CFD Markets News and Forecasts — 18-04-2019

Major US stock indices rose slightly, as the next drop in shares of the health sector weakened optimistic sentiment caused by stronger-than-expected retail sales data and solid corporate segment reporting.

The health sector fell 5.5% this week, as investors are concerned about proposals put forward by Democratic lawmakers. UnitedHealth CEO David Wichman told analysts during a conference call earlier in the week that initiatives such as Medicare for All would “endanger people's relationships with their doctors, destabilize the country's health care system and limit the ability of doctors to practice medicine at its best.” ".

According to a report by the Ministry of Commerce, retail sales in the US rose by 1.6% m / m in March, after falling by 0.2% in February, while economists expected to see a growth in the index by 0.9%. This was the biggest increase since September 2017, as households increased their purchases of cars and other goods. In annual terms, retail sales in March increased by 3.6%.

At the same time, the Ministry of Labor reported that the number of applications for unemployment benefits fell by 5,000 to 192,000 seasonally adjusted for the week ending April 13. This is the lowest level since September 1969. The data for the previous week was revised to show 1,000 calls more than previously reported. Economists predicted that in the last week the number of applications will increase to 205,000.

However, not all macroeconomic reports were favorable. IHS Markit data pointed to a slowdown in US business activity in April. This, combined with weak manufacturing performance, is expected to put pressure on overall growth at the beginning of the second quarter. According to the report, the value of the US business services index from IHS Markit in April was 52.9 compared with the March figure of 55.3, as the growth of new business softened against the background of a slight increase in export sales. At the same time, the business activity index in the US manufacturing sector was 52.4, unchanged from March. The composite PMI index in the United States was 52.8 in April compared with 54.6 in March.

Most of the components of DOW finished trading in positive territory (18 out of 30). The growth leader was UnitedHealth Group Incorporated (UNH; + 2.42%). Pfizer Inc. shares turned out to be an outsider. (PFE; -1.40%).

Most sectors of the S & P recorded an increase. The industrial goods sector grew the most (+ 0.9%). Only the health sector (-0.2%) and the base materials sector (-0.2%) decreased.

At the time of closing:

Dow 26,559.54 +110.00 +0.42%

S & P 500 2,905.03 +4.58 +0.16%

Nasdaq 100 7,998.06 +1.98 +0.02%

The Conference Board announced on Thursday its Leading Economic Index (LEI) for the U.S. rose 0.4 percent in March to 111.9 (2016 = 100), following a revised 0.1 percent increase in February (originally a 0.2 percent m-o-m gain).

Economists had forecast an advance of 0.4 percent.

Ataman Ozyildirim, Director of Economic Research at The Conference Board, noted “The US LEI picked up in March with labor markets, consumers’ outlook, and financial conditions making the largest contributions. Despite the relatively large gain in March, the trend in the US LEI continues to moderate, suggesting that growth in the US economy is likely to decelerate toward its long term potential of about 2 percent by year end.”

The report also revealed the Conference Board Coincident Economic Index (CEI) for the U.S. went up 0.1 percent to 105.8 in March after a 0.1 percent uptick in February. Meanwhile, its Lagging Economic Index (LAG) for the U.S. edged up 0.1 percent to 107.0, following no change in February.

Analysts at Rabobank expect the Canadian central bank will leave the policy rate unchanged at 1.75% on Wednesday, April 24.

• CAD OIS implies almost no chance of either a hike or a cut at this meeting and only around a 20% chance of a 25bp cut by the end of the year.
• Although a more cautious tone was adopted at the last meeting, the door was left open for rate hikes. Rather than being dovish, we argue that the Bank has adopted a holding stance.
• We maintain the view that the BoC will not be able to raise rates again this cycle and instead we see the Bank cutting rates in 2020 Q2.
• This meeting will be accompanied by a new Monetary Policy Report (MPR) which we expect to reveal downward revisions to growth forecasts.

The Commerce Department reported on Thursday that business inventories rose 0.3 percent m-o-m in February, fallowing an upwardly revised 0.9 percent m-o-m increase in January (originally a gain of 0.8 percent m-o-m).

That was below economists’ forecast for a 0.4 percent m-o-m advance.

According to the report, manufacturing (+0.3 percent m-o-m), retail (+0.3 percent m-o-m) and wholesale (+0.2 percent m-o-m) inventories all increased in February.

Preliminary data released by IHS Markit indicated that the U.S. private sector growth in March expanded at the weakest pace since September 2016.

According to the report, the Markit flash manufacturing purchasing manager's index (PMI) stood at 52.4 in April, unchanged from March’s reading. 

Economists had expected the reading to increase to at 52.8. 

A reading above 50 signals an expansion in activity, while a reading below this level signals a contraction. 

According to the report, improved readings for output and new orders were offset by slower increases in employment and pre-production inventories.

Meanwhile, the Markit flash services purchasing manager's index (PMI) decreased to 52.9 this month, down from 55.3 in the prior month. The reading indicated the slowest increase is the services sector since March 2017, as new business softened to a 2-year low.

Economists had expected the reading to decrease to 55. 

Overall, IHS Markit Flash U.S. Composite PMI Output Index came in at 52.8 in April, down from 54.6 in the previous month, pointing to the slowest increase in overall business activity since September 2016. 

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit noted, “The US economy started the second quarter with its weakest expansion since mid-2016 as businesses reported a marked slowing in output, new orders and hiring. The survey indicates that the manufacturing downturn seen in the first quarter has persisted into April, but growth in the service sector has now also slumped to a two-year low as the malaise showed further signs of spreading beyond the factory sector.”

Statistics Canada reported on Thursday that the Canadian retail sales rose 0.8 percent m-o-m to CAD50.09 billion in February, following a revised 0.4 percent m-o-m drop in January (originally a 0.3 percent m-o-m decrease).

The result exceeded economists’ forecast, suggesting a 0.4 percent m-o-m advance for February.

According to the report, sales fell in 5 of 11 subsectors, representing 73 percent of retail trade.

The February advance was primarily attributable to higher sales at general merchandise stores (+3.8 percent m-o-m) and motor vehicle and parts dealers (+1.4 percent m-o-m).

Excluding motor vehicle and parts dealers, retail sales increased 0.6 percent m-o-m in February compared to a downwardly revised 0.6 percent m-o-m decline in January (originally a gain of 0.1 percent m-o-m) and economists’ forecast of a 0.2 percent m-o-m rise.

In y-o-y terms, Canadian retail sales rose 1.8 percent in February, following an unrevised 1.1 percent advance in January.

U.S. stock-index rose slightly on Wednesday, as better-than-expected U.S. retail sales data offset worries of a global slowdown, which flared up after the release of weak manufacturing data in Europe.

Global Stocks:

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

Snap (SNAP) downgraded to Neutral from Outperform at Wedbush; target $12.25

Snap (SNAP) downgraded to Negative from Mixed at Vertical Group

Morgan Stanley (MS) downgraded to Neutral from Buy at Citigroup

The Commerce Department announced on Thursday the sales at U.S. retailers surged 1.6 percent m-o-m in March, following an unrevised 0.2 percent m-o-m drop in February, boosted by sales of motor vehicles and a range of other goods. That was the biggest increase in retail trade since September 2017.

Economists had expected total sales would increase 0.9 percent m-o-m in March.

Excluding auto, retail sales increased 1.2 percent m-o-m in March after a revised 0.2 percent m-o-m drop in the previous month (originally a decline of 0.4 percent m-o-m), exciding economists’ forecast for a 0.7 percent m-o-m advance.

Meanwhile, closely watched core retail sales, which exclude automobiles, gasoline, building materials and food services, and are used in GDP calculations, rose 1.0 percent m-o-m in March after a downwardly revised 0.3 percent m-o-m decline in February (originally a 0.2 percent m-o-m decrease).

In y-o-y terms, the U.S. retail sales climbed 3.6 percent in March, accelerating from 2.2 percent the previous month.

The data from the Labor Department revealed on Thursday the number of applications for unemployment benefits fell to more than a 49-1/2-year low last week, pointing to sustained labor market strength.

According to the report, the initial claims for unemployment benefits decreased 5,000 to 192,000 for the week ended April 13, the lowest level since early September 1969. 

Economists had expected 205,000 new claims last week. 

Claims for the prior week were revised upwardly to 197,000 from the initial estimate of 196,000.

Meanwhile, the four-week moving average of claims dropped 6,000 to 201,250 last week, the lowest reading since November 1969. 

American Express (AXP) reported Q1 FY 2019 earnings of $2.01 per share (versus $1.86 in Q1 FY 2018), beating analysts’ consensus of $1.97.

The company’s quarterly revenues amounted to $10.364 bln (+6.6% y/y), generally in line with analysts’ consensus estimate of $10.462 bln.

The company also reaffirmed guidance for FY 2019, projecting EPS of $7.85-8.35 versus analysts’ consensus estimate of $8.13.

AXP fell to $110.40 (-1.22%) in pre-market trading.

Travelers (TRV) reported Q1 FY 2019 earnings of $2.83 per share (versus $2.46 in Q1 FY 2018), beating analysts’ consensus of $2.75.

The company’s quarterly revenues amounted to $6.855 bln (+4.9% y/y), missing analysts’ consensus estimate of $6.943 bln.

TRV closed Wednesday's trading session at $135.87 (-1.79%).

• BoJ to predict inflation falling short of 2% through the fiscal year ending in March 2022
• BoJ likely to project inflation to move above 1.5% in the fiscal year 2021
• BoJ may slightly cut economic growth, inflation forecasts for the fiscal year 2019

Honeywell (HON) reported Q1 FY 2019 earnings of $1.92 per share (versus $1.70 in Q1 FY 2018), beating analysts’ consensus of $1.84.

The company’s quarterly revenues amounted to $8.884 bln (-14.5% y/y), beating analysts’ consensus estimate of $8.633 bln.

The company also raised guidance for FY 2019, projecting EPS of $7.90-8.15 (prior $7.80-8.10) versus analysts’ consensus estimate of $7.99 and revenues of $36.5-37.2 bln (prior $36-36.9 bln) versus analysts’ consensus estimate of $36.85 bln.

HON rose to $164.80 (+1.17%) in pre-market trading.

Alcoa (AA) reported Q1 FY 2019 losses of $0.23 per share (versus earnings of $0.77 per share in Q1 FY 2018), $0.10 worse than analysts’ consensus of -$0.13.

The company’s quarterly revenues amounted to $2.719 bln (-12.0% y/y), missing analysts’ consensus estimate of $2.875 bln.

AA fell to $26.81 (-3.28%) in pre-market trading.

ING's analysts noted that April PMIs came out weaker than expected. It looks as if eurozone growth is having trouble shifting into higher gear, justifying the ECB’s recent dovish stance, they added.

• The flash estimate for eurozone’s composite PMI indicator for April came in at 51.3, a decline from 51.6 in March and once again undershooting the consensus expectation of 51.8. The Manufacturing PMI rose to 47.8, though this is still in contractionary territory. The service sector PMI fell back to 52.5 from 53.3 in March.  New order growth picked up slightly, but new export orders fell for the seventh straight month. Employment growth increased but remained among the lowest since 2016. Although cost inflation was higher, partially driven by higher oil prices, average prices charged for goods and services rose at the slowest rate in 20 months, a testimony of the current lack of pricing power. No wonder consumer price inflation is still going nowhere.
• Since the second quarter of 2018, the eurozone economy has been persistently undershooting expectations. Today’s figures continue this long string of underperformance. But we shouldn’t get too pessimistic either. The recent upturn in China is a boon to Europe’s economy as it is much more dependent on foreign demand than the US.
• The recovery is still in place, but at the same time, we have to acknowledge that the business cycle is already in an advanced stage and that a growth pace of more than 0.3% quarter-on-quarter is getting harder to realize. The second quarter already started on a bad footing, but we are still comfortable with our forecast of 1.2% GDP growth for the whole of 2019.
• If economic data continue to disappoint, the ECB will be forced to think of additional stimulus, a big U-turn after having stopped net asset purchases in January. However, the ECB will likely try to buy time, giving the uncertainties surrounding the current growth outlook. The terms of the new TLRTOs still have to be determined and we believe that the ECB will wait as long as possible to do this, allowing it to decide on more favourable conditions for the banks if the expected growth improvement should fail to materialize.

Analysts at ING note that the latest surge in UK retail sales does sound a little too good to be true, but either way, spending could continue to modestly improve as Brexit uncertainty temporarily dips. But they do not expect the Bank of England (BoE) to hike rates this year as the outlook for investment remains challenging.

• Despite all the Brexit noise, the latest surge in UK retail sales indicates consumer spending performed a little bit better during the first quarter – at least at face value. At 6.2% year on year, retail sales excluding fuel are now growing at the fastest annual pace, since the end of 2016.
• However, we think it’s worth treating these latest figures with a touch of caution. Easter falls later this year, which might typically be associated with lower sales during March relative to other years. Similar data from the British Retail Consortium also suggested that spending was more muted during March, aside from some increased purchases related to Mother’s Day. The latest surge in retail spending also comes at a time where consumer confidence is around the lowest it has been since 2013.
• That said, we think consumer spending could continue to perform well in the near-term. The latest Brexit extension to the end of October could see consumer confidence rise a little over the next couple of months as some of the ‘no deal’ concerns temporarily dissipate. That, combined with prospects of a sunny Easter trading period, makes for a better backdrop for retailers as we head towards the summer.
• This could see a bit of growth momentum return in the short-term, although we suspect overall economic activity will continue to be restrained by the challenging investment environment. With Brexit uncertainty set to return again as we move through the summer, we think it is unlikely that the Bank of England will hike rates again this year.

Japan might delay again a sales tax hike planned for October if the Bank of Japan's next quarterly "tankan" survey shows deterioration in the economy, a senior ruling party official who's close to Prime Minister Shinzo Abe said.

"The economy is slowing a bit. If the BOJ's June tankan shows a danger ahead, we cannot take everyone to a cliff edge," Kyodo news quoted Koichi Hagiuda, acting secretary-general of Abe's Liberal Democratic Party (LDP), as saying.

"We still have time" before deciding whether to go ahead with the tax hike to 10 percent from 8 percent, he told an Internet TV programme, adding that Abe would call an election if he decides to put it off, according to Kyodo.

The 2019 Q1 survey was conducted between 4 and 22 March 2019.

• Lenders reported that the availability of secured credit to households had increased slightly in the three months to end‑February 2019 (Q1) and was expected to be unchanged over the next three months to end‑May 2019 (Q2).

• Lenders reported that demand for secured lending for house purchase was unchanged in Q1, and was expected to decrease in Q2. However, demand for secured lending for remortgaging increased significantly in Q1, with demand expected to increase again in Q2.

• Overall spreads on secured lending to households — relative to Bank Rate or the appropriate swap rate — were reported to have remained unchanged in 2019 Q1, however they were expected to widen in Q2.

• Lenders reported that default rates on secured loans to households were unchanged in Q1, and expected these to remain unchanged in Q2. Losses given default on secured loans were unchanged in Q1, and were expected to increase over 2019 Q2.

China attracted $14.11 billion in foreign direct investment last month, up 4.9% from a year earlier, the Commerce Ministry said Thursday. That gain was faster than the 3.3% increase in February.

Foreign direct investment in the first quarter climbed 3.7% from a year earlier, to $35.8 billion, the ministry said.

• Japanese companies are showing cautiousness.

• The Japanese government maintains assessment of the overall economy.

China’s better-than-expected first quarter economic growth has spurred some investment banks to raise their growth forecasts for this year.

Economists at Barclays, ING and Citi have raised their China growth outlook for 2019, though others may be holding off for now. The Chinese government announced that GDP expanded by 6.4 percent year-on-year in the first three months of 2019. That was higher than the 6.3 percent predicted by analysts.

Economists at Barclays raised their expectation for GDP expansion for this year to 6.5 percent from the previous 6.2 percent, citing the surprise first-quarter growth result.

Citi also raised its annual GDP forecast to 6.6 percent from 6.2 percent, citing a more optimistic outlook for a U.S.-China trade deal and stronger domestic demand in China.

Meanwhile, ING lifted its forecast to 6.5 percent from its previous 6.3 percent, calling stimulus-fueled infrastructure projects and 5G telecoms production the “real growth engine” in the first quarter.

According to analysts at Rabobank, today’s major news focus is going to be the US Mueller Report, which will soon be released in a lightly-redacted format.

“It’s 400 pages long – and yet everyone is going to have an opinion out the door in seconds, most of them supporting their own political biases, of course. Will there be anything truly unfortunate in it for the White House, or will Trump be in a position to cast more orangey snark-it at the media?. There is also the US Philly Fed, and then US Markit manufacturing (52.8), services (55.0), and composite PMIs to look ahead to. The Fed’s Bostic also speaks at an economic roundtable event.”

According to the report from Office for National Statistics, in the three months to March 2019 (Quarter 1), the quantity bought in retail sales increased by 1.6% when compared with Quarter 4 (Oct to Dec) 2018, following sustained growth throughout the first three months of the year. All store types except department stores and household goods stores increased in the quantity bought in the three months to March 2019, when compared with the previous three months.

The monthly growth rate in the quantity bought in March 2019 increased by 1.1%, with food stores and non-store retailing providing the largest contributions to this growth. Economists had expected a 0.3% decrease.

Year-on-year growth in the quantity bought increased by 6.7% in March 2019, the highest since October 2016, with a range of stores noting that the milder weather this year helped boost sales in comparison with the “Beast from the East” impacting sales in March 2018. Department stores were the only store type to decrease in the quantity bought when compared with March 2018, with a fall of 0.3% in March 2019. Online sales as a proportion of all retailing increased to 18.6% in March 2019, from the 18.1% reported in February 2019.

According to the report from IHS Markit, the pace of eurozone economic growth slowed for a second successive month in April, according to flash PMI survey data, indicating that the economy remains in its worst growth spell since 2014. Manufacturing reported a further contraction and service sector growth cooled. A solid service sector performance in Germany helped sustain the expansion, offsetting a sharp manufacturing downturn. France meanwhile stagnated and the rest of the region saw the worst growth since late 2013.

The Eurozone Composite PMI fell from 51.6 in March to 51.3 in April, according to the preliminary ‘flash’ estimate. The latest reading was the third-lowest since November 2014, only marginally above the recent lows seen in December and January.

According to the report from IHS Markit, despite improving slightly, growth of Germany’s private sector economy remained subdued at the start of the second quarter of the year, weighed down by an export-led contraction in goods production. The service sector, on the other hand, remained resilient, recording strong growth in both business activity and employment.

The Flash Germany Composite Output Index ticked up from a 69 month low of 51.4 in March to 52.1 in April. That said, the index remained below its long-run average of 53.4.

Growth of service sector business activity was strong in April, having accelerated for the fourth month in a row to the quickest since September last year. Manufacturing output, however, fell markedly and for the third month in a row, albeit with the rate of contraction easing since March.

• Flash Germany Services PMI Activity Index(2) at 55.6 (Mar: 55.4). 7 month high.

• Flash Germany Manufacturing PMI(3) at 44.5 (Mar: 44.1). 2-month high.

American CFOs fear a recession by the third quarter of next year, according to the latest Duke CFO Global Business Outlook Survey.

The survey generated responses from more than 1,500 chief financial officers, including 469 from North America, and showed that 67% of those surveyed predicted the U.S. economy would be in recession by the third quarter of 2020, and 84% believe a recession will have begun by the first quarter of 2021. 38% of respondents predicted a recession by the first quarter of next year.

John Graham, director of the survey, told that while CFOs are not as pessimistic as they were three months ago, it is unusual in the history of the survey for such a large share of respondents to predict a recession just 16 months from now. ”The recession predictions are closer than usual, with a greater magnitude” of respondents indicating recession fears, Graham said.

China's foreign exchange regulator said the U.S. Fed policy stance will be favourable for the nation's capital flows, and expected the cross-border capital flows to remain steady despite some uncertainties.

China will prevent risks in its cross-border capital flows, and ensure safety of its forex reserves, Wang Chunying, spokeswoman for the State Administration of Foreign Exchange (SAFE), said.

The Fed recently called a halt to further rate hikes over this year in the face of rising global economic risks.

China will improve channels for investing in its interbank bond market and develop the panda bond market, Wang said, adding that there is room for foreign investors to buy more Chinese paper.

Justin Smirk, analyst at Westpac, suggests that they are forecasting the Australia’s March quarter CPI to print 0.1%qtr with the annual pace easing back to 1.4%yr from 1.8%yr.

“The March quarter is a seasonally soft quarter with the ABS projecting a seasonal factor of +0.2ppt. The seasonally adjusted CPI is forecast to rise 0.3%. Core inflation is forecast to print 0.3%qtr (0.33% at two decimal places) holding the annual pace at 1.6%yr. The trimmed mean is forecast to rise 0.34%qtr and the weighted median is forecast to rise 0.33%qtr. Core inflation is to remain well below the bottom of the RBA target band as moderating housing costs hold back modest inflationary pressures elsewhere. Overlay a competitive deflationary pressure in consumer goods and it is hard to see core inflation breaking much higher any time soon.”

According to the report from Federal Statistical Office (Destatis). in March 2019 the index of producer prices for industrial products rose by 2.4% compared with the corresponding month of the preceding year. Economists had expected a 2.7% increase. In February 2019 the annual rate of change all over had been 2.6%.

Compared with the preceding month February 2019 the overall index decreased by 0.1% in March 2019 (-0.1% in February 2019). Economists had expected a 0.2% increase

In March 2019 the price indices of all main industrial groups increased compared with March 2018. Energy prices, the development of which had the greatest impact on the growth of the overall index, rose by 6.6% (-0.9% compared with February 2019). On an annual basis electricity prices increased by 10.8%, prices of natural gas (distribution) by 6.8% and prices of petroleum products by 5.9%.

The overall index disregarding energy was 1.2% up on March 2018 and 0.1% up compared with February 2019.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1427 (5230)

$1.1397 (3922)

$1.1365 (284)

Price at time of writing this review: $1.1297

Support levels (open interest**, contracts):

$1.1239 (3433)

$1.1195 (2927)

$1.1147 (2692)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date May, 3 is 73817 contracts (according to data from April, 17) with the maximum number of contracts with strike price $1,1500 (5792);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3307 (2305)

$1.3220 (2213)

$1.3153 (1482)

Price at time of writing this review: $1.3045

Support levels (open interest**, contracts):

$1.2966 (1839)

$1.2929 (1199)

$1.2888 (2018)

Comments:

- Overall open interest on the CALL options with the expiration date May, 3 is 23944 contracts, with the maximum number of contracts with strike price $1,3500 (2455);

- Overall open interest on the PUT options with the expiration date May, 3 is 22243 contracts, with the maximum number of contracts with strike price $1,2600 (2560);

- The ratio of PUT/CALL was 0.93 versus 0.92 from the previous trading day according to data from April, 17

* - 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.