CFD Markets News and Forecasts — 26-02-2019

Major US stock indexes fell slightly, as investors analyzed the disappointing reports of Home Depot (HD), mixed economic data and the performance of the head of the Federal Reserve System Jerome Powell in Congress.

Home Depot (HD) reported fourth-quarter earnings at $ 2.09 per share, which was below analysts' average forecast of $ 2.16. The company's revenue was also lower than expected. The home goods retailer also presented weaker-than-expected forecasts for the current year. Against this background, shares of the largest US home goods retailer show a nearly 2 percent decline, even though the company announced the approval of a $ 15 billion share buyback program and an increase of 32% in dividends.

After the publication of Home Depot results, ambiguous data on the housing market came out. As the report of the Ministry of Commerce showed, housing construction volumes decreased in December by 11.2%, to 1,078 million units. This was the weakest indicator since September 2016. November data were revised down from 1.256 million to 1.214 million units. At the same time, the number of building permits rose by 0.3% to 1.326 million units in December. Economists had forecast a decline to 1.290 million units.

However, US consumer confidence data exceeded expectations and helped the market cut losses. In the Conference Board reported that the consumer confidence index in February now stands at 131.4, compared with 121.7 in January (revised from 120.2). Analysts had expected the index to be 124.7. According to the report, the current situation index — based on consumers' assessments of current business and labor market conditions — increased from 170.2 to 173.5, and the expectations index — based on short-term consumer forecasts for income, business and labor market conditions — improved from 89.4 to 103.4.

Market participants also evaluated statements by Fed Chairman Powell. He said that the economy is "healthy", but added that the Fed also sees "cross currents and conflicting signals." This happened after the Fed took a more cautious stance on the future rate hike in the past month.

Most of the components of DOW recorded an increase (20 of 30). The leader of growth were shares of Cisco Systems, Inc. (CSCO, + 1.10%). Caterpillar Inc. shares turned out to be an outsider. (CAT, -2.30%).

The S & P sectors closed the bidding mixed. The largest increase was shown by the consumer goods sector (+ 0.2%). The rest of the conglomerates sector decreased more (-0.5%).

At the time of closing:

Dow 26,057.98 -33.97 -0.13%

S & P 500 2,793.90  -2.21 -0.08%

Nasdaq 100 7,549.30 -5.16 -0.07%

• This is a good time to be patient, to watch and wait
• We see muted inflation pressures, which allows us to be patient
• It would be great to have clarity on marijuana laws for financial institutions
• Certainty around trade and other policies important
• Uncertainty is the enemy of business

• Reaffirms patient approach to monetary policy changes
• U.S. economy is healthy and outlook favorable, but Fed has seen in the past few months some "crosscurrents and conflicting signals"
• Recent economic data has "softened" but 2019 expected to be "solid" but slower than the previous year
• Sees some signs of stronger wage growth
• Expects inflation to run near its 2-percent target after the transitory effects of the energy price drop
• Balance sheet size to be driven by reserves and currency demand
• Taking "patient" stance on policy changes
• U.S. GDP growth in 2018 was "a little less" than 3 percent

Allies likely to continue supply reductions until year-end

Need to see a further decrease in oil inventories

Venezuela output cuts due to U.S. sanctions not clear yet

The Conference Board announced on Tuesday its U.S. consumer confidence gauge surged 9.7 points to 131.4 in February from 121.7 in January.

Economists had expected consumer confidence to come in at 124.7.

January’s consumer confidence reading was revised up from originally estimated 120.2.

The survey showed that the expectations index increased from 89.4 last month to 103.4 this month, while the present situation index improved from 170.2 to 173.5.

Lynn Franco, Director of Economic Indicators at The Conference Board, noted, “The Present Situation Index improved, as consumers continue to view both business and labor market conditions favorably. Expectations, which had been negatively impacted in recent months by financial market volatility and the government shutdown, recovered in February. Looking ahead, consumers expect the economy to continue expanding. However, according to The Conference Board’s economic forecasts, the pace of expansion is expected to moderate in 2019.”

S&P reported on Tuesday its Case-Shiller Home Price Index, which tracks home prices in 20 U.S. metropolitan areas, rose 4.2 percent y-o-y in December, following a revised 4.6 percent y-o-y increase in November (originally a 4.7 percent y-o-y gain).

Economists had expected an advance of 4.5 percent y-o-y.

Las Vegas (+11.4 percent y-o-y), Phoenix (+8.0 percent y-o-y) and Atlanta (+5.9 percent y-o-y) recorded the highest y-o-y gains in December.

Meanwhile, the S&P/Case-Shiller U.S. National Home Price Index, which measures all nine U.S. census divisions, was up 4.7 percent y-o-y in December, down from 5.1 percent y-o-y in the previous month. That marked the slowest pace since August 2015.

David Blitzer, chairman of the index committee at S&P Dow Jones Indices, noted, “The annual rate of price increases continues to fall. Even at the reduced pace of 4.7% per year, home prices continue to outpace wage gains of 3.5% to 4% and inflation of about 2%. A decline in interest rates in the fourth quarter was not enough to offset the impact of rising prices on home sales.”

U.S. stock-index fell moderately on Tuesday, hit by declines in Home Depot (HD) and Caterpillar’s (CAT) stocks and mixed housing market data, while investors awaited Federal Reserve Chair Jerome Powell’s testimony on monetary policy (due at 15:00 GMT).

Global Stocks:

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

Caterpillar (CAT) downgraded to Sell from Buy at UBS; target lowered to $125

The Commerce Department reported on Tuesday the building permits issued for privately owned housing units rose by 0.3 percent m-o-m in December to a seasonally adjusted annual pace of 1.326 million, while housing starts tumbled by 11.2 percent m-o-m to an annual rate 1.078 million, the lowest reading since September of 2016.

Economists had forecast housing starts increasing by 0.5 percent m-o-m last month and building permits falling by 2.8 percent m-o-m.

According to the report, permits for single-family homes, the largest segment of the market, declined 2.2 percent m-o-m to 829,000 in December, while approvals for the multi-family homes segment climbed 4.9 percent m-o-m to a 497,000 unit-rate.

In the meantime, groundbreaking on single-family homes dropped 6.7 percent m-o-m to a rate of 758,000 units in December, the lowest level since August 2016, while housing starts for the multi-family segment 20.4 percent m-o-m to a 320,000-unit pace.

Have agreed workstream on looking at alternative backstop arrangements

Has had a positive meeting with EU leaders in Egypt

I know what parliament needs to support Brexit deal

Making good progress in discussions with the EU

Will hold a second meaningful vote by 12 March

If the government loses meaningful vote, will hold new votes on leaving EU without a deal

UK will only leave without a deal on explicit consent of parliament

If parliament rejects deal and no-deal, will hold vote on 14 March to vote on limited Article 50 extension

Home Depot Inc (HD) reported Q4 FY 2019 earnings of $2.09 per share (versus $1.69 in Q4 FY 2018), missing analysts’ consensus estimate of $2.16.

The company’s quarterly revenues amounted to $26.491 bln (+10.9% y/y), generally in line with analysts’ consensus estimate of $26.572 bln.

The company also issued guidance for FY 2020, projecting EPS of $10.03 (versus analysts’ consensus estimate of $10.25) and revenues of $111.77 bln (versus analysts’ consensus estimate of $111.76 bln).

HD fell to $187.00 (-1.57%) in pre-market trading.

The Telegraph’s Steven Swinford tweeted: "Here's what I'm hearing from Cabinet, which is still ongoing: The PM has said there will be a three line whip on an amendable motion *tomorrow* that will commit to TWO votes on March 12th in the event that her deal fails. One will be on no deal, the other will on extending A50."

• Will implement guidance on macro-credit policies and financial market innovation in 2019
• Will deepen supply-side structural reform of the financial sector
• Will maintain stable operation of bond market

“US real yields peaked in November last year at 1.16%, falling to 0.74%, a low since August last year.  This has led a fall in a number of other countries’ real yields, including Australia and Canada. However, yields in the USA have fallen somewhat further in recent weeks, whereas they have stabilised in other countries. Lower US yields suggest that confidence in the US economy has faded, and the outlook for Fed policy is towards easing. 10-year real-yield spreads have been more correlated with exchange rates than short or long term nominal yield spreads over the last year. The recent fall in USA real yields points to downside risk for the USD.” Greg Gibbs, analyst at AmpGFX, said.

• It is in everyone's interest that there is a Brexit transition period

• Likely that uncertainty about final form of Brexit will persist past 29 March

• calls for legally binding change to backstop

• will meet with Theresa May later today

• appropriate pace of monetary tightening is somewhat slower than I judged it to be a  year ago

• on balance, after no-deal Brexit likely to keep policy on hold or ease

• direction of rate moves after no-deal Brexit will be trade off between supporting economy and stopping temp inflation overshoot

• will provide all stimulus possible after no-deal Brexit, subject to price stability

• fundamentals of the UK economy are sound

• Brexit creating tensions for consumers, businesses

• no-deal Brexit will be inflationary

• BOE won't reduce QE holdings until rate reaches at least 1.50%

• remain confident that underlying mechanism to raise inflation are still active

• current policy can cater to limited downside revision

• seeing upward pressure in wages

• clear that there’s been a sequence of negative shocks recently

• sees only small adjustments to forecasts

• forward guidance can accommodate revisions to projections

• ECB hasn’t hit all limits with regard to policy options

Capital Economics analysts suggest that the recent global economic slowdown is a result of multitude of factors.

“It seems to have been driven by a combination of factors ranging from disruption to vehicle production in Europe to tighter financial conditions and weaker investment in most advanced economies. Importantly, "trade wars" do not appear to have played a significant role.”, analysts said.

• if there is a hard Brexit, the UK will probably slip into recession

• if the worst comes to the worst, we expect a hard Brexit to shave at least 0.5pct off German gross domestic product

• contingency measures taken by politicians and companies can water down the worst effects of a disorderly Brexit but we would still feel really its impact

• slowing euro area economy is challenge for banks

• reinvestments will continue to help corporate bond market

BNP Paribas analysts suggest that the positive cyclical surprises for the US economy have become rare, but the economy still seems to be poised for a smooth landing.

“In the US, positive cyclical surprises have become rare: employment figures and the ISM PMI were the only statistics that surpassed expectations in January. Yet these are solid indicators. Moreover, although industrial output & retail sales were disappointing, they were probably caused by poor weather conditions or temporary factors (government shutdown). For the moment, US economy still seems to be poised for a smooth landing.” analysts said.

Italy's government will review the current tax expenditure system as part of the next budget to raise funds while it rules out a wealth tax to plug a hole in its public finances, the prime minister said.

In an interview with Italian daily Il Sole 24 Ore on Tuesday, Prime Minister Giuseppe Conte also ruled out any revision of the succession tax or the sale of any "strategic assets".

A top U.S. business lobby in China said that a majority of its member companies favoured the United States retaining tariffs on Chinese goods.

The American Chamber of Commerce in China also said over the past year substantially more of its members are wanting the U.S. government to push Beijing harder to create a level playing field for U.S. business.

About 10% of the chamber's members favoured raising tariffs rates on those $200 billion of Chinese goods from 10% to 25% after the original March 1 deadline agreed to by Trump and Xi in December.

Another 43% advocated maintaining tariffs at 10% and delaying the increase for 60 days while negotiations continued, the chamber said.

According to the report from Insee. in February 2019, households’ confidence in the economic situation increased again.The synthetic index has gained 3 points and reached 95. It remains however below its long term average (100).

Households’ opinion balance on their past personal situation has risen again: it has gained 4 points but still remains below its long term average. Households’ opinion balance on their saving capacity has improved again. The expected saving capacity balance has gained 4 points, while the one about their current saving capacity has gained 2. These two balances now stand above their long term average. The share of households considering it is a suitable time to save has also increased: the corresponding balance has gained 3 points, remaining however well below its long term average.

In February, the share of households considering that the past standard of living in France has increased during the past twelve months has risen again: the corresponding balance has gained 6 points, although remaining below its long term average. Households’ opinion balance about the future standard of living in France has also increased although to a lesser extent (+2 points after gaining 10 points in January). It remains below its long term average too.

Infrastructure investment plans are under pressure in China as the confidence of investors in them has dipped, the state planner said.

The National Development and Reform Commission (NDRC) said in a report that manufacturing investment may also face some downward pressure in the first half of 2019, as company profits have been squeezed since late last year on sluggish demand and weak prices.

Property investment in the first quarter will maintain relatively rapid growth as some projects have been under construction since 2018, but new construction starts may suffer a decline, the NDRC said.

According to the report from Gfk (Germany's largest market research institute), the mood of consumers paints a mixed picture in February 2019. While income expectations remain stable, the propensity to buy has lost ground again following the gains made last month. Economic expectations, in contrast, continue their steep downward spiral. The indicator lost a further 6.5 points in February, dropping to 4.2 points as a result. This is the fifth decline in succession and the lowest value since March 2016, when it measured 0.5 points. This means that it is currently more than 41 points lower than the corresponding value recorded for the previous year.

Since the propensity to save has also dropped further, GfK predicts that the consumer climate in March will remain unchanged compared to the previous month at 10.8 points.

The gap between economic and income expectations widened again in February. While income expectations have retained their extremely good level, the economic indicator has continued its steep downward spiral unabated. The propensity to buy lost virtually all the gains it had made in the previous month. Since the decline in the propensity to save acts as a support, the overall consumer climate remains unchanged.

• ETF purchases an important part of monetary policy

• ETF holdings are only small portion of stock market

• BoJ doesn't own stocks directly

EUR/USD

Resistance levels (open interest**, contracts)

$1.1439 (4931)

$1.1417 (1486)

$1.1403 (1170)

Price at time of writing this review: $1.1357

Support levels (open interest**, contracts):

$1.1318 (2743)

$1.1282 (5476)

$1.1240 (5523)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 8 is 98786 contracts (according to data from February, 25) with the maximum number of contracts with strike price $1,1700 (6209);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3336 (1272)

$1.3265 (3017)

$1.3208 (4067)

Price at time of writing this review: $1.3132

Support levels (open interest**, contracts):

$1.3051 (652)

$1.3032 (453)

$1.3008 (774)

Comments:

- Overall open interest on the CALL options with the expiration date March, 8 is 43508 contracts, with the maximum number of contracts with strike price $1,3100 (4067);

- Overall open interest on the PUT options with the expiration date March, 8 is 31237 contracts, with the maximum number of contracts with strike price $1,2700 (1943);

- The ratio of PUT/CALL was 0.72 versus 0.73 from the previous trading day according to data from February, 25

* - 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.