CFD Markets News and Forecasts — 12-02-2021

eFXdata reports that analysts at CIBC Research expect the BoC to only consider raising rates after the Fed starts its tightening policy in 2023.

"We have a Canadian economy which has fallen further than the US in 2020. It faces at least a couple of quarters in which it will lag behind the US in the all important race to vaccinate its citizens. The US Treasury’s coffers are being loaded up with ample additional fiscal stimulus funds. The US economy will be back at its non-inflationary potential output well ahead of Canada’s, and both central banks lean heavily on attaining that target for output as a guidepost for the inflation outlook and the need to tighten policy. And finally, the Bank of Canada has made it clear that it is concerned about having a stronger currency."

"That seems to add up to an overwhelming case for Governor Macklem to say “after you, Chairman Powell,” and let the Fed go through the door to higher policy rates first. Against that, we have a forecast from the FOMC that confidently predicts that it won’t be tightening policy in 2023, based on a forecast that America’s growth rate will slow dramatically in that year with no help from higher rates."

eFXdata reports that analysts at Societe Generale summary their outlook for GBP and EUR over the coming months.

"From here, further sterling gains against the euro are probably going to be determined by the overall risk mood, and we'd expect sterling to under-perform much of CEEFX and both Scandi currencies. Gains against the dollar will mostly be a function of the euro rising further, and in the near-term, EUR/USD seems to find 1.2150 an almost insurmountable obstacle." 

"The position overhang remains the biggest challenge but Jay Powell did his absolute best to keep the dollar downtrend intact and over time, that should be enough to get EUR/USD above 1.25. The real winners will be those growth-sensitive currencies whose central banks let them off the leash." 

A report from the University of Michigan revealed on Friday the preliminary reading for the Reuters/Michigan index of consumer sentiment decreased 3.5 percent m-o-m to 76.2 in early February. This was the lowest reading since August 2020.

Economists had expected the index would increase to 80.8 this month from January’s final reading of 79.0.

According to the report, the index of current U.S. economic conditions decreased 0.6 percent m-o-m to 86.2 in February from 86.7 in the previous month. Meanwhile, the index of consumer expectations plunged 5.7 percent m-o-m to 69.8 this month from 74.0 in January.

“Consumer sentiment edged downward in early February, with the entire loss concentrated in the Expectation Index and among households with incomes below $75,000,” noted Surveys of Consumers chief economist, Richard Curtin. “More surprising was the finding that consumers, despite the expected passage of a massive stimulus bill, viewed prospects for the national economy less favorably in early February than last month,” he added. 

National Institute of Economic and Social Research (NIESR) reported on Friday its estimates revealed the UK’s economy is to decline by 3.8 percent in the first quarter of 2021 instead of 3.4 percent estimated in January, as stringent Covid-19 restrictions are expected to remain elevated until early spring, along with the effects of post-Brexit adjustment. Nevertheless, growth will pick up from the second quarter onwards as restrictions ease on the back of a successful vaccination program, the report added.

It was also noted that the ONS statistics published this morning revealed the UK economy grew 1.0 percent growth in the fourth quarter of 2020, consistent with annual contraction of 9.9 percent, which is likely to be the largest annual fall among G7 countries last year and matched NIESR’s last month forecast. 

• We will have difficulties using all available COVID-19 vaccines at end of March or April

Before the bell: S&P futures -0.22%, NASDAQ futures -0.20%

U.S. stock-index futures fell on Friday, as investors decided to book partial profits after the recent rally that was fuelled by hopes of stimulus- and vaccine-driven economic recovery in the U.S. and head of an extended weekend due to President's Day on Monday.

Global Stocks:

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

Statistics Canada reported on Friday the wholesale sales fell 1.3 percent m-o-m to CAD66.50 billion in December, following an unrevised 0.7 percent m-o-m advance in November. This marked the first decline in wholesale sales since April.

Economists had forecast a 1.5 percent m-o-m drop for December.

According to the report, sales went down in the three largest wholesale subsectors in December, with the greatest decline seen in the motor vehicle and motor vehicle parts and accessories subsector (-4.3 percent m-o-m), followed by the machinery, equipment and supplies subsector (-3.1 percent m-o-m), and the food, beverage and tobacco subsector (-1.3 percent m-o-m). These declines, however, were partially offset by an increase in sales in the miscellaneous subsector (+2.9 percent m-o-m).

Excluding motor vehicle and motor vehicle parts and accessories subsector, wholesale sales fell 0.7 percent m-o-m.

In y-o-y terms, wholesale sales rose 4.8 percent in December.

In 2020, Canada’s wholesale sales decreased 1.0 percent, registering its first drop since 2009.

Meanwhile, wholesale inventories edged down 0.1 m-o-m in December to CAD89.96 billion, recording their third monthly decline in a row. The inventory-to-sales ratio 2020 rose to 1.35 in December from 1.34 in November, recording its first increase since September. In y-o-y terms, wholesale inventories declined 1.7 percent in December. In 2020, the average inventory-to-sales ratio was 1.46 compared with 1.44 in 2019.

GBP strengthened against most of its major rivals in the European session on Friday as investors digested data that showed the UK's economy grew more than forecast in the fourth quarter of 2020.

The Office for National Statistics (ONS) reported its preliminary estimate showed that the UK's GDP expanded by 1.0 percent q/q in the fourth quarter of 2020, following a 16.1 percent q/q growth in the previous quarter. Economists had expected an increase of 0.5 percent q/q. Despite two consecutive quarters of growth, the UK's GDP was still 7.8 percent below its pre-pandemic level. In y/y terms, Britain's GDP declined by 7.8 percent y/y in the fourth quarter, following a revised 8.7 percent decrease in the third quarter. Economists had forecast an 8.1 percent contraction. Over the year 2020 as a whole, the British economy shrank by 9.9 percent, its largest annual drop on record.

The pound also continues to be supported by the relatively successful delivery of the UK's Covid-19 vaccine programme, as well as relief that a last-minute Brexit trade agreement was struck at the end of 2020.

FXStreet notes that the 10-year US Treasury yield has risen by ~25bp so far this year. With a large fiscal stimulus package looking increasingly probable in the U.S., and the Fed unlikely to push back on higher inflation expectations, economists at Capital Economics think the yield of 10-year U.S. Treasuries may rise a little further. 

“Fed policy will keep a lid on the real yield. We think the Fed will tighten monetary policy only very slowly, even if the economy recovers quite rapidly, in order to achieve its new goal of a period of sustained above-target inflation.”

“Inflation compensation could rise further still. The economic outlook has improved a bit lately. The vaccination rollout has begun relatively smoothly. And the outcome of the Georgia Senate runoff elections increased the chances of a significant fiscal boost to the economy. All of this increases the prospects of a more rapid recovery, and higher inflation, this year.”

“We expect the 10-year US Treasury yield to rise a bit further over the next two years, driven by higher inflation compensation. We have revised our end-2021 and end-2022 forecasts for the Treasury yield to 1.50% and 1.75%, respectively.”

“The changes to our forecasts for 10-year government bond yields also affect our views of certain exchange rates. We have revised our end-2022 forecasts for EUR/USD and USD/JPY to 1.25 (from 1.30) and 100 (from 95), respectively.”

• Confirms that government's panel of experts has already given consent to approve the vaccine today

FXStreet reports that analysts at Credit Suisse note that the USD/CAD pair has not managed to follow through on the downside, completing a bullish “hammer” to suggest near-term upside, with resistance at 1.2741/46.

“USD/CAD has not managed to see a close beneath the crucial 1.2686/82 level, reverting back higher and completing a small bullish ‘hammer’ to suggest further near-term upside.” 

“We see room for a move back to key short-term averages at 1.2741/46, with scope for an overshoot to the 55-day average at 1.2770, which then ideally caps for a move back lower. Post this setback higher, we look for weakness to resume and look for an eventual close beneath the crucial 1.2686/82 lows.” 

“A clear and sustained close beneath 1.2686/82 would see the prior base negated, with support seen thereafter at the back of the December 2020 downtrend, currently at 1.2640.” 

Walt Disney (DIS) reported Q1 FY 2021 earnings of $0.32 per share (versus $1.53 per share in Q1 FY 2020), much better than analysts’ consensus estimate of -$0.34per share.

The company’s quarterly revenues amounted to $16.249 bln (-22.2% y/y), beating analysts’ consensus estimate of $15.878 bln.

DIS rose to $194.50 (+1.88%) in pre-market trading.

FXStreet reports that the USD/JPY pair is stabilizing as expected at its near-term uptrend at 104.40 and analysts at Credit Suisse continue to look for a floor here for a retest of the 200-day average at 105.55.

“USD/JPY looks to be stabilizing as expected just ahead of what we look to be better support at the near-term uptrend from early January and early January high at 104.40/26. Our bias remains to look for a fresh floor here for an attempt to turn higher again.” 

“Resistance moves to 104.93 initially, above which should see a move back to 105.33 and then the 200-day average at 105.55. A close above here and then 105.77 is needed to reassert the recovery for the ‘measured wedge objective’ at 106.95/107.05.”

According to the Japanese PM Suga, vaccinations will begin from the middle of next week, starting with some 10,000 health workers.

FXStreet reports that Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank suggests that the AUD/USD pair is breaking higher from its consolidation pattern and sees next resistance at the 0.7820 January high.

“AUD/USD is breaking higher from its consolidation pattern and attention is now on the 0.7820 January high. It is underpinned by the 55-day ma at 0.7626 and key support is the 2020-2021 support line at 0.7619.” 

“Above the market we have TD resistance at 0.7925 which, if reached is likely to hold the initial test.” 

“Below 0.7560 (last weeks low) will trigger a slide to 0.7463 December 21 low and also the 0.7413 September high and the 0.7340 November 9 high.”

FXStreet reports that Credit Suisse analyst discusses EUR/USD prospects.

“EUR/USD strength has stalled as expected at the 55-day average and price resistance from the late January highs at 1.2146/90 and we continue to look for this to cap for now to define the top of a range.” 

“Support remains at 1.2113/08 initially, below which is needed to see a minor top complete to add weight to our near-term ranging roadmap for a retreat back to 1.2088, with 1.2046/19 then ideally holding further weakness. Big picture, we look for an eventual break higher above 1.2190 for a resumption of the core uptrend and a move back to the 1.2345/55 highs and eventually we think our 1.2518/98 long-held and ultimate objective.”

FXStreet reports that Commerzbank’s top-down equity strategists continue to expect an overshooting German DAX above 15,000 in H1, ending the year at 14,200. 

“We interpret the powerful global M1 money growth as a key signal that the current equity bull market should continue for several months. Hence, we are convinced that the DAX will rise above the 15,000 mark in H1 2021. The (trading) buy signals in the DAX have improved. The overall technical situation for the DAX suggests further all-time highs and a rise into the zone between 14,500 and 15,000 points.”

Reuters reports that BofA's weekly fund flow data showed that a record $58.1 billion poured into global equity funds over the past week as investors pulled money out of cash funds and had a lighter exposure to bonds.

The rush to equities saw extreme positioning among the U.S. investment bank's wealth management clients with 63.1% allocated to equities -- highest ever -- and 19.1% to debt -- lowest ever.

The investment bank said a bulk of last week's flows ended up in U.S. equities with $36.3 billion inflows, the best ever, with large-cap funds taking in $25.1 billion in the week to Wednesday.

Tech funds attracted $5.4 billion, beating last week's record $4.2 billion inflows.

eFXdata reports that CIBC Research discusses the prospects of the Bank of Canada and the Fed policies

"We have a Canadian economy which has fallen further than the US in 2020. It faces at least a couple of quarters in which it will lag behind the US in the all important race to vaccinate its citizens. The US economy will be back at its non-inflationary potential output well ahead of Canada’s, and both central banks lean heavily on attaining that target for output as a guidepost for the inflation outlook and the need to tighten policy. And finally, the Bank of Canada has made it clear that it is concerned about having a stronger currency. That seems to add up to an overwhelming case for Governor Macklem to say “after you, Chairman Powell,” and let the Fed go through the door to higher policy rates first. Against that, we have a forecast from the FOMC that confidently predicts that it won’t be tightening policy in 2023, based on a forecast that America’s growth rate will slow dramatically in that year with no help from higher rates.," CIBC adds. 

FXStreet reports that ABN AMRO revises up oil price forecasts, but the $50-60/barrel trading range remains the base scenario.

“Based on the technical outlook, oil prices could rally to $70-72/barrel, which are the peaks of September 2019 and January 2020. However, based on fundamental analysis, the case for further price gains is hard to make, although we are seeing optimism in financial markets in general.” 

“We continue to expect a trading range in which the average Brent oil prices trade roughly between $50 and $60/barrel. Nevertheless, market speculation may temporarily push oil prices higher. Based on the supply/demand balance, we think that such much higher oil prices are not sustainable and that oil producers will then start to increase production.”

“We have also adjusted the oil price somewhat for 2022 and 2023. Again, we still see the $50-60 range. However, the price could rise slightly as a result of the expected economic recovery once the lockdowns ease.”

Bloomberg reports that according to the Congressional Budget Office, the U.S. budget deficit will be wider than previously forecast this year because of a coronavirus relief package approved in December, but smaller over the next decade amid stronger economic growth.

CBO forecast a $2.26 trillion deficit in the fiscal year ending in September 2021, compared with a $1.81 trillion projection in the CBO’s prior outlook released in September 2020. The deficit was $3.13 trillion last year, and the largest as a share of the economy since World War II.

However, the agency’s forecast for deficits over the next decade was more sanguine, with the cumulative gap from 2021 to 2030 expected to be $345 billion smaller than in the previous forecast.

The estimates reflect the effects of the $900 billion stimulus legislation approved in December but not President Joe Biden’s latest proposals, which would add to the government ledgers.

FXStreet reports that according to economists at Charles Schwab the downtrend in the US dollar, if it is sustained, is also potentially supportive to rising inflation. 

“We expect to see an uptick in inflation over the next few months, but it’s likely to be fleeting. On a year-over-year basis, inflation will likely tick higher.”

“When we look a few years down the road, the case for a move up in inflation grows stronger. The Fed’s easy monetary policy stance could lay the groundwork for higher average inflation than we’ve experienced for the past decade.”

“On a trade-weighted basis, the dollar had been rising for about 10 years until last spring when the Fed shifted to its very easy policy stance. We expect it to continue moving lower as a result of the decline in real interest rates in the US and rising external deficits that need to be financed with foreign capital. A weaker currency should provide some support for higher growth and inflation.”

CNBC reports that Mario Draghi has gathered enough support from Italian lawmakers and is now highly likely to lead that country’s next government.

Members of the leftist Five-Star Movement opted to back Draghi, prime minister-designate, in an online poll conducted Thursday, with 59.3% supporting the former chief of the European Central Bank. Draghi looks to have a solid majority in Rome and no single party would be able to derail his administration.

He will now face confidence votes in Parliament next week and will present his Cabinet to the president on Friday.

FXStreet reports that economists at Westpac stick to the view of a period of AUD/USD consolidation near-term.

“AUD/USD is probing higher, 0.7780 the next target. Since the US dollar typically underperforms in global economic upswings, dips in AUD/USD should be shallow. However, there are some brakes on further gains near-term, including upward pressure on US Treasury yields following the Democrats’ recapturing of Senate control, the RBA’s haste to announce another AUD100 B QE program, ongoing pain for Australia’s tourism and education exports, and tensions with China which will hurt both investment and exports.”

During today's Asian trading, the US dollar consolidated against the euro and rose against the yen and the pound.

The dollar index retreated from a two-month high reached last week, amid a disappointing report from the US Department of Labor for the number of new applications for unemployment benefits, weak inflation data and fears of an excessive increase in the US debt burden if a new package of measures to support the US economy of $ 1.9 trillion is adopted.

Data released on Thursday by the US Department of Labor showed that the number of Americans who applied for unemployment benefits for the first time fell by 19 000 last week - to 793,000. This is the lowest level in the last five weeks.

Federal Reserve Chairman Jerome Powell said on Wednesday that the Fed does not intend to change current policy and stimulate the economy through low interest rates and asset buybacks in volume.

US President Joe Biden signed a $ 1.9 trillion package of measures to support the US economy, including, in particular, direct payments to Americans in the amount of $ 1,400, as well as weekly unemployment allowances in the amount of $ 400.

The ICE Dollar index, which measures the value of the US dollar against six major world currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose 0.06%.

According to the report from the Federal Statistical Office, the consumer price index (CPI) increased by 0.1% in January 2021 compared with the previous month, reaching 100.1 points (December 2020 = 100). The index was expected to remain unchanged. Inflation was –0.5% compared with the same month of the previous year. Economists had expected a 0.6% decrease.

The 0.1% increase compared with the previous month is due to several factors including rising prices for hotel accommodation. Fuel also recorded a price increase, as did second-hand cars. In contrast, prices for air transport and clothing and footwear decreased, the latter due to seasonal sales.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2240 (2924)

$1.2210 (2643)

$1.2187 (4005)

Price at time of writing this review: $1.2123

Support levels (open interest**, contracts):

$1.2098 (396)

$1.2078 (1749)

$1.2051 (2057)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 5 is 82402 contracts (according to data from February, 11) with the maximum number of contracts with strike price $1,2300 (4622);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3893 (1944)

$1.3872 (1001)

$1.3855 (544)

Price at time of writing this review: $1.3798

Support levels (open interest**, contracts):

$1.3651 (1100)

$1.3614 (906)

$1.3573 (444)

Comments:

- Overall open interest on the CALL options with the expiration date March, 5 is 16205 contracts, with the maximum number of contracts with strike price $1,4000 (3191);

- Overall open interest on the PUT options with the expiration date March, 5 is 13683 contracts, with the maximum number of contracts with strike price $1,3100 (1225);

- The ratio of PUT/CALL was 0.84 versus 0.85 from the previous trading day according to data from February, 11

* - 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 Statistics, real gross domestic product (GDP) increased by 1.2% in December 2020, following a revised 2.3% decline in November, when there were more extensive restrictions to activity. Economists had expected a 1.0% increase.

During December, a period of eased restrictions early in the month was followed by tighter restrictions to activity across all four nations of the UK later in the month. December GDP is 6.3% below the levels seen in February 2020; this compares with 7.4% below pre-pandemic levels in November 2020.

The services sector acted as the main contribution to growth in December, increasing by 1.7% as a number of consuming facing industries reopened following the easing of restrictions in December, as well as strong growth in health (with the strongest contributions coming from the coronavirus testing and tracing schemes). The services sector is now 6.9% below the level of February 2020.

The production sector grew marginally by 0.2% in December 2020, and is now 3.6% below its February 2020 level. Elsewhere the construction sector acted as a drag on growth in December, falling by 2.9% following seven consecutive monthly increases. The construction sector is now 3.5% below the level of February 2020.

Gross domestic product (GDP) grew by 1.0% in Quarter 4 (Oct to Dec) 2020, following revised 16.1% growth in Quarter 3. Despite two consecutive quarters of growth, the level of GDP in the UK is still 6.6% below where it was in Quarter 4 2019, prior to the pandemic.