CFD Markets News and Forecasts — 14-05-2021

Statistics Canada released its Monthly Survey of Manufacturing, which showed that the Canadian manufacturing sales climbed 3.5 percent m-o-m in March to CAD57.84 billion (highest level since June 2019), following a revised 1.1 percent m-o-m drop in February (originally a 1.6 percent m-o-m decline). This marked the largest monthly increase in manufacturing sales since July 2020.

Economists had anticipated a gain of 3.5 percent m-o-m for March.

According to the survey, sales grew in 17 of 21 industries, led by the motor vehicle (+10.5 percent m-o-m), petroleum and coal product (+6.2 percent m-o-m) and food manufacturing (+2.7 percent m-o-m) industries.

Overall, sales of durable goods surged 4.3 percent m-o-m in March, while sales of non-durable goods rose 2.7 percent m-o-m.

The Commerce Department announced on Friday that business inventories rose 0.3 percent m-o-m in March, following a revised 0.6 percent m-o-m gain in February (originally a 0.5 percent m-o-m increase).

That was in line with economists’ forecast for a 0.3 percent m-o-m advance.

According to the report, stocks at wholesalers jumped 1.3 percent m-o-m, while inventories at manufacturers rose by 0.7 percent m-o-m. At the same time, stocks at retailers declined 1.4 percent m-o-m.

In y-o-y terms, business inventories remained unchanged in March.

A report from the University of Michigan revealed on Friday the preliminary reading for the Reuters/Michigan index of consumer sentiment decreased 6.2 percent m-o-m to 82.8 in early May. This was the lowest reading since February.

Economists had expected the index would increase to 90.4 this month from April’s final reading of 88.3.

According to the report, the index of current U.S. economic conditions fell 6.6 percent m-o-m to 90.8 in May from 97.2 in the previous month. Meanwhile, the index of consumer expectations dropped 6.2 percent m-o-m to 77.6 this month from 82.7 in April.

“Consumer confidence in early May tumbled due to higher inflation - the highest expected year-ahead inflation rate as well as the highest long term inflation rate in the past decade,” noted Surveys of Consumers chief economist, Richard Curtin. “Rising inflation also meant that real income expectations were the weakest in five years,” he added. 

The Federal Reserve reported on Friday the U.S. industrial production rose 0.7 percent m-o-m in April, following a revised 2.4 percent m-o-m gain in March (originally a 1.4 percent m-o-m advance).

Economists had forecast industrial production would increase 1.0 percent m-o-m in April.

According to the report, the output of utilities surged 2.6 percent m-o-m in April, while mining production grew 0.7 percent m-o-m and manufacturing output rose 0.4 percent m-o-m, despite a drop in motor vehicle assemblies that principally resulted from shortages of semiconductors.

Capacity utilization for the industrial sector increased 0.5 percentage point m-o-m to 74.9 percent in April. That was 0.1 percentage point below economists’ forecast and 4.7 percentage points below its long-run (1972-2020) average.

In y-o-y terms, the industrial output jumped 16.5 percent in April, following an unrevised 1.0 percent increase in the prior month, but it was 2.7 percent below its pre-pandemic level

U.S. stock-index futures rose on Friday, as the equities continued to rebound for the second consecutive day after a sharp sell-off earlier this week, despite disappointing U.S. retail sales data for April.

Global Stocks:

• We're really focused on inflation expectations
• We should expect month-to-month volatility in data
• Fed's policy is in good place
• Time now is for watchful waiting, not adjusting policy
• Fed will stay on path until we get more people into job market
• We want to get back to maximum employment

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

The Commerce Department reported on Friday the sales at U.S. retailers were flat m-o-m in April, following a revised 10.7 percent m-o-m surge in March (originally a 9.8 percent m-o-m jump).

Economists had expected total sales would increase 1.0 percent m-o-m in April.

According to the report, advances in retail sales at food services and drinking places (+3.0 percent m-o-m), motor vehicles and part dealers (+2.9 percent m-o-m) and electronics (+1.2 percent m-o-m) were offset by declines at clothing stores (-5.1 percent m-o-m), general merchandise stores (-4.9 percent m-o-m), sporting goods, hobby, musical instruments and books (-3.6 percent m-o-m), gasoline stations (-1.1 percent m-o-m) and nonstore retailers (-0.6 percent m-o-m).

Excluding auto, retail sales fell 0.8 percent m-o-m in April after a revised 9.0 percent m-o-m jump in the previous month (originally an 8.4 percent m-o-m increase), being worse than economists’ forecast of a 0.7 percent m-o-m gain.

Meanwhile, closely watched core retail sales, which exclude automobiles, gasoline, building materials and food services, and are used in GDP calculations, dropped 1.5 percent m-o-m in April after a revised 7.6 percent m-o-m jump in March (originally a 6.9 percent m-o-m climb).

The Labor Department reported on Friday the import-price index, measuring the cost of goods ranging from Canadian oil to Chinese electronics, rose 0.7 percent m-o-m in April, following a revised 1.4 percent m-o-m gain in March (originally a 1.2 percent m-o-m gain). Economists had expected prices to increase 0.6 percent m-o-m last month.

According to the report, the April gain was driven by higher prices for both fuel (+0.5 percent m-o-m) and nonfuel (+0.7 percent m-o-m) imports.

Over the 12-month period ended in April, import prices surged 10.6 percent, with higher fuel (+126.5 percent; the largest 12-month advance since February 2000) and nonfuel (+5.0 percent; the largest 12-month gain since September 2011) prices contributing to the climb. This was the largest over-the-year increase since the year ended October 2011.

Meanwhile, the price index for U.S. exports went up 0.8 percent m-o-m in April, following a revised 2.4 percent m-o-m climb in the previous month (originally a 2.1 percent m-o-m growth).

The April rise was driven by higher prices for both agricultural exports (+0.6 percent m-o-m) and nonagricultural exports (+0.9 percent m-o-m).

Over the past 12 months, the price index for exports jumped 14.4 percent, reflecting surges in prices of both agricultural exports (+25.2 percent; the largest over-the-year rise since July 2011) and nonagricultural exports (+13.1 percent; the largest over-the-year advance since the index was first published in March

1985). This represented the largest over-the-year increase since the index was first published in September 1983.

USD fell against its major rivals in the European session on Friday as risk appetite improved, as investors focused on re-opening prospects, while fears of tighter policy in response to accelerating inflation were eased by Federal Reserve policymakers. 

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, dropped 0.34% to 90.45.

Investors also awaited U.S. data on retail sales and industrial production for April, due at 12:30 GMT and 13:15 GMT respectively, which are expected to provide more clues about the pace of the economic recovery.

The ECB released account of its April 21-22 monetary policy meeting. It noted that:

• Incoming information, including high-frequency indicators, indicated that economic activity was likely to have contracted again in Q1, but pointed to resumption of growth in Q2
• Progress with vaccination campaigns and envisaged gradual relaxation of containment measures underpinned expectation of  firm rebound in economic activity, especially in H2 of 2021
• Risks to Eurozone's growth outlook continued to be on downside in near term, but remained more balanced over medium term
• Underlying price pressures were subdued in context of weak demand and significant slack in labour and product markets, but were expected to increase somewhat in 2021
• Inflation would exhibit some volatility for the remainder of the year
• As regards external communication, two aspects were important: 1) Governing Council needed to reaffirm its current practice of conducting comprehensive joint evaluation of prevailing state of financing conditions against inflation outlook at monetary policy meetings in which policy deliberations were informed by new round of staff projections (new comprehensive joint assessment should be conducted at ECB's next monetary policy meeting in June); 2) it was important to highlight that calibrating purchases under PEPP so as to counter adverse effects of the pandemic on medium-term inflation outlook was only one element in achieving aim of stabilising medium-term inflation around levels below, but close to, 2%. Ample monetary policy support remained crucial beyond pandemic period in order to support inflation and return it to inflation aim. Governing Council, therefore, needed to continue to stand ready to adjust all of its instruments, as necessary, to fulfil its mandate
• With respect to latest exchange rate developments, it was noted that euro had appreciated slightly since Governing Council’s last meeting. It was underlined that a further appreciation of the exchange rate could have adverse implications for inflation outlook
• It was also stressed that outlook for both growth and inflation remained dependent on support of fiscal policy measures and very accommodative monetary policy stance
• Members generally expected stronger recovery to take place in H2 of 2021 but emphasised that uncertainty surrounding near-term growth outlook remained high
• With regard to recent developments in inflation expectations, members noted that longer-term inflation expectations reported in ECB Survey of Professional Forecasters were unchanged, at 1.7%, while market-based indicators of inflation expectations had increased, although this increase mainly reflected increase in risk premia
• Members expressed broad agreement with proposal made by Mr. Lane to leave ECB’s monetary policy configuration unchanged and to reconfirm the very accommodative stance
• It was also widely agreed that it should be highlighted that future pace of purchases under PEPP was data-dependent and would continue to be based on joint assessment of financing conditions and inflation outlook
• Governing Council’s decision in March to undertake significantly higher PEPP purchases than during first few months of the year remained appropriate

FXStreet reports that  the Credit Suisse analyst team suggests that EUR/USD can maintain an upward bias still within the broader range above key price and retracement support at 1.1999/86. 

“Resistance stays seen at 1.2110/14 initially, with a break above 1.2152 needed to reassert an upward bias for strength back to 1.2182/85, then what we expect to be tougher resistance at the 78.6% retracement of the Q1 fall and February high at 1.2212/43, where we will look for a fresh cap. Should strength directly extend, this can expose the top of the broader range and YTD high at 1.2325/1.2350.” 

“Below 1.2052/51 can clear the way for a test of what we see as more important support at 1.1999/86 – the early May low and 38.2% retracement of the March/May rally.”

FXStreet reports that analysts at Credit Suisse note that the NZD/USD pair has held above the 0.7170 uptrend from the 2021 lows – which maintains a mild upward tilt for a move back to 0.7306.

“The break above resistance at 0.7180 should relieve the downward pressure and confirm that the uptrend has held, with next resistance thereafter at 0.7245/47, then the recent highs at 0.7306/16, which recently stalled the market, before the 78.6% retracement of the Q1 fall at 0.7353, where we would expect another pause.” 

FXStreet notes that investors are sounding the alarm over inflation, fearful that the Fed's Average Inflation Targeting framework along with a greater focus on full employment may lead to a policy error. The reality is more nuanced, with three key scenarios emerging, Daniel Ghali, Commodity Strategist at TD Securities suggests.

“Inflation is not transitory and the market will force the Fed's hand. This scenario plays into recent fears, as the market pulls forward future rate hikes, weighing on risk assets. Gold's bull market would be likely to die.” 

“Inflation is not transitory, but the Fed is behind the curve. During this time, gold would ultimately surge along with inflation-hedging assets, particularly energy and industrial commodities.”

“Inflation is transitory and the Fed stays on message. Here, inflation risk is nearly peaking, which should translate into a weaker USD as AIT prolongs a period of uber-dovish policies. This should firm both risky and real assets, including gold.”

“TD Securities sits in the transitory camp, which paints a positive picture for gold.”

Walt Disney (DIS) reported Q2 FY 2021 earnings of $0.79 per share (versus $0.60 per share in Q2 FY 2020), beating analysts’ consensus estimate of $0.27 per share.

The company’s quarterly revenues amounted to $15.613 bln (-13.4% y/y), missing analysts’ consensus estimate of $15.986 bln.

The company also reported Disney+ added 8.7 mln new subscribers, to reach 103.6 mln at the end of Q2 FY 2021. Analyst consensus had been for about 14.4 mln new Disney+ subscribers, to hit about 109 mln worldwide at the end of March.

DIS fell to $171.49 (-3.84%) in pre-market trading.

FXStreet notes that USD/JPY has successfully held its uptrend from January at 108.43. Economists at Credit Suisse look for a break above 109.95/97 for strength back to test the 110.97 March high. 

“Key near-term resistance remains seen at 109.95/97, above which is needed to clear the way for strength back to the late March high and potential downtrend from February 2020 at 110.83/97.” 

“Whilst a fresh rejection from 110.83/97 should be expected, above in due course can open the door to a test of much important resistance at 111.96/112.40, beyond which would raise the prospect of a much more significant base.” 

“Support moves to 109.41 initially, then 109.27/22, which we look to try and hold."

Reuters reports that global investors continued to buy equity funds in the week ended May 12, driven by hopes of an economic rebound and expectations of faster vaccine rollouts to curb the pandemic.

According to Refinitiv data, global equity funds received $15.1 billion worth of inflows, the biggest in four weeks.

However, the inflows mainly involved cyclical stocks, while growth funds, which invest in fast-expanding sectors such as tech, faced outflows on concerns over rising inflation levels. 

Financials and mining sector funds received $1.3 billion each, while tech sector funds faced outflows worth $1.2 billion in the week, the data showed.

Growth stocks are hit the most when there are increased expectations of higher inflation and interest rates, as they lower the present value of future cash flows, making the stocks less attractive.

FXStreet reports that economists at Credit Suisse discuss USD/CHF prospects.

“We look for a turn back lower from 0.9083. Going forwards, a sustained move back below 0.9030 would confirm a near-term peak. Thereafter, the next levels are seen at 0.9000/8985, which stalled the market on Monday, then 0.8922/10, before 0.8871/62, which is an important price low. With weekly MACD crossing back below MACDA, we would not even rule out a test of the 2021 low at 0.8757.” 

“Resistance stays at the 200-day average at 0.9083/9115, which should now ideally cap to keep the risks directly lower.”

Reuters reports that the private-sector advisers to Japanese Prime Minister Yoshihide Suga called for raising minimum wages this fiscal year to stimulate private consumption.

The four advisers at the Council for Economic and Fiscal Policy called on the government to stick to its budget-balancing target as massive coronavirus-related spending has strained the industrial world's heaviest public debt burden.

The proposals, which were made at the council's gathering, could be reflected in government's mid-year policy guidelines, which will provide the basis for next fiscal year's budget, to be compiled in late December.

If the economy makes a progress towards normalisation with the help of vaccinations, real GDP is expected to return to pre-pandemic levels as early as this autumn, the advisers told the meeting.

However, downside risks warrant close attention, they added, given that a third state of coronavirus emergency was enacted for the capital, Tokyo, and some other areas in late April and has been extended until the end of this month.

FXStreet reports that economists at MUFG Bank discuss USD/CAD prospects.

“Governor Macklem expressed more concern over Canadian dollar strength. He stated that ‘a stronger dollar creates some risk for our outlook. It is moved a lot further that could have a material impact on our outlook.”

“Our technical RSI signal shows that the Canadian dollar has become heavily overbought in the near-term which increases the risk it continues to correct lower in the near-term. Any weakness is likely to prove short-lived though while the Bank of Canada continues to signal that it plans to begin raising rates next year and is backed up by better than expected economic data releases from Canada.” 

RTTNews reports that final results from the statistical office INE showed that Spain's consumer price inflation accelerated to the highest level in more than two years, as initially estimated, in April.

The consumer price index rose 2.2 percent year-on-year, following a 1.3 percent increase in March.

The rate came in line with the preliminary estimate published on April 29 and was the highest since October 2018, when the inflation rate was 2.3 percent.

Core consumer prices remained flat on year, after rising 0.3 percent each in March and February, data showed.

On a monthly basis, the overall CPI advanced 1.2 percent, up from 1 percent in March and matched the flash estimate.

Inflation, based on the harmonized index of consumer prices or HICP, accelerated to 2 percent from 1.2 percent in March. The rate was slightly above the flash estimate of 1.9 percent.

FXStreet reports that in the view of economists at Charles Schwab, a confluence of factors has increased the likelihood for the energy sector to outperform the overall market.

“The ongoing recovery of the global economy bodes well for rising oil demand. Supply remains constrained by OPEC and cautious producers, and inventories are down – driving oil prices higher.”

“The expansion phase of the business cycle can support cyclical-value energy companies, and large diversified energy companies are becoming more disciplined with expenses and investment. Meanwhile, attractive valuations are reinforced by rising earnings expectations.”

“Except for some near-term headlines noise and measured rise in regulations, however, a dramatic impact from the clean energy movement on the energy sector landscape is likely years away.”

“Weighing the issues, we believe the Energy sector is poised to outperform during the next three to six months.”

Reuters reports that BofA's weekly fund flow statistics showed that investors have taken money out of tech equity funds and loaded up on inflation protection amid fears the Fed might alter its ultra accommodative monetary policy as inflation picks up.

The week to May 12 saw the largest flows towards Treasury Inflation-Protected Securities funds in 23 weeks with an inflow of $1.9 billion, BofA said, citing EPFR data.

At the same time, tech equity funds saw their first outflow in five weeks.

All in all, equity funds saw $25.7 billion in inflows, while $13.6 billion went into cash and $6.9 billion went into bonds, BofA said.

FXStreet reports that ING said that AUD/USD is set to experience a sharper correction lower if the pair fails to surpass the 0.7740/50 area.

“After surging 10% on Monday, Iron Ore is now falling 10% today. Driving this move seems to be the intervention of Chinese policymakers, wary that a surge in commodity prices could undermine the recovery. Here, officials have raised margins and imposed fees on steel trading and made it clear that speculators will be frowned upon.”

“The synchronised recovery in global demand suggests the rally in commodities is an enduring one. But for the short-term, corrective forces are at play – which could take its toll on the AUD – a key exporter of iron ore.”

During today's Asian trading, the US dollar fell against most major currencies. Traders continue to evaluate the statistical data on the US economy published the day before, and are also waiting for reports on retail sales and consumer confidence for April, which should help them form an opinion on the prospects for consumer spending.

According to data from the US Department of Labor, released on Thursday, the number of Americans applying for unemployment benefits for the first time last week decreased by 34 thousand - to 473 thousand people, the lowest since the beginning of the COVID-19 pandemic.

Traders are trying to combine conflicting signals - the weak April labor market report released last week, and data on the growth of inflation last month.

Christopher Waller, a member of the Board of Governors of the Federal Reserve System (Fed), said yesterday that the Fed needs to evaluate the statistical data on the labor market and inflation for several more months before deciding when to start reducing stimulus.

The ICE index, which tracks the dollar's performance against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell 0.21%.

FXStreet reports that strategists at DBS Bank discuss XAU/USD prospects.

“The three factors which are biased against gold prices are in the process of reversing – US bond yields have retreated, the US dollar has weakened, and the US employment outlook has faltered. Even as gold underperformed last quarter, we believe the price can resume its upward trend towards the USD2,000 level. This comes from the positive view on demand change, which is derived from central banks and discretionary spending.” 

“Gold mining securities should benefit from higher demand and gold prices. We believe it will be a production growth story this year for miners. Miners should be able to maintain all-in costs with higher production volume despite threats from higher operating costs such as wages and fuel prices.”

EUR/USD

Resistance levels (open interest**, contracts)

$1.2189 (2398)

$1.2158 (3612)

$1.2134 (506)

Price at time of writing this review: $1.2108

Support levels (open interest**, contracts):

$1.2059 (324)

$1.2045 (772)

$1.2025 (1110)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 4 is 62791 contracts (according to data from May, 13) with the maximum number of contracts with strike price $1,2200 (4332);

GBP/USD

$1.4205 (963)

$1.4173 (2345)

$1.4124 (1078)

Price at time of writing this review: $1.4064

Support levels (open interest**, contracts):

$1.3971 (349)

$1.3947 (291)

$1.3920 (247)

Comments:

- Overall open interest on the CALL options with the expiration date June, 4 is 21032 contracts, with the maximum number of contracts with strike price $1,5000 (2696);

- Overall open interest on the PUT options with the expiration date June, 4 is 22449 contracts, with the maximum number of contracts with strike price $1,3100 (3953);

- The ratio of PUT/CALL was 1.07 versus 0.95 from the previous trading day according to data from May, 13

* - 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.

CNBC reports that according to new research from JP Morgan, slowing population growth across the globe could have a major impact on real interest rates.

With more old people saving for retirement and fewer young people borrowing for things like properties, cars and education, demographics are weighing heavy on interest rates in a trend that is set to continue, Jesse Edgerton, a senior economist at JP Morgan, told.

“The slowdown in population growth, which we’ve been seeing for decades in both developed and emerging markets, is a reason to expect lower real interest rates,” Edgerton told.

Japan, Europe and the U.S. have all experienced declining real interest rates in recent decades, as birth rates and gross domestic product (GDP) have fallen, and life expectancy rates have risen in tandem.

China is now “fairly far down that path,” said Edgerton, referring to its slowing birth rate and aging population.

Emerging markets — where population growth remains higher — can expect to follow suit as they develop over time, he added.

That’s because money is not being put to work in the same way, driving down returns and interest rates, said Edgerton.

eFXdata reports that Societe Generale Research discuss EUR/USD prospects.

"The question for the dollar is still more one of what happens elsewhere. Bund yields are at -0.1%, their highest level in almost two years. With vaccination rates picking up, economic optimism is likely to improve too and whether the FOMC holds its resolve in the face of upside CPI surprises or not, we can be pretty sure the ECB will be alarmed if they see any significant uptick in inflation. We’ll be surprised if EUR/USD goes down much as Bund yields rise, even if US yields rise slightly more," SocGen adds.

RTTNews reports that the latest survey from BusinessNZ showed that the manufacturing sector in New Zealand continued to expand in April, albeit at a slower pace.

Manufacturing Index was 58.4 in April. That's down from 63.6 in March, although it remains well above the boom-or-bust line of 50 that separates expansion from contraction. Individually, production (64.5), employment (52.7), new orders (60.9), finished stocks (55.2) and deliveries (52.4) all were in expansion territory.

"Firms' commentary to April's PMI noted improving conditions internationally, in addition to many global PMIs clearly pointing to economic activity expanding strongly in significant portions of the world right now," BNZ Senior Economist Craig Ebert said.