CFD Markets News and Forecasts — 22-10-2020

• Hopeful aid agreement will be reached
• "We're just about there" on stimulus deal

The Conference Board announced on Thursday its Leading Economic Index (LEI) for the U.S. rose 0.7 percent m-o-m in September to 107.2 (2016 = 100), following a revised 1.4 percent m-o-m climb in August (originally a 1.2 percent m-o-m gain).

Economists had forecast an increase of 0.7 percent m-o-m.

“The US LEI increased in September, driven primarily by declining unemployment claims and rising housing permits. However, the decelerating pace of improvement suggests the US economy could be losing momentum heading into the final quarter of 2020,” noted Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “The US economy is projected to expand in Q4, but at a substantially slower rate of 1.5 percent (annual rate) according to The Conference Board’s GDP forecast. Furthermore, downside risks to the recovery may be increasing amid rising new cases of COVID-19 and continued labor market weakness.”

The report also revealed the Conference Board Coincident Economic Index (CEI) for the U.S. increased 0.2 percent m-o-m in September to 101.7, following a 0.8 percent m-o-m rise in August. Meanwhile, its Lagging Economic Index (LAG) for the U.S. edged down 0.1 percent m-o-m in September to 107.6, following a 0.1 percent m-o-m fall in August.

The National Association of Realtors (NAR) announced on Thursday that the U.S. existing home sales surged 9.4 percent m-o-m to a seasonally adjusted rate of 6.54 million in September from a revised 5.98 million in August (originally 6.00 million). That was the highest reading since May 2006.

Economists had forecast home resales increasing to a 6.30 million-unit pace last month.

In y-o-y terms, existing-home sales jumped 20.9 percent in September.

According to the report, each of the four major regions experienced both m-o-m and y-o-y growth. Single-family home sales stood at 5.87 million in September, up 9.7 7 percent m-o-m from 5.35 million in August, and up 21.8 7 percent from one year ago. The median existing single-family home price was $316,200 in September, up 15.2 7 percent from September 2019. Meanwhile, existing condominium and co-op sales were recorded at a seasonally-adjusted annual rate of 670,000 units in September, up 6.3 percent m-o-m from August and up 13.6 percent from one year ago. The median existing condo price was $272,700 in September, an increase of 9.9 percent from a year ago.

"Home sales traditionally taper off toward the end of the year, but in September they surged beyond what we normally see during this season," noted Lawrence Yun, NAR's chief economist. "I would attribute this jump to record-low interest rates and an abundance of buyers in the marketplace, including buyers of vacation homes given the greater flexibility to work from home."

The European Commission (EC) said on Thursday its flash estimate showed the consumer confidence indicator for the Eurozone fell by 1.6 points to -15.5 in October from an unrevised -13.9 in the previous month. That was the lowest reading since May.

Economists had expected the index to decrease to -15.0.

Considering the European Union (EU) as a whole, consumer sentiment also worsened by 1.6 points to -16.5.

Given this month’s declines, both indicators were well below their long-term averages of -11.2 (Eurozone) and -10.6 (EU).

U.S. stock-index futures fell on Thursday, as weekly jobless claims data pointed to a slowing recovery in the U.S. labor market, while stimulus talks dragged on. 

Global Stocks:

FXStreet reports that analysts at Credit Suisse note that S&P 500 posted another potentially bullish “inverted hammer” candlestick reversal on Wednesday, which reinforces the conviction that the “neckline” to its “head & shoulders” base and the 38.2% retracement of the recent recovery at 3428/18 will hold for a turn back higher.

“The S&P 500 completed another potentially bullish ‘inverted hammer’ candlestick reversal on Wednesday above the ‘neckline’ to its recently completed base at 3428/27 and the 38.2% retracement of the recent recovery at 3420/18. Yet another potential reversal pattern reinforces our view that 3428/18 will provide a solid floor for the uptrend to resume.” 

“Resistance stays at 3477, above which would bullishly confirm yesterday’s session for strength back to 3516/18, then 3550, above which would trigger a move back to the 3588/95 high, which is also the upper end of its ‘typical’ extreme (15% above the 200-day average). Whilst this should clearly be respected, we look for a break in due course, with our ‘measured base objective’ at 3653.” 

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

• Says stimulus talks are on a good path

Tesla (TSLA) upgraded to Outperform from Neutral at Robert W. Baird; target raised to $488

Tesla (TSLA) upgraded to Mkt Outperform from Mkt Perform at JMP Securities; target $516

Freeport-McMoRan (FCX) reported Q3 FY 2020 earnings of $0.29 per share (versus $0.01 per share in Q3 FY 2019), beating analysts’ consensus estimate of $0.21 per share.

The company’s quarterly revenues amounted to $3.851 bln (+16.4% y/y), beating analysts’ consensus estimate of $3.676 bln.

FCX rose to $17.80 (+0.45%) in pre-market trading.

The data from the Labor Department revealed on Thursday the number of applications for unemployment unexpectedly decreased more than forecast last week, as the U.S. labor market is continuing a recovery from its biggest shock in history, caused by the COVID-19 pandemic.

According to the report, the initial claims for unemployment benefits totaled 787,000 for the week ended October 17. That was the lowest level since the U.S. went into coronavirus lockdown in mid-March.

Economists had expected 860,000 new claims last week.

Claims for the prior week were revised downwardly to 842,000 from the initial estimate of 898,000.

Meanwhile, the four-week moving average of claims dropped to 811,250 from a downwardly revised 832,750 in the previous week.

Continuing claims declined to 8,373,000 million from a downwardly revised 9,397,000 in the previous week.

USD strengthened against most of its rivals in the European session on Thursday as renewed uncertainty about a new stimulus bill in the U.S. and a surge in global COVID-19 cases boosted demand for safe-haven assets.

The U.S. House Speaker Nancy Pelosi’s deputy chief of staff, Drew Hammill, tweeted yesterday that the speaker and Treasury Secretary Steven Mnuchin made progress in their negotiations and are expected to speak again on Thursday. The drawn-out talks, however, raised the suggestion that the new relief package is not likely to pass before the November 3 presidential elections in the U.S. 

The U.S. Senate Majority Leader Mitch McConnell also cast doubts on whether the stimulus bill could pass before the elections. In addition, he announced plans to vote on a more limited relief package. Negative sentiment was also added by the U.S. President Donald Trump's Wednesday tweet, accusing Democrats of being unwilling to find a compromise. “Just don’t see any way Nancy Pelosi and Cryin’ Chuck Schumer will be willing to do what is right for our great American workers, or our wonderful USA itself, on Stimulus,” he wrote.

The coronavirus is showing a resurgence in Europe and the U.S. The European Commission (EU) urged EU governments to adopt a common strategy for the new phase of the pandemic.

FXStreet notes that the pound is still only middle of the range despite Brexit optimism after sharp gains on Wednesday which lifted the cable to an intra-day high of 1.3177 and lowered EUR/GBP closer to the 0.9000-level. All eyes are on a Brexit deal, which economists at MUFG Bank believe will be reached, suggesting further upside for the sterling.

“While broad-based US dollar weakness helped to lift cable, it was primarily a pound driven move on back of positive Brexit developments. The UK government’s decision late last week to withdraw from further trade talks with the EU until they displayed ‘some fundamental change of approach’ has proven short-lived. EU chief Brexit negotiator Michel Barnier and UK chief Brexit negotiator David Frost agreed yesterday to resume face to face trade talks. EU officials will now travel to London today with the intention that intensified negotiations will take place every day until a deal is reached as part of a ten-point plan agreed upon for further negotiations.”

“The UK’s decision to resume trade talks was encouraged by comments yesterday by Michel Barnier to the European Parliament in which he stated that ‘an agreement is within reach if we are on both sides prepared to work constructively and in a spirit of compromise’ while insisting that the EU was not seeking to undermine UK sovereignty. It reinforces the impression that the UK government’s threat last week was more of a storm in a teacup.”

“The pound has now returned to levels where it was the last trading in early September prior to the sharp sell-off in response to the unveiling of the UK’s controversial Internal Market Bill. According to the latest IMM report, long pound positions amongst leveraged funds were relatively modest ahead of this week’s advance. It suggests scope still for further pound gains if the intensified talks finally lead to a trade deal.” 

Dow (DOW) reported Q3 FY 2020 earnings of $0.50 per share (versus $0.91 per share in Q3 FY 2019), beating analysts’ consensus estimate of $0.29 per share.

The company’s quarterly revenues amounted to $9.712 bln (-9.8% y/y), beating analysts’ consensus estimate of $9.509 bln.

DOW rose to $49.16 (+1.26%) in pre-market trading.

Coca-Cola (KO) reported Q3 FY 2020 earnings of $0.55 per share (versus $0.56 per share in Q3 FY 2019), beating analysts’ consensus estimate of $0.46 per share.

The company’s quarterly revenues amounted to $8.652 bln (-9.0% y/y), beating analysts’ consensus estimate of $8.366 bln.

KO rose to $50.72 (+1.46%) in pre-market trading.

FXStreet notes that the euro has benefitted from the broad-based weakening of the US dollar so far this week. It has helped to lift EUR/USD back towards the middle of the trading range between 1.1600 and 1.2000 that has been in place since late July. The shared currency has held up well recently even as eurozone fundamentals have been deteriorating, as economists at MUFG Bank note. 

“The surge in new COVID-19 cases in the eurozone remains alarming. According to our calculations, the number of new cases per day in major eurozone countries has now reached almost 80K on average over the past week. It compares to an average of around 35K just over two weeks ago. Even in countries which had previously been more successful at the dampening the spread of COVID-19, new cases are picking up strongly with Germany reporting more than 10K new cases (12,331) for the first time since the pandemic started.”

“Despite yield spreads moving significantly in favour of the US dollar recently, the impact on EUR/USD has been limited so far. The resilience of the euro continues to signal that investors have more confidence in the euro following decisive action to address the negative fallout from the COVID-19 crisis taken earlier this year including setting up the European Recovery Fund.”

“There were further encouraging signs yesterday when the European Commission announced that it had issued a €17 B dual tranche social bond with €10 B due in October 2030 and €7 B due in 2040. It was the highest amount ever borrowed in the history of the EU. The EU welcomed the strong investor interest as further proof of the new-found interest in EU bonds which add to the attractiveness of the euro as the most liquid alternative to the US dollar. We view it is another positive signal that reserve holders are becoming more confident again in the euro.”

AT&T (T) reported Q3 FY 2020 earnings of $0.76 per share (versus $0.94 per share in Q3 FY 2019), missing analysts’ consensus estimate of $0.77 per share.

The company’s quarterly revenues amounted to $42.430 bln (-4.8% y/y), beating analysts’ consensus estimate of $41.659 bln.

T rose to $27.16 (+1.65%) in pre-market trading.

• Employees only require to work 20% of hours, previously 33%
• Firms only cover 5% of non-worked hours, previously 33%
• Maximum grant will increase to £3,750 from £1,875 previously
• Doubles grants for self-employed from 20% to 40%
• Cash grants will be up to £2,100 per month for every month Tier 2 applies

Tesla (TSLA) reported Q3 FY 2020 earnings of $0.76 per share (versus $1.91 per share in Q3 FY 2019), beating analysts’ consensus estimate of $0.60 per share.

The company’s quarterly revenues amounted to $8.771 bln (+39.2% y/y), beating analysts’ consensus estimate of $8.292 bln.

TSLA rose to $443.01 (+4.82%) in pre-market trading.

FXStreet notes that USD/CAD increasingly looks as though it is in the process of forming the “right shoulder” to a very large “head and shoulders” top. Therefore, analysts at Credit Suisse maintain a bearish bias, with support at 1.2994. On the flip side, resistance stays at 1.3259/60. 

“USD/CAD ended up posting a small, potentially bullish ‘hammer’ candlestick yesterday to close back above the important October low at 1.3100/3099. Nevertheless, we stay directly bearish and look for a closing break below here in due course, which would open the door for a fall back to 1.3047/45, removal of which would trigger a move to the ‘neckline’ to the potential very large ‘head and shoulders’ top and 2020 low at 1.3004/2994.” 

“Resistance moves to 1.3178, then 1.3204. Only a move above 1.3259/66 would turn the risks back higher within the range though.”

The latest survey by the Confederation of British Industry (CBI) revealed on Thursday the UK manufacturers' order books improved in October but remained far weaker than their long-run average.

According to the report, the CBI's monthly factory order book balance increased to -34 in October from -48 in the previous month. This was the highest reading since March but remained well below the long-run average of -14. Economists had forecast the reading to come in at -45. Export order books (-46) also improved from September (-56) but continue to be far below their long-run average as well.

“Conditions remain tough in the manufacturing sector, with output and orders still down on the quarter, albeit to a lesser degree. The government must stay on the front foot when it comes to providing support for the sector and wider economy,” noted Rain Newton-Smith, CBI Chief Economist. “It is more crucial than ever for the government to listen to the experiences and concerns of businesses and ensure support matches the tightness of local lockdowns. Additionally, signing a trade deal with the EU would help create some clarity that firms so badly need during this fraught period.”

Meanwhile, Tom Crotty, Group Director at INEOS and Chair of the CBI Manufacturing Council, said: “While it is welcome to see a slightly rosier picture for manufacturing, there’s no escaping the fact that firms have endured another incredibly difficult quarter. The sector is not out of the woods yet and it will be important for the government to continue to support businesses as we approach the winter. Manufacturers will also be closely observing progress with Brexit negotiations as the deadline for a deal approaches. Manufacturing jobs, businesses and livelihoods are very much at stake and it is essential that leaders find a way through the current impasse and secure a deal.”

• There is open question on whether voluntary or involuntary social distancing is holding back spending
• UK household spending has been "remarkably resilient"
• Second virus wave in U.S. had little impact on total spending, may have implications for what to expect in UK
• Possible that COVID-19 could reshape global supply chains and trade patterns
• Monetary policy can provide more of cushion to the crisis
• But more of the heavy lifting has to be done by fiscal policy
• I have nothing new to say on negative rates
• We are studying negative rates, but doesn't mean that it will be used

FXStreet reports that economists at Westpac said that the 104.00/106.50 range looks set to continue for some time to come. 

“We have long argued that as we moved through September into October that risk sentiment would take a hit as a widening political chasm in the US all but ruled out fiscal support for the ailing household and markets started to price in more disruption through the US election and beyond. However, for the moment, the market seems happy to be using USD/JPY to express US$ directional views rather than risk-on/ risk-off.” 

“As we approach the end of the month and as the election looms front and centre, we expect to see a stronger yen coming through.” 

Reuters reports that Bank of England Chief Economist Andy Haldane said that British household spending has been "remarkably resilient" through the coronavirus pandemic.

Haldane noted that U.S. household spending had suffered relatively little from a second wave of cases there over the summer, which might also prove the case in Britain.

Overall, Haldane is more optimistic about Britain's recovery than many of of his colleagues at the BoE/

FXStreet reports that strategists at ANZ Bank expect the OPEC+ will have no choice but to delay the increase of quotas by a month or two at its meeting on December 1.

“The supply cuts that the group implemented in Q2 have gone a huge way to stabilising the market. However, a resurgence in COVID-19 cases in Europe and North America has stopped the recovery in demand in its tracks.”

“We have lowered our forecast for demand for Q4 2020 by 1.0mb/d from last month. As such, we expect the market deficit in Q4 2020 to shrink slightly. However, if OPEC sticks with its plans to increase output in Q1 2021, the market will likely move back into a small surplus.”

“OPEC+ is likely to keep an open mind over the coming weeks, focusing on adhering to current quotas as much as possible. However, if demand continues to trend the way it has been over the past month, we believe it will have no choice but to delay the increase in quotas in 2021.”

eFXdata reports that Bank of America Global Research warns that the number of new covid-19 cases is climbing at an alarming rate across a majority of the US.

"Since our last update, new virus cases in the US have continued to rise and indicators of economic activity appear to be moderating.. Hospitalizations and deaths have also started to trend higher," BofA notes. 

"With the economic data pointing to a moderation in activity, we remain very concerned that the recent surge in new virus cases will hinder the economic recovery. Moreover, we fear that states that have experienced relatively stronger economic recoveries are those currently experiencing the most severe virus outbreak . This could lead to an increase in voluntary social distancing in these states or government mandated measures to restrict activity," BofA adds. 

FXStreet reports that economists at Westpac said that rising COVID-19 cases and restrictions should cap EUR gains.

“Although ECB members have indicated through this week that there is unlikely to be any change in their policy stance at next week’s ECB meeting, there has also been an increasing sense of concern over the persistently rising COVID-19 case counts.”

“The pandemic will remain a dominant factor for policy and regional growth. However, the huge success for this week’s first EU issuance of SURE (Support to mitigate Unemployment Risks in an Emergency) bonds, also the largest EUR sustainable bond issue, has provided support for EUR” 

“EUR may be gaining from global risk appetite. However, EUR/USD is still likely to remain in its recent 1.15-1.20 range.”

According to the business leaders surveyed between the 28th of September and the 19th of October, business prospects have darkened compared to the previous month. The composite indicator of the French business climate has fallen back by two points. At 90, it has returned to its level of August, significantly below its long term average (100). The decline is marked in services, in particular in accommodation and food services, a sub-sector affected by the strengthening of health containment measures. The decline is more moderate in manufacturing. In retail trade, the business climate is stable. The activity prospects declared by business managers in building industry have also stabilised.

In October 2020, with the rebound in the COVID-19 epidemic, the employment climate has deteriorated, putting a halt to the continuous and sustained recovery observed since May. At 89, it has lost three points compared to September and remains far below its level before crisis (above 105).

CNBC reports that the International Monetary Fund said that Asia’s economic contraction this year will be worse than previously thought as several emerging markets in the region have slowed down sharply while battling the coronavirus outbreak.

Asia is forecast to shrink by 2.2% this year, the IMF said . That’s worse than the fund’s June forecast for a 1.6% contraction, and stands in contrast to the IMF’s decision to revise upward the projection for the global economy.

The IMF said the downgrade for Asia’s economy “reflects a sharper contraction, notably in India, the Philippines, and Malaysia.” It added that India and the Philippines experienced a “particularly sharp” drop in economic activity in the second quarter, “given the continued rise in virus cases and extended lockdowns.”

During today's Asian trading, the US dollar rose slightly against the euro, yen and pound. Demand for riskier currencies was boosted by optimism about a new economic stimulus package in the US.

House speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin on Wednesday held regular talks on a new package of measures to support the US economy. According to Pelosi's press Secretary Drew Hamill, these discussions brought the parties closer to preparing a stimulus bill. At the same time, Republicans on Wednesday expressed concern about the volume of the stimulus package being discussed, which is about $1.9 trillion.

The pound is slightly cheaper. Bank of England Deputy Governor Dave Ramsden said on Wednesday that the time has not yet come for a move to negative interest rates.

The ICE index, which tracks the dynamics of the US dollar against six currencies (Euro, Swiss franc, yen, canadian dollar, pound sterling and Swedish Krona), rose by 0.15%.

FXStreet reports that FX Strategist at UOB Group remain bearish on USD/CNH but a move to the 0.6030 level looks unlikely in the near-term.

24-hour view: “While we expected USD to weaken further yesterday, we held the view that ‘a sustained drop below the major support at 6.6450 is unlikely’. We clearly underestimated the weakness in USD as it plunged to a low of 6.6275. Downward momentum is beginning to show sign of slowing and this coupled with the still rather oversold conditions suggests that further USD weakness is unlikely for today. That said, it is too early to expect a sustained recovery. USD is more likely to consolidate and trade between 6.6300 and 6.6650.”

Reuters reports that Goldman Sachs said that a weaker U.S. dollar, rising inflation risks and demand driven by additional fiscal and monetary stimulus from major central banks will spur a bull market for commodities in 2021.

Expansionary fiscal and monetary policies in developed market economies continue to drive interest rates lower and create demand for hedging the tail risks of inflation, lifting demand for precious metals, Goldman Sachs said in a note.

Goldman forecast gold prices at an average of $1,836 per ounce in 2020 and $2,300 per ounce in 2021, and expects silver prices to be at around $22 per ounce in 2020 and $30 per ounce next year.

According to the GfK Consumer Climate Study, the optimism of German consumers is fading noticeably in October. Around three quarters of consumers currently assume that COVID-19 poses a major or very major threat, and about half are concerned or very concerned about their personal future. Both economic and income expectations as well as propensity to buy have had to take losses. GfK is thus forecasting a figure of -3.1 points for November 2020, 1.4 points lower than in October of this year (revised -1.7 points). Economists had expected a decrease to -2.8.

"The rapid increase in infection rates is leading to a tightening of restrictions brought on by the pandemic. Fear of a second lockdown, should infections get out of control in the coming winter months, is also increasing," explains Rolf Bürkl, GfK Consumer Expert. "As a result, the in parts significant recovery we saw in consumer sentiment at the start of the summer has come to a standstill and is causing the consumer climate to plummet once more. An increase in propensity to save in October has also contributed to this." 

EUR/USD

Resistance levels (open interest**, contracts)

$1.1947 (3350)

$1.1926 (4047)

$1.1899 (505)

Price at time of writing this review: $1.1847

Support levels (open interest**, contracts):

$1.1778 (1054)

$1.1749 (1074)

$1.1714 (1544)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date November, 6 is 55753 contracts (according to data from October, 21) with the maximum number of contracts with strike price $1,1800 (4047);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3269 (2067)

$1.3234 (2631)

$1.3209 (265)

Price at time of writing this review: $1.3141

Support levels (open interest**, contracts):

$1.3047 (826)

$1.2994 (286)

$1.2929 (256)

Comments:

- Overall open interest on the CALL options with the expiration date November, 6 is 32231 contracts, with the maximum number of contracts with strike price $1,3950 (3784);

- Overall open interest on the PUT options with the expiration date November, 6 is 25646 contracts, with the maximum number of contracts with strike price $1,2050 (2391);

- The ratio of PUT/CALL was 0.80 versus 0.79 from the previous trading day according to data from October, 21

* - 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.