CFD Markets News and Forecasts — 06-10-2021

FXStreet reports that economists at Rabobank see downside risks to their GBP/USD three-month forecast of 1.36.

“Johnson expects the post Brexit transition will result in a ‘high-wage, high-skill, high-productivity economy’. The heavy recent tone of the pound, however, suggests that investors need more convincing about the attractiveness of UK fundamentals.”

“There is evidence that wages for some UK workers are rising. However, currently, for the majority, there is little expectation that wage growth will keep pace with inflation meaning that real incomes and thus demand are likely to shrink.”

“The increase in GBP implied volatility reflects a jump in uncertainty regarding the outlook for the pound.”

“The strength of the USD suggests that GBP is in danger of being pushed back further. We see downside risk to our current three-month cable forecast of 1.36.”

The U.S. Energy Information Administration (EIA) reported on Wednesday that crude inventories rose by 2.346 million barrels in the week ended October 1, following a build of 4.578 million barrels in the previous week. Economists had forecast a decrease of 0.418 million barrels.

At the same time, gasoline stocks climbed by 3.256 million barrels, while analysts had expected a fall of 0.279 million barrels. Distillate stocks dropped 0.396 million barrels, while analysts had forecast a decline of 1.007 million barrels.

Meanwhile, oil production in the U.S. increased 200,000 barrels a day to 11.300 million barrels a day.

U.S. crude oil imports averaged 7.0 million barrels per day last week, up by 483,000 barrels per day from the previous week.

• Iraq seeks to expand its production and export capacity in the coming years
• Aims to raise its oil production capacity by some 3 mln barrels per day (bpd) to 8 million bpd by the end of 2027
• Targets raising its crude export capacity to 6 mln bpd from 4 mln bpd now by the end of 2024

• But risks remain that shortage-driven inflation spikes could prove more persistent
• Its baseline forecast sees advanced economies' headline inflation peaking at 3.6% this fall and dropping to about 2% by mid-2022
• Sees emerging market and developing economies' inflation peaking at 6.8% this fall and decreasing to about 4% next year
• Sharply rising housing prices and prolonged input supply shortages in advanced and developing economies and continued food price pressures and currency depreciations in emerging markets could keep inflation elevated for longer
• Inflation expectations tend to be well-anchored in countries with independent central banks that have credible, well-communicated monetary policies
• Inflation accelerations, especially in emerging markets, are often associated with sharp exchange rate depreciations; in advanced economies, they are often preceded by large fiscal deficits
• Anchor for inflation expectations has remained relatively stable so far during the COVID-19 pandemic

U.S. stock-index futures declined on Wednesday amid heightened worries about rising inflation and the possibility of a quicker-than-expected withdrawal of the central banks’ stimulus to combat it.

Global Stocks:

FXStreet reports that economists at Commerzbank suggest that the gold/silver ratio has now topped due to the triple divergence of the RSI. 

“Gold/silver ratio has again rallied higher towards the band of resistance offered by 80.20 the 29th October high and 81.26 the 23rd September high. The new high has been accompanied by triple divergence of the daily RSI and this most depicts the end of the move. This overhead resistance is reinforced by the 200-week ma at 82.14, and we suspect that the market will now fail. 

“Dips lower will find the short term uptrend at 76.50, but we suspect that the 55-day ma at 75.16 may provide stronger support and the ratio will have to drop below here to confirm a slide back to key support is centered around 70.00 and the six-month uptrend at 69.43.”

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

McDonald's (MCD) initiated with a Buy at Loop Capital; target $306

Freeport-McMoRan (FCX) upgraded to Outperform from Neutral at Exane BNP Paribas; target $39.50

• We are embarking on a chance of direction in UK economy
• We are going to be high wage, high skill and low tax economy
• We should not use immigration as excuse for the failure to invest
• Regional inequality is holding this country back

The employment report prepared by Automatic Data Processing Inc. (ADP) and Moody's Analytics showed on Wednesday the U.S. private employers added 568,000 jobs in September. This marked the largest advance in private-sector employment since June.

Economists had expected an increase of 428,000.

The August number saw a downward revision to 340,000 from the originally reported 374,000.

“The labor market recovery continues to make progress despite a marked slowdown from the 748,000 job pace in the second quarter,” noted Nela Richardson, chief economist, ADP. “Leisure and hospitality remains one of the biggest beneficiaries to the recovery, yet hiring is still heavily impacted by the trajectory of the pandemic, especially for small firms. Current bottlenecks in hiring should fade as the health conditions tied to the COVID-19 variant continue to improve, setting the stage for solid job gains in the coming months.”

USD strengthened against other major currencies in the European session on Wednesday, as the U.S. Treasury yields rose, as soaring global energy prices heightened inflation concerns.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, increased 0.41% to 94.36.

Oil prices rose to the highest levels in seven years amid a continuing rally in global energy prices, fuelling worries about rising inflation and the possibility of a quicker-than-expected withdrawal of the central banks’ stimulus to combat it.

In response to the anticipated energy-induced inflation, longer-dated U.S. yields rose. The 10-year Treasury yields were trading at 1.548% in the morning, compared to 1.529% at yesterday’s close and 1.465% at Friday’s close. 

Investors also prepared for a crucial September jobs report, which will be published on Friday and may strengthen the case for the Federal Reserve to begin winding back its ultra-accommodative monetary policy.

FXStreet reports that economists at Société Générale expect the kiwi to extend its up move beyond the 0.6980 mark towards the 200-day moving average (DMA) at 0.7110 and potentially 0.7180/0.7215.

“The kiwi has carved out a higher trough at 0.6860 recently. So long as this doesn’t get violated, the bounce is expected to persist.” 

“A move beyond 0.6980, the 38.2% retracement from September can take the pair towards a multi-month descending trend line near 0.7110 which is also the 200-DMA with next hurdle at September high of 0.7180/0.7215.”

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. plunged 6.9 percent in the week ended October 1, following a 1.1 percent drop in the previous week. This marked the largest decline in total mortgage application volume since the last week of June.

According to the report, refinance applications tumbled 9.6 percent, while applications to purchase a home fell 1.7 percent.

Meanwhile, the average fixed 30-year mortgage rate increased from 3.10 percent to 3.14 percent, the highest level since early July.

“Higher rates are reducing borrowers’ incentive to refinance, as declines were seen across all loan types,” noted Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Purchase activity also fell, driven by a drop in conventional loan applications. Government purchase applications were up over 1 percent, but that was still not enough to bring down the average loan balance of $410,000. With home-price appreciation and sales prices remaining very elevated, applications for higher balance, conventional loans still dominate the mix of activity.”

AUD/USD to challenge the 0.7170 September low - Credit Suisse

FXStreet reports that economists at Credit Suisse see priced-in hawkish monetary policy expectations amid regional growth concerns as limiting scope for further AUD strength, expecting AUD/USD to re-test recent lows around 0.7170.

“We see limited scope for AUD to continue to benefit from the lifting of existing stay-at-home orders. With iron ore prices 50% below this year’s peak, and Chinese growth risks in focus, current GDP expectations look vulnerable to a pullback, if the path to reopening is challenged. The timeline for international travel is also uncertain.”

“We view the market’s hawkish expectations as a hindrance for AUD, if economic data were to falter, or if reopening plans were to be postponed.”

“We lowered our AUD/USD target range from 0.7100-0.7450 to 0.7050-0.7400 for Q4.” 

“Late Sep lows around 0.7170 are likely to be in focus.”

FXStreet reports that FX Strategists at UOB Group forecast USD/CNH to trade comfortably within the 6.4240-4.4800 range in the next weeks.

24-hour view: “Our expectation for USD to ‘edge higher to 6.4630’ did not materialize as it traded sideways within a narrow range of 6.4429/6.4596. Momentum indicators are mostly neutral and further sideway-trading seems likely. Expected range for today, 6.4420/6.4650.”

Next 1-3 weeks: “...USD traded in a relatively quiet manner the past couple of days and the build-up in momentum has fizzled out. In the other words, the downside risk has dissipated. From here, USD is likely to trade between 6.4240 and 6.4800 for a period of time.”

FXStreet reports that Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, thinks that gold’s tepid bounce has not been enough to alleviate the bearish bias. 

“Gold’s outlook stays negative. It held the initial test of the 78.6% retracement at $1722. The bounce has fallen short of the 55-day ma at $1784 and immediate downside risk remains. Below $1721, support is found at $1679.80/$1677.83, and is reinforced by the $1670 June 2020 low.”

“We have extensive resistance from $1784 to $1834 (55, 200-day moving averages and highs since July) and we look for rallies to struggle on moves into this band. The 55-week ma is also found at $1819.” 

“A close above $1834 is needed to retest the $1856/57 4 the June low and the $1860 2020-2021 downtrend."

CNBC reports that the EU’s top trade chief said that a global deal on corporate tax could be completed before the end of this month.

Some nations, notably Hungary and Ireland, where corporate tax is below 15%, had raised doubts about the agreement. However, discussions led by the Organization for Economic Cooperation and Development seem to be baring fruit.

“We hope that the OECD agreement can be finalized during October. We are also working with EU member states to make sure all are on board concerning the international tax agreement,” Valdis Dombrovskis, the European Commission Vice President for Trade, said.

“And we are ready from our side also then to put forward legislative proposals to ensure the uniform implementation of the this agreement across the EU.”

FXStreet reports that in the view of Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, the yellow metal is set to remain under pressure while below $1834.

“Gold’s outlook stays negative. It held the initial test of the 78.6% retracement at $1722. The bounce has fallen short of the 55-day ma at $1784 and immediate downside risk remains. Below $1721, support is found at $1679.80/$1677.83, and is reinforced by the $1670 June 2020 low.”

“We have extensive resistance from $1784 to $1834 (55, 200-day moving averages and highs since July) and we look for rallies to struggle on moves into this band. The 55-week ma is also found at $1819. Below $1670 would target the 2018-2021 uptrend at $1603.”

According to the report from Eurostat, in August 2021, the seasonally adjusted volume of retail trade rose by 0.3% in both the euro area and in the EU, compared with July 2021. Economists had expected a 0.8% increase in the euro area. In July 2021, the retail trade volume decreased by 2.6% in the euro area and by 2.1% in the EU.

In August 2021 compared with August 2020, the calendar adjusted volume of retail trade remained stable in the euro area and increased by 1.1% in the EU. Economists had expected a 0.4% increase in the euro area.

In the euro area in August 2021, compared with July 2021, the volume of retail trade increased by 1.8% for nonfood products, while it fell by 0.1% for automotive fuels and by 1.7% for food, drinks and tobacco. In the EU, the volume of retail trade increased by 1.8% for non-food products, while it fell by 0.3% for automotive fuels and by 1.5% for food, drinks and tobacco.

In the euro area in August 2021, compared with August 2020, the volume of retail trade increased by 1.3% for nonfood products and by 1.2% for automotive fuels, while it fell by 1.9% for food, drinks and tobacco. In the EU, the volume of retail trade increased by 3.0% for non-food products and by 2.1% for automotive fuels, while it fell by 1.5% for food, drinks and tobacco.

According to the report from IHS Markit/CIPS, September data revealed another growth slowdown in the construction sector, with output volumes rising to the smallest extent for eight months. This partly reflected softer demand conditions than the peak seen earlier in the summer. Survey respondents also cited disruptions on site from unavailable transport, a severe lack of materials and continued staff shortages. A rapid drop in sub-contractor availability was reported in September. Imbalanced demand and supply contributed to the steepest rise in sub-contractor charges since the survey began in April 1997. Some firms noted that the unpredictable pricing environment had slowed clients' decision-making on new orders and led to delays with contract awards.

At 52.6 in September, down from 55.2 in August, the headline seasonally adjusted UK Construction PMI Total Activity Index dropped further below the 24-year high seen in June (66.3). The latest reading signalled only a moderate expansion of total construction output and the weakest speed of recovery for eight months. Reports from survey respondents linked the slowdown to a combination of supply chain issues and softer demand.

All three broad categories of construction activity saw a loss of momentum in September, with the biggest slowdown seen in civil engineering (51.0, down from 54.8 in August). House building also decelerated in September, with the latest expansion the weakest since the recovery began in June 2020 (52.8). This left the commercial segment (53.6) as the best performing category during September. Resilience in this sub sector reflected a continued boost to order books from the reopening of the UK economy.

Meanwhile, the latest survey illustrated that construction firms remained highly upbeat about the business outlook. Just over half (51%) forecast rising output, while only 8% anticipate a decline. However, the degree of confidence was weaker than August amid some concerns that the supply chain crisis will hinder growth.

CNBC reports that according to a new report by trade credit insurer Euler Hermes, business insolvencies are set to rise in 2022 as governments withdraw support measures that have helped companies stay afloat during the Covid-19 pandemic, .

Globally, business insolvencies are expected to jump 15% on year in 2022, Euler Hermes said. That projected increase follows two consecutive years of decline: insolvencies dropped 12% on year in 2020 and is forecast to fall by another 6% in 2021, said the insurer.

Even with the expected increase in 2022, overall insolvencies will likely remain 4% lower than in 2019 — before Covid spread globally, said Euler Hermes.

Euler Hermes expects insolvency trends to be mixed in Western Europe:

Countries including Spain and Italy could see insolvencies rising above 2019-levels by 2021 or 2022.

Countries including Switzerland, Sweden and Portugal could experience a rebound in business insolvencies in 2022, but not yet to pre-Covid levels.

Large support packages and the extension of those measures will likely keep insolvencies low in countries including France, Germany and Belgium.

Meanwhile, Asia-Pacific is expected to register an 18% on-year increase in insolvencies in 2022, said Euler Hermes.

In the U.S. a combination of “massive support” and a strong economic rebound will likely keep insolvencies low in 2021 and 2022, added Euler Hermes.

According to the report from IHS Markit, the Eurozone Construction Total Activity Index rose from 49.5 in August to 50.0 in September, signalling a stabilisation in eurozone construction activity following two successive months of decline. Where activity rose, companies often cited stronger demand growth, although this was offset by a lack of raw materials which halted work on site. Underlying data indicated that growth was centred around house building, although commercial construction work fell at the softest pace in the current 19-month sequence of decline. At the same time, the fall in infrastructure activity remained sharp.

September survey data pointed to a further expansion in home building activity across the eurozone, stretching the current period of growth to seven months. While softer than that seen in August, the rate of increase was solid overall. Commercial building activity continued to trend towards stabilisation in September, as activity dipped at the softest pace in the current 19-month sequence of decline. Work undertaken on civil engineering projects decreased at a softer pace in September. The fall stretched the current period of decline to 26 months and the rate of reduction remained sharp.

New orders placed with eurozone construction companies expanded for the second successive month in September. The pace of growth quickened from the previous survey period and was the fastest since May. Anecdotal evidence suggested that government incentives for the sector as well as a number of new projects coming to tender led to a rise in new business inflows.

Eurozone construction firms expressed optimism toward the 12 month outlook for the ninth consecutive month in September. The level of positive sentiment strengthened from August and was sharp overall. Italian firms were the most upbeat, while confidence across France improved to a three-month high. That said, projections in Germany remained downbeat.

FXStreet reports that economists at Credit Suisse discuss EUR/GBP prospects.

“On the GBP-positive side, there are ongoing signs of UK labour market shortages and corresponding upward wage pressure. On the other hand, these highly publicized shortages have reminded markets that the UK could pay a growth price for high input costs and supply-chain difficulties.” 

“Our base case target of EUR/GBP 0.8450 is probably closer to ‘heaven’ (hopes for BoE rate hikes allow for persistent rate support) than ‘hell’ (EUR/GBP explodes to 0.9000 where it started 2021 due to the negatives discussed above dominating). But we acknowledge that GBP now needs a solid risk premium, and we have given up on Q3 expectations for a move to EUR/GBP 0.8300.”

During today's Asian trading, the US dollar rose against the euro, the Japanese yen and most of the world's major currencies. The dollar is supported by investors' flight from risk and concerns about slowing global economic growth and persistently high inflation.

Traders are waiting for data on the US labor market, which may shed light on the next steps of the US Federal Reserve System in relation to monetary policy. It is expected that Friday's statistics on employment in the non-farm sector will show further improvement in September. According to forecasts, 488,000 additional jobs were created in September.

Experts at the Peterson Institute for International Economics see growing chances that the Fed may need a more aggressive approach to rates than the markets and the Central Bank itself currently expect.

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 0.19%. The index is near the maximum level for the year.

CNBC reports that according to a vice president and managing director of a U.S.-based think tank, U.S.-China talks will be “extremely tough sledding,” but reengagement is the correct strategy to take.

Wendy Cutler of the Asia Society Policy Institute’s comments came after U.S. Trade Representative Katherine Tai on Monday said she is looking forward to negotiations with the Chinese.

Cutler said that China is different from today than it was two years ago before the so-called “phase one” trade deal that was signed with the Trump administration.

Beijing is now very confident and has a “very hardline attitude,” said Cutler who was formerly Assistant U.S. Trade Representative for Japan, Korea and APEC Affairs.

“It’s going to be tough sledding, but then again, I think Ambassador Tai, by laying out the fact she wants to reengage with China — that is the right strategy for now,” she said.

Cutler said bilateral talks won’t be an easy, clear road toward resolution. Tai seemed to be realistic and recognized that China may reject addressing U.S. concerns, in which case Washington would use other tools to respond, Cutler said.

According to provisional data from the Federal Statistical Office (Destatis), real (price-adjusted) order intake in manufacturing was 7.7% lower in August 2021, seasonally and calendar adjusted, than in July 2021. Economists had expected a 2.1% decrease. The sharp decline follows strong increases in the previous months of July 2021 (+4.9 %) and June 2021 (+4.6%), which were sometimes caused by large orders in other vehicle construction (aircraft, ships, trains, etc.). Excluding large orders, new orders in manufacturing fell by 5.1% in August 2021.

Furthermore, in August 2021, new orders for the production of motor vehicles and parts fell by 12.0%, while metal production and processing fell by 9.6%. Manufacturers complain about supply bottlenecks in intermediate products.

Compared to February 2020, the month before the start of the restrictions due to the corona pandemic in Germany, order intake was still 8.5% higher in August 2021, seasonally and calendar adjusted. Compared to the same month last year, August 2020, when order intake was affected by the pandemic, it was 11.7% higher on a calendar-adjusted basis.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1703 (2255)

$1.1660 (859)

$1.1631 (665)

Price at time of writing this review: $1.1579

Support levels (open interest**, contracts):

$1.1544 (1879)

$1.1498 (6193)

$1.1449 (386)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date October, 8 is 80440 contracts (according to data from October, 5) with the maximum number of contracts with strike price $1,2200 (8606);

GBP/USD

$1.3755 (213)

$1.3681 (199)

$1.3637 (175)

Price at time of writing this review: $1.3608

Support levels (open interest**, contracts):

$1.3536 (641)

$1.3493 (1319)

$1.3446 (1224)

Comments:

- Overall open interest on the CALL options with the expiration date October, 8 is 13616 contracts, with the maximum number of contracts with strike price $1,4150 (2064);

- Overall open interest on the PUT options with the expiration date October, 8 is 19891 contracts, with the maximum number of contracts with strike price $1,3250 (1885);

- The ratio of PUT/CALL was 1.46 versus 1.46 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.

Reuters reports that the Reserve Bank of New Zealand (RBNZ) hiked interest rates for the first time in seven years and signalled further tightening to come, as it looks to get on top of inflationary pressures and cool a red-hot housing market.

The 25 basis point rate hike marks the start of a tightening cycle that had been expected to begin in August, but was delayed after an outbreak of the coronavirus Delta variant and a lockdown that is continuing in its biggest city, Auckland.

Announcing its decision, the RBNZ said further removal of monetary policy stimulus was expected, with future moves depending on the medium-term outlook for inflation and employment.

The rate hike puts New Zealand ahead of most other developed economy nations as central banks look to wind back emergency-level borrowing costs, although countries including Norway, the Czech Republic and South Korea have already raised rates.

The central bank said headline CPI inflation is expected to increase above 4% in the near-term but return towards its 2% midpoint over the medium term.

Recent COVID-19 restrictions have not materially changed the medium-term outlook for inflation and employment, and economic activity will recover quickly when the measures are eased, it added.

But economists said the RBNZ may not race ahead with its hiking cycle in view of the current global uncertainty and the Delta variant outbreak dragging on in Auckland.