CFD Markets News and Forecasts — 09-04-2020

FXStreet notes that the lockdown currently in force in most European countries has dire economic consequences.  Sentiment indicators suggest a sharp contraction of economic activity, most heavily in southern member states and the service sector, per Rabobank.

“If the lockdown ends on 1 June we project a contraction of 5.2% for the Eurozone. If the lockdown is extended till 1 August, we project a contraction of 12.0%.”

“We believe that in the Eurozone as a whole unemployment will rise over the current quarters, to average 9% in 2020 as a whole, compared to 7.5% in 2019.”

“We assume that other avenues than debt mutualisation will be used to finance programmes. This may include ESM credit lines and additional room in the EU budget.”

• Sees Q2 GDP to be very weak
• Expects recovery in the second half of the year
• Says inflation is not "first-order concern" for Fed right now
• Many people need direct fiscal support
• Does not believe banks need to suspend dividends

Russia and Saudi Arabia have removed main obstacles related to production cuts, a senior Russian source told Reuters today.
Report also suggests cuts could be as large as 20 million barrels per day.

FXStreet reports that economists at TD Securities note that March Labour Force Survey revealed record-breaking job losses, with over 1m Canadians newly unemployed during the month. USD/CAD drifted lower on the news.

“The labour market shed 1 million jobs in March, with the unemployment rate rising by more than 2 p.p. to 7.8%.”

“Despite the unprecedented drop in employment, the initial reaction in USD/CAD has been complicated by the simultaneous announcement from the Fed of new lending programs. This, alongside looming OPEC news today and tomorrow complicates the reaction in USD/CAD.”

“We think that dips in USD/CAD should be bought; 1.40 is the ‘effective floor’ with 1.3920/50 being major support.”

• Market conditions generally improved after Fed actions
• Fed loans are secured and have expectation of prepayment
• Fed has lending, not spending power
• There will be entities that need direct fiscal support rather than a loan they would struggle to repay
• We are doing all we can to help shepherd economy through this difficult time
  
• We entered this turbulent period on a strong economic footing, and that should help support the recovery
  
• Unemployment likely to temporarily rise very high

A report from the University of Michigan revealed on Thursday the preliminary reading for the Reuters/Michigan index of consumer sentiment fell to 71.0 in early April. That was the lowest reading since October of 2016.

Economists had expected the index would decrease to 75.0 this month from March's final reading of 89.1.

According to the report, the index of current U.S. economic conditions plunged to 72.4 in April from 103.7 in the previous month. Meanwhile, the index of consumer expectations fell to 70.0 this month from 79.7 in March.

FXStreet reports that Jennifer Lee, a Senior Economist at the Bank of Montreal, recaps the Initial Jobless Claims released by the US.

“The number of Americans filing for UI for the first time slipped for the first time in about a month but considering that total initial filings were still a towering 6.606 mln in the week of April 4, the 261,000 decline was barely noticeable in the grand scheme of things.”

“Those who remain on UI (continuing claims) surged 4.396 mln to 7.455 mln in the last week of March, clearly a record. And this stretch of UI claims measured in the millions isn't going to end in the next few weeks. 

“Interesting timing that the Federal Reserve unexpectedly announced a huge $2.3 trln of support to backstop Main Street this morning.”

“Look for that double-digit jobless rate in the April payroll report next month.”

Canada sheds 1,010,700 new jobs in March; unemployment rate climbs to 7.8 percent

Statistics Canada reported on Thursday that the number of employed people fell by 1,010,700 m-o-m in March (or -5.3 percent m-o-m), while economists had forecast a drop of 350,000 and after an unrevised advance of 30,300 in the previous month. The employment decline in March was larger than in any of three significant recessions experienced since 1980, the report noted.

Meanwhile, Canada's unemployment surged to 78 percent in March from 5.6 percent in February, significantly exceeding economists' forecast for 7.2 percent. This was the highest jobless rate since October 2010.

According to the report, full-time employment decreased by 474,000 (or -3.0 percent m-o-m) in March, while part-time jobs declined by 536,700 (or -15.0 percent m-o-m).

In March, the number of public sector employees fell by 144,600 (or -3.7 percent m-o-m), while the number of private sector employees tumbled by 830,200 (or -6.7 percent m-o-m). At the same time, the number of self-employed dropped by 7,700 (or -1.2 percent m-o-m) last month.

Sector-wise, employment declined both in goods-producing (-1.2 percent m-o-m) and service-producing (-6.3 percent m-o-m) businesses.

FXStreet reports that Benjamin Tal and Taylor Rochwerg from CIBC Capital Markets look at what to expect from the Canadian economy on a 3-month view.

“It’s reasonable to assume that after falling by 28% in the second quarter, economic growth will return to positive territory in the third quarter, but a V-shaped recovery is simply not in the cards.”

“Overall GDP growth is projected to rise by close to 17% during the third quarter, while construction activity will also rebound to a still-historically low level of activity.”

“We expect household spending to grow by close to 10% in the third quarter, as many stores reopen, and pent-up demand is released.”

“While we see some rebound in overall economic activity, we might see a slower reaction in the improvement in the unemployment rate, which we expect to remain elevated in the third quarter.”

U.S. stock-index futures rose on Thursday after the U.S. Fed announced a fresh round of stimulus of $2.3 trillion to support the economy and weekly jobless claims data showed a drop.

Global Stocks:

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

In its release, the Fed said that this funding would "assist households and employers of all sizes and bolster the ability of state Today's Fed actions will:

• Bolster the effectiveness of the Small Business Administration's Paycheck Protection Program (PPP) by supplying liquidity to participating financial institutions through term financing backed by PPP loans to small businesses;
• Ensure credit flows to small and mid-sized businesses with the purchase of up to $600 billion in loans through the Main Street Lending Program;
• Increase the flow of credit to households and businesses through capital markets, by expanding the size and scope of the Primary and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF) as well as the Term Asset-Backed Securities Loan Facility (TALF); These three programs will now support up to $850 billion in credit backed by $85 billion in credit protection provided by the Treasury; and
• Help state and local governments manage cash flow stresses caused by the coronavirus pandemic by establishing a Municipal Liquidity Facility that will offer up to $500 billion in lending to states and municipalities. The Treasury will provide $35 billion of credit protection to the Federal Reserve for the Municipal Liquidity Facility using funds appropriated by the CARES Act.

The Labor Department reported on Thursday the U.S. producer-price index (PPI) fell 0.2 percent m-o-m in March, following an unrevised 0.6 percent m-o-m drop in February.

For the 12 months through March, the PPI increased 0.7 percent, decelerating from 1.3 percent in the previous month.

Economists had forecast the headline PPI would decrease 0.4 percent m-o-m but rise 0.5 percent over the past 12 months.

According to the report, the February decline in the final demand index can be traced to a 1.0-percent m-o-m fall in prices for final demand goods. Meanwhile, the index for final demand services increased 0.2 percent m-o-m.

Excluding volatile prices for food and energy, the PPI rose 0.2 percent m-o-m and surged 1.4 percent over 12 months. Economists had forecast no change m-o-m and a gain of 1.2 percent y-o-y.

U.S. weekly jobless claims climb more than forecast

The data from the Labor Department revealed on Thursday the number of applications for unemployment benefits jump more than forecast last week as the jobless rolls continued to increase due to the coronavirus shutdown

According to the report, the initial claims for unemployment benefits climbed by 6,606,000 for the week ended April 4. That brings the number of job losses over the past three weeks to 16.8 million.

Economists had expected 5,250,000 new claims last week.

Claims for the prior week were revised upwardly to 6,867,000 from the initial estimate of 6,648,000.

Meanwhile, the four-week moving average of claims jumped to 4,265,500 from 2,666,75o in the previous week.

• PM has a good night and continues to improve in intensive care at St Thomas's hospital
• PM is in good spirits
• PM continues to receive standard oxygen treatment
• PM is able to be in contact with No. 10 if required

GBP rose against its major counterparts in the European session on Thursday, despite the Office for National Statistics' (ONS) report revealing a surprise drop in the UK's economy in February, even before the implementation of the measures to combat the spread of the coronavirus.

According to the report, the UK's GDP edged down 0.1 percent m-o-m in February, reversing the January increase. Economists had forecast a 0.1 percent m-o-m growth. The service sector was flat m-o-m in February after rising 0.1 percent m-o-m in January. Meanwhile, the industrial production rose 0.1 percent m-o-m driven by a 0.5 percent m-o-m gain in manufacturing. Construction output dropped 1.7 percent m-o-m as wet weather and flooding hampered house building. In y-o-y terms, the economy expanded by

In three months to February, GDP grew 0.1 percent, after being unchanged in three months to January. The was slightly below economists' forecast for a 0.2 percent expansion.

Another report from the ONS showed that the UK's trade deficit widened from GBP 2.41 billion in January to GBP 2.79 billion, the highest level since May 2019. Exports of goods tumbled 5.8 percent m-o-m in February, while imports surged 3.0 percent m-o-m.

Markets also continue to closely watch updates on the UK PM Johnson's condition. The PM's spokesman said on Thursday: "Boris Johnson has a good night and continues to improve in intensive care at St Thomas's hospital. He is in good spirits." He also added that the PM continues to receive standard oxygen treatment and is able to be in contact with his office if required.

FXStreet reports that in the opinion of Patrick Artus from Natixis, mutualising the financing of economic recovery and strategic onshoring for the entire euro zone after the coronavirus crisis is obviously a good idea.

“Mutualisation would make it possible to finance persistently large fiscal deficits without any risk of a debt crisis, and would send a positive political signal.”

“For such mutualisation to be accepted by all countries, very rigorous governance and project selection will be required.”

“The bond market's capacity to absorb even euro-zone debt is not unlimited. Long-term interest rates were rising even in the core euro-zone countries prior to the announcement of the ECB’s interventions, due to expectations of large fiscal deficits.”

In its account of the March policy decisions, the ECB noted:

• Economic situation was seen to be deteriorating sharply, with nearly all euro area countries in full containment mode owing to the rapid spread of the coronavirus
• Uncertainty on economic front was creating severe strains in the financial markets
• Reservations were, however, expressed by some members with regard to the proposed communication on the issue share and issuer limits
• All members agreed that a further forceful monetary policy response was warranted
  
• Broad support was expressed for the package of measures proposed by Mr. Lane, with some nuances of views regarding specific elements of the proposal
  
• A strong response was also seen to underline the credibility of the ECB's commitment to use all of its monetary policy instruments to prevent destabilising and self-perpetuating spirals
  
• There was unanimous agreement that bold and decisive action was needed to counter the serious risks posed by the rapidly spreading coronavirus
• There appeared to be sufficient scope in the evolution of the purchasable universe to avoid a premature discussion on a possible lifting of these limits
• A strong response was also seen to underline the credibility of the ECB's commitment to using all of its monetary policy instruments
• A large majority of members supported the proposal by Mr lane to launch a new pandemic emergency purchase programme (PEPP)
• Members broadly supported the proposal that purchases would be conducted in a flexible manner

FXStreet reports that according to analysts at Westpac Institutional Bank, the failure of Eurogroup to find fiscal cooperation could raise existential issues for EUR once COVID-19 crisis subsides even if a plateau in cases eases immediate EUR pressure.

“The current impasse over how to provide a blanket level of support will only inflame such potential rifts unless it can be broken quickly.”

“Despite the massive measures taken by global central banks, short term funding mechanisms continue to show strain into the Easter weekend.”

“If the EU fails to find a solution into next week, funding squeezes are likely to add on EUR strains and force a retest of recent EUR/USD lows (1.0635-50).”

• Says he does not expect quick recovery of oil demand
  
  

FXStreet reports that while the outlook for 2020 remains sketchy, heavily dependent on non-economic factors, economists at Rabobank expect the US GDP to fall by 6% in 2020. 

“With a slowdown in February and a sharp contraction of the economy in March, we expect GDP growth in Q1 to be negative (-5% quarter on quarter at an annualized rate).”

“The most extreme economic growth figure is likely to be Q2 GDP growth with the lockdown continuing through at least April and likely May. If we look at the industries affected, we estimate that GDP growth could fall by 31% quarter-on-quarter at an annualized rate.”

“We estimate that the rebound would be 14% quarter-on-quarter at an annualized rate in Q3. This is still another unusually large number, but it is the echo of the supply effect in Q2, muted by demand constraints.”

“We expect a modest decline in GDP growth of 1% in Q4. That would give us a W-shaped recovery or even a double-dip recession. If we look at the year as a whole we expect -6% growth in 2020.”

“We expect 8.5% unemployment by the end of the year.”

FXStreet reports that analysts at ANZ Bank take a look at the AUD/USD outlook for the next week.

“Shifting risk dynamics around COVID-19 have put downside pressure on the AUD, which is closely linked to activity in Asia via tourism and the export of raw materials.” 

“The near-term prospects for the AUD are therefore likely to hinge on transmission rates and the scale of the activity slowdown.”   

“Spot: 0.62 ANZ Fair value: 0.64”.

• Immoral for countries not to stick to rule in good times and demand solidarity in bad times
• I believe there can be agreement at Eurogroup if all make a step towards each other, Austria is willing to
• Euro bonds remain out of the question for us

This is less than the number of new cases reported yesterday (6,180). Meanwhile, the death toll increased by 683 to 15,238. This is a decline from the 757 new deaths reported yesterday.

• Says Russia backs joint, coordinated action to steady oil market
• Says that a deal can hardly happen without other countries joining

Reuters reports that Federal Reserve Chair Jerome Powell - one of the key architects of the unprecedented effort underway to shield the U.S. economy from the coronavirus outbreak - may shed more light on the Fed's assessment of the still-unfolding crisis in a live webcast on Thursday.

Hosted by the Brookings Institution in Washington, Powell will deliver prepared remarks at 1400 GMT and then participate in a virtual question and answer session to discuss the Fed's moves last month to slash interest rates and enact a wide array of emergency measures.

Minutes released Wednesday from the Fed's March meetings show the U.S. central bank's officials encountered little disagreement over policy choices as they launched a historic economic rescue plan. However, officials also faced uncertainty over the risks confronting them and as they tried to stay ahead of the rapidly spreading virus and anticipate its effects on the world's largest economy.

FXStreet reports that the responses to the coronavirus outbreak moved with astonishing speed over March, and before the end of the month New Zealand had joined several other countries in a virtual lockdown. This was the right decision to save lives, but the economic cost will be severe, in the opinion of Michael Gordon from Westpac.

"We estimate that New Zealand GDP will fall by 1% in the March quarter and 14% in the June quarter."

"The end of the lockdown will allow a large jump in economic activity as businesses reopen and as some catch up activity occurs. We are forecasting a 10% lift in GDP for the September quarter, although that would still leave the economy 5% smaller than at the start of the year."

"We expect the unemployment rate to peak at 'only' 9% this year."

"We estimate that Government borrowing will increase by around $70bn over the next four years, which would see the net debt to GDP ratio rise from 18.5% now to 40% by mid-2022."

FXStreet reports that China's Renminbi is likely to see significant gains against the US dollar, in the opinion of analysts at Westpac Institutional Bank.

"From around 7.00 at June, we expect a moderate appreciation in the Renminbi, to 6.85 end-2020 and then 6.60 end-2021."

"The justification for this view is first the strong progress China has made in removing the threat of COVID-19 from its shores and getting industry back to work. And second, as we move into 2021, their structural development story becoming more apparent, bolstering gains."

According to the report from Istat, in February 2020 the seasonally adjusted industrial production index decreased by 1.2% compared with the previous month. The change of the average of the last three months with respect to the previous three months was -0.8%.

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 decreased by 2.4% compared with February 2019 (calendar working days in February 2020 being the same as in February 2019).

The unadjusted industrial production index decreased by 1.8% compared with February 2019.

FXStreet reports that the Japanese government took measures to reduce the spread of the illness and as cases grew outside Asia the JPY's safe-haven appeal subsequently reasserted itself, economists at Rabobank brief.

"The downtrend in EUR/JPY that has been in place since the start of the year is consistent with the build-up of risk aversion in the market in response to the coronavirus."

"We continue to favor the JPY vs. the EUR in the current climate and look for further downside in EUR/JPY in the coming months towards 113.4 on a 3-month view."

FXStreet reports that the US dollar strength could be justified against Europe, the UK, and Asia by the US having limited exposure to COVID-19. This is no longer the case, with almost 30% of global COVID-19 cases now found in the US. Yet the US dollar still remains well bid, per Westpac Institutional Bank.

"We look for Sterling to find a low against the US dollar in the June quarter at 1.22 and to then slowly rise to 1.27 end-2021."

"Euro will likely take longer to trough given the risks before the region and the limited economic momentum it carried into this crisis. But still, from 1.06 in the second half of 2020, a steady climb to 1.10 will occur by end-2021."

"The Japanese yen is expected to be a countervailing force to the above, with USD/JPY expected to fall from 108 currently to 105 at September. From October, the pair should begin to trade back towards 110 at end-2021."

eFXdata reports that Bank of America Global Research discusses its expectations for US initial jobless claims for the week ending April-4.

"Last week we released our initial forecast of 6.5mn for initial jobless claims during the week ending April 4. After reviewing data from local news reports to gather an assessment by state, we think that 6.5 million claims is a reasonable forecast," BofA notes.

"For 16 states, we found either specific information or enough to back out an implied number, calculating a total of 2.3mn for the upcoming report which matches the week ending March 28 for these 16 states. Assuming the other states we don't have information on comes in similar to the week prior, we are on track for close to 6.5 million jobless claims,"BofA adds.

CNBC reports that the U.S. needs more "helicopter money" to help its economy recover from the effects of the coronavirus pandemic, said Anthony Scaramucci, a hedge fund investor who briefly served as President Donald Trump's White House communications chief.

Helicopter money refers to a last resort type of monetary stimulus, which involves printing large sums of money and distributing it to the public to encourage people to spend more and thus, boost the economy.

"I think they need to put up more helicopter money," Scaramucci, founder and co-managing partner of Skybridge Capital, told CNBC.

He added that his firm's calculations showed that each adult should get $3,000 and each child $1,500. That would be more than the $1,200 and $500, respectively, already announced as part of a $2 trillion fiscal stimulus package.

In addition to fiscal measures, the U.S. Federal Reserve has cut interest rates close to zero and pledged to purchase assets "in the amounts needed." Those are moves that have injected a lot of money into the economy, said Scaramucci.

"The Fed has injected in the last three weeks about $1 trillion dollars," he said.

That has helped investors to become more bullish, Scaramucci said, adding it could pave the way for financial markets to recover from here on.

FXStreet reports that analysts at OCBC Bank prefer to position for weakness in the EUR/USD on potential further disappointment on the fiscal rescue front.

"The inability of politicians to cobble together a coherent fiscal rescue package will inhibit any EUR/USD resurgence, especially in a time where speed and decision are key."

"Note that the bounce yesterday failed to touch 1.0900. Risk-reward probably favours downside for now, even though the USD itself is also soggy."

"Immediate downside target at 1.0833, while 1.0920 caps."

"We initiate a tactical short EUR/USD (spot 1.0856), targeting 1.0435, with a stop loss at 1.1065."

Bloomberg reports that according to ING Groep NV, oil is set to tumble back toward $20 a barrel as global producers will likely fall short of targeted cuts this week, leaving a supply overhang that will threaten to overwhelm global storage.

Oil giants including Saudi Arabia and Russia are likely only going to be able to cobble together a global agreement to curb 6 million to 7 million barrels a day of supplies, said Warren Patterson, ING's head of commodities strategy. That's more than triple what OPEC+ was cutting at the start of this year but is short of the 10 million barrels a day or more that U.S. President Donald Trump proposed last week.

It's also well shy of the loss in demand of about 15 million barrels a day in the second quarter caused by government lockdowns to stop the spread of the virus, Patterson said. Brent crude, which has already plunged 50% this year, will crater further as storage is maxed out.

ING sees Brent crude averaging $20 a barrel in the second quarter before rebounding to $45 in the fourth quarter.

Patterson doesn't think the U.S. will be given a direct mandate to cut a specific volume because of its antitrust laws, but the country will still contribute output declines as drillers halt activity because of low prices. Russia wants the U.S. to do more than an organic drop in production, but will ultimately accept it as part of a larger agreement, he said.

• There can be other forms of European solidarity, such as mutualised spending from a shared budget or a reconstruction fund

FXStreet reports that the kiwi followed AUD higher but looks vulnerable to a correction, in the opinion of analysts at ANZ Bank.

"NZD/USD consolidated on the break through 0.60 and has gone higher yet on the coattails of the AUD, which caught the bid on what some felt (we think incorrectly) that the RBA isn't all that committed to QE."

"As the reality that they are sinks in, the Antipodeans will be under pressure again but the NZD does have trade and our 'island nation' status as supports."

"Support 0.5900 Resistance 0.6100"

• The number of new confirmed cases in Germany jumped by 4,974 in the past 24 hours to a total of 108,202, according to data from the Robert Koch Institute for infectious diseases. The number of additional fatalities rose by 246 to a total of 2,107

• China's National Health Commission (NHC) reported 63 new cases and two deaths as of April 8. Of the new cases, the NHC attributed 61 to travelers from overseas.

• U.S. President Donald Trump escalated tension with the World Health Organization, once again criticizing the agency's response to the COVID-19 pandemic and threatening to withhold funding.

• Global cases: More than 1,511,104

• Global deaths: At least 88,338

• Most cases reported: United States (429,052), Spain (148,220), Italy (139,422), France (113,959), and Germany (113,296).

According to the report from Office for National Statistics, monthly gross domestic product (GDP) fell by 0.1% in February 2020. This contraction was caused by a large fall in the construction sector, despite a good performance from manufacturing for the second month in a row. Economists had expected a 0.1% increase.

GDP grew by 0.1% in the three months to February 2020, following no growth in the three months to January 2020. The services sector made the only positive contribution to gross domestic product (GDP) growth in the three months to February 2020, growing by 0.2%. Meanwhile, the production and construction sectors fell by 0.6% and 0.2%, respectively, in the same period. This is the 10th consecutive rolling three-month decline in the production sector.

Commenting on today's GDP figures for the three months to February, Rob Kent-Smith, Head of GDP, Office for National Statistics, said:

"Today's figures show that in the three months to February, which was before the full effects of Coronavirus took hold, the economy continued to show little to no growth. Most elements of the services sector grew, though manufacturing continued to decline. Construction saw a notable fall in February, as wet weather and flooding hampered housebuilding. The underlying trade balance moved into surplus in the latest 3-months, the first seen since comparable records began over 20 years ago. This surplus was caused by a large fall in goods imported from EU countries."

• Can't see any damage from Germany's coronabonds stance

• German priority is to protect euro area stability

EUR/USD

Resistance levels (open interest**, contracts)

$1.1021 (705)

$1.0993 (719)

$1.0950 (485)

Price at time of writing this review: $1.0862

Support levels (open interest**, contracts):

$1.0812 (1185)

$1.0790 (1682)

$1.0764 (1813)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date May, 8 is 63411 contracts (according to data from April, 8) with the maximum number of contracts with strike price $1,1200 (3217);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2494 (128)

$1.2466 (156)

$1.2445 (203)

Price at time of writing this review: $1.2370

Support levels (open interest**, contracts):

$1.2286 (299)

$1.2235 (569)

$1.2205 (406)

Comments:

- Overall open interest on the CALL options with the expiration date May, 8 is 13615 contracts, with the maximum number of contracts with strike price $1,2600 (948);

- Overall open interest on the PUT options with the expiration date May, 8 is 15419 contracts, with the maximum number of contracts with strike price $1,2850 (1073);

- The ratio of PUT/CALL was 1.13 versus 1.13 from the previous trading day according to data from April, 8

* - 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.