CFD Markets News and Forecasts — 27-02-2019

Major US stock indices have predominantly declined, being under pressure from statements by US Trade Representative Robert Lighthizer that the contradictions with China are "too serious" to be resolved by promises to increase purchases of American goods by Beijing.

Lighthizer, President Donald Trump’s negotiator, said in his speech at the congressional hearings that any transaction between the two countries must include a way to enforce obligations, and it’s too early to predict the outcome of current trade negotiations.

In addition, investors evaluated the performance of Fed Chairman Jerome Powell to the House Financial Services Committee. Speaking yesterday to the Senate Banking Committee, Mr. Powell reiterated the Fed’s commitment to a “patient” approach to monetary policy and the normalization of balance.

Geopolitical issues were also in the focus of investors. Pakistan said it shot down two Indian planes and launched air strikes in Kashmir. Tensions rose after suicide bombers blown up by terrorists from Pakistan in Indian-controlled Kashmir on February 14 killed at least 40 Indian paramilitary police officers, but on Tuesday the danger of conflict sharply increased when India attacked , was a combat training base.

Most of the components of DOW finished trading in the red (19 out of 30). Outsider was UnitedHealth (UNH; -4.95%). The growth leader was Boeing (BA; + 2.10%).

Most sectors of the S & P recorded an increase. The largest growth was shown by the conglomerates sector (+ 0.7%). Consumer goods sector decreased more than the rest (-0.3%).

At the time of closing:

Dow 25,985.16 -72.82 -0.28%

S & P 500 2,792.38 -1.52 -0.05%

Nasdaq 100 7,554.51 +5.21 +0.07%

The U.S. Energy Information Administration (EIA) revealed that crude inventories tumbled by 8.647 million barrels in the week ended February 22. Economists had forecast an increase of 3.000 million barrels.

At the same time, gasoline stocks fell by 1.906 million barrels, while analysts had expected a drop of 1.250 million barrels. Distillate stocks reduced by 0.304 million barrels, while analysts had forecast a decrease of 2.000 million barrels.

Meanwhile, oil production in the U.S. increased by 100,000 barrels a day to 12.100 million barrels a day.

U.S. crude oil imports averaged 5.9 million barrels per day last week, down by 1,605,000 barrels per day from the previous week.

The U.S. Commerce Department reported on Wednesday that the value of new factory orders increased 0.1 percent m-o-m in December, following a revised 0.5 percent m-o-m drop in November (originally a 0.6percent m-o-m decline).

Economists had forecast a 0.9 percent m-o-m advance.

According to the report, orders for transportation equipment led the gain (+3.2 percent m-o-m in December compared to +3.1 percent m-o-m in November), followed by furniture and related products (+3.4 percent m-o-m versus -1.7 percent m-o-m), fabricated metal products (+0.4 percent m-o-m versus +1.8 percent m-o-m) and computers and electronic products (+0.1 percent m-o-m, the same as in November). Meanwhile, demand reduced for non-durable goods (-1 percent m-o-m versus -2 percent m-o-m), machinery (-1 percent m-o-m versus -2 percent m-o-m) and electrical equipment, appliances, and components (-0.3 percent m-o-m versus -2.6 percent m-o-m).

Total factory orders excluding transportation, a volatile part of the overall reading, rose 0.8 percent m-o-m in December (compared to a 0.6 percent m-o-m drop in November), while orders for nondefense capital goods excluding aircraft, a measure of business spending plans, fell 1.0 percent m-o-m (compared to a 1.1 percent m-o-m decline in November). The report also showed that shipments of core capital goods were unchanged m-o-m in December, following a drop of 0.2 percent m-o-m in November. 

The National Association of Realtors (NAR) announced on Wednesday its seasonally adjusted pending home sales index (PHSI) surged 4.6 percent m-o-m to 103.2 in January, up from 98.7 in December.

Economists had expected pending home sales to drop 1.9 percent m-o-m in January.

On y-o-y basis, the index fell 2.3 percent. That was the 13th consecutive month of annual declines.

According to the report, the pending home sales rose in all four major regions in m-o-m terms but fell in most regions compared to January 2018. The PHSI in the Northeast increased 1.6 percent m-o-m to 94.0 in January, and is now 7.6 percent above a year ago. In the Midwest, the indicator rose 2.8 percent m-o-m to 100.2 in January, 0.3 percent lower than January 2018. Pending home sales in the South climbed 8.9 percent m-o-m to an index of 119.8 in January, which is 3.1 percent lower than this time last year. The index in the West advanced 0.3 percent in January to 87.3 and fell 10.1 percent below a year ago.

The chief economist for the NAR, Lawrence Yun, says positive pending home sales figures in January will likely continue. “Income is rising faster than home prices in many areas and mortgage rates look to remain steady. Furthermore, job creation will help lift home buying.”

• Amendment A: To adopt Labour's Brexit plans including a permanent customs union
• Amendment K: Calls on gov't to rule out leaving EU without a deal in any circumstances
• Amendment C: To put into law May's promise that by mid-March, parliament will have a chance to either back her deal, a no-deal exit or a delay to Brexit
• Amendment B: Calls on May to ensure safeguards for the rights of EU citizens
• Amendment F: Notes May's commitment to hold a vote on March 14 on whether to delay Brexit if parliament has rejected her deal

The voting will come later today. 

U.S. stock-index fell moderately on Wednesday, as investors focused on geopolitical developments, while awaiting more testimony from Federal Reserve Chair Jerome Powell.

Global Stocks:

India and Pakistan both said they shot down each other’s fighter jets on Wednesday, a day after Indian warplanes struck inside Pakistan for the first time since a 1971 war, prompting world powers to urge restraint.

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

Home Depot (HD) downgraded to Market Perform at Telsey Advisory Group; target lowered to $192

Statistics Canada reported on Wednesday the country’s consumer price index (CPI) edged up 0.1 m-o-m in January, following a 0.1 percent m-o-m decrease in the prior month.

On the y-o-y basis, Canada’s inflation rate rose 1.4 percent last month after a 2.0 percent gain in December 2018. That was the lowest inflation rate since October 2017.

Economists had predicted inflation would increase 0.2 percent m-o-m and 1.5 percent y-o-y in January. 

According to the report, prices went in seven of the eight major components in the 12 months to January. The alcoholic beverages, tobacco products (+4.5 percent y-o-y), food (+2.8 percent y-o-y) and shelter (+2.4 percent y-o-y) indexes posted the biggest gains. Only transportation component (-0.7 percent y-o-y) recorded decrease, impacted by a tumble in gasoline prices (-14.2 percent y-o-y). That was the first 12-month decline in the index since July 2016.

Meanwhile, the closely watched the Bank of Canada's core index increased 1.5 percent y-o-y in January after gaining 1.7 percent y-o-y in the previous month.

Britain has an agreement at the World Trade Organization (WTO) to remain within the WTO's Government Procurement Agreement after it exits the European Union (EU), Britain's mission said.

Britain is a member of the GPA, whose members open up their combined $1.7-trillion government procurement markets to each other's firms, by virtue of its EU membership.

There are 47 GPA members, including all EU countries. Australia is joining the block and China wants to become a member.

Diplomats agreed Britain's continuing membership post-Brexit in principle in November, saying few changes would be needed.

"Today’s decision underlines our determination to minimize any disruption, however, we leave the European Union," British Ambassador Julian Braithwaite said.

He added the EU, Montenegro, and Switzerland had had to amend their own membership terms to ensure continuity.

Membership would "ensure that British taxpayers and public sector organizationі, including government departments, continue to benefit from increased choice and value for money on contracts which are open to international competition. The agreement will continue to protect vital public services such as the NHS (National Health Service)," the British mission's statement noted.

North Korean leader Kim Jong Un and Donald Trump met in Hanoi on Wednesday for their second summit, Reuters reported. The two have shaken hands. 

Trump told reporters he thought the talks would be very successful, and asked if he was “walking back” on denuclearization, said “no”.

Senior ministers believe that the European Union (EU) will insist on a Brexit delay of up to two years if Britain fails to agree a deal in the next few weeks, said the Standard's paper.

Several sources have told the Standard they do not think the sort of “short, limited extension” of Article 50 suggested by UK's PM Theresa May in the Commons yesterday would be permitted by Brussels.

Ministers closely involved in Brexit preparations believe the EU would probably demand an extension until December 2020, effectively replacing the planned transition period with continued EU membership.

The disadvantage for the UK is that would also delay the start of negotiations on future trade deals and UK-EU relations, which Brussels claims must begin only after the UK has left the bloc.

• Says Greece, Italy Cyprus experiencing "excessive" imbalances
• Sees no improvement in Italy’s debt ratio in coming years
• Says Italy’s budget doesn’t do enough for potential growth

• April will be a good time to asses the market response
• Based on that assessment a decision will be taken
• Conformity levels have been impressive all through, and the same is believed to happen in 2019
• Sanctions against OPEC members complicates work to rebalance market and sustain it
• The U.S. is the biggest oil producer in the world, it has a strategic stake in the supply and demand globally
• Welcomes U.S. President Trump to join a dialogue on the rebalancing of oil market

Europe's biggest asset manager Amundi reckons there is a 40% chance of a "prolonged extension" to the scheduled Brexit date of March 29, upping its previous forecast of 30%

The fund assigns a 20% probability to a no-deal outcome, unchanged from its end-January forecast. It had said at the time it saw a 30% chance the Brexit deadline would be extended by several months.

• control credit risks in key areas

• to steadily resolve shadow-banking risks

• to strengthen supervision, evaluation of financial risks

• German growth dip has extended into 2019, full-year growth to fall "well short" of 1.5%

• normalisation of monetary policy will be a gradual process, lasting several years;

• ending QE was only first step

• ECB should look through short-term weakness

• Next steps in ECB policy depend on inflation developments over the medium-term

• Important to continue policy normalisation when appropriate

• Fiscal policy reaction is needed in case of a 'big shock'

According to the report from European Commission, in February 2019, the Economic Sentiment Indicator (ESI) remained broadly stable in the euro area (-0.2 points to 106.1), while it decreased in the EU (by 0.9 points to 105.3).1

Broadly unchanged euro-area sentiment resulted from weaker industry and construction confidence in combination with more upbeat signals from the services sector, as well as, to a lesser extent, retail trade and consumers. Industry confidence deteriorated for the third month in a row (-1.0), due to managers’ more pessimistic views on all three components, i.e. production expectations, the current level of overall order books and the stocks of finished products. Services confidence improved (+1.1), as managers were more upbeat on the past business situation and, to a lesser extent, past and expected demand. The slight increase in consumer confidence (+0.5) reflected households’ more benign views on their past and future financial situation, as well as the expected general economic situation. Households’ intentions to make major purchases, by contrast, were scaled back somewhat. Retail trade confidence edged up (+0.5), reflecting managers’ better take on the present and expected business situation, which were partially offset by slightly more negative views on the adequacy of the volume of stocks. Construction confidence clouded over (-2.0), with managers reporting more pessimistic employment expectations and worsened assessments of the level of order books. Finally, financial services confidence (not included in the ESI) remained flat (+0.0), as strongly deteriorated appraisals of past demand were offset by more benign views on the past business situation and brighter demand expectations.

The South China Morning Post report cites three people with knowledge of the talks and said that "many problems remained and that both sides still saw big gaps in structural issues such as technology transfers and enforcement mechanisms".

According to the report from Statistics Portugal, сonsumer Confidence in Portugal decreased to -8.30 Index Points in February from -7.20 Index Points in January of 2019. Business Confidence in Portugal increased to 2.20 Index Points in February from 2.10 Index Points in January of 2019.

The decrease of the Consumer confidence indicator in January and February reflected the negative contributions of the expectations on the evolution of the country’s economic situation, on the household’s financial situation and on spending money on major purchases.

In Manufacturing Industry, the confidence indicator decreased in January and February, resuming the descendent movement started at the beginning of 2018. The evolution of the indicator reflected the negative contribution of the production perspectives and the opinions on global demand, while the opinions on the evolution of stocks of finished products contributed positively.

The confidence indicator for Construction and Public Works increased in February  attaining the maximum since March 2002. This evolution was due to the positive contribution of both components, opinions on the order books and employment perspectives, more significant in the former case.

The confidence indicator for Trade increased in February, interrupting the downward movement observed in the two previous months and reflecting the positive contribution of all components, opinions on sales evolution, perspectives on the business activity and opinions on the volume of stocks, more significant in the first case.

The Services’ confidence indicator increased in January and February, suspending the downward movement observed between September and December. In the last month, there was a positive evolution of the opinions on the evolution of demand, while the perspectives on the evolution of demand stabilized and the balance of the opinions on the business situation decreased.

According to the report from Istat, in February 2019, the consumer confidence index decreased from 113.9 to 112.4. The economic component diminished from 130.5 to 126.6; the personal one from 108.9 to 108.2; the current one from 112.4 to 109.4 and, finally, the future one from 117.4 to 116.9.

As for the business confidence surveys, the business confidence climate index (IESI, Istat Economic Sentiment Indicator) slackened passing from 99.1 to 98.3.

• The confidence index in manufacturing weakened from 102.0 to 101.7.

• The confidence index in construction went down from 139.2 to 135.5.

• The market services confidence index slipped from 98.6 to 98.3.

• The retail trade confidence index rose from 102.9 to 105.4.

• Annual growth rate of broad monetary aggregate M3 decreased to 3.8% in January 2019 from 4.1% in December 2018. Economists had expected a 4.0% increase

• Annual growth rate of narrower monetary aggregate M1, comprising currency in circulation and overnight deposits, decreased to 6.2% in January from 6.6% in December

• Annual growth rate of adjusted loans to households stood at 3.2% in January, unchanged from previous month

• Annual growth rate of adjusted loans to non-financial corporations decreased to 3.3% in January from 3.9% in December

New data from the Recruitment and Employment Confederation (REC) shows employers’ confidence in the prospects for the UK economy fell by 6 percentage points last month to a net: -20. This is the lowest on record in the three years the survey has measured sentiment about the economy amongst Britain’s businesses.

While not new, the weakening trend seen in today’s survey appears to be affecting hiring decisions in respondents’ own firms. Employers’ confidence in making hiring and investment decisions declined by 3 percentage points from the previous month to net: +5, the lowest level recorded since June 2016.

Analysts at Danske Bank note that EUR/USD lifted yesterday on rising hopes of a averting a no-deal Brexit and as Fed’s Powell reiterated the need to be reactive to economic and financial conditions.

“The likelihood of a postponement of the deadline for Brexit and/or a trade deal remain EUR positives near term; both would be significant developments in lifting some of the political risks that have been weighing on the single currency for a long time. We continue to target EUR/USD at 1.15 in 1-3M.”

According to Karen Jones, analyst at Commerzbank, EUR/USD pair has started to erode its 55 and 100 day MA at 1.1386/90 and they are hopeful that this means it is going to start moving.

"We look for it to remain under pinned by the 1.1216 November low. Our attention remains on the 1.1510 200 day MA. We continue to favour recovery this week. Above the 200 day MA will re-target the 1.1623 mid-October high and slightly longer term we look for gains to 1.1685, the 55 week MA”

• Irish backstop cannot be renegotiated

• No matter what form of deal, Brexit will have numerous consequences

• Brexit accord can still be salvaged

• risks, such as those on trade, have started to materialise

• fiscal uncertainty has damaged Italy's growth prospects

• Germany needs to boost domestic demand, investment

• Any additional easing will use three tools: interest rates, quality of asset purchases, and quantity of asset purchases

• Watching carefully the risk of prolonged low-rate environment

• BOJ must show determination to do whatever it takes to hit price target

• Even if monetary policy is loose, it will take a very long time to hit price target

• Both monetary and fiscal policy is needed to reach inflation target

• BOJ must take bolder steps to reach inflation target sooner

According to the report from Australian Bureau of Statistics, the seasonally adjusted estimate for total construction work done fell 3.1% to $51,092.3m in the December quarter. Economists had expected a 0.4% increase. The trend estimate for total construction work done fell 2.5% in the December quarter 2018.

Building work done

• The trend estimate for total building work done fell 1.2% in the December quarter.

• The trend estimate for non-residential building work fell 0.1% and residential building work fell 1.7%.

• The seasonally adjusted estimate of total building work done fell 1.7% to $29,599.6m in the December quarter.

Engineering work done

• The trend estimate for engineering work done fell 4.0% in the December quarter.

• The seasonally adjusted estimate for engineering work done fell 5.0% to $21,492.8m in the December quarter.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1481 (3128)

$1.1454 (6629)

$1.1427 (1176)

Price at time of writing this review: $1.1375

Support levels (open interest**, contracts):

$1.1328 (2800)

$1.1288 (5730)

$1.1244 (5379)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 8 is 100497 contracts (according to data from February, 26) with the maximum number of contracts with strike price $1,1400 (6629);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3383 (2301)

$1.3340 (2976)

$1.3314 (4045)

Price at time of writing this review: $1.3237

Support levels (open interest**, contracts):

$1.3147 (691)

$1.3112 (773)

$1.3073 (780)

Comments:

- Overall open interest on the CALL options with the expiration date March, 8 is 44166 contracts, with the maximum number of contracts with strike price $1,3100 (4045);

- Overall open interest on the PUT options with the expiration date March, 8 is 33138 contracts, with the maximum number of contracts with strike price $1,2700 (1914);

- The ratio of PUT/CALL was 0.75 versus 0.72 from the previous trading day according to data from February, 26

* - 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.