GBP/USD Surges to Yearly Highs: How Economic Data is Shaping the Forex Market

Dividends are cash payments made by corporations to their shareholders. When you own shares in a company that pays dividends, you are entitled to receive a portion of the company's profits. However, not all dividends are taxed the same way. There are two main types of dividends: ordinary dividends and qualified dividends. Understanding the differences between these two categories is important for tax planning and managing your investment income.

Ordinary dividends are the most common type of dividend. They are taxed as ordinary income, which means they are subject to the same tax rates as your regular income from employment, interest, and other sources. The tax rate on ordinary dividends depends on your total taxable income and filing status. For the 2023 tax year, the ordinary income tax rates range from 10% to 37%.Some key characteristics of ordinary dividends:

1. Taxed at your regular income tax rate

2. Reported on Form 1040, line 3b

3. May be subject to the Net Investment Income Tax (NIIT) of 3.8% for high-income taxpayers

4. Dividends from real estate investment trusts (REITs) are usually considered ordinary dividends

Qualified dividends are a special category of dividends that receive preferential tax treatment. To be considered a qualified dividend, the following requirements must be met:

The dividend must be paid by a U.S. corporation or a qualified foreign corporation.

You must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date.

Certain types of dividends, such as those from tax-exempt organizations, private foundations, and foreign governments, are not considered qualified dividends.

If a dividend meets the requirements for qualified dividends, it is taxed at the lower capital gains tax rates instead of your regular income tax rate. For the 2023 tax year, the qualified dividend tax rates are 0%, 15%, or 20%, depending on your taxable income and filing status.Some key characteristics of qualified dividends:

1. Taxed at the lower capital gains tax rates (0%, 15%, or 20%)

2. Reported on Form 1040, line 3a

3. Dividends from mutual funds and ETFs may be considered qualified dividends if the fund itself received qualified dividends

4. Dividends from preferred stock are usually considered qualified dividends

The main difference between ordinary and qualified dividends is the tax rate applied to each type. Here's a comparison of the tax rates for single filers in 2023:

As you can see, qualified dividends are taxed at 0%, 15%, or 20%, while ordinary dividends are taxed at your regular income tax rate, which can be as high as 37%. This means that if you have a significant amount of dividend income, investing in companies that pay qualified dividends can result in substantial tax savings.

When you receive dividends, the company that paid them will send you a Form 1099-DIV, which reports the total amount of dividends you received during the year. This form will also indicate whether the dividends are ordinary or qualified.On your tax return, you will report your ordinary dividends on line 3b of Form 1040 and your qualified dividends on line 3a. The tax software or tax preparer you use will automatically calculate the appropriate tax rate based on your filing status and taxable income.

To take advantage of the lower tax rates on qualified dividends, consider the following strategies:

Hold your dividend-paying stocks for at least 61 days during the 121-day period that begins 60 days before the ex-dividend date.

Invest in companies that have a history of paying qualified dividends.

Consider investing in mutual funds or ETFs that focus on dividend-paying stocks, as these funds may pass through qualified dividends to their shareholders.

Understanding the differences between ordinary and qualified dividends is essential for managing your investment income and minimizing your tax liability. By investing in companies that pay qualified dividends and holding your stocks for the required holding period, you can take advantage of the lower tax rates and keep more of your investment earnings. However, it's important to note that tax laws are subject to change, so always consult with a tax professional for the most up-to-date information and personalized advice.

Oil prices dropped close to their lowest levels in 2024 on Tuesday morning, following increased hopes of a ceasefire in the Israel-Hamas war.

Brent crude oil prices inched down 1.03% to $76.8 per barrel on Tuesday morning, a drop of 4.39% this week and 6.37% this month. This was close to this year’s lowest point of $75.90 per barrel seen on 2 January. 

Crude oil prices decreased 1.05% to $72.8 per barrel on Tuesday morning. This was a plunge of 6.56% this week and 6.62% this month. 

On the other hand, natural gas prices were doing better, rising 3.84% this week and trading at $2.2(€1.99) per MMBTu on Tuesday morning. Similarly, TTF gas prices were also on the rise, gaining 0.94% on the day to trade at €39.89/MWh. 

Ceasefire hopes regarding the Israel-Hamas war have risen, following Israel's recent acceptance of a bridging proposal suggested by the US. However, Hamas is yet to do the same.

There are a number of points of difference that need to be worked out. These include Palestinian freedom of movement, as well as Israel's ongoing military presence in Gaza.

Before talks with Israel's president Isaac Herzog earlier this week, US Secretary of State Antony Blinken, highlighted the importance of both sides agreeing to a ceasefire.

There has been increasing pressure for both parties to reach a hostage deal, which Blinken signalled during talks with Israel, was a high priority. 

Blinken told the BBC: "This is a decisive moment, probably the best, maybe the last opportunity to get the hostages home, to get a ceasefire and to put everyone on a better path to enduring peace and security. 

"I'm here as part of an intensive diplomatic effort on President Biden's instructions to try to get this agreement to the line and ultimately over the line. It is time for everyone to get to 'yes' and to not look for any excuses to say 'no'." 

The dampened oil prices also weighed heavily on energy company shares, which were further exacerbated by lagging Chinese demand. That is mainly due to the Chinese economy seeing weaker growth, higher unemployment and less industrial output. 

Danni Hewson, head of financial analysis at AJ Bell, said in an email note: "The FTSE 100 started off Tuesday on the back foot despite gains in the US and Asia overnight as its heavy weighting towards oil stocks proved a headwind. 

"Hopes of a ceasefire in Gaza and continuing concerns about Chinese demand combined to drive oil prices to their lowest levels since the beginning of August and that put index heavyweights BP and Shell under pressure. 

"While oil did dip below $76 (€68.60) around the beginning of August, it has consistently traded above $80 (€72.21) per barrel for much of this year. If oil prices remain at these levels, it could help reduce inflationary pressures and give central banks more room to make interest rate cuts."

Bitcoin's price closed below its 200-day exponential moving average (EMA) for the second week in a row, but over the past 24 hours, it has rebounded above $60,000. Several charts indicate that long-term holders remain unfazed by the current price action. Is a bullish breakout possible after August?

BTC price has closed below the 200-day EMA only three times in 2024. As the chart below shows, July 4 marked the first bearish close under the 200-day EMA.

The BTC/USD pair reclaimed a position above the EMA in less than ten days. This time around, the asset spent less than 24 hours before it was back above the indicator, confirming that bullish momentum is slowly picking up this week.

Bitcoin investors can be divided into short-term holders (STHs) and long-term holders (LTHs). They have different trading strategies and time preferences.

STHs are investors or traders engaging in day trading or scalping, focusing on quick returns during a relatively shorter period. Many of these are retail or low—to medium-net-worth individuals or entities. 

On the other hand, LTHs consist of traders undertaking a long-term buy-and-hold strategy for at least six months. Many of these entities represent high-net-worth individuals or large organizations, particularly in the era of Bitcoin ETFs. 

Recent data suggests that the LTH's realized market capitalization change recorded a positive net value of $3 billion, previously observed in December 2023.

The Bitcoin realized cap is the cumulative sum of all realized profits minus realized losses. In other words, the aggregate value has flowed into the Bitcoin onchain, minus capital flowing out via losses.

Amr Taha, a crypto analyst, highlighted the above change in realized market cap and stated, While STH increases selling, This indicates that LTH continue to accumulate While STH is being selling at a worse price.

Bitcoin miners have been selling BTCs through exchanges as their net flow decreased in Q2 2024. However, the selling pressure has flattened out over the past two weeks as miners' reserves are beginning to show signs of a trend reversal toward accumulation.

The chart shows that the miner's selling pressure decreased significantly in August, suggesting that BTC could stabilize at its current price range before next month.

One of the key bullish arguments for Bitcoin has been the fact that global liquidity is beginning to increase, namely the global M2 money supply.

Similar to global liquidity, the stablecoin supply ratio, or SSR, also indicates how much liquidity is available in terms of stablecoins that can be used to buy Bitcoin.

SSR is defined as the ratio of the total crypto market cap to the aggregated market cap of all stablecoins. A decreasing ratio indicates that the supply of stablecoin is rising while the market cap is lagging, which means more liquidity is available to buy assets.

At the moment, the SSR ratio is down to early February 2024 levels, which means there is a lot of liquidity available in the market, which can trigger a possible rally.

Julio Moreno, head of research at CryptoQuant, also pointed out the same development, highlighting that the total stablecoin market cap has reached a new all-time high of $165 billion. He added, "This implies higher liquidity in the crypto markets."

After a disappointing weekly close, Bitcoin has witnessed a bullish revival with a 4.50% return over the past 2 days. At the moment, BTC is attempting to breach above a descending broadening channel pattern, which can have bullish implications.

However, Bitcoin faces strong resistance right above the pattern at $61,700. A confluence of 50-day and 100-day EMAs is also right around that price point, which indicates that it can continue to deny a bullish breakout.

If Bitcoin is able to break above the collective resistance offered by the EMAs and $61,700, a bullish reversal will be confirmed if BTC crosses above $62,737. In September, This can result in a market signal called "ChoCH or "Change of Character" —a sign of trend reversals.

September S&P 500 E-Mini futures are up +0.11%, and September Nasdaq 100 E-Mini futures are up +0.18% this morning after a strong session on Wall Street amid expectations that the Federal Reserve will soon signal readiness to begin cutting interest rates.

In yesterday’s trading session, Wall Street’s major indexes closed higher, with the benchmark S&P 500 posting a 1-month high, the tech-heavy Nasdaq 100 notching a 3-1/2 week high, and the blue-chip Dow posting a 2-week high. ZIM Integrated Shipping Services surged over +16% after the shipping giant reported better-than-expected Q2 results and raised its FY24 adjusted EBITDA guidance. Also, Advanced Micro Devices climbed more than +4% and was the top percentage gainer on the Nasdaq 100 after announcing the acquisition of AI infrastructure provider ZT Systems in a deal valued at about $4.9 billion. In addition, McDonald’s advanced over +3% and was the top percentage gainer on the Dow after Evercore ISI raised its price target on the stock to $320 from $300. On the bearish side, HP Inc. fell more than -3% and was the top percentage loser on the S&P 500 after Morgan Stanley downgraded the stock to Equal Weight from Overweight.

Economic data on Monday showed that the Conference Board’s leading economic index for the U.S. dropped -0.6% m/m in July, weaker than expectations of -0.4% m/m.

Minneapolis Fed President Neel Kashkari told the Wall Street Journal in an interview released on Monday that it was appropriate to discuss potentially lowering U.S. interest rates in September due to the increasing likelihood of a weakening labor market. “The balance of risks has shifted, so the debate about potentially cutting rates in September is an appropriate one to have,” he said. Kashkari stated inflation was making progress, but the labor market was exhibiting “concerning signs,” according to the Journal. Also, San Francisco Fed President Mary Daly told the Financial Times in an interview published on Sunday that recent U.S. economic data have provided her “more confidence” that inflation is under control and it is time to consider adjusting benchmark borrowing costs. Daly advocated for a “prudent” approach to policy, dismissing concerns about the risk of a sharp slowdown in the U.S. economy.

Meanwhile, investors are awaiting the Federal Reserve’s minutes from the July meeting on Wednesday and Fed Chair Jerome Powell’s speech at Jackson Hole, Wyoming, on Friday to gain further clarity on the outlook for rate cuts.

U.S. rate futures have priced in a 75.5% probability of a 25 basis point rate cut and a 24.5% chance of a 50 basis point rate cut at the conclusion of the Fed’s September meeting.

On the earnings front, notable companies like Lowe’s Companies, Medtronic , Keysight Technologies, Toll Brothers, and Amer Sports are set to report their quarterly figures today.

The U.S. economic data slate is empty on Tuesday. However, investors will likely focus on speeches from Fed Vice Chair for Supervision Michael Barr and Atlanta Fed President Raphael Bostic.

In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 3.870%, down -0.03%.

The Euro Stoxx 50 futures are up +0.27% this morning as investors digested key inflation data from the region and looked ahead to Fed Chair Powell’s speech at the Jackson Hole symposium later this week. Technology stocks led the gains on Tuesday, while energy stocks lost ground. Data from the Federal Statistical Office revealed Tuesday that German annual producer prices declined for the 13th consecutive month in July, although at the slowest rate in the sequence. Separately, final data from Eurostat released Tuesday showed that the annual inflation rate in the Eurozone increased to 2.6% in July from 2.5% in the previous month, consistent with the preliminary estimate. Meanwhile, European Central Bank Governing Council member Olli Rehn stated Monday at an event in New York that increasing risks to Europe’s growth outlook have strengthened the case for a policy adjustment at the next central bank meeting. In other news, Sweden’s Riksbank cut its benchmark rate by 25 basis points to 3.50% from 3.75% and signaled two to three additional rate cuts this year.

Germany’s PPI, Eurozone’s CPI, and Eurozone’s Core CPI data were released today.

The German July PPI has been reported at +0.2% m/m and -0.8% y/y, in line with expectations.

Eurozone July CPI came in at 0.0% m/m and +2.6% y/y, in line with expectations.

Eurozone July Core CPI arrived at -0.2% m/m and +2.9% y/y, in line with expectations.

Asian stock markets today closed mixed. China’s Shanghai Composite Index (SHCOMP) closed down -0.93% and Japan’s Nikkei 225 Stock Index (NIK) closed up +1.80%.

China’s Shanghai Composite Index closed lower today, reversing gains from the previous session as the absence of new stimulus measures dampened sentiment. Energy and biotech stocks led the declines on Tuesday, while bank stocks outperformed. Meanwhile, China kept benchmark lending rates unchanged at a monthly fixing, in line with expectations, as profit margins faced pressure and policymakers focused on the health of financial institutions. The one-year loan prime rate was maintained at 3.35% and the five-year rate was held at 3.85%, according to a statement from the People’s Bank of China on Tuesday. This decision followed a reduction of 10 basis points in both benchmark loan rates in July. Analysts anticipate another cut in the fourth quarter and next year, along with additional easing of the required reserve ratio to support the economy. In other news, China’s Kaisa Group announced on Tuesday an offshore debt restructuring agreement with a group of creditors through the issuance of U.S. dollar-denominated senior bonds and mandatory convertible bonds. In corporate news, Hengan International slumped over -6% in Hong Kong after the personal hygiene products maker reported mixed first-half results.

Japan’s Nikkei 225 Stock Index closed higher today, tracking a tech-led rally on Wall Street overnight. Those moves occurred as investors anticipate Fed Chair Jerome Powell’s speech at Jackson Hole, Wyoming, later in the week, where he is expected to strongly hint that rate cuts will begin soon. The Japanese yen was little changed at around 146.50 per dollar. Meanwhile, SMBC Nikko Securities stated in a research note that the Nikkei Stock Average is expected to reach 42,500 by year-end, while the broader Topix index is anticipated to hit around 3,000. In other news, the Nikkei Business Daily reported late on Monday that Japan’s government intends to increase its long-term interest rate estimate used for compiling the state budget to 2.1% for the next fiscal year, up from the current year’s 1.9%. In corporate news, Japan Excellent gained over +1% after lifting its distribution forecast for the fiscal year ending December 31st by 6.5% to 2,770 yen per unit from the prior estimate of 2,600 yen. Market participants are anticipating Japanese inflation figures due Friday to gain insight into the Bank of Japan’s monetary policy trajectory. The Nikkei Volatility, which takes into account the implied volatility of Nikkei 225 options, closed down -6.47% to 27.61.

Titan Pharmaceuticals spiked about +130% in pre-market trading after entering a merger agreement with privately held Malaysian company KE Sdn. Bhd.

Actelis Networks surged over +40% in pre-market trading after announcing a strategic partnership with an advanced cybersecurity provider to develop an AI-powered SaaS offering under its “Cyber Aware Networking Initiative.”

Palo Alto Networks rose more than +2% in pre-market trading after the cybersecurity company posted upbeat Q4 results and offered solid FY25 guidance.

A currency market update from JP Morgan says, "further NZD weakness will be harder to come by after RBNZ’s first cut; trim shorts."

The strategic call to "trim shorts" shows JP Morgan thinks the lion's share of weakness related to the August rate cut at the Reserve Bank of New Zealand might have run its course.

Indeed, the Kiwi Dollar has proven resilient in the wake of the cut, helped by a noticeable improvement in global investor sentiment centred on growing expectations that the Federal Reserve is on the cusp of a determined interest rate cutting cycle.

This will have the effect of lowering interest rates in the U.S., boosting investor sentiment. But, lower dollar-linked funding rates will also weigh on interest rates internationally, boosting the global growth cycle which is traditionally supportive of the New Zealand Dollar.

But, JP Morgan thinks the RBNZ's decision to move early on interest rates will also provide NZD with support: the cut could offer the NZD some comfort as the prospect of better economic outturns comes into view now that the pressure of elevated interest rates eases.

"Markets were pricing a lot of easing already, but having started the process, and a bit earlier than expected there is now slightly greater comfort that the economy will stabilise into 2025, allowingrisk premium for a more disorderly downturn to be trimmed to an extent," says Ben K Jarman, an analyst with JP Morgan in Australia.

"Rates are also not as much of a headwind as one might assume, in that the RBNZ only roughly matched the degree of easing implied in the terminal rate complex. Relatedly, we also see expectations for 50bp moves into 1H25 as somewhat aggressive, and paid these spreads in our Antipodean rates portfolio," he adds.

Put another way; the market might have maxed out its bearishness on the NZ Dollar as any improvement in the economic cycle eases the scale of interest rate cuts required from the RBNZ.

"All said, we think a lot has now been priced into the NZD curve and the RBNZ continues to show quite high Fed sensitivity. NZD/USD is also starting to screen a little cheap relative to this cycle’s most important drivers," says Jarman.

World stocks mostly rose Tuesday after Wall Street pushed closer to record highs following its roller coaster of a summer.

France’s CAC 40 added 0.3% in early trading to 7,525.54, while Germany’s DAX edged up 0.3% to 18,468.96. Britain’s FTSE 100 fell 0.5% to 8,312.21. Investors are closely watching the euro-zone inflation data set to be released later Tuesday.

The futures for the S&P 500 were up 0.1% and those for the Dow Jones Industrial Average were little changed.

In Tokyo, the Nikkei 225 stock index closed 1.8% higher at 38,062.92, recovering losses after a 1.8% drop the previous day. The yen briefly approached 145 against the U.S. dollar on Monday but then pulled back and traded at 146.94 on Tuesday.

China held its benchmark lending rates unchanged on Tuesday, with the one-year loan prime rate at 3.35% and the five-year LPR at 3.85%. This came after a series of key interest rate cuts made last month that aimed to support the economy.

The one-year LPR serves as the benchmark for most corporate loans, while the five-year LPR is a reference rate for mortgages.

Hong Kong’s Hang Seng dropped 0.3% to 17,511.08, and the Shanghai Composite lost 0.9% to 2,866.66.

Australia’s S&P/ASX 200 advanced 0.2% to 7,997.70 as the minutes from the Reserve Bank of Australia’s meeting in August showed the board decided to leave the cash rate target steady at 4.35%, emphasizing that containing inflation remains their top priority.

The RBA noted in the minutes it was “unlikely that the cash rate target would be reduced in the short term, and that it was not possible to either rule in or rule out future changes in the cash rate target.”

South Korea’s Kospi jumped 0.8% to 2,696.63.

On Monday, the S&P 500 rallied 1% for its eighth-straight gain and ended at 5,608.25. That clinched its longest winning streak since November and followed the index’s best week of the year. It’s back to within 1% of its all-time high after falling close to 10% below the mark earlier this month.

The Dow Jones Industrial Average gained 0.6% to 40,896.53, and the Nasdaq composite jumped 1.4% to 17,876.77.

Treasury yields held relatively steady ahead of what’s likely to be financial markets’ main event for the week: a speech on Friday by Federal Reserve Chair Jerome Powell.

The setting for the speech in Jackson Hole, Wyoming, has been home to some big policy announcements by the Fed in the past. Expectations aren’t that high this time around, with nearly everyone already expecting the Fed will begin cutting interest rates next month.

That would be the first such cut since the Fed began hiking rates drastically in early 2022, hoping to slow the economy by enough to stifle inflation but not so much that it causes a recession. With inflation slowing from its peak above 9% two summers ago, Fed officials have already hinted cuts to rates are coming. The biggest question is whether the economy just needs the Federal Reserve to remove the brakes or if it needs more acceleration and deeper cuts.

In the bond market, the yield on the 10-year Treasury dipped to 3.87% from 3.88% late Friday.

In energy trading, benchmark U.S. crude lost 63 cents to $73.03 a barrel. Brent crude, the international standard, gained 91 cents to $76.75 a barrel.

The euro cost $1.1086, inching up from $1.1085.