CFD Markets News and Forecasts — 30-08-2021

The Federal Reserve Bank of Dallas reported Monday its general business activity index for manufacturing in Texas fell to 9.00 in August from an unrevised 27.3 in July, pointing to a continuing expansion in Texas factory activity, albeit at the slowest pace since January. 

According to the report, the production index, a key measure of state manufacturing conditions, came in at 20.8 in August, down 10.2 points from July, but remained well above its average and continued to point to robust output growth. The new orders index fell 11.2 points to 15.6, and the growth rate of orders index decreased 15.1 points to 10.7. In addition, the shipments index plunged 16.4 points to 15.2, while the capacity utilization index dropped 8.2 points to 21.7, but still remained at elevated levels. Elsewhere, the employment index slipped 1.8 points to 21.9. On the price front, the raw materials prices index rose 1.4 points to 74.9 and the finished goods prices index declined 2.8 points to 38.1. Meanwhile, the wages and benefits index decreased 2.6 points to 43.4.

eFXdata reports that Danske Research discusses EUR/USD outlook ahead of U.S. jobs report of Friday.

"As we have seen time and time again, getting past an event can by itself be a catalyst for risk-on and Powell's speech at Jackson Hole proved little different. In line with our expectation, Powell was slightly to the dovish side and EUR/USD rallied a tad but tapering is a 'done deal' at some point during this year. This week, focus will thus turn to US payrolls." 

"The unlikely scenario is a weak number (below 200k, say) which postpones expectations to tapering into Q1 22 and rallies EUR/USD towards 1.20 but we see such as unlikely. Rather, we expect US jobs continue being decent and for dollar to strengthen further over coming quarters."

The National Association of Realtors (NAR) announced on Monday its seasonally adjusted pending home sales index (PHSI) fell 1.8 percent m-o-m to 110.7 in July, after a revised 2.0 percent m-o-m drop in June (originally a 1.9 percent m-o-m decrease).

Economists had expected pending home sales to increase 0.4 percent m-o-m in July.

On y-o-y basis, the index plunged 8.5 percent after a revised 2.0 percent decline in June (originally a 1.9 percent fall).

According to the report, three of the four regional indices recorded m-o-m declines in July and all four regions registered y-o-y drops.

The Northeast PHSI tumbled 6.6 percent m-o-m to 92.0 in July, a 16.9 percent decrease from a year ago. In the Midwest, the index fell 3.3 percent m-o-m to 104.6, down 8.5 percent from July 2020. Pending home sales in the South went down 0.9 percent m-o-m to an index of 130.9 in July, down 6.7 percent from July 2020. At the same time, the index in the West increased 1.9 percent m-o-m in July to 99.8, but still down 5.7 percent from a year prior.

"The market may be starting to cool slightly, but at the moment there is not enough supply to match the demand from would-be buyers," noted Lawrence Yun, NAR's chief economist. "That said, inventory is slowly increasing and home shoppers should begin to see more options in the coming months.”

Carsten Brzeski, the Global Head of Macro for ING Research, notes that Germany's headline inflation continued to increase and reached 3.9% YoY in August, and suggests that more is still to come.

"Based on inflation outcomes of several regional states, German inflation in August came in at 3.9% year-on-year, from 3.8% in July. The harmonised index relevant for the European Central Bank jumped to 3.4%, from 3.1% in July."

"The surge in headline inflation was driven by the full base effects from the VAT reversal, which also shows in subcomponents like prices for clothing and leisure, higher energy prices and price mark-ups post-lockdown in the leisure and hospitality services. Higher producer prices on the back of supply chain disruptions, higher commodity prices and the gradual reopening of the economy are all impacting and will continue to impact consumer prices. Together with the reversal of the German VAT rate, headline inflation could even get close to 5% towards the end of the year."

"When the ECB meets again next week, it will very likely stick to its rather benign view of inflation being driven by a series of one-off factors without any second-round effects in sight. Recent statements by Philip Lane and Isabel Schnabel actually stressed inflation projections of far below 2% in 2022 and 2023. We doubt that the new ECB staff projections will present a significantly changed picture as it would require structural changes in the models and how ECB staff sees second-round-effects materialising. Remarkably, high German inflation is not only the result of base effects from low prices during the lockdowns."

"Indeed, monetary policy can hardly bring down inflation driven mainly by one-off factors. Therefore, the ECB’s current benign stance on inflation makes sense, even if some acknowledgment that people actually do have to pay higher prices would help future dialogues with eurozone citizens. Looking ahead to next week’s meeting, it is hard to see that the ECB will change anything in its communication and policy stance."

U.S. stock-index futures rose slightly on Monday, as market participants continued to digest the Fed Chair Powell's Jackson Hole speech, while awaiting the release of the U.S. August employment report later this week.

Global Stocks:

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American Express (AXP) initiated with a Neutral at Seaport Global Securities

Statistics Canada reported on Monday that the country’s current account (C/A) surplus expanded to CAD3.58 billion in the second quarter of 2021 from an upwardly revised CAD1.82-billion surplus in the previous thee-month period (originally a surplus of CAD1.18 billion). Prior to 2021, Canada had continuous C/A deficits from the fourth quarter of 2008 until the end of 2020, the Statistics Canada noted.

Economists had expected a CAD1.85-billion surplus.

According to the report, the C/A surplus primarily reflected a positive trade in and services balance goods (+CAD0.18 billion to CAD1.82 billion in the second quarter; its second consecutive surplus) and a higher investment income surplus (+CAD1.69 billion to CAD4.00 billion).

Germany's Federal Statistical Office (Destatis) reported on Monday the country’s consumer price index (CPI) is expected to be flat m-o-m in August after rising 0.9 percent m-o-m in the previous month.

On the y-o-y basis, Germany’s CPI is seen to soar 3.9 in August, following a 3.8 percent climb in July. This represents the largest advance since December 1993, caused, in particular, by the value-added tax effect, as the German government cut the tax rates temporarily in July 2020 as a part of its support to the pandemic-hurt economy.

Economists had predicted inflation would rise 0.1 percent m-o-m and 3.9 percent y-o-y in August.

According to the report, food prices surged 4.6 percent y-o-y in August after a 4.3 percent y-o-y climb in July. Energy prices jumped 12.6 percent y-o-y after an 11.6 percent y-o-y surge in the previous month. Services costs rose 2.5 percent y-o-y, accelerating from 2.2 percent y-o-y in July.

Meanwhile, the harmonized index of consumer prices for Germany (HICP), which is calculated for European purposes, is expected to advance 0.1 percent m-o-m and 3.4 percent y-o-y.

FXStreet reports that in its latest research report, Goldman Sachs' analysts said they expect the U.S. dollar stability while citing the market’s response to Fed Chair Jerome Powell’s tapering hints and their signal of monetary policy adjustments, marked in June.

"Following Fed Chair Powell's Jackson Hole speech, the July FOMC meeting minutes, and a variety of public comments from other officials, we now have a clearer sense of the Fed's QE tapering plans (our economists expect a November announcement, December start, and September 2022 conclusion to the process)."

"Shifting Fed expectations have supported the dollar over the last two months. But with tapering now largely priced in, and the currency stronger as a result, following through with the process should not drive the Dollar higher from this point forward."

"We, therefore, expect the greenback to stabilize over the coming weeks, and possibly depreciate against certain crosses with attractive domestic fundamentals."

"We forecast broad Dollar depreciation over time on our expectation that the global economic recovery will continue and that slowing domestic growth and lower inflation will allow the Fed to remain on hold until Q3 2023."

"But for that trend to take hold, markets may require clearer signs that delta variant outbreaks are behind us and that US inflation pressures have come down."

"Following the June FOMC meeting, we argued that the broad USD could appreciate an additional 1.5-3.0% over the near-term should markets continue to price Fed expectations in a hawkish direction."

FXStreet reports that FX Strategists at UOB Group expect the Cable to navigate within the 1.3640-1.3850 range in the next weeks.

24-hour view: “Our expectations for GBP to ‘decline to 1.3670’ last Friday was incorrect as it dropped to 1.3679 before staging a surprising sharp rally during NY session (high has been 1.3781). While overbought, the rally has room to test 1.3800. The major resistance at 1.3850 is not expected to come into the picture.”

Next 1-3 weeks: “We have held the same view since last Tuesday (24 Aug, spot 1.3720) where GBP is likely to consolidate and trade between 1.3640 and 1.3850. While upward momentum is beginning to build after the strong advance on Friday, we continue to expect GBP to trade between 1.3640 and 1.3850 for now. Looking ahead, GBP has to break 1.3850 before a sustained advance can be expected.”

Bert Colijn, a senior economist at ING, notes that the Eurozone's Economic Sentiment Indicator (ESI) declined in August, but still signals strong growth for 3Q.

"The ESI decreased from 119 to 117.5, which is in line with the trend seen in other survey indicators released earlier like the PMIs. The high level indicates that growth remains strong for 3Q, but it does show that rebound growth has probably peaked and is set for moderation from here on."

"Delta fears seem to have the largest impact on weakening sentiment at the moment. Small declines in the indicator for observed business activity in services seem mostly in line with reopening effects wearing off. Expectations for the months ahead are weakening at a faster pace though and could result from a similar effect, but here the fear of the delta variant of the coronavirus is also important to keep in mind."

"The most remarkable number in today’s ESI release was the sharp decline in observed production in manufacturing. With new orders still coming in at a rapid pace, expectations for the months ahead remain strong, but current production has been hampered by supply chain problems and input shortages."

"The ESI indicated that August selling price expectations for goods reached a record high. This confirms expectations of above target inflation for the ECB until at least the end of the year and adds upside risk to the inflation outlook. Tomorrow’s inflation reading for August is already expected to take core inflation much higher – we expect it to increase from 0.7% to 1.4%."

"The bounce back in employment has been very strong in recent months as economies reopened, which has been an encouraging sign for the sustainability of the recovery. Today’s release does reveal a downturn in employment expectations from industry, which begs the question whether this is because of the limited availability of qualified workers or because labour demand has been fulfilled."

FXStreet reports that FX Strategists at UOB Group note EUR/USD is now poised to advance further north of the 1.180 mark in the next weeks.

24-hour view: “During NY session, EUR dropped briefly to 1.1733 before rocketing higher and took out the major resistance at 1.1800 (high of 1.1802). In view of the impulsive price actions, EUR could strengthen further. However, overbought conditions suggest that the next major resistance at 1.1835 is likely out of reach for now (minor resistance is at 1.1820).”

Next 1-3 weeks: “We have held the same view since last Tuesday (24 Aug, spot at 1.1745) where we indicated that ‘the rebound in EUR has scope to extend to 1.1800’. We added, ‘at this stage, the odds for a sustained advance above 1.1800 are not high’. Our view was not wrong as EUR soared to a high of 1.1802 on Friday (27 Aug). Upward momentum has improved and we see room for the current EUR strength to extend to 1.1835. Only a break of 1.1735 (‘strong support’ level was at 1.1705 last Friday) would indicate that the current EUR strength has run its course.”

EUR appreciated against other major currencies in the European session on Monday, as Friday’s Jackson Hole speech of the Fed’s Chairman Powell indicated that the U.S. central bank is in no rush to hike interest rates, bringing relief to global markets. 

Meanwhile, investors looked past the European Commission’s (EC) survey, which showed that the economic sentiment in the eurozone declined slightly more than anticipated in August. According to the report, the Economic Sentiment Indicator (ESI) for the euro area decreased 1.5 points to 117.5 in August, falling back from an all-time high of 119.0 in July. Economists had forecast the ESI to fall to 117.9 in August. The ESI’s was dampened by declines in confidence in services, industry and among consumers, while construction and retail trade recorded gains.

In the focus of market participants were also the remarks of the ECB’s Governing Council member Francois Villeroy de Galhau, who said on Monday that the economies in France and the Eurozone should be back to pre-COVID levels in early 2022 or maybe earlier. He also noted that financing conditions had improved since June and he saw no risk of a sustainable surge in the Eurozone inflation. Villeroy added that he expected the ECB’s PEPP purchases to be there until at least March 2022. He saw no urgency to decide on asset purchases at the September meeting.

Market participants also looked for the release of the August CPI data for Germany, the EU’s largest economy (due at 12:00 GMT). Economists expect the country’s inflation rose 0.1 percent m-o-m and 3.9 percent y-o-y this month.

FXStreet reports that UOB Group’s FX Strategists note USD/CNH risks a deeper pullback on a close below 6.4500.

24-hour view: “The sharp drop in USD to a low 6.4585 last Friday came as a surprise. While there is scope for USD to weaken further, oversold conditions suggest that a break of the major support at 6.4500 is unlikely (minor support is at 6.4550).”

Next 1-3 weeks: “On Friday (27 Aug), we highlighted that ‘looking ahead, the downside risk appears to be greater but USD has to close below the major support at 6.4500 before a sustained decline can be expected’. USD subsequently dropped to 6.4585 before closing at 6.4632 (-0.31%) and the prospect for USD to close below 6.4500 has increased (as long as it does not move above 6.4820 within these few days). Looking ahead, the next support below 6.4500 is at 6.4300.”

The European Commission (EC) announced on Monday that the Economic Sentiment Indicator (ESI) for the euro area decreased 1.5 points to 117.5 in August, falling back from an all-time high of 119.0 in July. Economists had forecast the ESI to decrease to 117.9 in August.

The ESI’s was dampened by declines in confidence in services (to 16.8 in August from 18.9 in July), industry (to 13.7 from 14.5) and among consumers (to -5.3 from -4.4). Meanwhile, confidence improved again in construction (to 5.5 from 4.0) and changed little in retail trade (to 4.6 from 4.4).

From a country perspective, the largest declines in the ESI occurred in France (-4.5) and in the Netherlands (-3.0).

The euro area’s Employment Expectations Indicator (EEI) rose 1.2 points to 112.8 in August, recording its highest level since November 2018.

The flash estimates from the Instituto Nacional de Estadística (INE) revealed on Monday that Spain’s consumer price index (CPI) rose 0.4 percent m-o-m in August after dropping 0.8. percent m-o-m in the previous month.

On the y-o-y basis, Spain’s CPI climbed 3.3 in August, following a 2.9 percent jump in July. That was the highest reading since October 2012

According to the report, the rise in electricity prices was the major contributor to the August surge in headline CPI. Meanwhile, the general index excluding non-processed food and energy products increased 0.7 percent y-o-y in August, accelerating from 0.6 percent y-o-y in July.

Meanwhile, the harmonized index of consumer prices for Spain (HICP), which is calculated for European purposes, rose also 0.4 percent m-o-m and 3.3 percent y-o-y. Economists had predicted HICP would rise 0.1 percent m-o-m and 2.9 percent y-o-y in August.

FXStreet reports that commodity analysts at Bank of America (BofA) believe that gold price is likely to move higher to the $1900 mark by the year-end, averaging around $1800 in 2021.

“Expects gold prices could push to $1,900 an ounce at the end of the year. However, it expects the average price to come in around $1,800 an ounce in the final three months of the year.”

"The global macro backdrop remains uninspiring and continues to discourage investor inflows into gold."

"Breakevens and nominal rates have not shown a persistent trend higher or lower in recent months and have therefore been too choppy for the gold market."

"As the US economy accelerates, inflation should pick up; with markets continuing to factor in a benign inflation outlook, any overshoot or re-pricing here could ultimately support the yellow metal. That said, the immediate focus will likely remain on tapering, so gold looks to remain unattractive to investors for now.”

USD changed little against other major currencies in the Asian session on Monday, keeping around the multi-week lows it reached on Friday, weighed down by the Federal Reserve Chairman Jerome Powell's Jackson Hole speech on the economy and monetary policy.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, was little changed at 92.68.

In his address to the Fed's annual Jackson Hole policy symposium on Friday, Powell said that "substantial further progress" has been met on inflation and that "clear progress" has been made on a return to maximum employment, implying it's not yet time for the U.S. central bank to start tapering asset purchases because the country's labor market still has room for improvement. In addition, though the Fed's chair acknowledged that QE tapering should probably begin this year, he reminded markets that even when the U.S. central bank ends purchases, its "elevated holdings of longer-term securities will continue to support accommodative financial conditions'' and that the criteria for interest-rate increases will be based on a more careful assessment of "the incoming data and the evolving risks". He also highlighted that "the timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff."

Powell's dovish speech pushed the greenback down 0.4% to 92.69 at Friday’s close, its lowest level since August 16. 

Investors are now looking for the key U.S. jobs data, set to be released on Friday, hoping to get more clues on the strength of the labour market.

FXStreet reports that FX Strategists at UOB Group suggest that the upside bias in AUD/USD is forecast to re-visit the 0.7335 level, and probably 0.7360, in the next weeks.

24-hour view: “Our expectations for a weaker AUD last Friday was incorrect as it lifted off and soared to a high of 0.7317 during NY session. The rapid advance is clearly overbought but AUD could test 0.7335 first before a pullback can be expected. The next resistance at 0.7360 is not expected to come under threat. Support is at 0.7290 followed by 0.7270.”

Next 1-3 weeks: “As AUD struggled to extend its advance, we highlighted on Friday (27 Aug, spot at 0.7235) that ‘upward momentum is beginning to wane and a break of 0.7200 would indicate that the chance for AUD to close above 0.7305 has dissipated’. AUD subsequently dropped to 0.7222 before lifting off during NY session and surged to a high of 0.7317 (closed at 0.7310). Upward momentum has been boosted and AUD could advance further to 0.7335, possibly 0.7360. The current positive outlook is deemed intact as long as AUD does not move below 0.7235 (‘strong support’ level previously at 0.7200).”

FXStreet reports that ahead of Wednesday’s Australian Q2 GDP release, analysts at Citigroup warn about a potential return of a technical recession for the economy amid ongoing lockdowns due to the rapid spread of the Delta variant.

“Australia’s economy may have shrunk slightly in the three months through June, setting up the bad “optics” of a technical recession when combined with the lockdown-induced contraction expected for the current quarter.”

"Net exports are expected to out-weigh all positive domestic growth drivers including household consumption, government demand, business investment” and others.”

“The optics of such a result would be poor.”

"Sydney is now in its 10th week of lockdown and Melbourne and national capital Canberra are also under stay-at-home orders."

FXStreet reports that FX Strategists at UOB Group suggest that further consolidation in USD/JPY stays well in the pipeline.

24-hour view: “We highlighted last Friday that USD ‘could drift lower to 109.80’. We added, ‘the next support at 109.60 is unlikely to come under threat’. However, USD rose to 110.26 before dropping back down to 109.77. Downward momentum is beginning to build and the bias for today is on the downside.”

Next 1-3 weeks: “On 19 Aug, when USD was trading at 109.90, we highlighted that USD could trade within a 109.30/110.55 range for a period of time. Our view was not wrong as USD traded within the expected range for more than a week now. While shorter-term downward momentum is showing tentative signs of improving, at this stage, it is too early to expect USD to break below bottom of the expected range at 109.30. In other words, we continue to expect USD to trade between 109.30 and 110.55 for now.”

• Financing conditions have improved since June
• No risk of higher inflation at this stage
• France and Eurozone should be back to pre-covid levels in early 2022 or maybe earlier

The report provided by the Ministry of Economy, Trade and Industry (METI) revealed that retail sales in Japan rose at a faster-than-expected pace in July.

According to the report, the Japanese retail sales increased 2.4 percent y-o-y last month after a 0.1 percent y-o-y rise in June. That was above economists’ forecast for an advance of 2.1 percent y-o-y.

In July, gains were recorded in sales of fuel (+27.7 percent y-o-y), motor vehicles (+3.1 percent y-o-y), fabrics, apparel and accessories (+2.9 percent y-o-y), food and beverages (+2.5 percent y-o-y), general merchandise (+1.0 percent y-o-y) and medicine and toiletry (+0.6 percent y-o-y) stores. At the same time, sales fell in machinery and equipment (-2.6 percent y-o-y), and others (-4.6 percent y-o-y) stores and nonstore retailers (-2.4 percent y-o-y). 

On a monthly basis, retail sales recorded a growth of 1.1 percent in July, following a 3.1 percent surge in the prior month.

The Australian Bureau of Statistics (ABS) reported on Monday the company gross operating profits (CGOP) in Australia jumped 7.1 percent q-o-q (seasonally adjusted) in the second quarter of 2021, following a revised 0.6 percent q-o-q drop in the previous quarter (originally a 0.3 percent q-o-q fall). This represented the first advance in profits of private companies in the last three quarters and the biggest gain since the second quarter of 2020. Economists had expected a 3.0 percent q-o-q rise.

According to the report, profits rose in administrative and support services (+19.9 percent q-o-q), mining (+18.4 percent q-o-q), transport, postal and warehousing (+7.9 percent q-o-q), information and communication (+5.5 percent q-o-q), financial and insurance (+4.0 percent q-o-q), professional scientific and technical services (+0.5 percent q-o-q) as well as other services (+29.9 percent q-o-q). These gains, however, were partially offset by declines in profits in accommodation and food services (-19.8 percent q-o-q), rental, hiring and real estate services (-6.0 percent q-o-q), retail trade (-5.6 percent q-o-q), construction (-5.5 percent q-o-q), manufacturing (-3.2 percent q-o-q), wholesale trade (-3.2 percent q-o-q) and utilities (-1.0 percent q-o-q).