CFD Markets News and Forecasts — 06-10-2020

• Says Fiscal and monetary policy actions have supported strong but incomplete recovery
• There is still a long way to go in recovery
• Outlook remains highly uncertain, expansion far from complete
• Unemployment rate using broader measure of conditions is around 11%
• Sees risk that rapid initial gains transition to longer-than-expected slog to full recovery
• One risk is a resurgence in the virus; another is that slowing improvement could trigger typical recessionary dynamics
• Too-little policy support would lead to weak recovery; risks of overdoing policy support seem smaller
• Recovery will be stronger, faster if fiscal, monetary policy work side by side until the economy is clearly out of the woods
• Even if policy actions prove greater than needed they will not go to waste

• Says he expects to see an increase in non-performing loans 

• Says global economy is looking “less dire” than it did in June 
• All countries are now facing "the long ascent" - a difficult climb that will be long, uneven, and uncertain - and prone to setbacks
• IMF is continuing to project a “partial and uneven” recovery in 2021 [in June, IMF forecast 2021 global growth at 5.4%]
• IMF will make “small” upward revision to its 2020 global output forecast of -4.9%, published in June
• $12 trillion in fiscal support, coupled with unprecedented monetary easing has allowed many advanced economies to escape the worst damage and start to recover
• China also has recovered faster than expected
• Emerging markets and low-income countries face precarious situation
• In low-income countries, the shocks are so profound that we face the risk of "lost generation"
• Calls for more debt help quickly for low-income countries;

• Says development gains could be reversed without access to more grants, concessional credit and debt relief
• In some cases, global coordination to restructure sovereign debt will be necessary, with full participation of public and private creditors

The Job Openings and Labor Turnover Survey (JOLTS) published by the Labor Department on Tuesday revealed a 3.0 percent m-o-m drop in the U.S. job openings in August after a revised 11.6 percent m-o-m surge in July (originally a 10.3 percent m-o-m jump).

According to the report, employers posted 6.493 million job openings in August compared to the July figure of 6.697 million (revised from 6.618 million in the original estimate) and economists’ expectations of 6.685 million. The job openings rate was 4.4 percent in August, down from an upwardly revised 4.6 percent in the prior month. The report showed that the number of job openings edged down for total private (-242,000 jobs) and was little changed for government. Job openings declined in construction (-68,000), and information (-25,000).

Meanwhile, the number of hires edged up 0.3 percent m-o-m to 5.919 million in August from a revised 5.903 million in July. The hiring rate was 4.2 percent in August, unchanged from a revised 4.2 percent in July. The hires rose in federal government (+246,000), largely because of the temporary 2020 Census hiring. Hires also increased in durable goods manufacturing (+41,000). These gains, however, were offset by declines in hires in accommodation and food services (-177,000), health care and social assistance (-73,000), and real estate and rental and leasing (-28,000).

The separation rate in August was 4.594 million or 3.3 percent, compared to 4.988 million or 3.6 percent in July. Within separations, the quits rate was 2.0 percent (-0.1 pp m-o-m), and the layoffs rate was 1.0 percent (-0.3 pp m-o-m).

• Latest round of Brexit talks "one of most positive" so far 
• "Big progress" was made on issues including social security
• EU sees nine of 10 UK proposals on social security coordination as acceptable
• Family benefits and health surcharge are main sticking points on social security coordination
• "We are getting closer and closer to deal" despite no deal rhetoric, final decision will be in UK PM Johnson's hands
• Level playing field, fisheries and government remain biggest hurdles
• EU-UK trade talks deadline of end-October could slip as far as mid-November

U.S. stock-index futures traded mixed on Tuesday after a rally pushed the S&P 500 and the Dow to their highest levels in more than two weeks a day earlier. After the U.S. President Donald Trump’s return to the White House from the hospital, investor focus returned to ongoing stimulus talks in Washington. Traders were also awaiting comments from Federal Reserve Chair Jerome Powell, who is set to speak about the economic outlook at 14:40 GMT.

Global Stocks:

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

Statistics Canada announced on Tuesday that Canada’s merchandise trade deficit stood at CAD2.45 billion in August, narrowing from a revised CAD2.53-billion gap in July (originally a CAD2.45-billion gap).

Economists had forecast a deficit of CAD2.00 billion.

According to the report, Canada’s exports declined 1.0 percent m-o-m to CAD44.93 billion in August, led by drops in exports of motor vehicles and parts (-6.8 percent m-o-m) and aircraft and other transportation equipment and parts (-14.5 percent m-o-m).

Meanwhile, imports fell 1.2 percent m-o-m to CAD47.38 billion in August, with lower imports of aircraft and other transportation equipment and parts (-25.3 percent m-o-m) contributing the most to the overall decrease.

The U.S. Commerce Department reported on Tuesday that U.S. the goods and services trade deficit widened to $67.1 billion in August from a revised $63.4 billion in the previous month (originally a gap of $63.6 billion). That was the highest trade gap since August 2006.

Economists had expected a deficit of $66.1 billion.

According to the report, the August advance in the goods and services deficit reflected an increase in the goods deficit of $3.0 billion to $83.9 billion and a decrease in the services surplus of $0.7 billion to $16.8 billion.

In August, exports of goods and services from the U.S. rose 2.2 percent m-o-m to $171.9 billion, while imports surged 3.2 percent m-o-m to $239.0 billion, in part, due to the impact of COVID-19, as many businesses continued recovery from the sharp declines earlier this year.

Year-to-date, the goods and services deficit jumped 5.7 percent from the same period in 2019. Exports plunged 17.6 percent, while imports tumbled 13.1 percent.

• Says negotiating teams of UK and EU will meet in London on Wednesday, will engage in talks until Friday and move to Brussels next week
• UK is fully committed to finding solutions in areas of difference; committed to working hard ahead of October EU Council
• A significant amount of work still to do, time is short
• Doesn't envisage PM attending October EU summit

FXStreet reports that analysts at Credit Suisse note that EUR/USD is pushing above a key cluster of resistances at 1.1770/84 – the 55-day average and downtrend from early September – to suggest the corrective setback is over and the broader uptrend resumed.

“A sharp weakening of the USD and broader ‘risk-on’ has seen EUR/USD move strongly higher for a breakthrough key resistances at 1.1770/84 – the 55-day average, downtrend from the early September peak and 38.2% retracement of the September fall – and this suggests the top has been negated to suggest the correction is already over and broader uptrend resumed. Indeed, when we see top patterns negated without their objectives being realized, this can often lead to a powerful move higher in the underlying trend direction, i.e. higher.”

“We turn bullish again with resistance seen next at 1.1827, then 1.1873/83, with 1.1918 needing to be cleared for a move back to the 1.2011 high and eventually our 1.2145/55 long-held objective – the ‘neckline’ to the early 2018 top, from which we will look for a fresh consolidation phase.” 

USD traded mixed against its major rivals in the European session on Tuesday after the U.S. president Donald Trump returned to White House from the hospital and investor focus returned to stimulus talks.

The U.S. currency rose against GBP, AUD and NZD, but fell against EUR, JPY and CHF.

President Trump returned to the White House Monday night following three days of treatment for his coronavirus infection at the hospital. Ahead of the discharge, he tweeted that he is "feeling really good", though White House physician Dr. Sean Conley acknowledged earlier in the day that the president “may not entirely be out of the woods yet.” 

Meanwhile, the U.S. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin spoke for an hour on Monday regarding the new stimulus bill but did not reach a compromise. They will continue stimulus talks today, but it is unclear whether they can agree to a deal.

Market participants are also awaiting the speech of the Federal Reserve Chairman Jerome Powell, who is to address the National Association for Business Economics at 14:40 GMT to speak about the economic outlook.

FXStreet reports that economists at Morgan Stanley note that with a US fiscal stimulus deal looking more likely, the risk of long-term interest rates moving higher has now increased – a shift that could benefit recovery stocks.

“The market most mispriced for the ongoing recovery we expect is the back end of the Treasury curve or long-term interest rates. This means expensive growth stocks are still vulnerable in our view. With a fiscal deal still looking likely, in our view, either before or after the election and the growth scare now somewhat priced, the risk for rates to move higher is greater. By definition, that increases the risk of a move lower in those assets most tied to long-term interest rates.”

“The rates market will quickly discount what the stock market and other asset markets have been saying all year, that the recovery is on solid footing and is likely to continue in 2021. The next round of fiscal stimulus is coming our way one way or another, and it's just a matter of size and timing. This also aligns with our recommendation to focus on the recovery stocks, even during this growth scare, as that is where the upside is greatest. A move higher in rates should only further support that view, as most recovery stocks are positively correlated to such a move, led by financials, consumer cyclicals, materials and industrials with a smaller capitalization skew.”

• We're resolving not to go back to 2019 but to reform our system of government, to renew our infrastructure
• We want to create conditions for dynamic recovery that is led not by the state but by free enterprise
• We need to lift the trend rate of growth, we need to lift people's incomes, not just go back to where we were
• Only way to ensure economic resilience is to raise productivity

FXStreet reports that analysts at Danske Bank forecast the USD/CAD pair will move higher in the months ahead, targeting 1.34 in one months and 1.33 in three months. Nonetheless, the loonie will recover on a six-to-twelve month period.

“...given our views on the global economy, vaccines and policy responses, we still factor in a lower USD/CAD on a six-to-twelve horizon.”

“We forecast USD/CAD at 1.34 in one month (from 1.30), 1.33 in three months (1.28), 1.32 in six months (1.28) and 1.32 in twelve months (1.30).”

FXStreet reports that FX Strategists at UOB Group suggest that USD/JPY will remain within a consolidation mood between 105.00 and 106.00 in the next weeks.

24-hour view: “...USD rose to a high of 105.79 before closing on a relatively firm note at 105.72 (+0.37%). Further USD strength is not ruled out but overbought conditions suggest that a move beyond the major resistance at 106.00 is unlikely. On the downside, a break of 105.45 would indicate that the current upward pressure has eased.”

Next 1-3 weeks: “Last Friday (02 Oct, spot t 105.55), we indicated that USD ‘is likely to trade between 105.00 and 106.00 for now’. USD subsequently dropped to a low of 104.92 before rebounding quickly and closed slightly lower at 105.33 (-0.16%). Momentum indicators are still mostly ‘neutral’ and the price actions indicate that USD could trade between 105.00 and 106.00 for a while more. Looking forward, USD has to post a daily closing out of the 105.00/106.00 range before a more sustained directional movement can be expected.”

• Don't think the Fed has to do anything differently now or going into next year
• I like monetary policy right now
• Hopeful that policy is right to spur a faster recovery
• More fiscal stimulus will make forecasts "that much rosier"

FXStreet reports that according to analysts from Danske Bank, EUR/GBP will likely trade within 0.90-0.92 until a Brexit deal is agreed. 

“In line with our expectations, there has not been any major breakthrough ahead of the EU summit on 15-16 October. Our base case remains a deal but we expect negotiations to extend into November. The main obstacles are still fishing and level playing field conditions (e.g. state aid and taxes).”

“We expect EUR/GBP to trade within 0.90-0.92 until we get clarification on Brexit. Our base case remains a simple free trade agreement covering goods and we expect the cross to move lower to around 0.86 when a deal is in sight. We have lowered our three-month forecast to 0.86 (previously 0.88), as we expect a deal some time in November. We keep our six-to-twelve month forecast at 0.86.”

Reuters reports that European Central Bank President Christine Lagarde said that a second wave of the coronavirus pandemic risks delaying the euro zone's economic recovery.

"We now fear that the containment measures that have to be taken by authorities will have an impact on this recovery, so instead of that V shape that we all long for and hope for, we fear that it might have that second arm of the V a little bit more shaky," Lagarde told

FXStreet reports that Lisa Shalett from Morgan Stanley said that a key bond-market signal suggests how investors could cope with the volatility and uncertainty of this remarkable US election year.

“Generally, low long-term rates this close to an election typically point to a status quo result or divided government. However, the US stock market (along with polling data), seems to be telegraphing increasing odds of Democrats gaining control of the White House and both chambers of Congress, which would raise the odds of substantive policy reforms.”

“I expect the yield curve, an economic indicator based on the bond market, to steepen post-election, as long-term rates rise while short-term rates stay anchored by Federal Reserve policy. I believe that will happen regardless of who gets voted into office.”

Reuters reports that German Finance Minister Olaf Scholz said that rising coronavirus infections across Europe were underlining the need to implement the agreed 750 billion euros of recovery funds quickly.

“The new normal in times of the coronavirus pandemic requires that we remain vigilant and adapt our daily routine to the development of the pandemic,” Scholz said.

“The sharp rise in infections also underlines the need to implement Europe’s ambitious recovery programme timely and to set the right course to Europe’s future,” added Scholz.

According to the report from IHS Markit/CIPS, latest PMI data signalled another sharp increase in UK construction activity at the end of the third quarter. The expansion came amid the sharpest rise in new business since before the pandemic-induced lockdown, with firms increasing their purchasing activity at the quickest pace for nearly five years. Meanwhile, employment continued to fall, but the rate of job shedding eased. Looking forward, sentiment towards future activity was the strongest for seven months.

The headline seasonally adjusted UK Construction Total Activity Index registered 56.8 in September, up from 54.6 in August. Any figure above 50.0 indicates growth of total construction output. The latest reading pointed to a reacceleration in the rate of activity growth and a sharp increase overall.

FXStreet reports that strategists at TD Securities inform that the vice-presidential debate is the next significant event of the campaign.

“Joe Biden added to his lead over President Trump in polling data after a contentious first debate. Some early polls also suggest that his support increased following news of the President contracting COVID-19. Biden's advantage in national polling is now 8.0pp, up from 7.3pp last week and 7.1pp at end-August”. 

“Betting markets also reflected Biden's momentum, with most battleground states registering gains for Biden over the past week”.

“Betting odds continue to indicate a Democrat majority in both chambers of Congress, with Dems now on track to flip five seats in the Senate (the IA race has shifted to Dems), while losing one seat. Democrats are also expected to add to their majority in the House.”

“The key upcoming event will be the Vice Presidential debate on 7 October.”

According to the report from IHS Markit, at 47.5 in September, the Eurozone Construction Total Activity Index signalled a seventh consecutive monthly decline in output. Moreover, falling from 47.8 in August, the rate of reduction was the quickest since May. Home building, infrastructure work and commercial projects all contracted, with the sharpest downturn recorded for the latter. Nationally, there were falls in construction activity across Germany and France, with growth sustained in Italy.

Commercial building activity fell sharply and at the fastest pace since May. The decline was also the fastest of the three types of activity tracked by the PMI survey. Home building among eurozone constructors decreased only marginally, with the pace of reduction matching that seen in August. Civil engineering activity across the currency bloc fell markedly, with the decline being the fourteenth in as many months. 

Eurozone builders continued to record lower demand for their services in September. As a result, the current sequence of falling new orders was extended to seven months. Moreover, the rate of contraction was solid and the quickest since June. 

Faced with subdued demand conditions, eurozone constructors reduced payroll numbers for the seventh month in a row during September. Despite quickening from August, the pace of contraction was slight overall. 

Sentiment among eurozone construction companies remained negative at the end of the third quarter. Lower output was predicted (on average) by firms in Germany and France, with the former the most pessimistic towards the outlook during September. Conversely, Italian builders foresee activity growth in the year ahead, with optimism strengthening from August.

FXStreet reports that economists at Danske have flattened their EUR/USD profile: they now see the cross peaking in three-to-six months at 1.20 (previously 1.23) and for now, the cross looks in the 1.15-1.19 range.

“We expect the cyclical uptick in Europe (and elsewhere) to continue over the coming months. The introduction of new European lockdowns, a marginally hawkish Fed, mild weakness in the data, verbal intervention from the ECB and a likely postponement of the payments linked to EU fiscal support have caused EUR/USD to take a step back from previous highs (1.18-1.20), to around 1.17.”

“Upside risks to take us above 1.20 include the EU proving to be an engine of world growth and/or the Fed credibly committing to inflation overshooting (which it has not as of today). The combination of positive progress with US fiscal policy, Brexit, the corona situation and global growth may culminate by year-end. If all goes well, we could see a new test of 1.20.”

During today's Asian trading, the US dollar slightly strengthened against the euro and fell slightly against the yen.

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 0.07%.

Traders are focused on the ongoing discussion of a new stimulus package by US lawmakers, as well as the condition of US President Donald Trump, who was discharged from the Walter reed military hospital yesterday after being treated for COVID - 19 for three days.

House speaker Nancy Pelosi and US Treasury Secretary Steven Mnuchin yesterday held another round of talks on a new stimulus package, but there are no signals that the parties are close to an agreement, despite calls from US President Donald Trump to resolve the issue.

Trump's discharge from the hospital leaves questions about both his condition and his willingness to comply with restrictions to contain the further spread of the coronavirus in the White house.

Goldman Sachs experts do not believe that Trump's illness will affect the results of the presidential election. However, the increased likelihood that Biden will win the election and Democrats will take control of the Senate will worsen the weakening of the US dollar, Goldman said.

CNBC reports that Goldman Sachs said that Asia is well placed for economic recovery compared to the rest of the world.

“We think Asia’s really the best positioned of the major regions right now, just given the good control of the virus in most of the region outside of India and some parts of Southeast Asia,” said Andrew Tilton, chief Asia economist.

He said China’s consumer spending has been “more sluggish” because, unlike in the U.S., stimulus measures were not directed at income replacement. “But I think given the good control of domestic transmission of the virus in China, we are seeing services activity come back there as well,” he told CNBC.

The global lockdown triggered by coronavirus outbreak hit world economies really hard, but there is now “reasonable momentum” globally, Tilton said.

FXStreet reports that cable remains firm and a move to the 1.3070 region is probable in the short-term horizon, noted FX Strategists at UOB Group.

Next 1-3 weeks: “We noted yesterday (05 Oct, spot at 1.2915) that ‘the underlying tone appears to have firmed but GBP has to close above the major resistance at 1.3000 before a sustained advance can be expected’. While GBP closed at 1.2981, the improvement in momentum indicates that GBP is likely to trade with an upward bias from here. A move to the next resistance at 1.3070 would not be surprising but the next major resistance at 1.3130 is unlikely to come into the picture. Overall, the current positive bias is deemed as intact as long as GBP does not move below 1.2890. On a shorter-term note, 1.2925 is already quite a strong level.”

According to provisional results of the Federal Statistical Office (Destatis), real (price adjusted) new orders increased by a seasonally and calendar adjusted 4.5% in August 2020 compared with July 2020. Compared with August 2019, the decrease in calendar adjusted new orders amounted to -2.2%. Excluding major orders, real new orders in manufacturing (seasonally and calendar adjusted) were also 4.5% higher than in the previous month.

The corona crisis has affected the development in manufacturing for several months now. Compared with February 2020, the month before restrictions were imposed due to the corona pandemic in Germany, new orders in August 2020 were 3.6% lower in seasonally and calendar adjusted terms.

Domestic orders increased by 1.7% and foreign orders rose by 6.5% in August 2020 on the previous month. New orders from the euro area went up 14.6%, and new orders from other countries increased by 1.5% compared with July 2020.

In August 2020, the manufacturers of intermediate goods saw new orders increase by 4.5% compared with July 2020. The manufacturers of capital goods saw an increase of 4.7% on the previous month. Regarding consumer goods, new orders rose 4.2%.

RTTNews reports that Australia's central bank retained its interest rate at a historic low and quantitative easing unchanged as expected ahead of the federal budget announcement later today.

The board of Reserve Bank of Australia decided to maintain cash rate and the targeted yield on three-year government bonds of 25 basis points. The board also retained the parameters for the expanded Term Funding Facility.

The board viewed addressing the high rate of unemployment as an important national priority.

The RBA said that the unemployment rate is likely to peak at a lower rate than earlier expected. Nonetheless, unemployment and underemployment are set to remain high for an extended period. Wage and inflation pressures remained very subdued.

The bank reiterated that it will maintain highly accommodative policy settings as long as is required and will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2-3 percent target band.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1865 (3132)

$1.1832 (2220)

$1.1810 (485)

Price at time of writing this review: $1.1791

Support levels (open interest**, contracts):

$1.1761 (2816)

$1.1732 (2234)

$1.1693 (4569)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date October, 9 is 71629 contracts (according to data from October, 5) with the maximum number of contracts with strike price $1,1900 (4872);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3118 (1107)

$1.3080 (376)

$1.3025 (719)

Price at time of writing this review: $1.2988

Support levels (open interest**, contracts):

$1.2958 (473)

$1.2927 (801)

$1.2901 (849)

Comments:

- Overall open interest on the CALL options with the expiration date October, 9 is 15885 contracts, with the maximum number of contracts with strike price $1,3150 (1448);

- 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 1.13 from the previous trading day according to data from October, 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.