CFD Markets News and Forecasts — 02-06-2020

FXStreet reports that economist at UOB Group Ho Woei Chen, CFA, reviewed the latest set of results from the PMIs in China.

"The private sector Caixin manufacturing PMI unexpectedly expanded in May as it rose 1.3 points to 50.7 from 49.4 in April, outperforming market consensus for another month of contraction... So far, the recovery in the manufacturing gauge from its low of 40.3 in February has been bumpy at best, having fallen back into contraction in April.”

“Over the weekend, China’s official Purchasing Manager’s Index (PMI) slipped 0.2 point to 50.6 in May from 50.8 in April… Although this was the third straight month that the index indicated an expansion (above-50 reading) in manufacturing activities, signs of weakening pace of recovery is of a concern.”

“Within the official manufacturing PMI, the production (53.2 from 53.7 in April) and employment (49.4 from 50.2 in April) sub-indexes weakened while new orders (50.9 from 50.2 in April) and new export orders (35.3 from 33.5 in April) improved in May. Despite the pick-up, new export orders, which is a forward-looking indicator of global demand for Chinese goods, remains deep in contraction. By enterprise type, the manufacturing outlook has improved for the large companies while medium and small sized companies lagged in May.”

“Meanwhile, China’s official non-manufacturing PMI continued to improve, rising to 53.6 in May from 53.2 in April for a more optimistic outlook of services demand in China. It remains to be seen if the divergence with the private sector Caixin services PMI (due 9.45 am on 3 June) will continue in May.”

FXStreet notes that the Bank of Canada's (BoC) rate decision on 3 June will mark the first day on the job and the first rate decision for the new Governor Tiff Macklem as he takes over from Governor Poloz. Economists at Rabobank believe that the policy rate will be left at 0.25% while have revised down the USD/CAD 3-month forecast to 1.42. 

“We expect the Bank of Canada to leave the policy rate unchanged at 0.25% on Wednesday, June 3rd. This is fully expected by both analysts (Bloomberg survey) and traders (CAD OIS).  We expect the policy rate to remain at 0.25% at least through 2020 and 2021.” 

“The break below 1.3830 in USD/CAD has broken the recent range but we are reticent to call the pair trading much lower from here despite the equity rally looking to have legs in the short-term.”

“We now expect USD/CAD to trade at 1.38 on a 1-month horizon 1.42 on a 3-month horizon down from 1.44 and 1.46 respectively.”

U.S. stock-index futures rose slightly on Tuesday, as investors weighed prospects of a near-term recovery from the coronavirus downturn and protests in the U.S. 

Global Stocks:

FXStreet notes that global stocks have continued to rally with the S&P 500 now back above 3,000. Economists at UBS recommend remaining invested and buying using a dollar-cost averaging strategy.

“US stocks have now rallied by over 36% since the low point on 23 March. As always, we recommend staying invested because selling out can be extremely costly. But for investors looking to manage downside risks, it is important to maintain a well-diversified portfolio.”

“For investors who find themselves sitting on the sidelines, but who are worried about the risk of an ill-timed investment, we recommend using a dollar-cost averaging strategy to build up long-term positions. Averaging into equities can help investors deploy capital while smoothing near-term bumps, and investors who can implement options can also pair this approach with a put-writing strategy to provide some additional yield.”

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

Microsoft (MSFT) target raised to $250 at Wells Fargo

Citigroup (C) upgraded to Buy from Hold at Odeon

• China still has policy space for normal monetary policy to support economy
• Economic impact from COVID-19 outbreak has exceeded expectations
• New innovative policy tools to boost small banks' lending to small firms are short-term policy arrangements, not QE
• Chinese banks' asset quality could be affected as economy faces downward pressure
• Big banks should also step up lending to small firms, although they won't get policy support
• Small banks will get interest-free loans based on 40% of their lending to small firms via innovative policy tools

USD, JPY and CHF fell in the European session on Tuesday as hopes of a near-term recovery of the global economy from the coronavirus downturn continued to boost risk sentiment. USD gained only against JPY and CHF. CHF was firmer against JPY.

Market participants also continued to hope that central banks would continue to flood the financial system with money to support the recovery.

Investors, however, remained mindful of social unrest in the United States that followed the death of George Floyd, an unarmed black man, at the hands of a Minneapolis police officer, as well as persisting tension between Washington and Beijing.

U.S. President Donald Trump threatened late Monday to deploy the U.S. military "if a city or state refuses to take the actions that are necessary to defend the life and property of their residents".

FXStreet reports that Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, notes that NYMEX Light Crude Oil has risen above the April peak and resistance line at 34.88/35.18 and eyes the 37.33/40.11 area.

“Nymex July Light Crude Oil is in the process of rising above its 2020 resistance line and the April high at 34.88/35.18 with the 37.33/75 March 9 and 11 highs as well as the August 2015 low being next in line.”

“There is a remaining gap to be seen between the 37.64 high and the 41.88 low with en route lying the August 2016 low at 39.19 and the 50% retracement at 40.11. Further up sit the June 2017 and December 2018 lows at 42.05/36.”

“Immediate upside pressure should be maintained while the contract remains above the May 22 low at 30.72. Below it, the early May high and 55-day moving average make up support at 28.05/27.98 and the early April low at 26.14.”

FXStreet reports that S&P 500 remains well supported above its 200-day average, currently at 3003, and analysts at Credit Suisse look for the rally to extend further, with the next meaningful resistance seen at 3136/37. 

“Whilst support at 3032/30 holds the immediate risk is seen staying higher with resistance seen initially at 3065/69 and then 3076/83. Ultimately though, the next meaningful resistance is not seen until 3136/37 – the 78.6% retracement of the Q1 collapse and March high – where we would look for the rally to stall.”

“Near-term support moves to 3043. Below 3030 can see a fall back to 3013, with better support expected again at 3007/3003. A move below 2999 though remains needed to ease the immediate upside bias for a deeper setback, with support then seen next at 2984.”

• Will step up capability to test infectious diseases
• Will enhance research, development of new traditional Chinese medicine

• Regarding travel warning, we are preparing a decision for Cabinet tomorrow
• The aim is to lift travel warning for EU and some other countries
• We will meet with neighbouring/transit countries before 15 June to discuss principles

• We oppose Hong Kong's security law imposed by China
• We oppose such an authoritarian security law
• National security law undermines one country, two systems
• We recognize China's role in the world but it should live up to its responsibilities
• If China continues down this path, we shall consider our response
• UK will not look the other way if China continues down this path
• Actions of China are putting at risk one of jewels in crown of China

FXStreet reports that in a recent client note, ABN Amro Precious Metals Analyst, Georgette Boele, warned that gold prices risk a sharp fall, as the long positions remain very crowded.

“We continue to think that positions are too crowded and that prices are too high to recommend re-entering longs.”

“We also expect a considerable drop in gold prices.”

“Between now and 3 months we expect another risk-off wave in financial markets. We think that investors will close part of their positions (ETF and/or speculative positions) in gold, silver and platinum.”

“Each time there has been some price weakness it seems that investors are buying gold on dips. Gold ETF positions have made a new record and stand just under 100 million ounces. After some liquidation of speculative positions, speculators have also showed renewed interest in gold.” 

“Very bullish on gold, projecting the yellow metal to finish Q3 at $1,775 an ounce and Q4 at $1,800 an ounce.” 

FXStreet notes that the S&P 500 has marched steadily higher from its March 23rd low against a backdrop of investor skepticism. Analysts at JP Morgan Asset Management expect an eventual retracement on the S&P 500 Index but to stay range-bound in the near-term.

“S&P 500 futures positioning remains net short, the AAII bull/bear survey is not showing signs of reckless optimism, and the put/call data is only starting to show signs of complacency. One could argue that valuations are stretched – and they would probably be right – but valuations don’t tell you much about near-term performance. The market doesn’t need a whole lot of good news, it just needs bad news to remain at bay.”

“At some point, markets will pull back. This could be caused by any number of things: a reacceleration in case growth, any sign that policymakers are starting to reign in stimulus, or a failure on the part of the labor market to rebound in line with expectations. As long as these things do not materialize, equities will likely avoid retesting the March 23rd lows; at the same time, however, reaching a new all-time high in the near-term seems unlikely.”

“Volatility looks set to remain elevated; remember, it took over a year for the VIX to drop below 20 after peaking in November 2008. As such, we expect the market will be range bound going forward, but cyclical value could outperform growth as the data improves. As such, we maintain our preference for quality companies, but are increasingly comfortable taking a bit more risk.”

FXStreet reports that Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, does not rule out a slide to the short-term uptrend at 0.8813 on the EUR/GBP pair before recovery. 

“EUR/GBP came very close last week to its upside measured target of 0.9060 (high was 0.9056). We are seeing some very near-term profit-taking and note that the market has already slipped back to the 55-day ma at 0.8872. There is scope for the short term support line at 0.8813 and we look for dips lower to hold here.” 

“Above 0.9086 we target the 0.9184 then 0.9323, the 61.8% and 78.6% retracement of the move seen since March.”

CNBC reports that Greece wants to negotiate new fiscal targets with its euro zone creditors as the coronavirus crisis pushes its debt pile to almost 200% of gross domestic product (GDP).

Greece, which has been through three bailout programs over the last decade, agreed in 2018 to reach a primary budget surplus — when a government’s revenues are higher than its spending — of 3.5% until 2022. Though this required level of surplus limits the government’s ability to spend, it came in exchange for softer debt repayment conditions.

However, as the coronavirus pandemic brought the Greek economy to a halt, the country’s finance minister told CNBC he will be discussing new targets with his euro zone counterparts.

“Taking into account what the Eurogroup (of euro zone finance ministers) decided recently, we don’t have these targets in 2020 and we will discuss as Europe, at the Eurogroup, the targets, the rules and the requirements for 2021 onwards taking into account the response to the coronavirus crisis,” Christos Staikouras, Greece’s finance minister, said Tuesday.

In the wake of the pandemic, European policymakers agreed in March to lift fiscal targets for each member country, giving them more leeway to tackle the unprecedented economic shock. However, this is meant to be a temporary measure in response to the economic crisis across the European Union.

The European Commission, the executive arm of the EU, forecast in May a debt-to-GDP ratio of 196.4% for Greece in 2020 and of 182.6% in 2021. In 2019, Greece’s debt pile stood at 176.6% of GDP.

“According to the European Commission, we will not have the largest increase in debt-to-GDP in 2020, we will be the fourth-largest increase, but we will have the largest decrease of this ratio in 2021,” Staikouras told CNBC, saying that Greek debt is sustainable.

FXStreet reports that the NZD/USD broke above key resistance at 0.6216/68 to turn the spotlight on the 200-day average at 0.6315, the Credit Suisse analyst team report. ANZ thinks a break of 0.63 is imminent.

“NZD/USD saw a sharp and closing break above the pivotal ‘neckline’ to the 2015/2020 ‘triangle’ at 0.6216 as well as key medium-term resistance at 0.6265/68. The market subsequently came to a temporary halt just ahead of the 200-day average at 0.6315, and whilst this is an important resistance and short-term consolidation should be allowed for, we now look for a break above here in due course.” 

“Above the 0.61315 200-day ma on a closing basis, would further reinforce the recent upswing, with next resistance at 0.6360, before the more important 9th March spike high at 0.6448.” 

“Support is seen initially seen at the 0.6272, then 0.6225/22, ahead of 0.6183, which now ideally holds.”

Reuters reports that British mortgage approvals slumped to the lowest on record in April and consumers ramped up repayment of loans as the country spent the month in the coronavirus lockdown, Bank of England data showed on Tuesday.

The number of mortgage approvals fell to 15,848 - the lowest since comparable records began in October 1997 - down from 56,136 in March which was already sharply lower than in previous months.

Consumer credit figures showed a net repayment of 7.399 billion pounds, the biggest such repayment on record.

FXStreet reports that UOB Group’s FX Strategists noted USD/CNH could grind lower to the 7.1150 region in the next weeks.

24-hour view: “Our expectation for USD to ‘extend lower towards 7.1150’ did not materialize as it only touched 7.1234. The underlying tone still appears to be soft and we continue to see chance for a dip to 7.1150 first before a more sustained recovery can be expected. Resistance is at 7.1400 followed by 7.1500.”

Next 1-3 weeks: “The sudden sharp sell-off in USD last Friday took out our ‘strong support’ level at 7.1400. The break of the ‘strong support’ indicates that the positive phase in USD that started on Thursday (28 May, spot at 7.1800) ended much sooner than expected. The sharp but short-lived advance has resulted is a mixed outlook. From here, USD could trade sideways between 7.0950 and 7.1750 for a period.”

Reuters reports that China’s vehicle sales for May are set to rise 11.7% year on year to 2.14 million, the country’s top auto industry body said in a post on its official WeChat account on Tuesday.

The China Association of Automobile Manufacturers (CAAM) said that its forecast was based on sales data it had collected from key companies, without giving further details.

It expects January to May auto sales in China, the world’s biggest auto market, to fall 23.1% year on year to 7.9 million units, it said.

FXStreet reports that investors continue to shrug off rising geopolitical tension, as economic activity shows signs of improving, strategists at ANZ bank report. 

“President Putin and President Trump discussed the OPEC+ deal, with the Kremlin saying it had brought great stability to the oil market.” 

“A Bloomberg report suggests there is some support for OPEC+ extending the current production quotas another one to three months. The 23% cut in output was supposed to be in place for only May and June before slightly higher quotas kicked in for H2 2020. The group is also considering bringing forward its next planned meeting to the 4 June.” 

“Investors were buoyed by further falls in US drilling. Another 15 rigs were stood down, bring the total operating rigs to 222. This is the lowest since the financial crisis in 2009.”

Reuters reports that the six Gulf Cooperation Council (GCC) nations are facing their worst economic crisis in history amid the double shock of plunging oil prices and the coronavirus pandemic, the Institute of International Finance (IIF) said.

Overall real gross domestic product (GDP) will contract 4.4% this year, despite some indications that the virus spread has been successfully contained and the easing of some restrictions in recent weeks, said the IIF, a global financial industry body.

Cuts in public spending adopted by regional authorities to contain the widening of their deficits "could more than offset losses stemming from reduced oil exports" but aggregate deficits are still expected to widen to 10.3% of GDP this year from 2.5% in 2019.

The Saudi central bank said yesterday it would inject an additional $13.3 billion into the local banking system to help banks support the private sector, after consumer spending fell sharply in April due to virus containment measures.

For the IIF, the regional banking system remained solid, with strong liquidity and capitalisation, and relatively low non-performing loans. Liquidity support measures introduced by GCC authorities to support banks amount to 4% of GDP, or $54 billion, the IIF said.

Saudi Arabia, the region's largest economy, could see its real GDP shrink 4% this year and its deficit widen to 13%.

Oman, which is emerging as "an increasingly vulnerable spot in the region in light of its mounting debt" could experience a 5.3% economic contraction while its deficit could widen to 16.1% this year from 9.4% in 2019, the IIF said.

CNBC reports that Goldman Sachs has begun to establish short positions on the dollar as the reopening of economies is expected to lure investors out of the traditional safe-haven currency.

Goldman strategists said that while they had maintained that it was too early to look for “outright and sustained Dollar downside given the balance of cyclical risks,” shorts on the dollar now looked attractive in certain currency crosses.

Goldman cited the “steady reopening process, limited evidence of a pickup in Covid infection rates, and encouraging policy actions like progress on the EU Recovery Fund,” a 750 billion euro ($834.1 billion) borrowing program designed to help shore up the European economy in light of the coronavirus pandemic.

In particular, they highlighted the Norwegian krone as being well-positioned to outperform during the remainder of the coronavirus crisis, and recommended shorting the USD/NOK pairing with a target price of 8.75 krone to the dollar, with a stop if the krone depreciates to 10.25. The krone currently sits at 9.68 to the dollar.

″(Norway’s) demographics and domestic medical infrastructure make it better equipped for the outbreak than many other countries, and its strong fiscal position puts it at a distinct advantage,” Goldman analysts, led by co-heads of global foreign exchange, Zach Pandl and Kamakshya Trivedi, said in the note.

“While others are forced to either limit their fiscal policy support or dramatically increase borrowing—both potentially currency negatives—Norway is able to repatriate funds from its investments abroad (today, Norway announced that it will increase daily transactions even further, from NOK 2.1bn to NOK 2.3bn), helping support the economy and the currency.”

The Ministry reiterated that Hong Kong is its internal affair .

FXStreet reports that USD/JPY is expected to keep the consolidative theme unchanged in the short-term horizon, suggested FX Strategists at UOB Group.

24-hour view: “USD traded between 107.36 and 107.85 yesterday, narrower than our expected sideway-trading range of 107.20/108.00. The price action offers no fresh clues and USD could continue to trade sideways, likely between 107.30 and 107.90.”

Next 1-3 weeks: “USD came close to the bottom of our expected 107.00/108.00 range last Friday (29 May) before rebounding quickly. For now, we continue to hold the same view that USD is likely to trade sideways. As highlighted last Wednesday (27 May), only a daily closing out of the expected 107.00/108.00 range would suggest the start of a more sustained movement in USD.”

During today's Asian trading, the US dollar was trading steadily against the euro and the yen.

The ICE index, which tracks the dynamics of the us dollar against six currencies (Euro, Swiss franc, yen, canadian dollar, pound sterling and Swedish Krona), fell by 0.04%.

Traders' optimism about the recovery of economic activity around the world amid the gradual removal of lockdowns weakens interest in the dollar, supporting demand for risky assets.

Economic growth is still far from 2017 levels, "but some pieces of the puzzle are beginning to fall into place," said Chris Turner, strategist at ING Bank.

"With confidence gradually returning, you can start withdrawing some of the money from the safest assets," the expert says.

The focus of traders ' attention this week is the meeting of the European Central Bank (ECB). Experts expect that ECB President Christine Lagarde will announce the expansion of the Pandemic Emergency Purchase program (PEPP), which currently amounts to 750 billion euros.

The ECB has already spent more than 210 billion euros from the program, and at this rate its funds will be exhausted in October.

According to the report from Federal Statistical Office, turnover adjusted for sales days and holidays rose in the retail sector by 20.6% in nominal terms in April 2020 compared with the previous year. Seasonally adjusted, nominal turnover fell by 14.8% compared with the previous month. The sectors were affected to varying degrees. These are provisional findings from the Federal Statistical Office (FSO).

Real turnover adjusted for sales days and holidays fell in the retail sector by 19.9% in April 2020 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 14.7%.

Adjusted for sales days and holidays, the retail sector excluding service stations showed a 19.5% decrease in nominal turnover in April 2020 compared with April 2019 (in real terms –19.0%). This resulted in a downturn of turnover for service stations of 33.8% (real –24.1%).

Retail sales of food, drinks and tobacco registered an increase in nominal turnover of 4.0% (in real terms +3.5%), whereas the non-food sector registered a nominal decrease of 41.0% (in real terms –40.2%). 

Excluding service stations, the retail sector showed a seasonally adjusted decline in nominal turnover of 14.9% compared with the previous month (in real terms –14.8%). Retail sales of food, drinks and tobacco registered a nominal minus of 4.5% (in real terms –5.0%). The non-food sector showed a minus of 28.0% (in real terms –27.6%).

According to the report from Nationwide Building Society, UK house price growth slows sharply as the impact of the pandemic begins to filter through

Annual house price growth slows to 1.8% from 3.7% in April. Economists had expected a 2.8% increase. Prices down 1.7% month on-month, after taking account of seasonal factors.

Commenting on the figures, Robert Gardner, Nationwide's Chief Economist, said: “UK house prices fell by 1.7% over the month in May, after taking account of seasonal effects – this is the largest monthly fall since February 2009. As a result, the annual rate of house price growth slowed to 1.8%, from 3.7% in April. In the opening months of 2020, before the pandemic struck the UK, the housing market had been steadily gathering momentum. Activity levels and price growth were edging up thanks to continued robust labour market conditions, low borrowing costs and a more stable political backdrop following the general election. But housing market activity has slowed sharply as a result of the measures implemented to control the spread of the virus. Indeed, data from HMRC showed that residential property transactions were down 53% in April compared with the same month in 2019. Mortgage activity has also declined sharply. Nevertheless, our ability to generate the house price index has not been impacted to date, as sample sizes have remained sufficiently large (and representative) to generate robust results. Low transaction levels may still make gauging price trends difficult in the coming months – especially for regional indices, which by their nature have lower sample sizes.

• CNBC reports that people across the U.S. gathered in mass protests against police brutality after the killing of George Floyd in Minneapolis, raising concerns of further virus spread through the demonstrations. 

• More than 1.7 million people in the U.S. have tested positive for the virus and over 104,000 have died due to Covid-19. Black Americans have made up a disproportionate share of the deaths as underlying conditions, income inequality and disparity in access to health care have exacerbated the outbreak in the community.

• Some state and city officials have urged protesters to seek Covid-19 testing and to limit movements in the weeks following the demonstrations in an effort to prevent infections. 

• Global cases: More than 6.19 million

• Global deaths: At least 372,479

• U.S. cases: More than 1.79 million

• U.S. deaths: At least 104,383

EUR/USD

Resistance levels (open interest**, contracts)

$1.1216 (2039)

$1.1182 (1667)

$1.1159 (2610)

Price at time of writing this review: $1.1132

Support levels (open interest**, contracts):

$1.1103 (573)

$1.1077 (874)

$1.1040 (1103)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 5 is 98972 contracts (according to data from June, 1) with the maximum number of contracts with strike price $1,0700 (5296);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2615 (782)

$1.2579 (2582)

$1.2550 (1750)

Price at time of writing this review: $1.2493

Support levels (open interest**, contracts):

$1.2416 (438)

$1.2379 (306)

$1.2337 (493)

Comments:

- Overall open interest on the CALL options with the expiration date June, 5 is 24477 contracts, with the maximum number of contracts with strike price $1,3500 (3420);

- Overall open interest on the PUT options with the expiration date June, 5 is 30396 contracts, with the maximum number of contracts with strike price $1,3500 (3095);

- The ratio of PUT/CALL was 1.24 versus 1.28 from the previous trading day according to data from June, 1

* - 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.