Analytics, News, and Forecasts for CFD Markets: currency news — 28-02-2019.

• Inflation expectations are at the lower end of the range
• But consistent with Fed meeting its 2% target
• Policymakers need to see their economic models and avoid rash judgment
• Fed can be patient in deciding further rate changes and "allow the data to flow"
• Fed is entering era when it is "especially" dependent on incoming data
• 2019 growth expected to be slower but still solid

The MNI Chicago Business Barometer, also known as Chicago purchasing manager's index (PMI) came in at 64.47 in February, up from an unrevised 56.7 in January. That was the highest reading since December of 2017. 

Economists had forecast the index to increase to 57.8. 

A reading above 50 indicates improving conditions, while a reading below this level shows worsening of the situation. 

Of the major sub-components of the Barometer, the production index surged up to a six-month high, while the order backlogs index offset January's sharp drop. The employment index rose to its highest level since July of 2018, although firms noted they were concerned about finding the right fit of employees to meet their needs. Meanwhile, the supplier deliveries index posted the fourth consecutive decline, hitting the lowest level since June of 2017. On the inflation front, the prices paid indicator recorded its first gain in seven months, easing the downward pressure seen on prices through the second half of the last year.

• US outlook remains very strong. Trump administration united on China trade talks
• Administration is United on China trade talks
• US outlook remains very strong. Q4 was influenced by the government shutdown

The data from the Labor Department revealed on Thursday the number of applications for unemployment benefits rose more than expected last week, pointing to some slowing in the labor market. 

According to the report, the initial claims for unemployment benefits increased 8,000 to 225,000 for the week ended February 23. 

Economists had expected 220,000 new claims last week. 

Claims for the prior week were revised upwardly to 217,000 from the initial estimate of 216,000. 

Meanwhile, the four-week moving average of claims fell 7,000 to 229,000 last week.

The Commerce Department released on Thursday its "advance" estimate for the U.S. gross domestic product (GDP) for the fourth quarter of 2018, which revealed the U.S. economy slowed less than expected in the fourth of 2018 amid solid consumer and business spending.

According to the estimate, the U.S. real GDP increased at an annual rate of 2.6 percent q-o-q last quarter, after rising by 3.4 percent q-o-q in the third quarter. 

Economists had expected GDP to boost by 2.4 percent. 

According to the report, the gain in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, exports, private inventory investment, and federal government spending. Those however, were partly offset by negative contributions from residential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, rose.

At the same time, the q-o-q deceleration in real GDP growth in the fourth quarter reflected decelerations in private inventory investment, PCE, and federal government spending and a downturn in state and local government spending. These movements were partly offset by an upturn in exports and an acceleration in nonresidential fixed investment. Imports increased less in the fourth quarter than in the third quarter.

The PCE price index rose 1.5 percent q-o-q in the fourth quarter, following a 1.6 percent advance in the previous quarter. Excluding food and energy prices, the PCE price index also increased 1.7 percent q-o-q in December-quarter, compared with a gain of 1.6 percent q-o-q in the prior quarter. Economists had expected PCE price index to advance 1.6 percent q-o-q in the fourth quarter, and core PCE price index to increase 1.7 percent q-o-q.

Chevron (CVX) target lowered to $140 at Cowen

HP (HPQ) downgraded to Underperform from Buy at BofA/Merrill; target $19

According to the preliminary inflation report published by the Federal Statistical Office (Destatis) today, the inflation, as measured by the Consumer Price Index (CPI) is expected to be 1.6 percent y-o-y in February 2019 compared to 1.4 percent y-o-y in January. 

Economists had forecast a 1.5 percent inflation.

Prices of energy (+2.9 percent y-o-y vs. 2.3 percent y-o-y in January) and food (+1.5 percent y-o-y vs. 0.8 percent y-o-y in January) are set to rise at a faster pace while services inflation should remain unchanged.

The report also revealed that consumer prices are expected to increase by 0.5 percent m-o-m. That was in line with economists' expectations.

Meanwhile, inflation based on the harmonized index of consumer prices, which is calculated for European purposes, was steady at 1.7 percent y-o-y, matching economists' forecast.

Compared to the previous month, the HICP rose 0.5 percent in February, also in line with economists estimates.

HP Inc (HPQ) reported Q1 FY 2019 earnings of $0.52 per share (versus $0.48 in Q1 FY 2018), in line with analysts’ consensus estimate.

The company’s quarterly revenues amounted to $14.710 bln (+1.3% y/y), slightly missing analysts’ consensus estimate of $14.815 bln.

HPQ fell to $20.45 (-14.26%) in pre-market trading.

• Long Brexit delay seen at 20%
• Second referendum seen at 15%
• General election seen at 10%
• No-deal Brexit seen at 10%

• Difficulties in N.Korea – U.S. talks unavoidable

• U.S. crude oil seen averaging $58.18 per barrel in 2019, down from previous forecast of $59.43 
• Brent crude oil seen averaging $66.44 per barrel in 2019, dowl from previous forecast of $67.32 

“The prime minister said that the meaningful vote will come back by March 12 at the latest. I have announced the business for next week but as always if we can come back to the House before then we will do,” told the leader of the House of Commons, Andrea Leadsom, parliament on Thursday.

Union Bank of Switzerland’s CIO is expecting the GBP/USD pair to trade around 1.28 and EUR/GBP cross to trade around 0.90 over the next three months.

“Given wide range of Brexit outcomes, we think the risks around those forecasts are more important than the numbers themselves. In a hard Brexit scenario, CIO forecast GBP/USD could fall to 1.15 and EUR/GBP rise to close to 1. Even in a less bad scenario during the run-up to a general election or second referendum, GBP could still drop from current levels. However, CIO would also caution against outright selling the pound beyond a few weeks' time. The currency remains undervalued on purchasing power parity terms, which makes it an unattractive sell over a multi-year horizon.”

• US, Eurozone export growth to China falling more rapidly than total exports

• Evidence from Asia suggests outlook for Chinese domestic demand will be a key driver of global trade this year

• We find China's domestic demand slowdown as the main reason impacting trade flows in Asia rather than the direct impact of tariffs between US and China.

• Germany in particular has been hit hard by declining auto sales in China as a result of the slump in demand.

According to the report from National Statistical Service of Greece, the Overall Producer Price Index (PPI) in Industry (total of domestic and non domestic market) with base year 2010=100.0 in

January 2019 remained unchanged in comparison with January 2018. The corresponding index in January 2018 had recorded an increase of 1.9% compared with January 2017.

The Overall Producer Price Index in January 2018 recorded an increase of 1.0% compared with December 2018. The corresponding index in January 2018 had recorded an increase of 0.8% compared with December 2017.

The average Overall Index for the twelve-month period from February 2018 to January 2019 increased by 4.1% in comparison with the corresponding index for the period from February 2017 to January 2018, while the increase recorded between the previous twelve-month periods amounted to 4.7%.

According to preliminary estimates from Istat, in February 2019 the Italian consumer price index for the whole nation (NIC) increased by 0.2% on monthly basis and by 1.1% with respect to February 2018, up from +0.9% in the previous month.

The acceleration of the growth on annual basis of All items index was mainly due to prices of food, both Processed including alcohol (from zero variation to +1.2%) or Unprocessed (from +1.7% to +3.7%) and Tobacco (from +2.9% to +4.5%), and, to a lesser extent, of Non-regulated energy products (from +0.3% to +0.8%). The slowdown of prices of Services related to transport (from +2.2% to +0.9%) and the wider decrease of prices of Services related to communication (from -2.0% to -4.9%) mitigated this acceleration.

The core inflation excluding energy and unprocessed food was +0.5% (stable compared to the previous month) and inflation excluding energy was +0.8% (in acceleration from +0.6%).

In February 2019, according to preliminary estimates, the Italian harmonized index of consumer prices (HICP) decreased by 0,2% on monthly basis, mainly due to further winter sales of Clothing and footwear (-6.0% compared with January 2019), which are not taken into account in the national index NIC. The HICP increased by +1.2% with respect to February 2018 (+0.9% in the previous month).

National Australia Bank analysts at expecting the US Q4 GDP growth of 0.5% (2.1% annualised).

“This is well down on the previous two quarters, but is still above our estimate of longer-term trend GDP growth (around 13?4% per year). However, we expect growth to ease further through to Q3 2019, before stabilising towards the end of the year. Overall, we are projecting year-average GDP growth of 2.1% in 2019 and 1.8% in 2020.” analysts said.

According to the report from Statistics Portugal, the Consumer Price Index (CPI) annual rate was 0.9% in February 2019 (the final value in January was 0.5%). The estimated annual core inflation rate, which excludes energy and unprocessed food products components, was 1.0% (0.8% in the previous month). The annual rate of change of the index for energy products is estimated to have increased from -2.3% in January to -0.8% in February.

The estimated CPI monthly rate was -0.2% (in January, the final value was -1.2% and -0.7% in February 2018), while the CPI 12-month average rate was estimated at 1.0% (0.9% in the previous month).

The estimate of the Portuguese Harmonised Index of Consumer Prices (HICP) annual rate of change was 0.9% (the final value for January was 0.6%).

The February CPI final results will be released on March 12th, 2019.

ING Bank analysis team point out that the markets are believing that the US Fed’s neutral stance will eventually give way to policy easing.

“Fed funds futures contracts are pricing in a 25bp rate cut by the summer of 2021, but we continue to believe that the next move is more likely to be an interest rate increase. After all, the economy is running pretty strongly with little spare capacity, and this is generating rising wage pressures in the labour market, which should keep consumer confidence and spending supported. We believe the Fed will overcome its current reticence and hike rates 25bp during the summer.”

Karen Jones, analyst at Commerzbank, suggests that the GBP/USD has eroded the 1.3298/September 2019 high and the close above 1.3298 has introduced scope to the 1.3610 200 week MA.

“Dips lower will find an accelerated uptrend at 1.3114 ahead of interim support at 1.2994 (200 day MA) and 1.2968, last weeks low. This guards the recent low at 1.2772.” Jones said.

The latest Lloyds Bank’s Business Barometer shows:

• overall business confidence* falling by 15 points to 4%, the lowest level since June 2016

• manufacturing (11%) and construction firms (19%) confidence levels have increased, outperforming the services sector which fell 18 points to -4%

Last month’s marginal rise in overall business confidence – an average of business prospects and economic optimism – appeared to have ebbed away as overall business confidence fell by 15 points to 4%. This was largely driven by a decrease in economic confidence which fell by 15 points to minus 5%. This measure compares to the level in the June 2016 survey when overall business confidence was 6% and economic confidence was minus 11%, which was conducted in the aftermath of the EU referendum.

The decline in overall confidence in the latest survey reflected falls in both outlook on trading prospects and also broader economic optimism. The net balance of firms expecting stronger trading prospects in the coming year fell by 14 points to 13%, while the economic optimism balance fell by 15 points to 5%, the first negative position since mid-2016.

According to the report from KOF Economic Research Agency, the Economic Barometer fell from 96.2 in January (revised from 95.0) by 3.8 points to 92.4 by the end of February. The marked decline is predominantly due to negative impulses from the manufacturing industry; but the deteriorating sentiment has meanwhile also extended to the other components of this barometer.

The negative tendency within the manufacturing industry is mostly driven by the mechanical engineering and the electrical industry; but the signals are now below average in all industry branches. Within the construction sector, in particular the architects have become more cautious.

In the goods producing sector (manufacturing and construction), the negative trend is above all attributable to the assessments of the order books and the overall business situation; but the assessments have also become more sceptical with respect to intermediate products and inventories.

According to the report from Insee, in Q4 2018, GDP in volume terms grew at the same pace as in Q3: +0.3%. On average over the year, GDP growth slowed down in 2018: +1.5% after +2.3% in 2017.

Household consumption expenditures decelerated (0.0% after +0.4%), likewise total gross fixed capital formation slowed down (GFCF: +0.2% after +1.0%). Overall, final domestic demand excluding inventory changes decelerated: it contributed 0.2 points to GDP growth, after 0.5 points in the previous quarter.

Imports bounced back in Q4 (+1.4% after ?0.3%) and exports accelerated significantly (+2.3% after +0.2%). All in all, foreign trade balance contributed positively to GDP growth again: +0.3 points, after +0.2 points in Q3. Conversely, changes in inventories contributed negatively to GDP growth again (?0.2 points after ?0.4 points).

Production of goods and services decelerated slightly in Q4 2018 (+0.3% after +0.5%). It decelerated significantly in goods (+0.0% after +0.5%), while it remained dynamic in services (+0.5% after +0.5%). Output in manufactured goods halted this quarter (+0.0% after +0.7%). Indeed, production of refineries drew back significantly (?5.3% after +11.3%) due to social movements in November. Furthermore, production of gas and electricity slowed down a little (+0.1% after +0.3%) and construction remained virtually stable (+0.1% after +0.2%).

Analysts at the U.S. investment bank raised the chances of an extension to Article 50 to 55 percent from 50 percent, while keeping unchanged at 35 percent the probability of a "no Brexit" scenario.

"We continue to see the most likely outcome of the current impasse as eventual ratification of the Prime Minister's Brexit deal, with a three-month extension of Article 50," they wrote in a note.

Federal Statistical Office (Destatis) said, the index of import prices increased by 0.8% in January 2019 compared with the corresponding month of the preceding year. In December and in November 2018 the annual rates of change were +1.6% and +3.1%, respectively. From December 2018 to January 2019 the index fell by 0.2%.

The index of import prices, excluding crude oil and mineral oil products, increased in January 2019 by 1.1% compared to January 2018 and in comparison with December 2018 it fell by 0.3%.

The index of export prices increased by 1.1% in January 2019 compared with the corresponding month of the preceding year. In December and in November 2018 the annual rates of change were +1.3% and +1.7%, respectively. From December 2018 to January 2019 the index slightly rose by 0.1%.

According to the report from Federal Statistical Office, Switzerland’s GDP rose by 0.2% in the 4th quarter of 2018.  As in other European countries, this confirms a slowdown of the economy compared to the first half of the year. After a weak 3rd quarter (revised GDP growth: −0.3%), the economy at least returned to a moderate growth path.

This was largely due to manufacturing (+1.5%). Following a breather in the 3rd quarter, the sector returned to dynamic growth, especially in the chemical and pharmaceutical segment. However, other industries also reported turnover increases, such as the watchmaking and precision instrument industry as well as the food industry. Manufacturing benefited from the strong international demand for Swiss products: exports of goods (+5.6%) grew substantially.

Development in the service industry varied in the 4th quarter. In healthcare (+0.9%) and in business-related services (+0,4%) value added grew once again. Meanwhile trade (−0.6%) recorded its third negative quarterly figure in a row. The negative development of the previous quarter also continued in the financial sector (−0.8%). Overall, the development of the service sector remained below the historical average, curbed by declining exports of services (−2.6 %) and a final domestic demand which remains sluggish (−0.0%).

After a very weak previous quarter, the consumption expenditures of private households (+0.3%) saw a moderate rise, mainly due to health spending. Investment in construction (−0.4%), however, dipped slightly, particularly as a result of decreasing activity in building construction. Reflecting the weak domestic demand, imports of goods and services (−0.5%) fell slightly.

The provisional real GDP growth rate for 2018 is 2.5%. With this result, the Swiss economy has achieved growth comparable to that of 2014 (2.4%) for the first time again.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1439 (6465)

$1.1417 (1463)

$1.1404 (1176)

Price at time of writing this review: $1.1376

Support levels (open interest**, contracts):

$1.1349 (4979)

$1.1321 (2700)

$1.1284 (5604)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 8 is 99668 contracts (according to data from February, 27) with the maximum number of contracts with strike price $1,1400 (6465);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3447 (1719)

$1.3392 (2217)

$1.3358 (2974)

Price at time of writing this review: $1.3303

Support levels (open interest**, contracts):

$1.3199 (508)

$1.3164 (703)

$1.3125 (769)

Comments:

- Overall open interest on the CALL options with the expiration date March, 8 is 42469 contracts, with the maximum number of contracts with strike price $1,3100 (4048);

- Overall open interest on the PUT options with the expiration date March, 8 is 34971 contracts, with the maximum number of contracts with strike price $1,2700 (1904);

- The ratio of PUT/CALL was 0.82 versus 0.75 from the previous trading day according to data from February, 27

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.