CFD Markets News and Forecasts — 23-03-2021

FXStreet reports that economists at Nordea keep liking the pound as a result of a successful vaccine roll-out but medium-term perspectives remain unclear due to the second round of Brexit negotiations on Services.

“There are reasons to be a little bit pessimistic on goods trade with the EU because of the significant layer of red tape, that will no doubt dampen trade between the two parties. Services are more of a fickle pickle; the UK has been the clear entry hub for financial services in- and out of the EU and the EU’s pull on financial services passporting rules is going to have a definite impact on the UK economy as a whole. At some 7% of the UK economic output, the financial services sector is not insignificant.”

“Going forward, we assume that the GBP optimism continues due to a successful vaccine roll-out in the UK due to the following three reasons: The UK’s rapid authorization of vaccines and subsequent rollout compared to peers. A much more clever wording of contracts with suppliers than EU and (almost) the only country to decide on a de facto 1-jab (or a slow 2-jab) regime of the vaccine, which has proven to be the best approach by now.”

“We expect the pound to diminish the valuation differential to our model-based fair value and look for levels around 0.83-0.84 in EUR/GBP.”

FXStreet reports that economist at UOB Group Ho Woei Chen, CFA, reviews the latest monetary policy decision by the People’s Bank of China (PBoC).

“The People’s Bank of China (PBoC) kept its Loan Prime Rate (LPR) unchanged with the 1Y LPR and the 5Y & above LPR set at 3.85% and 4.65% respectively today. This is the 11th straight month that the central bank held rates steady after its last cut in April 2020. The move is in line with PBoC’s decision to keep its 1Y medium-term lending facility (MLF) rate which the LPR is pegged to, unchanged at 2.95% last Monday (15 March).”

“Governor Yi Gang’s comments at the China Development Forum on Saturday reaffirms monetary policy objective of balancing support to the economic growth and financial risks prevention. He said that China’s monetary policy is in a normal range and has room to provide liquidity.”

“For 2021, the PBoC targets growth of M2 money supply and total social financing to be in line with nominal GDP growth. Credit growth had remained robust in Jan-Feb but we maintain expectation for the new CNY loans growth to taper in the coming months to slightly above 12% from 12.8% in December 2020. While loans growth is set to moderate this year, we continue to expect the 1Y LPR to stay flat at 3.85% for the rest of 2021.”

• Expects increased inflation to be temporary
• Says inflation is definitely something to keep an eye on
• But does not expect inflation to return to dynamics seen in the 1970s
• Says stimulus is not forever and once it flows through the economy it may become easier to read inflation signals

FXStreet notes that EUR/USD has turned more cyclical and moves lower on US-EU relative macro surprises and higher US real rates. Economists at Danske Bank take into account a high likelihood of a very strong US recovery vis-à-vis EU. In addition, Chinese slowing is a drag on the EUR-leg. Therefore, the EUR/USD pair is forecast at 1.15 in 12 months.

“Expectations are for a strong US economic recovery as fiscal policy has been eased and vaccinations are moving fast.” 

“We are seeing clear signs the Chinese tailwind is slowing which will likely affect Europe more negatively than the US. The US will hence likely be outperforming both Europe and Asia on growth in 2021.” 

“We are more optimistic than Fed on both growth and employment and expect the Fed to start talking about tapering of QE in Q4 21 and announce the actual start of tapering at the January 2022 meeting. Meanwhile, the ECB is unlikely to change any parameters. Together, this divergence of monetary policy will be negative for EUR/USD.”  

“We forecast EUR/USD will continue to move lower the coming year and see the cross in 1.19 in 1M, 1.18 in 3M, 1.17 in 6M, and 1.15 in 12M.”

The U.S. Commerce Department announced on Tuesday that the sales of new single-family homes plunged 18.2 percent m-o-m to a seasonally adjusted annual rate of 775,000 units in February. That was the lowest reading since May 2020.

Economists had forecast the sales pace of 875,000 last month.

January’s sales pace was revised up to 948,000 units from the originally reported 923,000 units.

According to the report, new home sales in the South, the largest area, fell 14.7 percent m-o-m in February. Meanwhile, sales in the Midwest tumbled 37.5 percent m-o-m and those in the West decreased 16.4 percent m-o-m. In the Northeast, new home sales dropped 11.6 percent m-o-m in February.

In y-o-y terms, new home sales were up 8.2 percent in February.

FXStreet reports that strategists at Commerzbank suggest that consolidation for Brent Oil above the 61.25/59.46 immediate support zone is at hand. Below the mentioned level lies support at 56.80.

“ICE June Brent Crude Oil is expected to be supported by the area seen between the current March low, the 55-day moving average and the mid-February low at 61.25/59.46 in the course of this week and may retest the February high at 66.16.” 

“We do not expect the next higher current March peak at 70.67 to be revisited. Instead a top seems to be in the process of being formed, confirmation of which would be a fall through and daily chart close below the 59.46 February 12 low. In this case the January high at 56.80 would be back in focus. Together with the late January low at 54.05 it is likely to offer support.” 

U.S. stock-index futures traded mixed on Tuesday, as investors prepared for a two-day congressional testimony from Fed Chair Powell and Treasury Secretary Yellen.

Global Stocks:

The Department of Commerce reported on Tuesday that current account (C/A) gap in the U.S. widened by 4.2 percent q-o-q to $188.5 billion in the fourth quarter of 2020 from a revised $180.9 billion gap in the previous quarter (originally -$178.5 billion).

The deficit was 3.5 percentage of current-dollar GDP in the fourth quarter, up from 3.4 percent in the third quarter.

Economists had forecast a deficit of $189.9 billion.

According to the report, the $7.6 billion widening of the C/A deficit in the fourth quarter mainly reflected an expanded deficit on goods and a reduced surplus on services that were partly offset by a reduced deficit on secondary income.

Exports of goods rose $30.9 billion, to $387.5 billion, and imports of goods jumped $36.4 billion, to $640.5 billion. The gains in both exports and imports reflected increases in nearly all major categories.

Exports of services went up $3.8 billion, to $168.1 billion, while imports of services rose $6.9 billion, to $115.1 billion.

Receipts of secondary income declined $1.0 billion, to $36.0 billion, reflecting a decrease in private transfer, that was partly offset by an increase in general government transfers, primarily taxes on income and wealth. Payments of secondary income fell $2.4 billion, to $72.4 billion, reflecting decreases in private transfers and in general government transfers, mostly international cooperation.

Elsewhere, receipts of primary income grew $7.1 billion, to $248.4 billion, and payments of primary income increased $7.5 billion, to $200.5 billion. The advances in both receipts and payments mainly reflected increases in direct investment income, mostly earnings, and in portfolio investment income, mostly income on equity securities.

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

Netflix (NFLX) upgraded to Buy from Hold at Argus; target $650

• Says jury is out as to whether we're going to see year after year price increases and not just temporary surge in prices
• Base case is to see a temporary surge in prices this year so that inflation will settle down next year
• Expectis year-over-year inflation this year to be 2.25% to 2.5%.
• Says his forecasts has improved meaningfully
• Expects 6.5% growth and 4.5% unemployment this year
• Says he will advocate for scaling back stimulus after he sees strong outcomes, not just strong forecasts
• Says his forecast for removing accommodation is more aggressive than the median
• First step to withdrawing accommodation is to reduce asset purchases
• Says he would expect the 10-year yield to continue rising from here to 1.75%-2.00%
• Still believes inflation will prove somewhat temporary and will settle down next year
• Sees no evidence of politics influencing FOMC Chairman Jerome Powell or other officials

GBP fell against most of its major counterparts in the European session on Tuesday as a spat between the European Union (UK) and the UK over exports of AstraZeneca's coronavirus vaccine aggravated.

The bloc threatened to ban exports of AstraZeneca's vaccines, coming from its plants in the European Union to other countries if the drugmaker does not meet its delivery obligations. 

AstraZeneca reduced the number of vaccines it will deliver to the EU twice in the first quarter and once in the second quarter, raising worries that any future issues could undermine vaccination targets of the European authorities.

European Commission President Ursula von der Leyen stated: “We have the possibility to forbid planned exports. That is the message to AstraZeneca, ‘you fulfil your contract with Europe before you start delivering to other countries’.”

The EU leaders will meet on Thursday to decide whether or not to block vaccine exports. The EU fell far behind Britain and the U.S. in rolling out COVID-19  vaccines. 

An export ban by the EU could slow the UK's vaccination program. UK Defense Secretary Ben Wallace said on Sunday that attempts to block exports of AstraZeneca's vaccine from the EU would be "counterproductive" and the "grown-up thing" would be to work with the UK to maximize production. On Monday, Britain demanded that the EU allow the delivery of coronavirus vaccines it has ordered.

FXStreet reports that analysts at UOB suggest that USD/CNH is likely to keep the rangebound trading unchanged between 6.4730 and 6.5360 for the time being.

24-hour view: “Our expectation for USD to ‘edge higher to 6.5250’ did not materialize as it traded in a quiet manner within a 6.5020/6.5185 range. The price actions offer no fresh clues and USD could continue to trade sideways. That said, the slightly weakened underlying tone suggests a lower trading range of 6.4950/6.5180.”

Next 1-3 weeks: “The outlook is mixed and USD is likely to trade between 6.4730 and 6.5360 for a period of time.”

FXStreet reports that the Credit Suisse Analyst team notes that EUR/GBP has again held key Fibonacci supports at 0.8549/20 and with a glaring RSI momentum divergence in place, a near-term base is now seen building, with a break above resistance at 0.8641 needed to confirm.

“Above the high of last week at 0.8641 is needed to confirm a small base for a deeper recovery to 0.8659/69 initially, then back to what we see as tougher resistance from the late February high and 55-day average at 0.8732/42. We would look for a fresh cap here and a resumption of the broader downmove.” 

“Below 0.8574/69 is needed to clear the way for a fresh look at 0.8535/20.”

The latest survey by the Confederation of British Industry (CBI) revealed on Tuesday the UK manufacturers' order books improved in March.

According to the report, the CBI's monthly factory order book balance increased to -5 in March from -24 in the previous month, surpassing their long-run average of -14. This was the highest reading since April 2019. Economists had forecast the reading to come in at -20. Meanwhile, export order books (-20) strengthened on February (-39), approaching to their long-run average (-18).

The CBI also reported that output volumes in the three months to March were broadly flat (+3 from -8 in February), which marked their highest balance since May 2019. It was also expected that output would pick up rapidly in the next three months (+30), marking the strongest expectations since August 2017.

In other survey results, output prices were seen to accelerate in the next three months (+20 from +3in February), marking the strongest expectations for price growth since February 2019).

“It’s great to see the mood lift among manufacturers, buoyed by a jump in order books”, noted Anna Leach, CBI Deputy Chief Economist. But firms continue to grapple with higher freight costs as well as raw material shortages. “Consequently, manufacturers anticipate prices to grow at a quick pace next quarter. Meanwhile, risks to growth in European markets are elevated given the slow pace of vaccine roll-out and the likelihood of further lockdowns.”

Meanwhile, Tom Crotty, Group Director at INEOS and Chair of the CBI Manufacturing Council, said: “The improvement in order books, and the more positive outlook for output, is a welcome boost for the sector following a difficult start to 2021. Nevertheless, there can be no doubt that this progress is fragile and the sector continues to operate in a challenging landscape. Container shortages and higher freight costs are causing issues with supply chains and many firms are also encountering unanticipated difficulties with the new post-Brexit trading arrangements. It’s therefore important for the government continues to support the sector through the coming critical weeks and months ahead.”

FXStreet reports that economists at MUFG Bank discuss EUR/USD prospects. 

“The next key support level is provided by the 200-day moving average which comes in at around 1.1860. The pair has not traded below the 200-day moving average since May of last year, and if broken would send a bearish signal that the correction lower so far this year is likely to extend further.” 

“The stronger pushback from the ECB against rising long-term yields compared to the Fed and BoE which have adopted a more hands off approach has contributed in part to the sharp widening in yield spreads against the euro. The yield spread between the 10-year Treasury and German Bund has now fallen back to levels that were in place pre-pandemic at the start of last year.”

Bloomberg reports that the European Central Bank said lenders should ask for feedback before naming senior executives, as the region’s top regulator takes a tougher tack on how banks are run.

The ECB will recommend that banks provide suitability assessments before making appointments, even if rules in their respective countries allow them to do so after the fact, said Andrea Enria, who leads the central bank’s supervisory board. 

“Internal governance is a key factor of banks’ ability to overcome the challenges ahead,” Enria told European lawmakers on Tuesday. It is also the area which turned up the most negative findings in the ECB’s annual evaluation of banks’ risk controls, he said. “Remediation is proceeding at slow pace, also due to current circumstances.”

The ECB will also pay greater attention to supervisory findings related to previous positions of candidates “as well as the specific needs of the banks” when assessing appointments and reappointments for boards, Enria said.

Reuters reports that Japan's government in March cut its view on exports for the first time in 10 months, and said overall economic conditions were still showing weakness due to the coronavirus pandemic.

"The economy shows some weakness, though it continued picking up amid severe conditions due to the coronavirus," the government said.

Among key economic elements, the government slashed its assessment of exports, a key driver of Japan's trade-reliant economy, for the first time since May, saying they were increasing at a slower pace.

Behind the downgrade was a slowdown in car exports, which showed signs of flattening out after manufacturer's front-loaded shipments ahead of an expected recovery from the health crisis, especially in the United States, a government official said.

Analysts expect Japan's economy to shrink sharply in the current quarter as the emergency that ended on Sunday weighed on business activity and consumer spending.

According to the report from Istat, in January 2021 the seasonally adjusted turnover index increased by 2.5% compared to the previous month (+1.2% the domestic market and +5.0% in non-domestic market); the average of the last three months remained unchanged compared to the previous three months (-0.4% in domestic market and +0.9% in non-domestic market).

With respect to the same month of the previous year the calendar adjusted industrial turnover index decreased by 1.6% (-1.3% in domestic market and -2.2% in non-domestic market). Calendar working days in January 2021 were 19, two less than January 2020.

The seasonally adjusted volume turnover index (only for the manufacturing sector) increased by 2.0% in the comparison between January and the previous month and by 0.5% between the average of the last three months and the average of the previous three months. The calendar adjusted volume turnover index reported a decrease of 0.3% with respect to the same month of the previous year.

FXStreet reports that strategists at OCBC Bank expect the cautious tone to hold as we approach the end of Q1 and next week’s OPEC+ meeting. 

“Faced with a deluge of bearish factors – a seemingly less-dovish FOMC, setbacks in Europe's vaccination drive and a fresh spat in US-China relations – oil took a more severe beating than its base metals counterpart. The rise in US Treasury yields to above 1.70% and the firming US dollar also complicated oil's bull run, while the combined rise in US crude oil and gasoline stocks added another layer of headwind.” 

“We have always opined that while crude oil is in need for a technical correction, $65 would be a decent level to begin building a long position again.” 

“We think oil could see a slight rebound this week and trade largely range-bound in the medium-term between $65 to $70.”

RTTNews reports that German Chancellor Angela Merkel and regional leaders of 16 federal states agreed late Monday to impose a hard lockdown during Easter amid an exponential growth in the number of coronavirus cases in the country, in what is being called a "third wave".

The government also decided to apply the hard lockdown "emergency brake" in regions with an incidence value above 100 for a seven-day period.

Germany also extended the current lockdown measures, which includes partial shutdown of non-essential stores, until April 18.

"We are in a very, very serious situation", Merkel said in a press conference following her meeting with the regional leaders. She said there is a new pandemic caused by a new virus which is more deadly and more infectious.

Several other European countries have also delayed plans for a gradual opening of the economy in the backdrop of the rising coronavirus cases and slower vaccinations.

FXStreet reports that economists at ANZ Bank discuss NZD/USD prospects. 

“While we are not forecasting a higher cash rate anytime soon, we do think that in a reflating world, markets are more likely to price policy tightening faster in New Zealand than they do elsewhere.”

“There is room for further upside in the NZD as the global backdrop continues to be supportive of pro-cyclical assets. We think a relatively higher rate structure, booming agricultural commodity prices and a strong domestic economy are NZD-positive. We forecasts NZD/USD to surge higher towards 0.74 by end-2021”.

“The key risk to the outlook is a rapid change in global financial conditions. If rising yields generate sustained damage in equity markets, the NZD will be one of the biggest casualties in the G10 FX market.”

CNBC reports that according to Jurrien Timmer of Fidelity Investments, U.S. 10-year Treasury yield could inch higher, but that may not pose a risk to financial markets.

“I think yields could push a little higher. So far, they’ve (got) up to about 1.75%. I have a simple bond model that suggests 2% should be the upper limit,” Timmer told.

Timmer also downplayed worries that the recent rise in bond yields and inflation expectations could mean a repeat of the 2013 “taper tantrum.” That was when Treasury yields spiked suddenly because of market panic after the Fed said it planned to start tapering its quantitative easing program.

“So far, yields have gone up 125 basis points. Half of that is real yields. Half of that is inflation. I think for now that that’s okay, ” Timmer said. In 2013, “it was all real yields that moved up almost 200 basis points in six weeks. If we saw something like that happen, that will be a pretty big shock to the system,” he added.

During today's Asian trading, the US dollar rose moderately against the euro, but declined against the japanese yen.

Extremely loose monetary policy, combined with unprecedented government spending and the successful introduction of coronavirus vaccines, have fueled expectations of an accelerated economic recovery and the pace of inflation in the United States.

The improving economic outlook for the world's largest economy contrasts with the sluggish growth of the euro zone in 2021, where governments face rising COVID-19 infections and a slow vaccination campaign. According to analysts, this may provide an impetus for further growth of the dollar.

Federal Reserve Chairman Jerome Powell on Monday reiterated that the US economic recovery is far from over, despite recent improvements in indicators, and that the regulator plans to continue to provide support. "The recovery is moving faster than expected overall and appears to be gaining momentum, but it is far from over, so the Fed will continue to provide the necessary support to the economy for as long as it takes," Powell said.

The ICE index, which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose by 0.20%.

CNBC reports that ECB Chief Economist Philip Lane said that the $1.9 trillion coronavirus relief package in the United States is a “significant engine for the world economy” and will have positive spillover effects in the eurozone.

The Organization for Economic Cooperation and Development estimated that the relief bill will add about 1 percentage point to global growth this year.

“There will be positive spillovers from the U.S., the fact that there is a significant stimulus in the U.S. will boost global GDP, will boost exports from the euro area,” ECB Chief Economist Philip Lane told CNBC.

“Of course, the initial impact was visible more in the financial market, but over time, as this stimulus gets rolled out, it will be a significant engine for the world economy,” Lane added.

European officials often come under criticism for not providing similar fiscal power to the United States. The 27 European nations, for example, agreed in July to implement a 750 billion euro ($895 billion) joint stimulus, but those funds have not yet been distributed.

“Given the nature of the U.S. you can have very large fiscal packages embodied in a single piece of legislation. As you know in the European situation we’ve a mix, we have 19 fiscal policies and then we have the joint fiscal action,” Lane said.

According to the report from Office for National Statistics, the latest three months to February 2021 recorded small increases in the number of payroll employees although since February 2020, the number of payroll employees has fallen by 693,000 with the largest falls seen at the start of the coronavirus (COVID-19) pandemic. Analysis by age band shows that under 25s contributed over 60% of the fall seen since February 2020.

Data from our Labour Force Survey (LFS) show the unemployment rate continued to increase, though the increase is smaller than in recent periods, while the employment rate continued to fall. There was an increase for people who are economically inactive, largely driven by people who are inactive because they are students.

The Office for National Statistics said that 693,000 fewer people were in payrolled employment in February 2021, when compared with February 2020. 68,000 more people were in payrolled employment in February 2021, when compared with January 2021; this is the third consecutive monthly increase.

The UK employment rate, in the three months to January 2021, was estimated at 75.0%, 1.5 percentage points lower than a year earlier and 0.3 percentage points lower than the previous quarter.

The UK unemployment rate, in the three months to January 2021, was estimated at 5.0%, 1.1 percentage points higher than a year earlier and 0.1 percentage points higher than the previous quarter.

The UK economic inactivity rate was estimated at 21.0%, 0.6 percentage points higher than a year earlier and 0.3 percentage points higher than the previous quarter.

Growth in average total pay (including bonuses) among employees for the three months November 2020 to January 2021 increased to 4.8%, and growth in regular pay (excluding bonuses) increased to 4.2%; it is estimated that by removing the compositional effect, the underlying wage growth is around 3% for total pay and around 2.5% for regular pay.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2046 (745)

$1.2020 (877)

$1.2001 (1129)

Price at time of writing this review: $1.1926

Support levels (open interest**, contracts):

$1.1863 (4963)

$1.1826 (3142)

$1.1785 (4489)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date April, 9 is 65421 contracts (according to data from March, 22) with the maximum number of contracts with strike price $1,1900 (4963);

GBP/USD

$1.3979 (871)

$1.3906 (676)

$1.3889 (377)

Price at time of writing this review: $1.3843

Support levels (open interest**, contracts):

$1.3764 (1836)

$1.3700 (1229)

$1.3662 (1187)

Comments:

- Overall open interest on the CALL options with the expiration date April, 9 is 9430 contracts, with the maximum number of contracts with strike price $1,4100 (1180);

- Overall open interest on the PUT options with the expiration date April, 9 is 19981 contracts, with the maximum number of contracts with strike price $1,3200 (5598);

- The ratio of PUT/CALL was 2.12 versus 2.10 from the previous trading day according to data from March, 22

* - 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.