CFD Markets News and Forecasts — 19-02-2020

According to ActionForex, analysts at TD Bank Financial Group noted that Canada's consumer price index rose 2.4% year-on-year in January, slightly ahead of market expectations for 2.3%. Meanwhile, "adjusting for seasonality, consumer prices rose 0.1% month-on-month, slowing from December’s 0.4% pacea".

"Energy prices (and gasoline in particular) were again the main driver of year-on-year inflation. Gasoline prices accelerated to 11.2% (year-on-year) from 7.2% in December. The introduction of carbon pricing in Alberta contributed to the gain. Excluding gasoline, inflation remained steady at 2.0%."

"The Bank of Canada’s core inflation measures were mixed, but on average edged lower to 2.0% (from 2.1%) in January. CPI-common fell to 1.8% (from 2.0%), CPI-median was unchanged at 2.2% and CPI-trim edged up to 2.1% (from 2.0%)."

"The positive contribution to inflation from higher oil prices will certainly unwind in February, bringing the headline down with it. While oil and gasoline prices rose at the start of January, they plummeted through the month as news around the COVID-19 outbreak spread. The WTI benchmark price is down 12% on average so far in February from its average in January."

"The downside risks to the Canadian economy have intensified with the COVID-19 outbreak and lengthening rail blockades. The Bank of Canada had been hoping for a convincing rebound in growth following the slowdown in the fourth quarter of last year. That now appears unlikely."

"While temporary factors can (once again) be blamed for the ongoing slowdown, a long enough series of temporary setbacks is indistinguishable from something permanent. The consequence – a widening output gap, increased economic slack, and ultimately downward pressure on inflation – will not go unheeded by the central bank."

According to ActionForex, analysts at RBC Financial Group noted that Canada's headline inflation was stronger than expected at 2.4% y/y, while its core measures edged down to 2.0% after rounding.

"Headline inflation was stronger than expected in January, matching its fastest year-over-year pace since mid-2018. That hawkish surprise was offset to some extent by a slight dip in core inflation, which has been close to the Bank of Canada’s 2% target for two years now.

On-target inflation was one of the key reasons the BoC remained on the sidelines in 2019 while many other central banks, including the Fed and ECB, lowered interest rates. But while core inflation remains on the mark (and headline even firmer), the story has changed. Slower growth over the second half of last year means, in the BoC’s view, the economy is now operating with some slack. 2% core CPI is backward-looking and reflects the economy previously running close to full capacity.

So we don’t see current inflation readings as a barrier to the BoC cutting its benchmark rate to support growth and get the economy back to its potential. Indeed, market odds of a rate cut were only slightly dented by this morning’s data and a move is fully priced by the October meeting. Our own forecast is for a move in April, when we think the BoC’s tolerance of sluggish activity (coronavirus, the GM Oshawa closure, and rail disruptions seem to guarantee another quarter of sub-trend GDP growth in Q1/20) will wear thin."

FXStreet says that dollar strength has been a market theme since the start of 2018 while the EUR is the weakest performing G10 currency so far this month. Economists at Rabobank are not expecting a euro recovery. 

“We see little chance of a concerted bounce in EUR/USD in the coming weeks unless the fears about coronavirus dissipate sharply.”

“Given the USD’s safe haven function we interpret this as implying that the USD is set to be stronger for longer. By contrast, the EUR is currently being bogged down by the market’s reassessment of the German economic outlook.” 

“EUR/USD is likely to continue hovering around the 1.08 levels in the coming weeks. With a lot of bad news priced in, the EUR would likely be sensitive to better news either on the domestic Eurozone economy or about the coronavirus.” 

“If the economic news from China and S.E Asia worsens and the market consensus steps back from its hopes for a v-shaped recovery in Q2/Q3, EUR/USD would be vulnerable for a move towards 1.07 and potentially below.”

FXStreet notes that besides the coronavirus, the other major theme falls to the U.S. election. The divided Democratic convention alongside Trump’s rating of approval have weighed on the US dollar strength, analysts TD Securities apprise.

“Recall that while Iowa and New Hampshire attract much attention, they account for roughly 2% of the delegate count. Super Tuesday, on the other hand, accounts for nearly a third of the delegates.”

“While Bernie's chance of securing the nomination has been rising, Bloomberg odds have been on the rise too. There's now a better than even chance of a brokered Democratic convention. The result has been a perky USD, reflecting the reduced odds of a progressive shift in public policy.” 

“The USD has closely tracked Trump's approval ratings despite the rhetoric on a weak USD policy. We continue to like the USD higher in the short-run but flag the risk to US equities if Bernie makes a good showing over the next few weeks.”

U.S. stock-index futures rose on Wednesday amid signs of slowing coronavirus spread and expectations that China would take more measures to support its virus-hit economy.

Global Stocks:

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

Statistics Canada reported on Wednesday the country's consumer price index (CPI) rose 0.3 percent m-o-m in January, following a flat m-o-m performance in the previous month.

On the y-o-y basis, Canada's inflation rate increased 2.4 percent last month, accelerating from 2.2 percent in December. That was the highest inflation rate since May 2019.

Economists had predicted inflation would increase 0.2 percent m-o-m and 2.3 percent y-o-y in January.

According to the report, gasoline prices drove the CPI increase in January, surging 11.2 percent y-o-y due to concerns over global oil supplies in response to international political events. Excluding gasoline, the CPI rose 2.0 percent y-o-y. Elsewhere, prices for fresh vegetables rose 5.0 percent y-o-y and costs of clothing and footwear increased 3.9 percent y-o-y.

Meanwhile, the closely watched the Bank of Canada's core index rose 1.8 percent y-o-y in January, following a 1.7 percent y-o-y gain in December. Economists had forecast an advance of 1.8 percent y-o-y.

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The Commerce Department reported on Wednesday the housing starts fell by 3.6 percent m-o-m in January to a seasonally adjusted annual pace of 1.567 million, while building permits surged by 9.2 percent m-o-m to an annual rate of 1.551 million (the highest level since March 2007).

Economists had forecast housing starts decreasing to a pace of 1.425 million units last month and building permits rising to a pace of 1.450 million units.

Data for December was revised to show homebuilding growing to a pace of 1.626 million units, instead of increasing at a rate of 1.608 million units as previously reported.

According to the report, permits for single-family homes, the largest segment of the market, increased 6.4 percent m-o-m to a rate of 987,000 units in January (the highest level since June 2007), while approvals for the multi-family homes segment jumped 14.6 percent m-o-m to a 564,000 unit-rate.

In the meantime, groundbreaking on single-family homes declined 5.9 percent m-o-m to a rate of 1.010 million units in January, while housing starts for the multi-family rose 0.7 percent m-o-m to a 557,000 -unit pace.

The Labor Department reported on Wednesday the U.S. producer-price index (PPI) rose 0.5 percent m-o-m in January 2020, following an unrevised 0.2 percent m-o-m gain in December 2019.

For the 12 months through January, the PPI rose 2.1 percent, accelerating from 1.3 percent in the previous month. That was the largest gain since May 2019.

Economists had forecast the headline PPI would increase 0.1 percent m-o-m and 1.6 percent over the past 12 months.

According to the report, 90 percent of the January advance in the final demand index was attributable to prices for final demand services, which jumped 0.7 percent m-o-m. Meanwhile, the index for final demand goods edged up 0.1 percent m-o-m.

Excluding volatile prices for food and energy, the PPI also rose 0.5 percent m-o-m and surged 1.7 percent over 12 months. Economists had forecast gains of 0.2 percent m-o-m and 1.3 percent y-o-y, respectively.

• Coronavirus outbreak will have a certain impact on China's economy but the size and duration will be limited
• The fundamentals of China's economy have not changed
• China's economy faces several challenges but will fend off major financial risks
• Will comprehensively use monetary policy tools, keep yuan basically stable
• Will support firms to resume operation and production

GBP traded little changed against most major currencies in the European session on Wednesday, recovering from its early losses, helped by the release of higher-than-expected UK's consumer inflation data, which raised hopes that the Bank of England (BoE) would maintain its rates unchanged in the near-term perspective.

The Office for National Statistics (ONS) reported the UK consumer price index increased 1.8 percent y-o-y in January, following a 1.3 percent yo-y gain in December. Economists had expected a 1.6 percent y-o-y advance. That was the highest reading since July 2019. Housing and utilities (+2 percent y-o-y), transport (+1.8 percent y-o-y), restaurants and hotels (+2.2 percent y-o-y), clothing and footwear (+0.2 percent y-o-y), and miscellaneous goods and services (+2.4 percent y-o-y) made upward contributions to inflation in January, while food and non-alcoholic beverages (+1.4 percent y-o-y) were dragged. Meanwhile, core inflation which excludes energy, food, alcoholic beverages and tobacco, accelerated to 1.6 percent y-o-y in January from 1.4 percent y-o-y in December. Economists had forecast core inflation of 1.5 percent y-o-y.

EUR traded flat against most major counterparts. Market participants received data from Eurostat, which showed that Eurozone construction output declined 3.1 percent m-o-m in December, following a 0.7 percent m-o-m advance in November. In y-o-y terms, the construction output fell 3.7 percent in December after a 1.4 percent increase in the previous month. That was the biggest annual decline since January 2017 and contradicted economists' forecast for a 1.4 percent gain. The decline was driven by a 4.6 percent y-o-y slump in building construction, while civil engineering rose 0.9 percent y-o-y. 

FXStreet reports that in the opinion of analysts at TD Securities EUR/USD is set to lower towards the 1.0780 support. The Federal Open Market Committee (FOMC) and  US Housing Starts data are the main events of the day. 

“Though the USD runs a bit rich on our tactical dashboard, the discount is not large enough to have us reconsider its appeal. As a result, we are inclined to see EUR/USD's bleed lower continue with 1.0710/80 support range now in view.”

“The FOMC meeting minutes will lead the U.S. economics calendar on Wednesday. We believe the minutes are unlikely to include any major new revelations on the near-term outlook. However, they will likely include an update on the review being conducted by the Fed. We expect the review to result in the adoption of some form of average inflation targeting, which is dovish given sub-2% inflation.” 

“Lastly, we forecast a decline in housing starts to a 1,430K AR in January from an exaggerated 160K in December.”

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. fell 6.4 percent in the week ended February 14, following a 1.1 percent increase in the previous week. That was the biggest decline since the week ended November 29.

According to the report, refinance applications tumbled 8.0 percent, while applications to purchase a home fell 3.4 percent.

Meanwhile, the average fixed 30-year mortgage rate rose to 3.77 percent from 3.72 percent.

"Treasury yields moved slightly higher last week, despite uncertainty surrounding the economic impact from the spread of the coronavirus," noted MBA economist Joel Kan. "The 30-year fixed mortgage increased five basis points to 3.77% as a result, causing refinance applications - driven by an 11% drop in applications for conventional refinances - to fall."

• Adds, however, that situation remains severe
  
  

• Global economic growth is to pick up modestly in 2020 and 2021
• There are signs of easing tensions
• Downside risks to growth include coronavirus outbreak
• To enhance global monitoring, stand ready to take further action

FXStreet reports that Canada will release headline CPI data today at 13:30 GMT and the market consensus is an increase of 0.2% m/m and 2.3% y/y. Strategists at TD Securities deliver their forecast and the effects on the Canadian dollar.

“We look for headline CPI inflation to firm to 2.4% y/y in January, reflecting a 0.3% increase on the month.”

“With a cloud of uncertainty hanging over the global growth outlook due to the viral outbreak, we suspect that USD demand will remain in vogue; 1.3220 should offer support (~200dma) while the 1.3305 level (2020 high) will mark notable resistance.”

“On the crosses, we expect CAD to trade on the defensive. One major exception is the EUR which has been under relentless pressure. We do not see this ebbing anytime soon and we think EUR/CAD can bleed towards 1.42/43 in the coming weeks.”

USD/JPY holding around 110.00 – Commerzbank

FXStreet reports that Karen Jones from Commerzbank notes USD/JPY continues to consolidate at 110.00. The analyst maintains a bearish bias for the pair.  

“The market is underpinned by its seven month support line at 108.64 and is capped currently by the January high at 110.31. While this caps on a weekly chart closing basis, we will maintain an overall longer term bearish bias.” 

“Failure at the 107.65 January low is needed to reassert downside pressure to the 106.48 October low and the 105.00 region.”

CNBC reports that Morgan Stanley analysts wrote in a Wednesday report that China's economic growth in the first quarter could fall to as low as 3.5% if the spread of the new coronavirus is not contained fast enough for manufacturing production to resume to normal levels.

Manufacturing activities around China have been disrupted as authorities shut down cities in a bid to contain the virus, now called COVID-19. While factories have started to come online, checks by Morgan Stanley analysts found that production had only reached 30% to 50% of normal levels as of last week.

Morgan Stanley analysts said they expect manufacturing production in China to reach 60% to 80% of the usual levels by the end of this month, and be back to normal by middle to late March. But they warned of uncertainties surrounding the virus outbreak.

"Based on the evidence that production activities are currently resuming at a very gradual pace, we think that the current situation would be more in line with the scenario of 'gradual normalisation,'" the analysts wrote in the report.

"Given the uncertainties around the spread of the virus, we are watching the risks of transitioning to a scenario of 'extended disruption,'" they added.

FXStreet reports that economists at Standard Chartered Bank have updated their Chinese growth forecast cutting it though they expect a recovery in Q2 as coronavirus will be contained by March. USD/CNY is sitting at 6.989.

"We cut our 2020 growth forecast to 5.5% from 5.8% to reflect a longer delay in production."

"The government may set its 2020 growth target at around 6%, while allowing flexibility in measuring growth performance. Fiscal support may be substantial, with aggressive budget implementation and a greater focus on infrastructure spending."

"Our core scenario is that coronavirus will be contained by late March, paving the way for a Q2 recovery."

"If the epidemic is not contained by end-March as our base case assumes, the central bank may consider cutting the benchmark deposit rate."

According to first estimates from Eurostat, in December 2019 compared with November 2019, seasonally adjusted production in the construction sector decreased by 3.1% in the euro area (EA19) and by 2.8% in the EU27. In November 2019, production in construction increased by 0.7% in the euro area and by 0.8% in the EU27.

In December 2019 compared with December 2018, production in construction fell by 3.7% in the euro area and by 2.6% in the EU27.

The average production in construction for the year 2019, compared with 2018, increased by 1.8% in the euro area and by 2.4% in the EU27.

In the euro area in December 2019, compared with November 2019, building construction decreased by 3.6% and civil engineering by 1.4%. In the EU27, building construction decreased by 3.0% and civil engineering by 1.1%.

In the euro area in December 2019, compared with December 2018, building construction decreased by 4.6% while civil engineering increased by 0.9%. In the EU27 building construction decreased by 2.8% while civil engineering increased by 0.4%.

According to the report from Office for National Statistics (ONS), the Consumer Prices Index (CPI) 12-month rate was 1.8% in January 2020, increasing from 1.3% in December 2019. Economists had expected a 1.6% increase.

The Consumer Prices Index including owner occupiers' housing costs (CPIH) 12-month inflation rate was 1.8% in January 2020, increasing from 1.4% in December 2019. The largest contribution to the CPIH 12-month inflation rate in January 2020 came from housing, water, electricity, gas and other fuels (+0.55 percentage points), which increased by 0.19 percentage points since December 2019.

The largest upward contributions to the change in the CPIH 12-month inflation rate between December 2019 and January 2020 came from gas and electricity prices; fuels and lubricants; clothing; and airfares.

A separate report from the ONS showed that the headline rate of output inflation for goods leaving the factory gate was 1.1% on the year to January 2020, up from 0.9% in December 2019.

The growth rate of prices for materials and fuels used in the manufacturing process was 2.1% on the year to January 2020, up from 0.9% in December 2019.

Petroleum products made the largest upward contribution to the change in the annual rate of output inflation.

Imported metals provided the largest upward contribution to the change in the annual rate of input inflation.

According to the report from European Central Bank, in December 2019 the current account of the euro area recorded a surplus of €33 billion, compared with a surplus of €32 billion in November 2019.

According to preliminary results for 2019 as a whole, the current account recorded a surplus of €362 billion (3.1% of euro area GDP), compared with a surplus of €359 billion (3.1% of euro area GDP) in 2018.

In the financial account, euro area residents made net acquisitions of foreign portfolio investment securities totalling €343 billion in 2019 (up from €202 billion in 2018). Over the same period, non-residents made net acquisitions of euro area portfolio investment securities amounting to €352 billion (in comparison with net sales of €5 billion in 2018).

eFXdata reports that Barclays Research discusses its expectations for FOMC minutes from the January meeting.

"We expect the minutes from the January FOMC meeting to show that most members felt that policy was set appropriately in light of the outlook for progress toward the dual mandate. We expect the discussion to be tilted in the direction of assessing conditions in short-term funding markets and to what degree softness in the effective federal funds rate was driven by Fed liquidity provision through repo operations and Treasury bill purchases. The minutes should also contain further discussion on the review of the policy framework, though we expect few concrete details to emerge, and tentative discussion on the effects of the Covid-19 virus on the US and global outlook," Barclays notes.

"We expect committee members to be in a 'wait and see" mode about whether adjustments to the policy stance are needed, similar to the tone Chair Powell took in front of Congress during scheduled testimony," Barclays adds.

FXStreet reports that the outlook on Cable looks mixed but it could still attempt to test the 1.3160 region in the short-term, suggested FX Strategists at UOB Group.

24-hour view: "We highlighted yesterday that there "is room for GBP to test the 1.2980 support first before a rebound can be expected". Our view was not wrong as GBP dipped to 1.2971 before rebounding to touch 1.3049 during London hours (before easing off quickly). The rapid but short-lived swings have resulted in a mixed outlook. From here, GBP could trade in a choppy manner and within a relatively broad range of 1.2970/1.3060."

Next 1-3 weeks: "After popping to a high of 1.3069 last Thursday (13 Feb), GBP has not been able to make much headway on the upside. The price action was not exactly surprising as we highlighted last Friday (14 Feb, spot at 1.3045) that 'despite the strong advance, we do not view the current GBP strength as part of an uptrend'. For now, we continue to hold the view that the 'short-term strength could extend to 1.3160' but after the price action over the past couple of days, the prospect for further GBP strength has diminished. On the downside, a breach of 1.2950 would indicate that the current mild upward pressure has eased."

• a survey of around 26,000 firms shows that more companies still expect business to be worse rather than better this year

• investment sentiment is slightly better than it was from the October survey.

• DIHK expects growth of just 0.7 percent for the current year (vs. 0.5% previous).

"Around 0.5 percentage points of this are attributable to statistical effects such as the overhang from the previous year and four additional working days this year. That is why we currently see little real growth, " says DIHK chief executive Martin Wansleben. "What is worrying is that a whole range of data, particularly from industry, suggest that structural challenges are also associated with the current economic weakness, such as e-mobility, digitalisation, the energy transition and the continuing shortage of skilled workers. Some regions are particularly affected."

46 percent of companies classify the factor "economic policy framework conditions" as a risk for their own business development. "This is the highest value we have ever measured," says Wansleben. "This has to do with international uncertainties such as the ongoing trade conflict between the US and China, Brexit and the still unforeseeable consequences of the Coronavirus. But there is also growing concern about the lack of momentum in Germany. In view of Europe's highest electricity prices, high taxes compared to the OECD and slow and incomplete internet connections, many companies, especially in industry, are increasingly asking themselves the question: How can we remain competitive in this country in the long term?"

The US dollar fell slightly against the euro after a jump in the previous session on signals that the spread of the coronavirus has a significant impact on global manufacturing activity and economic growth.

Concerns about the possible effects of the coronavirus on the global economy have supported the dollar and yen recently. However, signals that the epidemic was easing in China on Wednesday caused the yen to fall against all major world currencies.

The yen is cheaper as "traders' sentiment towards risky assets is improving along with a slowdown in the number of new cases in China," said Kyosuke Suzuki, an analyst at Societe Generale's Tokyo division .

In China, as of 00:00 local time on Wednesday (19:00 Moscow time on Tuesday), the number of cases of pneumonia caused by the Covid-19 coronavirus was 74.185 thousand people, the fatal outcome was recorded in 2.004 thousand cases, the state health Committee of China reported.

FXStreet reports that Ray Attrill, Head of FX strategy at National Australia Bank (NAB), said in his latest client note that the US dollar could benefit from both risk-on and risk-off market conditions.

"The dollar seems to be benefiting from risk-on conditions where its yield attractions in an ultra-low FX volatility environment still stand out and its equity market continues to perform better than elsewhere.

The dollar is also able to benefit from risk-off conditions via traditional safe haven support for US Treasuries.

The diverging economic data performance recently between the euro and dollar as a key reason as well by noting that this has aggravated euro weakness while supporting the greenback at the same time."

According to the report from Australian Bureau of Statistics, the seasonally adjusted Wage Price Index (WPI) rose 0.5 per cent in the December quarter 2019 and 2.2 per cent through the year.

ABS Chief Economist, Bruce Hockman stated "The seasonally adjusted quarterly rise of 0.5 per cent extended the period of moderate growth observed throughout 2019, and was influenced by the relative stability of the labour underutilisation rate. Annually, both private and public sector wages rose 2.2 per cent; this was the lowest public sector growth rate since the commencement of the index in December quarter 1997."

For the first time since 2012, private sector wages grew at a faster rate than the public sector (0.5 compared to 0.4 per cent), in original terms.

Across industries, annual wage growth in 2019 ranged from 1.6 per cent for the information media and telecommunication services industry to 3.1 per cent for the health care and social assistance industry.

EUR/USD

Resistance levels (open interest**, contracts)

$1.0915 (1493)

$1.0879 (479)

$1.0853 (332)

Price at time of writing this review: $1.0797

Support levels (open interest**, contracts):

$1.0759 (2931)

$1.0726 (3259)

$1.0686 (1263)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 6 is 105550 contracts (according to data from February, 18) with the maximum number of contracts with strike price $1,1200 (6388);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3214 (3003)

$1.3132 (3589)

$1.3072 (2103)

Price at time of writing this review: $1.2993

Support levels (open interest**, contracts):

$1.2961 (647)

$1.2938 (1642)

$1.2909 (2518)

Comments:

- Overall open interest on the CALL options with the expiration date March, 6 is 28197 contracts, with the maximum number of contracts with strike price $1,3050 (3819);

- Overall open interest on the PUT options with the expiration date March, 6 is 30011 contracts, with the maximum number of contracts with strike price $1,2800 (3632);

- The ratio of PUT/CALL was 1.06 versus 1.05 from the previous trading day according to data from February, 18

* - 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.