CFD Markets News and Forecasts — 29-09-2020

• He is expected to be succeeded by his 83-year-old half-brother Crown Prince Sheikh Nawaf Al Ahmad Al Sabah

• Fed should keep emergency lending facilities, consider other tools until the economy is on track to meet goals
• Need to do more to help small, mid-sized businesses access capital
• Fed should be willing to be accomodative after crisis, but have flexibility to raise rates
• Prolonged zero rates could cause financial market fragilities, excesses, imbalances
• Recovery has been faster than expected
• Lack of additional fiscal relief is key downside risk to forecasts

• We do not rules out negative rates but are realistic about challenges
• Negative interest rates are in the BoE's toolbox, have not reached judgement on whether or when to use them
• Evidence on negative rates is a mixed bag
• It would be a 'cardinal sin' if the BOE had a tool but did not know how to put it into effect
• Critically important that BoE can use all its tools to support economy

• Both sides will meet again today
• Housing sector is very strong

• Economic recovery has been uneven
• UK economic activity in Q3 probably 7-10% lower than it was pre-COVID
• Risks include COVID, Brexit talks, US-China trade relationship
• Labour market is one of the hardest things to assess

• GDP growth unlikely to reach pre-COVID pace this year
• Congress should consider further economic aid soon
• Continued growth depends on slowing virus spread
• Average inflation targeting will not focus on a formula but on the rate of change in inflation

The Conference Board announced on Tuesday its U.S. consumer confidence jumped 15.5 points to 101.8 in September from 86.3 in August.

Economists had expected consumer confidence to come in at 89.5.

August’s consumer confidence reading was revised up from originally estimated 84.8.

The survey showed that the expectations index climbed from 86.6 last month to 104.0 this month. Meanwhile, the present situation index increased from 85.8 in August to 98.5.

“Consumer Confidence increased sharply in September, after back-to-back monthly declines, but remains below pre-pandemic levels,” noted Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “A more favorable view of current business and labor market conditions, coupled with renewed optimism about the short-term outlook, helped spur this month’s rebound in confidence. Consumers also expressed greater optimism about their short-term financial prospects, which may help keep spending from slowing further in the months ahead.”

S&P reported on Tuesday its Case-Shiller Home Price Index, which tracks home prices in 20 U.S. metropolitan areas, rose 3.8 percent y-o-y in July, following an unrevised 3.5 percent y-o-y increase in June.

Economists had expected an advance of 3.8 percent y-o-y.

Phoenix (+9.2 percent y-o-y), Seattle (+7.0 percent y-o-y) and Charlotte (+6.0 percent y-o-y) recorded the highest y-o-y advances among the 19 cities (excluding Detroit) in July. Sixteen of the 19 cities reported greater price gains in the year ending July versus the year ending June.

Meanwhile, the S&P/Case-Shiller U.S. National Home Price Index, which measures all nine U.S. census divisions, rose 4.8 percent y-o-y in July, following a 4.3 percent y-o-y increase in the previous month.

“Housing prices rose in July,” noted Craig J. Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P Dow Jones Indices. “In previous months, we’ve noted that a trend of accelerating increases in the National Composite Index began in August 2019. That trend was interrupted in May and June, as price gains decelerated modestly, but now may have resumed. Obviously more data will be required before we can say with confidence that any COVID-related deceleration is behind us.”

U.S. stock-index futures fell slightly on Tuesday, as investors took a cautious stance ahead of the first presidential debate between the U.S. President Donald Trump and Democratic candidate Joe Biden, scheduled to begin at 21:00 ET (01:00 GMT on Wednesday).

Global Stocks:

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

Merck (MRK) initiated with a Hold at Berenberg; target $88

Pfizer (PFE) initiated with a Hold at Berenberg; target $38

Facebook (FB) target raised to $270 from $240 at MoffettNathanson 

Alphabet A (GOOGL) target raised to $1850 from $1650 at MoffettNathanson 

JPMorgan Chase (JPM) upgraded to Buy from Hold at Independent Research GmbH

FXStreet reports that analysts at Credit Suisse note that S&P 500 maintains the strong tone set late Friday and above 3323/29 has seen a near-term base confirmed to suggest the worst of the price fall in the corrective phase may be behind us.

“The S&P 500 has maintained the strong tone set late Friday after holding key support and our next objective at 3204/3198 and the market has gapped higher, albeit on muted volume for a break above resistance at 3323/29 – the falling 13-day exponential average, top of the accelerated downtrend from early September and high of last week. This sees a near-term base established to suggest the worst of the corrective decline may be behind us in terms of price declines, clearing the way for the recovery to extend.”

“We look for a close above the 38.2% retracement of the September fall at 3354 to clear the way for a move to gap resistance at 3375/85 next, then the mid-September highs at 3425/29 which we expect to prove a tougher initial barrier.” 

Germany's Federal Statistical Office (Destatis) reported on Tuesday the country’s consumer price index (CPI) is expected to decrease 0.2 percent m-o-m in September after dropping 0.1 percent m-o-m in the previous month. This represents the largest fall since January 2015.

On the y-o-y basis, Germany’s CPI is also seen to decline 0.2 this month, following a flat performance in August.

Economists had predicted inflation would decrease 0.1 percent both on m-o-m and y-o-y basis in September.

According to the report, food price growth decelerated to 0.6 percent y-o-y in September from 0.7 percent y-o-y in August, while energy prices fell 7.1 percent y-o-y after a 6.3 percent y-o-y drop in the previous month. Services costs rose 1.0 percent y-o-y in September, the same pace as in August.

Meanwhile, the harmonized index of consumer prices for Germany (HICP), which is calculated for European purposes, is expected to fall 0.4 percent m-o-m and 0.4 percent y-o-y. 

GBP traded mixed as the final round of trade talks between the UK and the EU kicked off. The pound rose against JPY, USD and CAD, but it fell against AUD, NZD and CHF, and was little changed against EUR.

The UK and the EU negotiating teams began their ninth round of Brexit talks in Brussels on Tuesday, hoping to unblock some important aspects of their future relations. A final agreement must be reached by the end of year but both sides have set a preliminary deadline for October as it will take some time to sign off any deal. On Monday, the representatives of the UK and the EU reiterated that "significant gaps" still remained but the Brexit deal was still possible.

Market participants also assessed the Bank of England’s (BoE) monthly Money and Credit statistical release, which revealed that the number of mortgages approvals for house purchase climbed to 84,700 in August (the highest since October 2007), from 66,300 in July, beating economists' expectations of 71,000. The report also showed that net mortgage borrowing by households stood at GBP3.1 billion in August compared to a revised GBP2.9 billion in July (originally GBP2.7 billion). Economists had forecast GBP3.65 billion. Meanwhile, consumer credit in the UK increased GBP0.3 billion in August, following a revised GBP1.1 billion gain in July (originally GBP1.2 billion). Economists had forecast a GBP1.45 billion advance. Net lending to individuals in the UK was GBP3.4 billion in August compared to GBP3.9 billion in July.

FXStreet notes that EUR/JPY weakness has been abruptly arrested just ahead of 122.27/23 and above 123.33/43 can see a near-term base established with resistance then at 123.67. On the flip side, support is seen at 122.96/89, the Credit Suisse analyst team informs.

“EUR/JPY weakness has been abruptly reversed just ahead of our 122.27/23 objective and although a bullish ‘reversal day’ has just been avoided, the bearish continuation pattern has been negated and a near-term base looks likely.” 

“Above 123.33/43 is needed to see this confirmed to provide the platform for a deeper recovery with resistance then seen next at the 13-day average at 123.67, then the ‘measured base objective’ at 124.02.”

“Below 122.96/89 is needed to ease the basing risk with support then seen back at 122.38, then our flagged objective at 122.27/23 – the 38.2% retracement of the May/September rally and 61.8% retracement of the rise from late June.”

FXStreet notes that the prospects for a return to lockdowns appear to be on the rise, pressuring stock prices in September. Nonetheless, strategists at Charles Schwab believe a return to widespread national lockdowns is highly unlikely for three reasons: healthcare systems are not overwhelmed, precision pays off when it comes to the effectiveness of restrictions and national lockdowns are known to have a huge cost.

“A return to widespread national lockdowns is highly unlikely for three reasons: healthcare systems are not overwhelmed, mid-summer second waves of virus cases in the US and China faded when narrow, localized restrictions were put in place, achieving success while limiting overall economic impact and the huge cost of the economic and human toll of national lockdowns is now known to be severe. Examining each of these leads us to believe a return to widespread national lockdowns and a related return to global recession and a bear market is highly unlikely.”

“With broad-based vaccinations unlikely this year, measured restrictions may be needed to effectively contain the virus while being efficient in their economic cost. While stocks have been wary of measures taken in September to contain the outbreaks, investors may soon get comfortable with these effective alternatives to widespread shutdowns.”

“The biggest political risk facing investors is the potential for a more dramatic reaction to COVID-19 outbreaks by politicians in the form of national lockdowns that could lead to a new bear market for stocks. In addition, such severe measures could prompt a rotation back into the COVID-winner US tech stocks and away from cyclically-oriented international stocks that have outperformed recently.”

• UK's economy is under-productive
• Economy has been shaken by the virus crisis
• We have a shortage of many crucial skills
• The market will pay richly for skills, the problem is with supply
• At this moment, there is a shortage of UK-trained lab technicians and other crucial skills

FXStreet reports that the GBP/USD pair traded with a positive bias through the early European session and was last seen hovering near the top end of its daily range, around the 1.2875-80 region. Economists at Credit Suisse look for an attempt to establish a more important base with key resistance seen at 1.2967/1.3007, above which is needed to confirm to open the door back to 1.3125/35 initially and eventually a retest of medium-term resistance at 1.3482/1.3514.

“GBP/USD extends its defence of our target of a cluster of supports at 1.2720/1.2655 – the 200-day average, the 38.2% retracement of the entire March/September rally, 23.6% retracement of the entire rally from the March low and ‘measured top objective’ – and we look for an attempt to establish a floor here.”

“Above 1.2805 has already seen a minor base complete and we look for this to clear the way for a challenge on what we see as more important resistance, starting at 1.2967 and stretching up to 1.3007 – the mid-September highs and 55-day average. A close above here remains needed to confirm a more important base and turn higher with resistance then seen next at 1.3035 initially, then the ‘neckline’ to the August/September top at 1.3125/35. Beyond this latter area can clear the way for a retest of medium-term resistance at 1.3482/1.3514.” 

FXStreet notes that over the past month, the S&P 500 dropped over 10% from its recent highs, led by a 14% decline in the tech-heavy Nasdaq 100. The recent correction may have been inevitable given rising risks for fiscal stimulus, a potential COVID-19 second wave and the upcoming election. But a resolution to these hurdles may also be possible longer-term, Mike Wilson, Chief Investment Officer and Chief US Equity Strategist for Morgan Stanley reports.

“The correction this month is happening for the same reasons I suspected back in August. First, with Congress embroiled in election-year politics and a disagreement over when to fill the Supreme Court vacancy, the odds of the CARES2 legislation getting passed before November 3rd have dropped considerably. Morgan Stanley public policy strategist Michael Zezas thinks it's just a 33% chance at this point. Second is COVID-19 and the looming arrival of a second wave. Until we know exactly what it looks like, further lockdowns remain a real possibility. Third, real long-term interest rates appear to have bottomed as the Fed formally tells us asset purchases won't increase from here. And finally, we have the election itself.”

“The good news is that investors have started to discount these very visible concerns via lower prices and higher financial market volatility. Options markets are pricing in higher risks than normal around the U.S. election, but nothing like we actually experienced in 2016.”

“Looking beyond the near-term, I think three of the aforementioned risks are likely to be resolved positively by the end of the year, or shortly thereafter. More specifically, additional fiscal stimulus is likely as both parties want to spend more but may not be able to come to terms before the election process is completed. Meanwhile, progress on a vaccine should become clear, and we will eventually have a conclusion to the election. The one risk I think will remain with us is that long-term interest rates are likely to rise further from here, particularly if those other risks fade and the recovery continues.”

FXStreet reports that FX Strategists at UOB Group note that further gains in USD/JPY are likely if the 106.00 level is cleared.

24-hour view: “In line with our expectation, USD traded sideways yesterday, between 105.25 and 105.68, narrower than our expected range of 105.25/105.75. The price actions offer no fresh clues and USD could continue to trade in a quiet manner for now, albeit at a slightly lower range of 105.20/105.70.”

Next 1-3 weeks: “There is room for USD to edge higher but any advance is viewed as part of 104.75/105.75 range (narrowed from 104.25/105.75 previously). While a move above 105.75 would not be surprising, USD has to break 106.00 before a sustained advance can be expected.”

The European Commission reported on Tuesday that the recovery of euro area and economic sentiment continued in September.

According to the report, the Economic Sentiment Indicator (ESI) for the euro area increased 3.6 points to 91.1, recovering nearly 70% of the combined losses of March and April. Economists had forecast the ESI to increase to 89 from 87.7 in August.

The ESI’s continued recovery was driven by further fading pessimism in industry (to -11.1 in September from -12.8 in august), retail trade (to -8.7 from -10.5), construction (to -9.6 from -11.8) and, in particular, services (to -11.1 from -17.2). To a lesser extent, confidence also improved among consumers (to -13.9 from -14.7).

From a country perspective, the ESI continued to recover in all the largest euro-area economies, namely in Italy (+8.4), France (+5.8), the Netherlands (+2.1), Spain (+1.6) and Germany (+1.2).

The euro area’s Employment Expectations Indicator (EEI) rose 2.3 points to 91.8 in September, recording increase for the fifth straight month and reflecting further improving employment plans in all four business sectors.

The Bank of England’s (BoE) monthly Money and Credit statistical release revealed that consumer credit in the UK increased GBP0.3 billion in August, following a revised GBP1.1 billion gain in July (originally GBP1.2 billion). Economists had forecast a GBP1.45 billion advance. In y-o-y terms, consumer credit dropped 3.9 percent, following a 3.7 percent drop in July. This was a new series low since it began in 1994.

Meanwhile, net mortgage borrowing by households stood at GBP3.1 billion in August compared to a revised GBP2.9 billion in July (originally GBP2.7 billion). Economists had forecast GBP3.65 billion. The m-o-m advance reflected slightly higher gross borrowing of GBP18.8 billion, although it is still below the pre-COVID February level of GBP23.7 billion. The report also showed that the number of mortgages approvals for house purchase climbed to 84,700 in August (the highest since October 2007), from 66,300 in July, beating market expectations of 71,000.

Net lending to individuals in the UK was GBP3.4 billion in August compared to GBP3.9 billion in July.

FXStreet reports that GBP/USD is bouncing from the 200-day ma at 1.2717 and was last seen trading at 1.2847, up 0.1% on the day. Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, notes that the cable has room to rise to 1.3070, but a failure here would allow for further losses to the 1.2250 area.

“GBP/USD saw a decent recovery yesterday from the 200-day ma at 1.2717, but the rally has yet to overcome any resistance of note.”

“Initial resistance lies at 1.3008 the mid-September high and we would allow for 1.3070. Ahead of here lies the 20-day ma at 1.2936. Should the market fail 1.3000/70, we would allow for further losses to 1.2445 and then 1.2250/00.”

“The 1.3070 level guards the 1.3201 March high and the recent high at 1.3483 and the 1.3522 downtrend.”

FXStreet reports that FX Strategists at UOB Group note that NZD/USD could see the continuation of the consolidative range ahead of further losses.

24-hour view: “NZD traded between 0.6540 and 0.6567 yesterday, narrower than our expected consolidation range of 0.6525/0.6575. Momentum indicators are still mostly neutral and NZD could continue to trade sideways for today, albeit likely within a higher range of 0.6540/0.6595.”

Next 1-3 weeks: “We have held a negative view in NZD since early last week. In our latest narrative from last Thursday, we highlighted that the outlook for NZD remains weak and ‘the next level to focus on is at 0.6490’. There is no change to our view even though shorter-term momentum has slowed somewhat and 0.6490 may not come into the picture so soon. From here, NZD could consolidate for a couple of days first before pushing lower towards 0.6490.”

FXStreet reports that ahead of the Reserve Bank of Australia’s (RBA) October 6 monetary policy meeting, analysts at Citigroup believe that the Australian central bank will likely keep the policy steady while dismissing the negative interest rates talks.

“RBA is in wait and see mode.”

“RBA is comfortable for now with the current level of monetary stimulus.”

“Negative rates pretty much ruled out.”

“Risks to AUD are fat tailed: 

Second wave risks, 

Health disappointment, 

US election, 

Particular worry placed on the evolution of US/China relations and its relation to the presidential election.”

The INSEE reported on Tuesday that the households’ confidence in the economic situation in France was stable in September.

The consumer confidence synthetic index came in at 95, unchanged from an upwardly revised 95 in August (originally 94). The latest reading was above economists’ forecasts for 94 but below its long-term average of 100.

According to the report, the households' opinion balance on their future financial situation increased two points to -5 in September, while the balance related to their past financial situation fell one point to -16. The balance of savings intentions climbed nine points to 34, recording advance for the fifth consecutive month. Meanwhile, the households’ opinion balances related to their current and expected saving capacity rose by 1 point each to 23 (current) and 6 (expected) respectively, both remaining well above their long-term averages. The households’ opinion balance about the future standard of living in France improved by five points to -47. The households' fears about the unemployment rose slightly, with the corresponding balance edging up one point to 70.

USD traded flat against other major currencies in the Asian session on Tuesday as market participants were awaiting the first presidential debate Tuesday between the U.S. President Donald Trump and Democratic candidate Joe Biden.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, edged down 0.02% to 94.26.

The debate is scheduled to take place later on Tuesday (01:00 GMT on Wednesday). Ahead of the first debate, Biden leads Trump by nearly seven points nationally, based on an average of recent polls according to RealClearPolitics. 

Investors also continued to monitor developments on the U.S. new stimulus package. U.S. House of Representatives Speaker Nancy Pelosi announced on Monday that Democrats unveiled a new $2.2 trillion coronavirus relief bill, which she said was a compromise measure that reduces the costs of the economic aid. The new bill would include “new funding needed to avert catastrophe for schools, small businesses, restaurants, performance spaces, airline workers and others”. However, Pelosi did not indicate when there would be a vote on this legislation.

FXStreet reports that FX Strategists at UOB Group believe EUR/USD still risks a move below the 1.1600 mark.

24-hour view: “Yesterday, we held view that EUR could ‘probe the 1.1600 support but a sustained decline below this level is unlikely’. However, EUR rebounded strongly from a low of 1.1613. The rebound has room to extend higher but any advance is expected to face stiff resistance at 1.1720 (minor resistance is at 1.1700). Support is at 1.1645 but only a break of 1.1620 would indicate the current mild upward pressure has eased.”

Next 1-3 weeks: "While EUR subsequently dropped to a low of 1.1611, the decline appears to be running ahead of itself. From here, EUR could dip below 1.1600 but 1.1565 is expected to offer formidable support. All in, only a break of 1.1720 (‘strong resistance’ level previously at 1.1760) would indicate that the negative phase has run its course.”

• FX reserves will not rise as fast as before
• Foreign trade to be more balanced

The Ministry of Internal Affairs and Communications reported on Tuesday that consumer prices in Tokyo, available a month before the nationwide data, increased 0.2 percent y-o-y this month after a 0.3 percent y-o-y advance in August. That exceeded economists’ estimate of 0.1 percent y-o-y. The growth was mainly attributable to the gains in food (+2.0 percent y-o-y), transportation and communication (+0.9 percent y-o-y) and housing (+0.7 percent y-o-y). At the same time, education (-8.8 percent y-o-y) and culture and recreation (-2.2 percent y-o-y) recorded the biggest declines.

Meanwhile, the Tokyo core consumer price index (CPI) fell 0.2 percent y-o-y in September, following a 0.3 percent y-o-y decline in the previous month. Economists had forecast a 0.3 percent y-o-y drop.