CFD Markets News and Forecasts — 24-06-2021

James Smith, a Developed Markets economist at ING, notes that the Bank of England's (BoE) latest statement is a little more upbeat than might have been expected, but crucially offers no new clues on rate hike timing.

"The Bank of England's latest message is a cautiously upbeat one, though it's clear that policymakers are essentially in a holding pattern for the time being. The central bank is caught between higher-than-expected inflation and encouraging activity data, and mounting uncertainty surrounding Covid-19."

"The Bank has kept both rates and QE on hold this month, despite a vote to end the latter early from outgoing Chief Economist and arch-hawk Andy Haldane. But more importantly, the committee opted against offering any more concrete hints of future tightening."

"The lack of stronger hints about a rate hike timing is arguable because there’s no real need to guide markets at this stage."

"But assuming the near-term Covid-19 concerns fade towards the end of the summer, following widespread double vaccination, then the debate over rate hike timing is likely to gain more momentum. While the latest inflation reading was higher than expected, and the Bank now expects inflation to exceed 3% at some point this year, our view and theirs is that price pressures will subside through 2022. That, in turn, reduces the imminent pressure to ease stimulus, and we’re currently pencilling in the first move in early 2023."

"On the QE side, despite Andrew Haldane's vote, we very much doubt the Bank will curtail the programme early. The BoE remains on track to actively stop expanding its balance sheet at the end of the year – having tapered the pace of purchases last month. Unexpectedly, ending the scheme early would potentially set a precedent in the eyes of investors, and risks limiting the potency of future QE programmes."

Two people with knowledge of the negotiations between the White House and the bipartisan group of senators told Politico that the U.S. president Joe Biden "is highly likely to endorse the bipartisan infrastructure framework that was clinched on Wednesday night". The negotiators are to meet with the president later today.

• Business leaders are reluctant to hire to full capacity because they don't know what steady state is
• It's still open question if there will be less demand for workers

• U.S. economy, by and large, is in good shape overall
• GDP has come roaring back after record contraction during H1 2020; consumption, housing, and manufacturing are extremely healthy; workers’ incomes are rising
• Employment remains down significantly; we still have nearly 7.6 million fewer people working than we did before the pandemic
• One of Fed's most important responsibilities is to build an equitable workforce

• Says he expects near-term inflation pressures to ease toward Q4
• Household net worth is elevated due to stimulus
• People seem to be choosier around low wage jobs

The U.S. Commerce Department reported on Thursday that the durable goods orders rose 2.3 percent m-o-m in May, following a revised 0.8 percent m-o-m drop in April (originally a 1.3 percent m-o-m decline). This was the largest monthly advance in durable goods orders since January.

Economists had forecast a 2.8 percent m-o-m increase.

According to the report, the May gain was driven by a 7.6 percent m-o-m climb in orders for transportation equipment. Meanwhile, orders for durable goods excluding transportation edged up 0.3 percent m-o-m in May, following a revised 1.7 percent m-o-m increase in April (originally a 1.0 percent m-o-m gain), missing economists’ forecast for a 0.8 percent m-o-m advance.

Elsewhere, orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, decreased 0.1 percent m-o-m in May after a revised 2.7 percent jump m-o-m in April (originally a 2.2 percent m-o-m gain). Economists had called for a 0.6 percent m-o-m increase in core capital goods orders in May.

Shipments of these core capital goods went up 0.9 percent m-o-m in May after a revised 1.0 percent m-o-m rise in the prior month (originally a 0.9 percent m-o-m increase).

U.S. stock-index futures rose on Thursday, pointing to the resumption of a rebound rally in the U.S. equity market after Wednesday’s hiccup, as investors likely accepted the reassurances from the Fed’s Chair Powell that the U.S. central bank isn't going to hike interest rates preemptively in response to fears of inflation, and focused on growth prospects of the world’s biggest economy

Global Stocks:

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

Procter & Gamble (PG) initiated with a Neutral at UBS; target $138

Apple (AAPL) target raised to $162 from $161 at Morgan Stanley

A report from the Commerce Department showed on Thursday that the U.S. economy grew as initially estimated in the first quarter of 2021, as upward revisions to nonresidential fixed investment, private inventory investment, and exports were offset by an upward revision to imports, which are a subtraction in the calculation of GDP.

According to the third estimate, the U.S. gross domestic product (GDP) increased at an annual rate of 6.4 percent in the first quarter, as it was reported in the second estimate.

Economists had expected the growth rate to be unrevised at 6.4 percent.

In the fourth quarter of 2020, the economy expanded by 4.3 percent q-o-q.

The increase in real GDP reflected gains in personal consumption expenditures (PCE), nonresidential fixed investment, federal government spending, residential fixed investment, and state and local government spending that were partly offset by declines in private inventory investment and exports. Meanwhile, imports rose.

The data from the Labor Department revealed on Thursday the number of applications for unemployment decrease less than anticipated last week.

According to the report, the initial claims for unemployment benefits fell by 7,000 to 411,000 for the week ended June 19.

Economists had expected 380,000 new claims last week.

Claims for the prior week were revised upwardly to 418,000 from the initial estimate of 412,000.

Meanwhile, the four-week moving average of jobless claims increased to 397,750 from an upwardly unrevised 396,250 in the previous week.

Continuing claims dropped to 3,390,000 from an upwardly revised 3,534,000 in the previous week. This was the lowest reading since March 2020.

Carsten Brzeski, the Global Head of Macro for ING Research, notes that another strong Ifo reading sets the bar for German growth even higher.

"Germany’s leading indicator reflects almost unstoppable optimism about the economic outlook. The Ifo index increased to its highest level since November 2018 and came in at 101.8 in June, from 99.2 in May. Both the current assessment and the expectations component increased significantly, with expectations surging to the highest level since December 2010."

"Right now, the sky is the limit for confidence indicators in Germany and indeed, the entire eurozone. The end of lockdowns and the reopening of economies has clearly boosted expectations. In the case of Germany, despite anecdotal evidence, particularly in the automotive industry, of supply chain disruptions affecting activity, the impact apparently has not been strong enough yet, to dent growing optimism."

"Looking ahead, the general outlook for the German economy has improved. The vaccination programme has picked up speed and with currently more than 50% of the population having had a first jab, the reopening of the economy has gained momentum, too. New variants of the virus, however, could still spoil the reopening party. Back to the positives, the potential spillovers from US fiscal stimulus, the implementation of the European Recovery Fund in the second half of the year, a rebound in the construction sector and the fact that the manufacturing sector still has not reached pre-crisis levels, all signal one thing; the only way is up for the German economy."

"The bar for the German economy is set very high and today’s Ifo reading puts it even higher. The only problem so far has been that hard data, which is only available until April, has not yet matched these expectations."

GBP depreciated against its major rivals in the European session on Thursday after the release of the outcomes of the Bank of England's (BoE) latest monetary policy meeting.

At their June gathering, the BoE's policymakers decided to leave the bank rate unchanged at 0.10% and maintained the asset purchase program at GBP895 billion, as widely expected. The BoE’s chief economist Andrew Haldane was only looking at tapering bond purchases to GBP825 billion.

The central bankers also increased their Q2 GDP growth forecast by around 1.5%, adding that output in a number of sectors is now around pre-Covid levels. They also noted that the direct economic implications of recent delays in the final stages of the easing of coronavirus restrictions are likely to be relatively small compared with the impact of previous stages. The policymakers suggested that the UK’s economy will experience a temporary period of strong GDP growth and above-target CPI inflation, after which growth and inflation will fall back. It was also noted that the UK’s CPI inflation is likely to exceed 3% for a temporary period and that the near-term upward pressure on prices could prove somewhat larger than expected. However, inflation expectations remain well-anchored. The officials also reiterated they do not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.

The BoE’s statements disappointed market participants, who expected a shift to a more hawkish language, putting pressure on the pound.

The Bank of England (BoE) announced its Monetary Policy Committee (MPC) voted 9-0 to keep the Bank Rate at 0.1 percent at its June meeting, as widely expected.

The MPC also voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases at GBP20 billion and voted by a majority of 8-1 to continue with the existing programme of UK government bond purchases at GBP875 billion, thus maintaining the total target stock of asset purchases at GBP895 billion.

In its statement, the BoE notes:

• MPC judged that the existing stance of monetary policy remained appropriate;
• MPC sets monetary policy to meet the 2% inflation target, and in way that helps to sustain growth and employment;
• Bank’s staff have revised up their expectations for level of UK GDP in 2021 Q2 by around 1.5% since the May Report, as restrictions on economic activity have eased, so that output in June is expected to be around 2.5% below its pre-Covid 2019 Q4 level;
• Direct economic implications of delays in the final stages of relaxation of Covid restrictions are likely to be relatively small compared with impact of previous stages;
• CPI inflation is expected to pick up further above MPC’s 2% target, owing primarily to developments in energy and other commodity prices, and is likely to exceed 3% for a temporary period;
• Output in number of sectors is now around pre-Covid levels, although it remains materially below in others;
• There is uncertainty around how many of individuals will resume their search for a job, and when;
• The number of furloughed jobs has declined faster than expected, as demand has recovered;
• MPC’s expectation is that direct impact of rises in commodity prices on CPI inflation will be transitory
• MPC’s central expectation is that UK’s economy will experience a temporary period of strong GDP growth and above-target CPI inflation, after which growth and inflation will fall back;
• It is possible that near-term upward pressure on prices could prove somewhat larger than expected;
• MPC judges that UK inflation expectations remain well anchored;
• In judging appropriate stance of monetary policy, MPC will focus on medium-term prospects for inflation, including balance between demand and supply, and medium-term inflation expectations, rather than factors that are likely to be transient; 
• MPC will continue to monitor situation closely and will take whatever action is necessary to achieve its remit;
• MPC does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably;
• MPC will have opportunity to assess the economic outlook more fully in context of its August Monetary Policy Report and accompanying economic projections

FXStreet reports that UOB Group’s FX Strategists note that  USD/JPY is now seen visiting the 111.35 level in the next weeks.

24-hour view: “Our view for USD yesterday was that it ‘could test 111.00 but may not be able to maintain a foothold above this level’. Our view was not wrong as USD rose to 111.10, dropped back down quickly to 110.65 during London hours before recovering to close at 110.94 in NY. Upward momentum has improved, albeit not by all that much and the bias for today is on the upside. However, any advance is unlikely to break the major resistance at 111.35. Support is at 110.80 followed by 110.60.”

Next 1-3 weeks: “USD subsequently rose to 111.10 before closing at 110.94. While USD did not close above 111.00, upward momentum has improved enough to indicate that USD is likely to head higher to 111.35. At this stage, the prospect for the expected advance to extend to 111.70 is not high. Overall, the current positive outlook is deemed intact as long as USD does not move below 110.40.”

FX strategists at ING note that Fed speakers have continued to sound hawkish, but markets may now feel relatively comfortable with their current pricing.

"Fed speakers have been center stage in the past few days as markets gauged comments about the policy normalisation path following last week’s hawkish shift at the FOMC meeting. Yesterday, Raphael Bostic and Robert Kaplan’s remarks fell again on the hawkish side as they disclosed they both expect a first rate hike in 2022. Kaplan added that he is favouring asset purchases tapering to start sooner than expected on the back of a quicker recovery from the pandemic slump. The market reaction to the comments was by and large contained, with Treasury yields inching only marginally higher, equities coming under some moderate pressure late in the US session and the USD rising only against the low-yielders."

"It appears that the market pricing of Fed’s rate expectations are already sitting on the hawkish side so that additional comments indicating early tapering/hikes now have a more contained and above all short-lived impact on sensitive assets. In FX, this is being mirrored by the fact that the rebound in high-beta G10 currencies (which were the most severely hit by last week’s hawkish FOMC) paused after Bostic and Kaplan’s comments, but did not reverse."

RTTNews reports that preliminary data from Destatis showed that Germany's exports to countries outside the European Union grew sharply in May from the same month last year, driven by a surge in shipments to the US and the UK.

Exports to non-EU countries rose 27.9 percent year-on-year to EUR 48.4 billion. Shipments to the US jumped 40.9 percent and those to the UK surged 44.6 percent. Exports to China grew 17.7 percent.

The strong increases were also due to the very low level of foreign trade in May 2020 or base effect, the agency said.

On a calendar and seasonally adjusted basis, exports to non-EU countries decreased 3.0 percent from the previous month.

FXStreet reports that in opinion of FX Strategists at UOB Group, the upside momentum in USD/CNH is expected to meet a tough hurdle at the 6.5000 level.

Next 1-3 weeks: “We have expected a stronger USD since early last week. Yesterday, we highlighted that USD ‘could move above 6.4930 but may not be able to maintain a foothold above this major level’. USD subsequently rose to 6.4946 before pulling back. Upward momentum has improved, albeit not by all that much. Further USD strength appears likely but 6.5000 is another major level and is expected to offer solid resistance. On the downside, a breach of 6.4550 (‘strong support’ level was 6.4500 yesterday) would indicate that the current USD strength has run its course.”

CNBC reports that Credit Suisse expects global growth to accelerate in the coming months as countries gradually reopen their economies, leading to a recovery in revenue growth and rehiring.

Credit Suisse predicted the world economy will grow 5.9% this year and 4% in 2022. That growth will be led by vaccine rollouts, fiscal stimulus and a broadening services recovery. It also said the United States is set to grow at a rate of 6.9% this year, the Eurozone is expected to expand by 4.2% while Asia ex-Japan is predicted to grow 7.5%.

Economic expansion will likely lead to a sharp recovery in global earnings growth that is set to fuel the stock market, according to Ray Farris, chief investment officer for South Asia at Credit Suisse.

“We are looking for equities to be the asset class that is going to outperform over the next six months to a year,” Farris told. “As long as earnings continue to trend higher, history suggests that equities will grind their way up.”

Reuters reports that President Joe Biden will meet with a bipartisan group of U.S. senators on Thursday to discuss their proposed framework for an infrastructure bill.

Members of the group of 21 senators, or “G-21,” announced an agreement on a framework on Wednesday after a meeting with White House officials.

The G-21 talks have focused on a $1.2 trillion, eight-year spending plan, with a mix of new and repurposed funding.

For Biden, securing a large-scale infrastructure package is a top domestic priority.

Biden, seeking to fuel growth and address income inequality after the coronavirus pandemic, initially proposed spending about $2.3 trillion. Republicans chafed at his definition of infrastructure, which included fighting climate change and providing care for children and the elderly.

The White House later trimmed the offer to about $1.7 trillion in an unsuccessful bid to win the Republican support needed for any plan to get the 60 votes required to advance most legislation in the evenly split 100-seat Senate.

“We came to an agreement on a plan ... and we’re just going to try to wrap it up tomorrow,” Democratic Senator Joe Manchin told reporters on Wednesday of the new plan.

eFXdata reports that ANZ Research discuss its expectations for the BoE policy trajectory.

"The BoE is on track to exhaust its QE envelope in late December, ending QE before the Fed and ECB. It has also indicated that it may consider reducing the size of its balance sheet in line with future rate hikes. Expectations of strong growth and monetary tightening are positive drivers for GBP. Although tensions with the EU over the Northern Ireland protocol are ongoing, export volumes are overcoming early Brexit difficulties, the UK is building out its trade relations and fiscal policy is mildly expansionary. We expect these fundamentals will continue to drive moderate GBP appreciation," ANZ adds. 

Reuters reports that an Ifo institute survey showed that German business morale rose by more than expected in June as companies’ assessment of current conditions improved and their optimism increased about the second half of the year.

The Ifo institute said its business climate index rose to 101.8 in June versus last month's 99.2, beating the consensus estimates of 100.6. The Current Economic Assessment arrived at 99.6 points as compared to last month's 95.7 and 97.8 anticipated. The Expectations Index – indicating firms’ projections for the next six months - improved further to 104.00 in June from the previous month’s 102.9 reading and better than the market expectations of 103.9.

“The German economy is shaking off the coronavirus crisis,” Ifo President Clemens Fuest said in a statement.

RTTNews reports that NAB economists said that a rate hike by the Reserve Bank of Australia is more likely in 2024. However, NAB economists said they can see a probability of the RBA moving in the second half of 2023.

NAB Economics Director Tapas Strickland said that markets should price in this risk, given the high bar the central bank has given itself on wages growth being sustained at 3 percent plus.

NAB economists predicated their view on the RBA sticking to its recent evolution in monetary policy, that being trying to achieve the maximum sustainable employment by waiting for actual inflation to be sustainably in the band before tightening, instead of hiking on a pre-conceived notion of where NAIRU is.

During today's Asian trading, the US dollar fell slightly against the euro and the pound, and was almost unchanged against the yen.

The ICE index, which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell by 0.05%.

Traders continue to closely monitor the statements of representatives of the Federal Reserve System regarding the future policy of the US Central Bank. The head of the Fed Jerome Powell, who spoke earlier this week, made it clear that the Fed does not intend to rush to raise rates and will adhere to a stimulating policy.

Meanwhile, statistical data on the US economy indicate an increase in inflationary pressure in the country against the background of a rapid recovery in activity after the crisis caused by the coronavirus pandemic. Experts fear that the growth of production costs of companies will contribute to a further rise in prices and limit demand.

The president of the Federal Reserve Bank of Atlanta, Rafael Bostic, said on Wednesday that his expectations for a rise in the base rate by the US central Bank have moved to the next year from 2023. In addition, Bostic made it clear that he expects an early reduction in the volume of asset repurchases by the Fed.

The pound rose slightly against the US dollar before the Bank of England meeting. Experts do not expect the Bank of England to change the key parameters of monetary policy. However, some analysts believe that the Bank of England may tighten its rhetoric regarding the curtailment of stimulus measures taken at the peak of the coronavirus pandemic.

According to the report from Insee, in June 2021, the business climate has improved significantly again. The indicator that synthesizes it, calculated from the responses of business leaders in the main market sectors of activity, has gained 5 points. At 113, it stands at the highest level since mid-2007, far above its pre-health crisis level (105), and, even more so, above its long term average (100). This further improvement in the business climate is mainly driven by the increase in the balance of opinion on the general business outlook in services.

In manufacturing, the business climate has stable, after five months of continuous rise. However, the balance of opinion on the general business outlook of the sector has increased significantly.

In the services sector, the climate has gained 6 points. The balance of opinion on the general business outlook has reached its highest level since September 2000 and, overall, the business managers' expectations have improved very strongly.

In retail trade (including trade and repair of vehicles), the business climate has gained 8 points, especially due to the strong increase in the balance of opinion on the general business outlook, to its highest level since the beginning of the series (January 1991).

Finally, in building construction, the balance of opinion relating to recent activity has improved significantly. The supply difficulties are however deemed on the rise.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2033 (648)

$1.2004 (985)

$1.1983 (574)

Price at time of writing this review: $1.1932

Support levels (open interest**, contracts):

$1.1894 (3085)

$1.1866 (1838)

$1.1830 (591)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 23 is 55034 contracts (according to data from July, 9) with the maximum number of contracts with strike price $1,2200 (5956);

GBP/USD

$1.4129 (343)

$1.4063 (1363)

$1.4017 (242)

Price at time of writing this review: $1.3958

Support levels (open interest**, contracts):

$1.3902 (2936)

$1.3878 (1240)

$1.3848 (753)

Comments:

- Overall open interest on the CALL options with the expiration date July, 9 is 15833 contracts, with the maximum number of contracts with strike price $1,4500 (3570);

- Overall open interest on the PUT options with the expiration date July, 9 is 16875 contracts, with the maximum number of contracts with strike price $1,4000 (2936);

- The ratio of PUT/CALL was 1.07 versus 1.04 from the previous trading day according to data from June, 23

* - 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.

Bloomberg reports that the Bank of England has a big task on Thursday, balancing the need to keep the economy recovering while limiting inflation and speculation about rising interest rates.

While a growing minority of economists has brought forward its expectations for when the BOE will tighten monetary policy, millions of workers remain unemployed or on furlough. That’s left both the Treasury and central bank wanting to maintain stimulus until the recovery is more entrenched. Those forces point to a shift in tone but not policy.

Given the current strength of the U.K. rebound -- manufacturing and housing roaring ahead, payrolls rising, consumers upbeat about the outlook -- the BOE will have to acknowledge recent positive signs. But against that, there are risks from the delta variant of the coronavirus and uncertainty about whether the current growth carries over into the second half of the year.

Investors and economists will scour the MPC statement for any signs on a preferred course of action. The majority, however, expects the meeting to put the BOE in a holding pattern until at least August, when officials will have more information on the reopening of the economy, delayed until mid-July, and new forecasts.

The BOE’s benchmark rate is at a record-low 0.1% and the nine-member MPC is forecast to vote unanimously this week to keep it there. On bond-buying, the vote will be 8-1 as Chief Economist Andy Haldane once again pushes to pare back stimulus.

Some banks have shifted their views recently and the idea of a 2022 rate increase has become less of an outlier view. Credit Suisse Group AG sees the BOE raising rates next year, earlier than previously forecast, as does Bank of America.

Money markets are betting on a 15 basis-point increase by June next year. That’s almost double compared to before the last monetary policy meeting in May.

Reuters reports that two government officials told that Japan will abolish on Thursday a nearly two-decade-old panel consisting of academics and corporate executives that has offered long-term proposals on fixing the country's worsening finances.

The move comes as huge stimulus packages to combat the coronavirus pandemic add to Japan's already huge public debt, which twice the size of its economy.

The panel, which met about twice a year to debate Japan's fiscal policy and long-term debt issuance plans, will hold its final meeting on Thursday, the officials said on condition of anonymity.

Created in 2004, the panel served as a mouthpiece for the finance ministry by warning of Japan's worsening finances and calling for the need to prevent debt issuance from ballooning.

The panel's proposals formed a basis for discussions by a group of primary dealers and bond investors on how much debt Japan can issue without disrupting markets each year.

The government may create a new panel as a replacement, though details such as its participants have yet to be decided, the officials said.

FXStreet reports that FX Strategists at UOB Group said that the negative phase in EUR/USD is expected to finish above the 1.1970 level 

Next 1-3 weeks: “Our update from yesterday still stands. As highlighted, the rebound in EUR has been more resilient than expected and a break of 1.1970 would indicate that the weak phase has run its course. We also indicated that EUR ‘has to move and stay below 1.1890 within these 1 to 2 days or the odds for further EUR weakness would diminish quickly’. EUR subsequently rose to 1.1969 during London hours before easing off. There is still chance, albeit a slim one for EUR to extend its weakness but unless EUR can close below 1.1890 by end of today, it appears increasingly likely that EUR has moved into a consolidation phase. In other words, the weak phase that started early last week is likely coming to an end soon.”