CFD Markets News and Forecasts — 05-10-2020

• Fed aiming for above 2% inflation "for some time"
• We must be "in it to win it" to hit 2% inflation
• Sees unemployment hitting 4% in 2023

The Institute for Supply Management (ISM) reported on Monday that its non-manufacturing index (NMI) came in at 57.8 in September, which was 0.9 percentage point higher than the August reading of 56.9 percent. The reading represented growth in the services sector for the fourth straight month after the contraction in April and May.

Economists forecast the index to decrease to 56.3 last month. A reading above 50 signals expansion, while a reading below 50 indicates contraction.

Of the 18 manufacturing industries, 16 reported increases last month, the ISM said, adding that respondents' comments remained mostly optimistic about business conditions and the economy, which correlated directly to those businesses that were operating.

According to the report, the ISM’s non-manufacturing Business Activity measure rose 0.6 percentage point to 63.0 percent from August’s figure, the New Orders gauge jumped 4.7 percentage points to 61.5 percent from August’s reading and the Employment Index increased 3.9 percentage points to 51.8 percent from the August reading. Meanwhile, the Prices Index fell 5.2 percentage points to 59.0 percent from August’s reading, the Supplier Deliveries Index dropped 5.6 percentage points to 54.9 percent from August’s figure and the Backlog of Orders Index declined 6.5 percentage point to 50.1 percent from the August reading.

Commenting on the data, the Chair of the ISM Non-Manufacturing Business Survey Committee, Anthony Nieves, noted, “The past relationship between the Services PMI and the overall economy indicates that the Services PM for September (57.8 percent) corresponds to a 3.2-percent increase in real gross domestic product (GDP) on an annualized basis.”

The latest report by IHS Markit revealed on Monday the seasonally adjusted final IHS Markit U.S. Services Business Activity Index (PMI) stood at 55.0 in September, down slightly from 55.0 in August, but matching the earlier released “flash” estimate. The latest reading signaled a solid upturn in the U.S. service sector business activity, albeit one that was slightly slower than August's recent high.

Economists had forecast the index to stay unrevised at 54.6.

According to the report, the rate of new business growth was the sharpest since March 2019, as total new sales were boosted by strengthening customer demand. Input costs rose at a strong rate, but one that was outpaced by the increase in selling prices, as firms passed on higher costs to clients. The rate of job creation was strong overall and the second-quickest since February 2019. On the price front, input costs increased at a sharp, albeit softer pace in September, while selling prices rose at the fastest rate since September 2018 and outpaced the rise in cost burdens, as firms took advantage of stronger demand conditions.

• Sees material amount of spare capacity in UK economy
• Expects medium-term supply side issues from COVID
• Expects temporary period of subdued inflation pressure
• Sees growing evidence that social consumption is hurt by fears of COVID
• Says he stands ready to vote for more stimulus if needed

U.S. stock-index futures surged on Monday on expectations that U.S. president Trump could leave the hospital, where he is being treated for COVID-19, later today as well as hopes that U.S. lawmakers will agree on another coronavirus relief bill.

Global Stocks:

FXStreet notes that S&P 500 stays trapped in a near-term range with immediate support seen at 3327/23 and resistance at 3379/81 and the Credit Suisse analyst team remains of the view this is consistent with a broader consolidation phase within the long-term uptrend.

“The S&P 500 is not unsurprisingly under pressure and although the cluster of supports at 3340/23 managed to hold on a closing basis on Friday, including the ‘neckline’ to the small base and rising 13 and 63-day averages, the gap lower and now potential downtrend is seen adding weight to our base case view we remain in a much more protracted consolidation/corrective phase.”

“Immediate resistances move to 3369, with 3379/81 now ideally capping to keep the immediate risk lower. Above though can reassert an upward bias for a move back to 3397/99, then what we look to be tougher resistance, starting at the mid-September highs at 3425/29, with the “measured base objective” at 3437 and with the 61.8% retracement of the fall from September at 3444.”

• Trump administration is committed to getting a COVID-19 aid bill done, wants to move expeditiously but also be fiscally responsible

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

McDonald's (MCD) target raised to $250 from $220 at BofA Securities

AT&T (T) downgraded to Underweight from Sector Weight at KeyBanc Capital Markets; target $25

• UK wants more "realism" from EU on fisheries
• We want to make sure our financial services industry remains competitive

• Says Trump will meet with doctors this morning; he is still optimistic that he will be able to return to the White House later today

• Economic recovery in Germany initially appeared V-shaped but is now becoming flatter
• Policymakers in Germany and elsewhere have taken the right course of action
• Providing banks with ample liquidity, coupled with low-interest rates, is crucial to ensuring that economy crisis is not further aggravated by financial system

• We have a sacred responsibility to future generations to leave the public finances strong
• This Conservative government will always balance the books
• Says he will be creative in finding ways to help Britain’s economy recover from its record slump earlier this year

FXStreet reports that analysts at Credit Suisse note that USD/CAD maintains a base to suggest further corrective strength, with key resistance at 1.3421, whilst key support to maintain the base is at 1.3247/41.

“USD/CAD is consolidating near term post a sharp rejection from price resistance at 1.3421 and the 61.8% retracement of the June/September fall at 1.3440 last week, keeping us alert for and greatly increasing the risk of an earlier than anticipated resumption of the core bear trend... Nevertheless, whilst above the “neckline” to the base at 1.3247/41, we stay mildly biased for further corrective strength, with resistance seen initially at the aforementioned 1.3421 and 1.3440.”

“A clear and closing break below 1.3247/41 would negate the small base to suggest a direct resumption of the medium-term bear trend, with support seen next at 1.3171/69.”

USD fell against most major currencies in the European session on Monday as reports that the condition of the U.S. President Donald Trump, who stays in a Washington hospital following his Friday announcement that he had tested positive for coronavirus, improved bolstered risk appetite.

The White House doctor Sean Conley said that Donald Trump's condition was improving and could be discharged from the hospital today. Meanwhile, the U.S. president took a brief motorcade ride Sunday to wave to his supporters standing outside the hospital, an indication that he was in good spirits.

Renewed hopes for stimulus talks between the White House and Democrats also boosted market sentiment. The U.S. president tweeted from the hospital on Saturday that “OUR GREAT USA WANTS & NEEDS STIMULUS. WORK TOGETHER AND GET IT DONE. Thank you!" It is expected that the U.S. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin will resume stimulus this week and will try again to compromise another coronavirus relief bill that could be worth between $1. trillion and $2.2 trillion.

FXStreet notes that crude oil took two big hits last week – stalled US fiscal stimulus talks and President Trump taking ill with COVID-19. The latter appears to be an exogenous shock and strategists at OCBC Bank expect Brent Oil prices to recover to its $40-$43/bbl range.

“ Brent fell 7.2% across last Thursday and Friday and closed below the critical $40 handle on Friday. The US President taking ill with COVID-19 sent Brent spiralling on Friday but we view that as a one-off exogenous shock that impacted sentiment more than fundamentals.”

“We expect Brent to return to the $40-$43/bbl range within this week.”

Safe-haven currencies to retain its appeal into the last quarter - Rabobank

FXStreet reports that analysts at Rabobank that on a one-month view the safe havens JPY, USD and CHF were the best performing G10 currencies before the news emerged about the knock to President Trump’s health. Given that the uncertainties surrounding next month’s US election have just ratcheted up a few notches, the prospects that safe-haven currencies included the USD will find solid support this quarter have strengthened.

“News of the President’s positive test result has opened up a new set of uncertainties. If the President suffers significantly from virus, renewed caution about the virulence of the virus could weigh on consumer demand. This would further highlight the need for an increased fiscal response from Washington. Alternatively, if the President’s health stays relatively good, relief may lend some support to consumer confidence levels and potentially to his standing at the election.”

“Polls are showing that this is an election in which the US electorate have become particularly engaged and even mainstream press have been reporting on the risk of civil unrest if neither side concedes defeat. This backdrop supported the move into safe-haven currencies in September and it is likely that this move will have further to run.”

• I have no doubt we can get on top of this virus
• The outbreaks seem more localized this time than it was in March and April
• We will take steps to keep guidance as simple as we can
• We are working hard to get a vaccine
• We feel they must be on the verge of getting one
• We would have to have supplies of it, priority would be for most vulnerable 

FXStreet notes that gold (XAU/USD) has retreated from the highs above $1,900 and trades just below that round number. All in all, the yellow metal is likely to stay supported until more clarity on Trump’s health condition emerges, per OCBC Bank.

“The rising uncertainty across the global economy lifted gold prices back to the $1900/oz level. We initially thought that since gold broke below that critical support level of $1900/oz, the precious metal would make a quick break for the $1800/oz level. The price movements last week, however, show that there remains buying interest at the $1800-$1900/oz level.”

FXStreet reports that Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, informs that EUR/CHF needs to hold above the recent 1.0712 low to maintain chances of a recovery toward the 1.0850 region, 

“EUR/CHF has eroded the foru-month uptrend and this has neutralised the immediate outlook. Directly below we have the July, August and September lows down to 1.0712. These will need to hold for scope for recovery to the 1.0850/60 region, this is long-term Fibonacci resistance.” 

“A close above 1.0860 and preferably above the 1.0877 recent high is needed to target the 1.0915 June high and the 1.1058 October 2019 high.”

Reuters reports that Germany’s Foreign Minister Heiko Maas said on Monday that the COVID-19 pandemic has made sealing a post-Brexit trade relationship with Britain more urgent than before and failing to get a deal would be irresponsible.

Maas said the EU wanted to be constructive and was still aiming for a deal.

“With today’s health and economic challenges, people on both sides of the channel have enough to shoulder, so it would be totally irresponsible to burden them in this position with additional problems through a no-deal,” Maas said.

According to the report from Eurostat, in August 2020 the seasonally adjusted volume of retail trade rose by 4.4% in the euro area and by 3.8% in the EU, compared with July 2020. In July 2020, the retail trade volume fell by 1.8% in the euro area and by 1.2% in the EU.

In August 2020 compared with August 2019, the calendar adjusted retail sales index increased by 3.7% in the euro area and by 3.5% in the EU.

In the euro area in August 2020, compared with July 2020, the volume of retail trade increased by 6.1% for nonfood products (within this category mail orders and internet increased by 12.4%), by 2.4% for food, drinks and tobacco and by 2.1% for automotive fuels. In the EU, the volume of retail trade increased by 5.1% for non-food products (mail orders and internet +10.5%), by 2.2% for food, drinks and tobacco and by 2.1% for automotive fuels.

In the euro area in August 2020, compared with August 2019, the volume of retail trade increased by 5.9% for non-food products. Within this category mail orders and internet increased by 23.8%, while textiles, clothing, footwear decreased by 14.1%. The volume of retail trade increased by 3.2% for food, drinks and tobacco, while automotive fuel decreased by 4.9%. In the EU, the retail trade volume increased by 6.0% for non-food products (mail orders and internet +26.3%, textiles, clothing, footwear -13.2%) and by 2.6% for food, drinks and tobacco, while automotive fuel decreased by 4.8%.

According to the report from IHS Markit/CIPS, the UK service sector continued its recent recovery from the sharp downturn related to the start of the coronavirus disease 2019 (COVID-19) pandemic earlier in 2020, with business activity rising for a third successive month. Growth was supported by another upturn in new work amid reports that market conditions continued to improve. However, growth across the services sector was uneven with gains principally focussed on areas such as business-tobusiness services. Those sub-sectors more exposed to social contact such as Hotels, Restaurants & Catering reported a downturn in business during the month, exacerbated in part by the withdrawal of government schemes or the tightening of restrictions related to COVID-19.

After accounting for seasonal factors, the UK Services PMI Business Activity Index fell from August’s 58.8, which was the strongest reading since April 2015, to a level of 56.1 in September. Although the lowest reading since June, the index nonetheless pointed to a marked rate of growth.

According to the report from IHS Markit, growth of the eurozone’s private sector slowed further towards stagnation in September. 

The IHS Markit Eurozone PMI Composite Output Index slipped to a three-month low of 50.4, down from August’s 51.9 and indicative of only a marginal expansion. The final reading was, however, firmer than the earlier flash estimate (50.1). The composite PMI belied a two speed economy during September. Led by a strongly performing Germany, overall regional manufacturing output rose at the fastest pace for over two-and-a-half years. In contrast, service sector activity slipped back into contraction by registering its worst performance since May.

Incoming new business in the eurozone increased only slightly during September, and at the slowest rate in the current three-month period of growth. That was in spite of the first rise in overall export trade for the first time in over two years.  As new business growth softened, and with evidence of ongoing spare capacity across the private sector economy, companies were again able to comfortably deal with overall workloads. According to the latest data, backlogs of work declined for a nineteenth successive month albeit again only modestly.

Employment numbers were again reduced, marking a seventh successive monthly fall in staffing levels. That said, the rate of contraction was the weakest recorded in the current sequence with all nations registering slower falls when compared to August.

Operating expenses increased for a fourth successive month during September, with the rate of inflation solid. Input price inflation was sharpest in Spain. Meanwhile, the challenging business environment, characterised by still-weak demand and strong competitive pressures, weighed on company pricing power. Subsequently a seventh successive monthly decline in output charges was recorded in September, with the fall the greatest since June.

Business expectations did, however, improve to their highest level for seven months with confidence broadly in line with its long run average.

eFXdata reports that Bank of America Global Research discusses CHF outlook and targets EUR/CHF at 1.06 and USD/CHF at 0.93 by year-end. 

"Over the past month EUR/CHF broadly trapped between a 1.07/1.08 trading range. This relative stability continues to underpin the tug-of-war that faces the market: trade CHF on global cyclical factors or trade CHF on relative real yield?" 

"For the SNB, there should be no sense of imminent panic. CHF has been behaving smartly so will likely continue to adopt its message warning that further interventions are necessary when needed. We continue to believe that SNB policy will be driven by FX considerations first rather than interest rates," BofA notes. 

During today's Asian trading, the US dollar rose against the yen and declined against the euro. Investors continue to monitor the fate of the new package of measures to support the US economy.

Speaker of The house of representatives Nancy Pelosi on Friday said that the diagnosis of Donald Trump, who was diagnosed with coronavirus, will affect negotiations on new economic incentives in the United States.

The US President, in turn, over the weekend called on lawmakers to take new measures to support the economy, noting on Twitter that the US needs incentives.

Traders also continue to monitor the health status of the Trump. One of Trump's doctors, Brian Garibaldi, expressed the hope that if the situation is favorable, the patient can be discharged on Monday.

Meanwhile, members of the National Association of business economists (NABE) lowered their forecast for fourth-quarter growth to 4.9% on an annualized basis from the 6.8% forecast in June. In addition, experts now expect that in 2021, US GDP will grow by 3.6% compared to the June forecast of growth of 4.8%.

On Monday, traders are also waiting for the publication of Eurostat data on changes in retail sales in the Euro area in August and OECD data on inflation.

The ICE index, which tracks the dynamics of the US dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell by 0.05%.

CNBC reports that a new NBC News/Wall Street Journal poll found that former Vice President Joe Biden’s national lead over President Donald Trump jumped this month, and voters consider the Democratic challenger better equipped to handle a range of key issues than the Republican incumbent.

Biden garners the support of 53% of registered voters nationally, versus 39% for Trump, according to the survey released Sunday. The advantage of 14 percentage points in the poll, taken after Tuesday’s first presidential debate but before the early Friday announcement of Trump’s Covid-19 diagnosis, compares with Biden’s edge of 8 percentage points in an NBC/WSJ survey taken last month.

The phone survey of 800 registered voters, taken on Wednesday and Thursday, has a margin of error of plus or minus 3.46 percentage points.

Reuters reports that Economy Minister Peter Altmaier said that Germany should not raise taxes during the pandemic. He added that there was a case for lowering taxes in some areas, such as for high-earning skilled workers.

"On taxation, I want to make it clear that my view is that no taxes should be raised in this pandemic," he told ARD Morgen Magazine, adding that Germany had benefited from having a stable tax regime for the past seven years.

FXStreet reports that analysts at Scotiabank offer a brief preview of the Fed September monetary policy meeting minutes due this Wednesday.

“The meeting introduced unexpected dissension in the ranks when two officials voted against the statement. One consideration will be whether debate and opposing views were somewhat more prevalent across non-voting FOMC members.” 

“Markets may be sensitive toward any further indications that officials are not fully invested in an inflation overshoot”

“There are multiple drivers of inflation risk, but the fastest rate of growth in broad money supply in at least six decades could be one avenue through which committee members may be hesitant to overcommit to relaxed inflation targets along a timeline marked by “we’re not even thinking about thinking about raising rates.” 

Reuters reports that Goldman Sachs that Britain and the European Union were likely to do a post-Brexit trade deal by early November though the risk of a breakdown in negotiations could not be ruled out.

"Our core view remains that a "thin" zero-tariff/zero-quota trade agreement will likely be struck by early November, and subsequently ratified by the end of December. The risk of a breakdown in negotiations cannot be ruled out," Goldman analysts said a note to clients.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1814 (2182)

$1.1779 (438)

$1.1754 (615)

Price at time of writing this review: $1.1731

Support levels (open interest**, contracts):

$1.1676 (4690)

$1.1640 (1772)

$1.1596 (3747)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date October, 9 is 71578 contracts (according to data from October, 2) with the maximum number of contracts with strike price $1,1900 (4849);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3089 (376)

$1.3055 (353)

$1.3026 (715)

Price at time of writing this review: $1.2937

Support levels (open interest**, contracts):

$1.2863 (847)

$1.2837 (534)

$1.2806 (781)

Comments:

- Overall open interest on the CALL options with the expiration date October, 9 is 15911 contracts, with the maximum number of contracts with strike price $1,3150 (1433);

- Overall open interest on the PUT options with the expiration date October, 9 is 18008 contracts, with the maximum number of contracts with strike price $1,3150 (2620);

- The ratio of PUT/CALL was 1.13 versus 1.19 from the previous trading day according to data from October, 2

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.