CFD Markets News and Forecasts — 05-01-2021

• Expects U.S. economy to slow down in H1 2021
• If vaccinations roll out, a pickup in growth is expected in H2 2021
• If things work out way I hoped that they worked out, I would like us to be able to taper asset purchases next year
• Says she is happy with the way policy is calibrated right now

A report from the Institute for Supply Management (ISM) showed on Tuesday the U.S. manufacturing sector’s activity expanded in December at a faster pace than in November.

The ISM's index of manufacturing activity came in at 60.7 percent last month, up 3.2 percentage points from the November reading of 57.5 percent. The December reading pointed to the seventh straight month of expansion in factory activity and the highest growth rate since August of 2018.

Economists' had forecast the indicator to decline to 56.6 percent.

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

According to the report, the New Orders Index stood at 67.9 percent, up 2.8 percentage points from the November reading, while the Production Index registered 64.8 percent, an advance of 4.0 percentage points compared to the November reading, the Supplier Deliveries Index recorded 67.6 percent, up 5.9 percentage points from the November figure and the Employment Index was at 51.5 percent, 3.1 percentage points higher from the November reading, returning to expansion territory.

Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee, noted that the manufacturing economy continued its recovery in December. “Survey Committee members reported that their companies and suppliers continue to operate in reconfigured factories, but absenteeism, short-term shutdowns to sanitize facilities and difficulties in returning and hiring workers are causing strains that are limiting manufacturing growth potential,” he added. “However, panel sentiment remains optimistic (three positive comments for every cautious comment), an improvement compared to November”. He also said that the past relationship between the PMI and the overall economy indicated that the PMI for December (60.7 percent) corresponds to a 5.2-percent increase in real gross domestic product (GDP) on an annualized basis.

U.S. stock-index futures fell on Tuesday, as investors continued to take profits while awaiting the outcomes of today's crucial Senate election runoffs in Georgia, which will determine whether the Democrats take control of the U.S. Congress as well as the fate of President-elect Joe Biden's legislative agenda.

Global Stocks:

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

FXStreet notes that COVID-19 developments continue to be the main driver of the global economy. Short-term headwinds strengthen as covid infections stay high but the beginning of the vaccine roll-out provides brighter prospects for the future. Downside risk factors have come down following the UK-EU Brexit deal and lower risk of new US-China trade war with the election of Biden and economists at Danske Bank continue to be positive on equities over the coming year.

“We expect restrictions to be with us for most of Q1. An increase in social gatherings in December over Christmas and New Year has pushed the R rate above one again, but as social gatherings typically decline significantly in January, this should help to push R back below one. A new obstacle to controlling the virus spread has shown up, though, in the form of a more contagious variant of the virus which appears to have originated in the UK.” 

“On the positive side, the vaccination process has started and the most vulnerable groups are expected to have been vaccinated by the end of Q1 or early Q2. This should help reduce mortality and hospitalisation significantly. In addition, warmer weather will help to reduce contagion. We thus expect the removal of the majority of restrictions by Easter in early April, with immunity being adequately achieved by the time colder weather comes back in the autumn.”

“The number of risk factors have also come down over the past months. The UK and EU finally agreed on a last-minute Brexit deal and the election of Joe Biden as US president has removed the risk of a new US-China trade war. Hence, once the vaccine has been rolled out, the sky should be getting brighter for the global economy.”

McDonald's (MCD) initiated with an Outperform at Wedbush; target $240

Tesla (TSLA) downgraded to Underperform from Neutral at Exane BNP Paribas; target $340

Coca-Cola (KO) downgraded to Neutral from Buy at Guggenheim

Micron (MU) upgraded to Buy from Sell at Citigroup; target raised to $100

Bank of America (BAC) upgraded to Outperform from Peer Perform at Wolfe Research; target raised to $36

Freeport-McMoRan (FCX) upgraded to Buy from Hold at Argus; target $30

FXStreet notes that gold’s decline to 1765 in late November completed a corrective phase. With that, gold resumed its bullish underlying trend. To express his bullish view, Benjamin Wong, Strategist at DBS Bank, enters a tactical long at 1911 with an add-on at 1868. 

“Since mid-2019, gold has been paying attention to the support offered by the 50-week moving average. Gold’s drop to 1765 held right into that moving average support. A point to note is that this support is now higher at 1794, and together with 1818, they should offer formidable support should any decline come forth.”

The mid-November high at 1965 (with follow-on resistance at 1973) would be the next key technical level to monitor. A sustained thrust over this would be key to pull gold to test the major resistance at 1992, and thereafter see a rebuild the tactical case for a journey back towards 2080.”

“Gold had a price gap up on its first trading day of the year; we would go long on a potential 1905 gap fill at 1911. If you notice during the later part of December, gold held firmly into the 1850s dips. We would double up our 1910 tactical long at 1868 (100-day moving average), with an invalidation point at 1815.”

FXStreet reports that Axel Rudolph, Senior FICC Technical Analyst at Commerzbank, notes that copper (LME) is trying to reach its December high at 8028.00 as the metal remains bullish while above 7673.00/7635.00. 

“The contract remains bid while it continues to trade above the December 8 and 23 lows at 7673.00/7635.00 on a daily chart closing basis.” 

“Above the 8028.00 high sits the April 2010 high at 8043.75 and further up the September 2012 and February 2013 peaks at 8346.00/8422.00.”

GBP depreciated against its major rivals in the European session on Tuesday, weighed down by surging coronavirus cases globally and growing concerns about the pace of economic recovery due to tougher COVID-19 rules.

According to Johns Hopkins University, the confirmed global COVID-19 cases across the world have risen to 85.77 million, while the number of deaths from the coronavirus has grown to near 1.86 million. 

On Monday, the UK's Prime Minister (PM) Boris Johnson announced the third national lockdown in England to contain a new more contagious variant of the virus. The restrictions include the closure of the schools and the order for the public to stay at home except for essential purposes. The lockdown is scheduled to last until at least February 15.

In order to cushion the damage from coronavirus, the UK's finance minister Rishi Sunak announced a GBP4.6 billion fresh financial support package for the struggling UK's businesses on Tuesday. He also pledged to lay out the next steps on virus support measures at the March budget. 

It is also expected that Germany will announce the extension of its lockdown measures later today. According to media reports, the current lockdown will be continued until January 31.

Investors are also awaiting the outcome of today's crucial Senate election runoffs in Georgia, which will determine whether the Democrats take control of the U.S. Congress as well as the fate of President-elect Joe Biden's legislative agenda.

FXStreet reports that analysts at Credit Suisse note that the S&P 500 Index has completed a large bearish “reversal day” on increased volume to raise the prospect of a correction to the rally from late October, with key support seen at 3640/33. 

“S&P 500 has tested and rejected our next objective of a cluster of Fibonacci projection resistances in the 3765/85 zone for the completion of a large bearish ‘reversal day’ on increased volume and with a bearish RSI momentum divergence also in place we now look for a correction to the rally from late October.” 

“Support is seen at 3680 initially, then 3663, with more important support seen at the December lows and ‘neckline’ to a potential top at 3640/33. Only below here though would see a top established to raise the prospect of a more concerted correction lower with support seen next at 3594/90, then 3578.” 

“Resistance is seen at 3708 initially, with the immediate risk seen lower whilst below 3727/33. Above can ease the threat of a setback for a fresh look at 3765/85.”

• We will set out next stage of economic response in March
• March budget will be excellent opportunity to take stock

FXStreet reports that the AUD/USD pair is poised to see another test of the 0.7742 late 2020 high, which the Credit Suisse analyst team looks to cap for now, in line with their bias for further USD consolidation.

“AUD/USD saw another test of the crucial late 2020 high at 0.7742 yesterday, before reverting back lower and coming to a halt just shy of the pivotal 13-day exponential average, currently at 0.7632. The market is seeing strength unfold again in early trading today, however further near-term consolidation is likely at this point below the 0.7742 highs.”

“With the broader uptrend still intact and a large ‘head and shoulders’ base still in place though, a break above 0.7742 is expected in due course, which would open up a 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.”

Reuters reports that Japan's likely decision to declare a state of emergency in the Tokyo area will most probably trigger a contraction in January-March, analysts say, adding to the headache for policymakers struggling to cushion the blow to the economy from the pandemic.

The world's third-largest economy rebounded sharply in the third quarter last year from a record April-June slump caused by the pandemic, heightening expectations of a moderate recovery.

But such hopes have been dashed by a resurgence in COVID-19 infections that have forced the government to consider imposing a state of emergency that could last about a month.

BNP Paribas chief Japan economist Ryutaro Kono said he plans to slash his January-March forecast to an annualised contraction of around 2% from the current projection of a 0.2% increase.

Daiwa Institute of Research also expects the economy to shrink in January-March, even though it sees the hit to real gross domestic product (GDP) at less than 1 trillion yen ($9.7 billion) per month - one-third that from last year's curbs.

FXStreet reports that according to economists at the Bank of Montreal, the USD/CAD pair is expected to end the year around 1.25.

“Canada's economy is projected to grow 5.0% in 2021, the best year since 2000 and somewhat above the consensus view. After contracting about 5.5% in 2020, GDP should retrace its losses by year-end.”

“With permanent job losses accounting for a third of the 1.6 million unemployed in November, the jobless rate will decline slowly, likely ending the year at a still-high 7.0%. As a result, the Bank of Canada is expected to keep policy rates near zero.”

“The Canadian dollar is expected to strengthen modestly to $1.25 by late 2021. This is near purchasing power parity, limiting its impact on the economic recovery though keeping the trade deficit large. The loonie should benefit from firmer resource prices as global demand improves and from further weakness in the trade-weighted greenback as safe-haven demand fades.”

Reuters reports that Britain offered a 4.6 billion pound support package for businesses struggling to cope with a third national lockdown, imposed this week to stem a new wave of COVID-19 cases sweeping the country.

Finance minister Rishi Sunak said retail, hospitality and leisure companies will be able to claim one-off grants worth up to 9,000 pounds to get them through the coming months - adding to hundreds of billions of pounds of existing support.

"This will help businesses to get through the months ahead - and crucially it will help sustain jobs, so workers can be ready to return when they are able to reopen," Sunak said.

In addition to the UK-wide grants, worth around 4 billion pounds, the government will provide 594 million pounds of funding to the administrations of Scotland, Wales and Northern Ireland.

Bloomberg reports that the New York Stock Exchange said it will no longer delist China’s three biggest state-owned telecommunications companies, backtracking on a plan that had threatened to escalate tensions between the world’s largest economies.

NYSE’s U-turn came with scant explanation just four days after the exchange said it would remove the shares to comply with a U.S. executive order barring investments in businesses owned or controlled by the Chinese military. Citing “consultation with relevant regulatory authorities” for the reversal in a brief statement late Monday, NYSE declined to elaborate further.

FXStreet reports that economists at MUFG Bank expect the USD/CNY pair to move downward in 2021. 

“The renminbi has been boosted overnight by the announcement from the New York Stock Exchange that it has backtracked on plans to delist three Chinese state-run telecoms groups as it no longer intended to carry out the de-listings ‘in light of further consultation with relevant regulatory authorities’.” 

“We expect the renminbi to advance further against the US dollar in the year ahead. A reduction in US-China trade policy tensions/uncertainty would create a more supportive backdrop for the renminbi while it should continue to benefit from relatively higher yields on offer in China and the cyclical outperformance of China’s economy.”

Reuters reports that according to the report from the Federal Employment Agency, German unemployment fell unexpectedly in December, despite the retail lockdown imposed that month.

The number of people out of work fell by 37,000 in seasonally adjusted terms to 2.776 million. Economists had expected a rise of 10,000. The unemployment rate remained unchanged compared to the previous month at 6.1%, the lowest level since April.

The number of people on short-time work schemes, which have shielded the labour market from the brunt of the pandemic, rose by 666,000 in the first four weeks of December, as partial and full lockdowns.

According to the report from European Central Bank, the annual growth rate of the broad monetary aggregate M3 increased to 11.0% in November 2020 from 10.5% in October, averaging 10.6% in the three months up to November. The components of M3 showed the following developments. The annual growth rate of the narrower aggregate M1, which comprises currency in circulation and overnight deposits, increased to 14.5% in November from 13.8% in October. The annual growth rate of short-term deposits other than overnight deposits (M2-M1) decreased to 1.2% in November from 1.4% in October. The annual growth rate of marketable instruments (M3-M2) increased to 14.7% in November from 13.8% in October.

Annual growth rate of adjusted loans to households stood at 3.1% in November, compared with 3.2% in October

Annual growth rate of adjusted loans to non-financial corporations stood at 6.9% in November, compared with 6.8% in October

FXStreet reports that according to economists at TD Securities, the USD could see further downside momentum should the Democrats flip both Georgia seats.

“Republicans need to win just one of the two GA contests on Tuesday to remain the majority party in the Senate, but polls have been moving in favor of the Democrats and betting odds have tightened. The Ossoff-Perdue race is expected to be the tighter of the two.”

“Should the Democrats succeed in flipping the Georgia Senate seats, we think the odds of another covid relief package will outweigh the downside associated with a potentially more ambitious Biden agenda. Taken in conjunction with the easing of notable tail risks (like Brexit), we think this would fuel the USD's downside momentum under the umbrella of reflation cemented by a higher inflation risk premium. We think this could further Asia FX outperformance versus the USD and corresponding equity markets.”

“Should the Senate remain in the hands of the GOP, we think the USD could find some limitation in terms of the weakness observed across the G10, particularly against EUR/USD.”

During today's Asian trading, the US dollar fell against its major peers as China set the official yuan exchange rate at its highest level since abandoning the peg in 2005, helping to support demand for other assets.

The Australian dollar led gains among major currencies as the actions of the People's Bank of China (PBOC) spurred broad dollar sales.

Although investor caution over the yuan's rapid rise triggered some later selling of the Chinese currency on Tuesday, the PBOC’s actions nevertheless lifted risk sentiment in the currency markets.

The Australian dollar, a barometer of risk appetite that also tends to follow the yuan, jumped 0.55%, approaching a 2-1 / 2-year high.

The dollar index fell 0.09% to 89.79. On Monday, it fell to 89.415 for the first time since April 2018, but ended the day up 0.1% after US stocks fell.

The pound was trading mixed due to a surge in infections of the rapidly spreading new strain of coronavirus in the UK, with Prime Minister Boris Johnson ordering a nationwide lockdown.

"The Fed offered additional forward guidance on asset purchases without changing the size or composition at their December meeting. The minutes are likely to show officials were content with the current policy stance. Policymakers’ medium-term optimism about vaccination and near-term concerns about lack of fiscal stimulus (which has since passed) should show officials are ready to ease more if financial conditions tighten," CS notes.

"The minutes should reaffirm the view that the Fed will taper asset purchases before hiking interest rates. The Fed is ready to ease more if financial conditions tighten, but with markets calm and recently passed fiscal relief there is not much more for them to do to support the recovery," CS adds. 

According to the report from the Federal Statistical Office (FSO), the consumer price index (CPI) fell by 0.1% in December 2020 compared with the previous month, reaching 100.9 points (December 2015 = 100). Inflation was –0.8% compared with the same month of the previous year. The average annual inflation reached –0.7% in 2020.

The average annual inflation for 2020 corresponds to the rate of change between the annual average of the CPI for 2020 and that for 2019. The annual average is equal to the arithmetic mean of the 12 monthly indices of the calendar year. The average annual inflation reached –0.7% in 2020. This decrease is due in particular to lower prices for international package holidays, petroleum products and for air transport. In contrast, prices for housing rentals and new cars increased. Prices for domestic products remained stable on average, those for imported products decreased by 2.9%. The average annual inflation reached +0.4% in 2019 and +0.9% in 2018.

The 0.1% decrease compared with the previous month can be explained by several factors including falling prices for international package holidays. Medicines also recorded a price decrease, as did fruiting vegetables. In contrast, prices for heating oil and air transport increased.

According to estimates of the Federal Statistical Office (Destatis), retail turnover 2020 in Germany is expected to be between 3.9% and 4.3% in real terms higher than in 2019. In nominal terms turnover growth is expected between 5.1% and 5.5%. This estimation takes into account the lockdown in Germany starting in the second half of December 2020 as well as retail turnover from January until November 2020. In November 2020, turnover in retail trade was provisionally in real terms 1.9% and 1.7% in nominal terms higher than in October 2020.

In November 2020, the turnover in retail rose by 5.6% (real) and 6.5% (nominal) compared to the same month of the previous year. In comparison to February 2020, the month before the outbreak of Covid 19 in Germany, the turnover in November 2020 was 8.4% (in real terms, calendar and seasonally adjusted) higher.

Retail sale of food, beverages and tobacco were in real terms 0.8% and 3.4% in nominal terms higher in November 2020 than in November 2019. 

In the non-food retail sector, sales in November 2020 rose in real terms by 8.5% and in nominal terms by 8.8% compared with the same month of the previous year. The largest increase in turnover compared with the previous year's month in real terms by 31.8% and 33.1% in nominal terms was achieved by the internet and mail order business.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2370 (816)

$1.2337 (2409)

$1.2311 (1218)

Price at time of writing this review: $1.2268

Support levels (open interest**, contracts):

$1.2210 (3797)

$1.2178 (2239)

$1.2138 (2340)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date January, 8 is 78637 contracts (according to data from January, 4) with the maximum number of contracts with strike price $1,2100 (4881);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3808 (2418)

$1.3722 (2108)

$1.3686 (1577)

Price at time of writing this review: $1.3600

Support levels (open interest**, contracts):

$1.3492 (611)

$1.3462 (820)

$1.3426 (812)

Comments:

- Overall open interest on the CALL options with the expiration date January, 8 is 57128 contracts, with the maximum number of contracts with strike price $1,4000 (33148);

- Overall open interest on the PUT options with the expiration date January, 8 is 29660 contracts, with the maximum number of contracts with strike price $1,2800 (2933);

- The ratio of PUT/CALL was 0.52 versus 0.50 from the previous trading day according to data from January, 4

* - 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.