CFD Markets News and Forecasts — 01-10-2020

• But acknowledges that Republicans and Democrats are still far apart on state and local aid
• Says that sides are coming closer on health provisions but the language is still an issue
• Not in agreement on how to aid small businesses, including restaurants

FXStreet notes that gold (XAU/USD) has managed to regain traction on Thursday and has surged above the $1900 mark. Economists at TD Securities note that US Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi have both reported progress in agreeing on a new fiscal stimulus bill which is positive for the yellow metal.

“News that Mnuchin and Pelosi are inching forward on a new round of fiscal stimulus is breathing life into the reflation trade, supporting equities, gold and precious metals. The latest news has turned the tide for inflation expectations and the USD, with renewed dollar weakness on the day helping turn one of gold's key drivers back in its favor.” 

“While the recent headwind of fiscal uncertainty has been eased, the other major hurdle to another gold bull run in the near term still remains in the form of deflationary pressure from mounting concerns of a second wave. Nonetheless, the potential for treatments and/or a vaccine can mitigate the building virus fears.”

The Commerce Department announced on Thursday that construction spending climbed 1.4 percent m-o-m in August after a revised 0.7 percent m-o-m advance in July (originally a 0.1 percent m-o-m increase). This marked the largest monthly gain in construction spending since January.

Economists had forecast construction spending increasing 0.8 percent m-o-m in August.

According to the report, spending on private construction jumped 1.9 percent m-o-m, while investment in public construction edged up 0.1 percent m-o-m. 

A report from the Institute for Supply Management (ISM) showed on Thursday the U.S. manufacturing sector’s activity expanded in September, albeit at a slightly slower pace than in August.

The ISM's index of manufacturing activity came in at 55.4 percent last month, down 0.6 percentage points from the August reading of 56.0 percent. The reading pointed to the fourth straight month of growth in factory activity.

Economists' had forecast the indicator to increase to 56.4 percent.

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

According to the report, the New Orders Index stood at 60.2 percent, a drop of 7.4 percentage points from the August reading and the Production Index registered 61 percent, down 2.3 percentage points compared to the August reading. Meanwhile, the Backlog of Orders Index posted 55.2 percent, 0.6 percentage point higher compared to the August reading, the Employment Index came in at 49.6 percent, an advance of 3.2 percentage points from the August reading, and the Supplier Deliveries Index was at 59 percent, up 0.8 percentage point from the August figure.

Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee, noted that after the coronavirus (COVID-19) brought manufacturing activity to historic lows, the sector continued its recovery in September. He also added that the past relationship between the PMI and the overall economy indicates that the PMI for September (55.4 percent) corresponds to a 3.7-percent increase in real gross domestic product (GDP) on an annualized basis.

The latest report by IHS Markit revealed on Thursday the seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index(PMI) came in at 53.2 in September, up marginally from 53.1 in August, but down slightly from the “flash” figure of 53.5. Still, the September reading pointed to the strongest growth in factory activity since January 2019.

According to the report, overall growth was underpinned by a faster expansion in production and a solid increase in new orders. As a result, firms continued to broaden their workforce numbers, as hiring rose following further upward pressure on capacity. Meanwhile, cost burdens grew sharply once again, with selling prices increasing at the fastest rate since January 2019.

U.S. stock-index futures surged on Thursday, as investors remained hopeful of a new coronavirus relief package, while data showed that U.S. weekly jobless claims fell more than expected.

Global Stocks:

Statistics Canada announced on Thursday that the value of building permits issued by the Canadian municipalities rose 1.7 percent m-o-m in August, following a revised 1.6 percent m-o-m drop in July (originally a decline of 3.0 percent m-o-m).

According to the report, the value of residential permits surged 7.1 percent m-o-m in August, as single-family permits jumped by 9.9 percent m-o-m, while permits for multi-family dwellings climbed by 5.0 percent m-o-m.

At the same time, the value of non-residential building permits plunged 8.6 percent m-o-m in August, due to declines in commercial (-14.7 percent m-o-m) and institutional (-5.8 percent m-o-m) permits, which were partially offset by a surge in industrial permits (+7.5 percent m-o-m).

In y-o-y terms, building permits tumbled 11.2 percent in August.

(company / ticker / price / change ($/%) / volume)

Amazon (AMZN) target raised to $4500 from $3925 at Pivotal Research Group

The Commerce Department reported on Thursday that consumer spending in the U.S. rose 1.0 percent m-o-m in August after a revised 1.5 percent m-o-m increase in July (originally a 1.9 percent m-o-m gain). Economists had forecast the reading to show an 0.8 percent m-o-m advance.

Meanwhile, consumer income decreased 2.7 percent m-o-m in August, following a revised 0.5 percent m-o-m advance in the previous month (originally a 0.4 percent m-o-m increase). Economists had forecast a 2.4 percent m-o-m decline.

The August drop in personal income was more than accounted for by a decrease in unemployment insurance benefits. Partially offsetting the drop in unemployment insurance benefits was an increase in compensation in August.

The personal consumption expenditures (PCE) price index, excluding the volatile categories of food and energy, which is the Fed's preferred inflation measure, rose 0.3 percent m-o-m in August, following a revised 0.4 percent m-o-m increase in the prior month (originally a 0.3 percent m-o-m gain). Economists had projected the index would rise 0.3 percent m-o-m.

In the 12 months through August, the core PCE increased 1.6 percent, following a revised 1.4 percent climb in the 12 months through July (originally a 1.3 percent jump). Economists had forecast an advance of 1.4 percent y-o-y. 

The data from the Labor Department revealed on Thursday the number of applications for unemployment unexpectedly decrease last week, as the U.S. labor market continues its slow recovery from its biggest shock in history, caused by the COVID-19 pandemic.

According to the report, the initial claims for unemployment benefits totaled 837,000 for the week ended September 26.

Economists had expected 850,000 new claims last week.

Claims for the prior week were revised upwardly to 873,000 from the initial estimate of 870,000.

Meanwhile, the four-week moving average of claims dropped to 867,250 from an upwardly revised 879,000 in the previous week.

Continuing claims declined to 11,767,000 million from an upwardly revised 12,747,000 in the previous week.

• Latest negotiations on a trade deal were conducted in constructive spirit
• We will continue to work to reach a deal

GBP fell against its major rivals in the European session on Thursday as negative Brexit headlines made investors reassess risks of a no-deal Brexit. 

Reuters reported, citing the EU sources familiar with the matter, that the EU and UK negotiators failed to close differences in the latest round of trade talks. In addition, the EU launched a legal case against Britain on Thursday for a "breach of the good faith articles in the Withdrawal Agreement." The European Commission (EC) President Ursula von der Leyen stated that action is due to the UK's new Internal Market Bill that undercuts earlier legal commitments made by the British government in the Brexit divorce treaty. Meanwhile, the EU's chief Brexit negotiator Barnier tweeted that "Full & effective implementation of Withdrawal Agreement will always be an absolute priority for the EU".

The Internal Market Bill was approved by the UK's lower house of parliament on Tuesday and moved to the upper house. London has one month to respond to the formal letter submitted by the EC. The UK PM' Boris Johnson's office said that they would respond to the EU legal letter "in due course".

However, the Financial Times' reporter Sebastian Payne tweeted that "despite the EU launching legal proceedings against the UK over the internal market bill, officials in London are increasingly optimistic" that the Brexit deal can be achieved. "Officials with knowledge of the talks say a landing zone on state aid has been identified but “fishing is the last sticking point"," he added.

• We are totally open to recalibrating measures
• But no need to decide on adjusting PEPP immediately
• Inflation will be negative or close to zero for the rest of the year

PepsiCo (PEP) reported Q3 FY 2020 earnings of $1.66 per share (versus $1.56 per share in Q3 FY 2019), beating analysts’ consensus estimate of $1.46 per share.

The company’s quarterly revenues amounted to $18.091 bln (+5.3% y/y), beating analysts’ consensus estimate of $17.239 bln.

The company also issued upside guidance for FY 2020, projecting EPS of $5.50 versus analysts’ consensus estimate of $5.37.

PEP rose to $139.92 (+0.95%) in pre-market trading.

FXStreet reports that according to economists at Westpac the AUD/USD pair narrowly avoided a break of 0.7000 and with the US dollar faltering, the aussie should extend its rebound towards 0.7300. 

“AUD/USD is always sensitive to the US dollar mood but the inverse correlation has tightened in recent months. This relationship is unlikely to loosen substantially in Q4... While there should be turbulence either side of the US election, we expect equities to emerge stronger, supporting AUD/USD en route to 0.75.”

“Shorter-term, we have plenty of domestic news to absorb. The RBA should hold steady but with a dovish statement. Markets will have priced in a budget pitched as growth-supportive, but it surely won’t do the Aussie’s cause any harm.” 

“If the US dollar continues to tilt lower, the 100-DMA at 0.7033 should remain well intact, with a bias for a push back to 0.7275/0.7300.”

FXStreet notes that NZD/USD broke sustainably above the 0.6601 “neckline” to the “double top” to suggest a more immediate resumption of the core bull trend. Resistance moves initially to 0.6647, then more importantly at 0.6688/93. On the flip side, support is seen at 0.6571/70, per Credit Suisse.

“NZD/USD has seen the recent strength extend further, breaking clearly above the crucial ‘neckline’ to the ‘double top’ at 0.6601 and thus questioning the top itself. In addition, daily MSCD momentum seems to be about to turn higher again and hence we change our bias to a more direct resumption of the core bull trend.” 

“We see resistance initially at 0.6647, then 0.6688/93, removal of which could open the door for a move higher to the cluster of resistances at 0.6778/6806 - the recent and current year highs as well as the 78.6% retracement of the December 2018/March 2020 fall - where we would expect to see a more concerted effort to cap at first.”

“Support moves initially to 0.6617, then 0.6604, ahead of 0.6571/70, beneath which would ease the immediate upside bias and see a move back to 0.6512.”

• We have clearly set out reasons for introducing measures on NI protocol

• Internal market bill is by its very nature a breach of the Brexit withdrawal agreement
• If adopted, it will be in full contradiction
• Commission has decided to send a letter of formal notice to the UK
• UK has one month to respond to EU on the letter
• This is the first step in infringement procedure

Eurostat, the statistical office of the European Union (EU), reported on Thursday industrial producer prices edged up 0.1 percent m-o-m in euro area in August following an upwardly revised 0.7 percent m-o-m gain in July (originally a 0.6 percent m-o-m advance). That was in line with economists’ forecasts.

According to the report, producer prices increased in the energy sector (+0.3 percent m-o-m) and for intermediate goods (+0.1 percent m-o-m), but remained stable for durable consumer goods and non-durable consumer goods, and declined for capital goods (-0.1 percent m-o-m).

In y-o-y terms, Eurozone’s producer price index (PPI) fell 2.5 percent in August, following a revised 3.1 percent decline in July (originally a 3.3 percent drop). Economists had forecast a 2.7 percent fall for August.

FXStreet notes that with the US election just about a month away, there's evidence piling up to support the view that investors need to prepare to not know the results on election night. Michael Zezas, Head of US Public Policy Research at Morgan Stanley, shares advice for investors.

“Voters appear poised to vote by mail in record numbers, and it appears likely that most of those voters will favor Democrats on the ballot. This puts in play a dynamic where the early vote count on election night in key states, which may reflect in-person voting first, may show results favoring Republicans, but then over time that lead could erode. Markets could naturally struggle with this uncertainty, swinging back and forth between pricing in Democratic and Republican policy paths.”

“Expect uncertainty, and volatility, but resist the temptation to react too quickly.”

“The guidance from our colleagues continues to be to look through the noise, and instead to the medium-term trajectory of US policy and its impact on the economy. Most outcomes, in our view, ultimately will result in fiscal support for the economy. This should help the US continue its recovery from the COVID-19 recession deep into 2021, and equity prices should move along with it.”

Eurostat, the statistical office of the European Union (EU), announced on Thursday an unemployment rate in the Eurozone edged up to 8.1 percent in August from an upwardly revised 8.0 percent in July (originally 7.9 percent). That was the highest rate since July 2018.

At the same time, the EU28 unemployment rate rose to 7.4 percent in August from 7.3 percent in July.

Among the Member States, the highest unemployment rates were observed in Spain (16.2 percent), Italy (9.7 percent) and Lithuania (9.6 percent).

The latest report by IHS Markit revealed on Thursday the seasonally adjusted final IHS Markit/CIPS Purchasing Managers’ Index (PMI) stood at 54.1, down slightly from the “flash” figure of 54.3 and down from August's two-and-a-half year high of 55.2. The latest reading pointed to a fourth straight month of growth, its longest sequence in expansion territory since early-2019.

Economists had forecast the index to stay unrevised at 54.3.

According to the report, output and new orders rose as new work intakes improved from both domestic and overseas market. Meanwhile, job losses were recorded for the eighth consecutive month in September, although the pace of reduction weakened to its lowest since February. 

• Both sides are split on the issue of state aid 
• Final consent from EU side will depend on withdrawal of UK's so-called internal market bill

The latest report by IHS Markit revealed on Thursday the seasonally adjusted final Eurozone Manufacturing PMI stood at 53.7, unchanged on the earlier flash reading and up from 51.7 in August. This was the highest reading since August 2018 and signaled an acceleration in growth of the manufacturing economy during September.

Economists had forecast the index to stay unrevised at 53.7.

According to the report, production growth accelerated to its strongest in over two-and-a-half years, while new orders increased at the quickest pace since February 2018 and the drop in employment was the weakest since February.

Germany led the upswing in regional manufacturing activity, with the respective PMI here hitting its highest level for 26 months. The Italian manufacturing sector also recorded its strongest growth rate for over two years.

FXStreet reports that economists at Credit Suisse see GBP remaining at a risk of a “final rout” ahead of any Brexit deal being agreed, due to the necessary theatrics ahead of that outcome. A new test of EUR/GBP 0.9400 seems very possible in the coming weeks, at which point it would finally make sense to buy GBP looking for an eventual deal.

“For now, GBP is holding its own while trade talks with the EU are ongoing, given the ever-present chance of a breakthrough. Especially as option markets suggest that risk premia are already priced into the GBP options curve. But we still believe underlying UK economic fragility and the risk of a final showdown with the EU means GBP levels approaching 1.30 in GBP/USD and below 0.91 in EUR/GBP should be faded in the first half of October.”

“ We see a good chance of a EUR/GBP spike to test 2020 highs around 0.9400, only after which would we wish to recommend fading GBP weakness and looking ahead to an eventual Brexit deal.”

USD fell against most major counterparts in the Asian session on Thursday as risk appetite improved amid growing hopes that U.S. lawmakers would reach a compromise on a new stimulus package. 

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, increased  0.13% to 93.76.

White House chief of staff Mark Meadows said that U.S. President Donald Trump's administration had extended the proposal for more than $1.5 trillion in stimulus. The announcement came after the House of Representatives delayed the vote on a $2.2 trillion relief package designed by House Democrats on Wednesday evening after House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin failed to strike a coronavirus aid deal but said the talks would continue.

In addition, the latest set of U.S. macro reports restored investor confidence in economic recovery prospects. A report from ADP revealed that private sector employment in the U.S. increased more than expected in September, while NAR's data showed that pending home sales in the U.S. climbed to a record high in August.

FXStreet notes that WTI has bounced back to an important technical level, the 100-DMA resistance ($39.68/bbl), following the recent petroleum Status Report statistics and positive US macro data from Wednesday morning. Bart Melek, Head of Commodity Strategy at TD Securities, expects the black gold to surge above the $41.70/bbl resistance.

“Following a disappointing several weeks, crude oil stocks unexpectedly started to decline at a rapid rate once again— posting a 1.98 M draw vs an expected build of 1.0 M bbls. This, along with steadfast demand and a surprisingly large distillate inventory decline of 3.2 M bbls (vs expected 1.2 M decline) suggests that the market is very likely to put to rest much of the concern that demand is going in reverse.”

“With a vaccine and effective therapeutics on the horizon, talk of a new US fiscal program and election-related uncertainties ebbing as November nears, demand growth should resume into 2021.”

“Considering our global supply-demand view into 2021, along with the state of inventories and US production, we expect WTI crude to shoot through resistance toward $41.70/bbl in the not too distant future.” “Longer-term, we continue to see WTI crude prices to trend in the mid-$40s/bbl in the latter part of 2020, early 2021.”

Federal Statistical Office reported on Thursday the Swiss Consumer Price Index (CPI) was flat m-o-m in September following no change in August. That was in line with economists’ forecasts.

According to the report, gains in prices for clothing, footwear and other fruits (grapes and melons) were offset by declines in prices for international package holidays, hotel accommodation and airfares.

In y-o-y terms, Swiss CPI fell 0.8 percent in September after a 0.9 percent decline in August, also matching economists’ expextations.

• We are in similar position to other European countries like France
• If we have further damaging impacts, then we will see more unemployment
• Have seen projections that unemployment could go to around 2 million

The Jibun Bank reported on Thursday that its latest survey indicated that Japan’s manufacturing sector moved another step closer to stabilization in September. The headline au Jibun Bank Japan Manufacturing Purchasing Managers’ Index (PMI) rose to 47.7 in September from 47.2 in August. This was the highest since February, albeit still below the neutral 50.0 value.

Economists had forecast the index to edge up to 47.3.

According to the report, production dropped at the weakest pace in seven months, while new orders fell to the least marked extent since January and new export sales declined at the slowest pace for eight months. At the same time, employment remained relatively stable across the manufacturing sector, with this index only fractionally below the 50.0 no-change threshold. 

The Bank of Japan's (BoJ) business sentiment survey, known as the Tankan, revealed on Thursday the big Japanese manufacturers' sentiment improved somewhat over the third quarter. According to the survey, the headline index for large manufacturers' sentiment rose to -27 in the third quarter from the previous quarter's reading of -34. This was worse than economists’ forecast of -23.

Meanwhile, sentiment in the non-manufacturing sector recovered to -12 in the September quarter from -17 in the previous quarter. Economists had expected -9.

The survey also showed that both big manufacturers and non-manufacturers forecast business conditions to recover further in the next three months. The outlook index among manufacturers came in at -17 and that in non-manufacturing at -11.