CFD Markets News and Forecasts — 11-02-2020

• We expect interest rates are going to be relatively low for the foreseeable future
• Upward adjustments to interest rates are likely to be modest
• Deep structural issues driving low rates
• Low interest rate environment adds to the government's fiscal policy
• Public infrastructure and corporate investment will be necessary to get UK out of low growth, low interest rate environment
• BoE conscious of risks of asset bubbles from low rates
• Debatable whether global financial markets have priced in lower long-term growth rates as well as lower interest rates, but this is less so in the UK bias

FXStreet reports that FX Strategists at UOB Group noted that further consolidation is likely in USD/JPY for the time being.

24-hour view: “Instead of ‘trading with a downside bias towards 109.30’, USD traded in a quiet manner between 109.55 and 109.87. Momentum indicators are mostly ‘neutral’ and USD is likely to continue to trade sideways, expected to be within a 109.50/109.90 range.”

Next 1-3 weeks: “USD traded in a quiet manner between 109.55 and 109.87 and registered an ‘inside trading day’ yesterday. The price action is not out of line from our expectation for last Wednesday (05 Feb, spot at 109.45) wherein USD ‘is expected to trade sideways for a period’, likely between 109.00 and 109.30 (narrowed from 108.30/110.30 previously). Looking forward, the top of the range at 109.30 appears to be more vulnerable but USD has to register a NY closing above this level or the next resistance at 110.65 is unlikely to come into the picture.”

The Job Openings and Labor Turnover Survey (JOLTS) published by the Labor Department on Tuesday revealed a 5.4 percent m-o-m decline in the U.S. job openings in December after a downwardly revised 9.3 percent m-o-m drop in November.

According to the report, employers posted 6.423 million job openings in December, compared to the November figure of 6.787 million (revised from 6.800 million in the original estimate) and economists' expectations of 7.00 million. That was the lowest level since December 2017. The job openings rate was 4.0 percent in December, down from an unrevised 4.3 percent in the prior month. The report showed that the largest drops in job openings were in transportation, warehousing, and utilities (-88,000 jobs), real estate and rental and leasing (-34,000), and educational services (-34,000). The job openings level decreased for total private (-332,000) and was little changed for government.

Meanwhile, the number of hires rose by 1.4 percent m-o-m to 5.907 million in December from a revised 5.827 in November. The hiring rate edged up to 3.9 percent from 3.8 percent in November. The hires level rose in accommodation and food services (+69,000).

The separation rate in December was 5.730 million or 3.8 percent, compared to 5.709 million or 3.7 percent in November. Within separations, the quits rate was 2.3 percent (flat m-o-m), and the layoffs rate was 1.2 percent (flat m-o-m).

Over the year, the job openings level fell by 14.9 percent.

• Monetary policy cannot, and should not, be the only game in town
• The longer our accommodative measures remain in place, the greater the risk that side effects will become more pronounced
• When interest rates are low, fiscal policy can be highly effective
• We want to assess whether a central bank digital currency could serve a clear purpose for the public and support the ECB's objectives
• Euro area growth momentum has been slowing down since the start of 2018, largely on account of global uncertainties and weaker international trade
• Moderating growth has also weakened pressure on prices, and inflation remains some distance below our medium-term aim
• Euro area unemployment at 7.4% is at its lowest since May 2008
• Wages increased at an average rate of 2.5% in the first three quarters of 2019, significantly above their long-term average

U.S. stock-index futures rose on Tuesday, as investors digested the Fed Chair Jerome Powell's remarks prepared for delivery to the House Financial Services Committee, while concerns over the economic impact of the coronavirus outbreak eased.

Global Stocks:

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

Facebook (FB) downgraded to Sell at Pivotal Research Group; target lowered to $180 from $215

• Policy likely appropriate flooring material reassessment
• Risks tao outlook remain, closely monitoring coronavirus
• Fundamentals supporting household spending still strong
• Virus could cause disruption in China with spillovers
• Repeats Fed to slow bill buying, transition from repos
• Putting budget on sustainable path creates policy space
• Important for fiscal policy to help in a downturn
• Sees inflation moving closer to 2% over the next few months
• Economic activity increased at a moderate pace and second half of 2019 as economy appeared resilient to global headwinds
• Fundamentals supporting household spending remains solid
• Business investment and exports have been weak largely reflecting sluggish growth abroad and trade developments
• Fed is closely monitoring the coronavirus which could lead to disruptions in China that spill over to the global economy
• Fed expects inflation to move closer to percent of the next few months as unusually low readings from early 2019 drop from the 12-month calculation
• U.S. faces long-run challenges, site labor force participation lower than in other advanced economies and labor market disparities across racial-ethnic and geographic groups
• Finding ways to boost labor force to space in a productivity should remain a national priority
• More sustainable federal budget path would give policymakers space to use fiscal policy in downturn in support the economy's growth over the long term

• OPEC's ability to impact oil prices has diminished in recent decades

GBP rose against most other major currencies in the European session on Tuesday, supported by better-than-expected UK's Q4 GDP data. 

The Office for National Statistics (ONS) reported its preliminary estimate showed the UK's GDP grew 1.1 percent y/y in the fourth quarter, following an upwardly revised 1.2 percent increase in the third quarter, and compared to economists' forecast for a 0.8 percent advance. In q/q terms, the GDP was unchanged in the fourth quarter, following an upwardly revised 0.5 percent expansion in the previous three-month period and matching economists' expectations. In 2019, the UK's economy expanded by 1.4 percent, compared with 1.3 percent in 2018.

Meanwhile, investors ignored disappointing December data on Britain’s industrial/manufacturing production. UK's industrial production dropped 1.8 percent y/y in December led by a 2.5 percent decrease in manufacturing. In m/m terms, industrial output edged up 0.1 percent and manufacturing was up 0.3 percent. In the 12 months to December 2019, production output fell by 1.3 percent y/y, recording its largest annual fall since 2012, driven by a 1.5 percent decline in manufacturing output.

The latest GDP report reassured investors that the Bank of England (BoE) was unlikely to loosen its monetary policy. At its previous meeting, the UK's central bank hinted it was more interested in seeing if the country's economic growth picked up after the December election.

FXStreet reports that  FX Strategists at UOB Group suggested the kiwi dollar could depreciate further vs. the greenback and force NZD/USD to drop to the 0.6350 region in the next weeks.

24-hour view: “Our expectation for NZD to ‘extend its weakness to 0.6375’ did not quite materialize as it dropped to a low of 0.6382. Despite the lackluster downward momentum, the risk remains on the downside even though any weakness is unlikely to challenge the major support at 0.6350 for now. Resistance is at 0.6400 followed by 0.6415.”

Next 1-3 weeks: “We have held a negative view in NZD when it was trading at a much a higher of 0.6545. Since then, we have upgraded the weak outlook several times and in our latest narrative from last Friday (07 Feb, spot at 0.6460), we noted the lackluster momentum and held the view that NZD ‘could edge lower towards 0.6420’. However, instead of edging lower, NZD registered the largest 1-day decline in 6 months as it plunged by -0.91% (NY close of 0.6400). The sudden and strong pick-up in momentum is likely to lead to further NZD weakness towards 0.6350 (next support is at 0.6325). Only a move above 0.6460 (‘strong resistance’ level was at 0.6505 on Friday) would indicate the current weak phase has run its course.”

• The future relationship between the UK and the EU is not yet fixed, it will depend on the outcomes of the negotiation that has now commenced
• It is conceivable that the global markets in London will transfer to EU jurisdictions. But I suspect that will not be likely and if it did happen it would not happen quickly
• Though the financial connections between us [UK and EU] will change and adapt, they will not be severed
• UK, and the global financial centre we host, will remain open to access from the EU and its members as we are open to access from the US and Asia
• UK cannot outsource regulation and supervision of the world's leading complex financial system to another jurisdiction
• Future regulatory and supervisory arrangements between the EU and the UK need to be stable and built on good faith
• We need on both sides to have deep supervisory cooperation in all areas of cross border financial activity - banking, insurance, markets and market infrastructure
• Arrangements for shared supervision, therefore, need to be worked out carefully, subject to agreed procedures and, crucially, recognise the primacy of the lead supervisor. And, given the systemic importance of global infrastructure to many jurisdictions, they must above all be stable

The National Federation of Independent Business (NFIB) reported on Tuesday the Small Business Optimism Index increased by 1.6 points to 104.3 in January 2020, following a 2.0-point drop in December 2019.

According to the report, the January jump in the headline index was buoyed by advances in six of the 10 components, led by a 7-point increase in sales expectations and a 5-point gain in earnings trends. In addition, actual job creation surged 4 points in January. Meanwhile, expectations of the economy to improve dropped 2 points and expected credit conditions fell 1 point.

"2020 is off to an explosive start for the small business economy, with owners expecting increased sales, earnings, and higher wages for employees," noted NFIB Chief Economist William Dunkelberg. "Small businesses continue to build on the solid foundation of supportive federal tax policies and a deregulatory environment that allows owners to put an increased focus on operating and growing their businesses."

FXStreet reports that FX Strategists at UOB Group still expect EUR/USD to drift lower to the 1.0880 region in the near-term.

24-hour view: “We highlighted yesterday that ‘there is no sign of stabilization just yet’ and expected EUR to ‘edge lower towards 1.0910’. EUR dropped to an overnight low of 1.0906 before settling on a weak note at 1.0909 (-0.31%). While the decline over the past several days is severely over-extended, EUR does not appear to be ready to recover yet. From here, last year’s low at 1.0877 is acting as an ‘attraction’ even though this level may not come into the picture for today. On the upside, only a move above 1.0950 (minor resistance is at 1.0930) would indicate the current weakness has stabilized.”

Next 1-3 weeks: “EUR extended its loss as it dropped to a low of 1.0906 yesterday. The price action was not surprising. We first detected the ‘pick up in downward momentum’ last Thursday (06 Feb, spot at 1.1000) and we ‘upgraded’ our negative view for three consecutive days in a row. For now, our narrative from yesterday (10 Feb, spot at 1.0945) wherein “solid downward momentum suggests the 2019 low of 1.0877 is within reach” still stands. Looking forward, a breach of this major support could potentially lead to further rapid decline as the next support of note is not until 1.0810. Resistance is at 1.0950 but only a move above 1.0980 (‘strong resistance’ level was at 1.1010 yesterday) would indicate the current weak phase has stabilized.”

FXStreet reports that economists at Standard Chartered Bank (China) looked at some big-data and high-frequency indicators to gauge the impact of the coronavirus outbreak on China's real economy.

"The Baidu Migration Index is a helpful tracker of returning labour force and can be used as a leading indicator of real activity. Big data shows that in the 10 key cities/provinces we tracked, only c.30% of all migrant workers had returned to their workplace as of 10 February. However, a turning point seems to have been reached over the past weekend (based on the Daily Migration Index), with more people expected to get back to their workplace in the coming days. Still, real activity may recover only in late February (based on the Travel Intensity Index), when the quarantine period for travellers is over."

"We also found that the manufacturing sector had the lowest return ratio of migrant workers, while upstream energy producers were less affected. This suggests that the manufacturing sector could be significantly affected after the holidays, following the hit to the services sector during the holiday season. The delay in operations due to a lack of workers could also put significant pressure on small enterprises and exporters. Consumption has been hit hard, with severe disruptions to the catering and travel industries; we see no signs of a recovery yet. Online retail sales appear more resilient and fell for a shorter period; however, this cannot compensate for the loss in traditional retail sales. Daily average coal consumption for electricity production remains at low levels, suggesting weak production activity."

CNBC reports that the British government wants its financial center, known as the City of London, to have permanent access to the European market once the Brexit transition period is over, according to the Financial Times.

The U.K. stopped being a full member of the European Union on January 31, but it has yet to define its future trading arrangements with the other 27 EU countries. A negotiating paper, caught by a long-lens camera, showed Monday that the government is looking to get a "comprehensive, permanent equivalence decisions" for its financial industry, according to the report.

This would mean that the EU would grant market access in specified activities provided that the U.K. follows the same regulatory rules as Brussels. Financial services contributed to about 7% of the U.K.'s total output in 2018, according to a report from the U.K. Parliament. These firms are currently allowed to operate freely across EU nations, which allows U.S. firms based in the U.K. to sell financial products to EU-based companies, for example. However, the EU has signaled that if this is to continue it will depend on whether the U.K. chooses to follow European standards.

Speaking in December, the EU's financial services chief, Valdis Dombrovskis, said that Brussels is ready to cut off market access to the EU if the U.K. decides to deviate from European regulations. Prime Minister Boris Johnson, meanwhile, has said he wants the U.K. to diverge from key EU regulations.

FXStreet reports that in light of growing China coronavirus economic risks, Goldman Sachs analysts made a downward revision to the Chinese growth forecast for 2020

• China's 2020 GDP forecast lowered to 5.2% vs. 5.8% previous.

• The downgrade reflects a sharp deterioration in Q1 activity.

• But points to high degree of uncertainty surrounding this growth revision.

• Will review its forecast as developments evolve.

• Need to gauge the size of the economic drag from the virus outbreak.

• Remain overweight on EM currencies, also overweight in JPY as a hedge for risk-off sentiment during this time.

Office for National Statistics said that production output rose by 0.1% between November 2019 and December 2019. Economists had expected a 0.3% increase. Manufacturing providing the largest upward contribution, rising by 0.3%.

The monthly increase of 0.3% in manufacturing output was because of transport equipment, which rose by 3.2%; only 4 of the 13 subsectors displayed upward contributions.

Total production output decreased by 0.8% for Quarter 4 (Oct to Dec) 2019, compared with Quarter 3 (July to Sept) 2019; this was led by manufacturing output, which fell by 1.1%.

The quarterly fall in manufacturing is because of widespread weakness, with 11 of the 13 subsectors providing downward contributions; this was led by transport equipment, which fell by 1.9%.

For Quarter 4 2019, production output decreased by 2.0%, compared with Quarter 4 2018; this was led by a fall in manufacturing of 2.5%.

Production output fell by 1.3% in the 12 months to December 2019, compared with the 12 months to December 2018; this is the largest annual fall since 2012 and was led by manufacturing output, which fell by 1.5%.

According to the report from Office for National Statistics, growth in both services and construction was offset by a fall in production, which resulted in 0.0% GDP growth in the three months to December 2019. The services and construction sectors contributed positively to gross domestic product (GDP) growth in the three months to December 2019, growing by 0.1% and 0.5%, respectively. Meanwhile, the production sector fell by 0.8% in the same period, its eighth consecutive rolling three-month decline.

GDP grew by 1.4% in 2019, compared with 1.3% in 2018. Breaking this down by sector, services grew by 1.8%, production fell by 1.3% and construction grew by 2.5%.

Monthly gross domestic product (GDP) increased by 0.3% in December 2019, driven by growth in services. This followed a fall of 0.3% in November 2019. Economists had expected a 0.2% increase.

Commenting on today's GDP figures, Head of GDP Rob Kent-Smith:

"There was no growth in the last quarter of 2019 as increases in the services and construction sectors were offset by another poor showing from manufacturing, particularly the motor industry. The underlying trade deficit widened, as exports of services fell, partially offset by a fall in goods imports."

FXStreet reports that analysts at Danske Bank outlined Tuesday's key macro data/events and also provided a brief preview of the preliminary UK GDP report for the fourth quarter of 2019.

"As the coronavirus theme gradually fades in the background for markets, focus today will be on the UK GDP and US data and host of Fed commentators."

"In the UK, we get the first estimate of UK monthly GDP in December (and hence the first estimate for the entire fourth quarter). We know 2019 was a weak growth year in the UK but it will not have a big impact on the Bank of England, which has clearly stated it is more interested in monitoring post-election data, i.e. January and onwards."

"In the US, NFIB small business optimism in January is released today. Fed's Powell, Bullard and Kashkari are set to speak."

"Overnight to Wednesday the Reserve Bank of New Zealand is expected to keep rates on hold."

According to the report from British Retail Consortium, on a Total basis, sales increased by 0.4% in January, against an increase of 2.2% in January 2019. This is above both the 3-month and 12-month average declines of 0.4% and 0.2% respectively. The 12-month average hit a new record low since our records began in 1995.

In January, UK retail sales were flat on a Like-for-like basis from January 2019, when they had increased 1.8% from the preceding year.

Over the three months to January, Food sales decreased 0.1% on a Like-for-like basis and increased 0.6% on a Total basis. This is below the 12-month Total average growth of 1.2%, the lowest since February 2017.

Over the three-months to January, Non-Food retail sales in the UK decreased by 1.5% on a like-for-like and 1.3% on a Total basis. This is in line with the 12-month Total average. For the month of January, Non-Food was in slight growth year-on-year.

Over the three months to January, In-store sales of Non-Food items declined 3.0% on a Total and 3.3% on a Like-for-like basis. This is slightly better than the 12-month Total average decline of 3.1%.

Online Non-Food sales increased by 2.5% in January, against a growth of 5.4% in January 2019. This is lower than the 3m and 12m averages of 2.6% and 3.1% respectively.

Non-Food Online penetration rate increased from 29.5% in January 2019 to 30.6%.

FXStreet reports that Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, suggested the pair could attempt a move to the 0.9841/44 band.

"USD/CHF is eroding the 55 day ma at .9768. A daily chart close above it would imply that the market has based near term. It could possibly fail again for a slide back into the range (it is possible that this is an 'ab-c' correction). Currently however we suspect that there is scope for near term strength to extend to .9841/44, the September and October lows and the 200 day ma at .9970."

"Failure at current levels would place the market back in the range and re-target the .9613 January low and the September 2018 low at .9543."

FXStreet reports that in the view of the Macro Strategists at Deutsche Bank, global central bankers will be dominating the agenda, with a number of key speakers, apart from the economic data releases.

"From the ECB, we'll hear from President Lagarde, as well as the Executive Board's Lane and Schnabel.

Over in the US, Fed Chair Powell will be speaking before the House Financial Services Committee as part of the semi-annual monetary policy report to Congress, while there'll also be remarks from Vice Chair Quarles, Daly, Bullard and Kashkari.

Here in the UK, Bank of England Governor Carney will be speaking before the House of Lords' Economic Affairs Committee and elsewhere Haskel will be speaking.

Finally, data releases to look out for include the first look at Q4 GDP in the UK, while the US sees the release of the NFIB small business optimism index for January, along with December's job openings."

FXStreet reports that economist Ho Woei Chen, CFA, at UOB Group, gives her opinions on the uptick in Chinese consumer prices.

"China's January Consumer Price Index (CPI) rose at its largest pace since October 2011 at 5.4% y/y which was attributed to the Lunar New Year, outbreak of 2019-nCov and a lower base of comparison last year."

"In January, the main driver of CPI was again pork prices which rose 116.0% y/y, up from 97.0% y/y in December. This is a record high monthly gain since data was available in 2005… Overall, core CPI (excluding food and energy) crept higher to 1.5% y/y in January from 1.4% y/y in the two preceding months."

"Although the higher inflation in January was mainly due to the Lunar New Year demand, we expect price pressure to remain to the upside in the near-term due to the 2019-nCov outbreak which has led to supply constraints and higher transport costs in parts of the country."

"We could see higher inflation in the near-term, depending on how the 2019-nCov outbreak pans out and the extent of recovery in consumer demand thereafter. Our full-year 2020 inflation forecast is at 2.6% (2019: 2.9%) which we will review at a later date. Meanwhile, the negative growth risks in China could weigh on the PPI recovery."

CNBC reports that Ned David Research said in a note to clients that the outbreak of the coronavirus is a "true black swan" for the oil and energy market, and as crude prices continue to move lower the worst may not be over yet.

Analyst Warren Pies noted that the outbreak has reduced Chinese demand for oil by 2 million to 3 million barrels per day, which means "the oil market is looking down the barrel at no demand growth for the calendar year, and outright demand contraction is now on the table."

At the end of January the firm downgraded its outlook on oil from bullish to neutral, and Pies said that his best guess is that "crude oil and energy equities will see more weakness before this is over."

That said, he was quick to note that attempting to draw comparisons between the 2003 SARS outbreak, or attempting to forecast the spread of the disease are "fools errands," arguing that investors should instead should rely on "objective indicators."

On Monday U.S. West Texas Intermediate crude fell to its lowest level in 13 months as traders continue to worry that a global economic slowdown caused by the coronavirus will weigh on demand.

Pies noted that in prior times of broad weakness in the energy sector refiners were sometimes a pocket of strength. But this time around that might not be true since this is a demand-driven decline, rather than the supply-driven declines of recent years.

During today's Asian trading, the US dollar traded almost unchanged against the Euro and rose slightly against the Japanese yen.

The ICE Dollar index, which shows the value of the US dollar against six major world currencies, rose 0.07% compared to the previous day.

Traders continue to follow the news about the spread of an epidemic of pneumonia caused by a new type of coronavirus.

In China, as of 00: 00 hours local time on Tuesday, the number of cases of pneumonia caused by a new type of coronavirus was 42.638 thousand people, the fatal outcome was recorded in 1.016 thousand cases, the state health Committee of China reported.

At the same time, almost 4 thousand people recovered and were discharged from medical institutions, their number increased by 716 people per day.

Risk appetite is growing amid signs that the epidemic is stabilizing. China's Hubei province has recorded the smallest number of new cases since February 1.

Meanwhile, the Chairman of the Federal reserve Bank (FRB) of Philadelphia, Patrick Harker, said on Monday that the us economy is in good condition, noting that at the moment he sees no reason to adjust the key rate.

Harker said that "it is too early to say what the impact of the spread of the coronavirus will be on the world economy," while adding that the negative impact of the epidemic on the Chinese economy is something worth watching.

FXStreet reports that in opinion of Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, the pair is now looking to a probable test of the 1.0880 region.

"EUR/USD has eroded the early September and October 8 lows at 1.0941/26 and this puts the October low at 1.0879 back in the picture, together with the 1.0814/78.6% retracement. Below here we have the 1.0763 2000-2020 uptrend."

"Intraday rallies are likely to halt around 1.0945/70."

"Resistance can now be seen between the November and January lows at 1.0981/92."

EUR/USD

Resistance levels (open interest**, contracts)

$1.1026 (2714)

$1.0995 (753)

$1.0972 (167)

Price at time of writing this review: $1.0910

Support levels (open interest**, contracts):

$1.0893 (3251)

$1.0865 (2839)

$1.0830 (1904)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 6 is 92348 contracts (according to data from February, 10) with the maximum number of contracts with strike price $1,1200 (6299);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3049 (1567)

$1.3019 (777)

$1.2994 (368)

Price at time of writing this review: $1.2915

Support levels (open interest**, contracts):

$1.2879 (1191)

$1.2859 (1864)

$1.2834 (2090)

Comments:

- Overall open interest on the CALL options with the expiration date March, 6 is 22639 contracts, with the maximum number of contracts with strike price $1,3050 (3009);

- Overall open interest on the PUT options with the expiration date March, 6 is 23944 contracts, with the maximum number of contracts with strike price $1,2600 (2757);

- The ratio of PUT/CALL was 1.05 versus 0.97 from the previous trading day according to data from February, 10

* - 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.