CFD Markets News and Forecasts — 10-04-2019

Major US stock indices rose on Wednesday, as technology stocks pushed up the S & P 500 and Nasdaq, but the fall in Boeing (BA) shares limited the increase in the Dow index.

Investors also evaluated the minutes of the last meeting of the Federal Reserve System (Fed). The document said that the Fed leadership sees no reason to continue raising interest rates due to increased threats to the US economy from the slowdown in the global economy and unexpectedly weak inflation data. “Most participants expect that the evolution of economic prospects and the risks threatening these prospects will most likely justify keeping the target range of interest rates unchanged until the end of the year,” the protocols say. At the same time, the Fed management does not see the need to lower the key rate in the absence of signs of a more significant deterioration in the economic situation. At the same time, the Fed leaders noted that their understanding of the appropriate level of rates "may change in any direction depending on transient data and other events. "

It is worth noting that today the European Central Bank (ECB) announced a decision to leave its key rates unchanged, as expected, and stated that rates will remain at current levels at least until the end of 2019. ECB President Draghi once again acknowledged the downside risks to the economy. The ECB’s decision on Mr. Draghi’s comments did not become something new for investors, but the dovish policy is favorable for the stock market.

Market participants also analyzed the March data on inflation in the United States. The report of the Ministry of Labor showed that the consumer price index rose by 0.4%, which was facilitated by the rising cost of food, gasoline and rents. This was the largest increase since January 2018, and growth in February was 0.2%. In annual terms, the consumer price index rose in March by 1.9% after rising by 1.5% in February, which was the smallest increase since September 2016. Economists had forecast a rise in the consumer price index of 0.3% in March and a rise of 1.8% year on year. At the same time, excluding prices for food and energy, the consumer price index rose by 0.1%, which corresponds to an increase in February. In the 12 months to March, the base consumer price index increased by 2.0%, the smallest increase since February 2018. The core consumer price index rose 2.1% year on year in February.

In addition, investors continue to prepare for the quarterly reporting season, which may be the first to show the annual reduction in corporate segment profits from 2016. The season of corporate reporting for the first quarter of 2019 starts this Friday with the publication of the results of the largest banks.

Most of the components of DOW finished trading in positive territory (16 of 30). The growth leader was The Goldman Sachs Group, Inc. (GS; + 1.15%). The Boeing Co. shares turned out to be an outsider. (BA; -1.33%).

Almost all sectors of the S & P recorded an increase. The technological sector grew the most (+ 0.6%). The decrease was shown only by the utility sector (-0.1%).

At the time of closing:

Dow 26,157.16 +6.58 +0.03%

S & P 500 2,888.21 +10.01 +0.35%

Nasdaq 100 7,964.24 +54.97 +0.69%

The U.S. Energy Information Administration (EIA) revealed that crude inventories rose by 7.029 million barrels in the week ended April 5. Economists had forecast a decrease of 2.500 million barrels.

At the same time, gasoline stocks fell by 7.710 million barrels, while analysts had expected a drop of 2.150 million barrels. Distillate stocks declined by 0.116 million barrels, while analysts had forecast a decrease of 1.050 million barrels.

Meanwhile, oil production in the U.S. was unchanged at 12.200 million barrels a day. 

U.S. crude oil imports averaged 6.6 million barrels per day last week, down by 164,000 barrels per day from the previous week.

Carsten Brzeski, chief economist at ING, comments on the ECB’s statement:

• “The main interest was on whether the ECB would give away any new details of the new series of longer-term refinancing operations (TLTRO3), starting in September, and whether the ECB would elaborate more on recent hints that it could provide some relief to the banking sector. Here, the ECB seems to need more time. In fact, the ECB said that the precise terms will be communicated at “one of our forthcoming” meetings. A slight variation of the “in due course” from the March meeting.”
• “As regards the timing of TLTRO details, the press conference left some room for interpretation. While the introductory statement read “upcoming meetings”, Draghi put somewhat more emphasis on the fact that the June meeting would have the next round of staff projections. In any way, there are only three more ECB meetings between now and the start of the new TLTROs.”
• “Judging from today’s comments, the TLTRO details could in our view very well be presented at the June meeting but mitigating measures, like eg a tiering system, will only be presented as a last resort in case the economy weakens further.”
• “Looking ahead, in our view, the open questions regarding the TLTRO details are how the ECB will actually shape the so-called built-in incentives, the lending volume and early repayment options. Obviously, a lot will depend on the state of the Eurozone economy over the next months, in order to determine how ample or sparse the TLRTOs should be.”
• “All in all, today’s meeting showed that the ECB is still very hesitant to decide on anything like a tiering system for the deposit facility.”

• Global economy is losing steam
• German and European economy are seen to continue to grow regardless
• Political risks such as U.S. trade disputes with China and Europe, Brexit can be solved; that's why talks in Washington this week are so important 

U.S. stock-index traded rose slightly on Wednesday, after a selloff on Wall Street on trade and growth concerns the day before. Investors digested U.S. inflation data for March while awaiting minutes from the Federal Reserve’s latest meeting and the start of the corporate earnings season.

Global Stocks:

• Risks to the eurozone still tilted to the downside
• Inflation likely to decline in coming months
• Underlying inflation to increase over the medium term
• Underlying inflation continues to be muted
• Ample degree of stimulus needed
• Employment gains and wages underpin the economy
• Incoming data continue to be weak, especially in manufacturing
• Effect of temporary factors to unwind
• Uncertainties relating to geopolitics, protectionism, emerging markets leaving mark on sentiment
• Some domestic factors dampening growth are starting to fade
• It is too early to discuss terms of TLTRO
• It is too early to decide about tiering; tiering needs further analysis
• We have been closely looking at the decline in inflation expectations
• Markets are expecting less upward pressure on the labor market
• Negative risk premium is the predominant reason that market-based inflation expectations are falling 
• We have plenty of instruments
• We remain fully committed to return inflation to 2 percent without delay

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

Tesla (TSLA) initiated with Neutral at Nomura/Instinet; target $300

Apple (AAPL) downgraded to Reduce from Hold at HSBC Securities; target raised to $180

Walt Disney (DIS) upgraded to Outperform from Market Perform at BMO Capital Markets; target $140

Barrick (GOLD) upgraded to Buy from Hold at Deutsche Bank; target raised to $15

The Labor Department announced on Wednesday the U.S. consumer price index (CPI) rose 0.4 percent m-o-m in March after a 0.2 percent m-o-m gain in February.

Over the last 12 months, the CPI rose 1.9 percent y-o-y last month, following a 1.5 percent m-o-m advance in the 12 months through February. That was the highest rate since December 2018.

Economists had forecast the CPI to increase 0.3 percent m-o-m and 1.8 percent y-o-y in the 12-month period.

According to the report, the energy index surged 3.5 percent m-o-m in March, accounting for about 60 percent of the seasonally adjusted all items monthly increase, while the food index rose 0.3 percent.

Meanwhile, the core CPI excluding volatile food and fuel costs edged up 0.1 percent m-o-m in March, the same increase as in the previous month.

In the 12 months through March, the core CPI rose 2.0 percent after a 2.1 percent increase for the 12 months ending February.

Economists had forecast the core CPI to rise 0.2 percent m-o-m and 2.1 percent y-o-y last month.

• Keeps main refinancing rate at 0.00%
• Marginal lending facility at 0.25%
• Deposit facility at -0.40%
• Expects the key rates to remain at their present levels at least through the end of 2019
• And in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term

Jane Foley, a senior FX strategist at Rabobank, suggests that the GBP may be holding on to its position as the best performing currency YTD, but it is the worst performer on a 5-day view.

• “In our view, the strength of the pound in recent months reflects an optimistic bias build around the consensus view that a hard Brexit will be avoided.  However, with the UK ‘s legal position still on course for a cliff edge Brexit in just two days’ time, it is unsurprising that some nervousness has been entering the market.”
• “Although the pound is likely to register some relief if a delay to the Brexit start date is agreed at the EU leaders summit this evening, this will likely be limited given that any postponement almost certainly means that political uncertainty and the economic damage that this implies will be more protracted.”
• “On the assumption that a Brexit deal is done, we have been forecasting that EUR/GBP can trade in the 0.82 region on a 6-month view.  However, in consideration of the political mess in the UK that the Brexit process has left in its wake, this forecast may be too optimistic for the pound and we now see upside risk to this forecast.”
• “GBP is likely to move higher on confirmation that a cliff edge Brexit on Friday will have been avoided.  That said, the damage to the economy caused by political uncertainty is becoming clearer.  Therefore, news that the UK is to remain in Brexit limbo for longer is not much of a cause for celebration.”
• “Recently the issue of whether to back a second referendum has created turmoil.  Also, eight of the eleven members of the UK’s newest political party, Change UK, came from the Labour Party.  If there were a general election both the Conservative and Labour parties would almost certainly see support weaken which would likely result in a hung parliament and possibly a Labour-led coalition government.  Given such a messy backdrop, the outlook for GBP is likely to remain clouded for a protracted period.”

• Members bound by output cuts deal met 155% compliance in March
• Global oil inventories set to contract sharply this quarter

• We should give the UK a reasonable period of time

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume fell 5.6 percent for the week ended April 5, following an 18.6 percent surge in the previous week. However, applications were still 24 percent higher compared with the same week one year ago.

According to the report, refinance application declined 11.4 percent while applications to purchase a home increased 0.5 percent. 

Meanwhile, the average fixed 30-year mortgage rate rose to 4.40 percent from 4.36 percent.

• EU prepared for talks on Boeing and Airbus

Analysts at TD Securities are expecting the U.S. CPI to pick up to 1.9% y-o-y in March on a sharp increase in gasoline prices.

• “For core CPI, we expect a weak 0.2% m/m print to leave annual core inflation at 2.1%, as OER is likely to moderate this month. Our forecasts suggest ore PCE inflation is likely to slow to 1.7% by March.”
• “Separately, after the sharp drop in the dots, markets will be looking at just how dovish the FOMC has become in the release of the March minutes on Wednesday. We put a very low but not zero chance on a cut discussion; conversely, rate hikes are still on the horizon for the majority of Fed officials. Markets will also watch closely for additional details about the balance sheet. The minutes are likely to show peak dovishness in terms of nervousness about the outlook.”

• OPEC+ members who do not cut enough oil output get calls
• If there is no OPEC, there would not be balance in the market

Julien Manceaux, senior economist at ING, points out that in France, industrial and manufacturing production increased for the third month in a row in February, confirming what recent activity indicators have been telling us: that a rebound is in the making in the first quarter.

“Manufacturing production rose by 1.1% month-on-month after a 0.7% increase in January. Even consumer goods production is slowly stabilising, with a much weaker contraction in February (-0.2% MoM vs -1.6% in January). These figures suggest that corporate investment was still dynamic in the first quarter while private consumption is recovering only slowly from a dip tied to the yellow vest crisis. As a whole, industrial production increased by 0.4%, weakened by the energy sector, and was up by 0.6% on the year in February. More importantly, 1Q19 should show the highest production growth figure since the end of 2017, confirming that the French economy is slowly exiting its soft patch since November.”

Analysts at Deutsche Bank see the ECB press conference as an opportunity to inject confidence into the economy and the monetary policy process.

“They see there being two steps necessary to correcting. The first is for the ECB to talk up the economy and the second is clarification around the reaction function and talking up policy. From the perspective of managing risk, TLTRO3 is not sufficient in our colleague’s view and they now expecting tiering as part of their baseline in the coming months, however it’s unlikely that any new policy will be announced today with June more likely.”

According to the report from Istat, in February 2019 the seasonally adjusted industrial production index increased by 0.8% compared with the previous month. Economists had expected a 0.5% decrease. The index measures the monthly evolution of the volume of industrial production (excluding construction). The percentage change of the average of the last three months with respect to the previous three months was -0.3.

The calendar adjusted industrial production index increased by 0.9% compared with February 2018 (calendar working days in February 2019 being the same as in February 2018).

The unadjusted industrial production index increased by 0.9% compared with February 2018.

• Japanese growth to remain low despite traction on labor and immigration reform.

• Weakening external outlook offsetting recovery in domestic demand.

• Labor market continues to tighten as labor force participating shows improvement.

Office for National Statistics said, production output rose by 0.2% in the three months to February 2019, compared with the three months to November 2018, due to rises from manufacturing, and mining and quarrying.

The three-monthly increase of 0.4% in manufacturing is due mainly to rises of 2.5% from pharmaceuticals and 1.1% from food, beverages and tobacco.

Production output rose by 0.6% between January 2019 and February 2019. Economists had expected a 0.1% increase. The manufacturing sector provided the largest upward contribution, rising by 0.9%, its second consecutive monthly rise.

In February 2019, the monthly increase in manufacturing output was due to rises in 11 of the 13 subsectors and follows a 1.1% rise in January 2019; the largest upward contribution came from basic metals, which rose by 1.6%.

In the three months to February 2019, production output decreased by 0.2% compared with the same three months to February 2018; driven by falls of 0.6% from manufacturing and 3.2% from electricity and gas.

According to the report from Office for National Statistics, the total trade deficit (goods and services) widened £5.5 billion in the three months to February 2019, as the trade in goods deficit widened £6.5 billion, partially offset by a £0.9 billion widening of the trade in services surplus.

Rising imports of unspecified goods (including non-monetary gold), machinery and transport equipment, and chemicals were the main reasons for the widening of the trade in goods deficit in the three months to February 2019.

Excluding erratic commodities (including non-monetary gold), the total trade deficit widened £2.0 billion in the three months to February 2019.

The trade in goods deficit widened £1.3 billion with EU countries and £5.2 billion with non-EU countries in the three months to February 2019.

Removing the effect of inflation, the total trade deficit widened £7.1 billion to £12.7 billion in the three months to February 2019.

The total trade deficit widened £15.9 billion in the 12 months to February 2019 as imports of both goods and services increased more than exports.

According to the report from Office for National Statistics, Britain's economy unexpectedly grew in February, helped by clients of manufacturers rushing to stockpile goods ahead of Brexit.

Gross domestic product grew by 0.2 percent from January. Economists had expected zero growth.

Data showed that over the three months to February, the economy grew by 0.3 percent, holding at the same pace as in January -- which was revised up from a previous estimate -- and stronger than a forecast of 0.2 percent. Manufacturing output jumped by 0.9 percent in February from January, accounting for about half of the overall economic growth rate.

Commenting on today’s GDP figures, Head of GDP Rob Kent-Smith said: “GDP growth remained modest in the latest three months. Services again drove the economy, with a continued strong performance in IT. Manufacturing also continued to recover after weakness at the end of last year with the often-erratic pharmaceutical industry, chemicals and alcohol performing well in recent months.”

Analysts at TD Securities points out that the ECB meets to set policy and will be a key event for today’s session.

“Ours and the market's widespread expectations are for an unchanged policy stance, with the balance of risks still tilted to the downside. The greatest interest will be in the Q&A, when President Draghi is expected to face questions about: (i) TLTRO details (likely "coming in June, not April"); (ii) prospects for tiered interest rates (likely "not an active discussion"); and, (iii) his assessment of recent data (likely "we'll return in June with full projections").”

European Central Bank policy makers are unlikely to announce any new measures Wednesday after moving back into stimulus mode just last month. But that doesn’t mean ECB President Mario Draghi won’t have plenty to talk about.

Here are three topics that Draghi is likely to address in his news conference:

Economic risks

Since the March meeting, eurozone economic data has shown signs of stabilizing, though economists say it’s still too early to sound the all-clear. For his part, Draghi is likely to maintain that risks to the region’s economic outlook remain skewed to the downside despite the ECB’s renewed efforts.

Negative rates

Draghi’s remarks at a forum last month, in which he signaled that policy makers re becoming more attuned to the adverse side effects of negative interest rates on banks, is virtually certain to inspire questions on Thursday.

TLTRO details

The ECB’s announcement of a third round of TLTROs in March left a number of unanswered questions, which speak to the scope of the effort.

Minutes of the March meeting didn’t offer the clarity investors had hoped for, with the summary of the policy discussion noting only that banks will be allowed to borrow “at a rate indexed to the interest rate on the main refinancing operations,” while not detailing incentives designed to maintain “favorable” credit conditions.

Karen Jones, analyst at Commerzbank, EUR/USD continues to show signs of recovery from the 1.1176 recent low, and is now pushing hard into the 20 day ma at 1.1277.

“We suspect that it is trying to base but needs to do more work (we note the 13 count on the weekly chart and this adds weight to the idea of a base). Once above the 200 day ma at 1.1453, the cross should target the 1.1570 January high, together with the 55 week ma at 1.1568. Below 1.1185/75 (61.8% retracement) lies the 1.1110, the May 2017 low and the 1.0814/78.6% retracement.”

The International Monetary Fund raised its 2019 China growth forecast to 6.3% from 6.2% Tuesday but warned of “more subdued” momentum next year.

The IMF’s improved outlook for the Chinese economy partly reflects brighter prospects for trade negotiations between China and the U.S.

China’s economy grew 6.6% last year amid sluggish domestic and foreign demand, marking the slowest annual expansion since 1990, official data showed. The government set an economic growth target for 2019 of 6% to 6.5%, compared with a target of around 6.5% for 2018.

“China has ramped up its fiscal and monetary stimulus to counter the negative effect of trade tariffs. Furthermore, the outlook for US-China trade tensions has improved as the prospects of a trade agreement take shape,” Gita Gopinath, IMF’s economic counselor, wrote in the report.

However, the fund downgraded China’s economic growth for 2020 to 6.1% from its previous projection of 6.2%.

According to the report from Insee, in February 2019, output accelerated in the manufacturing industry (+1.1% after +0.7% in January) and slowed down in the whole industry (+0.4% after +1.2). Economists had expected a 0.5% decrease of  industrial production.

Manufacturing output increased over the last three months (+1.0%), as well as in the whole industry (+0.7%). Over the last three months, output grew in most of branches: in the manufacture of transport equipment (+3.2%), in “other manufacturing” (+0.6%), in the manufacture of machinery and equipment goods (+1.1%), in the manufacture of food products and beverages (+0.5%) and in the manufacture of coke and refined petroleum products (+1.0%). Conversely, it decreased in mining and quarrying, energy, water supply (−0.9%).

Manufacturing output of the last three months increased slightly compared to the same three months a year ago (+0.5%), and it was virtually stable in the whole industry. Over a year, output increased sharply in the manufacture of transport equipment (+4.3%) and more moderatly in “other manufacturing” (+0.3%). On the contrary, it decreased strongly in mining and quarrying, energy, water supply (−3.2%), in coke and refined petroleum products (−3.2%) and more moderatly in the manufacture of food products and beverages (−1.0%) and in the manufacture of machinery and equipment goods (−0.4%).

Analysts at TD Securities point out that UK’s monthly GDP for February is released, and they see upside risks with a gain of 0.2% m/m (consensus: 0.0%), building on last month's surprising 0.5% print.

“Underlying our forecast are small gains in services and IP offset by a contraction in construction. Data in the coming months is likely to be choppy, and we would read little into a single month's observation until Brexit uncertainty wanes.”

"The 10 April ECB meeting takes place against a background of continued weak data, but follows the announcement of several dovish measures at the previous 7 March meeting. Therefore, it is too early to expect any significant changes in either policy or communication. The press conference will be closely watched for more details on already presented measures, as well as any new steps which could be taken if the outlook were to worsen. However, we do not expect any concrete changes at this meeting, as the ECB has already promised to announce details on the TLTRO-III at the June meeting, while decisions on new measures such as a possible introduction of a tiered deposit rate system or restarting QE are premature. The general message will be dovish with risks remaining on the downside.Given the weakness in the EZ economy and the dovish messages from the ECB at recent meetings, the FX market has already pushed expectations towards a very soft outlook for ECB policy in the coming years. Therefore, it is unlikely that it would trigger renewed EUR weakness if the ECB continues to communicate a similar message at the upcoming meeting. The euro is, however, likely to react positively if there are convincing signs that the EZ economy begins to recover," SEB adds.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1401 (2784)

$1.1377 (2276)

$1.1360 (247)

Price at time of writing this review: $1.1260

Support levels (open interest**, contracts):

$1.1222 (3587)

$1.1184 (2678)

$1.1141 (2741)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date May, 3 is 66398 contracts (according to data from April, 9) with the maximum number of contracts with strike price $1,1500 (6473);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3348 (2627)

$1.3280 (1039)

$1.3226 (868)

Price at time of writing this review: $1.3067

Support levels (open interest**, contracts):

$1.2961 (1123)

$1.2903 (1312)

$1.2834 (2223)

Comments:

- Overall open interest on the CALL options with the expiration date May, 3 is 21254 contracts, with the maximum number of contracts with strike price $1,3500 (2627);

- Overall open interest on the PUT options with the expiration date May, 3 is 19332 contracts, with the maximum number of contracts with strike price $1,2600 (2587);

- The ratio of PUT/CALL was 0.91 versus 0.84 from the previous trading day according to data from April, 9

* - 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.