CFD Markets News and Forecasts — 15-03-2021

eFXdata reports that Citi discusses EUR prospects.

"CitiFX notes the EUR will underperform risk and commodity currencies for now, as EUR headwinds are accumulating. That also implies that we could see EURUSD retest the recent lows. In line with our expectation, the March ECB meeting was slightly dovish, highlighting the intent to “significantly increase” the pace of purchases in their policy decision over the next quarter. We think in short-term, that dovishness is mostly in the price, even though for now the central bank equation has ceased to be a driver of EURUSD upside," Citi adds.

Reuters reports that fresh data showed that the European Central Bank increased bond purchases last week to cap yields, stepping up its market activity.

Fearing that rising borrowing costs could choke off growth, the ECB decided last week to boost bond purchases, hoping to keep yields exceptionally low while the bloc battles with yet another wave of the coronavirus pandemic.

The bank bought a net 14.0 billion euros ($16.7 billion)worth of bonds under its Pandemic Emergency Purchase Programme (PEPP) up from 11.9 billion euros a week earlier. Combined with other purchase schemes, it spent a net 19.3 billion euros, up from 17.1 billion euros in the previous week.

The ECB can buy around 75 billion euros worth of bonds a month under PEPP without raising its 1.85 trillion euro overall quota, and economists expect purchases in this range over the coming months.

FXStreet reports that Credit Suisse discusses S&P 500 prospects.

“S&P 500 maintains its break above its near-term downtrend from mid-February and although the market has yet to close in a new record high above 3950/51, the immediate risk stays seen higher. We would stress though that we remain of the view the next phase of strength is likely to be a choppier trend higher.” 

“Whilst support at 3899/97 holds the immediate risk should stay higher for a move back to 3960, then what we look to be tougher initial resistance at 3975/80, from which we will look for a fresh pullback. Big picture, we continue to look for a move in due course to 4070/75.” 

Reuters reports that the International Monetary Fund said in a new research paper that the coronavirus pandemic has significantly strengthened the market power of dominant firms, which could drag on medium-term growth and stifle innovation and investment.

Key indicators of market power are on the rise, including price markups over marginal costs, and the concentration of revenues among the four biggest players in a sector, the IMF study said. Part of this was due to increased bankruptcies as the pandemic caused competition to fall away.

"Due to the pandemic, we estimate that this concentration could now increase in advanced economies by at least as much as it did in the 15 years to end of 2015," IMF Managing Director Kristalina Georgieva said in a blog post accompanying the paper.

"Even in those industries that benefited from the crisis, such as the digital sector, dominant players are among the biggest winners."

Reuters reports that according to the report from Canadian Real Estate Association (CREA), Canadian home sales and prices continued to surge in February, setting new records amid strong demand across much of the country.

Home resales jumped 6.6% in January from February, and actual sales, not seasonally adjusted, soared 39.2% from a year earlier, CREA said on Monday. The group’s Home Price Index was up 17.3% from last February and up 3.3% from January.

The average selling price of a home across Canada jumped to C$678,091 ($543,429) in February, up 25% on the year and up 9.1% on the month.

Listings rebounded in February from January, but the national sales-to-new listings ratio is still the second highest on record, CREA said.The group revised up its sales forecast for 2021 to 700,000 units from a previous 583,635 forecast in December. Seasonally adjusted sales activity is currently running at an annualized pace of 783,636 units, it said.

FXStreet reports that according to David Lebovitz, Global Market Strategist at JP Morgan, value stocks tend to do best against a backdrop of accelerating inflation.

“Inflation can be a symptom of an economy that is operating above its potential; therefore, it makes sense that value stocks tend to outperform their growth counterparts when inflation expectations are rising, as higher inflation should in theory coincide with stronger earnings growth. The remainder of 2021 should see an acceleration in economic activity, rising inflation, and higher interest rates. In general, this dynamic should support the outperformance of value relative to growth, with attractive relative valuations acting as an additional tailwind for value outperformance.” 

Reuters reports that governor of the National Bank of Poland (NBP) Adam Glapinski said that Poland's central bank wants to buy at least 100 tonnes of gold -- worth some $5.5 billion at current prices -- over the coming years, as it continues to expand its bullion reserves.

"At the moment, we have 229 tonnes of gold, of which more or less half was bought during my term in office," Glapinski told.

"Over the course of a few years we want to buy at least another 100 tonnes of gold and keep it in Poland as well," he said.

Over the last decade central banks, particularly in Eastern Europe, the Middle East and Asia, have stepped up purchases of gold, often seeing it as a way to reduce reliance on assets such as the U.S. dollar.

CNBC reports that according to Embark Group CIO Peter Toogood, the change in emphasis for fiscal stimulus in the U.S. under President Joe Biden has effectively signaled “the end of Reaganomics.”

The government and the Federal Reserve have deployed unprecedented levels of support over the past year as they look to guide the economy out of the coronavirus crisis.

Stock markets have been volatile in recent weeks as bond yields rose alongside expectations for higher inflation, sparking concerns that central banks could begin to unwind some of the stimulus measures currently in place.

Toogood told CNBC that the market is reacting logically in anticipating “the big underlying change” in U.S. spending.

“We have got massive pent up savings, we have given away and have engineered particularly in the U.S. but elsewhere as well, the most amazing fiscal and monetary stimulus — unparalleled — and then we have 25% money supply growth which is the first time we have really had that since the 80s,” Toogood said.

Expectations that the money velocity in the U.S. will increase, following promises from Fed Chair Jerome Powell and Treasury Secretary Janet Yellen to “go big,” mean markets are adapting to a new goal of a “massive increase in nominal GDP,” he suggested.

According to the report from the Statistics Canada, manufacturing sales rose 3.1% to $56.2 billion in January, following a 1.3% gain in December. Economists had expected a 2.5% increase. Sales were up in 16 of 21 industries, driven mainly by the wood product, computer and electronic product, and primary metal industries. Motor vehicle manufacturing posted the largest decline. In constant dollars, manufacturing sales were up 1.1%, indicating a higher volume of goods sold in January. Sales of wood products rose 9.1% to $4.1 billion in January, driven by higher prices and sales volumes. Prices for lumber and other wood products increased for the ninth time in 12 months, rising 10.8% in January.

During today's European trading, the dollar rose modestly amid concerns about inflation ahead of this week's Federal Reserve meeting.

Traders have become wary of rising inflationary pressures amid massive fiscal stimulus and pent-up consumer demand, as the vaccination campaign leads to the end of the quarantine.

U.S. producer prices posted their biggest annual gain in more than two years, according to data released Friday, before President Joe Biden's $1.9 trillion stimulus package to help fight COVID-19 takes effect.

The benchmark 10-year Treasury yield is at 1.618% on Monday, close to last Friday's high of 1.64%.

This will draw attention to the US Federal Reserve's two-day meeting ending on Wednesday. Expectations are low that the central bank will announce major monetary policy changes at its second meeting this year, but it is likely to raise its growth and inflation estimates for 2021, making its first quarterly economic forecasts for the year.

Both the Bank of Japan and the Bank of England are also set to hold monetary policy meetings at the end of the week.

The ICE index, which tracks the dollar's performance against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose 0.18%.

According to the report from the Federal Reserve Bank of New York, business activity grew at a solid clip in New York State. The headline general business conditions index climbed five points to 17.4, its highest level since last summer. Thirty-four percent of respondents reported that conditions had improved over the month, while 17 percent reported that conditions had worsened.

New orders increased modestly, and shipments were up substantially. Delivery times continued to lengthen, and inventories were somewhat higher. Employment levels and the average workweek both increased modestly. Input price increases continued to pick up, rising at the fastest pace in nearly a decade, and selling prices increased significantly.

The index for future business conditions was little changed at 36.4, suggesting that firms remained optimistic about future conditions. The index for future shipments bounced up to 46.5. The index for future inventories rose to a multi-year high, and both the future prices paid and prices received indexes continued to march upward.

MarketWatch reports that one well-known analyst said that a bond market selloff is calling the tune across financial markets, including for foreign exchange, and equilibrium is unlikely to return until the yield on the benchmark 10-year U.S. Treasury note hits 2%.

“There will be no peace until U.S. 10s reach 2%,” said Kit Juckes, global macro strategist at Société Générale, in a note.

A pair of U.S. government bond auctions, which had been a source of nervousness, went off without any major problems over the past week, with yields settling into a new and higher range, Juckes said. 

Rising yields have triggered rotation away from growth-oriented stocks, including large-cap, tech-related shares, into more cyclically sensitive and often value-oriented stocks and sectors.

The rising yields have resulted in renewed strength for the dollar, which Juckes said he wasn’t eager to fight at the moment.

“The pattern seems clear enough: The equity market is seeing a sector rotation but not a correction; the bond market is seeking a new equilibrium in the light of a vastly improved economic outlook in both the U.S. and elsewhere; some policy makers are pushing back against the bond moves, with little success,” Juckes wrote.

“As yields rise, the dollar rallies, but when yields settle at a new level, the dollar drops back. The pattern probably goes on until bonds find an equilibrium, unlikely before 10-year note yields have a 2-handle, judging by taper tantrums and past cycles,” he said.

FXStreet reports that economists at Credit Suisse discusses EUR/JPY prospects.

“We look for the trend to stay directly higher with resistance seen next at 130.51, ahead of 131.38, then our main objective of 132.55 – the 78.6% retracement of the 2018/2020 bear trend. We would look for a better cap to then be found here. Support is seen higher at 1230.18 initially, with 129.81 now ideally holding to keep the immediate risk higher. Below can see a fall back to 129.56/55, potentially 129.22 again.”

Bloomberg reports that the German Green party’s efforts to seize the chancellorship got a major boost Sunday after Angela Merkel’s Christian Democratic Union suffered a rout in regional elections.

With Merkel due to step aside after September’s national vote, her party slumped to its worst results ever in two regional ballots on Sunday, as voters vented their frustration over the government’s handling of the pandemic and the slow pace of vaccinations.

The Greens were the big winners of the night, cementing their decade-long hold on power in Baden-Wuerttemberg with a third straight victory in the western state. They also gained the most support in neighboring Rhineland-Palatinate, where they govern with the Social Democrats -- who remained the strongest party -- and the liberal Free Democrats.

FXStreet reports that analysts at Credit Suisse discusses USD/CAD prospects.

“USD/CAD continued to move lower on Friday, with the market now testing the mid-February 2018 low at 1.2452. We still look for a more concerted effort to hold here into today’s close to maintain the choppy back and forward price action. However, a direct and closing break lower would instead suggest an acceleration of the core bear trend and see support next at 1.2402/00, then 1.2348/32, ahead of 1.2300.” 

“Beyond 1.2300, would see the potential uptrend from Main 2015 at 1.2277, just shy of the 2018 low at 1.2255, where we would expect to see a more concerted effort to hold.” 

RTTNews reports that  property market website Rightmove said that UK house prices increased in March as buyer demand reached record levels.

House prices rose 0.8 percent month-on-month in March, following a 0.5 percent rise in February.

The number of potential buyers enquiring about each available property in the month was at a record, and was 34 percent higher than the same period a year ago.

The current demand was driven by the side effects of the lockdowns and the additional spur of government incentives. Rightmove anticipates further price rises during the traditional spring selling season.

Year-on-year, house price growth slowed to 2.7 percent in March from 3 percent in the previous month.

FXStreet reports that Andrew Sheets, Chief Cross-Asset Strategist for Morgan Stanley, said that with global growth set to exceed expectations in 2021, emerging markets' assets would appear set for outperformance. But this year, three factors cloud that narrative.

“Better US growth should mean higher US interest rates, something that EM economies can be quite sensitive to. Those higher interest rates also make the US dollar more attractive to hold, putting downward pressure on the value of many EM currencies.”

“Many EM economies don't have the same ability as the US or Europe to borrow to support their economic recoveries. So while the usual pattern is for these more volatile EM economies to rebound more than the US as growth picks up; this year, we think they'll rebound less.”

“Stronger global growth should eventually improve the EM asset outlook. But for the time being, we see a better opportunity in cheaper, more cyclical developed markets. Between now and year-end, we think stocks in Europe and Japan will be more attractive to own.”

CNBC reports that U.S. Treasury yields fell slightly on Monday, but the 10-year held above the 1.6% mark, ahead of the Federal Reserve meeting later this week.

The Federal Open Market Committee is scheduled to meet on March 16 and 17. The Fed is expected to forecast better economic growth, following the signing of the $1.9 trillion coronavirus fiscal relief package last week.

Bonds investors will also be keeping an eye on whether the Fed alters its interest rate outlook, with its decision on rates due to be announced Wednesday after the FOMC meeting.

FXStreet reports that strategists at Capital Economics discusses Brent Oil prospects.

“Oil supply will remain constrained for some time yet. The rollover of current OPEC+ production cuts and the fact that demand is still subdued means that compliance with quotas, particularly in OPEC countries, is likely to remain high for at least the next few months.

“There will be a release of ‘pent-up’ demand as quarantine measures are lifted, starting in Q2. And even if international travel restrictions remain in place, we would still expect demand to pick up, as many people would take additional domestic trips instead.” 

“We expect the global oil market to be in a slightly bigger deficit in the first half of the year than we had expected, which will provide a further boost to prices. Nevertheless, we still think that the price of Brent (WTI) will fall to $70 ($67) per barrel by end-2021 and $60 ($57) by end-2022, respectively, as the boost from pent-up demand fades and supply revives.”

Reuters reports that Bank of England Governor Andrew Bailey said he was now more positive about the British economy as the novel coronavirus was in retreat though he cautioned the COVID-19 effect was huge.

Bailey said the British economy would recover this year and get back to its late 2019 level around the end of this year.

"There has been a very large build-up in saving in the economy," Bailey told the BBC. "The question of course then is: to what use will those savings be put?"

The BoE is expected to keep interest rates at their historic low of 0.1% and its bond-buying programme unchanged at 895 billion pounds at the end of its March meeting.

According to the report from Destatis, in February 2021 the selling prices in wholesale trade rose by 2.3% compared with February 2020. In January 2021 and in December 2020 the annual rates of change had been 0.0% and -1.2%, respectively. From January 2021 to February 2021 the index rose by 1.4%.

The biggest impact on the rate of change in the wholesale price index compared to the same month of the previous year was the increase in the wholesale price of ores, metals and semi-finished metals, up 15.3% compared to February 2020, due to the very high price increases for ores, especially iron ores, on the world market and as a result due to price increases in the metal industry.

There were particularly strong price increases compared to the previous year in the wholesale trade of waste materials and residues (+48.3 %) as well as cereals, raw tobacco, seeds and animal feed (+15.5 %).

On the other hand, prices for live animals (-26.3 %) and meat and meat products (-5.6%) were lower at wholesale level than in February 2020. The special development of prices for pigs and pork also had an effect on wholesale trade. This was characterised by high price increases in 2019 in connection with the very high demand from China, the fall in prices due to the lack of demand from the catering industry in 2020 due to corona, the hygiene-related shortage of capacity in slaughterhouses and the ban on imports of German pork from Asian countries imposed in September 2020. In the wholesale of data processing equipment, peripheral equipment and software, prices were 4.5% lower than in February 2020.

During today's Asian trading, the US dollar rose against the euro and the yen on expectations of the two-day meeting of the US Federal Reserve (Fed), which starts on Tuesday.

Investors are focused on the Fed's forecast of when to expect a rise in short-term interest rates. According to analysts, Fed Chairman Jerome Powell will not want to talk about this, but the ground will be prepared for discussions in the summer against the backdrop of peak inflation. In addition, some analysts expect the Fed to revise its GDP forecast after the adoption of a new $1.9 trillion stimulus package.

The Chinese yuan was almost unchanged against the dollar. Economic activity in China in January-February 2021 increased sharply compared to the same period a year earlier, when the country was virtually paralyzed by the COVID-19 pandemic. The volume of industrial production in the first two months of this year was 35.1% higher than in January-February last year, according to data from the National Bureau of Statistics of China. Experts on average predicted an increase in industrial production by 30%.

The dollar rose against the yen, updating a nine-month high. The weakening of the Japanese national currency contributes to the growth of risk appetite.

The ICE index, which tracks the dollar's performance against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose 0.17%.

FXStreet reports that UOB Group’s FX Strategists discusses USD/JPY prospects.

Next 1-3 weeks: “We have held a positive view in USD for more than 2 weeks now. In our latest narrative from last Wednesday, we highlighted that ‘the sharp pullback from 109.23 has diminished the odds for further USD strength’. We added, USD ‘has to push higher soon as a prolonged consolidation at these overbought levels would quickly increase the risk of a deeper pullback’. While USD rose to 109.16 on Friday (12 Mar), upward momentum has not improved by much. USD has to close above 109.25 before a sustained rise to 109.85 can be expected. Meanwhile, the current positive phase is deemed intact as long as USD does not move below 108.20 (‘strong support’ level was previously at 108.00).”

Bloomberg reports that Governing Council member Martins Kazaks said that the European Central Bank’s faster pace of emergency bond buying to rein in bond yields is a temporary strategy that will only last until the economy is stronger.

“If the economy performs better, it could be possible to provide less support,” Kazaks said. A “rise in yields will need to be accepted. But it should be gradual to avoid premature tightening.”

The remarks by Latvia’s governor highlight the fine line the ECB is walking as it strives to honor its pledge to keep financial conditions “favorable” through the pandemic. Policy makers have differed in their views on how much higher borrowing costs reflect budding economic optimism, and how much is an unwarranted spillover from the stronger U.S. rebound and fiscal stimulus.

“I would like to see growth more visibly,” Kazaks said. “I want to get more confidence that this recovery is really under way. We don’t know how the third wave of Covid will play out.”

Reuters reports that data released by the National Bureau of Statistics showed that new home prices in China rose at their fastest pace in five months in February, as red-hot demand for property in the world's-second largest economy largely eclipsed government efforts to cool the market.

Average new home prices in 70 major cities grew 0.4% in February from a 0.3% gain in January. New home prices rose 4.3% in February from a low base last year, after a 3.9% increase in January.

Real estate, a key pillar of China's economy, has helped fuel the country's robust economic recovery from last year's coronavirus-hit to output. But an extended surge in home prices in recent months has raised concerns about speculative asset bubbles, prompting tighter regulations to close loopholes in home transactions and contain illegal fund-flows into the sector.

The resilience of the housing market comes as China's economy managed to grow in 2020 and is widely expected to expand more than 8% this year, having succeded in getting the coronavirus largely under control.

RTTNews reports that according to the report from the National Bureau of Statistics, China's industrial production and retail sales rebounded in January to February, reflecting a strong recovery from the pandemic driven downturn.

Industrial production climbed 35.1 percent year-on-year in January to February period, faster than the 7.3 percent growth seen in December. This was also bigger than the expected rate of 30 percent.

Likewise, retail sales growth accelerated to 33.8 percent from 4.6 percent in December. Sales were forecast to gain 32 percent.

In January to February, fixed asset investment grew 35 percent from the same period last year. Economists had forecast a faster expansion of 40 percent.

This set of data shows the Chinese economy is recovering from Covid, especially in terms of consumption, Iris Pang, an economist at ING said.

But the very low base also masked the degree to which these strong figures are driven by underlying growth, the economist added. These low base-effects could last until April as economic activity started to pick up in May last year.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2072 (566)

$1.2047 (637)

$1.2027 (1132)

Price at time of writing this review: $1.1931

Support levels (open interest**, contracts):

$1.1901 (1385)

$1.1876 (2332)

$1.1846 (4983)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date April, 9 is 55966 contracts (according to data from March, 12) with the maximum number of contracts with strike price $1,1900 (4983);

GBP/USD

$1.4063 (523)

$1.4039 (778)

$1.3975 (675)

Price at time of writing this review: $1.3909

Support levels (open interest**, contracts):

$1.3872 (459)

$1.3837 (290)

$1.3814 (468)

Comments:

- Overall open interest on the CALL options with the expiration date April, 9 is 8434 contracts, with the maximum number of contracts with strike price $1,4100 (1277);

- Overall open interest on the PUT options with the expiration date April, 9 is 19287 contracts, with the maximum number of contracts with strike price $1,3200 (5598);

- The ratio of PUT/CALL was 2.29 versus 2.52 from the previous trading day according to data from March, 12

* - 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.