CFD Markets News and Forecasts — 09-06-2021

The Commerce Department announced on Wednesday the U.S. wholesale inventories rose 0.8 percent m-o-m in April, being in line with the preliminary estimate of a 0.8 percent m-o-m advance. This was the smallest monthly gain since December 2020.

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

In March, wholesale inventories rose 1.2 percent m-o-m (revised from 1.1 percent).

According to the report, durable goods inventories increased 0.7 percent m-o-m in April, while stocks of nondurable goods went up 0.9 percent m-o-m.

In y-o-y terms, wholesale inventories surged 5.2 percent in April.

The U.S. Energy Information Administration (EIA) revealed on Wednesday that crude inventories tumbled by 5.241 million barrels in the week ended June 4, following a plunge of 5.080 million barrels in the previous week. Economists had forecast a drop of 2.036 million barrels.

At the same time, gasoline stocks surged by 7.046 million barrels, while analysts had expected a build of 0.698 million barrels. Distillate stocks rose by 4.412 million barrels, while analysts had forecast an advance of 1.358 million barrels.

Meanwhile, oil production in the U.S. increased by 200,000 barrels a day to 11,000 million barrels a day.

U.S. crude oil imports averaged 6.6 million barrels per day last week, increased by 1.0 million barrels per day from the previous week.

The Bank of Canada (BoC) maintained its benchmark interest rates unchanged at 0.25 percent on Wednesday, as expected.

In its policy statement, the Canadian central bank noted:

• With COVID-19 cases falling in many countries and vaccine coverage rising, global economic activity is picking up. Growth remains uneven across regions, however;
• Financial conditions remain highly accommodative, reflected in broadly higher asset prices;
• Commodity prices have risen further, notably oil, and the Canadian dollar has seen a further appreciation;
• Economic developments in Canada have been broadly in line with BoC’s outlook in April Monetary Policy Report (MPR);
• Renewed lockdowns associated with coronavirus third wave are dampening economic activity in the second quarter, largely as anticipated;
• The Canadian economy is expected to rebound strongly, led by consumer spending;
• CPI inflation has risen to around the top of the 1-3 percent inflation-control range, due largely to base-year effects and much stronger gasoline prices; Core measures of inflation have also risen, due primarily to temporary factors and base year effects, but by much less than CPI inflation;
• While CPI inflation will likely remain near 3 percent through the summer, it is expected to ease later in the year, as base-year effects diminish and excess capacity continues to exert downward pressure;
• BoC’s Governing Council judges that there remains considerable excess capacity in the Canadian economy and that recovery continues to require extraordinary monetary policy support;
• We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved; this happens sometime in the second half of 2022, according to BoC’s April projection;
• BoC is continuing its QE program to reinforce this commitment and keep interest rates low across yield curve;
• Decisions regarding adjustments to the pace of net bond purchases will be guided by Governing Council’s ongoing assessment of strength and durability of recovery;
• We will continue to provide appropriate degree of monetary policy stimulus to support recovery and achieve inflation objective.

• But the EU’s patience is wearing thin
• Northern Ireland (NI) protocol is the best solution to Brexit problems
• Full implementation of the withdrawal agreement is a condition for trust
• Where there is a will, there is a way
• If UK takes any unilateral action, EU will react swiftly
• Cross-retaliation could mean quotas and tariffs
• UK has to abide by its legal obligations on border controls
• There is no other way around this
• We will not accept discrimination of EU citizens

U.S. stock-index futures rose moderately on Wednesday, as growth stocks continued to draw support from another drop in long-term Treasury yields, while the overall market sentiment remained cautious ahead of tomorrow’s release of the U.S. key inflation data.

Global Stocks:

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

Goldman Sachs (GS) initiated with a Buy at Jefferies; target $450

Morgan Stanley (MS) initiated with a Buy at Jefferies; target $108

FXStreet reports that an economist at UOB Group Ho Woei Chen, CFA, reviews the latest Chinese trade data.

“China’s export and import growth were robust in May although both were slightly below consensus expectation, giving rise to concerns that export demand has topped out. The real test will be in 2H21 when the base effect disappears and it is unclear whether the strength in external demand for goods will be sustained beyond the initial boost from the reopening of economies.”

“In USD-terms, exports rose by 27.9% y/y (Bloomberg est: +32.1% y/y; Apr: +32.3% y/y) while imports grew at its fastest pace in more than a decade at 51.1% y/y (Bloomberg est: 53.5% y/y; Apr: 43.1% y/y), helped by high commodity prices as well as a low comparison base. China’s trade surplus edged up to a 4-month high of US$45.53 bn in May from US$42.86 bn in April.”

“Despite the trade tensions, China’s trade with the US has continued to grow. China’s export and imports with the US rose by 20.6% y/y and 40.5% y/y respectively in May with its trade surplus widening to US$31.78 bn from US$28.11 bn in April.”

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. fell 3.1 percent in the week ended June 4, following a 4.0 percent drop in the previous week. This marked the third consecutive weekly decline in total mortgage application volume.

According to the report, refinance applications decreased 5.1 percent, while applications to purchase a home rose 0.3 percent.

Meanwhile, the average fixed 30-year mortgage rate dropped from 3.17 percent to 3.15 percent, the lowest in three weeks.

“With fewer homeowners able to take advantage of lower rates, the refinance share dipped to the lowest level since April,” noted Joel Kan, MBA’s associate vice president of economic and industry forecasting.

USD fell against its major rivals in the European session on Wednesday as investors awaited the Labor Department's report on the U.S. consumer prices in May, set to be released on Thursday. 

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, dropped 0.11% to 89.98.

It is expected that the May inflation readings may provide hints on the time frame for Fed paring back its bond-buying program and the prospects of interest rate hikes in the U.S. The Federal Reserve's policymakers have continued to reassure that any jumps in inflation as the U.S. economy rebounds from the COVID-19 pandemic will be transitory. Economists forecast the headline CPI rose 4.7% y/y in May, following a 4.2% climb in the previous month that was the highest in nearly 13 years. The fear is that if the economy runs too hot and inflation runs too high the Fed’s policymakers may start tightening sooner than expected.

Meanwhile, market participants assessed the data from China, which showed that factory gate prices in the country climbed  9% y/y in May, the fastest pace since September 2008.

FXStreet notes that gold is consolidating. Notwithstanding, XAU/USD stays neutral to bullish while above the $1857 level, Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, reports.

“Gold’s high of $1916.91 has not been confirmed by the daily RSI and the market has basically been consolidating ever since. The move has held over the two-month uptrend at $1862 and last week’s low at $1857 and while underpinned here we will continue to favour the topside.” 

“Longer-term, we target the $1959/65 November 2020 high and the 2021 high. These guard the 1989/78.6% retracement and the $2072 2020 peak. Longer-term, we believe that this will also be overcome.” 

“Key support is the $1722 2091-2021 uptrend. While above here we will assume a longer-term upside bias.”

FXStreet reports that economists at ING suggest that since the ECB officials already adjusted market expectations for the European Central Bank meeting tomorrow and no tapering is expected, the impact on EUR/USD should be limited. On balance, risks are skewed to modestly higher EUR/USD as expectations are low and communication missteps cannot be ruled out.

“Given the expectations of no change in guidance on asset purchases, the balance of risks is modestly skewed to a higher EUR, should the press conference not reiterate the tapering on hold message strongly enough or deliver some communication missteps. While not our base case, the probability of this outcome is higher than of an even more dovish message vs the current already cautious market expectations. Hence the balance of risks is skewed to modestly higher EUR/USD, even if our base case is for a largely unaffected euro after the meeting.”

“We note that comments from Banque de France Governor, Villeroy de Galhau, in late May did coincidentally put a top in EUR/USD at 1.2250. He said the ECB would be as least as patient as the Fed.”

• Retreat to be held in Frankfurt on June 18-20
• It aims for major progress in the bank's strategy review but a conclusion is not certain
• Review will redefine the bank's inflation target and could define new roles for the ECB in fostering equality and fighting climate change

FXStreet reports that UOB Group’s FX Strategists see the upside in USD/CNH meeting solid hurdle at the 6.4150 level in the near-term.

24-hour view: “USD rose to 6.4020 yesterday before closing on a relatively firm note at 6.4005 (+0.24%). Despite the advance, upward momentum has not improved by much and USD is unlikely to strengthen much further. For today, USD is more likely to trade between 6.3900 and 6.4050.”

Next 1-3 weeks: “While shorter-term momentum has not improved by much, the underlying tone for USD appears to be firm and the bias is for USD to edge higher. That said, any advance is expected to face solid resistance at 6.4150.”

FXStreet reports that analysts at Mizuho note that commodity prices rose again in the latter half of May, so the Canadian dollar was bought and the USD/CAD pair moved in a range between 1.20 and 1.21. In June, the USD/CAD pair is expected to move in a range from 1.19-1.25.

“Investors have more-or-less priced in a recovery in crude oil demand as the covid crisis is brought under control, so crude oil prices will probably move heavily on the topside. If Iran starts exporting crude oil again, crude oil prices may well fall. These prices will probably swing higher and lower on headlines related to COVID-19 or crude oil inventories and supply structures, with WTI moving between $55 to $65/barrel.” 

“From here on, the foreign exchange markets will also be impacted substantially by expectations about the timing of tapering and rate hikes in Canada, the US and other major countries. Attention will focus on FRB comments about tapering in June. However, Canada has already begun a phased tapering of its QE program.”

“With vaccines also being rolled out, the Canadian economy looks set to recover steadily from here on. As such, the USD/CAD pair could dip below 1.20 in June, with the pair expected to move in a range between 1.19-1.25.” 

FXStreet reports that the Credit Suisse analyst team expects that lower US Real Yields should help XAU/USD.

“Gold has seen its expected pullback to its 200-day average, now at $1841 and this is holding as expected. We stay biased higher and look for this to continue to hold for a move to resistance seen at the high for the year, November 2020 high and potential trend resistance at $1943/66.” 

“Whilst we would expect $1943/66 to cap again for now to maintain the broader consolidation range, an eventual break should open the door to a move back to the $2075 record high.”

“A close below $1841 would reinforce a sideways trend but with a move below $1809/05 needed to warn of a retest of the ‘neckline’ to the recent base at $1765/55.”

Reuters reports that Finance Minister Bruno Le Maire said that France expects to raise several billions of euros in extra revenue from a global minimum tax rate currently being negotiated internationally.

Le Maire and his counterparts from the Group of Seven powers agreed on Saturday to support a minimum rate of at least 15%.

Asked how much the minimum tax would yield in France, Le Maire said: “It’s still a bit hard to evaluate, but it’s several billion euros per year.”

A separate pillar of the international talks is focused on how to share out among different countries the right to tax the 100 biggest companies whose profits are considered to be beyond a normal level.

Le Maire said that, under this pillar, France could expect to see 500 million to 1 billion euros in extra tax revenue whereas its existing digital services tax, which Paris has promised to repeal once there is an international deal, generates about 450 million euros per year.

FXStreet reports that economists at OCBC Bank discuss GBP prospects.

“The GBP/USD remains broadly static towards the lower end of the recent range. Uncertainties over the reopening continue to weigh at the margins, with the UK government looking to delay the decision by another week to get more evidence. Any disappointment on this front may be short-lived, and present an opportunity to accumulate the GBP on crosses. There is scope for the Bank of England to be the next central bank to lean less dovish, especially in comparison to the Reserve Bank of Australia and the European Central Bank.”

CNBC reports that veteran investor Mark Mobius has warned that market volatility and the next moves by central banks have to be watched “very carefully,” describing “crazy moves” in assets such as bitcoin as being driven by “disorientation and confusion.”

Market speculation over when central banks, and particularly the U.S. Federal Reserve, could begin to taper asset purchases, has been rife for months given a nascent recovery from the coronavirus pandemic and the specter of rising inflation.

Mark Mobius, founder partner of Mobius Capital Partners, told that central bank moves have to be watched closely.

“Any pullback in the money supply as a result of central banks pulling back will be, I think, very bad for the markets. So I think we have to watch this very carefully,” Mobius told.

“We’re in a very uncertain time, that’s for sure,” he added.

Mobius believed that risk-taking behavior among investors and market volatility was down to confusion.

“A lot of people have cash in hand that they want to do something with, and secondly, a lot of people are confused. The fact that they’ve seen bitcoin, which they had so much faith in, go down the way it’s gone down confuses people,” he said.

“So you have a funny situation with a lot of money in their pocket and lots of confusion and disorientation, so I think that’s what driving a lot of these crazy moves in the market.”

Nonetheless, Mobius believed markets could still travel higher if central banks don’t pull the plug on asset purchase programs too soon.

Bloomberg reports that according to Chief Economist Andy Haldane, the U.K. economy is “going gangbusters” at the moment and the Bank of England may need to consider turning off the monetary stimulus tap to keep inflation in check.

Haldane said it was “hard to find anything whose price isn’t going up at the moment” and it was important to stop any temporary blip in inflation from becoming embedded.

He added that it was important the U.K. didn’t become too dependent on “monetary medicine.”

“It is the case that growth across the U.K. is picking up a real rate of knots, going gangbusters actually the economy just at the moment, and that’s a great thing to see,” he said. There are “pretty punchy pressures on prices” he said, adding “that may mean at some stage, we need to start turning off the tap when it comes to the monetary policy support we’ve been providing.”

FXStreet reports that Strategists at Credit Suisse discuss Brent Oil prospects. 

“Brent Crude Oil has now finally broken out from a further ‘triangle’ continuation pattern that has been forming since March and is now challenging the key 2019 and 2020 highs at $71.75/95. A weekly close above here would reinforce the existing ‘flag’ and now also ‘triangle’ pattern, whilst also suggesting we are seeing a much larger, longer-term base.” 

“We stay bullish for a clear break higher, with resistance above $71.95 seen next at $75.60, above which can reinforce a broader basing story for our original core bull ‘flag’ target at $79.10 and now we think the ‘measured triangle objective’ at $82.50.”

“Bigger picture, above $82.50 can expose the 2018 high at an even more distant $86.74 next, which we expect to cap the market at least temporarily.”

Reuters reports that a government source told that Germany plans to extend economic aid for companies hit by the coronavirus pandemic until the end of September.

The aid, which companies can claim if they can prove their revenues have collapsed due to the crisis, had been due to expire at the end of June.

Economy Minister Peter Altmaier has said he favours an extension until the end of the year so that it does not become an issue in the federal election in September.

FXStreet reports that economists at Credit Suisse remain constructive on CAD ahead of today’s Bank of Canada rate decision. 

“We suspect that the weaker-than-expected May employment data, against the backdrop of a market well-positioned for CAD strength, might have been the culprit behind the divergence between the loonie and energy prices. The slight pullback in BoC tightening expectations over the coming 3 years from a 151bp to 138bp (as implied by forward OIS markets) is somewhat consistent with this view.”

“Ahead of today’s BoC interest rate decision, our constructive bias on CAD remains intact, and we see limited risks around today’s rate decision. We do not anticipate any new tapering announcements today, and do not see a high risk of a downgrade in forward guidance, as inflation, growth and vaccination data remain largely in line with the April MPR assumptions, despite the recent weak employment data.” 

“The rapid pace of Covid vaccinations and the recently announced reopening plans across Canada suggest that the BoC’s call for an H2 rebound in employment remains valid.” 

During today's Asian trading, the US dollar was trading steady against major currencies as investors awaited the release of US inflation data and a meeting of the European Central Bank (ECB) to assess the pace of the global economic recovery and policy makers ' thoughts on abandoning stimulus.

Investors are betting against the dollar, but are increasingly nervous about whether the end of the huge monetary stimulus is approaching, and fear that an interest rate hike could end the dollar's 15-month downward trend.

Some think tapering could be hastened, and the dollar boosted, if U.S. inflation runs hotter than the 0.4% monthly clip that economists expect. For the ECB, the focus is on any signs of an imminent slowdown to its bond buying programme.

Sterling has also stalled as doubt has crept in over whether rising cases of the coronavirus' Delta variant in Britain could delay business reopening plans scheduled for June 21.

The ICE index, which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell by 0.01%.

FXStreet reports that S&P 500 has been in its expected consolidation phase following the move to 4200 back in late April. The base case of the Credit Suisse analyst team has been that this would be a temporary pause within the core bull trend.

“With near-term momentum turning higher, the consolidation phase in the S&P 500 around our 4200 Q2 objective may be coming to an end to suggest we may be getting closer to seeing a resumption of the core uptrend. Above the 4238 current high remains needed to confirm though, with the upper end of the ‘typical’ extreme (15% above the 200-day average) now at 4330, just ahead of our 4350 next objective. Whilst we would look for this to cap for a fresh phase of consolidation, above in due course can see resistance next at 4436.”

EUR/USD

Resistance levels (open interest**, contracts)

$1.2276 (787)

$1.2255 (478)

$1.2238 (358)

Price at time of writing this review: $1.2180

Support levels (open interest**, contracts):

$1.2127 (512)

$1.2098 (1371)

$1.2065 (911)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 8 is 35216 contracts (according to data from July, 9) with the maximum number of contracts with strike price $1,1650 (3885);

GBP/USD

$1.4257 (411)

$1.4235 (255)

$1.4205 (146)

Price at time of writing this review: $1.4171

Support levels (open interest**, contracts):

$1.4057 (315)

$1.3996 (328)

$1.3959 (2974)

Comments:

- Overall open interest on the CALL options with the expiration date July, 9 is 12251 contracts, with the maximum number of contracts with strike price $1,4500 (3531);

- Overall open interest on the PUT options with the expiration date July, 9 is 13683 contracts, with the maximum number of contracts with strike price $1,4000 (2974);

- The ratio of PUT/CALL was 1.12 versus 1.12 from the previous trading day according to data from June, 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.

Reuters reports that China's factory gate prices rose at their fastest annual pace in over 12 years in May, driven by surging commodity prices, highlighting global inflation pressures at a time when policymakers are trying to revitalise COVID-hit growth.

China's producer price index (PPI) increased 9.0%, as prices bounced back from last year's pandemic lows. The PPI rise was driven by significant price increases in crude oil, iron ore and non-ferrous metals, the NBS said. Analysts had expected the PPI to rise 8.5% after a 6.8% increase in April.

On a monthly basis, the PPI rose 1.6%, up from a 0.9% uptick in April.

Prices for commodities including coal, steel, iron ore and copper, which affect the PPI, have surged this year, fuelled by post-lockdown recoveries in demand and ample global liquidity.

NBS data also showed China's consumer price index (CPI) rose 1.3% in May in annual terms, up from a 0.9% gain in April but lower than the 1.6% forecast.

Food inflation rose 0.3% in May from a year earlier on higher prices for freshwater fish and eggs, despite still falling pork prices. That compared with a 0.7% drop in food prices in April.

Non-food prices, including airfares, gasoline and diesel prices, accelerated to 5.5%, likely bolstered by China's Labour Day Holiday at the start of May.

According to the provisional data from the Federal Statistical Office (Destatis), in April 2021, German exports were up 0.3%, while imports were down 1.7% on a calendar and seasonally adjusted basis compared with March 2021. Destatis also reports that, after calendar and seasonal adjustment, exports were 0.5% lower and imports 5.5% higher than in February 2020, the month before restrictions were imposed due to the coronavirus pandemic in Germany.

Germany exported goods to the value of 111.8 billion euros and imported goods to the value of 96.3 billion euros in April 2021. Compared with April 2020, exports increased by 47.7%, and imports by 33.2% in April 2021. This rise is also due to the very low level of foreign trade in the comparison month (base effect).

The foreign trade balance showed a surplus of 15.5 billion euros in April 2021. In April 2020, the surplus amounted to 3.4 billion euros. The calendar and seasonally adjusted surplus of April 2021 was 15.9 billion euros.

The German current account of the balance of payments showed a surplus of 21.3 billion euros in April 2021, which takes into account the balances of trade in goods (+16.7 billion euros), services (+2.1 billion euros), primary income (+6.5 billion euros) and secondary income (-3.9 billion euros). In April 2020, the German current account showed a surplus of 10.0 billion euros.