CFD Markets News and Forecasts — 06-08-2021

FXStreet notes that Canada's July Labour Force Survey came in weaker than expected. USD variation has seen a tightening in correlation with relative US data surprise performance. As such, analysts at TD Securities think this is likely to dominate price action in USD/CAD, but well-defined ranges are set to be respected until we emerge out of the summer.

“The Canadian economy added 94K jobs in July, falling short of the market consensus for 150K as the unemployment rate fell to 7.5% and hours worked rose 1.3%.”

“While Canadian jobs underwhelmed, we do not expect this to fundamentally alter the BoC's stance. Moreover, the CAD has shown more deference to reflation proxies and (unsurprisingly) broad USD variation than it has to domestic data surprises.” 

“Given the US payrolls beat, we would expect USD price action to dominate, particularly as the USD has become more sensitive to US relative data surprise performance. There, a modest upside surprise should not terribly unnerve USD/CAD, especially as summer trading conditions make it difficult to extrapolate. 

“Given the Fed and macro overlay, we are inclined to think that well-defined ranges should be respected for now; 1.2420/30 and 1.2830 (200-DMA).”

The Commerce Department announced on Friday the U.S. wholesale inventories rose 1.1 percent m-o-m in June, being higher than the preliminary estimate of a 0.8 percent m-o-m gain.

Economists had forecast the reading to stay unrevised at 0.8 percent m-o-m.

In May, wholesale inventories rose 1.3 percent m-o-m.

According to the report, durable goods inventories jumped 1.4 percent m-o-m in June, while stocks of nondurable goods rose 0.6 percent m-o-m.

In y-o-y terms, wholesale inventories surged 10.5 percent in June.

The Ivey Business School Purchasing Managers Index (PMI), measuring Canada’s economic activity, fell to 56.4 in July from 71.9 in June. This was the lowest reading since January.

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

Within sub-indexes, the employment measure dropped to 62.1 in July from 69.6 in the previous month, while the inventories indicator fell to 60.4 from 65.4, the prices index decreased to 77.1 from 79.4 and the supplier deliveries gauge declined to 31.1 from 37.9.

• One of the risks is that these supply bottlenecks could unblock and we could get actually quite a wave of supply coming back onto the market
• It is very hard to disentangle the effects of Brexit and Covid on immigration and labor supply

U.S. stock-index futures traded mixed on Friday, as investors digested the U.S. July payroll report that came in better than economists anticipated.

Global Stocks:

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

Statistics Canada reported on Friday that the number of employed people increased by 94,000 m-o-m in July (or +0.5 percent m-o-m) after an unrevised increase of 230,700 m-o-m in the previous month.

Economists had forecast a gain of 177,500 m-o-m.

Meanwhile, Canada's unemployment rate fell to 7.5 percent in July from 7.8 percent in June, slightly missing economists’ forecast for 7.4 percent. This was the lowest rate since March.

According to the report, full-time employment rose by 83,000 (or +0.5 percent m-o-m) in July, while part-time jobs grew by 11,000 (or +0.3 percent m-o-m).

In July, the number of public sector employees fell by 30,500 (or -0.7 percent m-o-m), while the number of private sector employees jumped by 122,700 (or +1.0 percent m-o-m). Meanwhile, the number of self-employed edged up 1,800 (or +0.1 percent m-o-m) last month.

Sector-wise, employment went up in the services-producing sector (+0.6 percent m-o-m) but was little changed in the goods-producing business (0.0 percent m-o-m).

The U.S. Labor Department announced on Friday that nonfarm payrolls rose by 943,000 in July after a revised 938,000 increase in the prior month (originally a gain of 850,000). This was the largest monthly advance since August 2020.

According to the report, notable job gains were recorded in in leisure and hospitality (+380,000), in local government education (+221,000), and in professional and business services (+60,000).

The unemployment rate dropped to 5.4 percent in July from 5.9 percent in June. This was the lowest rate since March 2020.

Economists had forecast the nonfarm payrolls to increase by 870,000 and the jobless rate to drop to 5.7 percent.

The labor force participation rate edged up to 61.7 percent in July from 61.6 percent in the previous month, while hourly earnings for private-sector workers advanced 0.4 percent m-o-m (or $0.11) to $ $30.54, following a revised 0.4 percent m-o-m gain in June (originally an increase of 0.3 percent m-o-m). Economists had forecast the average hourly earnings to rise 0.3 percent m-o-m in July. Over the year, the average hourly earnings jumped 4.0 percent in July, following a revised 3.7percent surge in July (originally a climb of 3.6 percent).

The average workweek was unchanged at 34.8 hours in July, being slightly above economists' forecast for 34.7 hours.

FXStreet notes that S&P 500 stays on course for a deeper push into the region at 4436/56. However, economists at Credit Suisse continue to look to not chase strength through here for now and look for a “summer consolidation/correction” to emerge. 

“S&P 500 maintains an immediate upside bias following its recent and second successful defence of high-level support from the recent low, price gap from last Friday morning and 13-day exponential average at 4381/64. This keeps the immediate risk higher for a more concerted push higher into our Q3 objective zone at 4436/56, also trend resistance from April.” 

“Whilst we continue to view the core trend as bullish, our bias remains not to chase strength through here for now and for a “summer consolidation” to emerge.”

“We have to acknowledge though the strong underlying momentum and a close above 4456 would see the immediate risk stay higher for a move to the psychological 4500 level next, with the upper end of its ‘typical’ extreme (15% above the 200-day average) now at 4550.” 

FXStreet reports that strategists at ANZ Bank note that the U.S. infrastructure plan should, on the face of it, accelerate the country’s economic recovery. It is likely to boost demand for metals, but probably will not supercharge the commodity cycle in the way many have hoped. 

“A bipartisan group of senators has tentatively agreed to a package of nearly $1trn. We calculate approximately $500 B will be spent on infrastructure such as roads, bridges and highways. Overall this could lead to steel demand hitting 120m tonnes, compared with 105mt in 2019.”

“Construction has traditionally been the biggest contributor to demand for most metals. Therefore, this spending package should boost demand for copper and zinc, in particular. However, the real kicker will be the $7.5 B investment in electronic vehicle (EV) infrastructure.”

• We do think the factors behind inflation will prove temporary
• UK inflation will reach 4% in Q4 2021 and Q1 2022

USD appreciated against other major currencies in the European session on Friday as investors awaited the release of the U.S. jobs report for July later today (at 12:30 GMT).

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, rose 0.19% to 92.42.

Economists expect the U.S. employers to have added 870,000 jobs in July, following 850,000 in the previous month. The unemployment rate is forecast to decrease to 5.7% last month from 5.9% in June.

Stronger-than-expected data will build confidence in the economy’s recovery in the second half of the year and could heighten bets on the U.S. Federal Reserve's QE tapering sooner rather than later. 

The 10-year U.S. Treasury note yields are trading at 1.259% at the moment, up 4 basis points from yesterday’s close, suggesting that investors are optimistic about the upcoming jobs data, despite Wednesday’s employment report from ADP that showed the smallest increase in U.S. private-sector payrolls in five months for July.

Carsten Brzeski, the Global Head of Macro for ING Research, notes that the second quarter was a quarter to forget for Germany's industry as output dropped in all three months but he believes that the country's industrial production is likely to flood out once supply chain frictions start to dissipate.

"Industrial production dropped for the third month in a row, illustrating why the economy stayed behind expectations in the second quarter."

"In June, industrial production fell by 1.3% month-on-month, from a downwardly revised -0.8% in May. On the year, industrial production was up by more than 5%. Despite a lifting of restrictions around the world, German industrial production in the second quarter was weaker than in the first quarter, as supply chain frictions have become a bigger threat to German industry than the pandemic."

"In fact, German industry is waiting for the ketchup bottle effect. Remember the glass ketchup bottle that you shake and tap all you want with no result until suddenly it all comes flooding out and your food is smothered in ketchup? While order books are still richly filled, as illustrated by yesterday’s June increase, for twelve of the last fourteen months, inventories have been reduced further; a situation which normally would be followed by strong output growth. However, supply chain frictions still seem to be clogging industrial activity. Once the supply chain frictions start to dissipate, the ketchup, or in this case industrial production growth, will flood out."

FXStreet notes that the kiwi is holding steady in the mid-0.70s ahead of key US jobs data. Economists at Westpac highlight a handful of tailwinds for the New Zealand dollar and, therefore, expect the pair to reach the 0.71 level next.

“Wednesday’s break above its two-week-old consolidation range has been sustained, 0.7100 the next upside target.”

“Multi-month, the NZD is supported by the NZ economy’s expected strength over the remainder of this year, the RBNZ’s signalled rate hikes, NZ-US yield spreads, and a positive outlook for NZ commodity prices.”

“Our year-end forecast for NZD/USD is 0.74."

FXStreet reports that Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, suspects that EUR/USD may have topped at 1.1909.

“EUR/USD may well have already peaked at 1.1909, the market is clearly struggling to make any impression on resistance above 1.1900.”

“The pair will need to regain the 200-day ma and the 50% retracement at 1.2010/15 to reassert upside pressure and cast attention to the 1.2266 May high.”

“Below 1.1750 attention will revert to the September, November and March lows at 1.1704/1.1600.”

Reuters reports that Indonesia central bank governor Perry Warjiyo said that economic growth this year is likely to be higher than 3.9% after seeing the 7.07% annual economic growth in the second quarter.

Warjiyo reiterated that all central bank instruments were geared toward supporting growth, including keeping interest rates low.

Bank Indonesia has estimated 2021 growth at between 3.5% and 4.3%.

CNBC reports that the 10-year U.S. Treasury yield topped 1.24%, ahead of the Labor Department’s highly anticipated jobs report. The yield on the benchmark 10-year Treasury note climbed to 1.242%.

The Labor Department is due to release its July nonfarm payrolls report at 8:30 a.m. ET.

Economists expect the U.S. economy to have added 845,000 jobs last month, according to estimates from Dow Jones. However, there is uncertainty in the market, as demonstrated by the broad range of forecasts — from 350,000 on the low end to 1.2 million at the top.

Employment data is key to the Federal Reserve’s decision to pare back its bond buying program, beginning the process of tightening its easy monetary policies more broadly and acting as a precursor to the raising of interest rates.

FXStreet reports that economists at Westpac expect prices to find a peak in 2021 and to then start correcting through 2022. 

“Westpac is looking for demand growth to decelerate in 2022. Some of the signs that suggest this will be so are: 1. In regards to China, credit growth is levelling out, policy around property is tightening, while infrastructure FAI is slowing. June data supports this view. 2. Outside China, support from restocking will come to an end and pent-up demand will fade as consumer spending shifts away from goods and towards services.” 

“For crude oil, the agreement OPEC+ reached in July went a long way towards removing supply uncertainty from oil markets. For demand, covid is again in focus, although not to the degree that we have seen previously. It would appear that as long as the UK mortality rate remains close to zero the markets will consider the possibility of large-scale global lockdowns as being negligible.”

eFXdata reports that TD Research discusses GBP outlook.

"On a qualitative basis, we think GBP has moved higher a bit too quickly, perhaps, relative to its risk backdrop in this recent uplift. Although the UK was an early leader on the vaccine front, other countries have caught up. At the same time, any edge the UK had in vaccine delivery did not translate into a commensurate boost to growth. We see two-way directional risks around 1.40 as summer trading conditions prevail. That would also favor buying into dips and looking to fade EURGBP rallies after marking a new summer high near 0.8670," TD adds.

Reuters reports that analysts said that China’s fuel demand is on track to hit record highs this year on a rebound in car sales and booming domestic air travel.

Despite slowing growth for diesel, the main industrial fuel, overall consumption of gasoline, diesel and aviation fuel in the world’s top crude oil importer is expected to grow by 7% to 11% in 2021 to a record between 8.4 million and 8.9 million barrels per day, analysts at consultancy SIA Energy, IHS Markit and Energy Aspects estimated.

By comparison, the International Energy Agency (IEA) in March forecast China’s demand for gasoline, jet fuel and diesel would rise by 6.5% to 8.2 million bpd in 2021.

China’s strong growth in fuel use has helped stoke a 50% jump in global crude oil prices from 2020.

The latest outbreaks of the COVID-19 Delta variant across 17 provinces are expected to constrain travel in the near term, but analysts say the overall growth trend remains intact.

Gasoline demand, which accounts for a quarter of China’s refined fuel use, is forecast to rise by 11% to 13% this year to a record 3.8 million to 4.1 million barrels per day, well above the IEA’s March forecast of 3.5 million bpd.

New passenger vehicle sales are expected to rise 7% this year, marking China’s first annual growth since 2017, said Tao Gao, light vehicle specialist with IHS Markit.

According to the report from Istat, in June 2021 the seasonally adjusted industrial production index increased by 1.0% compared with the previous month. The change of the average of the last three months with respect to the previous three months was +1.0%. The index measures the monthly evolution of the volume of industrial production (excluding construction). With effect from January 2018 the indices are calculated with reference to the base year 2015 using the Ateco 2007 classification (Italian edition of Nace Rev. 2).

The calendar adjusted industrial production index increased by 13.9% compared with June 2020 (calendar working days in June 2021 being the same as in June 2020).

The unadjusted industrial production index increased by 14.0% compared with June 2020.

Reuters reports that the U.S. Senate, unable to finalize a $1 trillion infrastructure bill on Thursday, will try again on Saturday when it is scheduled to hold a vote on limiting debate and moving toward passage of the hard-fought legislation.

Action on the legislation, which Democratic President Joe Biden supports, was held up by a flurry of demands from various senators, including a controversial move by some Republicans demanding billions of dollars in new Defense Department improvements, according to lawmakers.

A separate disagreement over a cryptocurrency provision in the infrastructure bill also was simmering.

Once the infrastructure bill is voted upon, the Senate was expected to begin work on a budget framework that Democrats hope would pave the way for a $3.5 trillion “human infrastructure” bill later this year.

The measures must also pass the House of Representatives, where Democrats have a thin majority.

Some senior House Democrats, including Representative Peter DeFazio, chairman of the Transportation and Infrastructure Committee, have expressed concern that the $1 trillion bill lacks sufficient climate measures.

Earlier on Thursday, the non-partisan Congressional Budget Office said the legislation would increase federal budget deficits by $256 billion over 10 years.

FXStreet reports that economists at MUFG Bank weigh up market impact from BoE policy update.

“The overall message from the BoE is that rate hikes could start sooner but the scale of the hike cycle should be only modest and the pace gradual. It has helped to dampen upside for the pound as the BoE moved a step closer to tightening policy yesterday.”

"Recently we have become more confident in our bullish outlook for the pound on the back of encouraging COVID developments in the UK. We are maintaining a short EUR/GBP trade idea in anticipation that the pair will fall to fresh year to date lows. Policy is set to diverge as the BoE moves closer to raising rates while the ECB has signalled strongly it does not plan to raise rates over their forecast horizon by setting a higher hurdle for future rate hikes in their new forward rate guidance.”

During today's Asian trading, the US dollar consolidated the euro and the yen.

Traders are focused on the July data on unemployment in the United States, which will be published by the Ministry of Labor at 12:30 GMT. According to analysts, the number of jobs in the economy increased by 845 thousand last month, and the unemployment rate fell from 5.9% to 5.7%.

These data have real significance after the "hawkish" comments of the deputy chairman of the Federal Reserve System Richard Clarida this week.

According to data published on Thursday, the number of Americans who applied for unemployment benefits for the first time decreased by 14 thousand last week - to 385 thousand people. This is the minimum level for a month.

According to Clarida, the situation on the US labor market will continue to improve, and inflation will remain above 2%, as a result of which "the necessary conditions for the Fed to raise the rate will be created by the end of 2022," and this will pave the way for its rise from the current level of 0-0.25% per annum in 2023.

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

According to the report from Insee, between the end of March and the end of June 2021, private payroll employment increased by 1.2%, or 239,500 net job creations. It increased for the second consecutive quarter, after +0.5% (or +91,400 jobs) in the previous quarter. Overall, by mid-2021, private payroll employment returned to its pre-crisis level at the end of 2019. Nevertheless, the situation differs from one sector to another: some sectors are above their pre-crisis level (construction and non-market services) while others remain below (industry and market services).

In Q2 2021, temporary employment increased again, by 2.4% after +0.7% in the first quarter of 2021 (+17,900 after +4,900 jobs). These increases are much more moderate than those of the previous quarters (+22.1%, +23.0% and +5.2% in the second, third and fourth quarters of 2020, i.e. a total of +273,500 jobs). However, temporary employment thus remains below its pre-crisis level: in June 2021, it is 2.4% below its end of 2019 level (that is −19,100 jobs).

Excluding temporary work, private payroll employment increased by 1.2% (+221,600 jobs).

Industrial employment (excluding temporary workers) increased in the second quarter of 2021 after remaining almost stable in the previous quarter: +0.3% in Q2 2021 (or +9,200 jobs after +1,400). It had fallen by 1.9% over the whole year of 2020 (−57,700 jobs). Industrial employment thus remains significantly below its pre-crisis level: −1.5% (or −47,100 jobs) compared to the level measured at the end of 2019.

In non temporary market services, private payroll employment increased again significantly: +1.7% after +0.4% in the previous quarter (that is +195,900 after +46,800 jobs). This sector has been strongly affected by the health restrictions, with a 2.4% drop in payroll employment over the whole year of 2020 (or −279,300 jobs). By mid-2021, employment in the sector remains below its end of 2019 pre-crisis level, by 0.3% (−36,500 jobs).

EUR/USD

Resistance levels (open interest**, contracts)

$1.1903 (2075)

$1.1866 (2329)

$1.1849 (1068)

Price at time of writing this review: $1.1825

Support levels (open interest**, contracts):

$1.1795 (2585)

$1.1749 (5283)

$1.1700 (10348)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date August, 6 is 72799 contracts (according to data from August, 5) with the maximum number of contracts with strike price $1,1700 (10348);

GBP/USD

$1.4051 (447)

$1.4004 (1599)

$1.3964 (835)

Price at time of writing this review: $1.3920

Support levels (open interest**, contracts):

$1.3848 (288)

$1.3800 (776)

$1.3750 (904)

Comments:

- Overall open interest on the CALL options with the expiration date August, 6 is 16520 contracts, with the maximum number of contracts with strike price $1,4150 (1782);

- Overall open interest on the PUT options with the expiration date August, 6 is 19375 contracts, with the maximum number of contracts with strike price $1,3400 (1677);

- The ratio of PUT/CALL was 1.17 versus 1.17 from the previous trading day according to data from August, 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.

According to the report from Halifax Bank of Scotland, annual house price inflation at 7.6% compared to 8.7% in June. Average UK property price now £261,221, up 0.4% in July. Wales records strongest house price growth since 2005.

Russell Galley, Managing Director, Halifax, said: “House prices rose by 0.4% in July to add £1,122 to the cost of the average property, pulling back some of the ground lost during June (-0.6%, -£1,543). Annual price growth fell to +7.6%, its lowest level since March. This easing was somewhat expected given the strength of price inflation seen last summer, as the market began its recovery from the first lockdown, and with activity supported by the start of the stamp duty holiday. In cash terms, typical prices now stand at just over £261,000, a little below May’s peak but still more than £18,500 higher than a year ago. Recent months have been characterised by historically high volumes of buyer activity, with June the busiest month for mortgage completions since 2008. This has been fueled both by the ‘race for space’ and the time-limited stamp duty break. With the latter now entering its final stages (the zero percent rate only applies to the first £250,000 of the purchase price, before reverting back to standard rates from October), buyer activity should continue to ease over the coming months, and a steadier period for the market may lie ahead".

According to the report from the Federal Statistical Office (Destatis), in June 2021, production in industry was down by 1.3% on the previous month on a price, seasonally and calendar adjusted basis. Economists had expected a 0.5% increase. Compared with June 2020, the increase in calendar adjusted production in industry amounted to 5.1%. Compared with February 2020, the month before restrictions were imposed due to the corona pandemic in Germany, production in June 2021 was 6.8% lower in seasonally and calendar adjusted terms.

In June 2021, production in industry excluding energy and construction was down by 0.9%. Within industry, the production of capital goods showed a decrease of 2.9% and the production of intermediate goods of 0.9%. The production of consumer goods increased by 3.4%. Outside industry, energy production was down by 0.6% in June 2021 and the production in construction decreased by 2.6%.

In May 2021, the corrected figure on the production in industry showed a decrease of 0.8% (provisional: -0.3%) from April 2021.