CFD Markets News and Forecasts — 09-01-2020

Analysts at TD Securities are expecting the Canadian labour market to recover a portion of the 71k jobs lost in November, with employment forecast to rise by 25k in December.

• "While outsized pullbacks in LFS employment are typically followed by mean-reversion, there are few instances where Canadian employment has fallen by this magnitude outside of the financial crisis.
• The goods-producing sector should provide the main engine behind the recovery after shedding 67.5k jobs over the last two months, including 2.9% of all manufacturing jobs, and some stabilization within auto production along with positive NAFTA developments should help bolster sentiment in the industry.
• Services should see more modest job growth, and we do not anticipate any impact from CN workers returning from strike. A partial rebound in employment alongside a modest pickup in labour force growth should allow the unemployment rate to edge lower to 5.7%, while wage growth should slip to a still-robust 4.0% y/y from 4.4% in November."

Analysts at TD Securities note that China's December CPI rose 4.5% YoY (market 4.7%, TD 4.8%), the same as in November.

• "PPI fell more than expected -0.5% YoY (mkt -0.4%), but its fall was less severe than the 1.4% decline registered in November, suggesting that pressure on industrial profits will also ease.
• Further signs of a waning impact of African Swine Disease (ASD) was reflected in the 5.6% m/m drop in Pork Prices in Dec (though prices were still up 97% y/y compared to a 110% y/y rise in November). This helped contribute to a 0.4% decline in overall food prices over the month. Core inflation remains well contained at 1.4% y/y in Dec.
• We expect the impact of ASD to continue to wane, helping inflation to normalize in the next few months. In the meantime, the PBoC will likely maintain its path of targeted and incremental easing."

Lee Sue Ann, an economist at UOB Group, sees the BoE keeping its monetary policy conditions unchanged in the near/medium-term horizon.

• "While it is premature to expect a rate cut from the BoE anytime soon, this bears closer attention amidst the weaker UK growth and inflation mix. In addition, the BoE is poised for a leadership change with Governor Mark Carney scheduled to step down after the Brexit process. Furthermore, a successful Brexit may well rnewe efforts to normalize monetary policy instead. As such, our current view is that the BoE will keep its policy rate unchanged at 0.75% for now".

Statistics Canada announced on Thursday that the value of building permits issued by the Canadian municipalities fell 2.4 percent m-o-m in November, following an unrevised 1.5 percent m-o-m drop in October.

Economists had forecast a 1.0 percent gain in November from the previous month.

According to the report, the value of residential permits declined 4.0 percent m-o-m in November, as permits for multi-family dwellings plunged by 11.3 percent m-o-m, while single-family permits rose by 5.6 percent m-o-m.

At the same time, the value of non-residential building permits edged down 0.1 percent m-o-m in November, as a tumble in commercial permits (-13.5 percent m-o-m) offset gains in industrial (+24.5 percent m-o-m) and institutional permits (+24.9 percent m-o-m).

In y-o-y terms, building permits decreased 2.7 percent in November.

Analysts at TD Securities are expecting the U.S. payrolls to slow again in the December report, mainly because of payback for exaggerated strength.

“Through the volatility, the trend has slowed from 200K-plus in 2018, but not dramatically. As noted, our 145K forecast for payrolls implies a 189K average for Q4 (assuming no revisions), which is above the 173K average for the first nine months of the year. The implication: The December reading could be even weaker without necessarily signaling a major slowing in the trend.

The trend in payrolls gains will probably be revised down a bit in the annual revision in early February, but monthly gains would probably have to drop to 100K or less for the unemployment rate to start rising.

We expect the unemployment rate to hold at 3.5% in the December report after dropping by 0.1 point in November. Our 0.3% forecast for the rise in average hourly earnings implies up 3.1% on a 12-month-change basis, identical to the November reading.”

U.S. stock-index futures rose on Thursday, as tensions between Iran and the U.S. eased for the time being, while firming optimism about a U.S.-China trade deal put U.S. equity market back on track for fresh records.

Global Stocks:

American Express (AXP) initiated with a Neutral at Robert W. Baird; target $124

Bank of America (BAC) initiated with a Neutral at DA Davidson; target $36

Citigroup (C) initiated with a Buy at DA Davidson; target $96

Goldman Sachs (GS) initiated with a Buy at DA Davidson; target $272

JPMorgan Chase (JPM) initiated with a Neutral at DA Davidson; target $140

Ford Motor (F) initiated with a Hold at The Benchmark Company

General Motors (GM) initiated with a Buy at The Benchmark Company; target $49

Lyft (LYFT) initiated with a Sell at The Benchmark Company; target $35

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

Apple (AAPL) target raised to $350 from $285 at Jefferies

Boeing (BA) downgraded to Hold from Buy at Berenberg; target lowered to $350

Tesla (TSLA) downgraded to Neutral from Outperform at Robert W. Baird; target raised to $525

Advanced Micro (AMD) upgraded to Buy from Neutral at Mizuho; target raised to $55

Coca-Cola (KO) upgraded to Outperform from Neutral at Credit Suisse; target raised to $64

Goldman Sachs (GS) upgraded to Buy from Neutral at BofA/Merrill; target raised to $270

Snap (SNAP) upgraded to Outperform from Market Perform at Cowen; target raised to $20

Snap (SNAP) upgraded to Buy from Hold at Jefferies; target $21

Starbucks (SBUX) upgraded to Overweight from Equal Weight at Barclays; target $107

The Canada Mortgage and Housing Corp. (CMHC) reported on Thursday the seasonally adjusted annual rate of housing starts was at 197,329 units in December, down 3.4 percent from an upwardly revised 204,320 units in November (originally 201,318 units). That marked the lowest rate since May.

Economists had forecast an annual pace of 210,000 for December.

According to the report, urban starts decreased by 3.7 percent m-o-m last month to 185,934 units, as multiple urban starts fell by 5.3 percent m-o-m to 138,049 units, while single-detached urban starts rose by 1.1 percent m-o-m to 47,885 units. At the same time, rural starts were estimated at a seasonally adjusted annual rate of 11,395 units, up 2.0 percent m-o-m.

The data from the Labor Department revealed on Thursday the number of applications for unemployment benefits fell more than expected last week.

According to the report, the initial claims for unemployment benefits decreased by 9,000 to a seasonally adjusted 214,000 for the week ended January 4.

Economists had expected 220,000 new claims last week.

Claims for the prior week were revised upwardly to 223,000 from the initial estimate of 222,000.

Meanwhile, the four-week moving average of claims fell 9,500 to 224,000 last week.

• Inflation remains mute, but is projected to rise to 2%
• Policy to remain appropriate if economy stays on track
• Fed will respond accordingly to any material reassessment of outlook
  
• Some repos may be needed at least through April taxes
• Sees some signals global headwinds beginning to abate

Analysts at TD Securities suggest that BoC's Governor Poloz will hold a fireside chat to discuss the economic outlook for his first public comments of 2020.

• "The Governor will read an opening statement at 13:45 ET ahead of the moderated discussion, which will be followed by an audience Q&A with an official press conference to follow at approximately 15:15 ET.
• On the data front, we forecast housing starts to slip to a 194k pace in December from 201k (market: 215k), which would be the first sub-200k reading since May. This followed a pullback in residential permit issuance though the second half of the year, although favourable weather conditions should limit the slowdown."

• U.S. continues to receive word that Iran is standing down
• No doubt that Iranians wanted to kill Americans with missile strikes
• It would be a different place today if the missiles hit its intended targets
• U.S. will continue to exert its maximum pressure campaign against Iran

FX strategists at UOB Group believe that USD/JPY has regained upside momentum and now faces a tough resistance at 109.75.

• "24-hour view: The strong support highlighted at 107.50 yesterday was not threatened as USD dropped to 107.63 before rocketing to an overnight high of 109.24. The rapid and outsized surge appears to be running ahead of itself and further sustained USD strength appears unlikely. That said, there is scope for USD to test 109.35 first before the current upward pressure should ease. The major 109.75 level is not expected to come into the picture. Support is at 108.80 and a breach of 108.55 would suggest a short-term top is in place.
• Next 1-3 weeks: While we held the view that the weakness in USD that started earlier this year is running ahead of itself and noted that the 'prospect for a break of the mid- to long-term support at 107.00 is not high', the manner by which USD rocketed after touching 107.63 yesterday (08 Jan) came as a surprise (note that the 161 pips range between 107.63 and 109.24 yesterday is the largest 1-day range in 4-1/2 months). The strong daily closing in NY (109.12, +0.64%) has shifted the near-term risk to the upside but the long-term 109.75 level is expected to continue to offer solid resistance (USD tried but failed to break this long-term resistance level a few times last month). All in, USD is expected to gravitate towards 109.75 and only a move back below 108.20 would suggest USD is not ready to tackle 109.75 just yet."

• Missile attacks on US targets started operation that will continue across the region
• Appropriate revenge to General Soleimani's killing is to expel U.S. troops from the region

Analysts at Standard Chartered Bank are forecasting global growth at 3.3% in 2020, slightly higher than their 3.1% estimate for 2019.

• "Structural drags in the 2020s include debt overhang, demographics and deglobalization.
• Cyclical positives - lagged impact of global 'dovish wave' in 2019, fiscal support, likely improvement in electronics cycle, and likelihood of US-China trade deal in 2020 - should counter structural drags."

• Analysts at TD Securities note the U.S. seasonally adjusting jobless claims data is especially challenging around this time of year, so they caution against extrapolating if the weekly reading is up or down significantly.
• "If anything, we see downside risk this week.
• The Philadelphia Fed will release its annual revision to the seasonal adjustment factors for its manufacturing survey; revisions are typically minor.
• Fed Vice-Chair Clarida and Presidents Kashkari, Williams, Barkin, Evans and Bullard will be speaking throughout the day. The message will likely once again be that policy is on hold until there is a "material" change in the outlook."

• Passing of Brexit legislation would be a significant positive step
• UK PM Johnson and European Commission President von der Leyen had positive talks

FX Strategists at UOB Group see the NZ dollar depreciating further vs. the US. dollar in the next weeks.

• "24-hour view: The rapid rebound in NZD that touched a high of 0.6672 came as surprise (we were expecting NZD to extend its decline to 0.6590). Downward pressure has more or less dissipated and the current movement is viewed as part of an on-going consolidation phase. In other words, NZD is expected to trade sideways, likely within a 0.6635/0.6675 range.
• Next 1-3 weeks: As highlighted, NZD has found a short-term top and the current pullback could test 0.6590. Looking ahead, if NZD were to breach 0.6590, the pullback could extend to 0.0.6555. On the upside, only a move above 0.6690 ('strong resistance' level previously at 0.6730) would suggest the current downward pressure has eased."

• Global economy risks being trapped in a cycle of low rates, reducing policy space
• MPC members are debating the merits of near-term stimulus
• Limited space to cut bank rate would favour a relatively prompt response if evidence builds that weakness in activity could persist
• Rebound projected in BOE forecast for this year is not assured
• Early indicators since the election suggest that there has been some reduction in Brexit-related and domestic policy uncertainties
• Says that BOE has equivalent of 250 bps of policy space and that QE, forward guidance and rate cuts are all still part of its policy tools

Khoon Goh, analyst at ANZ, points out that the news of the US and China 'phase one' trade deal boosted investor sentiment in December, but it did not result in broad-based foreign portfolio inflows into Asia ex-China.

"Equities benefited, with inflows recorded for the fourth consecutive month. But bonds saw outflows for the first time in eight months. For calendar year 2019, portfolio inflows totalled USD48.5bn, more than recouping the USD26.2bn of outflows seen in 2018. The US-China trade conflict may have faded as a headwind as we start 2020, but this is being replaced by US-Iran geopolitical tensions."

According to Bill Diviney, senior economist at ABN AMRO, it has been a mixed bag of economic data in the US as of late manufacturing sector has weakened even more than we had anticipated, while the services sector is holding up rather better than expected.

"This divergence became more apparent this week, with the ISM manufacturing PMI falling to 47.2 in December - the weakest since June 2009 - while the non-manufacturing PMI recovered to a 4 month high of 55.0. As such, while the manufacturing sector has yet to find a bottom, the weakness has remained relatively contained, with services resilient. The latter is consistent with what payrolls and consumer confidence measures have also been telling us. Ultimately, the lack of a stabilisation in manufacturing keeps us from raising our below-consensus growth forecast of 1.3% for 2020 (consensus: 1.8%). And although some of the headwinds for the sector appear to be easing, there remain significant risks both to the stability of the 'Phase One' China trade deal, as well as potential new fronts in the trade war opening up - most significantly, with the US proposing retaliatory measures against France's digital services tax (and the UK potentially coming into the firing line when it implements such a tax in April). We also continue to expect weakness in manufacturing to eventually drive a renewed slowdown in jobs growth, thereby denting consumer confidence, consumption and the broader economy. However, the resilience of the services sector so far suggests that the risk is for growth to slow by somewhat less than we currently anticipate."

According to the report from Eurostat, the euro area (EA19) seasonally-adjusted unemployment rate was 7.5% in November 2019, stable compared with October 2019 and down from 7.9% in November 2018. This remains the lowest rate recorded in the euro area since July 2008. The EU28 unemployment rate was 6.3% in November 2019, stable compared with October 2019 and down from 6.6% in November 2018. This remains the lowest rate recorded in the EU28 since the start of the EU monthly unemployment series in January 2000.

Eurostat estimates that 15.582 million men and women in the EU28, of whom 12.315 million in the euro area, were unemployed in November 2019. Compared with October 2019, the number of persons unemployed increased by 34 000 in the EU28 and decreased by 10 000 in the euro area. Compared with November 2018, unemployment fell by 768 000 in the EU28 and by 624 000 in the euro area.

In November 2019, 3.222 million young persons (under 25) were unemployed in the EU28, of whom 2.258 million were in the euro area. Compared with November 2018, youth unemployment decreased by 111 000 in the EU28 and by 89 000 in the euro area. In November 2019, the youth unemployment rate was 14.3% in the EU28 and 15.6% in the euro area, compared with 14.8% and 16.3% respectively in November 2018.

Danske Bank analysts point out that yesterday's session proved a stabilisation in geopolitical concerns as the Iranian side emphasised that it does not seek war and President Trump downplayed the missile attack.

"The US clarification that the Iranian attacks had caused no casualties was important as it limits the risk of retaliatory measures that could trigger a full-blown war, which in our view is required for the conflict to have ramifications for the global economy. Trump did announce new sanctions on Iran but for markets this falls in the camp of possible retaliatory measures that indicate that the US is also backing away from an all-out conflict."

Germany's engineering body (VDMA) said, in November, incoming orders in the mechanical engineering sector in Germany fell by 15 percent in real terms compared with the previous year. While orders from domestic customers fell by 15 percent, foreign customers ordered 14 percent fewer machines.

From the EURO partner countries 11 percent fewer orders came in, for the non-euro countries a minus of 16 percent is on the books.

"This means that the negative trend of recent months is continuing," says VDMA Chief Economist Dr. Ralph Wiechers. "When assessing the current figures, it must of course be taken into account that the bar for comparison with the previous year is still relatively high.

In the three-month period from September to November 2019, the decline in incoming orders amounts to a total of 10 per cent (domestic minus 12 percent, foreign minus 9 percent). From the EURO countries, the decline was minus 5 percent, from the non-euro area minus 10 percent.

According to Arjen van Dijkhuizen, senior economist at ABN AMRO, last year, the slowdown of the Chinese economy deepened due to the impact of the escalated trade/tech conflict with the US and previous financial deleveraging, combined with a specific drag coming from the car sector.

"We expect the 'Phase One' deal between the US and China reached last month (still to be signed formally mid-January) to be supportive, as it puts the tariff tit-for-that on hold, at least for now. The direct effect of the modest tariff reductions agreed will be small, but the truce will help to reduce (though not eliminate) uncertainty, limit downside risks and restore confidence. Combined with the filtering through of Beijing's piecemeal fiscal and monetary easing, we expect the car sector and overall industry to bottom out this year, contributing to a stabilisation in China's GDP growth. We expect the impact of the swine flu on CPI inflation to fade in 2020 and stimulus to remain 'piecemeal' rather than 'big bazooka', as the authorities still have to cope with longer-term constraints such as the need to keep overall leverage in check and prevent overheating of real estate markets. While our base scenario foresees stabilisation in the Year of the Rat, risks remain (particularly US-China tensions that make China's transition even more challenging, developments in Hong Kong and Taiwan and risks related to China's debt bubble and the rising number of defaults). For more background see our China 2020 Outlook, Growth to stabilise in the Year of the Rat, published yesterday."

China's Vice Premier Liu He will visit Washington D.C. next week to sign phase-one of the trade deal with the U.S., the Ministry of Commerce said.

China's trade delegation, led by Mr. Liu will visit the U.S. from Jan. 13 to 15, Gao Feng, a spokesman of the commerce ministry said in a weekly briefing on Thursday.

The working teams of the two sides have kept close communication over the signing of the initial trade deal, Mr. Gao said without providing further details.

China will improve tariff policy on wheat, corn and other farm products based on rules of the World Trade Organization, which will not go against Beijing's plan to increase imports of agricultural products from the U.S., he said.

CIBC Research discusses GBP/USD outlook and maintains a structural bullish bias through the coming months. CIBC targets GBP/USD at 1.33 in Q1.

"Having seen Sterling rally around 13% since no-deal Brexit fears peaked in early September, don't expect a quick run for GBP gains towards the 1.40 area, as the market refocuses on the narrow window for UK-EU trade negotiations. Removing election risk and adding near-term Brexit certainty to the equation is supportive for consumption, thereby easing concerns of BoE policy stimulus in H1 2020. However, trade negotiation headwinds still present a barrier to foreign direct investment in the near-term. As such, look for sub-trend growth and constrained investment inflows to slow the pace for further GBP gains in H1 2020," CIBC adds.

Karen Jones, analyst at Commerzbank, points out that USD/JPY charted an outside day to the topside yesterday and this effectively neutralises the chart.

"Overhead we have 2 downtrends. The first is the 2018-2020 downtrend at 109.50 and the second one from 2015 lies 110.27 and these maintain an overall bearish bias. Yet the market is clearly reluctant to break lower currently. Yesterday's low was 107.65 and failure here is needed to reassert downside pressure to the 106.48 October low and the 105.00 region. Only on a weekly chart close above the 2015- 2019 downtrend line and the December high at 109.72/110.27 (not favoured) would we question our bearish bias."

According to the report from Federal Statistical Office (FSO), turnover adjusted for sales days and holidays fell in the retail sector by 0.7% in nominal terms in November 2019 compared with the previous year. Seasonally adjusted, nominal turnover fell by 0.3% compared with the previous month.

Real turnover adjusted for sales days and holidays remained stable in the retail sector in November 2019 compared with the previous year. Economists had expected a 0.4% increase. Real growth takes inflation into consideration. Compared with the previous month, real, seasonally adjusted retail trade turnover registered a decline of 0.1%.

Adjusted for sales days and holidays, the retail sector excluding service stations showed a stagnation in nominal turnover in November 2019 compared with November 2018 (in real terms +0.5%). Retail sales of food, drinks and tobacco registered a decline in nominal turnover of 0.1% (in real terms +0.9%), whereas the non-food sector registered a nominal negative of 0.2% (in real terms +0.6%).

Excluding service stations, the retail sector showed a seasonally adjusted decline in nominal turnover of 0.1% compared with the previous month (in real terms 0.0%). Retail sales of food, drinks and tobacco registered a plus of 1.3% (in real terms +1.4%). The non-food sector showed a minus of 1.0% (in real terms -0.8%).

According to provisional data of the Federal Statistical Office (Destatis), in November 2019, production in industry was up by 1.1% on the previous month on a price, seasonally and calendar adjusted basis. Economists had expected a 0.7% increase. In October 2019, the corrected figure shows a decrease of 1.0% (primary -1.7%) from September 2019.

In November 2019, production in industry excluding energy and construction was up by 1.0%. Within industry, the production of capital goods increased by 2.4% and the production of consumer goods by 0.5%. The production of intermediate goods showed a decrease by 0.5%. Outside industry, energy production was down by 0.8% in November 2019 and the production in construction increased by 2.6%.

A separate report from Destatis showed that Germany exported goods to the value of 112.9 billion euros and imported goods to the value of 94.6 billion euros in November 2019. Based on provisional data, the Federal Statistical Office (Destatis) also reports that German exports decreased by 2.9% and imports by 1.6% in November 2019 on the same month a year earlier. Compared with October 2019, exports were down 2.3% and imports 0.5% after calendar and seasonal adjustment. The foreign trade balance showed a surplus of 18.3 billion euros in November 2019. In November 2018, the surplus of the foreign trade balance amounted to 20.2 billion euros. The calendar and seasonally adjusted surplus of November 2019 was 18.3 billion euros as well.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1272 (2555)

$1.1237 (3029)

$1.1208 (2595)

Price at time of writing this review: $1.1115

Support levels (open interest**, contracts):

$1.1070 (4700)

$1.1033 (3970)

$1.0991 (1168)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date February, 7 is 46542 contracts (according to data from January, 8) with the maximum number of contracts with strike price $1,1100 (4700);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3274 (924)

$1.3221 (1214)

$1.3183 (873)

Price at time of writing this review: $1.3111

Support levels (open interest**, contracts):

$1.3004 (2708)

$1.2975 (1115)

$1.2942 (3086)

Comments:

- Overall open interest on the CALL options with the expiration date February, 7 is 19698 contracts, with the maximum number of contracts with strike price $1,3300 (2472);

- Overall open interest on the PUT options with the expiration date February, 7 is 18787 contracts, with the maximum number of contracts with strike price $1,3000 (3086);

- The ratio of PUT/CALL was 0.95 versus 0.91 from the previous trading day according to data from January, 8

* - 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.