CFD Markets News and Forecasts — 05-03-2019

Major US stock indexes are near zero, as investors expected new reports about the US-China trade negotiations, while quarterly results of retailers such as Target Corp. exceeded expectations. (TGT) and Kohl’s Corp. (KSS), supported the market.

US Secretary of State Mike Pompeo said in an interview with the media that President Donald Trump would reject any trade deal that was not perfect, but added that the United States would continue to work on the agreement.

Market participants also analyzed a number of macroeconomic reports and comments from several Fed representatives. Sales of new homes in the United States unexpectedly showed a marked increase in December, the Commerce Department reported. According to the report, in December, sales of new homes jumped 3.7%, to an annual level of 621,000 units, after rising 9.1% to a revised level of 599,000 units in November. Economists had expected sales to fall to 600,000 from 657,000, which were originally reported in the previous month. Despite the monthly increase, the Commerce Department reported that sales of new homes in December fell by 2.4% compared with the same month a year ago.

Meanwhile, the report of the Institute for Supply Management (ISM) pointed to a marked improvement in business activity in the services sector in February. According to the report, the index of business activity in the US services sector, calculated by ISM, rose in February to 59.7 points compared to 56.7 points in January. Analysts predicted that the figure will rise to 57.3 points.

Most of the components of DOW finished trading in positive territory (16 of 30). The growth leader was UnitedHealth Group (UNH; + 2.78%). Walgreens Boots Alliance (WBA; -2.44%) was an outsider.

Most sectors of the S & P recorded an increase. The technological sector grew the most (+ 0.4%). The largest decline was shown by the conglomerate sector (-0.6%).

At the time of closing:

Dow 25,806.63 -13.02 -0.05%

S & P 500 2,789.65 -3.16 -0.11%

Nasdaq 100 7,576.36 -1.21 -0.02%

The Institute for Supply Management (ISM) announced on Tuesday its non-manufacturing index (NMI) came in at 59.7 in February, which was 3.0 percentage points higher than the January reading of 56.7 percent. This pointed to the strongest expansion in the services sector in three months.

Economists forecast the index to increase to 57.3 last month. A reading above 50 signals expansion, while a reading below 50 indicates contraction. 

All 18 non-manufacturing industries reported growth in February, the ISM said. 

According to the report, the ISM’s non-manufacturing business activity measure increased to 64.7 percent, 5 percentage points higher than the January reading. That reflected growth for the 115th consecutive month, at a faster pace in February. The new orders gauge surged by 7.5 percentage points to 65.2 percent. Meanwhile, the employment indicator declined 2.6 percentage points in February to 55.2 percent.

Commenting on the data, the Chair of the ISM Non-Manufacturing Business Survey Committee, Anthony Nieves, noted, "The past relationship between the NMI and the overall economy indicates that the NMI for February (59.7 percent) corresponds to a 3.9-percent increase in real gross domestic product (GDP) on an annualized basis."

The U.S. Commerce Department reported on Tuesday that the sales of new single-family homes rose 3.7 percent m-o-m to a seasonally adjusted annual rate of 621,000 units in December. That was the highest level since last May.

Economists had forecast a sales pace of 600,000 for December. 

November’s sales pace was revised down to 599,000 units from the originally reported 657,000 units. 

According to the report, new home sales in the South, the largest area, surged 5.0 percent m-o-m to a seven-month high in December. Sales in the West rose 1.4 percent m-o-m, while sales in the Northeast jumped 44.8 percent m-o-m. At the same time, new home sales fell 15.3 percent m-o-m in the Midwest to their lowest level since April 2016.

• Wages are the best measure of labor market tightness
• "We've been amazed" by the millions of people coming off the labor market sidelines

Markit Economics reported its final IHS Markit U.S. Services Business Activity Index stood at 56.0 in February, up from 54.2 in January and broadly in line with the 'flash' estimate of 56.2. That was the strongest pace of expansion in the service sector since July.

Economists had expected the indicator to remain unrevised at 56.2. 

According to the report, service providers registered the strongest expansion of new business since last October, amid greater client demand and favourable economic conditions, and new export order growth was the highest for nine months. In addition, the rate of job creation was the quickest for five months and accelerated significantly from that seen in January. At the same time, backlogs of work increased for

the second successive month and to the greatest extent since May 2018. 

U.S. stock-index rose slightly on Tuesday as investors awaited fresh reports on the U.S.-China trade talks while weighing strong earnings from Target (TGT).

Global Stocks:

• Monitoring the level and growth of corporate debt
  
• Higher debt levels to make the U.S. more interest-sensitive
• Disruption to CLO's could curb bank lending in a downturn
• The need to moderate future debt growth could create a headwind
• Recent fiscal actions have raised the U.S. debt-to-GDP

Wall Street. Stocks before the bell

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

• It has got to be right
• If trade deal with China does not work, we will keep banging away at it

• Growth issues remain, including slowing Europe and China, trade, Brexit, European banks
• Earlier concerns that economy might overheat now seem "less pressing"
• U.S. growth likely to improve labour markets without much risk of higher inflation
• U.S. economy likely to grow somewhat above 2% in 2019, above trend
• Inflation likely to be "very close" to target
• Debt markets, foreign stocks still pricing in the elevated risk
• We have an appropriate interest rate for where the economy is now
  

• No-deal Brexit is an unlikely event

The chances of a cooperative outcome on Britain's divorce talks with the EU have improved in the last two weeks, said the global fixed income CIO Andrew Balls at PIMCO, the biggest bond investor in the world with $1.66 trillion (1.3 trillion pounds) of assets under management.

According to Balls, the UK banks look attractive and that there is more upside potential for sterling. 

"Our expectation has been for a cooperative outcome, avoiding the chaotic no-deal Brexit," he told Reuters. "In the last week or two, we are seeing now there seems to be further movement in that direction."

The Bank of England (BoE) announced it will offer more euros to banks in Britain to avoid any cash crunch after Brexit, Reuters reported.

The central bank also warned that other European Union countries are not fully ready for the possible no-deal hit to the financial system.

According to the BoE, most financial stability risks in Britain from a no-deal Brexit had been mitigated, and UK banks had enough liquidity to go for months without needing to tap markets.

But as a precaution it will launch a new weekly auction of euros from next week to ensure that banks based in Britain can borrow in euros, following on from a similar announcement last week about weekly sterling operations.

Potential problems for borrowers in the EU included higher interest rates on loans and customers in the bloc were not ready to do business with newly created units of banks and exchanges headquartered in Britain which have been set up in cities such as Frankfurt and Amsterdam in response to Brexit.

The ECB confirmed that the Eurosystem of central banks would stand ready to lend pound sterling to euro area banks if needed.

• 1600 Tesla's imported Model 3 cars are held by China's customs as they are improperly labelled

Ireland's national statistical office reported on Tuesday the country's unemployment rate fell to 5.6 percent in February from 5.7 percent in the previous month. 

The January reading was upwardly revised from an initial estimate of 5.3 percent. Monthly unemployment rates have been subject to this kind of revisions in recent quarters.

Unemployment in Ireland has declined steadily since peaking at 16 percent in 2012 when the country was midway through a three-year international bailout. 

The rate stood at 5.8 percent a year ago.

Formalizing a plan the U.S. President announced last week, the U.S. Trade Representative’s office published a statement in the Federal Register stating it was “postponing the date on which the rate of the additional duties will increase to 25 percent for the products of China covered by the September 2018 Action in this investigation," Bloomberg reported.

The new tariffs had been set to take effect March 1, but now the rate will stay at 10 percent, according to the statement.

Bank of America Merrill Lynch analysts suggests that their constructive view on the EUR this year may need more time to play out as their estimates suggest that EUR/USD pair is undervalued by about 7%, primarily because of the USD overvaluation.

“EUR is actually overvalued against GBP and JPY. Mixed US data & a dovish Fed should have helped to bring EUR/USD back to equilibrium, between 1.20-.25, which is also our forecast range. But, Eurozone data remains very weak, ECB tone has turned dovish, and EUR remains very vulnerable to Brexit risks and trade tensions. Still, our baseline scenario for global eco is consistent with a stronger EUR/USD in months ahead. It is not hard to argue that EUR/USD will appreciate following US-China & US-EU trade deals, a Brexit deal, & improvement in China data following recent policy stimulus. ECB could start talking again about rate normalization. A number of things have to go right for EUR/USD to strengthen, but we remain optimistic”.

Society of Motor Manufacturers and Traders (SMMT) said, the UK’s new car market enjoyed marginal growth in February, up 1.4% following five straight months of decline. 81,969 new cars were registered on UK roads in the month (a year on year uplift of 1,164 units), traditionally one of the quietest of the year, ahead of the crucial March plate change.

Demand for alternatively fuelled vehicles continued to surge, up 34.0% and marking the 22nd consecutive month of growth for the segment as new and existing cutting-edge models attracted buyers into showrooms. Registrations of zero-emission electric cars enjoyed particular growth, more than doubling to 731 units, although they still accounted for less than 1% of the market (0.9%).

Meanwhile, in the four months since the October 2018 reform to the Plug-in Car Grant, the market for plug-in hybrid electric vehicles (PHEVs) has only grown by 1.7%, compared with 29.5% over the first 10 months of 2018.1 This suggests that removing the incentive for PHEVs is having an adverse effect.

According to the report from Eurostat, in January 2019 compared with December 2018, the seasonally adjusted volume of retail trade increased by 1.3% in the euro area (EA19). Economists had expected a 1.2% increase. In the EU28 volume of retail trade increased by 1.1%. In December, the retail trade volume decreased by 1.4% in the euro area and by 1.3% in the EU28.

In January 2019 compared with January 2018, the calendar adjusted retail sales index increased by 2.2% in the euro area and by 2.5% in the EU28.

In the euro area in January 2019, compared with December 2018, the volume of retail trade increased by 1.7% for non-food products, by 1.6% for automotive fuel and by 0.6% for food, drinks and tobacco. In the EU28, the retail trade volume increased by 1.5% for non-food products, by 1.2% for automotive fuel, and by 0.8% for foods, drinks and tobacco.

In the euro area in January 2019, compared with January 2018, the volume of retail trade increased by 4.3% for automotive fuels, by 2.2% for food, drinks and tobacco and by 1.7% for non-food products. In the EU28, the retail trade volume increased by 4.4% for automotive fuel, by 2.4% for food, drinks and tobacco and by 2.3% for non-food products.

According to the report from IHS Markit/CIPS, UK service providers signalled that the subdued start to the year continued into February, with business activity expanding only marginally and incoming new work falling for the second month in a row. Moreover, employment numbers declined at the fastest pace for over seven years as businesses opted to delay staff hiring in response to subdued demand and concerns about the near-term economic outlook. The main positive development in February was a slowdown in input cost inflation to its weakest since May 2018, which helped to provide some scope for promotional discounting.

The headline seasonally adjusted Services PMI Business Activity Index registered 51.3 in February, up from a two-and-a-half year low of 50.1 in January. However, the latest reading signalled only a marginal increase in service sector business activity. February data leaves the index on track for its weakest quarter since Q4 2012 (average reading 50.7 so far in the first quarter of 2019).

According to the report from IHS Markit, February’s Eurozone PMI Composite Output Index indicated firmer growth of the eurozone’s private sector economy when compared to January. The seasonally adjusted index strengthened to 51.9, up from 51.0 and a three month high. Moreover, the index improved on the earlier February flash reading of 51.4.

There remained a notable divergence between the performances of the manufacturing and service sectors during February. On the one hand, ongoing trade tensions, weakness in the automotive industry and political uncertainties continued to weigh on demand for manufactured goods. In contrast, service providers registered modest but nonetheless improved growth in activity when compared to January.

The Eurozone PMI Services Business Activity Index remained above the crucial 50.0 no-change mark in February, rising to 52.8, from 51.2 in January and a three-month high. All countries recorded growth in activity, albeit to varying degrees. Whilst France and Italy registered marginal gains, activity levels in Germany, Ireland and Spain all rose to robust degrees.

• time is very short to reach a Brexit deal

• situation around UK exit has improved in last month

• signals from EU re.Brexit are reasonably positive

• EU beginning to realise PM can get majority in parliament

• crucial thing is UK cannot be trapped in EU customs union indefinitely

• UK flexible on how guarantee on backstop comes

• could be role for arbitration mechanism for UK to exit irish backstop

• up to PM to decide whether to whip votes for or against no deal

According to the report from IHS Markit, Spain's service sector continued to expand at a solid rate during February, with growth supported by another marked gain in levels of incoming new business.

The headline Business Activity Index was little changed during February, recording a level of 54.5, compared to 54.7 during January. Growth has now been recorded in each month since November 2013, with the latest increase again remaining comfortably higher than the survey's historical average.

Supporting the latest expansion was a robust increase in levels of new business. Companies reported that market demand had increased, and they had experienced success in securing new clients.

Latest data showed jobs were added for a fifty-third consecutive survey period, and at a rate of growth that remained well above the survey average. Input prices rose to the greatest degree since September 2008. There were also reports of higher energy/fuel bills, plus suppliers raising their prices. With pressure on margins building, service sector companies chose to increase their own charges in February. Whilst solid, and marking a tenth successive monthly increase, the degree to which charges rose remained noticeably slower than that of input prices. Finally, business confidence remained broadly steady in February at a level just below the survey average. Optimism was linked to the hoped launch of new services, positive forecasts for market demand and sales, plus the planned enhancement of marketing strategies.

According to Karen Jones, analyst at Commerzbank, GBP/USD pair is showing signs of reversal ahead of the 1.3363 July 2018 high and they suspect that we will see some near term weakness ahead of further upside attempts.

“Target remains the 1.3599 200 week ma. Dips lower have eroded an accelerated uptrend and we would allow for a retracement towards 1.3060 and possibly a double Fibo retracement at 1.2900/1.2895. Ahead of here lies the 1.2991 200 day ma and 1.2968, last weeks low. This guards the recent low at 1.2772.”

NAB Research discusses USD/JPY outlook and maintains 113 as its target for Q1-end.

"Judged by our simple USD/JPY fair value model (a function of 10y USTs, the Nikkei and gold) the pair is starting to look expensive, though is still trading within its fair value range. The move higher in 10yr UST yields has boosted fair value, as has the modest rise in the Nikkei. Gold has been fairly flat so impact on the model value has been negligible. Japan’s unrelenting appetite for offshore securities, alongside reports of life funds reducing their hedge ratios on offshore bond investment, has remained a supporting factor for USD/JPY. Technically as well, the break above the 100DMA now opens a bit of blue sky for USD/JPY to trade higher. The downtrend line coming from the 2015 highs suggests next key resistance is around ?113, which happens to match our end Q1 19 forecast for the pair”.

According to the report from Federal Statistical Office, the consumer price index (CPI) increased by 0.4% in February 2019 compared with the previous month, reaching 101.7 points (December 2015 = 100). Inflation was 0.6% compared with the same month of the previous year.

The 0.4% increase compared with the previous month can be explained by several factors including rising prices for air transport and for international package holidays. In contrast, prices for hotel accommodation and berries decreased.

In February 2019, the Swiss Harmonised Index of Consumer Prices (HICP) stood at 100.92 points

(base 2015=100). This corresponds to a rate of change of +0.3% compared with the previous month

and of +0.7% compared with the same month the previous year. The HICP is a supplementary indicator for inflation based on a harmonised method across EU member countries. It enables inflation in Switzerland to be compared with that of European countries

Chinese Premier Li Keqiang said that risks threatening the world's second-largest economy may warrant "stronger mitigating action" as growth is expected to slow further this year. He announced the official economic growth target is 6% to 6.5% this year, down from the 6.6% expansion in 2018.

During his speech at the opening of the annual National People's Congress, Li announced cuts in taxes and fees worth nearly 2 trillion yuan. In particular, the premier said the value-added tax rate for the manufacturing sector will be reduced from 16% to 13%, while the duty for transportation and construction will be cut from 10% to 9%.

In addition, Li announced plans to increase the country's infrastructure financing: Around 2.15 trillion yuan worth of local government special bonds will be issued this year to meet spending needs for key projects.

Partly due to greater fiscal support to the economy, the Chinese government budget deficit in 2019 is expected to widen to 2.76 trillion yuan, representing around 2.8% of China's gross domestic product, Li said.

• Lower GDP target can help China pursue quality growth

• China needs GDP growth of around 6.2% this year and next to double GDP by 2020

• Growth rate that is slightly higher or lower will still be acceptable

• Tax cuts are largely aimed at helping manufacturers

• holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time

• low level of interest rates is continuing to support the Australian economy.

• RBA expect further progress in the reduction of unemployment and inflation returning to target, although this progress is likely to be gradual.

• still expects the Australian economy to grow by around 3 percent this year, reflected by rising business investment, higher levels of spending on public infrastructure and increased employment.

• underlying inflation is forecast to pick up over the next couple of years, although the acceleration is likely to be gradual and could take a little longer than earlier expected.

• RBA retained its forecast for underlying inflation at 2 percent for this year and 2.25 percent for 2020.

• growth in credit extended to owner-occupiers has eased and the demand by investors has slowed noticeably due to changing dynamics of the housing market

EUR/USD

Resistance levels (open interest**, contracts)

$1.1415 (6676)

$1.1383 (1547)

$1.1363 (1122)

Price at time of writing this review: $1.1328

Support levels (open interest**, contracts):

$1.1311 (3059)

$1.1281 (5573)

$1.1241 (6817)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 8 is 102527 contracts (according to data from March, 4) with the maximum number of contracts with strike price $1,1250 (6817);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3253 (2763)

$1.3211 (4039)

$1.3192 (2292)

Price at time of writing this review: $1.3159

Support levels (open interest**, contracts):

$1.3127 (847)

$1.3101 (885)

$1.3069 (1013)

Comments:

- Overall open interest on the CALL options with the expiration date March, 8 is 40253 contracts, with the maximum number of contracts with strike price $1,3100 (4039);

- Overall open interest on the PUT options with the expiration date March, 8 is 32893 contracts, with the maximum number of contracts with strike price $1,2700 (1889);

- The ratio of PUT/CALL was 0.82 versus 0.81 from the previous trading day according to data from March, 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.