CFD Markets News and Forecasts — 17-05-2021

According to ActionForex, analysts at TD Bank Financial Group note that April was yet another in a series of strong months for housing starts in Canada, but warn they expect some moderation in starts as demand comes off the boil and interest rates rise

"In April, Canadian housing starts dropped 19.8% from March’s record high, although they still came in at a rock-solid 268.6k units. On a six-month moving average basis, starts were extremely elevated at 279.1k units."

"April’s decline in urban starts was concentrated in multi-family (-22.8% m/m) units, with the single-detached category flat on the month."

"Like clockwork, April was yet another in a series of strong months for starts. The backdrop for homebuilding remains favourable (soaring lumber prices and slow population growth notwithstanding), as housing demand is strong and prices are high. In addition, interest rates and unsold new inventories (which fell even more in April) are low. And, with building permits currently sitting at multi-year highs, further near-term gains are in store for both singles and multi-family family units."

"Moving past the near-term, we anticipate some moderation in starts as demand comes off the boil and interest rates rise. Purpose-built rental construction has been an important driver of homebuilding. For example, they accounted for 1/3rd of starts in the first quarter – matching a multi-decade high. Looking forward, an anticipated pick up in population growth should support rental demand, although soft growth in rents and high vacancy rates in several key markets present challenges."

• We've in a very fluid period
• It looks like the economy can pick up speed this year
• We could have 6-7% GDP growth this year
• April employment report was very disappointing
• It may take more time to reopen a $20-trillion economy than to shut it down
• If data threaten to put inflation expectations higher, the Fed would act
• Baseline view is that achieving maximum employment will not put undue pressure on prices

The National Association of Homebuilders (NAHB) announced on Monday its housing market index (HMI) stood at 83 in May, unchanged from 83 in April.

Economists had forecast the HMI to remain at 83.

A reading over 50 indicates more builders view conditions as good than poor.

The three HMI components were mixed this month. The indicator gauging current sales conditions held steady at 88, while the component measuring traffic of prospective buyers decreased 1 point to 73 and the measure charting sales expectations in the next six months went up 1 point to 81.

NAHB Chairman Chuck Fowke noted: “Builder confidence in the market remains strong due to a lack of resale inventory, low mortgage interest rates, and a growing demographic of prospective home buyers. However, first-time and first-generation home buyers are particularly at risk for losing a purchase due to cost hikes associated with increasingly scarce material availability.”

Meanwhile, NAHB Chief Economist Robert Dietz noted: “Low-interest rates are supporting housing affordability in a market where the cost of most materials is rising. In recent months, aggregate residential construction material costs were up 12% year over year, and our surveys suggest those costs are rising further. Some builders are slowing sales to manage their own supply chains, which means growing affordability challenges for a market in critical need of more inventory.” With labor and lot availability a challenge in many markets, Dietz cautioned that “home buyers should expect rising prices throughout 2021 as the cost of materials, land and labor continue to rise.”

• We will see a lot of change in the market over the summer
• Pent-up demand will put pressure on prices
• We will be looking at how rapidly the economy recovers
• I'm not worried about housing much right now; housing market supply is tight, which will lead to higher prices
• I'm hopeful we'll have a more rational housing market in the coming months
• I'm going to keep my eyes open on inflation but now is not the time to worry about moving
• Until we make substantial progress to close the unemployment gap, we need strong policies

U.S. stock-index futures fell on Monday, as persistent concerns over accelerating inflation in the U.S. and a sooner-than-signaled tightening by the Fed, combined with a renewed coronavirus surges in Asia, made investors take a cautious stance.

Global Stocks:

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The report from the New York Federal Reserve showed on Monday that manufacturing activity in the New York region continued to grow in early May, albeit at a slightly slower pace than in April.

According to the survey, the NY Fed Empire State manufacturing index fell from 26.3 in April to 24.3 in May, pointing to a continuation of a solid business activity growth in the region.

Economists had expected the index to come in at 23.9.

Anything below zero signals contraction.

According to the report, the new orders index rose 2.0 points to 28.9, a multi-year high, and the shipments index rose 4.7 points to 29.7, pointing to another month of strong gains in orders and shipments. Meanwhile, the delivery times index fell 4.5 points, but at 23.6, it held near its record high from last month, pointing to significantly longer delivery times. The employment index edged down 0.3 points to 13.6, indicating a modest rise in employment. On the price front, both price indexes reached record highs: the prices paid index climbed 8.8 points to 83.5, and the prices received index went up 2.2 points to 37.1.

The Canada Mortgage and Housing Corp. (CMHC) reported on Monday the seasonally adjusted annual rate of housing starts was at 268,631 units in April, down 19.8 percent from a downwardly revised 334,759 units in March (originally 335,200 units). This was the lowest reading since December 2020.

Economists had forecast an annual pace of 280,000 for April.

According to the report, urban starts plunged by 16.9 percent m-o-m last month to 251,504 units, as multiple urban starts tumbled by 22.8 percent m-o-m to 251,504 units, while single-detached urban starts edged down 0.1 percent m-o-m 78,918 units. At the same time, rural starts were estimated at a seasonally adjusted annual rate of 17,127 units.

GBP strengthened against most of its major rivals in the European session on Monday, as Britain lifted a number of business and gathering restrictions, which were imposed to slow the spread of the COVID-19 pandemic earlier this year. 

On Monday, another host of lockdown rules were eased in England, Scotland and Wales, including the permission for pubs, bars, cafes and restaurants to serve customers indoors. But the UK's government warned that outbreaks of the Indian variant of coronavirus could cause a delay of the next - the third - stage of easing restrictions, currently planned for June. The British health secretary Matt Hancock said on Sunday that the new variant can “spread even faster” than the so-called UK's variant of the virus, which caused the second coronavirus wave during winter. He also noted that the Indian variant is already “becoming the dominant strain in some parts of the country."

FXStreet reports that FX Strategists at UOB Group believe that the upside momentum in USD/CNH is expected to meet the next resistance at the 6.4650 level in the short-term horizon.

24-hour view: “USD traded between 6.4317 and 6.4510 last Friday before closing slightly lower at 6.4405 (-0.15%). Momentum indicators are mostly neutral and USD is expected to consolidate and trade between 6.4300 and 6.4500 for today.”

Next 1-3 weeks: “Despite the relatively sharp bounce, upward momentum has not improved by much. From here, USD could edge higher but any advance is likely limited to a test of 6.4650. There is another strong resistance at 6.4800. On the downside, a breach of 6.4200 (‘strong support’ level) would indicate that the current mild upward pressure has eased.”

FXStreet reports that analysts at Credit Suisse note that EUR/JPY closed above our prior 132.55 objective on Friday – the 78.6% retracement of the 2018/2020 bear trend. This should reassert the uptrend for a test of the key highs of April and September 2018 at 133.13/49 next.

“EUR/JPY finally broke above the 78.6 % retracement of the entire 2018/2020 bear trend at 132.55 on Friday. This should bring the brief consolidation to an end and reinforce the broader uptrend, with resistance seen next at the September 2018 highs at 133.12/13, potentially as far as the 133.49 high of April 2018, with another temporary cap expected for now in this 133.13/49 zone.” 

“We eventually see scope for a move to the 137.50 2018 high." 

Fed: Five reasons to taper - DBS Bank

FXStreet notes that after consolidating for the past two months, USD rates are starting to stir amidst more intense inflation debates – 10Y US-T yields swung from a low of 1.46% to a recent high of 1.70%. Economists at DBS bank list five reasons why taper is coming, sticking to the view that 10Y US yields can touch 2% this year and head into the 2-2.5% range thereafter.

“Financial conditions are benign. Stresses in the various markets are contained, with implied volatilities in equities and swaps on the low side. Credit and liquidity risks are extremely low in the money markets.”

“Vaccinations are going well in the Developed Market space. At the current pace of vaccination (about 10mn shots per week), the US would be on track to achieve herd immunity (close to 70% of population vaccinated) by July. This would allow segments of the economy that previously were unable to normalize to finally stage a meaningful recovery.”

“Inflation is uncomfortably high. Sequential inflation of 0.8% MoM and a YoY figure of 4.2% can be difficult to ignore. We would note that core inflation is also much higher than what consensus expected. While April is just one data point, there are concerns that a broadening out of price pressures could take place in the coming months. While realized inflation is important, we do think that the Fed has to pay attention to more timely indicators.”

“The labour market is strong, notwithstanding the payrolls stumble in April. To be sure, we are probably not at the Fed’s hurdle where taper is imminent. The economy has recovered about two-thirds of the jobs lost during the Pandemic and the U3 unemployment rate of 6% probably flatters the labour market situation. We reckon that actual unemployment is probably a tad above 8% but this adjusted figure can quickly fall if we get another 2-3 months of strong payrolls. This could set the stage for a Fed pivot in late 3Q.” 

“There are signs of excess liquidity and that is probably contributing to froth in selected assets as short-term USD rates get anchored. It is probably easier to taper asset purchases to manage the unwanted influx of liquidity. In any case, UST issuances may have peaked with Pandemicrelated spending likely to ease towards the end of the year. There may not be as strong a need for the Fed to absorb incoming bond supply towards late 2021.”

“We see compelling reasons for taper and expect the Fed to pivot (signal) later this year. We reiterate our above consensus 2% 10Y US yield forecast for 2021.”

FXStreet reports that the USD/CAD pair has shifted into a short-term range between key long-term support at 1.2062/47 and short-term resistance at 1.2190/2206. Analysts at Credit Suisse stay bearish though – looking for an eventual break below the aforementioned support.

“Post this sideways consolidation phase, we look for a resumption of the strong medium-term downtrend and an eventual break below 1.2062/4 7. A weekly close below here would complete a multi-year ‘double top’ to dramatically reinforce our medium-term bearish outlook, with the next level at 1.1916.” 

“Near-term resistance stays at 1.2190/2206, above which would reassert the corrective potential, with the next levels at 1.2262/80.”

EUR/CHF: Bullish while above uptrend at 1.0905, eyes a breach of 1.1075 - Commerzbank

FXStreet notes that EUR/CHF is bid above the 1.0905 six-month uptrend. Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, expects the pair to advance nicely from this level.

“EUR/CHF is underpinned by the 1.0915 June 2020 high and the 1.0905 six-month uptrend. We look for this to hold the downside and recover.”

“A close above the 1.1075, the end of April high will target the 1.1151/52 March high and 200-week ma. Above here will target the 50% retracement of the entire move down from the 2018 peak at 1.1255.”

FXStreet reports that the Credit Suisse analyst team discusses EUR/USD technical outlook.

“Whilst above the 2021 lows at 1.2071/51, the immediate risk can still lean higher. A break above 1.2152, which has stalled the market this morning, would reinforce the 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 1.2071/51 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.”

CNBC reports that the U.K. relaxed restrictions on its economy and social contact further on Monday, but the spread of the Covid variant that first emerged in India is threatening a full lifting of measures.

From Monday, pubs, bars and restaurants are allowed to serve customers inside; museums, cinemas and theaters can reopen; and exercise classes and indoor sports can resume. In addition, up to six people or two households can now socialize indoors and gatherings of up to 30 people are allowed outside.

International travel can also resume on Monday with people allowed to go on foreign holidays. Countries have been put on a “green,” “amber” or “red” list — with varying quarantining rules on return to the U.K. — determined by their infection rate.

While the reopening is a sigh of relief for the hospitality, leisure and travel industry, the lifting of restrictions is being tempered by a rise in Covid cases that has been attributed to a variant of the coronavirus that first emerged in India.

U.K. Prime Minister Boris Johnson has called for a cautious approach to the reopening, warning that the spread of the new variant could threaten further easing on June 21, when it was hoped all restrictions on social contact would be lifted.

FXStreet reports that economists at Charles Schwab discuss the prospects for US Treasury yields.

“The global recovery should pick up in the second half of the year as more widespread vaccinations allow economies to open. Bond yields in other major developed countries will likely move higher as economic momentum picks up. In the second half of the year, improving growth should lead to rising global yields, potentially pulling US yields higher as well.”

“Fiscal and monetary policies are supportive for growth and inflation. The American Rescue Plan should continue to influence consumer spending and aid small businesses and state and local governments. With the pick-up in activity, yields are likely to keep rising.”

eFXdata reports that Bank of America Global Research discusses GBP/USD technical outlook.

"One of our 2021 year ahead technical views favored higher GBP/USD with potential for multi-year upside. The bottom structure has progressed plenty this year with monthly closes above 1.35 signaling a long term uptrend. This formed a head and shoulders bottom and wedge bottom. The head and shoulders bottom pattern estimates upside to 1.47 and 1.55. From this view it doesn't seem difficult to see GBP/USD retracing up to the Brexit day high in 2016 of 1.50. This month spot looks forward to a close above the 100m SMA at 1.41 for more bullish confirmation," BofA adds.

FXStreet reports that economists at HSBC still expect modest USD weakness this year, but the greenback could outperform other currencies over the long run.

“The belief that the global economy is gradually healing should imply that some future degree of monetary policy normalisation will eventually occur, which is then partly discounted by exchange rates today.”

“The Federal Reserve (Fed) is only willing to change to a more hawkish stance if the rise in growth and inflation turns out to be durable rather than transitory. Nevertheless, the volatility in recent activity data and noisy inflation base effects imply that this probably will not become clear until later this year.”

“As long as US fiscal and monetary stimulus is generating spill overs for the rest of the world, such that there is a synchronous global recovery, albeit at somewhat uneven speeds, the broad USD is to weaken modestly.”

According to the report from Istat, in April 2021 the rate of change of Italian consumer price index for the whole nation (NIC) was +0.4% on monthly basis and +1.1% on annual basis (from +0.8% in March), confirming the flash estimate.

The speed-up of All-item index was mainly due to that of prices of Energy (from +0.4% in March to +9.8%) and specifically to prices of both Regulated (from -2.2% to +16.8%) and Non-regulated energy products (from +1.7% to +6.6%); this dynamics was only partially offset by the trend reversal of prices of Unprocessed food (from + 1.0% to -0.3%) and of Services related to transport (from + 2.2% to -0.7%).

Both core inflation (excluding energy and unprocessed food) and inflation excluding energy were +0.3% (down from +0.8% in the previous month).

The increase on monthly basis was mainly due to the prices of Regulated energy products (+3.6%), of Services related to recreation, including repair and personal care (+1.4%), of Non-regulated energy products and of Food including alcohol (both +1.0%), only partially offset by the decrease of prices of Services related to transport (-1.2%).

In April 2021 the rate of change of the Italian harmonized index of consumer prices (HICP) was +0.9% on monthly basis and +1.0% on annual basis (from +0.6% in March), confirming the flash estimate.

FXStreet reports that Biden’s infrastructure package is ambitious, but economists at Capital Economics doubt it will pass in its current form. 

“It is unlikely the Plan will pass as a standalone bill, especially not in its current form. To do so, the President would have to garner support from at least 10 Republican senators or eliminate the filibuster, both of which appear unlikely. As a result, we think the most likely outcome is that the Plan is passed through budget reconciliation sometime after October this year, in a bill that would probably include aspects of the American Jobs Plan and Made in America Tax Plan.”

“On the energy side, it would pose a significant downside risk to our long-term oil, natural gas and coal price forecasts through an accelerated adoption of electric vehicles and the replacement of fossil fuels in electricity generation. However, we are particularly sceptical about whether the carbon-free electricity generation target will end up being included in any final bill.”

“While there could be a sizeable impact on the prices of nickel and cobalt from faster EV adoption, we think that the impact on most industrial metal prices would be fairly small.”

Reuters reports that according to the survey by job search website Adzuna, british businesses ramped up their search for new staff as pubs, restaurants and other hospitality and travel firms got ready for Monday's lifting of coronavirus restrictions in England.

But an exodus of foreign workers is aggravating a shortage of candidates, with more than 10 jobs on offer for every job-seeker in some cities.

Job adverts on Adzuna jumped to 987,800 in the first week of May, up by 18% from the end of March, which was before the reopening of non-essential retailers and hospitality firms for outdoor service on April 12.

A further lifting of restrictions to allow pub and restaurants to serve customers indoors takes place in England on Monday.

However, a lot of workers had given up on looking for hospitality and retail jobs in favour of more secure work after three lockdowns in the past year, it said.

"There are also far fewer foreign workers seeking employment in the UK with overseas interest in UK jobs more than halving from before the pandemic, hitting these industries hard," Andrew Hunter, a co-founder of Adzuna, said.

Adzuna said 250,000 fewer job-seekers from western Europe and North America applied for work in the United Kingdom per month between February and April than before pre-pandemic.

During today's Asian trading, the US dollar was trading steadily against major currencies.

The ICE index, which tracks the dollar's performance against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell 0.02%. Last week, the index fell to the lowest level in the last 11 weeks on data that showed a rise in US inflation in April to the highest in the last 13 years.

Several members of the US Federal Reserve System (Fed) last week said that, in their opinion, the current dynamics of inflation is temporary, so they do not expect a faster increase in interest rates.

The pound rose slightly against the US dollar. British Prime Minister Boris Johnson said on Friday that the Indian strain of the coronavirus could prevent the weakening of lockdown in the UK.

Meanwhile, data showed that economic activity in China slowed slightly in April after a sharp jump in the previous month, which was due, among other things, to a low base for comparison. Retail sales jumped 17.7% compared to the same month in 2020, according to data from the State Statistics Office. In March, an increase of 34.2% was recorded.

FXStreet reports that according to Jane Foley Senior FX Strategist, Head of FX Strategy at Rabobank, the re-inflation/inflation debate is unlikely to fade meaning that pockets of USD strength are likely in the coming months.

“Almost irrespective of whether or not the Fed is correct in its assessment that this year’s inevitable spikes in inflation will pass, there are sufficient doubts over whether all price pressures will be fleeting to keep the market anxious. This suggests scope for choppy trading which implies that there are likely to be pockets of support for the USD in the coming months”  

“In the bond market, a moderate move higher in real yields would generally be taken as a signal that the market is expecting a decent economic recovery, meaning that expectations about an increase demand will be outstripping those related to higher inflation. This scenario should therefore be broadly welcomed.”

According to the report from the Federal Statistical Office (FSO), the Producer and Import Price Index increased in April 2021 by 0.7% compared with the previous month, reaching 101.6 points (December 2020 = 100). Higher prices were seen in particular for computer, electronic and optical products, machinery, basic metals, semi-finished metal products and metal products. Compared with April 2020, the price level of the whole range of domestic and imported products rose by 1.8%.

In particular, higher prices for watches, machinery, metal products, basic metals and semi-finished metal products were responsible for the growth in the producer price index compared with the previous month. Electrical equipment, medical and dental instruments and supplies, meat and meat products as well as slaughter pigs also became more expensive.

The import price index showed price increases compared with March 2021 in particular for basic metals, semi-finished metal products, machinery, metal products, computer, electronic and optical products, fuels and electrical equipment. The same applied for furniture, medical and dental instruments and supplies, vegetables, melons and potatoes. In contrast, petroleum and natural gas became cheaper.

Reuters reports that data released by the National Bureau of Statistics showed that new home prices in China grew at the fastest pace in eight months in April, despite the government's ramped-up efforts to tame the market and tackle an alarming build-up in debt.

Average new home prices in 70 major cities grew 0.6% in April from a month earlier, the quickest pace since August 2020 and a notch up from a 0.5% gain in March. On a year-on-year basis, growth in new home prices rose to an eight-month high of 4.8%, compared with 4.6% in March.

First- and second-tier cities continued leading monthly price growth, with new home prices in those cities rising an average of 0.6% month-on-month in April.

Real estate, a vital source of growth for China's economy, has bounced back quickly from the COVID-19 crisis. But a relentless rise in home prices in big cities, which is now spilling over into nearby smaller ones, has raised concerns about overheating.

The NBS data showed 62 cities reported monthly gains, unchanged from the tally in March.

Separate NBS figures showed China's real estate investment rose 21.6% in the first four months of the year, slowing from 25.6% in the first quarter, amid increased scrutiny of developers to prevent rampant debt growth.

RTTNews reports that the National Bureau of Statistics said that industrial production in China was up 9.8 percent on year in April, in line with expectations following the 14.1 percent jump in March.

The bureau also said that fixed asset investment spiked 19.9 percent on year, beating forecasts for 19.0 percent and down from 25.6 percent in the previous month.

Retail sales advanced an annual 17.7 percent, missing forecasts for 24.9 percent and down sharply from 34.2 percent a month earlier.

The jobless rate was 5.1 percent in April, down from 5.3 percent in the previous month.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2241 (4299)

$1.2212 (2398)

$1.2190 (3610)

Price at time of writing this review: $1.2127

Support levels (open interest**, contracts):

$1.2109 (324)

$1.2088 (772)

$1.2060 (1111)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 4 is 63450 contracts (according to data from May, 14) with the maximum number of contracts with strike price $1,2200 (4299);

GBP/USD

$1.4250 (1231)

$1.4192 (2341)

$1.4152 (1078)

Price at time of writing this review: $1.4083

Support levels (open interest**, contracts):

$1.4009 (349)

$1.3949 (247)

$1.3873 (283)

Comments:

- Overall open interest on the CALL options with the expiration date June, 4 is 21040 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 32316 contracts, with the maximum number of contracts with strike price $1,3100 (4719);

- The ratio of PUT/CALL was 1.54 versus 1.07 from the previous trading day according to data from May, 14

* - 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.