CFD Markets News and Forecasts — 01-06-2021

• Says his view of inflation has not changed in last few months; still expects inflation to be transitory
• We could be wrong but we do have tools to cope with that, so the right risk-management approach is the one we're doing
• I don't think we should use our tools to address supply chain issues
• The question is whether supply chain disruptions last long enough to affect inflation expectations

The Commerce Department announced on Tuesday that construction spending rose 0.2 percent m-o-m in April after a revised 1.0 percent m-o-m climb in March (originally a 0.2 percent m-o-m increase).

Economists had forecast construction spending growing 0.5 percent m-o-m in April.

According to the report, spending on private construction increased 0.4 percent m-o-m, while investment in public construction fell 0.6 percent m-o-m.

On a y-o-y basis, construction spending surged 9.8 percent in April.

A report from the Institute for Supply Management (ISM) showed on Tuesday the U.S. manufacturing sector’s activity expanded in May at a slightly stronger pace than in April.

The ISM's index of manufacturing activity came in at 61.2 percent last month, up 0.5 percentage point from an unrevised April reading of 60.7 percent. The May reading pointed to the growth in the manufacturing sector for the 12th straight month.

Economists' had forecast the indicator to edge up to 60.9 percent.

A reading above 50 percent indicates expansion, while a reading below 50 percent indicates contraction.

According to the report, the New Orders Index was at 67.0 percent, increasing 2.7 percentage points from the April reading, while the Backlog of Orders Index came in at 70.6 percent, 2.4 percentage points higher compared to the April reading and the Supplier Deliveries Index stood at 78.8 percent, up 3.8 percentage points from the April figure. Meanwhile, the Production Index registered 58.5 percent, a drop of 4 percentage points compared to the April reading and the Employment Index recorded 50.9 percent, 4.2 percentage points lower than the April reading. On the price front, the Prices Index posted 88 percent, down 1.6 percentage points compared to the April reading.

Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee, noted that the manufacturing economy continued its growth in May but Survey Committee members reported that their companies and suppliers continue to struggle to meet increasing rates of demand. “Record-long lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect all segments of the manufacturing economy,” he said. “Worker absenteeism, short-term shutdowns due to part shortages, and difficulties in filling open positions continue to be issues that limit manufacturing-growth potential.” Fiore also said that the past relationship between the PMI and the overall economy indicated that the PMI for May (61.2 percent) corresponds to a 5.2-percent increase in real gross domestic product (GDP) on an annualized basis.

The latest report by IHS Markit revealed on Tuesday the seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index(PMI) came in at 62.1 in May, up from 60.5 in April and from the earlier released “flash” reading of 61.5. The May reading pointed to another record growth in factory activity in the 14-year series history.

Economists had forecast the index to stay unrevised at 61.5.

According to the report, the May gain in headline figure was supported by stronger expansions in output and new orders, with the pace of the latter reaching the fastest on record. Nonetheless, constraints on production capacity were exacerbated further during the month, as severe supply-chain disruptions led to a marked accumulation of backlogs of work and one of the quickest rises in input prices since data collection began in May 2007.

U.S. stock-index futures rose on Tuesday, powered by a renewed rally in commodity prices, on bets of a strong post-pandemic recovery in the U.S.

Global Stocks:

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FXStreet reports that the Credit Suisse analyst team suggests that above 4171/69, the S&P 500 Index can maintain an immediate upward bias, reinforced by the turn higher in daily MACD momentum for a move back to and above the 4238 high, then 4260.

“With daily MACD momentum now crossing higher though, we now look for the uptrend to start to regain momentum again and we look for a break above 4218 to clear the way for a move back to the 4238 record high, above which we see resistance seen at 4260 next.” 

“Big picture, we continue to look for a move to 4350.” 

“Support moves to 4198 initially, then 4183, with the 13-day exponential average and recent price gap at 4176/69 now ideally holding.”

Boeing (BA) upgraded to Outperform from Market Perform at Cowen; target raised to $290

Statistics Canada announced on Tuesday that the country’s gross domestic product (GDP) grew 1.1 percent m-o-m in March after a revised 0.4 m-o-m advance in February (originally an increase of 0.4 percent m-o-m).

That was slightly above economists’ forecast for a growth of 1.0 percent m-o-m.

In the first quarter of 2021, the Canadian GDP grew 1.4 percent q-o-q, following a revised 2.2 percent q-o-q gain in the fourth quarter of 2020 (originally a 2.3 percent q-o-q advance).

According to the report, the q-o-q increase in GDP reflected the continued strength of the economy, influenced by favourable mortgage rates, continued government transfers to households and businesses, and an improved labour market. These factors boosted the demand for housing investment, while rising input costs heightened construction costs.

Expressed at an annualized rate, Canada’s GDP expanded 5.6 percent in the first quarter after a revised 9.3 percent jump in the previous quarter (originally a 9.6 percent surge). This was worse than economists’ forecast of a 6.7 percent increase.

EUR traded mixed against its major rivals in the European session on Tuesday after the data showed that the Eurozone's manufacturing sector saw a new record improvement in operating conditions during May, while the region’s consumer price inflation hit the European Central Bank's (ECB) "just-below-2%-target"  for the first time since 2018.

IHS Markit reported its Eurozone Manufacturing PMI was revised to 63.1 in May, up from a preliminary of 62.8 and above 62.9 in April. The reading pointed to fresh record growth in factory activity. 

According to Eurostat's preliminary estimate, the euro area annual inflation rate accelerated to 2.0 percent last month from 1.6 percent in April.  This was the highest reading since October 2018 and topped the ECB’s preferred target of "just below 2%" and economists' forecast of 1.9 percent. 

Despite a spike in consumer prices in May, market participants do not expect it will cause a change in the ECB's monetary policy next week. The ECB's policymakers have continued to say that a surge in inflation is expected due to base effects and temporary factors and that CPI may even exceed the bank's target by the end of the year.

FXStreet reports that the Credit Suisse analyst team suggests that above 1.2183, the EUR/USD pair can maintain an intraday base for strength above 1.2267 to challenge the top of the range for the year at 1.2321/1.2350.

“EUR/USD weakness on Friday was contained at the 23.6% retracement of the March/May rally at 1.2134 and although daily MACD and RSI momentum shows clear signs of tiring the subsequent recovery from here has seen a near-term base complete to keep the immediate risk higher for now.” 

“Support is seen at 1.2206 initially with 1.2183 ideally holding for a break above 1.2241 to clear the way for a move back to the 1.2264/67 current cycle highs. Above here can clear the way for a challenge on the top of the range for the year at 1.2321/1.2350. We would then look for a fresh cap here for a swing lower within the broader converging range.”

FXStreet reports that UOB Group’s FX Strategists note that the outlook for USD/CNH remains tilted to the downside in the short-term horizon.

24-hour view: “USD subsequently dropped to 6.3526 before rebounding (overnight high of 6.3744). Downward pressure has eased and while there is room for the recovery to extend, any advance is likely limited to a test of 6.3800. Support is at 6.3600 followed by 6.3530.”

Next 1-3 weeks: "In our latest narrative from yesterday (31 May, spot at 6.3700), we indicated that ‘risk for USD remains on the downside and a break of 6.3550 would shift the focus to 6.3300’. USD subsequently dropped to 6.3526 before rebounding. While the focus is at 6.3300 now, oversold conditions suggest that this level may not come into the picture so soon. All in, only a breach of the 6.4000 (no change in ‘strong resistance’ level) would indicate that the current weakness in USD has run its course.”

FXStreet notes that copper (LME) has resumed its ascent from the May low at 9795.00. According to Axel Rudolph, the base metal now targets the all-time high at 10747.50.

“Copper probably ended its recent minor degree Elliott wave a-b-c correction at its 9795.00 May low and last week resumed its ascent towards its all-time high at 10747.50, made marginally below the 161.8% Fibonacci extension of the October-to-January advance and projected higher from the January low at 10890.80. These levels will remain in focus while support at 9795.00 underpins.” 

“Minor support below the 9795.00 level is seen at the 9617.00 February high. Below the latter sits the 9483.00 April 20 high and also the 9199.50 mid-March high.” 

“We will retain our long-term bullish forecast while the contract stays above the 8570.00 March low. Below 8570.00 support comes in at the January high at 8238.00.” 

“Resistance is seen at the 10525.00 May 18 high and also at 10747.50."

FXStreet notes that GBP/USD maintains the strong tone following its bullish “outside day” for a break to a new cycle high. Economists at Credit Suisse look for a move to their first core upside target of 1.4302/77 - the 2018 highs and 50% retracement of the 2014/2020 bear trend. 

“With a base in place from March/May as well as a long-term base already in place from late 2020 we maintain our core and long-held bullish outlook. We thus look for a clear break above the 1.4235/46 current highs for a move to our first core upside target of 1.4302/77 - the 2018 highs and 50% retracement of the 2014/2020 bear trend.”

“Whilst we would look for a fresh pause below 1.4377, big picture we look for this to be cleared in due course for an eventual move to 1.49/1.51.” 

FXStreet reports that FX Strategists at UOB Group suggest that USD/JPY is now expected to trade on a 108.80-110.00 consolidation theme in the next weeks.

24-hour view: “While we highlighted yesterday that ‘deeply overbought conditions suggest that USD is unlikely to strengthen further’, we expected USD ‘to consolidate and trade between 109.50 and 110.05’. However, USD dropped sharply to 109.34 before settling on a soft note at 109.54 (-0.25%). The sharp drop appears to be running ahead of itself but there is room for USD to dip below the strong support at 109.30. For today, the next support at 109.10 is unlikely to come into the picture. Resistance is at 109.65 followed by 109.85.”

Next 1-3 weeks: “Rapid loss in momentum suggests that USD strength has ended sooner than expected. USD is likely to consolidate and trade between 108.80 and 110.00 for now.”

Reuters reports that Deputy Finance Minister Joerg Kukies said that the German economy is likely to reach its pre-pandemic level in the second half of the year, as falling coronavirus infections and progress in the vaccination campaign enable a solid recovery.

In a briefing on Germany's financial stability, Bundesbank Vice President Claudia Buch said prices for residential real estate continued to rise sharply which was pushing up household debt, but the related risks for the financial stability are mitigated by Germany's relatively low level of household indebtedness.

According to the report from Eurostat, in April 2021, the euro area seasonally-adjusted unemployment rate was 8.0%, down from 8.1% in March 2021 and up from 7.3% in April 2020. Unemployment was expected to remain at 8.1%. The EU unemployment rate was 7.3% in April 2021, stable compared with March 2021 and up from 6.7% in April 2020.

Eurostat estimates that 15.380 million men and women in the EU, of whom 13.030 million in the euro area, were unemployed in April 2021. Compared with March 2021, the number of persons unemployed decreased by 165 000 in the EU and by 134 000 in the euro area. Compared with April 2020, unemployment rose by 1.406 million in the EU and by 1.275 million in the euro area.

In April 2021, 2.939 million young persons (under 25) were unemployed in the EU, of whom 2.348 million were in the euro area. In April 2021, the youth unemployment rate was 17.1% in the EU and 17.2% in the euro area, stable in both areas compared with the previous month. Compared with March 2021, youth unemployment decreased by 21 000 in the EU and by 18 000 in the euro area. Compared with April 2020, youth unemployment increased by 211 000 in the EU and by 126 000 in the euro area.

In April 2021, the unemployment rate for women was 7.6% in the EU, down from 7.7% in March 2021. The unemployment rate for men was 7.0% in April 2021, stable compared with March 2021. In the euro area, the unemployment rate for women decreased from 8.5% in March 2021 to 8.4% in April 2021 while the unemployment rate for men remained stable at 7.7%.

According to a flash estimate from Eurostat, euro area annual inflation is expected to be 2.0% in May 2021, up from 1.6% in April. Economists had expected a 1.9% increase. The core figures steadied at 0.9% y/y in May when compared to 0.8% expectations and 0.7% in April.

Looking at the main components of euro area inflation, energy is expected to have the highest annual rate in May (13.1%, compared with 10.4% in April), followed by services (1.1%, compared with 0.9% in April), non-energy industrial goods (0.7%, compared with 0.4% in April) and food, alcohol & tobacco (0.6%, stable compared with April).

According to the report from IHS Markit/CIPS, conditions in the manufacturing sector improved at an unprecedented rate in May, as output growth strengthened and new orders rose at the quickest pace in the near three decade survey history. Looser pandemic restrictions and high levels of pent-up demand meant that the rapid revival in labour market conditions continued, with staffing levels also rising at a record pace.

The seasonally adjusted PMI rose to 65.6 in May, up from 60.9 in April, above July 1994's previous record high of 61.0. The PMI has signalled improvement in each of the past 12 months. Manufacturing production rose at one of the quickest rates in the series history, bettered only by those registered in August 2013 and July 1994. 

Underpinning the latest increase were record gains in new business, as domestic and overseas demand continued to revive. Companies linked new order growth to rising business confidence, the further re opening of the UK economy and reduced issues relating to COVID-19. New export orders also rose at a survey-record pace in May, amid reports of stronger demand from the EU, the US and China. That said, there were continued signs that while large companies were seeing record gains in new export work, the rate of increase at small firms was comparatively mild. The corollary of the strong upswing in the performance of the manufacturing sector was pressure building on capacity, with backlogs of work rising to the greatest extent in the survey history. This was a major factor encouraging firms to reinvigorate their recruitment plans, leading to a record increase in staffing levels at manufacturers.

May saw business sentiment rise to its highest level since data on future activity were first collected in July 2012. Over 70% of companies forecast that production would be higher in one year's time, compared to only 3% expecting a decline. Improved optimism reflected the end of the pandemic, economic recovery, planned business expansions, a revival in World trade flows and reduced supply-chain issues.

According to the report from IHS Markit, the eurozone manufacturing economy experienced a new record improvement in operating conditions during May. The headline PMI recorded 63.1, compared to 62.9 in April and its highest reading in the survey history (data for the eurozone have been available since June 1997). The headline index has now recorded readings above the 50.0 no-change mark that separates growth from contraction for 11 months in succession.

All three market groups once again recorded strong improvements in operating conditions during May. Investment goods producers were again the best performing, registering rapid gains in both output and new orders. The intermediate goods and consumer goods categories both saw stronger growth, with respective PMI readings for May close to survey record highs.

Growth of manufacturing output was the slowest recorded by the survey for three months, though it nonetheless remained close to March’s survey record with production again underpinned by rapid gains in new orders. May’s survey indicated that sales rose at the third-strongest rate in the survey history (surpassed only by increases seen in the preceding two months). New order books were swollen by increased demand from across domestic and international markets: new export business rose again at a historically sharp pace.

Placing constraints on production activities were ongoing difficulties in sourcing inputs from vendors. Deliveries from suppliers deteriorated at a severe and unprecedented rate during the month, as demand for inputs again exceeded the supply capabilities of vendors.

Finally, confidence about the future remained highly positive in May despite easing to its lowest in the past four months. Manufacturers remained buoyed by the potential opportunities over the coming year from the hoped-for further reopening of economies and easing of restrictions related to dealing with the COVID-19 pandemic.

FXStreet reports that economists at DBS Bank expect GBP/USD to extend its advance towards the 1.4345-1.4377 region.

“The 6 May Bank of England (BoE) policy meeting provided a policy taper lift-off, and last week’s (ended 28 May) hawkish comments from BOE policymaker Gertijan Vlieghe has further fuelled GBP short covering. Vlieghe’s comments of a possible earlier rate hike were read as significant. It appears as a strong testament of the BoE’s growing confidence over the UK’s economic outlook.” 

“GBP has benefited from UK’s COVID-19 reopening by its virtue as a vaccination leader, and with UK May composite PMI rising to 62.0 to register the fastest output growth on record. While there is scope to bring lower GBP’s speculative length, we note the significance of the break of the key 1.4005 resistance pivot. A spillover 1.4237 increases upside pressure for a likely peep into 1.4345- 1.4377, which is the prior double top zone sighted in January and April 2018, respectively.”

During today's Asian trading, the pound rose against the US dollar amid growing expectations that the UK economy will quickly gain strength thanks to the country's successful COVID-19 vaccination campaign. The US dollar also declined slightly against the euro and was unchanged against the yen.

"Thanks to the progress in vaccination, Britain is closer to economic normalization than other countries. The pound may rise to $1.45, " analysts at Ueda Harlow Ltd said.

According to estimates by Bloomberg and Johns Hopkins University, at the current rate of vaccination in the UK within a month, the proportion of the country's population who received two doses of the coronavirus vaccine will reach 75%.

The improved outlook for the British economy contributes to the growth of expectations that the Bank of England may soon think about a gradual curtailment of stimulus measures. The market estimates a 46% chance of the Bank of England raising its benchmark interest rate by August 2022.

The ICE index, which tracks the dollar's performance against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell 0.3%.

The Federal Statistical Office (FSO) said that turnover adjusted for sales days and holidays rose in the retail sector by 34.8% in nominal terms in April 2021 compared with the previous year. This is the sharpest increase since the start of the time series in January 2000 and is in large part due to the weak April 2020, during which the Covid-19 safety measures came into effect. Seasonally adjusted, nominal turnover fell by 4.3% compared with the previous month.

Real turnover adjusted for sales days and holidays rose in the retail sector by 35.7% in April 2021 compared with the previous year. Real growth takes inflation into consideration. Compared with the previous month, real, seasonally adjusted retail trade turnover registered a decline of 4.4%.

Adjusted for sales days and holidays, the retail sector excluding service stations showed a 35.1% increase in nominal turnover in April 2021 compared with April 2020 (in real terms +36.2%). Service stations recorded a nominal turnover increase of 30.9% (in real terms +13.5%).

Retail trade of food, drinks and tobacco in April 2021 recorded an increase in nominal turnover of 11.8% (in real terms +13.3%) compared with April 2020. The non-food sector recorded a nominal plus of 73.1% (in real terms +73.5%) in comparison with the previous year. 

Excluding service stations, the retail sector showed a seasonally adjusted decline in nominal turnover of 4.6% compared with the previous month (in real terms –4.8%). Retail sales of food, drinks and tobacco registered a nominal minus of 0.8% (in real terms –1.3%). The non-food sector showed a minus of 7.0% (in real terms –7.2%).

According to the report from Nationwide Building Society, UK annual house price growth rises to 10.9% in May, the highest level in nearly seven years. Economists had expected a 9.2% increase. Prices up 1.8% month-on-month, following a 2.3% rise in April. Economists had expected a 0.8% increase. New record average price of £242,832, up £23,930 over the past twelve months.

Commenting on the figures, Robert Gardner, Nationwide's Chief Economist, said: “May saw a further acceleration in annual house price growth to 10.9%, the highest level recorded since August 2014. In month-on-month terms, house prices rose by 1.8% in May, after taking account of seasonal effects, following a 2.3% rise in April. The market has seen a complete turnaround over the past twelve months. A year ago, activity collapsed in the wake of the first lockdown with housing transactions falling to a record low of 42,000 in April 2020. But activity surged towards the end of last year and into 2021, reaching a record high of 183,000 in March. While March’s spike in transactions was driven by the original end date of the stamp duty holiday, a lot of momentum has been maintained. Our research indicates that the extension to the stamp duty holiday is not the key factor, though it is clearly impacting the timing of transactions. Amongst homeowners surveyed at the end of April that were either moving home or considering a move, three quarters (68%) said this would have been the case even if the stamp duty holiday had not been extended. It is shifting housing preferences which is continuing to drive activity, with people reassessing their needs in the wake of the pandemic".

RTTNews reports that Australia's central bank left its key interest rate and the government bond yield target unchanged, as widely expected.

The policy board of the RBA decided to leave its cash rate unchanged at a record low of 0.10 percent. The central bank retained the target yield on the 3-year Australian government bond at around 0.1 percent and also maintained the parameters of the Term Funding Facility and the government bond purchase programme.

At the July meeting, the board will consider future bond purchases following the completion of the second A$100 billion of purchases under the current programme.

The board reiterated that it will not increase the cash rate until actual inflation is sustainably within the 2 to 3 percent target range.

While a pick-up in inflation and wages growth is expected, it is likely to be only gradual and moderate, the bank observed. In the central scenario, inflation in underlying terms is expected to be 1.5 percent in 2021 and 2 percent in mid 2023.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2307 (3259)

$1.2268 (2263)

$1.2239 (3508)

Price at time of writing this review: $1.2219

Support levels (open interest**, contracts):

$1.2166 (1410)

$1.2134 (1020)

$1.2093 (1933)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 4 is 73758 contracts (according to data from May, 28) with the maximum number of contracts with strike price $1,2050 (3908);

GBP/USD

$1.4357 (2868)

$1.4315 (918)

$1.4278 (639)

Price at time of writing this review: $1.4221

Support levels (open interest**, contracts):

$1.4119 (166)

$1.4082 (596)

$1.4041 (297)

Comments:

- Overall open interest on the CALL options with the expiration date June, 4 is 21495 contracts, with the maximum number of contracts with strike price $1,4350 (2868);

- Overall open interest on the PUT options with the expiration date June, 4 is 33452 contracts, with the maximum number of contracts with strike price $1,3100 (3957);

- The ratio of PUT/CALL was 1.56 versus 1.54 from the previous trading day according to data from May, 28

* - 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.