CFD Markets News and Forecasts — 04-12-2020

• A targeted assistance plan would be very helpful
• U.S. must keep schools and businesses open

• U.S. economy came back more quickly than thought
• Still a ways to go in recovery
• Recovery has been uneven with some sectors advantaged and others hit harder
• Need a stronger return to work to keep things going
• Vaccine is promising, a lot of reasons to hope that things will be better in 2021
• Would expect a steeper yield curve as economy strengthens

The U.S. Commerce Department reported on Friday that the value of new factory orders rose 1.0 percent m-o-m in October, following a revised 1.3 percent m-o-m advance in September (originally a 1.1 percent m-o-m gain). That marked the sixth consecutive month of gains in factory orders.

Economists had forecast a 0.8 percent m-o-m increase.

According to the report, orders for transportation equipment increased 1.4 percent m-o-m in October. Gains also occurred in fabricated metal products (+2.3 percent m-o-m) and computers and electronic products (+3.2 percent m-o-m). These increases, however, were partially offset by a decline in new orders for machinery (-0.3 percent m-o-m).

Meanwhile, total factory orders excluding transportation, a volatile part of the overall reading, also rose 1.0 percent m-o-m in October (compared to an upwardly revised 0.9 percent m-o-m gain in September), while orders for nondefense capital goods excluding aircraft, a measure of business spending plans, increased 0.8 percent m-o-m (compared to a 2.1 percent m-o-m jump in the previous month). The report also showed that shipments of core capital goods surged 2.4 percent m-o-m in October, rather than gaining 2.3 percent m-o-m as previously reported.

Statistics Canada announced on Friday that Canada’s merchandise trade deficit stood at CAD3.76 billion in October, narrowing from a revised CAD3.82-billion gap in September (originally a CAD3.25-billion shortfall).

Economists had forecast a deficit of CAD3.00 billion.

According to the report, Canada’s exports rose 2.2 percent m-o-m to CAD46.47 billion in October, partially due to higher exports of pharmaceutical products (+39.0 percent m-o-m).

Meanwhile, imports increased by 1.9 percent m-o-m to CAD50.23 billion in October, with higher imports of electronic and electrical equipment and parts (+9.5 percent m-o-m) contributing the most to the overall gain.

U.S. stock-index futures rose slightly on Friday, as weaker-than-expected U.S. November jobs data heightened hopes for a new fiscal stimulus package from Congress.

Global Stocks:

The U.S. Commerce Department reported on Friday that U.S. the goods and services trade deficit widened to $63.1 billion in October from a revised $62.1 billion in the previous month (originally a gap of $63.9 billion).

Economists had expected a deficit of $64.8 billion.

According to the report, the October rise in the goods and services deficit reflected an increase in the goods deficit of $0.6 billion to $81.4 billion and a decrease in the services surplus of $0.4 billion to $18.3 billion.

In October, exports of goods and services from the U.S. increased 2.2 percent m-o-m to $182.0 billion, while imports jumped 2.1 percent m-o-m to $245.1 billion, in part, due to the impact of COVID-19, as many businesses continued recovery from the sharp declines earlier this year.

Year-to-date, the goods and services deficit climbed 9.5 percent from the same period in 2019. Exports plunged 16.4 percent, while imports tumbled 11.5 percent.

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

Statistics Canada reported on Friday that the number of employed people increased by 62,100 m-o-m in November (or +0.3 percent m-o-m) after an unrevised increase of 83,600 m-o-m in the previous month. This was the smallest employment gain since the Canadian labour market started to recover in May.

Economists had forecast an advance of 20,000 m-o-m.

Meanwhile, Canada's unemployment rate fell to 8.5 percent in November from 8.9 percent in October, exceeding economists’ forecast for 8.9 percent. That was the lowest rate since March.

According to the report, full-time employment rose by 99,400 (or +0.7 percent m-o-m) in November, while part-time jobs declined by 37,400 (or -1.1 percent m-o-m).

In November, the number of public sector employees increased by 31,600 (or +0.8 percent m-o-m), while the number of private sector employees rose by 23,100 (or +0.2 percent m-o-m) and the number of self-employed grew by 7,400 (or +0.3 percent m-o-m) last month.

Sector-wise, employment increased both in goods-producing (+1.2 percent m-o-m) and service-producing (+0.1 percent m-o-m) businesses.

Boeing (BA) downgraded to Underperform from Peer Perform at Wolfe Research

The U.S. Labor Department announced on Friday that nonfarm payrolls rose by 245,000 in November after a downwardly revised 610,000 advance in the prior month (originally a gain of 638,000), reflecting the continued resumption of economic activity that had been curtailed due to the coronavirus pandemic and efforts to contain it. This, however, was the smallest employment gain since the U.S. job market started to recover in May.

According to the report, employment rose notably in transportation and warehousing (+145,000 jobs), professional and business services (+60,000), and health care (+46,000). Meanwhile, employment declined in government (-99,000) and retail trade (-35,000).

The unemployment rate fell to 6.7 percent in November from 6.9 percent in October.

Economists had forecast the nonfarm payrolls to increase by 469,000 and the jobless rate to drop to 6.8 percent.

The labor force participation rate decreased by 0.2 percentage point to 61.5 percent, while hourly earnings for private-sector workers rose 0.3 percent m-o-m (or $0.09) to $29.58, following an unrevised 0.1 percent m-o-m advance in October. Economists had forecast the average hourly earnings to increase 0.1 percent m-o-m in November. Over the year, average hourly earnings surged by 4.4 percent in November, following a revised 4.4 percent rise in October (originally an advance of 4.5 percent).

The average workweek was unchanged at 34.8 hours in November, matching economists' forecast for 34.8 hours.

GBP appreciated against its major rivals in the European session on Friday as investors hoped that the UK and the EU would be able to secure a trade deal before the December 31 deadline.

Talks on post-Brexit trade relations between the UK and EU are ongoing on Friday and are expected to continue this weekend.

The incoming Brexit headlines are contradictory. Reuters reported, citing an EU official, that a trade deal with the UK is "imminent" and is expected by the end of the weekend, barring a last-minute breakdown in the negotiations. However, this information wasn't corroborated by any other source. Meanwhile, the UK PM Boris Johnson's spokesman stated that the sides are at "a very difficult point" right now and any weekend talks are contingent on what happens today. He also added that there are still some issues to overcome. Adding to the uncertainty, the Financial Times reported that the UK's accused France of making new demands at the last second, diminishing the chances of a deal being agreed by the end of the week. The French president Emmanuel Macron and Boris Johnson are due to meet this weekend.

• We are at very difficult point in talks
• There are still some issues to overcome
• UK's side is working hard to reach an agreement
• Time is now very short
• PM Johnson will work at chequers this weekend, will be in contact with the negotiation team
• Our position on clauses in Internal Market Bill remains unchanged

• PBoC might take action if further rises are rapid and are to hurt country's exports
• Some policy advisers think yuan may strengthen to 6.4 per dollar next year; authorities could still take steps to brake a rapid rise if Chinese exporters were to feel the pinch or speculative “hot money” were to flood in

Chris Turner, the Global Head of Markets and Regional Head of Research for UK & CEE at ING, notes that the U.S. dollar bear trend has strengthened and broadened this week.

"In the G10 space, European currencies have broken to the upside (EUR/$ through 1.20 and USD/CHF below 0.90) and a stand-out for us has been USD/KRW trading sharply down through 1100 barely a week after the Bank of Korea Governor warned of herd-like behaviour and the implicit threat of intervention... This benign dollar decline is good for world growth, exporting as it does low US rates around the world and allowing the Rest of the World to run looser monetary policy."

"Propelling the dollar decline as well has been the fall in US real rates (nominal less inflation) where US 10-year inflation expectations, derived through index-linked US Treasuries, have pushed up to 1.87% - the highest since summer 2019. Policymakers can congratulate themselves here and progress on a smaller US fiscal stimulus – the $908bn plan seems to be gaining traction – can cement these trends."

"Given all this, we doubt today’s November NFP will have much bearing on the dollar. A good number, firms up recovery hopes, a bad number could prompt the Fed into fresh easing. DXY to work its way to 90 this month."

• Poland won't change its position on EU's budget proposal

FXStreet reports that Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, suggests that in the light of the recent price action, AUD/USD could now move into a consolidative phase.

“AUD/USD has taken out all nearby resistance levels and but the daily RSI has not yet confirmed the break higher. We would allow for some near term consolidation and today will just stand aside. Beyond some consolidation we look for a move to the long term Fibonacci retracements at .7574 and .7639. These are the break points longer term for the 2018 peak at .8135.”

• There is only a small number of cases of negative rates elsewhere to draw on, and experience elsewhere may not provide a perfect guide for UK
• Experience of other countries with negative rates is that a rate cut below zero lifts growth much in the same away as a rate cut above zero
• Other studies suggest the net effect of negative rates on bank profitability is small and may even be slightly positive
• Effectiveness of any single policy tool may be less than usual or more uncertain than usual
• The most effective means may be to use a range of policy tools
• There are some headwinds that could leave the economy stuck with persistently high unemployment and below-target inflation
• It those downside risks develop, risk management considerations argue for relatively prompt monetary policy response, in my view
• If more stimulus is needed, rate cut and QE may be the best approach
• Better to provide too much monetary stimulus unless inflation expectations are contained
• It also is possible that the economy will recover faster than expected

CNBC reports that Fitch Ratings expects Brent prices to drop to $45 per barrel in 2021, even though there’s good news on the vaccine front. That’s close to 9% lower than what a Refinitiv Eikon poll is predicting. The U.S. Energy Information Administration expects the international benchmark to be at $46.59.

Dmitry Marinchenko, senior director at Fitch Ratings, said the company is more cautious.

“We expect prices to be, on average, at $45 next year for Brent,” he told CNBC. “This assumes that the demand will remain weak until at least the second half of the year, because the progress with mass vaccination probably will not be very quick.”

Marinchenko said vaccines will “probably not have a significant impact” on oil demand until the second half of 2021.

“With weak demand, and with OPEC trying to manage supply … to avoid large surpluses or deficits in the market, we expect prices to be at $45 next year,” he said.

FXStreet reports that Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, suggested EUR/CHF could move into a bullish stance if 1.0915 is cleared.

“EUR/CHF continues to consolidate at the 1.0877 September high. This area guards the June high at 1.0915. These levels are key, the market has recently eroded the 2018-2020 downtrend, while this implies that we are no longer in a down move, it will need to close above 1.0915 to confirm that we are now in a bull move.”

“First minor support along the 55 day moving average at 1.0770 may be revisited. Further support comes in at the 1.0748/12 late July, August and September lows and late October highs.”

Reuters reports that Economics Commissioner Paolo Gentiloni said that the European Union will push on with its 1.8 trillion euro financial package to revive the bloc's COVID-hit economy even if Hungary and Poland continue to try to veto the project.

"We will not surrender to a veto," Gentiloni said.

"The premise is we are very clear towards these member states, we will go on without them," the former Italian prime minister said.

He said he was worried about the continued stand-off with the two Eastern European nations but was also confident that it would be overcome through an agreement thanks to "the roads of diplomacy."

According to the report from the Society of Motor Manufacturers and Traders (SMMT), the UK new car market again saw a decline last month as registrations in November fell -27.4% year-on-year, or 42,840 units. In a month when showrooms across England had to close due to new lockdown restrictions, the industry recorded 113,781 new registrations, taking trade back to levels last seen during the 2008 recession

The decline was less severe than that seen during the first lockdown – when registrations fell by a record -97.3% in April alone – largely because this time around, retailers and manufacturers were able to be better prepared to fulfil orders via delivery or click and collect. Despite these innovations, private demand still fell by -32.2% while registrations by large fleets saw a decline of -22.1%

More positively, market share for battery electric vehicles (BEVs) and plug-in hybrid vehicles (PHEVs) continued to grow significantly, up 122.4% and76.9% respectively. BEVs recorded their third highest ever monthly share of registrations at 9.1%, while PHEV share increased to 6.8% – a combined total of more than 18,000 new zero-emission capable cars joining Britain’s roads.

According to the report from IHS Markit/CIPS, November PMI® data indicated a sustained recovery in UK construction output, with the rate of expansion accelerating from the previous month. There were also positive signals for the near-term outlook as new order volumes expanded at the quickest pace for just over six years. However, employment trends remained relatively weak across the construction sector and stretched supply chains resulted in a sharp increase in average cost burdens.

At 54.7 in November, up from 53.1 in October, the  headline seasonally adjusted UK Construction Total Activity Index registered above the 50.0 no-change value for the sixth consecutive month. The latest reading pointed to a solid increase in total construction output, although the rate of growth remained softer than the peak seen in July.

All three broad categories of activity saw higher output in November. Construction companies indicated that house building was the best performing area in November (index at 59.2), despite the rate of growth easing since October. Civil engineering returned to growth in November (52.3), while commercial work increased only marginally (51.9) and at the slowest rate for six months.

New business volumes expanded at a robust and accelerated pace in November. The latest improvement in construction order books was the steepest since October 2014, which survey respondents attributed to a recovery in tender opportunities and improving confidence among clients. Greater workloads also contributed to a strong increase in purchasing activity during November, with the rate of growth reaching its highest for just over six years.

Reuters reports that a top official with the bloc said that the European Union is still negotiating a trade deal with Britain. He added that any agreement that may emerge between negotiators must still be approved by the 27 member states.

European Council President Charles Michel said the next few days will show what comes next and the 27 leaders meeting remotely on Dec. 10-11 will take a position on the latest developments.

"It's unfortunate that it took longer than planned, but we're still currently negotiating," Michel told a news conference. "We'll see over the next few days what the next steps are at this point in the negotiations."

He said the bloc's executive, the European Commission, which is negotiating with Britain on behalf of the 27 EU countries, will inform member states of the result of the negotiations once they are concluded.

"We want a deal but not at any price," Michel said. "For the European Union ... the 'level playing field' is key."

According to the report from IHS Markit, work undertaken on housing by eurozone construction firms decreased further in November. The decline marked the ninth consecutive monthly fall in activity, although the pace of contraction eased from that seen in October, and was only marginal overall (сonstruction PMI rose to 45.6 in November from 44.9 in October). A faster rise in German home building activity was offset by a further steep decline in France, while the fall in Italy was only marginal. Meanwhile, commercial construction was the worst performing of the monitored sub-sectors in the latest survey period. The pace of the contraction accelerated and was the fastest for six months. The downturn in eurozone civil engineering activity continued in November, the sixteenth fall in as many months, as infrastructure building contracted sharply.

New business received by eurozone construction companies continued to fall in November. Moreover, the pace of the reduction accelerated and was the fastest since May.

Employment levels among eurozone constructors contracted further in the latest survey period. That said, the pace of job shedding eased and was marginal overall.

Eurozone construction companies remained pessimistic regarding the outlook for activity over the coming year. November data signalled a further fall in buying activity among eurozone construction companies. The rate of contraction eased from October, but remained solid overall

CNBC reports that according to JPMorgan, stocks in emerging markets may rise as much 20% in 2021 after being largely ignored by investors this year.

“I think emerging markets are very under owned as we see in the markets rally,” Joyce Chang, chair of global research at JPMorgan, told.

Besides China and India, many other emerging markets have been shunned by investors in 2020 as they largely flocked toward safety.

“We’re actually neutral on China right now, but we’ve upgraded the rest of emerging markets where we do think the valuations are attractive, and there’s more opportunity,” Chang said.

In particular, the firm sees opportunities for stocks in Brazil, Indonesia, South Korea as well as Thailand. In terms of industries, Chang said the consumer discretionary sector as well as those related to entertainment and leisure also have room to “catch up.”

Asked about the potential for emerging markets broadly to outperform their developed market peers in 2021, the JPMorgan analyst said stocks in the developing world could see “double digit” gains of up to 20%.

Reuters reports that Business Secretary Alok Sharma said that Brexit trade talks are in the difficult phase and a deal can only be struck if the European Union accepts that Britain is a sovereign nation.

"We are at a critical phase," Sharma told Sky TV. "It is fair to say that we are in a difficult phase, there are some tricky issues still to be resolved."

"Right from the start of this process, we've always said that a deal can only be done if the EU recognises that the UK is a sovereign independent nation," Sharma said. "It is on the basis of that a deal will be done."

Britain formally left the EU on Jan. 31 but has been in a transition period since then under which rules on trade, travel and business remain unchanged. From the end of the year it will be treated by Brussels as a third country.

If the two sides fail to reach a deal, the five-year Brexit divorce would end in disorder just as Europe grapples with the vast economic cost of the COVID-19 outbreak.

EU Brexit negotiator Michel Barnier is due to update 27 national envoys to the bloc's hub Brussels on Friday on the latest in the talks.

During today's Asian trading, the US dollar declined slightly against the euro and rose against the japanese yen.

House speaker Nancy Pelosi and Senate Republican majority leader Mitch McConnell held talks amid congressional efforts to reach an agreement on aid measures and avoid a government shutdown. Earlier on Thursday, McConnell said he sees "encouraging signs" that the parties will be able to reach an agreement before the end of the year.

This week, a group of congressmen from both parties proposed a new $908 billion stimulus package. On Wednesday, Pelosi and Senate democratic minority leader Chuck Schumer called on McConnell to use the proposal as a basis for negotiations.

US President Donald Trump has promised to sign a package of measures to support the economy in connection with the pandemic, if Congress has time to agree on it before the end of the current convocation.

Meanwhile, the Wall Street Journal reported, citing a source familiar with the situation, that Pfizer Inc. will be able to produce 50 million doses of the COVID-19 vaccine by the end of 2020 instead of the planned 100 million due to problems with the supply of the necessary substances.

The ICE index, which tracks the dollar's performance against six currencies (the euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell 0.07%.

eFXdata reports that ANZ Research discusses EUR/USD outlook.

"We revised up our EUR/USD forecasts. COVID-19 vaccines will support a quicker return to pre-crisis GDP levels, despite the downside risks to growth over the winter. Our base-case expectation is that positive cyclicality from Q2 will favour the euro. Global GDP growth and trade volumes are recovering; and fiscal and monetary stimulus, supported improving health expectations, could drive above-trend growth into 2022,"ANZ notes. 

"A Biden presidency is expected to embrace a multilateral approach to trade, favouring dialogue over tariffs. The likelihood of a protracted USEU trade dispute has fallen. We now expect EUR/USD to rise towards 1.28 by end 2021," ANZ adds. 

EUR/USD

Resistance levels (open interest**, contracts)

$1.2301 (368)

$1.2252 (586)

$1.2205 (642)

Price at time of writing this review: $1.2154

Support levels (open interest**, contracts):

$1.2127 (273)

$1.2094 (164)

$1.2048 (223)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date December, 4 is 106717 contracts (according to data from December, 3) with the maximum number of contracts with strike price $1,1200 (6560);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3604 (663)

$1.3559 (1485)

$1.3519 (2744)

Price at time of writing this review: $1.3449

Support levels (open interest**, contracts):

$1.3379 (645)

$1.3338 (1027)

$1.3293 (431)

Comments:

- Overall open interest on the CALL options with the expiration date December, 4 is 23654 contracts, with the maximum number of contracts with strike price $1,3500 (2744);

- Overall open interest on the PUT options with the expiration date December, 4 is 45288 contracts, with the maximum number of contracts with strike price $1,2700 (11992);

- The ratio of PUT/CALL was 1.91 versus 1.87 from the previous trading day according to data from December, 3

* - 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.

According to provisional results of the Federal Statistical Office (Destatis), real (price adjusted) new orders increased by a seasonally and calendar adjusted 2.9% in October 2020 compared with September 2020. Economists had expected a 1.5% increase.

Compared with October 2019, the increase in calendar adjusted new orders amounted to +1.8%. Excluding major orders, real new orders in manufacturing (seasonally and calendar adjusted) were 1.7% higher than in the previous month.

Compared with February 2020, the month before restrictions were imposed due to the corona pandemic in Germany, new orders in October 2020 were 0.8% higher in seasonally and calendar adjusted terms. In the largest branch of manufacturing, the automotive industry, new orders still increased in October 2020 (+1.0% on the previous month) and were 6.0% above the pre-crisis level of February 2020.

Domestic orders increased by 2.4% and foreign orders increased by 3.2% in October 2020 on the previous month. New orders from the euro area went up 0.5%, and new orders from other countries increased by 4.8% compared with September 2020.

In October 2020, the manufacturers of intermediate goods saw new orders increase by 2.3% compared with September 2020. The manufacturers of capital goods saw an increase of 3.8% on the previous month. Regarding consumer goods, new orders fell 2.2%.

For September 2020, revision of the preliminary outcome resulted in an increase of 1.1% compared with August 2020 (provisional: +0.5%). The reason was late reporting, for instance, on major orders in the manufacture of air and spacecraft.