMCI) stock price has had a roller coaster this year. It initially surged to a high of $122 in March this year, up by over 345% from its lowest point in January. It then erased most of those gains and dropped to the current $32.2. Its market cap has crashed from over $66 billion to the current $19.1 billion. 

SMCI stock price forecast

The daily chart shows that the Super Micro Computer share price has been in a strong bearish trend in the past few months. It has formed a descending channel shown in red. The current price is a few points below the upper side of this channel.

The SMCI share price has also crashed below the 50-day Exponential Moving Average (EMA). Most notably, the stock has moved to the key support at $31.78, the highest swing in March and December last year. 

The stock has continued to form a series of lower lows and lower highs, a sign that bears are in control. It has also moved to the weak, stop, and reverse point of the Murrey Math Lines tool.

Therefore, the short-term outlook for the stock is bearish, with the next point to watch being the oversold level of the Murrey Math Lines. That drop implies a 40% crash below the current level. Losing that resistance will see it crash to the extreme oversold point at $12.5. 

On the flip side, more gains will be confirmed if the SMCI share price rises above the bottom of the trading range level at $43.75. This price coincides with the upper side of the falling channel, a move that will see it rise to $88.65, the extreme overshoot level, which is about 178% above the current level.

Read more: Supermicro can’t seem to pull itself together: here’s why it lost 12% again

Super Micro Computer is a growing company with challenges

The SMCI stock jumped initially because of its substantial growth metrics as data center spending rose. This was a notable thing because the company sells products that are used widely in areas like enterprise, cloud, artificial intelligence, and telecom. 

Supermicro sells products like rackmount servers, GPU servers, twin servers, blade servers, and storage servers that are used around the world.

Servers have been in high demand as companies position themselves for the artificial intelligence era. As a result, its financial results have been strong, with its quarterly revenues being higher than what it made annually a few years ago.

The most recent results showed that Super Micro Computer made over $5.3 billion in the fourth quarter of fiscal 2024. That was a big number considering that it made $3.85 billion in the same period a year earlier. 

In a recent statement, the company said that it will make between $5.3 billion and $6 billion in the fourth quarter. While these are solid numbers, they were much lower than the previous guidance of between $6 billion and $7 billion. 

The main concern for the SMCI stock is that its short interest has risen to 15%, a sign that many investors anticipate the stock to crash. The other main issue is that there are signs that AI spending will start to slow next year, and the company is seeing a wave of client exodus.

Recent numbers showed that AI spending has been dominated by giant companies like Microsoft, Meta Platforms, Google, and Amazon. They have done that in a bid to position themselves for the future of AI.

However, there are signs that this spending will start to slow as AI adoption rates remain relatively low. Analysts have mixed opinions about the SMCI stock, with JPMorgan, Barclays, and CFRA downgrading the company. Mizuho, Needham, and Loop Capital have a neutral rating. The average SMCI stock forecast is $40, higher than the current $32.

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