CFD Markets News and Forecasts — 10-11-2020

FXStreet reports that economists at the Bank of Montreal (BMO) stick to their forecast of 4.0% growth for the US economy in 2021 while lower the Canadian GDP growth to 5.5% in the next year. Meanwhile, the USD/CAD is forecast to drop towards 1.30. 

“Assuming President-elect Joe Biden is inaugurated on January 20 and the Republicans hold onto the Senate, we are unlikely to change our US economic call of 4.0% growth in 2021. For Canada, a Biden win could mean calmer trade relations, but possibly no Keystone XL pipeline, hurting Alberta.”

“Beyond the election, the economy's biggest threat is the coronavirus, with caseloads surging to record levels in both countries. A ray of light is that several front-running vaccines might be available by the turn of the year. Depending on their effectiveness, safety and speed of rollout, they could pave the way back to normality. ”

“A second wave of the virus is now rolling across Canada, resulting in new restrictions on indoor dining, bars and personal-care services in several provinces. Consequently, we lowered our Q4 growth forecast to 2.3% and our 2021 call to 5.5% (from the long-standing 6.0%).”

“With fewer temporary layoffs on deck, jobless rates will fall more slowly in the coming years. As a result, neither the Fed nor the Bank of Canada is expected to raise policy rates until 2024. The Canadian dollar is expected to strengthen modestly toward $1.30 by late next year, benefiting from firmer oil and commodity prices as global demand improves.”

• More fiscal and monetary accommodation is appropriate now that second wave of COVID-19 infections is underway in U.S.
• Women and minority workers are disproportionately impacted by excessive risk-taking by service sector firms
• Imbalanced human toll of COVID-19 on vulnerable workers in labor market is bad for economy and democracy
• A potential cost of Fed's new policy is that low rates encourage households and firms to take on more leverage and risk
• This is an important time to focus on preventing the buildup of financial imbalances

The Job Openings and Labor Turnover Survey (JOLTS) published by the Labor Department on Tuesday revealed a 1.3 percent m-o-m advance in the U.S. job openings in September after a revised 5.2 percent m-o-m drop in August (originally a 3.0 percent m-o-m decline).

According to the report, employers posted 6.436 million job openings in September compared to the August figure of 6.352 million (revised from 6.493 million in the original estimate) and economists’ expectations of 6.500 million. The job openings rate was 4.3 percent in September, unchanged from a downwardly revised 4.3 percent in the prior month. The report showed that the number of job openings decreased in federal government (-20,000 jobs) but increased for total private (+104,000).

Meanwhile, the number of hires fell 1.4 percent m-o-m to 5.871 million in September from a revised 5.952 million in August. The hiring rate was 4.1 percent in September, down from an unrevised 4.2 percent in August. The hires decreased in federal government (-256,000), largely due to a drop in demand for temporary 2020 Census workers. Hires also declined in retail trade (-105,000) and educational services (-23,000). The number of hires increased in accommodation and food services (+137,000), wholesale trade (+73,000), and transportation, warehousing, and utilities (+46,000).

The separation rate in September was 4.664 million or 3.3 percent, compared to 4.689 million or 3.3 percent in August. Within separations, the quits rate was 2.1 percent (+0.1 pp m-o-m), and the layoffs rate was 0.9 percent (-0.2 pp m-o-m).

FXStreet reports that Ho Woei Chen, CFA, Economist at UOB Group, give her views on the latest exports figures in the Chinese economy.

“China’s exports expanded at its strongest pace in 19 months while imports growth moderated in October. In USD-terms, exports rose by stronger-than-expected 11.4% y/y (Bloomberg est: 9.2%; Sep: +9.9%) while imports growth came in below expectation at 4.7% y/y (Bloomberg est: 8.6%; Sep: 13.2%). This gave rise to a larger trade surplus in October at US$58.44 billion compared to US$37.00 billion in September.”

“The strong export gains continued to be driven by demand for personal protective equipment such as gloves and masks as well as computers and automotive parts. There were also signs of seasonal demand from stronger shipments of toys and miscellaneous items including lighting fittings and furniture & parts. Imports were led by demand for motor vehicles, computers and commodities including soy beans, and iron whereas energy imports such as crude oil, coal and petroleum products fell in October.”

“Year-to-date, exports turned the corner with positive growth of 0.5% y/y in January-October from -0.8% y/y in the preceding 9 months (Jan-Sep) but imports remained in contraction at -2.3% y/y in the first 10 months of 2020. We expect the sustained recovery in both global demand and domestic consumption as well as robust seasonal demand to bring full-year export to growth of around 1.5% (2019: 0.5%) while the contraction in imports would continue to narrow to around -1.0% (2019: -2.8%) for 2020. The greatest downside risk to the export recovery is evidently the continued spread of the COVID-19 in Europe, US and parts of Asia as countries are faced with new lockdown measures.”

U.S. stock-index futures fell on Tuesday, as euphoria over encouriging data from a trial of Pfizer-BioNTech’s coronavirus vaccine gave way to caution over how quickly the vaccine will be widely available and how swiftly the global economy can rebound.

Global Stocks:

• We need to get through the next couple of quarters
• Businesses will be optimistic once the virus is behind us
• Fiscal stimulus is going to run out; would not surprise me to see some extension sooner than later
• Failing to extend some fiscal aid would hit economy
• Financial conditions are relatively loose
• Next two quarters are going to be very difficult
• Still hopeful that in spring, with the vaccine, will see better economy
• Sees 3.5% GDP growth in 2021, mostly coming later one
  

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

FXStreet notes that a dramatic Monday saw the S&P 500 breaking key resistance at 3550 to establish a bullish “triangle” pattern as looked for but with the subsequent rotation from Growth/Tech to Value seeing the market retreat from its highs and close at the lows of the session. The S&P 500 setback ideally holds support at 3489/84 to maintain thoughts of a bull “triangle” and strength back to 3645/60, per Credit Suisse.

“We suspect a large portion of the retreat yesterday has been as a result of the Growth/Tech rotation to Value and whilst we think this can lead to some further near-term weakness, we expect Value to outperform and our bias is to view S&P 500 weakness as temporary ahead of a more sustained move higher emerging, in line with our core ‘triangle’ pattern roadmap.” 

“Immediate support is seen at 3529/22, below which can see a fall to 3509, then what we look to be better support at 3489/84, with weakness now not extending back below here.” 

American Express (AXP) upgraded to Neutral from Sell at UBS; target raised to $116

GBP appreciated against its major rivals in the European session on Tuesday as Monday's promising Pfizer-BioNTech COVID vaccine news raised hopes for a workable treatment to the disease, which has plunged the world economy into a crisis this year. The availability of the coronavirus vaccine is seen as crucial for the full global economic recovery. 

Meanwhile, Brexit uncertainty persists, although hopes for the EU-UK trade deal were raised after the UK’s House of Lords rejected the government’s Internal Markets bill, an obstacle that might have the EU from signing off on a trade deal with the UK. Adding to the optimism, the UK finance minister Rishi Sunak said on Monday that both sides made progress in trade talks and a deal can be done.

FXStreet reports that Senior Economist at UOB Group Alvin Liew assesses the latest FOMC meeting.

“As widely expected, the FOMC voted at its November meeting unanimously to keep its Fed Funds Target Rate unchanged at the range of 0.0-0.25%. The Fed also maintained its recently adopted new strategy of Average Inflation Targeting (AIT) and effectively confirming its stance to keep interest rates low for a prolonged period. It continued to highlight the path of the economy will continue to depend significantly on the course of the coronavirus (COVID-19) outbreak.”

“Powell was cautious in his assessment of the US economy as he noted in recent months pace of improvement in economy has moderated as have the pace of improvement in job market. He repeated the outlook for economy is extraordinarily uncertain and the recent rise in COVID-19 cases is particularly concerning (US recorded more than 100,000 daily infections on 4 Nov while hospitalization rates were also rising) and that he sees getting the virus under control is critical to economy. He also revealed that the Fed plans to make changes to economic projections in December. Powell reiterated the singular Fed message that further fiscal support is likely to be needed. When asked about extending emergency facilities past 31 Dec 2020, Powell said no decision made.”

“In line with the Fed’s adopting of the new strategy of Average Inflation Targeting (AIT) and putting emphasis on "broad and inclusive" employment, the latest FOMC has reaffirmed Fed’s commitment to a prolonged period of low interest rates. We expect the Fed to keep its near zero percent policy rate until at least 2023.”

FXStreet reports that the Credit Suisse analyst team informs that the USD/JPY pair has reversed dramarically higher, negating last week’s bearish “outside week” but still needs to clear 105.75/92 to suggest a base has been established.

“USD/JPY has seen an abrupt and aggressive reversal of its bearish ‘outside week’ for surge back well above key support at 104.02/00 not only negating last week’s session but also raising the prospect of a near-term base instad.” 

“Key resistance moves to 105.75/92 – the 38.2% retracement of the fall from June and price resistance – a close above which would also see the 55-day average removed to suggest a base is also now in place and a more sustained recovery can be seen. We would then see resistance next at 106.11, then further retracement resistance at 106.43/56.”

• Believes that Europe can partner with U.S. in defining rules for digital economy
• Says it is important that partners raise their standards in digital economy too
• What is illegal offline should be illegal online
• Large digital companies must pay appropriate taxes
• Deadline of mid-2021 is final one for digital taxation

FXStreet notes that  it's been a year of dramatic swings and unpredictability, and the 2020 US election was no exception. But at least some clarity is now in view, as President-elect Joseph R. Biden was declared the winner over the weekend by most media outlets. Foreign-policy shifts, global trade, the fate of stimulus and the path of the coronavirus are just a few of the variables that investors should consider as President-elect Biden prepares to take office, per Morgan Stanley.

“With Democrats now set to control the White House, but congressional power remaining divided, with a likely Republican-led Senate and Democrat-led House of Representatives, the chances of a larger and more proactive fiscal stimulus have diminished. That means foreign policy may see more action than fiscal policy. A Biden administration could be less open to a US-UK trade deal and more committed to the Good Friday Agreement – a peace accord between Northern Ireland and the Republic of Ireland – than the current administration. Both factors could tilt the balance toward closer UK alignment with Europe and increase the chances of a deal on Brexit. This would be bullish for the pound.”

“Reactive fiscal stimulus (or none at all) would also mean that developments relating to the pandemic would become more critical for markets. We’ll be closely watching COVID-19 case numbers, which are rising again in the US and Europe, and following developing news on a vaccine.”

“For US equities, the impact of the pandemic and uncertainty on fiscal relief is one reason why we believe that the S&P 500, the broad market benchmark index, will hover around the 3100-3550 range through year-end, as markets digest these overlapping narratives.”

NZD/USD: Upside momentum accelerates with key resistance seen at 0.6847 - Credit Suisse

FXStreet notes that NZD/USD continues to climb higher following the completion of a bull “triangle” continuation pattern and a very large “head and shoulders” base to suggest an acceleration of upside momentum. Next key resistance is seen initially at the downtrend from 2017 at 0.6847, removal of which would see further strength unfold, with resistance then seen at 0.6970, per Credit Suisse.

“NZD/USD surged higher yesterday following the completion of a bull ‘triangle’ continuation pattern, closing above the crucial cluster of medium-term resistances at 0.6792/6806 and coming to a pause at the 2017 downtrend at 0.6847. This marks a break of a major inflection point and the completion of a large ‘head and shoulders’ base, all of which suggests that we are seeing the resumption of the core bull trend.” 

“A close above 0.6847 would now see a further acceleration of the upside momentum with resistance then seen initially at at 0.6900, ahead of 0.6970.”

FXStreet reports that potential end comes into sight for COVID-19 crisis but a difficult winter still lies ahead, per MUFG Bank.

“The announcement from Pfizer that their COVID-19 vaccine is proving very effective at combating the disease has reinforced the rebound in risk assets following the US election.”

“While the vaccine results from Pfizer are only preliminary at this stage, they were described as ‘just extraordinary’ by Anthony Fauci the director of the National Institute of Allergy and Infectious Diseases as Pfizer’s preliminary results showed an effectiveness of more than 90%. The positive developments have increased the likelihood of a return to normality next year which should help to accelerate the global economic recovery.”

“Admittedly, there are still many uncertainties at this stage. According to vaccine experts, questions about production, distribution and, most importantly, the performance and capability of the shot itself still need to be answered including how long will it provide protection for and is it as effective for all age ranges. Nevertheless, it is still an important step forward to exit the COVID-19 crisis and provides a reminder not to bet against human ingenuity.

FXStreet reports that according to FX Strategists at UOB Group, USD/CNH keeps the negative outlook and faces strong support in the 6.5300 level.

Next 1-3 weeks: “We highlighted last Friday that ‘USD is still on the defensive but 6.5800 may not come into the picture so soon’. The subsequent pace of weakness exceeded our expectation as USD plummeted to 6.5860 before extending is decline this morning. The outlook for USD still appears weak and the next support is at 6.5300. On the upside, a break of 6.6600 (‘strong resistance’ was at 6.6900 last Friday) would indicate that the current downward pressure has eased.”

According to the report from ZEW, the Indicator of Economic Sentiment for Germany has once again taken a sharp decline in the current November 2020 survey, plummeting 17.1 points to a new reading of 39.0 points compared to the previous month. Having achieved a temporary high of 77.4 points in September 2020, expectations have since fallen by 38.4 points. The assessment of the economic situation in Germany has slightly worsened, and currently stands at minus 64.3 points, 4.8 points lower than in October.

“Financial experts are concerned about the economic impact of the second wave of COVID-19 and what this will entail. The ZEW Indicator of Economic Sentiment has therefore once again significantly decreased in November, indicating a slowdown of economic recovery in Germany. There is also the additional worry that the German economy could head back into recession. According to the assertions made by the experts, neither the Brexit negotiations nor the outcome of the US presidential election currently are having an impact on the economic expectations for Germany,” comments ZEW President Professor Achim Wambach on the current expectations.

The financial market experts’ sentiment concerning the economic development of the eurozone also experienced a considerable decrease for the second time in a row. The corresponding indicator now stands at 32.8 points in the November survey, 19.5 points lower than in the previous month. By contrast, the indicator for the current economic situation in the eurozone slightly increased by 0.2 points to a new reading of minus 76.4 points.

Reuters reports that according to a leaked advisory council report, the German economy will likely contract by 5.1% this year due to the COVID-19 pandemic.

German daily Sueddeutsche Zeitung reported on Tuesday the experts, who advise the German government on economic policy, said in their annual report the government had acted swiftly and decisively in the crisis.

They see the German gross domestic product increasing by 3.7% next year, the paper added.

FXStreet reports that the US election outcome may not have delivered a blue wave but the overall macro picture favouring risky assets, USD weakness and low global yields remain intact, economists at Westpac inform.

“A Biden presidency still implies some fiscal support, with monetary policy likely to pick up any slack. Global liquidity conditions will remain supportive regardless. Challenges to the election result in coming weeks appear to have weak legal foundations and are unlikely to upset markets.”

“Further DXY weakness seems likely, albeit not as pronounced as assumed under a blue wave outcome. Biden’s freer hand on the global front under divided government leaves a relatively more bullish outlook for emerging market currencies intact too, notably those most impacted by trade wars such as CNY. AUD is likely to test resistance within its recent 0.70-0.74 range.”

CNBC reports that according to analysts, the U.S. dollar is poised to further weaken, amid market views that geopolitical risks are falling after the election and that the next stimulus package will likely be smaller than expected.

Citi Private Bank strategists predicted a weaker dollar ahead, given that a Biden administration would reduce uncertainty in international trade policy.

“Victory for President Elect Biden means a return to more conventional governance. As the province of the President, it will result in a major shift in the way foreign policy is conducted. Alliance building will return. ‘Tariff threat first’ negotiating tactics will end,” the bank’s chief investment officer, David Bailin, and Steven Wieting, chief investment strategist and chief economist, wrote in a note.

That will benefit much of the world’s financial markets, especially in emerging markets, they said.

“Perhaps the greatest clarity post-election is for global trade. US foreign policy will enter a more predictable phase without escalating tariff threats. We see a declining US dollar, and rising emerging markets as highly likely,” they wrote.

FXStreet reports that according to the ANZ bank, the Reserve Bank of New Zealand (RBNZ) meeting on Wednesday will be a test but it may not be enough to push against the tide of global news.

“The USD finally found its feet as global yields broke higher on positive vaccine news. But NZD outperformed as the surge in equities buoyed risk currencies, breaking through key resistance at 0.68, but struggling to push much higher on the countervailing USD bounce.”

“NZD strength has been bulletproof of late on global news, but a test lies ahead, with the MPS expected to bring more stimulus, along with a likely reminder the RBNZ has more tricks up its sleeve.”

During today's Asian trading, the US dollar declined against the euro and the japanese 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), rose 0.02%.

The dollar's decline is expected to continue, market watchers say. Positive news regarding the development of a coronavirus vaccine is likely to stimulate demand for riskier assets for riskier assets and the abandonment of traditional safe-haven assets.

The fact that Democrats are unlikely to gain control of the Senate means that the size of the stimulus package that may be passed in the future will be reduced, and this will force the Federal reserve to act more decisively to support the economy.

Meanwhile, UK data showed that the UK unemployment rate increased in the third quarter and redundancies reached a record high. The ILO jobless rate rose by 0.7 percentage points from the previous quarter to 4.8 percent in three months to September, as economists' expected. Meanwhile, the employment rate dropped by 0.6 percent from the preceding quarter to 75.3 percent. The employment rate has been decreasing since the start of the coronavirus pandemic, while the unemployment rate is rising sharply. The number of people temporarily away from work has fallen since its peak in April and May 2020.

According to the report from INSEE, in September 2020, output increased in the manufacturing industry (+2.2%, after +0.8%) as well in the whole industry (+1.4%, after +1.1%). Economists had expected a 0.8% increase in the whole industry. Compared to February (the last month before the beginning of the general lockdown), output remained significantly lower in the manufacturing industry (−5.5%), as well as in the whole industry (−5.1%).

In September, output increased again in the manufacture of transport equipment (+8.8% after +5.0%) and in “other manufacturing” (+1.2% after +2.1%). It bounced back in the manufacture of machinery and equipment goods (+3.1% after −4.1%) and in the manufacture of coke and refined petroleum (+11.4% after −6.9%). It was virtually stable in the manufacture of food products and beverages (0.0% after −2.0%) whereas it decreased in mining and quarrying, energy, water supply (−2.8% after +2.9%).

In September, output yet remained below its February level in most industrial activities. It plummeted in the manufacture of transport equipment (−12.1%), in the manufacture of coke and refined petroleum (−7.4%) and in the manufacture of machinery and equipment goods (−6.7%). In “other manufacturing”, output mainly declined in the manufacture of basic metals and fabricated metal products (−7.4%) and in chemicals (−7.1%) while it was up in pharmaceuticals (+6.5%). In the manufacture of food products and beverages, output had been less impacted and had returned to the pre-lockdown level since June − July.

RTTNews reports that data from the National Bureau of Statistics showed that China's consumer price inflation eased to the lowest since October 2009.

Consumer price inflation slowed to an 11-month low of 0.5 percent in October from 1.7 percent in September. Economists had expected a 0.8 percent increase.

Pork prices decreased 2.8 percent on year in October after climbing 25.5 percent a month ago. This was the first fall in 19 months.

Excluding food and energy, core inflation held steady at 0.5 percent in October.

Another report from the NBS showed that producer prices grew 2.1 percent annually, the same rate of growth as logged in September. Economists had forecast a 2 percent fall in October. On a monthly basis, producer prices remained unchanged after a 0.1 percent rise in the previous month.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1957 (3136)

$1.1927 (1954)

$1.1903 (2767)

Price at time of writing this review: $1.1828

Support levels (open interest**, contracts):

$1.1764 (649)

$1.1738 (1652)

$1.1706 (2675)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date December, 4 is 99530 contracts (according to data from November, 9) with the maximum number of contracts with strike price $1,1200 (6241);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3306 (738)

$1.3284 (649)

$1.3249 (1262)

Price at time of writing this review: $1.3180

Support levels (open interest**, contracts):

$1.3099 (1120)

$1.2987 (617)

$1.2923 (1113)

Comments:

- Overall open interest on the CALL options with the expiration date December, 4 is 23735 contracts, with the maximum number of contracts with strike price $1,3500 (2622);

- Overall open interest on the PUT options with the expiration date December, 4 is 26214 contracts, with the maximum number of contracts with strike price $1,2500 (4660);

- The ratio of PUT/CALL was 1.10 versus 1.03 from the previous trading day according to data from November, 9

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.

According to the report from Office for National Statistic, early estimates for October 2020 suggest that there is a slight drop over the month in the number of payroll employees in the UK. Since March 2020, the number of payroll employees has fallen by 782,000; however, the larger falls were seen at the start of the coronavirus (COVID-19) pandemic.

Data from our Labour Force Survey (LFS) shows the employment rate has been decreasing since the start of the coronavirus pandemic, while the unemployment rate is now rising sharply. Vacancies have continued to recover in the latest period but are still below the levels seen before the impact of the coronavirus pandemic. 

The UK employment rate in the three months to September 2020 was estimated at 75.3%, 0.8 percentage points lower than a year earlier and 0.6 percentage points lower than the previous quarter.

The UK unemployment rate in the three months to September 2020 was estimated at 4.8%, 0.9 percentage points higher than a year earlier and 0.7 percentage points higher than the previous quarter.

In the three months to September 2020, redundancies reached a record high of 314,000; an increase of a record 181,000 on the quarter.

In October 2020, 33,000 fewer people were in payrolled employment when compared with September 2020 and 782,000 fewer people were in payrolled employment when compared with March 2020.

The Claimant Count dropped slightly in October 2020, to 2.6 million; this includes both those working with low income or hours and those who are not working.

There were an estimated 525,000 vacancies in the UK in August to October 2020; this is 278,000 fewer than a year ago and 146,000 more than the previous quarter.

Growth in average total pay (including bonuses) among employees for the three months July to September 2020 increased to 1.3%, and growth in regular pay (excluding bonuses) also increased, to 1.9%.