CFD Markets News and Forecasts — 30-09-2020

The U.S. Energy Information Administration (EIA) revealed on Wednesday that crude inventories fell by 1.980 million barrels in the week ended September 25. Economists had forecast a build of 1.569 million barrels.

At the same time, gasoline stocks rose by 0.683 million barrels, while analysts had expected a decline of 1.083 million barrels. Distillate stocks plunged by 3.184 million barrels, while analysts had forecast a drop of 0.917 million barrels.

Meanwhile, oil production in the U.S. remained unchanged at 10.700 million barrels a day.

U.S. crude oil imports averaged 5.1 million barrels per day last week, down by 45,000 barrels per day from the previous week.

The National Association of Realtors (NAR) announced on Wednesday its seasonally adjusted pending home sales index (PHSI) jumped 8.8 percent m-o-m to 132.8 (a record high) in August, after a 5.9 percent m-o-m jump in July.

Economists had expected pending home sales to advance 3.4 percent m-o-m in August.

On y-o-y basis, the index surged 24.2 percent after a 15.5 percent climb in July. This was the biggest gain since October 2009.

According to the report, all four regional indices recorded gains in contract activity on both m-o-m and y-o-y basis in August. The Northeast PHSI rose 4.3 percent m-o-m to 117.1 in August, a 26.0 percent jump from a year ago. In the Midwest, the index increased 8.6 percent m-o-m to 124.5 last month, up 25.0 percent from August 2019. Pending home sales in the South surged 8.6 percent m-o-m to an index of 154.2 in August, up 23.6 percent from August 2019. The index in the West jumped 13.1 percent m-o-m in August to 120.3, up 23.6 percent from a year ago.

"Tremendously low mortgage rates - below 3% - have again helped pending home sales climb in August," noted Lawrence Yun, NAR’s chief economist. "Additionally, the Fed intends to hold short-term fed funds rates near 0% for the foreseeable future, which should in the absence of inflationary pressure keep mortgage rates low, and that will undoubtably aid homebuyers continuing to enter the marketplace."

MNI Indicators’ report revealed on Wednesday that business activity in Chicago grew sharply in September.

The MNI Chicago Business Barometer, also known as Chicago purchasing manager's index (PMI) came in at 62.4 in September, noticeably up from 51.2 in August. This was the highest level since December 2018. Economists had forecast the index to increase to 52.0.

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

According to the report, all five main indicators saw monthly gains in September, with Production and New Orders leading the way. 

• Tracking a broader set of variables, assets of financial institutions and nominal GDP, could help the ECB reconcile its secondary objectives with primary mandate

U.S. stock-index futures fell slightly on Wednesday, as investors digested the first presidential debate between Donald Trump and Joe Biden and several important macro reports.

Global Stocks:

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Statistics Canada announced on Wednesday that the country’s gross domestic product (GDP) grew 3.0 percent m-o-m in July, following a 6.5 percent m-o-m advance in June.

This was in line with economists’ forecast for a 3.0 percent m-o-m growth and marked the third consecutive monthly gain. However, overall economic activity was about 6 percent below February's pre-pandemic level.

According to the report, both goods-producing (+3.2 percent m-o-m) and services-producing (+3 percent m-o-m) industries were up as all 20 industrial sectors recorded gains in output, with the agriculture, utilities, finance and insurance as well as real estate rental and leasing sectors surpassing their February pre-pandemic levels, and joining retail trade which did so in June.

A report from the Commerce Department showed on Wednesday that the U.S. economy contracted less than initially thought in the second quarter of 2020, as personal consumption expenditures (PCE) were revised upwardly, while exports and nonresidential fixed investment saw a downward revision.

According to the third estimate, the U.S. gross domestic product (GDP) plunged at an annual rate of 31.4 percent q-o-q in the second quarter, better than a 31.7 percent q-o-q tumble reported in the second estimate. Still, it remained the biggest contraction ever.

Economists had expected the contraction rate to be unrevised at 31.7 percent q-o-q.

In the first, the economy shrank 5.0 percent q-o-q.

The decrease in real GDP reflected declines in PCE, exports, nonresidential fixed investment, private inventory investment, residential fixed investment, and state and local government spending, which were partly offset by an increase in federal government spending. Meanwhile, imports, which are a subtraction in the calculation of GDP, fell.

The employment report prepared by Automatic Data Processing Inc. (ADP) and Moody's Analytics showed on Wednesday the U.S. private employers added 749,000 jobs in September. This was the biggest reading since June.

Economists had expected an increase of 650,000.

The August number saw an upward revision to 481,000 from the originally reported 428,000.

“The labor market continues to recover gradually,” noted Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “In September, the majority of sectors and company sizes experienced gains with trade, transportation and utilities; and manufacturing leading the way. However, small businesses continued to demonstrate slower growth.”

Micron (MU) reported Q4 FY 2020 earnings of $1.08 per share (versus $0.56 per share in Q4 FY 2019), beating analysts’ consensus estimate of $0.94 per share.

The company’s quarterly revenues amounted to $6.056 bln (+24.4% y/y), beating analysts’ consensus estimate of $5.537 bln.

The company also issues guidance for Q1 FY 2021, projecting EPS of $0.40-0.54 (versus analysts’ consensus estimate of $0.68) and revenues of $5.00-5.40 bln (versus analysts’ consensus estimate of $5.33 bln).

MU fell to $48.80 (-3.77%) in pre-market trading.

• There is serious and growing problem with coronavirus
• When you have the virus going up in the way that it is, you have to take strong local action
• The best way to protect our jobs and economy is to work together and comply with the measures
• We need to keep the economy moving

GBP fell against most other major currencies in the European session on Wednesday, weighed down by the approval of the controversial UK government's internal market bill by Britain’s lower house of parliament.

The House of Commons approved the bill to regulate the UK's internal market after Brexit by 340 votes to 256 on Tuesday night. The passage of the bill that breaches Britain's EU divorce treaty was an expected event. The UK's government argued that the clauses in the bill which override the Withdrawal Agreement would only be used if talks on a border solution with the EU fail, and if a deal could be reached on the Irish border, the powers might not be needed. The legislation will now go to the House of Lords for debate.

Meanwhile, the final round of the UK-EU talks on a post-Brexit trade deal is continuing. The market participants believe that the sides could reach an agreement.

The pound remained also pressured by concerns over a resurgence in coronavirus cases in the UK. The UK's Prime Minister Boris Johnson is to hold a news conference on COVID-19 later today as he grapples with a second wave of the pandemic. 

Elsewhere, the Bank of England's (BoE) chief economist Andy Haldane downplayed the possibility of an introduction of negative rates in near future. In his speech on Wednesday, he said that none of the conditions for negative rates had been satisfied and that the operational work necessary to assess the feasibility of negative rates is likely to take a number of months. At the same time, he said the central bank is committed to keeping borrowing costs at the extraordinary low levels.

A report from the Office for National Statistics (ONS) revealed that the UK’s economy contracted less than initially estimated in the second quarter of 2020. According to the final estimate, the UK gross domestic product (GDP) fell at a 19.8 percent q-o-q in the second quarter, slower than a 20.4 percent q-o-q drop reported in the advance estimate. Still, this is the largest quarterly contraction ever and the second consecutive quarterly drop in GDP. Economists had expected the decline rate to be unrevised at 20.4 percent q-o-q, following the first quarter's decrease of 2.5 percent q-o-q (revised from -2.2 percent).

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. fell 4.8 percent in the week ended September 25, following a 6.8 percent surge in the previous week. This was the biggest drop since the week ended August 21.

According to the report, refinance applications plunged 6.5 percent, while applications to purchase a home decreased 1.9 percent.

Meanwhile, the average fixed 30-year mortgage rate dropped to 3.05 percent from 3.10 percent.

“There are indications that refinance rates are not decreasing to the same extent as rates for home purchase loans, and that could explain last week’s decline in refinances,” noted Joel Kan, an MBA economist. “Many lenders are still operating at full capacity and working through operational challenges, ultimately limiting the number of applications they are able to accept.”

FXStreet notes that many market participants feared volatility around the first presidential debate due to the risk of a Biden meltdown, but such fears were unfounded. Biden performed much better than feared and markets remained calm throughout the debate. Economists at Nordea expect a Biden-victory and a risk asset rally, including a weaker USD, after the election. 

“The first presidential debate did not lead to material market moves as fears of a Biden meltdown were proven unfounded. Biden performed (much) better than feared by many and was never close to a ‘melt-down’ as some market participants saw a risk-off. All debate on whether Biden is mentally healthy should rightfully end after tonight, but it probably won’t.”

“It is still clear when watching the debate, that Trump gains the most from 1-to-1 debates against Biden. Biden struggles to bite back fully when Trump bullies and constantly interrupts, while Biden performs better when Trump allows him to speak freely. The three planned debates between Trump and Biden will likely work to ‘tighten the gap’ in opinion polls, but we still don’t think the momentum will be big enough to tilt the current Biden lead in polls.”

“Should Biden win, it would be good news for markets outside of the US, and we would expect both a weaker USD and a relative outperformance of assets in the rest of the world versus the US. The direct effect on US equities is a bit more mixed as the risk of a corporate tax increase could lead to some profit-taking on the back of a Biden victory.”

"Biden’s less aggressive trade policy will hence likely be reflected via an improving access to USD liquidity for Emerging Markets in particular, why the suffering EM currencies and markets should be on the receiving end of inflows in case of a Biden victory.”

FXStreet reports that FX Strategists at UOB Group notes that a break above 106.00 could motivate USD/JPY to re-visit the 106.45 level in the next weeks.

24-hour view: “We expected USD to ‘trade sideways between 105.20 and 105.70’ yesterday. USD subsequently traded between 105.33 and 105.73 before closing at 105.64 (+0.14%). Upward momentum is showing sign of improving and the bias for today is for USD to strengthen.”

Next 1-3 weeks: “Our latest narrative was from last Friday (25 Sep, spot at 105.45) wherein USD ‘is in a correction phase but a sustained advance is likely only if there is a clear break of 106.00’. Shorter-term momentum is beginning to improve and from here, if USD were to close above 106.00, it could trigger a stronger recovery to 106.45. The probability for such a scenario is not that high for now but it would improve quickly as long USD does not move below 105.10 within these few days.”

GBP/USD to end the year at 1.29 on a modest Brexit deal - CIBC

FXStreet notes that sterling has depreciated by around 5% versus the USD in September as the Brexit clock is ticking. Jeremy Stretch from CIBC Capital Markets expects a modest deal to be reached, supporting GBP resilience.

“While we still expect a deal even this late, it will likely be far from comprehensive. While the UK has placed a self-imposed October 15th deadline on discussions, in line with the EU leaders summit, we would not be surprised if talks extend at least until the end of October. As the timeline tightens, we expect sterling to continue to be whipsawed by Brexit headlines. We underline that the reaction to a deal or no-deal scenario is likely to be far from symmetrical.” 

“If our base case of a modest trade deal being agreed to is correct, expect modest GBP impetus into year-end, towards the 1.29 mark. Failure to reach a deal could see sterling heading back towards the end of March lows.”

“Beyond Brexit, the BoE’s assumed ‘V’ shaped recovery looks set to be challenged by tightening lockdown restrictions.”

Markit/Caixin’s survey revealed Wednesday that activity in China’s manufacturing sector continued to expand in September, albeit at a marginally slower pace than in August.

According to the report, the Caixin/Markit manufacturing purchasing managers' index (PMI) came in at 53.0 in September, down slightly from 53.1 in August, signaling a further solid improvement in the health of the manufacturing sector.  

The 50 mark divides contraction and expansion.

Economists’ had predicted the reading to stay at 53.1.

The rate of new order growth was the steepest recorded since the start of 2011, while new export business expanded at the quickest pace since August 2017 and production growth remained marked. Furthermore, employment stabilized in September, ending an eight-month period of job shedding.

Commenting on the China General Manufacturing PMI data, Dr. Wang Zhe, Senior Economist at Caixin Insight Group noted: “…the economic recovery has picked up its pace after the epidemic, with both the supply and demand improving. The sharp rise in overseas demand has complemented the domestic market. Manufacturers remained confident about the economy for the next 12 months and they were no longer reluctant to add to their inventories. The strength of the manufacturing sector will take some of the pressure off policymakers going forward. However, the job market remains worrisome, as the improvement in employment relies on a longer-term economic recovery and a more stable external environment. In the near future, great uncertainties remain about the overseas pandemic and the U.S. presidential election."

FXStreet notes that EUR/USD has rallied strongly after completing a near-term base but analysts at Credit Suisse look for further strength to be capped at a cluster of resistance seen starting at 1.1764 and stretching up to its downtrend at 1.1804.

“EUR/USD has surged higher after completing a near-term base above 1.1688 and this already leaves the market approaching a cluster of what we look to be tougher resistances, stating at 1.1764 and stretching up to 1.1804 - the 55-day average, downtrend from the early September peak and 38.2% retracement of the September fall. We look for this to ideally cap to maintain the top and for the risk to turn lower again.” 

“Support is seen at 1.1709 initially, then 1.1693, with a break below 1.1665/61 needed to reassert a bearish tone again with support then seen next at 1.1642 ahead of the 1.1598 recent low, with 1.1495/85 still our ‘ideal’ objective.”

• Any decision on negative rates would depend on cost-benefit analysis
• Work on negative rates likely to take months
• Commentators have interpreted the start of work on negative rates as conveying signal about likelihood of introducing them in near-term; BoE minutes contained no such signal
• BoE committed to keep borrowing costs at extraordinary low levels
• Economy has recovered faster than anyone expected
• Positive news have received less attention than it deserves

• Coronavirus vaccine should be made globally
• As autumn is coming, we stand before a tough phase on the coronavirus
• German health system has proven to be extraordinarily robust
• It's key that we go against the tendencies of nationalism and protectionism
• We want fair trade with China
• We will bring up issue of Hong Kong and bad treatment of minorities in China

• Does not think the euro area recovery will continue as fast as before

• Widening ECB mandate could threaten independence

• Strategy review has yet to be concluded
• Low inflation poses fundamental challenges
• Policy must remain expansionary for as long as necessary to achieve ECB goals
• To underpin inflation expectations, need to ensure our aim is symmetric
• A persistent failure to meet inflation target can feed into inflation expectations
• We need to have a clear consensus - agreed by the governing council - on what tools are available when inflation is too low
• Measures we have taken since march this year will increase inflation by around 0.8 percentage points cumulatively between 2020 and 2022, and GDP growth by around 1.3 percentage points
• Make-up strategies on inflation should be examined

The Federal Employment Agency (Bndesagentur für Arbeit) announced on Wednesday that seasonally adjusted number of unemployed people in Germany dropped by 8,000 in September, following a decline of 9,000 in the previous month. This was in line with economists’ expectations.

Meanwhile, Germany's unemployment rate edged down to 6.3 percent from 6.4 percent in August. Economists had forecast the reading would remain at 6.4 percent. 

USD rose against other major currencies in the Asian session on Wednesday as investors digested the first U.S. presidential debate between incumbent President Donald Trump and Democratic challenger Joe Biden. The two interrupted each other and exchanged sharp remarks in a face-to-face challenge late Tuesday evening, disputing on the coronavirus pandemic, the economy and taxes. According to analysts, neither candidate came out of the debate as a decisive advantage.

Investors also continued to monitor the progress toward a new fiscal stimulus package in the U.S. On Tuesday, House Speaker Nancy Pelosi said that she hoped to agree on a stimulus package with the White House this week, after speaking with Treasury Secretary Steve Mnuchin. The two officials are to talk again on Wednesday.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, increased  0.13% to 94.01.

The Federal Statistical Office (Destatis) reported on Wednesday that Germany's retail sales climbed by 3.1 percent m-o-m in August, following a revised 0.2 percent m-o-m decline in July (originally a 0.9 percent m-o-m drop). This represented the first monthly gain in retail sales since February and was well above economists’ forecast for a 0.5 percent m-o-m advance.

Retail sales of food, beverages and tobacco rose 2.6 percent m-o-m, while sales in the non-food retail sector climbed 4.5 percent m-o-m.

In y-o-y terms, retail sales rose 3.7 percent in August, following a 4.2 percent gain in the previous month. 

 The report from the Nationwide Building Society showed that the house prices in the UK rose 5.0 percent y-o-y in September after gaining 3.7 percent y-o-y in August. That was the biggest growth since September 2016 and exceeded economist forecast of 4.5 percent y-o-y advance.

On monthly basis, the house prices rose 0.9 percent  in September, following a 2 percent jump in August.

“Housing market activity has recovered strongly in recent months. Mortgage approvals for house purchase rose from c66,000 in July to almost 85,000 in August - the highest since 2007, well above the monthly average of 66,000 prevailing in 2019,” noted Robert Gardner, Nationwide's Chief Economist. “The rebound reflects a number of factors. Pent-up demand is coming through, with decisions taken to move before lockdown now progressing. The stamp duty holiday is adding to momentum by bringing purchases forward. Behavioural shifts may also be boosting activity as people reassess their housing needs and preferences as a result of life in lockdown”.

A report from the Office for National Statistics (ONS) revealed Wednesday that the UK’s economy contracted less than initially estimated in the second quarter of 2020.

According to the final estimate, the UK gross domestic product (GDP) fell at a 19.8 percent q-o-q in the second quarter, slower than a 20.4 percent q-o-q drop reported in the advance estimate. Still, this is the largest quarterly contraction ever and the second consecutive quarterly drop in GDP.

Economists had expected the decline rate to be unrevised at 20.4 percent q-o-q, following the first quarter's decrease of 2.5 percent q-o-q (revised from -2.2 percent).

In y-o-y terms, the UK’s GDP fell 21.5 percent in the second quarter, following a 1.7 percent decline in the previous quarter.

Gross fixed capital formation fell -21.6 percent q-o-q, also less than initially thought (-25.5 percent q-o-q). Business investment (-26.5 percent q-o-q) made the largest contribution to the decline.

Meanwhile, declines of household consumption (-23.6 percent q-o-q, the largest quarterly contraction on record) and government consumption (-14.6 percent q-o-q) were downwardly revised from the previous estimate.

Elsewhere, net external demand contributed positively, as imports (-22.7 percent q-o-q) declined more than exports (-11 percent q-o-q).

The Australian and New Zealand Banking Group (ANZ) revealed Wednesday its business confidence index in New Zealand jumped to -28.5 in September from -41.8 in August. This was the highest reading since February, but slightly lower than the preliminary estimate of -26.0, which was reported earlier this month.

According to the report, most major sub-indices have lifted since August. The Activity Outlook increased to -5.4 in September from -17.5 in August, while Export Intentions rose to -4.7 from -20.0, Investment Intentions grew to 0.3 from -15.2, Employment Intentions improved to -11.8 from -23.6 and Profit Expectations went up to -24.4 from -33.4. Sector-wise, agriculture and construction were the most optimistic sectors, while services and retail the least. 

The preliminary estimates by the Ministry of Economy, Trade and Industry (METI) showed Wednesday that the industrial production in Japan rose 1.7 percent m-o-m in August, while economists had forecast an advance of 1.5 percent m-o-m after an 8.7 percent m-o-m surge in July.

The main contributors to the August increase were higher production in such industries as motor vehicles, iron, steel and non-ferrous metals, and electronic parts and devices. On the contrary, production machinery, electrical machinery, and Information and communication electronics equipment, and pulp, paper and paper products had a negative impact on the reading.

In y-o-y terms, Japan’s industrial output fell 13.3 percent in August after a 15.5 percent plunge in July.

The METI also said that shipments rose 2.1 percent m-o-m, but declined 13.8 y-o-y in August, while inventories decreased 1.4 percent m-o-m and 6.0 percent y-o-y.

According to the survey of production forecast, industrial production is projected to increase 5.7percent m-o-m in September and 2.9 percent m-o-m in October.