CFD Markets News and Forecasts — 03-08-2021

eFXdata reports that economists at Credit Agricole CIB Research discuss NZD outlook ahead of tonight's NZ's labor report.

"Indicators of strong inflationary pressures due to supply bottlenecks as well as labour shortages, both aggravated by closed international borders, will pressure the RBNZ into raising rates potentially before the unemployment rate reaches its pre-pandemic level 4%. Indeed, the RBNZ has already stopped its asset purchases and is on track to be the first G10 central bank to raise rates and to hike rates in mid-August."

"Strong labour market data and a further decline in the unemployment rate would make it an easier decision for the RBNZ. Strong wages growth would confirm that inflation pressures are building in the economy and that the RBNZ has to act."

The U.S. Commerce Department reported on Tuesday that the value of new factory orders rose 1.5 percent m-o-m in June, following a revised 2.3 percent m-o-m climb in May (originally a 1.7 percent m-o-m gain). 

Economists had forecast a 1.0 percent m-o-m advance.

According to the report, orders for transport equipment (+2.0 percent m-o-m) posted the biggest increase in June. Meanwhile, total factory orders excluding transportation, a volatile part of the overall reading, went up 1.4 percent m-o-m in June (compared to an upwardly revised 1.0 percent m-o-m jump in May), while orders for nondefense capital goods excluding aircraft, a measure of business spending plans, rose 0.7 percent m-o-m (compared to an upwardly revised 0.6 percent m-o-m advance in the previous month). 

FXStreet notes that the Federal Open Market Committee (FOMC) neither made any policy changes nor provided any specifics on taper timing at its July meeting. As tapering does not appear imminent, gold is likely to push slightly higher over the near term, in the view of analysts at HSBC.

“We think the FOMC's forward guidance will evolve further in September and November, and expect a formal tapering announcement in December.”

“In our view, there were not enough concrete comments on tapering - which the gold market is very sensitive to - to take gold higher. Rather, the overall tone of the FOMC drove US Treasury yields lower and fostered little USD change. This leaves room for gold to stay above $1,800 per ounce.” 

“We think the ongoing view that inflation spikes are mostly transitory and that the FOMC is not actively considering policy adjustments at the moment is mildly bullish gold at best and neutral at worst.”

U.S. stock-index futures advanced on Tuesday, as solid corporate earnings and continued decline in the U.S. Treasury yields provided support to the U.S. equities, despite a worrying spike in COVID cases that could impact the U.S. economic recovery. 

Global Stocks:

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FXStreet reports that Ho Woei Chen, CFA, an economist at UOB Group, offers her assessment of the latest PMI data releases in China.

“The manufacturing and non-manufacturing Purchasing Manager’s Indexes (PMIs) from China Federation of Logistics & Purchasing (CFLP) softened in July but had continued to remain in the expansion territory (defined as a reading >50).”

“A number of factors could have contributed to the weaker outlook for the manufacturing sector including high commodity prices, supply disruptions that could have been exacerbated by floods in central China, as well as COVID-19 infection resurgence in various parts of the world that increased uncertainties.”

“The CFLP manufacturing PMI has continued to decline, falling by a larger than expected pace of 0.5 pt to 50.4 in July (Bloomberg est: 50.8; Jun: 50.9). The reading is now at its lowest since China’s recovery from its massive pandemic outbreak in early-2020.”

“The CFLP non-manufacturing PMI fell 0.2 pt to 53.3 in July (Bloomberg est: 53.3, Jun: 53.5) but this was in line with consensus expectation and showed a generally more stable outlook in the non-manufacturing sector compared to the manufacturing sector.”

GBP rose against most of its major counterparts in the European session on Tuesday, as worries about the spread of the COVID-19 Delta variant and its implications for the UK’s economy eased as coronavirus cases had continued to decrease and market participants turned their focus to the upcoming policy meeting of the Bank of England (BoE).

The UK’s government reported that there were 21,952 new coronavirus cases and 24 new deaths on Monday, August 2, down from 24,470 infections and 65 fatalities recorded the previous day. Meanwhile, the 7-day average of new COVID-19 cases declined 27% to 84,550 from the previous week. The latest official data indicated that the recent wave of coronavirus infections, driven by the Delta variant, is slowing down, raising hopes that there won't be a need for the reimposition of restrictions in Britain and that the UK's economy could continue its strong rebound.

Market participants also prepared for the BoE’s August policy meeting, the outcomes of which are set to be announced on Thursday. It is expected that the British central bank will leave its policy stance unchanged at this week’s meeting, but its officials may give a signal of a hawkish turn. 

FXStreet reports that the Credit Suisse analyst team expects that EUR/USD to extend its recovery to 1.1949, the 38.2% retracement of the May/July fall.

“Resistance is seen initially at 1.1896/97, ahead of the 1.1910 high of last week and then our corrective objective of the 38.2% retracement of the fall from May and price resistance at 1.1945/49. Our bias would then be for this to prove a tougher cap and for the risk to turn back lower from here.” 

“Should strength instead extend this can allow the recovery to extend further yet with resistance seen next at the late June high at 1.1976, just ahead of the 55-day average at 1.1985, with a fresh cap expected here.” 

“Support at 1.1850/40 needs to hold to keep the immediate risk higher. Below can ease the immediate upward bias for a move back to 1.1799, then 1.1773/63.” 

FXStreet reports that AUD/USD trades above 0.74 as the Reserve Bank of Australia (RBA) makes no change to bond tapering plan from early September but economists at Société Générale have low conviction of a sustained rally to 0.75 without settling of Chinese equities/metals.

“The RBA surprisingly decided to stand by its plan to taper AGB purchases starting early September. The bank will keep the programme under review in light of economic conditions and the health situation. In the statement, it acknowledged the strong economic recovery and expects growth will bounce back quickly from a possible contraction in 3Q once the latest virus outbreaks are contained.”

“The AUD bears are unlikely to throw in the towel quickly. Relief for AUD is likely to be short-lived until jitters in Chinese equity markets settle down. Tactically, we think AUD/USD remains a sell on rally unless the pair can overcome 0.7450.”

“Ongoing bounce is likely to persist towards the daily Kijun line at 0.7450 which is also the 23.6% retracement of the pullback from February. This is the first layer of resistance. If the pair is able to overcome this hurdle, rebound could extend towards July peak of 0.7580/0.7600.”

Alibaba (BABA) reported Q1 FY 2022 earnings of RMB16.60 per share (versus RMB14.82 per share in Q1 FY 2021), beating analysts’ consensus estimate of RMB14.29 per share.

The company’s quarterly revenues amounted to RMB205.740 bln (+33.8% y/y), missing analysts’ consensus estimate of RMB208.673 bln.

BABA rose to $200.50 (+0.20%) in pre-market trading.

FXStreet reports that economists at Credit Suisse note that USD/JPY remains under pressure, leaving the spotlight on key support from the recent low and 61.8% retracement of the rally from late April at 109.07/04.

“USD/JPY remains under pressure. The break below its 55-day average leaves the spotlight on key support from the recent low and 61.8% retracement of the rally from late April at 109.07/04. A clear break here can see a top complete to warn of a more significant turn lower with support seen next at 108.57 ahead of 108.35 and then 108.19 – the May low and 38.2% retracement of the entire 2020 upmove. Our bias would then be to look for a fresh floor here.” 

“Resistance is seen at 109.37 initially, then 109.60."

FXStreet reports that UOB Group’s FX Strategists reiterated the mixed outlook for USD/CNH in the near term.

24-hour view: “USD traded between 6.4599 and 6.4729 yesterday, narrower than our expected range of 6.4525/6.4750. The movement is viewed as part of an ongoing consolidation phase. In other words, USD could continue to trade sideways, expected to be between 6.4530 and 6.4750.”

Next 1-3 weeks: “...the recent sharp but short-lived swings have resulted in a mixed outlook and USD could trade within a 6.4400/6.5000 range for now."

DuPont (DD) reported Q2 FY 2021 earnings of $1.13 per share (versus $0.36 per share in Q2 FY 2020), beating analysts’ consensus estimate of $0.95 per share.

The company’s quarterly revenues amounted to $4.135 bln (+25.7% y/y), beating analysts’ consensus estimate of $3.985 bln.

The company also issued upside guidance for both Q3 FY 2021 and the full FY 2021.

DD rose to $75.95 (+1.74%) in pre-market trading.

• Says he wants end of crisis-era policies to begin soon so Fed can move in smaller increments rather than risk a "scramble" if high inflation persists
• Pandemic may have opened up a new "regime" of higher productivity, higher inflation, and higher volatility

FXStreet reports that economists at MUFG Bank said that weaker growth prospects and recent stock market volatility would weigh on the Chinese yuan.

“The weaker growth outlook and recently increased market volatility will weigh on CNY against USD in near term. Another theme that would work against CNY against USD dollar for the rest of H2, is the divergence between China’s and US’ monetary policies. The latest FOMC meeting suggests that the risk for a Sept FOMC launch of taper has come down a tad, as the Fed would still wait to see more date be certain about the ‘substantial further progress’ on the jobs front, but it is possible that tapering could be a November/December event instead.”

FXStreet reports that economists at MUFG Bank discuss US dollar prospects.

“Our take-away from the updated Fed guidance is that QE tapering will not be rushed and the prospect of an earlier than expected taper announcement, say in September, has diminished. The key statement that the ‘Committee will continue to assess progress in the coming meetings’ suggests the assessment on meeting ‘further substantial progress’ will take longer.” 

“The July FOMC communications appear to have helped restore credibility in the new monetary policy framework that implied a looser for longer monetary stance in order to lift inflation expectations.”

“We believe the latest Fed communication reinforces the prospect of renewed USD weakness. However, the weakness will be more specific to G10 FX where central banks will shift to a tighter stance. Versus EUR and CHF for example, we expect limited USD weakness.”

According to the report from Eurostat,  in June 2021, industrial producer prices rose by 1.4% in both the euro area and the EU, compared with May 2021. In May 2021, prices increased by 1.3% in the euro area and by 1.4% in the EU. 

In June 2021, compared with June 2020, industrial producer prices increased by 10.2% in the euro area and by 10.3% in the EU. Economists had expected a 10.3% increase in the euro area.

Industrial producer prices in the euro area in June 2021, compared with May 2021, increased by 3.3% in the energy sector, by 1.3% for intermediate goods, by 0.4% for capital goods and by 0.3% for durable and non-durable consumer goods. Prices in total industry excluding energy increased by 0.7%. In the EU, industrial producer prices increased by 3.4% in the energy sector, by 1.4% for intermediate goods, by 0.4% for capital goods and for non-durable consumer goods and by 0.3% for durable consumer goods. Prices in total industry excluding energy increased by 0.8%.

Industrial producer prices in the euro area in June 2021, compared with June 2020, increased by 25.4% in the energy sector, by 10.6% for intermediate goods, by 2.3% for durable and non-durable consumer goods and by 2.0% for capital goods. Prices in total industry excluding energy increased by 5.6%. In the EU, industrial producer prices increased by 24.8% in the energy sector, by 10.9% for intermediate goods, by 2.5% for durable and non-durable consumer goods and by 2.1% for capital goods. Prices in total industry excluding energy increased by 5.9%.

CNBC reports that experts said that european consumers are proving more reluctant to spend money this summer, and it could hurt the economic recovery following the shock from Covid-19. Now, consumers are afraid they will be living with Covid-19 for longer than they had expected and are adjusting their attitudes accordingly.

“Because [the pandemic] has been going on for 18 months or so, we have got used to working from home and [are] more cautious about spending,” Marchel Alexandrovich, European economist at investment bank Jefferies, said.

Consumers are particularly skeptical about attending crowded events, according to Paul O’Connor, head of the U.K.-based multi-asset team at Janus Henderson.

O’Connor said there had been a “steady improvement” in some economic indicators, such as the number of people using public transport, going shopping and even attending the gym. “But there are some areas where we see continued consumer caution,” he added.

A survey published in July by Ipsos Moris showed that 40% of U.K. consumers were not yet comfortable taking vacations abroad. Over 40% of respondents also said they were not comfortable going to large public gatherings such as sports or music events.

RTTNews reports that data from the labor ministry showed that Spain unemployment declined at a record pace in July as the labor market started to recover from the impact of the coronavirus pandemic.

Unemployment decreased sharply by 197,841 in July. Unemployment was down 166,911 in June and 129,378 in May. In seasonally adjusted terms, registered unemployment fell by 191,756 in July.

Unemployment decreased by 133,658 in services and by 13,158 in industry. In construction sector, unemployment dropped 10,154 and fell 8,880 in the farm sector.

FXStreet reports that economists at MUFG Bank are more confident in their bullish outlook for the pound.

“The recent outperformance of the GBP reflects building optimism that the COVID-19 pandemic ‘could largely be over by late September/October’ in the UK. If cases continue to rise less than feared, it will reinforce confidence that restrictions are unlikely to be tightened significantly again allowing the UK economy to continue rebounding strongly during the 2H 2021.”

“In the week ahead market participants will be watching closely to see if the Bank of England provides a hawkish policy signal to reinforce the GBP’s upward momentum. We are not expecting the BoE to announce it will end QE sooner than in December, but there is scope to further slow the pace of weekly purchases. We have become more confident in our bullish GBP outlook. While there is a risk that the BoE could disappoint hawkish expectations this week, any GBP weakness should be temporary.”

According to the SECO survey, the general consumer sentiment of Swiss households has improved once again, with more people now expecting a general upswing in the economy and a fall in unemployment.

In July 2021 the consumer sentiment index climbed to 8 points, well above its long-term average of −5 points and its highest level since July 2010. Expectations of general economic growth in particular contributed to the strong improvement in consumer sentiment, the sub-index climbing to its highest value (48 points) since the survey began in 1972. There are also stronger expectations of an improvement in unemployment figures, with the index (29 points) now slightly below the pre-crisis level. The positive economic development should also benefit household budgets: the sub-index on the expected financial situation (3 points) is now above the long-term average again for the first time in over six years. However, there is little improvement in people’s perception of the current situation. Despite a noticeable rise in the index for job security, this remains well below its long-term average, and the assessment of the financial situation of recent months remains below average. At the same time, price developments are weighing on household budgets. In the wake of rising inflation rates, households perceive a rise in both past and future price developments.

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

Traders continue to closely monitor the situation with the spread of the new COVID-19 "delta" strain in the world, trying to assess the potential consequences for the global economy.

The statistical data published on the eve, which showed a slowdown in the growth of activity in the US manufacturing sector, may be a signal that the peak of the recovery in the US economy will already pass.

The ISM Manufacturing index in July fell to the lowest in 6 months - to 59.5 points from 60.6 points a month earlier. Analysts expected the index to grow to 60.9 points,. The value of ISM Manufacturing above 50 points indicates an increase in business activity in the sector, and the index has remained above this mark for 14 consecutive months.

The ICE index, which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell by 0.01%.

The Australian dollar rose 0.5% against the US dollar. The Reserve Bank of Australia (RBA) at the end of the meeting on Tuesday kept both the key rate and the target yield of three-year government bonds at 0.1%. The central bank said that it will begin to reduce the volume of bond repurchases in September, despite a slight deterioration in the prospects for economic growth due to new restrictive measures introduced in connection with the renewed rise in the incidence of COVID-19. Thus, from next month, the RBA will reduce the repurchase of government bonds to 4 billion Australian dollars per week from 5 billion 

EUR/USD

Resistance levels (open interest**, contracts)

$1.1959 (3562)

$1.1922 (2391)

$1.1898 (1665)

Price at time of writing this review: $1.1874

Support levels (open interest**, contracts):

$1.1835 (2916)

$1.1795 (2890)

$1.1749 (5376)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date August, 6 is 70903 contracts (according to data from August,2) with the maximum number of contracts with strike price $1,1700 (10352);

GBP/USD

$1.4102 (1229)

$1.4012 (1754)

$1.3944 (1095)

Price at time of writing this review: $1.3894

Support levels (open interest**, contracts):

$1.3784 (779)

$1.3742 (904)

$1.3678 (401)

Comments:

- Overall open interest on the CALL options with the expiration date August, 6 is 16794 contracts, with the maximum number of contracts with strike price $1,4150 (1782);

- Overall open interest on the PUT options with the expiration date August, 6 is 19347 contracts, with the maximum number of contracts with strike price $1,3400 (1677);

- The ratio of PUT/CALL was 1.15 versus 1.10 from the previous trading day according to data from August,2

* - 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.

Reuters reports that the International Monetary Fund said its board of governors approved a $650 billion allocation of IMF Special Drawing Rights and said its largest-ever distribution of monetary reserves would become effective Aug. 23.

IMF member countries will receive SDRs in proportion with their existing quota shareholdings in the fund. 

“The SDR allocation will benefit all members, address the long-term global need for reserves, build confidence, and foster the resilience and stability of the global economy,” IMF Managing Director Kristalina Georgieva said in a statement.

“It will particularly help our most vulnerable countries struggling to cope with the impact of the COVID-19 crisis,” she said, adding that about $275 billion of the allocation will go to emerging market and low-income countries.

The IMF’s last SDR distribution came in 2009 when member countries received $250 billion in SDR reserves to help ease a global financial crisis.

To spend their SDRs, countries would first have to exchange them for underlying hard currencies, requiring them to find a willing exchange partner country.

FXStreet reports that UOB Research discusses the Reserve Bank of New Zealand (RBNZ) policy trajectory.

"The RBNZ surprised markets in its July’s meeting by abruptly ending its bond purchase program as economic conditions were “persistently stronger than anticipated.” This has gotten markets guessing that a rate hike would soon be next. If this expectation turns into reality, the RBNZ will be the first G-10 central bank to hike rates and is likely to add to the resiliency of the NZD against the emerging USD. For now, our macro team is holding off a review of the OCR forecasts until the jobs report due 4-Aug to determine the odds of an imminent move by the RBNZ. As such, we will maintain status quo for our NZD/USD forecasts which are at 0.70 for both 3Q and 4Q21," UOB adds.

RTTNews reports that the Reserve Bank of Australia left its key interest rate and the yield target for government bonds unchanged. The policy board decided to leave its cash rate unchanged at a record low of 0.10 percent. The board maintained the target of 10 basis points for the April 2024 Australian Government bond.

The board also decided to continue to purchase government securities at the rate of A$5 billion a week until early September and then A$4 billion a week until at least mid November.

The bank reiterated that it will not increase the cash rate until actual inflation is sustainably within the 2 to 3 percent target range. The central scenario for the economy is that this condition will not be met before 2024.