CFD Markets News and Forecasts — 30-06-2021

ActionForex reports that analysts at TD Bank Financial Group discuss Canada's GDP data for April.  

"The Canadian economy shrank for the first time in a year in April, contracting 0.3% month-on-month. This was better than Statistics Canada’s preliminary estimate of -0.8%. Given April’s showing, economic output was 1.1% below its pre-pandemic (February 2020) level. Statistics Canada also produced a flash estimate for May GDP, which again showed a 0.3% contraction for the month."

"By industry, weakness was concentrated in the services sector (-0.6%), which was heavily impacted by tighter public health measures... Unlike the services sector, GDP rose in goods-producing industries (+0.5%)."

"The economy’s march towards a full recovery took a step back in April as the third wave and tighter restrictions weakened activity for the month. According to Statistics Canada’s flash estimate, the dampening effects of the third wave continued to be felt in May. With two months of the quarter in hand, the slowdown in the pace of the recovery in the second quarter for the Canadian economy is more clear. However, growth is tracking slightly better than what we had expected in our recent forecast."

"Unsurprisingly, the impacts of the public health measures were felt unevenly across industries. High-touch services (retail, accommodation and food services, arts, entertainment and recreation, and other services) were once again hardest hit, losing a collective 4% of output in April. Aside from high-touch industries, manufacturing also faced hurdles stemming from the global semiconductor shortage, which could continue to plague production in the near-term."

"That being said, April and May were likely temporary setbacks to the recovery. Better days are already here. Reopening across the country, falling cases and hospitalizations, and an extraordinary vaccine rollout, should lead to a rapid bounce back in economic activity."

The U.S. Energy Information Administration (EIA) revealed on Wednesday that crude inventories declined by 6.718 million barrels in the week ended June 25, following a tumble of 7.614 million barrels in the previous week. Economists had forecast a draw of 4.686 million barrels.

At the same time, gasoline stocks increased by 1.522 million barrels, while analysts had expected a fall of 0.886 million barrels. Distillate stocks declined by 0.869 million barrels, while analysts had forecast a build of 0.486 million barrels.

Meanwhile, oil production in the U.S. remained unchanged at 11.100 million barrels a day.

U.S. crude oil imports averaged 6.4 million barrels per day last week, decreased by 0.5 million barrels per day from the previous week.

The National Association of Realtors (NAR) announced on Wednesday its seasonally adjusted pending home sales index (PHSI) surged 8.0 percent m-o-m to 114.7 in May, after an unrevised 4.4 percent m-o-m decrease in April.

Economists had expected pending home sales to decrease 0.8 percent m-o-m in May.

On y-o-y basis, the index climbed 13.1 percent after an unrevised 51.7 percent jump in April.

According to the report, all four regional indices recorded gains both in m-o-m and y-o-y terms. The Northeast PHSI surged 15.5 percent m-o-m to 98.5 in May, a 54.6 percent climb from a year ago. The index in the West jumped 10.9 percent m-o-m to 102.0, up 12.5 percent from a year prior. The PHSI for the Midwest rose 6.7 percent m-o-m to 107.7, up 7.8 percent from May 2020. Pending home sales transactions in the South increased 4.9 percent m-o-m to an index of 135.5, up 6.1 percent from a year prior.

May's strong increase in transactions - following April's decline, as well as a sudden erosion in home affordability - was indeed a surprise," noted Lawrence Yun, NAR's chief economist. "The housing market is attracting buyers due to the decline in mortgage rates, which fell below 3%, and from an uptick in listings." Although there has been a series of obstacles over the last year, including an unprecedented pandemic, record-high prices and all-time low inventory, buyers are still lining up at a feverish pace, Yun added.

MNI Indicators’ report revealed on Wednesday that business activity in Chicago continued to expand in June, albeit at a slower pace than in May.

The MNI Chicago Business Barometer, also known as Chicago purchasing manager's index (PMI) came in at 66.1 in June, down from an unrevised 75.2 in May. This was the lowest reading since February.

Economists had forecast the index to drop to 70.0.

A reading above 50 indicates improving conditions, while a reading below this level shows worsening of the situation.

According to the report, Order Backlogs (-14.1 points) demonstrated the largest drop, while Supplier Deliveries (+4.2 points to the highest level since March 1974) posted the only increase. Elsewhere, New Orders languished markedly, declining to a three-month low in June and Employment slipped to the lowest level since January as firms saw difficulties in finding new staff. On the price front, Prices paid at the factory gate jumped to the highest level since December 1979.

U.S. stock-index futures traded flat on Wednesday after the S&P 500 and Nasdaq notched fresh record highs the day before, as investors weighed a better-than-expected ADP Employment report for June and lingering worries that restrictions aimed at containing the spread of the Delta Covid variant would impact economic growth, particularly in Asia and Europe.

Global Stocks:

FXStreet reports that USD/JPY remains pressured around 110.50. Nonetheless, the pair is set to target the 112.23/50 region on a break above the 111.13/38 resistance zone, Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, suggests. 

“USD/JPY continues to consolidate near term just below the 111.13/38 October 2018 low and mid-February 2019 high.” 

“Our medium-term target is 112.23/50 which represents the April 2019 high, the 2020 high and a long term Fibonacci retracement.” 

“The cross should maintain an overall positive bias above the 108.56 late May low.”

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

Statistics Canada announced on Wednesday that the country’s gross domestic product (GDP) fell 0.3 percent m-o-m in April, following a revised 1.3 percent m-o-m advance in March (originally a 1.1 percent m-o-m increase).

This marked the first monthly decline in 12 months and was better than economists’ forecast for a 0.8 percent m-o-m drop. Total economic activity remained at about 1 percent below its pre-pandemic level.

In y-o-y terms, the Canadian GDP surged 20.0 percent in April.

According to the report, a decline in services-producing industries (-0.6 percent m-o-m) in April more than offset a gain in goods-producing industries (+0.5 percent m-o-m). Overall, 12 of the 20 industrial sectors were down in April.

It was also reported that preliminary data indicates an approximate 0.3 percent m-o-m drop in real GDP for May.

The employment report prepared by Automatic Data Processing Inc. (ADP) and Moody's Analytics showed on Wednesday the U.S. private employers added 978,000 jobs in June. 

Economists had expected an increase of 600,000.

The May number saw a downward revision to 886,000 from the originally reported 978,000.

“The labor market recovery remains robust, with June closing out a strong second quarter of jobs growth,” noted Nela Richardson, chief economist, ADP. “While payrolls are still nearly 7 million short of pre-COVID19 levels, job gains have totaled about 3 million since the beginning of 2021. Service providers, the hardest hit sector, continue to do the heavy lifting, with leisure and hospitality posting the strongest gain as businesses begin to reopen to full capacity across the country.” 

EUR traded mixed and little changed against most of its major rivals in the European session on Wednesday, as investors digested a good bit of economic data out of the Eurozone, including the region's CPI readings and Germany's unemployment statistics for June.

The single European currency edged lower against USD, JPY and GBP, but increased slightly against AUD, NZD and CAD.

The preliminary data from Eurostat showed that the Eurozone's consumer price index (CPI) increased 0.3% m/m in June, at the same pace as in May. On y/y basis, the region's inflation rate slowed to 1.9% last month from a 2-1/2-year high of 2% in May, driven by a deceleration in the energy price growth. This was in line with economists' expectations. The core inflation rate, which excludes energy, food, alcohol and tobacco, eased to 0.9% y/y from 1.0% y/y in the previous month. 

Meanwhile, the Federal Labor Agency's report revealed that unemployment in Germany, the region's largest economy, decreased more than anticipated in June as COVID-19 restrictions were relaxed. According to the report, the number of unemployed people in Germany dropped by 38,000 to 2.691 million in June, following a revised 19,000 decline in the previous month. Economists had forecast a fall of 20,000. The jobless rate remained unchanged at 5.9 percent in June, as expected.

The overall sentiment continued to be undermined by worries that the Delta variant of coronavirus is to slow the region’s growth during the typically busy summer travel season.

• BoE's ongoing review into the process and sequencing of QE unwind is a welcome opportunity to do so
• Asymmetric QE response function nudges us towards that fiscal danger zone and adds to concerns about erosion of monetary policy independence
• This is the most dangerous moment inflation-targeting has so far faced
• Says he expects UK inflation to be nearer to 4% than 3%
• We would experience a Minsky Moment for monetary policy, a taper tantrum without taper
• Even if just a risk, it is a risk that is rising fast and which is best managed ex-ante rather than responded to ex-post; if this risk were to be realised, everyone would lose

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. tumbled 6.9 percent in the week ended June 25, following a 2.1 percent gain in the previous week. This marked the first decline in total mortgage application volume in three weeks and the largest fall since mid-February.

According to the report, refinance applications plunged 8.2 percent, while applications to purchase a home decreased 4.8 percent.

Meanwhile, the average fixed 30-year mortgage rate rose from 3.18 percent to 3.20 percent, the highest in two months.

“Mortgage rates were volatile last week, as investors tried to gauge upcoming moves by the Federal Reserve amidst several divergent signals, including rising inflation, mixed job market data, strong consumer spending, and a supply-constrained housing market that has led to rapid home-price growth,” noted Michael Fratantoni, chief economist at the Mortgage Bankers Association.

FXStreet notes that China's PMIs slipped in June, with both the manufacturing and services PMIs softening, the latter more sharply. However, all remained in expansion. Mitul Kotecha, Chief EM Asia and Europe Strategist at TD Securities, thinks PBoC is also comfortable with the current CNY trading range above USD/CNY 6.40.

“It was a mixed bag for China's purchasing managers indices (PMIs) in June. Weakness in services and a slight decline in manufacturing resulted in an overall decline in sentiment. The June manufacturing PMI slipped to 50.9 from 51.0 in May, still in expansion but at its weakest since February. Services continue to fare better, but the non-manufacturing PMI surprisingly slipped to 53.5 from 55.2 previously.”

“A weakening credit impulse as the authorities attempt to cap any build-up in leverage, especially in the real estate sector, is expect this to cap manufacturing sentiment.” 

“We think PBoC is comfortable with the current CNY trading range above USD/CNY 6.40. It is notable that CNY daily fixings vs. expectations have been more mixed recently, with no clear bias, unlike the bias for weaker fixings over previous weeks. Also, the deviations between market expectations and actual fixings have also narrowed, suggesting some form of temporary equilibrium for CNY. Ahead of tomorrow's 100th anniversary of the Chinese Communist Party, CNY has remained within a relatively narrow range and we see little change unless the USD broadly moves more sharply."

FXStreet reports that ahead of the highly-anticipated OPEC and its allies (OPEC+) meeting on July 1, analysts at Goldman Sachs Commodities Research said more oil production is needed from the alliance to balance the market by 2022.

"...we expect OPEC+ to remain tactical in its output hikes with downside risks to global supply elsewhere pointing to a more robust outlook for crude and the upstream sector than petroleum products and the downstream sector.”

“See a base case of 0.5 mbpd supply increase from OPEC+ producers for consecutive months when the group meets on July 1 to discuss the threat of the Delta COVID variant, the potential return of Iran production and still slow shale response.”

FXStreet reports that UOB Group’s FX Strategists note that USD/CNH move into a 6.4300-6.4900 consolidative range.

24-hour view: “USD traded between 6.4571 and 6.4717 yesterday, narrower than our expected 6.4550/6.4750 range. Despite the quiet price actions, the underlying tone seems to have improved somewhat. USD could edge higher but a sustained rise above 6.4780 appears unlikely. Support is at 6.4610 followed by 6.4550.”

Next 1-3 weeks: "... As highlighted, USD has likely found a short-term last week but it is too early to expect a sizeable pullback. USD is more likely to trade sideways for now, likely within a 6.4300/6.4900 range.”

CNBC reports that according to a new study from the University of Pennsylvania’s Wharton School, a bipartisan infrastructure deal would not only add to economic growth, but also lower the national debt.

Researchers at the Wharton School said the additional $579 billion in new infrastructure spending would increase domestic output by 0.1% and decrease the U.S. debt by 0.9% by 2050.

“Over time, as the new spending declines, IRS enforcement continues, and revenue grows from higher output, the government debt declines relative to baseline by 0.4 percent and 0.9 percent in 2040 and 2050 respectively,” the Wharton team wrote.

Wharton senior economist Jon Huntley said improvements to public capital (roads, bridges and other physical infrastructure) makes private capital (trucks and trains hauling goods for companies) more productive over time.

Fewer potholes and rail service interruptions, when summed over years, increase U.S. economic activity and encourage further investment from the private sector.

The projected uptick to GDP and concurrent reduction to the national debt, though fairly modest, are likely welcomed news to the Democrats and Republicans that brokered the agreement with the White House. 

FXStreet reports that Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank discusses XAU/USD prospects.

"Gold stays directly offered below the 100-day ma at $1790.72. However, the yellow metal is going to shortly encounter the key support at the $1735 2019-2021 uptrend line. While above there we will retain our longer-term upside bias. Longer-term, we still target the $1959/65 November 2020 high and the 2021 high. These guard the $1989/78.6% retracement and the $2072 2020 peak.”

“Minor resistance on the way up can be spotted at the $1808.60/$181621 late February high and mid-May low above which the 55 and 200-day moving averages can be seen at $1833.00/$1835.18. Further resistance sits at the $1875.79 late January high.” 

According to a flash estimate from Eurostat, euro area annual inflation is expected to be 1.9% in June 2021, down from 2.0% in May. The core figures also inched lower to 0.9% YoY in June when compared to 0.9% expectations and 1.0% recorded in May.

Looking at the main components of euro area inflation, energy is expected to have the highest annual rate in June (12.5%, compared with 13.1% in May), followed by non-energy industrial goods (1.2%, compared with 0.7% in May), services (0.7%, compared with 1.1% in May) and food, alcohol & tobacco (0.6%, compared with 0.5% in May).

FXStreet reports that according to economists at MUFG Bank, given Friday’s NFP report will be the first since the FOMC, we could well see an outsized move. 

“The ‘Jobs Plentiful minus Jobs Hard to Get’ index surged in the confidence report yesterday and underlines the fact that if we see some easing of the labour supply problems then we could well see a big jobs gain in the report on Friday. After the 559K gain In May the market consensus on Bloomberg is for a 700K gain – the ‘whisper’ number is at 800k but could well be creeping higher still now.”

“A blowout report would certainly reinforce the building expectations that a September confirmation of tapering starting in Q4 would be delivered. The moves in FX spot certainly point to the continued existence of short USD speculative positions.”

“Expectations of a strong jobs report are rising now which is fuelling further USD strength which could well continue into the employment report and possibly beyond if expectations are confirmed or surpassed.”

Bloomberg reports that German joblessness slid for a second straight month in June, signaling a robust recovery.

The decline of 38,000 was almost twice as high as expectations, and put the total number of unemployed at 2.69 million. The unemployment rate was 5.9%, matching the previous month, which was revised lower.

Germany has largely reopened in recent weeks as it ramps up its vaccination campaign to cut infections. Services business are now adding to overall momentum, after manufacturers held up relatively well during the most recent round of restrictions.

Companies are also making less use of the country’s furlough program, which helped millions of workers hang on to their jobs during the pandemic. The number of people in short-time work declined to 2.3 million in May from 2.5 million, according to the Ifo Institute.

FXStreet reports that in the view of strategists at Danske Bank, the correlation between oil and FX majors is very low at present. 

“OPEC is widely expected to continue its slow-moving normalisation of production levels this week, following large cuts since the onset of COVID-19 in 2020. In our view, the pivot from the Fed and stronger dollar on top of rising production will keep oil around $70/bbl for Brent. In general, though, the correlation from spot oil to FX is very low currently.”

“If oil prices take a step back from these levels on the back of rising production, this is unlikely to matter much for FX. For EUR/USD, the effect on spot from rising oil prices remains quite ambiguous. There seems to be much less of a link between spot oil and the reflation theme across assets. In addition, should oil go a bit lower on the back of rising supply, such is different as when the underlying reason is a lack of demand – and especially so for the cyclical currencies.” 

“The direction of the reflation trade and Fed will continue to outshine other factors such as oil and OPEC. We remain USD positive.”

According to the report from KOF Economic Research Agency, the Economic Barometer falls by 10.3 points in June and now stands at 133.4 points. Economists had expected an increase to 144.7. In May, the barometer reached its all-​time high of 143.7 points (revised from 143.2). The decline is in particular driven by indicator bundles for the manufacturing and the other services sector. The indicator bundles for accommodation and food service activities, foreign demand and the financial and insurance services sector also contribute to this negative development. By contrast, indicator bundles reflecting private consumption show a comparatively weak decline.

In the goods producing sector (manufacturing and construction), indicator bundles for all sub-​sectors weaken. The strongest negative contributions are provided by the order backlogs, the intermediate product purchases and the assessment of the general business situation. Only slight declines are observed for the assessment of employment, barriers to production and the storage of intermediate goods.

All bundled indicators for the sub-​sectors of manufacturing are still well above their respective long-​term averages. However, slight declines with respect to the previous month are recorded for all sub-​sectors. First and foremost, the metal industry, the paper and printing sector and the chemicals, pharmaceuticals and plastics sector. The food and beverages industry exhibits the slightest declines.

During today's Asian trading, the US dollar was trading steadily against major currencies.

The market's focus this week is on US unemployment data for June, which will be released on Friday, July 2. Data on the labor market are key for the policy of the Federal Reserve System, along with inflation indicators. The dynamics of employment will largely depend on when the Fed will begin to scale back the large-scale stimulus measures introduced at the peak of the coronavirus pandemic.

The chairman of the Federal Reserve Bank of Richmond, Tom Barkin, said yesterday that the situation on the American labor market, in his opinion, will significantly improve by the end of the summer. According to Barkin, temporary factors, such as people's concern about the COVID-19 pandemic, the limited work of children's institutions, as well as expectations of an increase in the minimum wage in the United States, limit the recovery of the labor market.

Barkin, who has the right to vote in the Federal Open Market Committee (FOMC) this year, noted that he would not like the Federal Reserve to start reducing the volume of asset repurchases until there is a further improvement in the labor market situation.

Meanwhile, a member of the Fed's board of governors, Christopher Waller, said on Tuesday that the Fed will probably have to start reducing the asset repurchase program as early as this year in order to be able to start raising the base rate by the end of next year.

The ICE index, which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell by 0.02%.

According to the report from INSEE, over a year, the Consumer Price Index (CPI) should rise by 1.5% in June 2021, after +1.4% in the previous month, according to the provisional estimate made at the end of the month. This increase in inflation should result from the rebound of manufactured good prices. The tobacco prices should rise at the same rate as in the last month. The decrease in food prices should maintain at the same level as in May. The prices of services and those of energy should slow down.

Over one month, consumer prices should rise by 0.2% after +0.3% in May.

The prices of services should slow down slightly and those of food should fall back. The tobacco prices should be stable. The prices of manufactured goods should accelerate in link with those of clothing and footwear. The prices of energy should be more dynamic than in the previous month.

Year on year, the Harmonised Index of Consumer Prices should rise by 1.9% after +1.8% in May. Over one month, it should increase by 0.2% after +0.3% in the previous month.

Reuters reports that two government sources said that Japan's tax revenues likely exceeded 60 trillion yen ($540 billion) to a record high in the year that ended in March despite the blow to the economy from the COVID-19 pandemic.

The bumper tax revenue could ease concerns about the coronavirus-hit to state coffers, possibly fuelling calls for further fiscal stimulus.

The amount was bigger than the government's initial estimate of 55.1 trillion yen and due largely to the boost to corporate profits from solid U.S. and Chinese economic recoveries, the officials said on condition of anonymity.

The other two main components of tax revenue - sales tax and income tax - also topped earlier estimates, helping overall tax receipts exceed the previous record of 60.4 trillion yen seen in the fiscal year that ended March 2019, the sources said.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2017 (955)

$1.1982 (1071)

$1.1957 (576)

Price at time of writing this review: $1.1901

Support levels (open interest**, contracts):

$1.1863 (1916)

$1.1830 (578)

$1.1790 (714)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 29 is 51905 contracts (according to data from July, 9) with the maximum number of contracts with strike price $1,2050 (5829);

GBP/USD

$1.4104 (326)

$1.4012 (1362)

$1.3938 (306)

Price at time of writing this review: $1.3849

Support levels (open interest**, contracts):

$1.3792 (1311)

$1.3762 (858)

$1.3726 (548)

Comments:

- Overall open interest on the CALL options with the expiration date July, 9 is 15994 contracts, with the maximum number of contracts with strike price $1,4500 (3570);

- Overall open interest on the PUT options with the expiration date July, 9 is 17751 contracts, with the maximum number of contracts with strike price $1,4000 (2937);

- The ratio of PUT/CALL was 1.11 versus 1.11 from the previous trading day according to data from June, 29

* - 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.

The Office for National Statistics said that the underlying UK current account deficit excluding non-monetary gold and other precious metals narrowed to £12.7 billion, or 2.3% of gross domestic product (GDP) in Quarter 1 (Jan to Mar) 2021.

In Quarter 1 2021, the total trade deficit excluding precious metals narrowed by £9.5 billion as imports of goods fell more than exports.

The primary income deficit widened to £8.6 billion or 1.6% of GDP in Quarter 1 2021 from £5.0 billion in Quarter 4 (Oct to Dec) 2020; this was because of a larger increase in payments to foreign investors on their UK investments.

The secondary income deficit narrowed as the UK's regular monthly payments to the EU stopped with effect from January 2021.

Financial flows decreased in Quarter 1 2021 with a net inflow to the UK of £28.5 billion, as non-residents continued to invest in UK equities and debt securities.

According to the report from Office for National Statistics, UK gross domestic product (GDP) is estimated to have decreased by 1.6% in Quarter 1 (Jan to Mar) 2020, revised from the first estimate of a 1.5% decline. Economists had expected a 1.5% decrease. The level of GDP is now 8.8% below where it was pre-pandemic at Quarter 4 (Oct to Dec) 2019, revised from a first estimate of 8.7% below.

There have been contractions in services and production output, however construction output grew over the quarter.

In output terms, the largest contributors to this fall were from the education, wholesale and retail trade, and accommodation and food services industries, in particular at the beginning of the quarter in response to the tightening of coronavirus (COVID-19) restrictions.

Government consumption increased in Quarter 1 2021, however household consumption expenditure and gross capital formation fell as a result of the reintroduction of COVID-19 restrictions; trade contracted further with falls both in imports and exports of goods and services.

The household saving ratio increased to 19.9% in Quarter 1 2021, which is the second highest on record, compared with 16.1% in Quarter 4 2020.