CFD Markets News and Forecasts — 06-03-2020

FXStreet notes that employment growth was stronger than expected in February, with all the new hiring concentrated in full-time positions. The BoC won't change the calculus around monetary policy despite strong jobs, in the opinion of strategists at TD Securities.

“The Canadian economy created 30k jobs in February, well above expectations for a more modest pace of job growth (TD: 12k, market: 11k) which is the third consecutive month that the LFS has beaten the market consensus. 

“We would fade the rising unemployment rate (5.6% from 5.5%) given the 0.1pp increase in the participation rate.” 

“Wage growth was another strong element to the report, with average hourly earnings for permanent employees holding in at 4.3% y/y (TD/market: 3.9%) on a 0.7% m/m increase, while hours-worked were even more impressive, rising 1.2% m/m.”

Says lates jobs report is very relevant

Future growth will slow down, especially in certain sectors

Doesn't believe government should be throwing money at problem; he prefers a more targeted approach

Numbers out of China appear to be easing

Most Americans should go about their business and stay at work

Americans should buy dip in stocks

Thinks virus is "relatively contained" 

Doesn't think U.S. is facing recession

Thinks its an "overreaction" that companies are cancelling some of events and conferences

FXStreet notes that nonfarm payrolls increased by a staggering 273k in February, clearly overshooting consensus. However, in the opinion of analysts at Nordea, payroll numbers should clearly slow in coming months.

“Nonfarm payrolls surprised clearly to the upside with a monthly increase of a staggering 273k, while the January figure was also revised up by 48k (85k for the last two months). The 3-month average payroll number increased from 239k to 243k, while the 12-month average is now at 200k.”

“The wage component accelerated slightly on a monthly basis with a reading of 0.3% (last month: 0.2%, consensus 0.3%).”

“The full negative effects from Covid-19 will not come into play until next month. Hence, expect much weaker numbers in March and April.”

“The financial markets did almost not react to the strong job report. Focus is on COVID-19 and the Fed response. This month’s report was simply ‘too old, pre-corona’ news.”

U.S. wholesale inventories decrease more than initially estimated in January

The Commerce Department announced on Friday the U.S. wholesale inventories fell 0.4 percent m-o-m in January 2020 instead of declining 0.2 percent m-o-m as previously reported.

Economists had forecast the reading to drop 0.2 percent m-o-m. In December, wholesale inventories fell 0.3 percent m-o-m.

According to the report, auto inventories edged up 0.1 percent m-o-m in January, while and apparel inventories dropped 0.9 percent m-o-m.

In y-o-y terms, wholesale inventories grew 0.4 percent in January.

The Ivey Business School Purchasing Managers Index (PMI), measuring Canada's economic activity, decreased to 54.1 in February from an unrevised 57.3 in January.

Economists had expected the gauge to hit 53.6.

A figure above 50 shows an increase while below 50 shows a decrease.

Within sub-indexes, the employment measure rose to 54.7 in February from 51.3 in the previous month, and the inventories indicator increased to 53.3 from 50.4. At the same time, the supplier deliveries gauge dropped to 41.8 in February from 52.7 in January, while the prices index fell to 56.6 from 60.7.

Statistics Canada reported on Friday that the number of employed people increased by 30,300 m-o-m in February (or +0.2 percent m-o-m), while economists had forecast a gain of 10,000 and after an unrevised advance of 34,300 in the previous month.

Meanwhile, Canada's unemployment rose to 5.6 percent in February from 5.5 percent in January, matching economists' forecast for 5.6 percent.

According to the report, full-time employment increased by 37,600 (or +0.2 percent m-o-m) in February, while part-time jobs declined by 7,300 (or -0.2 percent m-o-m).

In February, the number of public sector employees decreased by 600 (or flat m-o-m), while the number of private-sector employees rose by 33,500 (or +0.3 percent m-o-m). At the same time, the number of self-employed fell by 2,700 (or -0.1 percent m-o-m) last month.

Sector-wise, employment edged up both in goods-producing (+0.1 percent m-o-m) and service-producing (+0.2 percent m-o-m) businesses.

U.S. stock-index futures plunged on Friday, as fears of a global coronavirus pandemic and its potential economic fallout continued to pressure on world markets. On this backdrop, investors even ignored a blowout U.S. jobs report.

Global Stocks:

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

The U.S. Commerce Department reported on Friday that U.S. the goods and services trade deficit narrowed to $45.3 billion in January 2020 from a revised $48.6 billion in the previous month (originally a gap of $48.9).

Economists had expected a deficit of $46.1 billion.

According to the report, the January decline in the goods and services deficit reflected drop in the goods deficit of $2.6 billion to $67.0 billion and an advance in the services surplus of $0.6 billion to $21.7 billion.

Exports of goods and services from the U.S. fell 0.4 percent m-o-m to $208.6 billion in January, while imports dropped 1.6 percent m-o-m to $253.9 billion.

Year-to-date, the goods and services deficit tumbled 15.8 percent from the same period in 2019. Exports rose 1.1 percent, while imports decreased 2.4 percent.

The U.S. Labor Department announced on Friday that nonfarm payrolls increased by 273,000 in February after an upwardly revised 273,000 gain in the prior month (originally an increase of 225,000).

According to the report, significant job gains in February occurred in health care and social assistance (+57,000 jobs), food services and drinking places (+53,000), government (+45,000), construction (+42,000), professional and technical services (+32,000), and financial activities (+26,000).

The unemployment rate decreased to 3.5 percent in February from 3.6 percent in the previous month.

Economists had forecast 175,000 new jobs and the jobless rate to stay at 3.6 percent.

The labor force participation rate remained at 63.4 percent in February, while hourly earnings for private-sector workers rose 0.3 percent m-o-m (+9 cents) to $28.52. Economists had forecast a 0.3 percent m-o-m advance in the average hourly earnings. Over the year, average hourly earnings have increased by 3.0 percent.

The average workweek rose by 0.1 hour to 34.4 hours in February. matching economists' forecast.

• We are monitoring the situation
• Everything is on the table and we are willing to do more
• We are all struggling to understand the effects of the coronavirus
• Not surprised by market volatility
• Expects growth slowdown from the virus impact to be temporary
• Does not want people to focus so heavily on March meeting
• Fed willing to do what it takes to get through this

GBP traded mixed against its major rivals in the European session on Friday. While the pound rose against USD and most commodity currencies, it fell against EUR and the safe-haven currencies.

The fast spread of the coronavirus remained the primary focus for market participants. The UK has reported 116 cases of coronavirus and one death as of Friday morning.

Meanwhile, the pound remained supported by the statements of the EU's Brexit chief negotiator Michel Barnier that a trade deal between the UK and the bloc was still possible this year, despite "very, very difficult" differences between two sides. 

In addition, the sterling continued to be underpinned by the decision of the Bank of England (BoE) to leave interest rates on hold for now in response to the coronavirus epidemic. While testifying before the UK's Treasury select committee on Wednesday, the incoming BoE's governor Andrew Bailey stated that he would wait for more evidence on the impact of the coronavirus before deciding on a move, rather than rushing to an emergency cut, dampening prospects for an immediate policy easing by the UK central bank. 

Market participants also await the first Budget of the Prime Minister Boris Johnson's majority government, which will be delivered by newly-appointed chancellor Rishi Sunak on March 11. PM's spokesman said earlier today that the budget would set out "considerable investment". Ha also announced that the national infrastructure plan would follow in months after the budget. 

FXStreet reports that the Fed’s surprise move has increased expectations of rate cuts by other central banks, including the People’s Bank of China (PBoC). Analysts at Standard Chartered Bank expect the PBoC to ease but at its own pace.

“We believe China will continue to ease policy to revive business activity, but cutting in the medium-term lending facility (MLF) rate two months in a row is less likely.”

“We expect the PBoC to rotate between cuts to the reserve requirement ratio (RRR) and MLF rate near-term.” 

“We estimate that the targeted RRR cut will unlock liquidity up to CNY 300bn, equivalent to a 15bps broad RRR cut, allowing the PBoC to save the MLF rate cut for Q2, likely in April.”

“We think the window for a benchmark deposit rate cut will open in Q2, at the earliest, if production fails to return to normal capacity by end-March, or if a global recession becomes a real risk.”

FXStreet reports that FX Strategists at UOB Group remain bearish on USD/JPY and noted the probability of a move to 105.00 in the near-term.

24-hour view: “The sudden and sharp plunge in USD that sent it a low of 105.96 came as a surprise. While severely oversold, the decline is not showing sign of stabilization just yet. From here, barring a move above 106.80 (minor resistance is at 106.50), USD could weaken further to 105.60.”

Next 1-3 weeks: “While we indicated yesterday (05 Mar, spot at 107.75) that ‘further USD weakness is not ruled out’, we were of the view the ‘odds for a sustained drop below 106.30 are not high’. However, USD abruptly nose-dived lower and hit an overnight low of 105.96 (aside from last Friday’s -1.38% 1-day drop, yesterday’s -1.26% decline is the largest since August last year). From here, the next support of note is not until 105.00 but it is left to be seen whether the current momentum can carry USD to this level. Meanwhile, volatility could remain elevated but only a break of 107.30 (‘strong resistance’ level was at 108.70 yesterday) would indicate that the current weakness has stabilized.”

FXStreet notes that Canada is scheduled to release important employment and trade data at 13:30 GMT. Analysts at TD Securities preview the numbers expected as the USD/CAD pair trades at 1.340.

“TD looks for the Labour Force Survey to reveal job growth of 12k in February, in line with the market consensus but slightly below the 6m trend of 20k.”

“Muted job growth should allow the unemployment rate to rise to 5.6% (from an unrounded 5.54%) while we see wage growth cooling to 3.9% y/y owing to a combination of base-effects and some moderation from the 1.0% m/m increase in January.”

“International trade for January will round out the data calendar; TD looks for the deficit to widen to $900m (market: -$780m) from a $370m deficit, owing to a pullback in energy exports.”

FXStreet reports that FX Strategists at UOB Group highlighted the upbeat mood in EUR/USD and noted it could visit 1.1330 and 1.1370 in the next weeks.

24-hour view: “Our view that a ‘short-term top is in place’ was wrong as EUR not only broke above Tuesday’s peak of 1.1212 but also the late December top of 1.1239 (overnight high of 1.1244). While the rally is overbought, solid momentum could continue to carry EUR higher from here. That said, 1.1285 is a major level and is expected to offer solid resistance. Support is at 1.1185 but only a breach of 1.1155 would indicate that the current upward pressure has eased.”

Next 1-3 weeks: “We highlighted yesterday (05 Mar, spot at 1.1135) that ‘there is no change to our view even though shorter-term momentum is beginning to wane and unless EUR can move and stay above 1.1190 within these 1 to 2 days, the odds for a move to 1.1239 would diminish quickly’. EUR not only moved above 1.1190 but managed to crack 1.1239 as well (overnight high of 1.1244). Upward momentum is given a strong boost and from here, the next level to focus at is 1.1330 followed by 1.1370. On the downside, the ‘strong support’ has moved higher to 1.1100 from yesterday’s level of 1.1050.”

• OPEC said to have no intention to cut output without Russia

• National infrastructure plan will follow in months after budget
  
  

FXStreet reports that analysts at ANZ Research suggest that COVID-19 may have been behind part of January’s weakness, along with the bushfires. Coronavirus is estimated to hit retail substantially in the coming months through its impacts on tourism.

“Annual growth in retail sales dipped to 2.0% y/y in January. The 0.3% m/m drop in sales over January followed a revised 0.7% m/m drop in December, combining to make the weakest two-month period of growth since 2010.”

“Non-food sales fell sharply in aggregate in January, at -0.9% m/m, after an identical dip in December.”

“While the reversal of growth from the November Black Friday spike was predictable, this was a much sharper decline than expected.”

FXStreet reports that the upside momentum in AUD/USD could see the 0.6700 region re-tested in the short-term, suggested FX Strategists at UOB Group.

24-hour view: "Expectation for AUD to "grind higher to 0.6655" did not materialize as it eased from 0.6637 and traded mostly sideways. Momentum indicators have turned neutral and AUD is likely to trade sideways from here. Expected range for today, 0.6585/0.6640."

Next 1-3 weeks: "There is not much to add to the update from Wednesday (04 Mar, spot at 0.6585). As highlighted, the current movement is viewed as recovery phase and there is room for AUD to edge higher towards 0.6695. Only a move below 0.6530 ('strong support' level previously at 0.6495) would indicate the current mild upward pressure has eased."

FXStreet reports that cable keeps recovering ground lost and is now targeting the 1.3020 region, suggested FX Strategists at UOB Group.

24-hour view: "While we expected GBP to strengthen yesterday, we held the view that 'the prospect for a rise beyond 1.2930 is unlikely'. We underestimated GBP strength as it soared to an overnight high of 1.2967. Further advance in GBP appears likely even though a break of last week's peak near 1.3020 would come as a surprise (minor resistance is at 1.2995). Support is at 1.2920 followed by 1.2880."

Next 1-3 weeks: "We highlighted yesterday (05 Mar, spot at 1.2870) that 'odds for GBP to move to 1.2700 have diminished'. We added, 'a break of 1.2900 would indicate that 1.2726 is an interim bottom'. However, the subsequent strong advance that sent GBP to a high of 1.2967 was not exactly expected. The current movement is viewed as part of a recovery phase and GBP could move above last week's peak near 1.3020. At this stage, the prospect for further extension to 1.3070 is not high. Overall, GBP is expected to trade on a firm footing from here as long as the 'strong support' at 1.2850 is intact."

CNBC reports that U.S. government debt prices rose again on Friday morning, with yields hitting record lows at the end of a wild week on Wall Street as the coronavirus continues to roil markets.

The yield on the benchmark 10-year Treasury note, which moves inversely to price, touched an all-time low of 0.7530%. The 10-year yield briefly hit an all-time low of 0.6947%. The yield on the 30-year Treasury bond notched a record low 1.3220%.

Wall Street suffered another route on Thursday as disruptions to businesses around the world on the back of the coronavirus outbreak became more apparent, heightening fears of a global economic slowdown.

The latest figures from the World Health Organization (WHO) indicate at least 95,270 cases of the virus worldwide and at least 3,280 deaths.

FXStreet reports that сentral banks have been known to sugar-coat bad economic data, on the premise that overt pessimism might hurt confidence. The 4 March Bank of Canada (BoC) Statement following its 50bps policy rate cut made no such effort, in the opinion of the economists at Standard Chartered Bank, who are expecting two more rate cuts in 2020.

"We now think the BoC will cut the policy rate at least 50bps in the coming months, most likely via two 25bps cuts at the 15 April and 3 June meetings. "

Previously, we expected the BoC to cut once in Q1- 2020 and be on hold thereafter. We now see the policy rate at 0.75% at yearend 2020 (1.50% prior).

"Our pace of easing would still leave Canada's policy rates above US rates; we may review our outlook if the Fed is more aggressive than we expect or the Canadian economy follows a steeper downward path than the BoC anticipates."

FXStreet reports that China will release FX reserves data and trade data for January-February on 7 March, while inflation data will be released on 10 March. Strategists at Standard Chartered Bank share their expectations. USD/CNY trades at 6.934.

"We expect FX reserves to have increased to USD 3.124tn at end-February from USD 3.116tn at end-January."

"We expect imports to have fallen at a slower pace (-13% y/y) in January-February than exports (-20%), as orders placed before the outbreak likely arrived in February."

"In addition, China increased its imports of food and medical supplies. As a result, the trade surplus likely narrowed to USD 11.3bn in January-February."

"CPI inflation likely eased 0.5ppt to 5.0% y/y in February. We expect non-food CPI inflation to have eased to 1.1% y/y in February from 1.6% prior."

According to the report from Istat, in January 2020, retail sales are estimated to have a zero cyclical change in value and a slight increase in volume (+0.1%). Sales of food goods are increasing both in value and in volume (+0.8%) while those of non-food goods fall by 0.4% in value and 0.3% in volume.

In the November 2019-January 2020 quarter, retail sales rose 0.1% in value and 0.3% in volume compared to the previous quarter. Both sales of food (+0.4% in value and +0.2% in volume) and sales of non-food (+0.1% in value and +0.2% in volume) are increasing.

On a trend basis, in January, there was growth of 1.4% in value and 1.3% in volume. Both sales of food (+1.9% in value and +1.1% in volume) and sales of non-food (+1.0% in value and +1.6% in volume) increased.

As far as non-food goods are concerned, there are positive trends for almost all product groups, with the exception of pharmaceuticals (-1.8%) and stationery, books, newspapers and magazines (-0.4%). The largest increases concern perfumery products, personal care (+3.3%) and equipment for information technology, telecommunications, telephony (+2.1%).

FXStreet reports that over the past week the coronavirus Covid-19 has spread to more countries, New Zealand has recorded its first cases, and travel bans have become more widespread. All of that has further dented economic confidence. Economists at Westpac Institutional Bank update the economic impact of coronavirus.

"We have further reduced our GDP forecasts to reflect more severe effects on travel, export commodity prices, and confidence. We are now forecasting a 28% drop in visitor arrivals. We have reduced our March quarter GDP forecast to -0.2%, and our forecast of annual GDP growth over 2020 to 1.9%."

"We have long expected that the Reserve Bank of New Zealand would cut the OCR to 0.75%. We predicted that the cut would be delivered on March 25 in response to Covid-19. Today we are shifting to forecasting a second 25bps OCR cut, in May."

"Markets are questioning whether the RBNZ might cut the OCR at an emergency meeting before March 25, or cut by 50bps on that date. We don't regard either scenario as likely."

According to the report from Halifax Bank of Scotland, house prices in February were 2.8% higher than in the same month a year earlier. Economists had expected a 4.0% increase. On a monthly basis, house prices rose by 0.3%. Economists had expected a 0.2% increase.

In the latest quarter (December to February) house prices were 2.9% higher than in the preceding three months (September to November)

Russell Galley, Managing Director, Halifax, said: "The UK housing market has remained steady heading into early spring, with house prices increasing by 0.3% in February and up 2.8% on the previous year. Much like we saw in January, the increases seen in February reflect the continued improvement of key market indicators. The sustained level of buyer and seller activity is strong compared to recent years, with positive employment conditions and a competitive mortgage market continuing to support demand. Looking ahead, there are a number of risks, including the potential impact of coronavirus, which continue to exert pressure on the economy and we wait to see how these will affect housing market sentiment later in the year."

CNBC reports that investors are expecting the U.S. Federal Reserve - and other central banks globally - to do more to rescue the global economy from a downturn caused by the ongoing coronavirus crisis.

The Fed lowered its benchmark rate by 50 basis points in an off-schedule meeting this week. But traders have priced in another cut at the next scheduled Fed meeting on Mar. 17-18.

But some economists and strategists said monetary policy tools - such as interest rates - may not do much to help the global economy weather shocks from the coronavirus disease, which is also known as COVID-19.

"The idea is deeply ingrained in financial markets that, when there is a major global economic downturn, central banks quickly come to the rescue with aggressive policy rate cuts," analysts from Japanese bank Nomura wrote in a report.

"Markets are anticipating the same policy playbook even though this COVID-19-induced economic downturn is different from others," they added.

The analysts explained that the current economic slump is not caused by financial events such as asset prices running ahead of fundamentals. Instead, it's triggered by a spread of a new virus, so "the best immediate response" is "first and foremost health security policies," they said.

During today's Asian trading, the yen rose to its highest level in the last six months against the US dollar, while the yield on 10-year us government bonds updated the historical minimum.

Investors prefer to transfer funds to safe assets, which traditionally include government securities and the Japanese yen, amid uncertainty about the development of the situation with the coronavirus and its impact on the world economy, experts say.

Analysts at Goldman Sachs believe that in the event of a global panic in the markets due to COVID-19, the dollar may fall to 95 yen - a level that was last seen in 2013. In their view, the Japanese currency remains "one of the few classic "safe haven" assets that remain undervalued."

The ICE Dollar index, which shows the value of the dollar against six major world currencies, fell 0.27% compared to the previous day.

According to provisional results of the Federal Statistical Office (Destatis), price adjusted new orders in manufacturing rose a seasonally and calendar adjusted 5.5% in January 2020 on the previous month. Economists had expected a 1.4% increase.

The increase was due to major orders especially in the manufacture of air and spacecraft and of machinery and equipment. However, even excluding major orders, new orders in manufacturing were up a seasonally and calendar adjusted 2.3% in January 2020 on the previous month, which was due to a good general order situation in many economic branches.

Domestic orders decreased by 1.3% and foreign orders rose by 10.5% in January 2020 on the previous month. New orders from the euro area went up 15.1%, and new orders from other countries increased by 7.8% compared with December 2019.

In January 2020 the manufacturers of intermediate goods saw new orders increase by 3.5% compared with December 2019. The manufacturers of capital goods saw an increase of 7.1% on the previous month. Regarding consumer goods, new orders rose 2.9%.

For December 2019, compared with November 2019, resulted in a decrease of 2.1%, which confirmed the provisional result published earlier.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1352 (2677)

$1.1305 (2487)

$1.1261 (3147)

Price at time of writing this review: $1.1225

Support levels (open interest**, contracts):

$1.1196 (815)

$1.1179 (1682)

$1.1144 (3489)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 6 is 121489 contracts (according to data from March, 5) with the maximum number of contracts with strike price $1,1100 (4735);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3101 (2996)

$1.3052 (3372)

$1.3007 (1883)

Price at time of writing this review: $1.2963

Support levels (open interest**, contracts):

$1.2926 (2433)

$1.2893 (3330)

$1.2847 (2217)

Comments:

- Overall open interest on the CALL options with the expiration date March, 6 is 26614 contracts, with the maximum number of contracts with strike price $1,3050 (3372);

- Overall open interest on the PUT options with the expiration date March, 6 is 27315 contracts, with the maximum number of contracts with strike price $1,2900 (3330);

- The ratio of PUT/CALL was 1.03 versus 1.02 from the previous trading day according to data from March, 5

* - 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.