CFD Markets News and Forecasts — 20-02-2020

The U.S. Energy Information Administration (EIA) revealed on Wednesday that crude inventories increased by 0.414 million barrels in the week ended February 14. Economists had forecast an advance of 2494 million barrels.

At the same time, gasoline stocks declined by 1.971 million barrels, while analysts had expected a gain of 0.435 million barrels. Distillate stocks fell by 0.636 million barrels, while analysts had forecast a decrease of 1.459 million barrels.

Meanwhile, oil production in the U.S. was unchanged at 13.000 million barrels a day.

U.S. crude oil imports averaged 6.5 million barrels per day last week, down by 431,000 barrels per day from the previous week.

FXStreet reports that economists at the National Bank of Canada Financial Markets review the data related to the housing market of the North American country. 

“The Teranet–National Bank Composite National House Price IndexTM advanced 0.1% in January, a rather typical performance for that month.”

“From January 2019 to January 2020, the Composite index rose 2.1%.” 

“The sub-index for Central and Eastern Canada grew 5.2% over the last 12 months, against a 2.5% fall for the Western sub-index.”

The Conference Board announced on Thursday its Leading Economic Index (LEI) for the U.S. rose 0.8 percent m-o-m in January to 112.1 (2016 = 100), following a 0.3 percent m-o-m drop in December.

Economists had forecast a gain of 0.4 percent m-o-m.

Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board, noted: "The strong pickup in the January US LEI was driven by a sharp drop in initial unemployment insurance claims, increasing housing permits, consumers' outlook on the economy and financial indicators".

The report also revealed the Conference Board Coincident Economic Index (CEI) for the U.S. edged up 0.1 percent m-o-m in January to 107.3, following no change m-o-m in December. Meanwhile, its Lagging Economic Index (LAG) for the U.S. remained unchanged m-o-m in January at 108.7, following a 0.1 percent decrease in December.

The European Commission (EC) said on Thursday its flash estimate showed the consumer confidence indicator for the Eurozone increased by 1.5 points to -6.6 in February from the previous month. That was the highest level since September 2019.

Economists had expected the index to worsen to -8.2.

Considering the European Union (EU) as a whole, consumer sentiment rose by 1.2 points to -5.9.

Despite these gains, both indicators remain well above their respective long-term averages of -10.6 (Eurozone) and -10.2 (EU), the report said.

Statistics Canada reported on Friday the New Housing Price Index (NHPI) was unchanged m-o-m in January, following a 0.2 percent m-o-m gain in the previous month.

Economists had forecast the NHPI to increase 0.2 percent m-o-m in January.

According to the report, Ottawa (+1.4 percent m-o-m) registered the largest increase in prices for new houses in January, due to favourable market conditions and higher construction costs. New house prices also rose in Greater Sudbury (+1.1 percent m-o-m) and Kelowna (+0.6 percent m-o-m). In contrast, unfavourable market conditions drove down prices in Regina (-1.2 percent m-o-m) and Saskatoon (-0.5 percent m-o-m). In addition, declines were recorded in Toronto (-0.4 percent m-o-m) and Vancouver (-0.2 percent m-o-m).

In y-o-y terms, NHPI rose 0.2 in January, following a 0.1 percent uptick in the previous month.

U.S. stock-index futures fell on Thursday as coronavirus cases outside China increased, raising concerns about the global impact of the epidemic.

Global Stocks:

• Notes fundamentals of U.S. economy remain solid into 2020
• Labor market is strongest in 50 years
• There has been a decline in trade policy uncertainty
• That decline in tensions from trade should be positive for business investment
• He is getting daily briefings on coronavirus
• Says it is still too soon tell the impact of coronavirus on the U.S. economy
• Financial stability risks in U.S. are moderate
• Reliance on repo operations will recede

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

The Manufacturing Business Outlook Survey, released by the Federal Reserve Bank of Philadelphia on Thursday, revealed the expansion in the region's manufacturing activity accelerated in February.

According to the survey, the diffusion index for current general activity climbed from 17.0 in January to 36.7 this month. That was the highest reading since February 2017.

Economists had forecast the index to decrease to 12.0.

A reading above 0 signals expansion, while a reading below 0 indicates contraction.

According to the report, the indexes for new orders (+15 points to 33.6, its highest reading since May 2018) and shipments (+2 point to 25.2) rose this month, suggesting more widespread growth. Meanwhile, employment (-10 points to 9.8) increased at a moderated pace from January. Elsewhere, both the unfilled orders (+11 points to 7.4) and delivery times (+3 points to 2.7) indexes moved into positive territory this month, suggesting slightly higher unfilled orders and slower delivery times. On the price front, prices paid index decreased 6 points to 16.4, while prices received index rose 2 points to 17.1

The data from the Labor Department revealed on Thursday the number of applications for unemployment benefits rose slightly last week, indicating the labor market remains strong.

According to the report, the initial claims for unemployment benefits increased by 4,000 to a seasonally adjusted 210,000 for the week ended February 15.

Economists had expected 210,000 new claims last week.

Claims for the prior week were revised upwardly to 206,000 from the initial estimate of 205,000.

Meanwhile, the four-week moving average of claims fell 3,250 to 209,000 last week.

FXStreet notes that Brexit uncertainties remain, and the Bank of England still looks set to cut rates in 2020. Economists at Danske Bank expect British pound weakness in the next months. 

“We do not think the renewed optimism will last long, as Brexit uncertainty remains high. At this point, we cannot rule out a no deal Brexit resulting from the EU and the UK failing to strike a permanent trade agreement by the end of the year. Despite the renewed optimism, we think businesses will remain hesitant to restart investment projects, and thus expect growth to remain sluggish in 2020.”

“We maintain a pessimistic view on the economic outlook and thus expect a rate cut later this year, probably in May. Investors are pricing in an 84% probability of a cut before year-end (and 35% by May). Another repricing of a BoE cut would be GBP negative.”

“In the very near term, we do not see many drivers moving GBP in either direction. As we get closer to the BoE meeting in May and the EU-UK trade talks’ decisions in June, we expect EUR/GBP to move higher on the back of a rate cut and Brexit fears. Eventually, our base case is a simple EU-UK trade agreement, which will strengthen GBP again. We forecast EUR/GBP at 0.85 in 1M, 0.86 in 3M, 0.89 in 6M and 0.84 in 12M.”

EUR traded mostly higher against its major rivals in the European session on Thursday after the release of the minutes from the ECB monetary policy meeting on January 22-23. The document revealed the policymakers saw positive signals. "The risks surrounding the euro area growth outlook, related to geopolitical factors, rising protectionism and vulnerabilities in emerging markets, remained tilted to the downside, but had become less pronounced as some of the uncertainty surrounding international trade had receded," the minutes noted.

GBP traded mixed against other major currencies, following the release of upbeat UK's retail sales data for January and the Confederation of British Industry's (CBI) survey of industrial trends.

The Office for National Statistics (ONS) reported the British retail sales rose by 0.9 percent m/m in January, following a revised 0.5 percent m/m drop in the previous month. That was the largest advance in retail trade since March 2019. Economists had expected a 0.7% increase. The January gain in retail sales was mainly attributable to a “moderate growth” in both food (1.7 percent m/m) and non-food stores (+1.3 percent m/m), despite rising fuel prices dampening volume, the ONS said. In y/y terms, the UK's retail sales rose 0.8 percent, easing from a 0.9 percent rise in the previous month, but exceeding economists' expectations of a 0.7 percent gain.

The latest CBI's survey provided early signs of a turnaround in manufacturing activity, as manufacturing order book balance improved to -18 in February (from -22 in January), its highest level since August 2019, and output expectations for the next three months rose to +8 (from +4 in January), its highest level since February 2019. However, the sector witnessed output volumes falling for a fifth rolling quarter in a row, albeit at a slower pace than in January.  

The ECB released account of its January 22-23 monetary policy meeting. It noted that:

• while there might have been a bottoming-out in manufacturing, it was too soon to conclude that the slowdown in growth in the services sector had stopped, as spillovers to services could emerge with a lag and the sector's current resilience might not last;
• nowcasting models, which took recent data releases into account, pointed to a stabilisation in growth at low rates, below estimates of potential growth;
• members were encouraged by the fact that headline and underlying inflation had recently evolved in line with the December staff projections and by the evidence of a continued gradual upward trend in some indicators of underlying inflation;
• reference was made to developments in a number of euro area indicators; it was felt to be important to acknowledge these positive signs and care should be taken to avoid being too slow to change the risk assessment;
• some caution was also expressed about becoming too optimistic;
• remark was also made that higher housing prices could lead to fragilities in the financial system which might be insufficiently addressed by macroprudential policies.
  
  

FXStreet notes that the current stance of monetary policy is appropriate according to FOMC members. The Fed considers introducing a temporary asymmetric operational inflation target range, economists at Danske Bank inform.

“With respect to policy signals we did not learn much new, which also makes sense given the many Fed speeches recently. Consensus among FOMC members is that ‘the current stance of monetary policy is appropriate’ and that the Fed wants to see how the economy reacts to the three insurance cuts last year.”  

“The FOMC members had a long discussion about how to tweak the current symmetric 2% inflation target. They discussed the idea of a (temporary) asymmetric operational range with 2% being at or near the lower end of the range. This would signal to market participants that the Fed can tolerate inflation above 2% for some time without raising rates. Our base case is still that the Fed implements some sort of average inflation targeting this year, the question is the exact formulation of it.”

“The Fed is still seriously considering implementing a standing repo facility to make sure overnight rates do not surge again like last year.”

“With respect to the level of reserves, the Fed is still aiming at approximately USD1,500bn. This level is expected to be reached before April.”

• Investor risk aversion grew last month due to the coronavirus outbreak; market has faced big fluctuations since then
• Volatility remains high in global markets

• Outlook for global economic activity outside the euro area has been showing some signs of improvements recently
• Eurozone growth supported by underlying strength of domestic activity
• Bolstered by strong labour markets, favourable financing conditions
• International trade remains weak
• But forward-looking survey indicators show tentative signs of mild improvements
• Outbreak of the coronavirus and its potential effect on global growth add a new layer of uncertainty
• Eurozone economy still needs strong support from monetary policy
• ECB is attentive to possible side effects of current policy measures

The latest survey by the Confederation of British Industry (CBI) revealed on Thursday the UK manufacturers' order books improved further in February.

According to the report, the CBI's monthly factory order book balance increased to -18 in February from -22 in the previous month. Economists had forecast the reading to come in at -19. That was the highest reading since August 2019 but below the survey's long-run average of -13.

The CBI reported that output expectations rose from +4 in January to +8 in February, the highest level since February 2019, while domestic price outlook worsened from +2 to -2 and assessment of the adequacy of the present stocks of finished goods eased from +26 to +15.

"It is encouraging to see manufacturers reporting some early signs of a turnaround in activity, but it's probably still too early to say whether we've seen the end of the slowdown in the sector," noted Alpesh Paleja, CBI lead economist.

"Notwithstanding improving optimism, the sector is still grappling with longer-term uncertainty over the UK's future relationship with the EU," he added.

Meanwhile, Tom Crotty, Group Director of INEOS and Chair of the CBI Manufacturing Council, said: "The beginning of 2020 seems to have seen an improvement in UK manufacturing activity following a difficult 2019. Nevertheless, there can be no doubt that this progress is fragile and the new-look Cabinet must therefore waste no time in working with manufacturers to tackle long-standing challenges and seize opportunities for growth."

CNBC reports that business activity in China may look like it's at a standstill amid the COVID-19 outbreak, but investors should start planning their next moves, experts said on Thursday.

"China is still China, the economy is still the economy, the consumers are still consuming," said Frank Lavin, CEO of Export Now, a digital solutions company.

"Whatever the initial logic was that might have propelled you to go to the China market six months ago still holds today - even though we are the middle of some very bad weather," said Lavin, a former U.S. ambassador to Singapore under the George W. Bush administration.

Although China's economy this year will be hit by the ongoing health crisis, it would "still be a very nice year for the Chinese GDP," said Lavin. China posted 6.1% GDP growth in 2019.

Lavin said he thinks there could still be a few more weeks of bad news after China "got off to a very bad start" handling the new coronavirus crisis. But Chinese authorities are "more or less getting their arms around it" now, Lavin told CNBC.

"No company welcomes this kind of turmoil," Lavin said. "But most people (who) are looking at China, thinking about China are almost by definition, taking a long-term view," he said.

FXStreet reports that despite the prevalent fears over coronavirus, on a 5-day view the JPY is the worst performing G10 currency. This is a remarkable turnaround for a currency that until a few days ago was widely viewed as both a favoured and a tried and tested safe haven. Economists at Rabobank review the Japanese yen outlook.

"We would link the turnaround in the behaviour of the yen with three overlapping factors. The first is that the impact of the coronavirus is very close to home, the second is the step-up in fears that Japan could fall into recession in the current quarter and the third is that the USD can offer both liquidity and yield. For these reasons the USD can offer many investors a more practical safe haven."

"Speculation that PM Abe may have to consider another round of spending, just two months or so after the last round of stimulus, have inevitably grown and speculation is also rising that the BoJ may have to announce further stimulus. More BoJ stimulus inevitably has negative implications for the JPY and highlights the attraction of the positive yielding USD."

"While Japan's healthy current account surplus suggests that it is likely to re-claim its safe haven behaviours once the coronavirus crisis has ebbed, the USD could increasingly become the favoured store of value for many investors. We retain our view the USD will again be far stronger than the consensus expectation this year."

FXStreet reports that the CNY will remain volatile as investors are digesting the impact of the virus outbreak and authorities are taking sharp measures to contain the virus and support economic growth, economists at Nordea inform.

"The short-term direction of the currency strongly depends on the further unfolding of the virus outbreak and the measures the government takes to soften the blow. In case containment fails and panic spreads again, USD/CNY could weaken well beyond seven, towards ~7.15, levels last seen at the height of trade war escalation last year."

"The daily fixing rate has been kept on the strong side of seven to the dollar in the past few days, suggesting that the PBoC stands ready to support the currency. Despite the calming efforts, the onshore yuan temporarily broke through the seven-to-the-USD mark on 3 February, and again on 18 February, following its offshore counterpart."

"We take a wait-and-see-approach to the virus outbreak and maintain our forecast. The weakening from the second half of 2020 is based on our expectation of frictions between the US and China flaring up again."

According to the report from Office for National Statistics, retail volumes increased by 0.9% in January 2020, recovering from the falls in the previous two months; the increase was mainly because of moderate growth in both food stores (1.7%) and non-food stores (1.3%). Economists had expected a 0.7% increase.

Fuel saw a large fall of 5.7% in the quantity bought in January 2020 when compared with December 2019, which coincides with a rise in fuel prices of 2.3 pence per litre between December and January (consumer price inflation, January 2020).

Online sales as a proportion of all retailing was 19.0% in January 2020, down from 19.3% in December 2019.

In the three months to January 2020, the quantity bought in the retail sales industry fell by 0.8% when compared with the previous three months, with declines across all sectors.

The Mechanical Engineering Industry Association (VDMA) said that weak industrial production worldwide and growing protectionism have left their mark on the export balance of mechanical engineering companies from Germany. In 2019, the companies exported goods with a total value of 179.8 billion euros.

According to provisional figures from the Federal Statistical Office, German machinery exports were thus 1.5 percent below the previous year's figure in real terms. Not adjusted for prices, machinery exports barely reached stagnation. With an export quota of almost 80 percent, mechanical engineering companies from Germany continue to have a strong presence on the world market, but also depend on its development.

"In particular international trade disputes, increasing protectionism and the brexite hangover as well as the far-reaching structural change in the automotive industry have led to uncertainty and a reluctance to invest in many industries," explained VDMA economic expert Olaf Wortmann. "In view of the current order intake of mechanical engineering companies, a renewed decline in exports is likely for the whole of 2020," he predicted.

Between January and December, exports to the United States, the number one target country for German machinery exporters, rose by a nominal 4.3 percent to 20.1 billion euros. The USA thus accounts for 11.2 percent of total German machinery exports. However, the momentum slowed significantly in the course of the year. "This is not least because the trade dispute between the USA and China has also weakened industry in the United States," explained Wortmann.

FXStreet reports that NZD will struggle while pandemic concerns persist. Despite solid domestic fundamentals, Q1 activity will be hit hard, but Q2 should rebound, in the opinion of strategist at Westpac Institutional Bank.

"NZD/USD broke the 0.6380 support level yesterday, signalling a further fall to the low 0.63s during the week ahead."

"Even if our assumptions of a short-lived (Q1) virus impact followed by a sharp Q2 rebound prove correct, markets are initially likely to be more fixated on the Q1 decline in economic indicators than the forecasted rebound."

"A more bearish climate for the NZD for at least another month is suggested before NZ's fundamentals can reassert themselves and lift NZD/USD to 0.6600 by Q3."

FXStreet reports that FX Strategists at UOB Group noted USD/CNH could visit the 7.05 zone once 7.0230 is cleared.

24-hour view: "Expectation for USD to move above the early February peak of 7.0230 did not materialize as it eased off from a high of 7.0168. Upward momentum still appears firm and we continue to see chance for USD to move above 7.0230. That said, the next resistance at 7.0350 is likely out of reach. Support is at 7.0020 followed by 6.9950."

Next 1-3 weeks: "We have held view that USD is expected to 'trade sideways' for close to 2 week now. Since then, USD traded sideways before soaring by +0.34% yesterday. The rapid pick up in momentum suggests the consolidation phase could be close to an end. From here, if USD were to close above 7.0230 in NY, it would indicate the start of an up leg towards 7.0500. At this stage, the prospect for such a scenario is not high but it would improve quickly as long as USD does not move below 6.9850 within these few days."

CIBC Research discusses its reaction to today's FOMC minutes from the January meeting.

"The minutes of the January FOMC meeting show that policymakers remain comfortable with staying on the sidelines for now. Officials remain confident in the consumer as a source of growth, as a few believe that the labor market remains below maximum employment, with several seeing scope for greater labor market participation ahead. The balance of risks to the outlook was viewed at the time as somewhat more favorable, however, the meeting took place before the coronavirus fears became amplified, so that sentiment could change in the next meeting. Their view on inflation remains that it will return to target as a series of unusually weak readings from early 2019 start to fall out of the annual calculation," CIBC notes.

"Further elaborating on the meeting announcement, where it was said that the execution of repo operations would continue at least through April, the minutes suggested that conditions for tapering purchases are expected to be warranted in Q2," CIBC adds.

According to the report from INSEE, in January 2020, the Consumer Prices Index (CPI) fell back by 0.4% over a month, after +0.4% in December. Manufactured product prices dropped seasonally, due to winter sales (−2,2% after +0.2%) and those in food (+0.4% after +0.6%) and energy (+0.5% after +0.8%) slowed down. Service prices were unchanged over a month, after a 0.5% rise in December. Moreover, tobacco prices barely increased over a month (+0.1% after a stability in December).

Seasonally adjusted, consumer prices rose by 0.3% in January, after +0.2% in December.

Year on year, consumer prices increased by 1.5%, as in December. This stability in inflation came from a slowdown in the prices of services, food and tobacco, offset by an acceleration in those of energy. Manufactured product prices dropped at the same pace as in December.

Year on year, core inflation barely decreased in January: +1.0% after +1.1% in the previous month. The Harmonised Index of Consumer Prices (HICP) fell by 0.5% over a month, after +0.5% in December; year on year, it slightly accelerated, to +1.7%, after +1.6% in the previous month.

During today's Asian trading, the us dollar strengthened against most of the world's major currencies amid the spread of the coronavirus outside of China.

The Chinese yuan fell in price on the background of monetary policy easing by the People's Bank of China. The Central Bank lowered the annual base rate (loan prime rate, LPR) to 4.05% from 4.15% per annum, but analysts doubt the adequacy of such easing.

"There is a sense that the decline in LPR is not sufficient to contain the slowdown in economic growth caused by the spread of the coronavirus," said Chan Wei Liang, an analyst at DBS Bank in Singapore.

According to the Hong Kong newspaper South China Morning Post, the number of people infected with the Covid-9 coronavirus in the world, except for the mainland of China, increased by 137 over the past day and amounted to 1,149 thousand people. At the same time, the number of victims of the coronavirus has doubled from 5 to 10 people: three people died in Japan, including two from the Diamond Princess cruise ship, two deaths were recorded in Hong Kong and Iran, and one in France, Taiwan and the Philippines.

"Uncertainty is growing and the dollar is strengthening," said currency analyst at Sony Financial Holdings Inc. Kumiko Ishikawa. "What is important is that the fundamentals of the American economy are the strongest among other developed economies and, in addition, the spread of the coronavirus is likely to have more serious consequences for Asian countries."

According to the report from GfK Group, German consumer sentiment shows a mixed picture with little change in February. While economic expectations gained slightly, income expectations and propensity to buy suffered moderate losses. As a result, GfK has forecast a figure of 9.8 points for March 2020, 0.1 points lower than February's level (9.9 points).

Moderate losses for income expectations and propensity to buy have resulted in a slight decline for the German consumer climate.

"The consumer climate has been unable to continue the previous month's positive trend. The spread of the coronavirus has undoubtedly contributed to uncertainty among consumers," explains Rolf Bürkl, consumer expert at GfK. "A decline or halt in production in companies in China triggered by the virus could affect production in Germany as well, or even cause it to come to a complete standstill. This could result in reduced working hours and possibly reductions in staff. And this would not be of benefit to consumer confidence."

GfK confirmed its forecast from the previous month, according to which private consumption will increase in real terms by about one percent this year.

EUR/USD

Resistance levels (open interest**, contracts)

$1.0913 (1705)

$1.0877 (608)

$1.0850 (356)

Price at time of writing this review: $1.0789

Support levels (open interest**, contracts):

$1.0730 (3263)

$1.0710 (2024)

$1.0689 (1282)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 6 is 105724 contracts (according to data from February, 19) with the maximum number of contracts with strike price $1,1200 (6385);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3074 (3902)

$1.3038 (2112)

$1.3006 (863)

Price at time of writing this review: $1.2899

Support levels (open interest**, contracts):

$1.2873 (2529)

$1.2848 (3461)

$1.2817 (2894)

Comments:

- Overall open interest on the CALL options with the expiration date March, 6 is 28288 contracts, with the maximum number of contracts with strike price $1,3050 (3902);

- Overall open interest on the PUT options with the expiration date March, 6 is 30365 contracts, with the maximum number of contracts with strike price $1,2800 (3722);

- The ratio of PUT/CALL was 1.07 versus 1.06 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.