CFD Markets News and Forecasts — 23-03-2020

• Says this provides support farmers need "to keep food growing and keep it on our tables"
• Extra money is available in loans through Farm Credit Canada

Canada: Every day is live for the BoC – TDS

FXStreet notes that the 100 bps of Fed cuts and the resumption of QE in the US will put focus back on the Bank of Canada. There is no indication that the BoC will feel pressure to immediately follow suit, in the opinion of economists at TD Securities.

“We continue to pencil in 50 bps of easing at the April 15th interest rate announcement.” 

“Behaviour in financial markets will dictate the BoC's next move, and if pressures continue to rapidly build the BoC could cut rates in very short order.”

“Every day is live for the BoC. In the very near-term, the BoC's most important contribution to market functioning would be the successful implementation of the BA purchase facility, but we expect to see QE by the July meeting at latest.”

The European Commission (EC) said on Monday its flash estimate showed the consumer confidence indicator for the Eurozone decreased by 5.0 points to -11.6 in March from the previous month. That was the lowest level since November 2014.

Economists had expected the index to worsen to -15.0.

Considering the European Union (EU) as a whole, consumer sentiment dropped by 4.2 points to -10.4.

After these declines, the indicator for the Eurozone was below its long-term average of -11.0, while the indicator for the EU stood at its long-term average level.

• Issues a "stay-at-home" advisory for residents of Massachusetts
• These orders are to remain in effect until April 7

FXStreet notes that the Fed just fired its biggest bazooka so far, effectively announcing open-ended and unlimited QE. The USD remains bid, analysts at Nordea inform.

“The USD initially sold off on the QE-eternity launch, but even that wasn't enough to keep the USD offered for more than 20 minutes.”

“The Fed is doing its best to kill the USD, but we are not convinced that it will work (yet). Once economies open up post the Corona-crisis, the USD will get hammered, but that is still not something to discuss for the next weeks.”

“The positive effect on equities has also already waned again, while Mnuchin’s comments that the US will issue ‘a lot of 30yr bond’ mattered more for the USD curve than QE-ternity.”

FXStreet reports that David Lebovitz from JP Morgan Asset Management brief that not every earnings recession was accompanied by an economic recession, but every economic recession was accompanied by an earnings recession as it can be been in S&P 500 earnings per share (EPS) numbers.

“The average decline in S&P 500 EPS during economic recession was -17.2%. Our own models currently point to a drawdown in earnings of -15.2%, well below current consensus estimates and generally in line with the historical experience.”

“As the clouds begin to break, the market will start to price in a ‘virus-free’ run-rate for earnings. At that point, equities should resume their upward ascent.”

“We are focused on quality companies in the short/medium term. This leads us to sectors like consumer staples, technology and health care.”

“Because this event is transitory, the prudent investor will view it as a buying opportunity, while understanding that volatility is unlikely to subside anytime soon.”

FXStreet notes that events are unfolding much more rapidly and intensely than previously expected, bringing the economic weakness forward. Analysts at BMO Economics are adjusting North American forecasts for 2020 yet again this week. 

“US GDP is expected to contract moderately in Q1, and then fall at a 10% annual rate in Q2. We continue to expect a strong rebound in H2, but the entire year will likely see a 0.5% drop.”

“Canada’s GDP growth is being cut to -1.0% this year, down a full point from last week’s call of zero. We expect a big Q2 contraction (down 10%) after a 2.5% drop in Q1, but also a big rebound in H2.”

“We don’t expect any further moves on the U.S. rate front right out to the end of 2021.”

“The Bank of Canada’s Governor Poloz gave a pass on a prime-time opportunity last week to cut again after last Friday’s 50 bp chop. We still look for another 50 bp cut down to the crisis low of 0.25%, but it may well not happen until the mid-April meeting.”

Statistics Canada reported on Monday the wholesale sales surged 1.8 percent m-o-m to CAD65.18 million in January 2020, following a revised 1.0 percent m-o-m climb in December 2019 (originally a 0.9 percent m-o-m gain). That was the largest monthly increase in wholesale sales since December 2016.

Economists had forecast a 0.2 m-o-m decrease for January.

According to the report, higher sales were recorded in all seven subsectors, with gains being concentrated in the motor vehicle and motor vehicle parts and accessories (+3.0 percent m-o-m) and the miscellaneous subsectors (+3.1 percent m-o-m).

In y-o-y terms, wholesale sales jumped 3.2 percent in January.

Meanwhile, wholesale inventories edged up 0.1 percent m-o-m in January. Inventories were up in five of seven subsectors. The inventory-to-sales ratio fell to 1.41 in January from 1.44 in December. That was the lowest ratio since April 2019.

U.S. stock-index futures rose on Monday, as the announcement of the new stimulus measures by the Fed boosted investor sentiment.

Global Stocks:

FXStreet reports that strategists at TD Securities apprise that the potential for a New Global OPEC+ was raised as the Texas Railroad Commission is set to join OPEC at their coming meeting.

“Texas regulators proposed a 10% cut in production, if Saudi Arabia and Russia were to do the same (with OPEC following suit). Such an agreement would translate into a significant 4-5 million b/d cut, which would be well received by the market.”

“However, we acknowledge that it is too early to determine whether the cartel could reach some kind of deal with the Texas commission.” 

“We reiterate that a sustainable rebound in prices is unlikely in the next two months, as wide-scale travel restrictions contribute to more frequent sharp and sudden shocks to demand.”

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

• Says he is very hopeful that Senate bill will pass
• Small businesses will be able to take SBA loans that will be forgiven if employees are still on the payroll
• Wants the airlines to be able to operate
• Does not believe this is "bailout"
• Says if the crisis lasts longer, the administration will request additional funding from Congress
• Does not believe the entire country should be shutdown

NIKE (NKE) target lowered to $78 from $117 at Pivotal Research Group

AT&T (T) downgraded to Neutral from Outperform at Robert W. Baird; target lowered to $33

Honeywell (HON) downgraded to Equal-Weight from Overweight at Morgan Stanley; target $121

Starbucks (SBUX) downgraded to Neutral from Buy at MKM Partners

Boeing (BA) upgraded to Buy from Neutral at Goldman; target lowered to $173

Coca-Cola (KO) upgraded to Overweight from Neutral at JP Morgan; target $44

Dow (DOW) upgraded to Buy from Hold at Jefferies; target $44

Honeywell (HON) upgraded to Outperform from Neutral at Daiwa Securities; target $129

Netflix (NFLX) upgraded to Outperform from Neutral at Robert W. Baird; target raised to $415

The Chicago Federal Reserve announced on Monday the Chicago Fed national activity index (CFNAI), a weighted average of 85 different economic indicators, came in at +0.16 in February, up from a revised -0.33 in January (originally -0.25), pointing to an uptick in economic growth. That was the highest level since November 2019.

At the same time, the index's three-month moving average fell to -0.21 in February from -0.11 in January.

According to the report, two of the four broad categories of indicators that make up the index rose from January, and three of the four categories made positive contributions to the index in February.

Production-related indicators made a positive contribution of +0.11 to the CFNAI in February, up from -0.34 in January. Employment-related indicators contributed +0.05 to the CFNAI in February, up from +0.01 in January. Meanwhile, the contribution of the sales, orders, and inventories category to the CFNAI ticked down to -0.03 in February from -0.02 in January. The contribution of the personal consumption and housing category to the CFNAI edged down to +0.02 in February from +0.03 in January.

JPY rose against other major currencies in the European session on Monday, supported by strong demand for safe havens as governments across the globe imposed lockdowns and extend entry bans to contain the fast-spreading coronavirus disease, raising worries about the potential economic impact of the pandemic.

According to the latest data from Johns Hopkins University, the number of confirmed global coronavirus cases surpassed 300,000 over the weekend as deaths now total over 13,000. Growth of COVID-19 cases in Europe and the U.S. fueled worries about a deep global recession.

According to the Fed's press release, it "is using its full range of authorities to provide powerful support for the flow of credit to American families and businesses", including:

• Support for critical market functioning. The Federal Open Market Committee (FOMC) will purchase Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy... In addition, the FOMC will include purchases of agency commercial mortgage-backed securities in its agency mortgage-backed security purchases.
• Supporting the flow of credit to employers, consumers, and businesses by establishing new programs that, taken together, will provide up to $300 billion in new financing. The Department of the Treasury, using the Exchange Stabilization Fund (ESF), will provide $30 billion in equity to these facilities.
• Establishment of two facilities to support credit to large employers - the Primary Market Corporate Credit Facility (PMCCF) for new bond and loan issuance and the Secondary Market Corporate Credit Facility (SMCCF) to provide liquidity for outstanding corporate bonds.
• Establishment of a third facility, the Term Asset-Backed Securities Loan Facility (TALF), to support the flow of credit to consumers and businesses. The TALF will enable the issuance of asset-backed securities (ABS) backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration (SBA), and certain other assets.
• Facilitating the flow of credit to municipalities by expanding the Money Market Mutual Fund Liquidity Facility (MMLF) to include a wider range of securities, including municipal variable rate demand notes (VRDNs) and bank certificates of deposit.
• Facilitating the flow of credit to municipalities by expanding the Commercial Paper Funding Facility (CPFF) to include high-quality, tax-exempt commercial paper as eligible securities. In addition, the pricing of the facility has been reduced.

In addition to the steps above, the Fed expects to announce soon the establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses, complementing efforts by the SBA.

FXStreet notes that large parts of the economy are shutting down due to social distancing. The plunge will be reported in official statistics with the usual lags, but timely unofficial data continue to show precipitous declines, economists at TD Securities brief.

“OpenTable data are signaling a collapse in food services spending. Movie ticket sales have plunged as well.”

“Labor market data are poised for historic weakening. We forecast a 2.5 million reading for jobless claims this week, more than triple the all-time high.”

“On the plus side, Congress is working on a huge stimulus package. More Fed stimulus is likely as well. They will help over time.”

FXStreet reports that Neil Shearing, a Chief Economist at Capital Economics, analyzes the implications of the coronavirus outbreak for the global economy.

“We think most economies will suffer falls in GDP of between 10-20% q/q in the first or second quarter of this year.”

“We’ve marked our forecast for global GDP in 2020 down from +2.9% y/y to -1.0% y/y.”

“Our working assumption is that most economies will return to their pre-crisis path of GDP within a couple of years, albeit with some permanent lost output in the meantime.”

“Our view is that deflation poses a much greater risk than inflation in the short term.”

• Economic recovery will only start when the pandemic risk is effectively contained
• Economic developments are characterised by unprecedented uncertainty
• The impact is likely to be serious - at least for the coming months
• Recent surveys indicate German companies are now suffering significantly

FXStreet reports that although GBP is cheap by historic measures, it will take time for the market to digest the policy response, in the opinion of analysts at ANZ Research.

"The near-term risks to GBP lie to the downside."

"Owing to the dramatic change to the fiscal and monetary framework, which is open-ended, the risk premium around the UK economy and GBP will continue to rise."

"A further 5-10% drop in GBP is possible if, as expected, the situation continues to deteriorate."

CNBC reports that according to Anthony Scaramucci, an investor and former White House communications director, the U.S. is in a "protracted bear market" and stock prices could fall further.

"I actually think we're now in a secular bear market," he told CNBC on Monday. "As the economic data comes out, we're going to be in a fairly steep recession."

His comments come as America and the world grapple with the fallout from the ongoing coronavirus pandemic. Global markets have been volatile and under pressure as cases continue to rise past 294,000. The World Health Organization has also reported nearly 13,000 deaths.

"We're in a protracted bear market," said Scaramucci, who is founder and managing partner at investing firm SkyBridge. "I think there's at least 10% to 15% more to go in equity prices here."

In the short term, however, he said he is optimistic because of the expectation that Congress will approve economic stimulus for the country.

On Sunday evening, a huge funding package failed to get enough votes in a key Senate procedural vote.

"I predict that they will get a deal done. They know how sensitive this is for markets," Scaramucci said. "It may come before the (market) opening, but if it doesn't, my guess is it will come after tomorrow's close."

He said the stimulus will send a message to U.S. citizens that the government is there for them "in a time of crisis like this."

FXStreet reports that surge in uncertainty has coincided with a plunge in the kiwi. Analysts at Westpac Institutional Bank expect further downside pressure on the NZD/USD pair.

"Over the next few days, analysts will (again) revise lower their economic forecasts for 2020. Such revisions will surely weigh on the NZD, because even though the US is similarly affected, its economy is less externally sensitive."

"NZD/USD remains vulnerable to falling below 0.5500 as economic recession approaches and USD maintains a safe-haven bid."

"Looking ahead, there's no evidence that a peak in COVID-19 has yet been reached, which means further downside for the currencies to fresh multi-year lows."

According to the report from IHS Markit, the seasonally adjusted UK Household Finance Index (HFI) - which measures households' overall perceptions of financial wellbeing - dropped sharply in March to 42.5, from 47.6 in February, to signal an accelerated deterioration in the financial health of UK households. Moreover, the index reached its lowest point since May 2019, contrasting with February's survey high.

Looking ahead, UK households expect financial wellbeing to decline over the next 12 months. Again, this was a marked difference from the positive outlook recorded in the previous month.

There were notable developments in workplace-related data during the March survey. UK households reported their most pessimistic outlook towards job security for over eight years. The most downbeat UK households were those employed in media/culture/entertainment, followed by the manufacturing sector.

Workplace activity declined at the strongest pace since April 2009, according to surveyed UK households. Mirroring the trend in job security perceptions, those employed at entertainment and manufacturing firms observed the fastest decrease in activity. Virtually no growth in incomes from employment was also registered during March, while appetites for major purchases fell at a substantial rate that was the fastest since December 2012.

FXStreet reports that the EUR/GBP is now trading around 0.92. While it therefore may seem like there is a long way up to 1.00, analysts at Nordea would still not rule out that scenario.

"We do not think we have seen the highs in EUR/GBP yet."

"Our model depicts that EUR/GBP could move to levels around 0.96 in the coming 1-3 months before seeing some stabilisation in H2 2020."

"BoJo confirmed last week that the UK will leave the negotiation table in June, if a Canada+ agreement is not on the cards. It seems like the EU is some way off from accepting that, why the risk of a No-deal 2.0 could soon come into the minds of markets again."

"The UK still appears to be lagging other European countries in terms of new corona cases and fatalities. If the UK follows the path of Italy or Spain, this is what poses the biggest risk for the UK financial system and could be the final trigger for EUR/GBP breaking parity."

FXStreet reports that Thomas Harr, PhD, Global Head of FI&C Research at Danske Bank, analyzes the depth of the current recession, the chance that it will be short-lived and implications for markets.

"This week, it has become evident that the recession is deep."

"The recession is extraordinarily deep and much deeper than the worst months in the global financial crisis in 2008-09. However, there is still a chance that the recession will be short-lived."

"I still think that policymakers in Europe and the US could do more to contain the virus outbreak in terms of testing and contact tracing."

"Near-term, I expect the USD will strengthen further due to elevated market stress and USD shortage. There will be a point where economic expectations stabilise and market stress eases, at which point the USD will fall, but we are not there yet."

CNBC reports that Germany is about to unveil new measures to mitigate the economic impact of the coronavirus, in what analysts are describing as a "game changer" for a country that's the leader of fiscal prudency.

Germany is planning to increase borrowing by as much as 150 billion euros this year as well as to pass a 156 billion euro supplementary budget. The government led by Chancellor Angela Merkel is also setting up a 500-billion-euro bailout fund to take stakes in critical industries, according to various media reports.

At a government meeting on Monday, Berlin is expected to halt its debt brake rule - a law that basically prohibits Germany from presenting structural deficits.

"The government measures to limit the outbreak of Covid-19 have put the (German) economy into an induced coma," Carsten Brzeski, chief economist at ING Germany, said Monday via email.

"With a fiscal big bang, the government tries its own 'whatever it takes' to keep the patient alive," he added.

FXStreet reports that the RBNZ officially announced its entry into the QE realm this morning, indicating it will begin large scale asset purchases of New Zealand Government Bonds, economists at TD Securities inform.

"The RBNZ indicated it intends to purchase up to NZ$30b in NZGBs over the following 12 months. This was in line with our original estimates."

"To achieve maximum impact, the RBNZ should not hesitate to go hard early on with its purchases."

"The Bank has indicated that if further stimulus was needed, it would consider increasing the size of the bond buying program."

According to the report from Ifo Institute, the Coronavirus will bring hundreds of billions of euros of production losses to Germany's economy, cause short-time work and unemployment to skyrocket and put a significant strain on the state budget.

"The costs are expected to exceed anything known from economic crises or natural disasters in Germany in recent decades," says Ifo president Clemens Fuest. "Depending on the scenario, the economy shrinks by 7.2 to 20.6 percentage points. This corresponds to costs of 255 to 729 billion euros."

"It is therefore worth spending almost every conceivable amount on health policy measures. The aim must be to shorten the partial closure of the economy without affecting the fight against the epidemic," says Fuest. "Strategies are needed to combine a resumption of production with further containment of the epidemic."

"If the economy is partially shut down for two months, costs will be between 255 and 495 billion euros, depending on the scenario. Economic output then shrinks by 7.2 to 11.2 percentage points in the year," says Fuest. In the best-case scenario, economic output falls to 59.6 percent for two months, then recovers to 79.8 percent in the third month and finally reaches 100 percent again in the fourth month. "With three months of partial closure, costs have already reached 354 to 729 billion euros, or 10.0 to 20.6 percentage points of growth loss," says Fuest.

According to Ifo calculations, a single week of extension of the partial closure will result in additional costs of 25 to 57 billion euros and thus a decline in growth of 0.7 to 1.6 percentage points. An extension from one to two months increases costs up to 230 billion euros, or 6.5 percentage points of growth.

FXStreet reports that in the latest forecast report released on Monday, the Goldman Sachs analysts predict real GDP in advanced economies to contract very sharply in Q2 2020, including a 24% drop in the US.

"Expects global real GDP to contract by about 1% in 2020, weaker than year following 2008 Global Financial Crisis (GFC).

Based on partial count of state releases, estimates 2¼ million Americans filed an initial jobless claim last week.

The coronacrisis - or more precisely, the response to that crisis - represents a physical (as opposed to financial) constraint on economic activity that is unprecedented in postwar history."

CNBC reports that the battle against the coronavirus pandemic is like "the fog of war," said renowned top American health official Anthony Fauci in an interview with Science magazine, adding that it was "premature" to assess whether the U.S. plan has failed or not.

In answer to what went wrong in the U.S. and "why did this fail" despite the country's pandemic preparedness, Fauci said: "I think we'll have to wait until it is over and we look back before we can answer that."

Fauci, who has been on the frontline of the government response to the COVID-19 outbreak, flagged that testing is one "clear" issue that needs to be looked at again.

Testing for the coronavirus across the U.S. has been criticized as unacceptably inadequate and slow. That's prevented health officials from understanding the full scope of the outbreak, American hospital leaders told CNBC earlier in March.

"Why were we not able to mobilize on a broader scale? But I don't think we can do that right now. I think it's premature. We really need to look forward," Fauci said in the interview with Science.

Bloomberg reports that Federal Reserve Bank of St. Louis President James Bullard predicted the U.S. unemployment rate may hit 30% in the second quarter because of shutdowns to combat the coronavirus, with an unprecedented 50% drop in gross domestic product.

Bullard called for a powerful fiscal response to replace the $2.5 trillion in lost income that quarter to ensure a strong eventual U.S. recovery, adding the Fed would be poised to do more to ensure markets function during a period of high volatility.

Bullard also said he expects an unprecedented 50% plunge in gross domestic product.

"Everything is on the table," he said, referring to additional lending programs from the Federal Reserve. "There is more that we can do if necessary... There is probably much more in the months ahead depending on where Congress wants to go."

With the appropriate measures, Bullard said he's looking for activity to rebound quickly.

"I would see the third quarter as a transitional quarter," with the following six months "quite robust" as Americans ramp up consumerism. "Those quarters might be boom quarters," he said.

• CNBC reports that the Italian health ministry said as of 6 p.m. local time on March 22, at least 5,476 people have died due to COVID-19, the respiratory disease caused by the new coronavirus.

• China's National Health Commission said there were 39 new cases, all of them imported, and 9 additional deaths as of the end of March 22.

• South Korea reported 64 new cases of COVID-19, bringing the country's total to 8,961, according to the latest data from the Korea Centers for Disease Control and Prevention.

• Global cases: At least 294,110 according to the latest figures from the World Health Organization

• Global deaths: At least 12,944, according to the latest figures from the WHO

• Believes adopted measures are sufficient

• We are ready to do more if necessary

• ECB ready to increase size of bond purchase programme

• Also ready to change its composition and duration, where necessary

• Expansive monetary policies must be kept even when virus outbreak ends

EUR/USD

Resistance levels (open interest**, contracts)

$1.0929 (701)

$1.0897 (246)

$1.0844 (319)

Price at time of writing this review: $1.0746

Support levels (open interest**, contracts):

$1.0594 (4036)

$1.0573 (2568)

$1.0548 (4470)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date April, 3 is 86535 contracts (according to data from March, 20) with the maximum number of contracts with strike price $1,0700 (4470);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2424 (117)

$1.2196 (133)

$1.2071 (106)

Price at time of writing this review: $1.1691

Support levels (open interest**, contracts):

$1.1419 (159)

$1.1396 (150)

$1.1313 (1056)

Comments:

- Overall open interest on the CALL options with the expiration date April, 3 is 17390 contracts, with the maximum number of contracts with strike price $1,3200 (2380);

- Overall open interest on the PUT options with the expiration date April, 3 is 21873 contracts, with the maximum number of contracts with strike price $1,2900 (2837);

- The ratio of PUT/CALL was 1.26 versus 1.30 from the previous trading day according to data from March, 20

* - 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.