CFD Markets News and Forecasts — 18-02-2019

The European Union (EU) on Monday told small businesses to prepare for more bureaucracy and costs should Britain crash out of the bloc without a deal, the latest step in its contingency plans reflecting the potential impact of a hard Brexit, the Reuters reported.

Economy Commissioner Pierre Moscovici said that checks on goods moving between the EU and the UK would be introduced immediately should that scenario come true.

"This is key to protecting our consumers and our internal market. A lot depends on the ability of businesses trading with the UK to get up to speed with the customs rules that will apply on day one in case of no deal," he stated.

According to the bloc's executive European Commission, the companies dealing with Britain must prepare for customs formalities and duties and take into account the need for import/export licences and more restrictive VAT arrangements if World Trade Organisation's (WTO) rules come into effect.

"There is definitely a slowdown in the momentum of the global economy. I don't think the economy is going to be as strong as it was last year," Jane Shoemake, investment director of global equity income at Janus Henderson Investors, told CNBC's "Squawk Box Europe" on Monday.

"Our central forecast is not for a recession… It is just for dull, low growth," she added.

According to Shoemake, an economic downturn in China has heightened concerns of a global recession but Europe has been the "real disappointment." 

"We have had a massive change in what expectations are for the Federal Reserve and so if they don't raise any further, dividend yields (regular payouts from a stock) are going to look very attractive because bond yields are not going to be moving any higher particularly," she said.

The South China Morning Post (SCMP) reported that an opinion piece published by China’s major state media outlets on Monday showed that a tweet by the U.S. President Donald Trump on the ongoing trade war is a “positive” signal, brightening prospects of a deal from this week’s talks in Washington.

Monday’s opinion piece was published the day before a Chinese delegation led by Vice-Premier Liu He is expected to leave for talks in Washington.

On Sunday, Trump tweeted: “Important meetings and calls on China trade deal, and more, today with my staff. Big progress being made on soooo many different fronts! Our country has such fantastic potential for future growth and greatness on an even higher level!”

The opinion piece, which was published by the official Xinhua news agency, the People’s Daily and the Global Times under the pseudonym Niu Tanqin, is seen to be part of Beijing’s efforts to reassure its citizens that the trade war with the United States will soon be over, the SCMP said.

According to the opinion piece, Trump’s use of “soooo” instead of “so” indicated that the U.S. president was excited when he heard reports from his trade envoys following the talks in Beijing, which Chinese President Xi Jinping attend on Friday.

Monday’s opinion piece fits into the latest official line that an agreement is very likely to end the tariff war after the Global Times said over the weekend that the bilateral trade talks are “sprinting” towards a positive end, the SCMP noted.

UK's Brexit secretary, Stephen Barclay, says meeting EU's Barnier alongside the Attorney General Cox to discuss solutions to the Irish backstop.

• Demand for oil products dropped 0.061 mln bpd to 2.039 mln bpd in December  
• Crude stocks fell 2.842 mln bbls to 205.376 mln bbls in December
• Oil products exports increased 0.054 mln bpd to 2.113 mln bpd in December  

• Says happy to clarify the situation on Brexit deal
• Risk of a no-deal Brexit is growing
• Cites is intensifying contingency work for no-deal scenario

The UK still wants to reopen the withdrawal agreement it negotiated with the European Union (EU) to provide legal assurances over the Irish border, a spokesman for Prime Minister Theresa May stated on Monday.

“The PM has been seeking to reopen the withdrawal agreement and that remains our position,” the spokesman said.

Reuters reported the European Commission (EC) said on Monday the European Union wants to improve trade relations with the United States but will react swiftly if U.S. President Donald Trump decides to hit EU car imports with tariffs.

“The European Union will stick to its word as long as the U.S. does the same,” Commission spokesman Margaritis Schinas told a news conference.

“The European Commission is aware of the conclusion of an investigation by the U.S. Department of Commerce on whether car imports represent a threat to U.S. national security. Where this report translates into actions detrimental to European exports, the European Commission would react in a swift and adequate manner,” he added.

In its monthly report, published Monday, the Bundesbank said that German economy stagnated in a final quarter of last year and policymakers are increasingly concerned that weakness in Europe’s biggest economy could be bigger and longer than earlier thought, a risk to the entire continent.

According to Germany's central bank, weak orders in manufacturing, increasingly gloomy sentiment indicators and sluggish investments all suggest that the economy is unlikely to regain momentum during the winter months.

“All this suggests that the underlying pace of the economy should remain subdued at least in the first half of the year,” the Bundesbank said. “But there are no signs that the slowdown is becoming an outright downturn.”

It also added that auto exports, a big growth drag in late 2018, are starting to normalise, the labour market remains healthy and strong wage development suggests that private consumption will pick up. Fiscal support should also kick in, supporting growth. 

Seven Labour MPs - Chuka Umunna, Chris Leslie, Luciana Berger, Gavin Shuker, Mike Gapes, Ann Coffey and Angela Smith - resigned the party over complaints over Jeremy Corbyn’s handling of Brexit and anti-Semitism. 

Announcing the resignations, Ms. Berger said: "I have become embarrassed and ashamed to remain in the party."

According to her, they will now sit in the Parliament as an "independent group of MPs".

Reuters reported in the morning the Labour source, close to the group, said these departures could trigger a second wave of resignations, underlining the frustration over Corbyn’s approach to Britain’s biggest shift in foreign and trade policy in more than 40 years.

Corbyn has so far stuck to Labour policy to keep the option of a second referendum “on the table” if Prime Minister Theresa May’s government fails to secure a deal with Brussels that can pass through parliament.

Reacting to the resignations, Mr Corbyn said: "I am disappointed that these MPs have felt unable to continue to work together for the Labour policies that inspired millions at the last election and saw us increase our vote by the largest share since 1945," the RTE News reported.

ifo Institute issued its latest press release for German.

"The ifo Institute wants to reform the German system of social benefits. "Those affected must be able to escape the trap of low incomes. That's why we want to improve incentives to work more. Unfortunately, the system is currently built in such a way that more gross sometimes means less net income. But more work must be worth it," says Andreas Peichl, head of the ifo Centre for Macroeconomics and Surveys.

"We propose reducing the marginal tax burden for low incomes above 630 euros per month to 60 percent," says ifo President Clemens Fuest. "Our current system is harmful because it punishes effort where it is particularly valuable: where people want to escape dependency on social benefits through their own work. Our ifo proposal would increase employment by 216,000 full-time jobs, reduce income inequality and even slightly relieve the government budget. Above all, transfer recipients with children will be placed in a much better position. The allowance for own assets of transfer recipients is increased and tied to the employment biography."

Peichl explains: "We have the highest marginal tax burden of additional income in the basic provision. Hartz IV recipients are charged implicit marginal rates of 80 to 100 percent. That is absurd. With children and single parents in particular, it can even happen that more gross income leads to less net income. Then why should anyone work more?"

Peichl adds: "Especially in the current labour market situation in Germany, people who want to work more have good chances of finding employment. A reform that leads to more employment and higher disposable incomes among recipients of benefits would reduce income inequality in Germany and increase overall economic production - it would be efficient and equitable.“

According to the report from IHS Markit, the headline seasonally adjusted Household Finance Index (HFI) – which measures households’ overall perceptions of financial wellbeing – registered its lowest reading in almost one year in February, declining to 43.4, from 44.7 in January. Overall, this represented a stronger deterioration of current financial wellbeing among UK households.

Year-ahead financial heath expectations were also more downbeat than in January, while job security perceptions hit their weakest for just over one year.

Latest survey data also indicated softer growth of workplace activity and income from employment. Meanwhile, living costs rose at an accelerated pace, but the rate of inflation weak relative to those seen throughout most of 2018.

The general view among UK households towards UK monetary policy was little changed in February, with the majority (79%) expectating the next move by the Bank of England to be an increase within the next two years.

Global growth is expected to slow in the coming months, but Asian economies could hold up reasonably well, thanks to several "mitigating factors," Piyush Gupta, CEO of Singapore's DBS Group Holdings, told CNBC  on Monday.

"The overall macro-economy will be a tad bit slower, but I do think that there are some mitigating factors: Monetary policies are getting looser, I think there are some fiscal stimulus coming down the pipe," Gupta told.

Gupta noted that Asia is still projected to grow at 5.5% to 6% this year despite the overall softer global environment. Several central banks in Asia — including those in China, India and Australia — have lowered interest rates or indicated the intention to do so in the coming months in an attempt to shore up economic growth, the CEO added.

Despite many uncertainties on the world market, mechanical engineering companies in Germany significantly increased their exports in 2018, the Mechanical Engineering Industry Association (VDMA) said.

According to the report, last year, a total of 177.8 billion euros was invested in machinery and equipment - an increase of 5.3% on the previous year (169 billion euros). This meant an export ratio of 79.2%, measured against total production.

The race of the two largest export markets for mechanical engineering was narrowly won by the USA in the end. Exports to the USA increased by 7.1% to 19.25 billion euros in 2018. This represented a share of 10.8% of total machine exports. China was just behind with an increase of 9.6% to 19.06 billion euros (share: 10.7%).

Europe remained the largest sales region last year. Deliveries to the EU partner countries increased by 6.6% to 83.91 billion euros, an above-average increase. The EU countries accounted for a total of 47.2% of German machinery exports. The most important partner here is traditionally France (+4.6% to 11.55 billion euros, ranked third).

A group of British opposition Labour lawmakers will on Monday announce they are leaving the party over leader Jeremy Corbyn’s approach to Brexit and a row over anti-Semitism, a source said, adding more resignations could follow.

The small group, possibly about five lawmakers, will make the announcement today at 10:00 GMT., after weeks of growing calls for Corbyn to change strategy and start campaigning for a second referendum.

The Labour source, close to the group, said Monday’s departures could trigger a second wave of resignations, underlining the frustration over Corbyn’s approach.

Legal changes to Britain’s deal to leave the European Union will be difficult but recent trips by British ministers to Brussels have been productive, the prime minister’s effective deputy, David Lidington, said.

“It was a very useful discussion about the politics, both within the United Kingdom and within the EU27, and a scoping out of what was possible. Reopening the withdrawal agreement... will be very difficult,” Lidington, who serves as Cabinet Office minister and was in Brussels last week, told.

The timing of the ECB’s first post-crisis rate hike hinges on whether the euro zone’s current slowdown is a blip or a more protracted downturn, ECB policymaker Francois Villeroy said.

Asked in an interview with Spanish newspaper El Pais whether recent data reduced chances for a hike after summer, Villeroy said the ECB would scrutinize the flow of economic data.

“The key question will be if the slowdown is temporary — with a bounce-back during this year — or more durable,” said Villeroy.

He added that there was a strong convergence of views within the ECB’s rate-setting Governing Council about the sequencing of its next policy steps and flexibility about the timing.

Villeroy said that resilient domestic demand in Germany, France and Spain was keeping the risk of recession at bay although the outlook was clouded by the threat of protectionism worldwide and Brexit in Europe. Against that economic backdrop, he said the ECB would be “pragmatic” in its use of its three main policy tools: its stock of assets, interest rates and liquidity provisions.

British businesses plan to raise basic wages by the most in at least seven years, due to recruitment difficulties and a need to keep pay in line with competitors, a survey showed.

The Chartered Institute of Personnel and Development (CIPD) said private-sector employers planned to increase basic pay rates this year by 2.5% on average, the most since the survey started in 2012.

Inflation was the top reason given by firms to the CIPD for expecting pay rises greater than 2%. Recruitment and retention issues and increases in the going rate of pay elsewhere were the other main reasons for raising pay by more than 2%.

The CIPD said public-sector employers expected average pay rises to drop back to 1.1% this year after a temporary rise to 2%, which had reflected a more generous settlement for hospital workers and some other staff. As a result, the overall median wage settlement for employers across the economy remained unchanged at 2%.

Association of Automobile Manufacturers (CAAM) said, China's automobile sales fell for a seventh straight month in January, as demand slowed in the world's largest auto market.

According to the report, ыales dropped a 15.8 percent from a year earlier to 2.37 million vehicles last month. That followed a 13 percent drop in December and a 14 percent fall in November.

"Car sales in January continued to decline, and there was no sign of improvement. We estimate that February wholesales will also drop sharply. "The reason for the sales drop is still the slowing overall economy, and consumption decline in small- and medium-sized cities" said Xu Haidong, CAAM assistant secretary general.

However. China's sales of new energy vehicles continued to buck the trend, totalling 95,700 in January, an increase of 140 percent from a year earlier, CAAM said.

Recent data point to a weakening euro zone economy, the European Central Bank's Olli Rehn told, adding that interest rates would remain at the current level until monetary policy goals have been met.

"Yes, the most recent data point to a weakening of the economy," Rehn, the Finnish central bank chief, told Handelsblatt business daily.

He attributed it to greater uncertainties outside the eurozone, such as the trade conflict between the United States and China but also pointed to uncertainty over Brexit, protests in France, fiscal issues in Italy and slower industrial production in Germany.

Asked whether the ECB would meet its inflation target of just under 2 percent, he said wage increases in recent months had not had much impact on core inflation.

He also said ECB policymakers would in their coming meetings address the question of Targeted Long-Term Refinancing Operations (TLTRO).

• inflation will miss the 2 percent target without stronger measures to boost consumption

• there are few tools left to ease monetary policy further

• cutting rates further could push some financial institutions into bankruptcy

• Japan must boost fiscal policy

• Fiscal and monetary policies need to work as one, so that more money is spent on fiscal measures and the total money going out to the economy increases as a result

• Japan must commit to boost government spending permanently with money printed by the BOJ

EUR/USD

Resistance levels (open interest**, contracts)

$1.1437 (4724)

$1.1407 (1297)

$1.1382 (1222)

Price at time of writing this review: $1.1307

Support levels (open interest**, contracts):

$1.1240 (5376)

$1.1208 (6013)

$1.1172 (3820)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 8 is 100930 contracts (according to data from February, 15) with the maximum number of contracts with strike price $1,1700 (6265);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3079 (4068)

$1.3024 (854)

$1.2967 (403)

Price at time of writing this review: $1.2908

Support levels (open interest**, contracts):

$1.2826 (753)

$1.2781 (1276)

$1.2753 (1374)

Comments:

- Overall open interest on the CALL options with the expiration date March, 8 is 42802 contracts, with the maximum number of contracts with strike price $1,3000 (4068);

- Overall open interest on the PUT options with the expiration date March, 8 is 29918 contracts, with the maximum number of contracts with strike price $1,2700 (1933);

- The ratio of PUT/CALL was 0.70 versus 0.70 from the previous trading day according to data from February, 15

* - 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.