CFD Markets News and Forecasts — 04-01-2021

Multiple news outlets report that Boris Johnson will announce that the strictest tier four coronavirus measures will be imposed everywhere.

• U.S. economy should prepare for a period of very low interest rates
• Expects virus to be brought under control as year progresses
• It will likely take years to get U.S. inflation up to 2% on average
• Interest rates will stay low for a long period; Fed will likely continue asset purchases for a while as well
• Fed should not rush to raise rates unless inflation threatens to be uncomfortably high

The Commerce Department announced on Monday that construction spending rose 0.9 percent m-o-m in November after a revised 1.6 percent m-o-m climb in October (originally a 1.3 percent m-o-m advance).

Economists had forecast construction spending increasing 0.9 percent m-o-m in November.

According to the report, spending on private construction increased 1.2 percent m-o-m, while investment in public construction declined 0.2 percent m-o-m. 

The latest report by IHS Markit revealed on Monday the seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index(PMI) rose to 57.1 in December, up from 56.7 in November and slightly up from the earlier released “flash” reading of 56.5. The December reading pointed to the sharpest expansion in factory activity since September 2014.

Economists had forecast the index to stay unrevised at 56.5.

According to the report, the headline figure was pushed higher by severe supply chain disruption in December, which are limiting production capabilities as well as driving producers’ input prices sharply higher. Meanwhile, production and order books continued to grow, albeit with the rates of expansion slowing as a result of rising virus case numbers and related restrictions.

Moderna increased its base-case global production estimate for its COVID-19 vaccine from 500 million to 600 million doses for 2021. It said that it is continuing to invest and add staff to build up to potentially 1 billion doses for 2021.

The company also said it expects about 100 million doses to be available in the U.S. by the end of Q1 2021, with 200 million doses total available by the end of Q2. 

U.S. stock-index futures rose on Monday, pointing to a record opening for the S&P 500 and the Dow in the first trading session of 2021 on the back of the continuing rally that has been powered by hopes of a vaccine-lead recovery in the world economy.

Global Stocks:

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

FXStreet reports that economists at Credit Suisse suggest that the S&P 500 Index can see the immediate risk stay higher while above the support at 3729/23 with next resistance seen at 3765/85 and eventually at 3900.

“S&P 500 closed 2020 at its highs following its prior successful defence of the 3633 low from earlier in December with strength having extended to the cusp of a cluster of Fibonacci projection resistances in the 3765/85 zone. Whilst we look for this to cap at first for a fresh pullback, the core trend stays seen higher and we look for a break in due course with resistance then seen next at 3800 ahead of 3830/32 and eventually our main and core objective from the ‘measured triangle objective’ at 3900.” 

McDonald's (MCD) initiated with a Neutral at Citigroup; target $230

American Intl (AIG) downgraded to Equal Weight from Overweight at Wells Fargo; target $42

Boeing (BA) downgraded to Underperform from Mkt Perform at Bernstein; target lowered to $199

Citigroup (C) downgraded to Equal Weight from Overweight at Barclays; target $72

Coca-Cola (KO) downgraded to Sector Perform from Outperform at RBC Capital Mkts; target $55

PepsiCo (PEP) downgraded to Sector Perform from Outperform at RBC Capital Mkts; target $153

AT&T (T) upgraded to Outperform from Mkt Perform at Raymond James; target $32

Goldman Sachs (GS) upgraded to Overweight from Equal Weight at Barclays; target $362

Morgan Stanley (MS) upgraded to Overweight from Equal Weight at Barclays; target $88

GBP traded mostly lower against its major counterparts in the European session on Monday as surging coronavirus cases in the UK raised fears that the country would have to impose tougher Covid lockdown measures. The pound was little changed against the U.S. dollar but fell against the rest of major rivals.

The UK's prime minister (PM) Boris Johnson said on Monday that the government would need to toughen coronavirus restrictions even more to cope with the surging epidemic. He also added that the new measures would be announced "in due course". Earlier, the UK's health secretary Matt Hancock indicated that it could happen within the next 24 hours.

According to the latest data by Johns Hopkins University, the UK has recorded 2,662,699 cases and 75,137 deaths linked to the COVID-19 so far. Overall, the total number of confirmed global coronavirus cases has increased to 85,202,384 and deaths have grown to 1,844,687. 

The warnings of harsher Covid measures outweighed the relief over the late-year Brexit trade deal, as well as stronger-than-expected UK's December Manufacturing PMI.

The latest report by IHS Markit revealed the seasonally adjusted final IHS Markit/CIPS Purchasing Managers’ Index (PMI) stood at 57.5 in December, up slightly from the “flash” figure of 57.3 and up from November's final reading of 55.6. The latest reading pointed to the steepest pace of expansion in the manufacturing sector since November 2017. Economists had forecast the index to stay unrevised at 57.3. According to the report, the new orders rose at the quickest pace since August, as intakes improved from domestic and overseas sources as clients brought forward orders to guard against potential disruption caused by the end of the Brexit transition period.

FXStreet reports that Ho Woei Chen, CFA, Economist at UOB Group, assesses the latest PMI data in China.

“Both the manufacturing and non-manufacturing Purchasing Manager’s Index (PMI) from China Federation of Logistics & Purchasing (CFLP) softened in December. The manufacturing PMI eased from more than 3-year high of 52.1 in November to 51.9 in December (Bloomberg poll: 52.0) while the non-manufacturing PMI fell to 55.7 in December (Bloomberg poll: 56.3) from 8 ½-year high of 56.4 in November.”

“The lower readings in December could have been partly due to the cold weather and reported cuts in electricity supplies to some industrial and commercial users as the system was unable to cope with the surge in demand. Nonetheless, the underlying economic recovery momentum in China likely remained intact given that COVID-19 is contained domestically, keeping pent-up demand strong in the coming months. For 4Q20, we are maintaining our GDP growth forecast for China at 6.2% y/y (3Q20: 4.9%) with our full-year 2020 GDP growth at 1.9% and rising to 8.2% in 2021.”

FXStreet notes that the AUD/USD pair has broken above the 38.2% retracement of the 2011/2020 fall at 0.7625/40 and the 0.7677 June 2018 high, confirming the uptrend is still intact. The next key resistance is seen at the 2020 high at 0.7742, removal of which would see 0.7816 next, according to the Credit Suisse analyst team.

“AUD/USD broke out of its previous high-level range during the final days of 2020, removing the key 38.2% retracement of the entire 2011/2020 fall at 0.7625/40 as well as the crucial June 2018 high at 0.7677. All this suggests that the key core uptrend remains intact as we start the new year, in line with the large ‘head and shoulders’ base that is still in place.” 

“We now see first resistance at the late 2020 high at 0.7742, where we expect to see fresh sellers at first as the market attempts to shift into a near-term and temporary range. An immediate break above here would instead see a direct move to the psychological inflection point at 0.7800 next, removal of which would see a test of the April 2018 high at 0.7816.” 

• Experience of central banks suggests that, if sufficiently credible, yield curve control allows central bank to achieve yield curve configuration with lower amount of actual purchases, hence enhancing efficiency
• Implementation of yield curve control would be more complex in Eurozone since ECB would need to target 19 sovereign yield curves
• Alternative ECB could consider is targeting risk-free yield curve, coupling it with flexible use of the ECB’s asset purchase programme; this strategy would probably deliver similar outcomes
• We need  inflation to be higher than current number, if only marginally higher, meaning for example 2%

FXStreet reports that analysts at Credit Suisse note that EUR/USD uptrend is losing momentum but whilst support at 1.2208 holds the immediate risk can stay higher for 1.2355 and eventually 1.2518/98.

“EUR/USD strength came to an abrupt halt at the end of last year for a fairly sharp pullback and with a triple bearish RSI divergence in place, the trend continues to lose momentum. Despite this though, support from the 13-day exponential average continues to hold, currently seen at 1.2208 and our bias remains to give the upside the immediate benefit of the doubt still.” 

“Resistance is seen at 1.2288 initially, then the high from last week at 1.2310, above which should see the March ‘measured base objective’ at 1.2355. Although a pullback from here should be allowed for we continue to look for a move in due course to our core objective from late July at 1.2518/98. We expect to this then prove a major barrier and we look for a top here.” 

• New measures will be announced shortly
• We have a surging epidemic
• Closing primary schools is a last resort, we are trying to avoid that
• Risk to teachers is no greater than it is to anybody else

The German government and the 16 federal states have agreed to extend the lockdown until January 31. The decision is to be formalized by the German authorities sometime this week. 

The current lockdown set to run until January 10. 

FXStreet reports that as economists at MUFG Bank note, the main event risk for financial markets at the start of the New Year is tomorrow’s run-offs for the two Senate seats in Georgia which will prove pivotal for the balance of power in Congress.

“If the Republicans win one or both Georgia seats, they will retain a slim majority in the Senate. If the Democrats prevail in both seats, however, there will be a 50:50 split in the Senate, giving incoming Vice President Kamala Harris the tie-breaking vote.” 

“One of the biggest market reactions is likely to be in the US Treasury market if the Democrats exceed expectations and take both seats. It would open the door to a much bigger fiscal stimulus package under incoming President Joe Biden which would increase upward pressure on US yields in the year ahead and could increase the risk of another taper tantrum like event later in the year when the US economy expands more strongly after vaccines have been implemented. At that point, market participants may start to question more seriously whether the Fed’s unprecedented policy easing is still required.” 

“In the short-term, the prospect of US fiscal stimulus is likely to be welcomed by risk assets as it would help to strengthen the global recovery. It should ensure that the US dollar continues to weaken for now even if US yields move higher. In contrast, the market reaction should be limited in the Republicans hold on to control of the Senate.”

Reuters reports that a European Central Bank survey showed that euro zone companies expect to emerge more efficient from the coronavirus pandemic thanks to greater use of digital technologies and remote working.

The ECB asked 72 industrial and services firms about the long-term impact of the pandemic on the way they operate and the environment around them.

It found firms expected home office, virtual meetings and greater digitalisation to remain part of their daily life even after the pandemic, along with reduced demand.

"To a large extent, this seems to reflect a view that some changes in living and working habits brought about by the pandemic, especially the increased conduct of business and consumption online and a consequent reduction in travel, will become embedded," the ECB wrote in an article accompanying the survey's results.

More than three-quarters of respondents in the ECB's survey said that their business would be more efficient and more resilient after the pandemic.

FXStreet reports that economists at MUFG Bank expect Asian currencies to continue to trend stronger in 2021.

“The weakening trend for the US dollar against Asian currencies has been relentless since the middle of last year and there are few signs that it is set to reverse anytime soon.”

“Asian currencies are continuing to benefit in part from the relative cyclical outperformance of Asian economies during the COVID-19 crisis. The spread of covid remains more contained within Asia allowing domestic economies to expand more without restrictions and fear impacting activity in comparison to in Europe and America.”

“There are some signs of slowing momentum in China which has led the global recovery from the COVID-19 shock. We continue to believe though that economic fundamentals remain favourable for further Asian currency gains in 2021.”

According to the report from Bank of England, net mortgage borrowing strengthened to £5.7 billion in November. Mortgage approvals for house purchase increased further to 105 000, the highest since August 2007. Economists had expected a decrease to 82 500. Effective interest rates on new mortgage borrowing ticked up to 1.83%.

Consumer credit remained weak in November, with households making net repayments of £1.5 billion. Effective rates on new personal loans increased by 31 basis points to 5.46%.

Private non-financial companies borrowed £2.3 billion from capital markets in November. Bank borrowing by small and medium-sized businesses remained strong at £1.8 billion, whilst net borrowing by large businesses was £0.2 billion.

Household deposits increased by £17.6 billion in November, but there were significant withdrawals from National Savings and Investment accounts. Business deposit flows remained strong at £5.3 billion. Deposit interest rates remained at historically low levels.

According to the report from IHS Markit/CIPS, the UK manufacturing sector had a mixed end to 2020. Clients bringing forward orders to beat the end of the Brexit transition period and the ongoing bounce from the re-opening of the global economy boosted inflows of new orders and pushed output higher. However, port delays and other logistical disruptions meant that supply-chain delays lengthened to one of the greatest extents in the survey's history.

The seasonally adjusted PMI rose to a three-year high of 57.5 in December, up from 55.6 in November. The level of the PMI was mainly boosted by a marked lengthening of suppliers' delivery times and substantial increase in stocks of purchases as part of preparations before the end of the transition period (which also boosted new order intakes).

Manufacturing output rose for the seventh month running in December, albeit to a lesser extent than one month ago. Growth was registered across the consumer, intermediate and investment goods sectors. The steepest expansion was at intermediate goods producers, while consumer goods output returned to growth following back-to-back contractions. Job cuts were made for the eleventh consecutive month. December saw new orders rise at the quickest pace since August, as intakes improved from domestic and overseas sources. A large part of the latest expansion reflected clients bringing forward orders to guard against potential disruption caused by the end of the Brexit transition period (including delays at ports).

Business optimism eased in December, with 56% of manufacturers forecasting output to rise over the next 12 months (compared to 61% in November). Positive sentiment was linked to ongoing economic recoveries, hopes of a lesser impact from COVID-19, reduced uncertainty following the completion of Brexit and planned strategic investments.

According to the report from IHS Markit, the seasonally adjusted Eurozone Manufacturing PMI improved to its highest since May 2018 during the final month of 2020. Posting 55.2, up from 53.8 in November but a little softer than the earlier flash reading, the headline index was above the crucial 50.0 no-change mark that separates growth from contraction for a sixth successive month.

Although all three broad market groups recorded an improvement in operating conditions since November, rates of growth were noticeably different. Investment goods producers recorded the strongest improvement, followed by intermediate goods where marked growth was also registered. In contrast, only a marginal strengthening in operating conditions was seen amongst consumer goods producers. 

A sixth successive monthly increase in manufacturing production was signalled by the latest data, with the rate of expansion marked and up since November. The improvement was linked to a similarsized increase in new orders, which also rose for the sixth month in a row. New export orders increased markedly and to a greater extent than in November. 

There remained evidence of some pressure on capacity as backlogs of work increased for a fifth successive survey period and at a rate that was close to October’s 32-month high. However, firms on average made further cuts to their staffing levels, extending the current period of decline to 20 months. 

Finally, confidence about the coming 12 months improved to the highest level in nearly three years as optimism rose on hopes that operating conditions would be closer to normal by the end of 2021. Italian and Dutch manufacturers were the most confident in December.

FXStreet reports that Terence Wu, FX Strategist at OCBC Bank, expects the Australian dollar to stay supported in the near-term.

“The AUD/USD bullish trajectory remains intact, with technicals still pointing to further upside for the aussie.”

“With risk environment supportive and RMB still on a firming stance, do not rule out further upside for this pair.”

“0.7750 may be the immediate target for now, but expect further extension higher.”

During today's Asian trading, the US dollar fell against most major currencies thanks to continued optimism among traders about the prospects for a global economic recovery this year.

"The mood of foreign exchange market participants remains based on optimism about the global economic recovery in 2021, and this suggests a downward trajectory in the value of the dollar," said analysts at Axi.

"The incidence of COVID-19 and the introduction of vaccines remain the focus of investors' attention at this time, " said JPMorgan Asset Management analyst Kerry Craig.

The dollar is also cheaper against the pound, australian dollar and asian currencies.

The ICE index, which tracks the dollar's performance against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell 0.35%.

Reuters reports that some global hedge fund investors are going into 2021 optimistic about a speedy snap-back from the economic challenges related to the coronavirus pandemic.

Accounting for roughly $3 trillion in assets, hedge funds showed resilience in 2020, with many outperforming the market, according to investors.

“We think 2021 is going to be a really positive year for the markets,” said Jason Donville, president and CEO at hedge fund Donville Kent Asset Management. He forecasts an explosion of pent-up demand for travel and leisure producing a period of “super growth.”

“I think it will take a little while for the vaccines to roll out and then somewhere around March, April, May, you’re going to get a confluence of the vaccines getting to a certain critical mass... and infection rates dropping.”

For 2020 as a whole, the S&P 500 unofficially rose 16.26%, a stunning rally from a bear market that kicked off when the pandemic spread rapidly earlier in the year.

“What I would say about 2021 is it looks like it’s going to be a year of recovery,” said Robert Sears, chief investment officer at UK-based Capital Generation Partners, which invests in hedge funds globally. “That’s the consensus view.”

CNBC reports that the decision by the New York Stock Exchange to delist three Chinese telecommunication giants has drawn ire from China — but analysts say Beijing is unlikely to take significant action to retaliate against Washington.

The stock exchange announced Thursday it will delist China Telecom, China Mobile and China Unicom. Trading is due to be suspended as soon as Jan. 7, or as late as Jan. 11.

The move by the NYSE is in line with an executive order signed by U.S. President Donald Trump in November, that barred Americans from investing in companies allegedly connected to the Chinese military. 

Responding to the U.S. move, China’s commerce ministry said Saturday that it will “take necessary measures to resolutely safeguard the legitimate rights and interests of Chinese enterprises.”

Asked if even more Chinese companies might be delisted, Brendan Ahern, chief investment officer of investment firm KraneShares, said: “I don’t see this being extended beyond these three specific names, simply because this was really driven by this executive order.”

Ronald Wan, a non-executive chairman at Partners Financial Holdings, added that any actions taken by Beijing likely won’t be “significant.”

Ahern said investors of the three U.S. listed stocks — China Telecom, China Mobile and China Unicom —will be able to convert them to their Hong Kong-listed shares.

RTTNews reports that survey results from Caixin/IHS Markit revealed that China's manufacturing sector growth moderated at the end of 2020 as output and new work logged slower expansions.

The manufacturing PMI fell to 53.0 in December from 54.9 in the previous month. The score was also below economists' forecast of 54.8.

The pace of growth was the slowest in three months. Nonetheless, the score signaled that the sector continued to recover from the Covid-19 outbreak.

The overall slowdown was caused by the slower increase in production, the private survey showed. Firms also reported slower increase in overall new orders due to moderate rise in foreign demand. Firms were cautious regarding employment as cost cutting initiatives weighed on recruitment.

Manufacturers reported a sharp increase in average input costs in December. The rate of inflation was the steepest recorded for three years and led to a quicker rise in prices charged by manufacturers.

Chinese goods producers generally expect production to be higher than current levels in one year's time amid forecasts of firmer global demand conditions and an end to the Covid-19 pandemic.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2370 (963)

$1.2333 (2803)

$1.2301 (1246)

Price at time of writing this review: $1.2255

Support levels (open interest**, contracts):

$1.2167 (1809)

$1.2131 (2257)

$1.2089 (4862)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date January, 8 is 79122 contracts (according to data from December, 31) with the maximum number of contracts with strike price $1,2100 (4862);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3829 (2590)

$1.3762 (2139)

$1.3700 (1575)

Price at time of writing this review: $1.3683

Support levels (open interest**, contracts):

$1.3509 (568)

$1.3471 (822)

$1.3430 (818)

Comments:

- Overall open interest on the CALL options with the expiration date January, 8 is 58645 contracts, with the maximum number of contracts with strike price $1,4000 (33149);

- Overall open interest on the PUT options with the expiration date January, 8 is 29332 contracts, with the maximum number of contracts with strike price $1,2800 (2935);

- The ratio of PUT/CALL was 0.50 versus 0.51 from the previous trading day according to data from December, 31

* - 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.