CFD Markets News and Forecasts — 27-03-2019

Major US stock indices fell slightly as the long-lasting inversion of the US Treasury bonds yield curve raised concerns about a slowdown in economic growth.

The yield on 10-year Treasury bonds declined on Wednesday, but retreated from the 15-month lows reached at night, as the focus of investors continues to be deep-seated statements by central banks around the world. The European Central Bank was the last central bank to refuse to raise rates amid growing threats to growth.

Investor concerns about the slowdown in global economic growth intensified last week after the Federal Reserve reported that it did not plan to raise rates this year, while data from the United States, Europe and Japan indicated a decline in activity in the industrial sector.

However, not all the data turned out to be gloomy. A report by the US Department of Commerce showed that the trade deficit fell to $ 51.1 billion in January from $ 59.9 billion in December. Economists had expected the deficit to shrink to $ 57.0 billion from the $ 59.8 billion originally announced in the previous month. Imports to the US the month before last fell by 2.6%, to $ 258.5 billion (the minimum value in seven months), while exports increased by 0.9% to $ 207.3 billion.

Most of the components of DOW recorded a decline (19 of 30). Walmart Inc. shares turned out to be an outsider. (WMT; -1.17%). The growth leader was The Travelers Companies, Inc. (TRV, + 1.31%).

Almost all sectors of the S & P finished trading in the red. The exception is the consumer goods sector (+ 0.1%). The largest decline was shown by the technology sector (-0.9%).

At the time of closing:

Dow 25,625.59 -32.14 -0.13%

S & P 500 2,805.37 -13.09 -0.46%

Nasdaq 100 7,643.38 -48.14 -0.63%

The U.S. Energy Information Administration (EIA) revealed that crude inventories rose by 2.800 million barrels in the week ended March 22. Economists had forecast a decrease of 2.500 million barrels.

At the same time, gasoline stocks fell by 2.883 million barrels, while analysts had expected a drop of 3.000 million barrels. Distillate stocks declined by 2.075 million barrels, while analysts had forecast a decrease of 1.000 million barrels.

Meanwhile, oil production in the U.S. was unchanged at 12.100 million barrels a day. 

U.S. crude oil imports averaged 6.5 million barrels per day last week, down by 392,000 barrels per day from the previous week.

The Department of Commerce reported on Wednesday that current account (C/A) gap in the U.S. widened to $134.4 billion in the fourth quarter of 2018 from an upwardly revised $126 billion gap in the previous quarter (originally -$124.8 billion). The deficit was 2.6 percent of current-dollar GDP in the fourth quarter, up from 2.5 percent in the third quarter. 

Economists had forecast a deficit of $132 billion. 

According to the report, the $7.8 billion increase in the C/A deficit mainly reflected a rise in the deficits on goods and on secondary income and a decrease in the surplus on services. 

Goods exports dropped by $3.7 billion to $416.1 billion, mainly reflecting a decrease in foods, feeds, and beverages, mostly soybeans. Secondary income payments increased $3.0 billion to $64.8 billion, mainly due to a rise in U.S. government grants. Meanwhile, services imports increased by $3.4 billion to $143.2 billion, mostly due to travel (for all purposes including education), primarily personal travel, and in transport, primarily sea freight transport and air passenger transport. 

In 2018, the U.S. C/A gap increased by 8.8 percent to $488.5 billion, the highest level since 2008. It is equivalent to 2.4 percent of current-dollar GDP, compared to 2.3 percent in 2017.

Statistics Canada announced on Wednesday that Canada’s merchandise trade deficit stood at CAD4.25 billion in January 2019, narrowing from a revised CAD4.82 billion gap in December 2018 (originally a CAD4.59-billion deficit).

Economists had expected a deficit of CAD3.50 billion.

According to the report, the country’s exports were up 2.9 percent m-o-m in January, the first gain since July 2018, mainly on the strength of higher crude oil export prices.

Meanwhile, imports jumped 1.5 percent m-o-m, led by higher aircraft imports.

U.S. stock-index were flat on Wednesday as lingering growth concerns and a further decline in U.S. Treasury yields continued to weigh on sentiment. Meanwhile better-than-expected trade data provided some support to the market.

Global Stocks:

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

The U.S. Commerce Department reported on Wednesday the U.S. the goods and services trade deficit narrowed to USD 51.1 billion in January of 2019 from an upwardly revised USD 59.9 billion in the previous month (originally a gap of $59.8 billion).

Economists had expected a deficit of $57 billion. 

According to the report, the January decrease in the goods and services deficit reflected a decline in the goods deficit of USD 8.2 billion to USD 73.3 billion and an increase in the services surplus of USD 0.5 billion to USD 22.1 billion.

Exports of goods and services from the U.S. rose 0.9 percent m-o-m to USD 207.3 billion in January, while imports dropped 2.6 percent m-o-m to USD 258.5 billion, the lowest level since last June.

Boeing (BA) coverage resumed with Buy rating at Citigroup

• "Hardcore" was holding firm

The Mortgage Bankers Association (MBA) reported the U.S. mortgage application volume jumped 8.9 percent in the week ended March 22, following a 1.6 percent increase in the previous week, as mortgage rates fell to the lowest level in more than a year. It represented the biggest rise since the week ended January 11.

According to the report, refinance application advanced 12.4 percent and applications to purchase a home rose 6.4 percent last week. 

At the same time, the average contract interest rate for 30-year fixed-rate mortgages decreased to 4.45 percent from 4.55 percent.

The Confederation of British Industry (CBI) reported on Wednesday its latest survey of 105 firms, of which 50 were retailers, showed retail sales volume balance fell sharply to -18 in March from 0 in February, marking the fastest contraction in 17 months.

Economist had forecast the reading to come in at +5.

The report notes, however, that sales volumes are expected to improve in April to +15.

Orders placed on suppliers also decreaced in the year to March (to -13 from +7 in February), but are expected to return to modest growth (to +6) in April.

The CBI suggests that it is possible that y-o-y sales growth in March has been distorted by the later timing of Easter this year. 

According to the report, retail sales dropped in five sub-sectors, with volumes in the grocers’ sector staying broadly flat (-3), following strong growth in the year to February (+45). Among the biggest negative contributors to the headline figure this month included recreational goods (-67), hardware & DIY (-62) and other normal goods (-42).

Meanwhile, y-o-y growth in internet sales volumes slowed in March (to +21), representing the slowest growth pace for 12 months. 

Nordea Markets analysts explain that the EUR/USD remains rather range bound currently, stuck between a dovish Fed and a dovish ECB.

“Our liquidity models though suggest a decent chance that the next move could be higher in EUR/USD, even though only to levels around 1.1650. The combo of less withdrawal of USDs as Fed winds down QT and the withdrawal of EURs, as the new TLTRO-III will not attract the same interest as TLTRO-II could be enough to lift EUR/USD, even despite an uncertain global outlook (which would usually have favoured the USD). It is currently tough to make a strong case for much higher EUR/USD, even despite PPP-models suggesting a fair value for EUR/USD around +1.20 in the longer run.”

Japanese policymakers vowed on Wednesday to raise the sales tax to 10% as planned in October, following the passage in parliament of the budget bill for the next fiscal year beginning next month.

Speculation lingers among market players that Prime Minister Shinzo Abe may again put off the twice-delayed tax increase as Japan's export-led economy sputters in the face of slowing global growth and the Sino-U.S. trade war.

Parliament approved on Wednesday a record 101 trillion yen draft budget for the coming fiscal year starting April 1. The general-account budget for the fiscal 2019 features increased spending on welfare, public works and defence on top of steps worth 2 trillion yen to ease the pain of the sales tax hike from the current 8%.

A new round of U.S.-China trade talks are due to kick off in Beijing on Thursday — but one expert says a deal will not likely come until May, or even June.

"It would be surprising to me if we did not have more fits and starts, more stop-and-go in these trade talks given the wide range of issues at stake and given the complexity. I see late May, June more as kind of the realistic time frame than I see anything in April," said Charles Dallara, Partners Group chairman of the Americas.

"If we move into that time frame, I think some understandings will be reached and I think that will be a critical step forward," he told.

Dallara said the talks would be "the first step in a new phase of the economic relationship between China and the U.S.," and to a lesser extent, between Beijing and the rest of the world.

Analysts at TD Securities point out that in the UK, MPs hold "indicative votes" in the evening in an attempt to select a way forward for Brexit and will be a key event for the markets.

“Options on the ballot paper will be revealed later in the afternoon ahead of the 7pm GMT votes, with results likely due after 8:30pm. The results are not binding, but MPs will try to take control of the Parliamentary agenda next Monday to narrow down options and to legally impose the result on the government.”

According to the report from Istat, in March 2019, the consumer confidence index decreased from 112.4 to 111.2. All of its components worsened: the economic, the personal, the current and the future one (from 126.4 to 123.9, from 108.2 to 106.8, from 109.4 to 107.8 and from 116.9 to 115.9, respectively).

With regard to the business surveys, the business confidence index (IESI, Istat Economic Sentiment Indicator) bettered from 98.2 to 99.2.

• The confidence index in manufacturing lowered from 101.6 to 100.8. The confidence index in construction went up from 135.5 to 140.3.

• The market services confidence index heightened from 98.3 to 100.1.

• The retail trade confidence index remained stable at 105.5.

Analysts at Danske Bank are expecting the EUR/USD pair to be trapped in a range around 1.13 on 3M horizon, but with risks tilted to the downside as ECB will be forced to keep a soft stance at a time when Fed looks more sidelined.

“Beyond the 6M horizon, a drift higher will materialise as the skies clear a bit for the Eurozone, but we still merely target 1.17 in 12M. For now, ECB has effectively put a lid on the cross – today keep an eye on speakers at the ECB Watchers’ conference.”

• Domestic economy has remained relatively resilient

• Soft patch doesn't necessarily foreshadow a serious slump

• ECB is not short of instruments to deliver on mandate

• Would adjust rate forward guidance if there are delays to inflation convergence

• If economy were to slow more than expected, risks to wage growth may be contained

• Effects of exchange rate appreciation have now reversed

• Demand should recover, so long as downside risks do not materialise

The latest report by research firm China Beige Book found "an unmistakable first-quarter recovery“ driven by increased credit, running counter to Beijing's efforts to reduce reliance on debt, or the process of deleveraging.

Revenue and profits, investment and hiring improved nationwide, as compared with both the previous quarter and year-ago period, the report said.

The survey also found that reports of corporate borrowing reached the highest point since the middle of 2013. More worryingly, the survey said the proportion of loans made through the murky world of shadow banking increased for a second-straight quarter to the highest level since the second quarter of 2016, another period marked by stimulus.

However, the cost of that borrowing increased. Every single sector and region of China saw credit costs rise in the first quarter compared with the prior quarter, the report said. The average bank loan rate was up 101 basis points to 6.9%, and the average non-bank rate up 426 basis points to 11.42%.

According to the report from Insee, in March 2019 households’ confidence in the economic situation has slightly improved. The synthetic index has gained 1 point and reached 96. It remains however below its long term average (100).

In March, households’ opinion balance on their future personal situation has gained 2 points but still remains below its long term average. The households’ opinion balance on their past financial situation has been virtually stable and also remains below its long term average. The share of households considering it is a suitable time to make major purchases has slightly increased as compared to the previous month. The corresponding balance has gained 2 points but remains below its long term average as well.

Households’ opinion balance on their saving capacity has slightly improved in March. The current saving capacity balance has gained 2 points, while the expected saving capacity one has gained 1 point. These two balances stand above their long term average. However, the share of households considering it is a suitable time to save has slightly decreased: the corresponding balance has lost 1 point and stands well below its long term average.

British companies have scaled back sharply their hiring and investment plans amid the growing turmoil around Britain's exit from the EU, a survey showed.

More firms were downbeat about the outlook for jobs and investment than were optimistic for the first time since the Recruitment and Employment Confederation began its surveys in June 2016, the month of the Brexit referendum. Nearly three years on, it remains unclear how, when or even if Brexit will happen.

"For months, businesses have told us that they were concerned about the general outlook for the economy. It is clear to us that this concern is now closer to home," REC Chief Executive Neil Carberry said.

While more employers planned to increase rather than cut permanent staff, hiring intentions weakened sharply. For temporary staff, the survey showed outright cuts were likely.

National Bureau of Statistics said, earnings at China's large industrial firms dropped sharply in the first two months of the year, as lower factory-gate prices and slower sales ate into profits.

According to the report, China's industrial profits tumbled 14% in the January to February period, extending a 1.9% decrease in December.

Factory-gate prices in automobile, oil refining, steel and chemical all declined in the two month period from a year ago, dropping between 0.4% and 2.5%, dragging on profits of these sectors, the statistics bureau said. The combined decrease in profit shaved the headline profit growth by 14.2%.

• RBNZ says next rate move is likely down

• Balance to inflation risks have shifted to downside

• Employment is near its maximum sustainable level

• Core consumer price inflation remains below our 2 percent target mid-point, necessitating continued supportive monetary policy

• Global economic outlook has continued to weaken

• Domestic growth slowed in 2018, with softness in the housing market and weak business investment contributing

• We expect ongoing low interest rates, and increased government spending and investment, to support economic growth over 2019

• Balance of risks to this outlook has shifted to the downside

• inflation could rise faster if firms pass on cost increases to prices to a greater extent

EUR/USD

Resistance levels (open interest**, contracts)

$1.1426 (1947)

$1.1398 (1307)

$1.1380 (389)

Price at time of writing this review: $1.1259

Support levels (open interest**, contracts):

$1.1239 (3141)

$1.1195 (2749)

$1.1147 (4578)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date April, 5 is 71348 contracts (according to data from March, 26) with the maximum number of contracts with strike price $1,1350 (4803);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3365 (1473)

$1.3322 (414)

$1.3299 (752)

Price at time of writing this review: $1.3183

Support levels (open interest**, contracts):

$1.3140 (1434)

$1.3110 (796)

$1.3077 (568)

Comments:

- Overall open interest on the CALL options with the expiration date April, 5 is 26360 contracts, with the maximum number of contracts with strike price $1,3400 (4260);

- Overall open interest on the PUT options with the expiration date April, 5 is 31234 contracts, with the maximum number of contracts with strike price $1,2500 (5058);

- The ratio of PUT/CALL was 1.18 versus 1.21 from the previous trading day according to data from March, 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.