CFD Markets News and Forecasts — 20-02-2019

Major US stock indexes rose slightly, as investors continued to follow the last round of trade negotiations between the US and China, and also analyzed the minutes of the last Fed meeting,

The protocol reported that the Fed leaders at their meeting held on January 29-30, agreed to announce their intention to stop the balance reduction later this year. “Such a statement will make a more definite process for completing the normalization of the Fed’s balance sheet," the protocol noted. The leaders also took a pause in the rate hike cycle until there is more clarity about the implications of increasing risks to the growth of the US economy since the short-term rate was raised in December. "Many representatives said that it was not yet clear what adjustments later this year would probably need to be made in the target range of rates for federal Ndam, "- said in the protocols.

Market participants also followed US and Chinese trade negotiations. A new round of talks between representatives of the two countries started yesterday, and a meeting at the highest level is scheduled for Thursday, the results of which, as investors hope, will allow the protracted trade war to be resolved before the deadline for concluding a deal in early March. President Trump offered to postpone the deadline to make a deal, telling reporters that March 1 is not a “magic date.” The extension of the deadline will prevent the immediate increase in tariffs on imports from China of goods worth $ 200 billion to 25% from 10%.

Most of the components of DOW finished trading in positive territory (18 out of 30). The growth leader was Caterpillar Inc. (CAT, + 3.44%). Walgreens Boots Alliance Inc. was an outsider. (WBA; -3.60%).

Almost all sectors of the S & P recorded an increase. The industrial goods sector grew the most (+ 0.7%). Only the health sector decreased (-0.1%)

At the time of closing:

Dow 25,954.44 +63.12 +0.24%

S & P 500 2,784.70 +4.94 +0.18%

Nasdaq 100 7,489.07 +2.30 +0.03%

U.S. Trade Representative Robert Lighthizer will testify next week at a U.S. House of Representatives hearing on U.S.-China trade issues, Reuters reported, citing a statement by a spokesman for the House Ways and Means Committee. 

Lighthizer has been the lead negotiator in ongoing trade talks with China as the two nations seek to find agreement amid a bitter dispute that has seen both sides impose tariffs on imports.

According to the statement, the hearing is scheduled for February 27, just days ahead of President Donald Trump’s March 1-deadline that he has said could slide.

The European Commission announced the consumer confidence indicator for the Eurozone rose 0.5 points to -7.4 in early February from -7.9 in January. 

Economists had expected consumer confidence to come in at -7.8.

Considering the European Union as a whole, consumer sentiment increased 0.6 points to -7.2 this month from January's two-and-a-half-year low.

Both indicators stood well above their respective long-term averages of -11.3 (Eurozone) and -10.5 (EU).

U.S. stock-index traded flat on Wednesday, as market participants monitored the latest round of the U.S.-China trade talks and awaited the release of the FOMC minutes from the January meeting.

Global Stocks:

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

Wal-Mart (WMT) target raised to $115 from $113 at Telsey Advisory Group

British Prime Minister Theresa May told the UK's MPs on Wednesday that she would bring a vote on a revised Brexit deal back to parliament as soon as possible.

“Obviously we are in these discussions with the European Union and we will bring a vote back to this house when it is possible to bring a deal that deals with the issue that the House of Commons has raised,” she said.

“We have listened to the House of Commons, we are working on the views of the House of Commons with the European Union, and we will bring a vote back when it is the right time to do so.”

• Will make appropriate macro adjustments to ensure stability in China's economy
• Will prevent any economic risks from overly tight monetary conditions and “flood-like stimulus”

• Hopes the oil market will be rebalanced by April
• Says the aim is to bring global inventory near 5-year average
• Hopes Iran and Venezuela sanctions-related issues will not create supply gaps 

• Expect agreement with France on joint proposal for Eurozone's budget by end of this week/start of next week

They are said to join up with the Independent Group, raising its member tally to 11, 1 more than the DUP.

In their joint resignation letter, the trio said: “We had hoped you would also continue to modernize our party so that it could reach out and broaden its appeal to younger voters and to embrace and reflect the diversity of the communities we seek to represent. 

"Sadly the Conservative Party has increasingly abandoned these principles and values with a shift to the right of British politics. 

"We no longer feel we can remain in the party of a Government whose politicize and priorities are so firmly in the grip of the ERG and DUP".

Theresa May has said she is "saddened" by the decision of Heidi Allen, Sarah Wollaston and Anna Soubry to leave her party.

"I am saddened by this decision – these are people who have given dedicated service to our party over many years, and I thank them for it.

"Of course, the UK’s membership of the EU has been a source of disagreement both in our party and our country for a long time. Ending that membership after four decades was never going to be easy.

"But by delivering on our manifesto commitment and implementing the decision of the British people we are doing the right thing for our country. And in doing so, we can move forward together towards a brighter future.

"I am determined that under my leadership the Conservative Party will always offer the decent, moderate and patriotic politics that the people of this country deserve."

The latest survey by the Confederation of British Industry (CBI) showed the UK manufacturers’ order books improved slightly in the quarter to February.

According to the report, the CBI's factory order book balance rose to +6 in February 2019 from -1 in the previous month. Economists had expected a drop to -3. This was comfortably above the long-run average (-13).

Reading above 0 indicates optimism, while below indicates pessimism.

At the same time, output volume growth slowed in the three months to February to a pace roughly in line with its long-run average. 27% of businesses said the volume of output over the past three months was up, and 20% said it was down, giving a balance of +7%. This was a slower pace than the one recorded in January (+16%), and the weakest rate of growth since May 2018 (+3%), but still above the historic average (+4%). Looking ahead, manufacturers expect output volumes to grow at a broadly similar pace over the next quarter.

The CBI noted that the UK’s manufacturers continued to be supported by the lower sterling, although weaker global economic momentum means less support for export orders from that front. But the continued threat of a no-deal Brexit remained the biggest risk to the outlook for UK manufacturers. 

On Monday Cabinet Undersecretary Giancarlo Giorgetti said the government would assess in the coming months if a correction was needed. An economic slowdown as Italy slipped back into a recession is putting at risk Rome’s budget forecasts.

• China will not flood economy with liquidity

• Will not resort to "flood-like" stimulus

• Urges banks to lend more to the real economy

• RRR cut in January shows that there is ample room for such cuts

• Britain otherwise will have to delay or face no-deal Brexit on March 29

The IMF already cut global growth forecasts in January with German growth seen at just 1.3% this year following the revision. And now Lagarde, mentions to Die Zeit that they are "likely" to lower the German growth outlook further.

Lagarde also called on the federal government to counteract higher government spending in the event of a downturn. "The German government could do some meaningful things with more money, for example, invest in the modernization of public infrastructure or expand childcare, which would be projects that strengthen the growth forces and Germany should tackle," said Lagarde.

Lagarde said the central banks have less leeway than before to react to a downturn. "Central banks typically lower interest rates by five percentage points to shore up the economy in the event of a looming recession, but that's not the case if the interest rate is one, two, or, as in the case of the euro zone, zero. That means governments have to do more," said Lagarde.

• Britain and Germany will remain part of alliance of values after Brexit

• It would be enormous mistake if Europe would allow Brexit to make us introspective

• It is so important that Britain and Germany continue to work side by side

• Our friendship is based on something infinitely more durable than EU membership

• Brexit does not symbolise retreat from common security interests

• We must not allow Brexit to be all-consuming

• Orderly departure from EU is of paramount importance

• Britain and the EU will combine efforts to greatest effect when interests converge

• Millions of jobs on both sides of channel depend on trade between Britain and EU so all have interest in continuing it

• None of us should have any doubt that failing to secure a ratified Brexit deal would be deeply damaging

• We must all do what we can to ensure Brexit deal reached

British Prime Minister Theresa May is facing the first defections of Conservative members of Parliament as early as Wednesday, with three Tories poised to walk away from her party, according to a person familiar with the matter.

The person, who has knowledge of the new “Independent Group” of MPs, didn’t name the three Tories who are on the brink of quitting, but said there would be a formal announcement just after the weekly Prime Minister’s Questions slot at midday.

If the MPs want maximum publicity and drama, they are likely to make their move during that session, which is carried live on television and radio.

Bank of Greece said, in December 2018, the current account recorded a deficit of € 1.5 billion, increased by € 41 million compared to the same month of 2017. The widening of the deficit was due to a deteriorating balance of goods, while services and primary balances and secondary incomes have improved.

The goods balance deficit increased, primarily due to the worsening of the non-fuel balance and, secondarily, due to the deterioration of the fuel balance. It is noted that total exports of goods decreased by 3.5% (non-fuel exports remained unchanged) at constant prices and total imports of goods declined marginally (imports of non-fuel goods increased by 3.4%). The surplus in the services balance showed a slight increase due to the improvement in the transport balance due to the increase in net receipts from maritime transport by 13.9% compared to December 2017. The improvement in the transport balance was partly offset by the deterioration on the one hand, the balance of other services and on the other hand the balance of travel. For the latter, arrivals of non-resident travelers and related receipts increased by 16.8% and 40% respectively, but the relative payments increased (by 53.2%). Finally, the improvement in the primary income account is due to the decrease in net payments for interest, dividends and profits.

In 2018, the current account showed a deficit of € 5.3 billion, up by € 2.1 billion from that of 2017. This development is due to the deterioration of goods and primary income balances, which was partly offset by the improvement mainly of the services balance and secondarily of the secondary income balance.

According to the report from Italian National Institute of Statistics (Istat), in December 2018 construction output continues to rise in the month-on-month series, growing by 0.2%.

In Quarter 4 (October to December) production in construction decreased by 0.8%, following an increase throughout Quarter 2 and Quarter 3.

Compared with December 2017, construction output reported a contraction in the calendar adjusted series, falling by 1.3%, while the unadjusted index rose by 2.2%.

Looking at annual growth rates, the whole of 2018 saw an increase of 0.9% in the calendar adjusted series, while the unadjusted index grew by 1.6%. Thus, estimates seem to confirm a return to growth in the construction output for the second consecutive year.

China will deepen reforms of its agriculture sector to promote its rural economy, the government said in its first policy statement of 2019, as it seeks to bolster growth and offset trade challenges.

"Under the complicated situation of increasing downward pressure on the economy and profound changes in the external environment, it is of special importance to do a good job in agriculture and rural areas," the government said in the document issued by the State Council.

Known as the "No. 1 document", this year's policy reiterated a rural rejuvenation strategy first laid out in 2017 to improve income levels and living standards in China's countryside. It also highlighted a plan to boost domestic soybean production but did not offer further details.

• Hunt says hopeful that deal will be done

• We can get this deal through parliament

• Seems SME climate is changing for the negative

• Euro Area outlook may be changing more fundamentally

• Bank lending Is OK

• Will not necessarily take TLRO decision in next meeting

• There are many ways to design TLTRO

"We look to the minutes of the January FOMC meeting for insights as to whether FOMC participants see the rate hike cycle as essentially complete or whether members still expect further rate hikes as part of the baseline outlook. In other words, many FOMC participants have communicated a desire to remain “patient” or “pause” the rate hike cycle to evaluate the incoming data, while the language in the statement suggests that the tightening cycle is complete and the committee has no upward bias in its forward guidance," Barclays notes.

"The minutes should also provide information about what caused the committee to assess that financial conditions had tightened and shift the balance of risks to the downside. In addition, we expect the minutes to signal that the committee is prepared to release its plan on how it will end runoff of its balance sheet “soon,” which we believe will come at the March meeting," Barclays adds.

• expects key rates to remain at present levels through the summer of 2019

• very much look at bank’s balance sheets

• TLTRO was very generous

• Hopes us does not politicise exchange rate issue

China’s central bank announced the first of a new kind of market operation which aims to encourage financial institutions to issue perpetual bonds to boost their capital.

The People’s Bank of China will swap 1.5 billion yuan of perpetual bonds for 1-year central bank bills with a coupon of 2.45 percent, according to a statement on its website Wednesday.

The PBOC announced the new tool last month and so far, the Bank of China has issued 40 billion yuan worth of perpetual bonds.

The central bank wants more lenders to follow suit, as it sees the need for larger capital buffers. The government is already pushing them to shift informal lending back onto official balance sheets, and losses from bad debts are likely to increase as the economy slows.

According to the report from Federal Statistical Office (Destatis), in January 2019 the index of producer prices for industrial products rose by 2.6% compared with the corresponding month of the preceding year. Economists had expected a 2.2% increase. In December 2018 the annual rate of change all over had been 2.7%.

Compared with the preceding month December 2018 the overall index increased by 0.4% in January 2019 (-0.4% in December 2018 and +0.1% in November 2018). Economists had expected a 0.2% decrease.

In January 2019 the price indices of all main industrial groups increased compared with January 2018: Energy prices rose by 7.2% (+0.6% compared with December 2018). Prices of durable consumer goods as well as prices of capital goods were up 1.6%.  Prices of intermediate goods increased by 1.2% and of non-durable consumer goods by 0.6%.

The overall index disregarding energy was 1.2% up on January 2018 and 0.2% up compared with December 2018.

• currency rate decided by various factors

• no one thing decides currency levels

• yield spreads can affect currency moves

• don't think current easing policy causing weak yen

EUR/USD

Resistance levels (open interest**, contracts)

$1.1447 (4552)

$1.1421 (1343)

$1.1402 (1179)

Price at time of writing this review: $1.1337

Support levels (open interest**, contracts):

$1.1295 (2893)

$1.1264 (5572)

$1.1227 (5107)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 8 is 99145 contracts (according to data from February, 19) with the maximum number of contracts with strike price $1,1700 (6198);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3211 (4033)

$1.3167 (3842)

$1.3137 (860)

Price at time of writing this review: $1.3053

Support levels (open interest**, contracts):

$1.2947 (1085)

$1.2916 (805)

$1.2883 (973)

Comments:

- Overall open interest on the CALL options with the expiration date March, 8 is 42709 contracts, with the maximum number of contracts with strike price $1,3100 (4033);

- Overall open interest on the PUT options with the expiration date March, 8 is 30153 contracts, with the maximum number of contracts with strike price $1,2700 (1893);

- The ratio of PUT/CALL was 0.71 versus 0.70 from the previous trading day according to data from February, 19

* - 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.