CFD Markets News and Forecasts — 26-03-2019

Major US stock indices rose moderately, helped by a rise in prices for stocks in the base materials sector and the conglomerates sector.

The market was also supported by a recovery in US government bond yields, which weakened fears of a slowdown in economic growth.

At the same time, investors ignored the disappointing statistics on the US housing market, as well as weaker than expected consumer confidence data. As the report of the US Department of Commerce showed, the number of new home bookmarks in the US dropped sharply in February after a jump in the previous month. According to the report, in February, housing construction fell by -8.7% to an annual rate of 1.162 million, after rising by 11.7% to a revised figure of 1.273 million in January. Economists had expected the number of new housing bookmarks to drop to 1,213 million from 1,230 million reported in the previous month. At the same time, the number of building permits fell by -1.6% to an annual level of 1.296 million after a fall of -0.7% to a revised level of 1.1317 million in January. It was expected that the number of building permits would be reduced to 1,300 million from 1,345 million that were originally reported.

The Conference Board report showed that the consumer confidence indicator declined in March after recovering in February. According to the report, the US consumer confidence index fell in March to 124.1 from 131.4 in February. At the same time, the current situation index, based on the assessment of current business conditions and the labor market by consumers, dropped from 172.8 to 160.6. The expectations index, based on short-term consumer forecasts for income, business and labor market conditions, declined from 103.8 last month to 99.8 this month.

Most of the components of DOW finished trading in positive territory (23 of 30). The growth leader was The Walt Disney Co (DIS, + 1.96%). Outsider were shares UnitedHealth Group Inc. (UNH; -1.86%).

All sectors of the S & P recorded an increase. The largest increase was shown by the base materials sector (+ 0.9%).

At the time of closing:

Dow 25,657.79 +140.96 +0.55%

S & P 500 2,818.46 +20.10 +0.72%

Nasdaq 100 7,691.52 +53.98 +0.71%

The latest poll conducted by YouGov for Citi revealed the British public's expectations for consumer price inflation in the year ahead decreased to 2.7 percent in March from 2.9 percent in February.

In the mean time, longer-term inflation expectations reduced to 3.0 percent from 3.2 percent, its lowest since May 2017.

"Amid some volatility, long-term inflation expectations keep printing new lows. This establishes a downtrend, potentially due to weaker economic prospects," noted Citi's economists.

The Federal Reserve Bank of Richmond reported on Tuesday its latest survey showed that manufacturing activity in the U.S. fifth district expanded moderately in March.

According to the survey, the composite index dropped from 16 in February to 10 in March but remained in expansionary territory. 

Economists had forecast the index to come in at 12.

The March decline came from drops in both the shipments (2 in March from 12 in February) and new orders (to 9 from 19) indexes, while the employment indicator, increased (to 23 from 15). 

The survey also noted that the firms were optimistic, expecting conditions to improve in the coming months.

The Conference Board announced on Tuesday its U.S. consumer confidence gauge fell 7.3 points to 124.1 in March from 131.4 in February. 

Economists had expected consumer confidence to come in at 132. 

February’s consumer confidence reading was unrevised at 124.1. 

The survey showed that the expectations index decreased from 103.8 last month to 99.8 this month, while the present situation index declined, from 172.8 to 160.6.

Lynn Franco, Director of Economic Indicators at The Conference Board, noted, “Consumer Confidence decreased in March after rebounding in February, with the Present Situation the main driver of this month’s decline. Confidence has been somewhat volatile over the past few months, as consumers have had to weather volatility in the financial markets, a partial government shutdown and a very weak February jobs report. Despite these dynamics, consumers remain confident that the economy will continue expanding in the near term. However, the overall trend in confidence has been softening since last summer, pointing to a moderation in economic growth.”

S&P reported on Tuesday its Case-Shiller Home Price Index, which tracks home prices in 20 U.S. metropolitan areas, rose 3.6 percent y-o-y in January 2019, following a revised 4.1 percent y-o-y increase in December 2018 (originally a 4.2 percent y-o-y gain). That was the smallest annual advance in house prices since September 2012.

Economists had expected an advance of 4.0 percent y-o-y. 

Las Vegas (+10.5 percent y-o-y), Phoenix (+7.5 percent y-o-y) and Minneapolis (+5.1 percent y-o-y) recorded the highest y-o-y gains in January. 

Meanwhile, the S&P/Case-Shiller U.S. National Home Price Index, which measures all nine U.S. census divisions, was up 4.3 percent y-o-y in January, down from 4.6 percent y-o-y in the previous month. That marked the slowest pace since April 2015.

U.S. stock-index rose on Tuesday as stocks attempted to rebound after two sessions of declines, which were fueled by fears of slowing global economic growth.

Global Stocks:

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

• Amendments yesterday make a Brexit vote Wednesday very unlikely
• The way the amendment votes were framed yesterday makes it extremely unlikely there will be an meaningful vote on Wednesday
• European council decision was that the withdrawal agreement has to be passed this week if extension to May 22 is going to apply
• No deal is still the legal default position, we should prepare for it even though the PM believes parliament will do all it can to stop it
• You can expect conversations with Conservative colleagues and members from other parties on the deal

Apple (AAPL) target raised to $195 from $160 at Maxim Group

Apple (AAPL) target raised to $201 from $187 at Piper Jaffray

The Commerce Department reported on Tuesday the building permits issued for privately owned housing units dropped by 1.6 percent m-o-m in February to a seasonally adjusted annual pace of 1.296 million, while housing starts fell by 8.7 percent m-o-m to an annual rate 1.162 million, the lowest level in over 1-1/2 years. 

Economists had forecast housing starts slumping to 1.213 million last month and building permits falling to 1.300 million. 

Data for January were revised higher.

According to the report, permits for single-family homes, the largest segment of the market, were unchanged m-o-m at 821,000 in February, while approvals for the multi-family homes segment declined 4.2 percent m-o-m to a 475,000 unit-rate. 

In the meantime, groundbreaking on single-family homes tumbled 17.0 percent m-o-m to a rate of 805,000 units in February, the lowest level since May 2017, while housing starts for the multi-family segment climbed 17.8 percent m-o-m to a 357,000-unit pace.

• It "certainly is a possibility" that May will offer a resignation date tomorrow - Reuters reports, citing a senior Tory lawmaker

UBS analysts suggest that the markets already seems to have prices in the US-China trade deal. Their base case, to which they assign 60% chances, is that the agreement will be signed in the next two to three months.

• “We think any deal would include a commitment to reduce bilateral trade imbalances, and a review of intellectual property protection and forced technology transfer. But this positive outcome appears to be well priced in.
• Chinese stocks, which are highly sensitive to the result of the talks, have been the best performing market of the year, with the Shanghai Composite up 22%, roughly twice the rise in global stocks. And US industrials, a sector which is also sensitive to trade conditions, have outperformed the S&P 500 by nearly 2% points this year.
• Also, regardless of whether an agreement is reached, the deep-seated, longer-term nature of US–China rivalry is likely to continue to be a source of periodic volatility, and should temper any market enthusiasm in the event of a trade deal.”

James Smith, developed markets economist at ING, says that on Monday evening, British MPs voted to take control of the Brexit process and allow time for indicative votes on alternative paths, which follows another bumpy few days in Westminster, where PM May has struggled to get the support she needs to pass her Brexit deal through parliament.

• "The indicative votes process will kick-off tomorrow afternoon, and the big question is whether any single option can command a majority among lawmakers.  There is no preset list of options, and instead, lawmakers will be able to put forward their preferred choices, and the speaker of the House of Commons will select the most popular. Out of all the alternative paths, we suspect a permanent customs union is still most likely to emerge as the preferred option.
• The bigger question is whether PM May has the political capital to change course. Theresa May has been highly reluctant to seek cross-party consensus on Brexit, amid fears that this could split the Conservative party. If parliament opts to take Brexit in a 'softer' direction, then many Conservative Eurosceptic ministers and backbench MPs may be prepared to vote against the government in another no-confidence vote. Some commentators have also suggested that PM May herself may view an election as preferable if MPs back a second referendum or another unpalatable alternative.
• One way or another, the next two weeks are going to be a 'tug of war' between the government and parliament."

According to analysts at TD Securities, US housing starts are expected to have given back some of the strength behind January's 18.6% m/m pop, with the market projecting a 0.9% m/m decline for February.

“Single-family housing starts were the main driver of the increase following several months with consecutive declines. Moreover, the Richmond Fed manufacturing survey is expected to show a decline in March following two increases to start the year, while the Conference Board's consumer confidence index is projected to continue to build on its recent rebound after the sour end to the year.”

China could increase U.S. pork imports to the highest ever this year as part of its commitment to bolster purchases of American farm goods to resolve the trade war between the two countries, according to people familiar with the situation.

China may buy as much as 300,000 metric tons of pork in 2019, the people said. That amount would be about 80 percent more than the 166,000 tons it bought from the U.S. in 2017, before the trade war started. One of the people said the Asian nation could order 200,000 tons in the first half of the year alone.

There may be ominous signs of a recession, but Standard Chartered CEO Bill Winters says it doesn't look like a downturn is on the horizon.

"On balance, things feel okay right now. We know that the global economy has slowed, but there are signs of a bottoming out beginning to pick up. There are signs from China, there are signs from Europe — I would say more tender in Europe. This idea that we are in a straight line to a recession sometime next year looks less likely today." Winters said.

Winters pointed to three factors to support his prediction. "Part of it is the Fed, part of it is the sense that there's progress on the trade discussions between the U.S. and China," he told.

"Part of it is we are in the cycle — we've probably gone through the deleveraging period in China ... in some of the rest of emerging Asia. Not completely, but there's the sense that we're coming back up," he continued, referring to China's efforts to reduce debt levels.

Irish employment would be 3.4 percent lower if Britain leaves the European Union without a deal than it would be if its neighbour remained in the bloc, a study showed.

Ireland's 2.3-million-strong workforce would create 80,000 fewer jobs over the next 10 years through a combination of job cuts and roles that would otherwise have been created if Britain leaves without any orderly transition for trade, the government-commissioned report said.

Due to the two country's close trading links, the Economic and Social Research Institute's (ESRI) study estimated that even if Britain makes an orderly agreed exit from the EU, employment would still be 1.8% lower than if trade remained as it is now, the equivalent of 45,000 jobs.

The ESRI said gross domestic product would be 2.6% lower than it otherwise would have been in 10 years time with a deal and 5% in a chaotic no deal.

According to analysts at TD Securities, gold complex received a big boost from a convincing drop in rates across the yield curve, after the US Fed dropped the median dot to levels which signaled to the market that the central bank will not hike rates further this year, while also moderating its balance sheet reduction.

“Despite the fact that the dots are pointing to one more interest rate increase in 2020, many observers now believe that the next move on the US policy rate front will be a cut. Given that the market is increasingly pricing in a US rate cut this year, the US dollar is on a weak footing and considering that equities are generally more worried about growth, gold could well move into a higher trading range sooner than expected. Indeed, we suspect that current prices will prompt aggressive CTA buying along with additional spec length.”

• Euro area banks can expect Ecb loan details by June

• TLTRO-3 terms should be close to TLTRO-2

• ECB doesn’t want to raise rates prematurely amid risks

• Domestic demand will help avoid a recession

• Negative rates shouldn't become the new normal

Boston Federal Reserve President Eric Rosengren said that weak bond yields in other countries are hurting U.S. long-term bond yields. Still, Rosengren expects Treasurys to eventually start inching higher.

Rosengren said long-term bond yields are falling in a number of countries. He cited as an example Germany's 10-year bond yield, which is close to zero. Slowing economic growth in Europe and Asia is contributing to those declines, he said.

"I think there's a lot less risk in the US economy than there is in the rest of the world, but those lower yields are in part pushing down yields in the United States as well," Rosengren said.

Rosengren added that if his forecast for America's economic growth of between 2 to 2.5 percent for the rest of the year pans out, and the U.S. starts to hit its inflation target, then the 10-year yield "will go up a little bit from where it is now."

Trade tensions between the U.S. and China have caused huge amounts of economic uncertainty and could cut Asia's economic growth by 0.5 percentage point, Zhang Tao, deputy managing director at the IMF, said at the Boao Forum.

According to the report from Insee, in March 2019, the business climate is slightly more favorable than in February. The composite indicator, compiled from the answers of business managers in the main sectors, has gained one point: it stands at 104, above its long-term mean (100). Compared to the previous survey, the business climate indicator is stable or virtually stable in services, retail trade, manufacturing industry and building construction. It has bounced back by eight points in wholesale trade, compared to the bimonthly survey of January. The business climate is above its long-term mean in all those sectors.

In March 2019, the employment climate has improved again a little, after a more marked increase in February: the associated composite indicator has gained one point and stands at 108, well above its long-term average. This improvement is due mainly to the increase in the balance of opinion on expected workforce size in the service sector excluding temporary work agencies.

Karen Jones, analyst at Commerzbank, suggests that they will continue to favour the topside for the GBP/USD pair after it recovered from the 55 day ma as it has held over the 200 day ma at 1.2980.

“The market recently challenged the 1.3363 July 2018 high, reaching 1.3382 before failing. Provided that dips lower are contained by the 200 day ma, our overall target remains the 1.3563 200 week ma. Below the 200 day ma lies the double Fibo retracement at 1.2900/1.2895. This guards the recent low at 1.2772.”

According to analysts at TD Securities, the RBNZ OCR Review is widely expected to make the smallest ripple possible tomorrow.

“The recent Dec quarter GDP report revealed that domestic demand was strong (consumption and investment, public and private) while trade was thought to be neutral for growth, but in the end added another +0.6%pts. With inflation expectations anchored just above 2% and maximum sustainable employment achieved, there are no triggers for the RBNZ to change its February stance where the next cash rate move “could be up or down”, and that the cash rates is likely to stay “unchanged through 2019 and 2020”. There are no updated forecasts, no OCR forward guidance nor press conference, these are scheduled for 8 May.”

Chinese Premier Li Keqiang reaffirmed Beijing’s pledge to further open up to foreign investment as he met with global business executives, and sought to assure them that the rights of foreign firms would be protected.

China is committed to providing foreign investors and companies with a more open and transparent business environment, along with guarantees of intellectual property rights protection and no forced technology transfers, Li told the executives the sidelines of the China Development Forum.

“China encourages the development of new technologies and industries to create space for innovation and development,” Li told the global executives.

China will not allow innovation to be “killed” just as it emerges, Li said. The premier also sought to assure the executives that China will be able to withstand pressure on its economy.

China will keep the economy growing within a reasonable range, Li said.

According to the report from GfK Group, overall, consumer mood in March 2019 looks somewhat more balanced than in the previous month. Economic expectations are increasing again. However, both income expectations and propensity to buy have decreased somewhat.

For April, GfK is predicting a consumer climate value of 10.4 points, following a revised March figure of 10.7 points.

With the current increase, the collapse in economic expectations has been halted - for the time being at least. Moreover, the gap between the economic indicator and income expectations is continuing to close. This is because the latter has had to concede something of its very good level. The same goes for propensity to buy which has also taken hits. As a result, the consumer climate has suffered a slight setback following a pleasing start to 2019.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1444 (1838)

$1.1422 (1339)

$1.1409 (389)

Price at time of writing this review: $1.1309

Support levels (open interest**, contracts):

$1.1283 (3766)

$1.1241 (3189)

$1.1195 (2867)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date April, 5 is 70971 contracts (according to data from March, 25) with the maximum number of contracts with strike price $1,1350 (4777);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3359 (1474)

$1.3309 (414)

$1.3279 (754)

Price at time of writing this review: $1.3181

Support levels (open interest**, contracts):

$1.3106 (1437)

$1.3078 (796)

$1.3047 (568)

Comments:

- Overall open interest on the CALL options with the expiration date April, 5 is 25372 contracts, with the maximum number of contracts with strike price $1,3400 (4258);

- Overall open interest on the PUT options with the expiration date April, 5 is 30626 contracts, with the maximum number of contracts with strike price $1,2500 (5058);

- The ratio of PUT/CALL was 1.21 versus 1.20 from the previous trading day according to data from March, 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.