CFD Markets News and Forecasts — 26-06-2019

Major US stock indices predominantly declined, as the collapse of the utility sector shares leveled positive news from statements by US Treasury Secretary Mnuchin that the US and China are close to concluding a trade deal.

“We went about 90% of the way (with the deal), and I believe that there is a way to complete this,” Mnuchin told CNBC on Wednesday without providing detailed information about the remaining 10% of the way to reaching the final agreement. He also said he was confident that US President Donald Trump and Chinese President Xi Jinping could make progress in the stalled trade negotiations at the upcoming G-20 meeting this weekend.

In turn, Donald Trump said today in an interview with Fox Business that a trade deal between the United States and China is possible, but said that he was “very pleased with where we are now.” He also said that he would introduce additional tariffs on Chinese imports if there is no trade deal with China.

The focus was also on the reporting of the manufacturer of microchips Micron (MU). The company reported quarterly earnings of $ 1.05 per share, which was $ 0.26 above the average forecast of analysts. Revenue also exceeded analysts' expectations. Micron said it expects demand for its chips to recover later this year. MU shares jumped 13.3%, boosting Philadelphia Semiconductor's stock index.

Market participants also analyzed the latest US data. According to a report by the US Department of Commerce, new orders for durable goods fell by 1.3% in May after falling by a revised 2.8% in April. The continued decline surprised economists, who expected orders for durable goods to grow by 0.2% compared with a 2.1% fall, which was originally reported in the previous month. Meanwhile, with the exception of another drop in orders for transportation equipment, orders for durable goods rose by 0.3% in May, after declining by 0.1% in April. Economists had expected a growth rate of 0.1%.

DOW components finished bidding mixed (15 in positive, 15 in negative). The growth leader was Intel Corp. (INTC + 2.86%). The Travelers Companies, Inc. shares turned out to be an outsider. (TRV; -2.89%).

Almost all sectors of the S & P recorded an increase. The largest growth was shown by the raw materials sector (+ 0.9%). More than the rest, the utility sector decreased (-1.7%).

At the time of closing:

Dow 26,536.82 -11.40 -0.04%

S & P 500 2,913.78  -3.60 -0.12%

Nasdaq 100 7,909.97 +25.25 +0.32%

Analysts at Wells Fargo note that the May drop of 1.3% in durable goods orders reflects mostly aircraft weakness amid Boeing’s struggles, while the details are better with upticks in core capital goods orders and shipments, but the factory sector remains under pressure.

• “Durable goods orders for the month of May fell 1.3%, a full point worse than consensus expectations. The miss piles on to the recent run of worse than expected data coming from a broad swath of the economy, including the manufacturing sector but also housing and the consumer. Looking under the hood, however, suggests that capital spending is not falling off the rails, but equipment spending is still set to decline in the second quarter.
• Durable goods orders are particularly prone to miss forecasts based on the volatility in the sizeable aircraft sector. Boeing’s recent challenges with their 737 MAX model have amplified the importance of the transport sector on a month-to-month basis. Net cancellations led to nearly a 30% drop in nondefense aircraft orders over the month. That followed almost a 40% decline the previous month and obscures a modestly firmer trend in underlying core orders.
• While core capital goods orders suggest businesses are not fully retrenching as they await clarity on trade and contend with slowing growth abroad, equipment spending still looks set to contract this quarter.
• The upshot is that the pipeline for manufacturing remains weak, but is likely not as dire as recent regional PMIs or total durable goods orders suggest. The tabling of Mexican tariffs points to some room for improvement, but without a resolution to trade disputes with China, we expect factory activity to continue to languish amid the resulting uncertainty and floundering global growth.”

The U.S. Energy Information Administration (EIA) revealed on Wednesday that crude inventories declined by 12.788 million barrels in the week ended June 21. Economists had forecast a decrease of 2.873 million barrels. It was the biggest drop in crude inventories since the week ended September 2, 2016. 

At the same time, gasoline stocks decreased by 0.996 million barrels, while analysts had expected they to be unchanged. Distillate stocks fell by 2.441 million barrels, while analysts had forecast an advance of 0.100 million barrels.

Meanwhile, oil production in the U.S. decreased by 100,000 barrels a day to 12.100 million barrels a day.

U.S. crude oil imports averaged 6.7 million barrels per day last week, down by 812,000 barrels per day from the previous week.

The Commerce Department said on Wednesday the U.S. wholesale inventories increased 0.4 percent m-o-m in May, following a revised 0.9 percent m-o-m gain in April (originally a 0.8 percent m-o-m advance).

Economists had forecast wholesale inventories growing 0.6 percent m-o-m in May.

On a y-o-y basis, wholesale inventories surged 7.8 percent.

According to the report, stocks of durable goods rose 0.2 percent m-o-m in May after increasing 0.9 percent m-o-m in April, while those of non-durable goods advanced 0.8 percent m-o-m, the same pace as in the prior month.

Robert Both, a macro strategist at TD Securities, notes that the Bank of Canada (BoC) will publish its Business Outlook Survey on Friday, June 28th amid an increasingly murky global backdrop.

• “If the consultation period mirrors that of the 2018 survey (May 3rd - June 5th) it would overlap with a sharp increase in US-China tensions and the start of the short-lived US-Mexico skirmish.
• With the April BOS showing a broad pullback in quantitative BOS measures, the developments over the last three months raise the question of whether the June survey will continue this trend and paint the picture for lower rates.”

U.S. stock-index futures rose moderately on Wednesday, helped by the statement by the U.S. Treasury Secretary Steven Mnuchin that the U.S. and China were close to reaching a trade deal.

Global Stocks:

Jane Foley, the senior FX strategist at Rabobank, notes that the expectations of a no-deal Brexit have risen which is a direct consequence of the political stance of Boris Johnson, the frontrunner in the election of Conservative Party leader. 

• “In view of the political uncertainty, GBP is clearly vulnerable.   The EUR/GBP0.90 level is a key psychological level for the pound, but is it likely to be repeatedly threatened ahead of the Brexit deadline on October 31 given the risk of a no deal Brexit.
• Bookies odds and opinion polls suggest that Boris Johnson would currently win 60% to 80% of the vote of Tory party members. The results of the European Party elections in May made it clear that many Tory voters were ready to desert to the Brexit Party if the government continued to stall over Brexit.  All contenders for the leadership vote duly hardened their Brexit positions.
• In view of the fears associated with a no deal Brexit, GBP investors would favour a UK government led by Hunt over Johnson. That said, the higher risk that Johnson would be prepared to go head to head with parliament over a no deal Brexit brings in the potential of a no-confidence vote.  This could lead to a general election.
• The degree of uncertainty associated with the outcome of any general election and the policies of any new government would likely to be huge.  The implication is that GBP volatility could increase.   If Brexit is delayed into next year we see room for some relief and for EUR/GBP to drop back to the 0.86 area on a 6 month view.  On a no deal Brexit, we expect EUR/GBP to push towards parity.”

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

• Wants to have Mario Draghi as Federal Reserve Chair instead of Jerome Powell
• Repeats that he doesn't believe Mr. Powell is doing a good job
• Says he is not considering demoting or firing Fed Chair Jerome Powell, but he believes he has the right to do so
• Says his "Plan B" with China is take in money from tariffs and do less business with them
• Says US will "perhaps" file lawsuits against Google (GOOG) and Facebook (FB)
• Says legislation might be needed to address technology

The U.S. Commerce Department reported on Wednesday that the durable goods orders fell 1.3 percent m-o-m in May, following a revised 2.8 percent m-o-m drop in April (originally a 2.1 percent m-o-m decline).

Economists had forecast a 0.1 percent m-o-m decrease.

According to the report, orders for transportation equipment (-4.6 percent m-o-m) drove the decrease, as orders for non-defense aircraft plunged 28.2 percent m-o-m. Meanwhile, orders for durable goods excluding transportation rose 0.3 percent m-o-m, following a revised 0.1 percent m-o-m drop in April (originally unchanged m-o-m) and beating market expectations of a 0.1 percent m-o-m gain.

Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 0.4 percent m-o-m in May, after decreasing 1.0 percent m-o-m in April. Economists had forecast core capital goods orders advancing 0.1 percent m-o-m in May.

Shipments of these core capital goods went up 0.7 percent m-o-m in May after a revised 0.4 percent m-o-m gain in the prior month (originally flat m-o-m).

• U.S. had "hard conversations" with China on trade the past few days
• It is possible he could reach a trade deal with Xi at G20 and avoid the need for further tariffs
• Would do additional tariffs if there is no trade deal with China
• China deal must have intelectual property protection, opening China market

Mazen Issa, the senior FX strategist at TD Securities, believes that the slew of Fed speeches suggests that easing is imminent, but less propensity to deliver in size.

• “We agree and think the Fed prefers to move in 25bp increments rather than 50bp on a per meeting basis. Suffice to say, a retracement in the scope of implied easing in the curve leaves the USD tactically vulnerable to retrace higher; but this should be viewed as positioning related rather than trend inducing.”

Micron (MU) reported Q3 FY 2019 earnings of $1.05 per share (versus $3.15 in Q3 FY 2018), beating analysts’ consensus of $0.79.

The company’s quarterly revenues amounted to $4.788 bln (-38.6% y/y), beating analysts’ consensus estimate of $4.698 bln.

The company also said it saw Q4 revenue in the range of $4.3-4.7 bln (versus analysts’ consensus estimate of $4.558 bln) and Q4 EPS in the range of $0.38-0.52 (versus analysts’ consensus estimate of $0.70).

MU rose to $35.50 (+8.63%) in pre-market trading.

FedEx (FDX) reported Q4 FY 2019 earnings of $5.01 per share (versus $5.91 in Q4 FY 2018), beating analysts’ consensus of $4.83.

The company’s quarterly revenues amounted to $17.807 bln (+2.8% y/y), generally in line with analysts’ consensus estimate of $17.851 bln.

The company guides its FY2020 non-GAAP EPS to show a mid-single-digit percentage point decline while analysts’ consensus is estimating 4% EPS growth.

FDX rose to $158.75 (+1.78%) in pre-market trading.

U.S. has national security concerns over Huawei

U.S. is looking for reasonable deal with China over trade

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. rose 1.3 percent in the week ended June 21, following a 3.4 percent decline in the previous week.

According to the report, refinance applications surged 3.2 percent, while applications to purchase a home dropped 0.9 percent.

Meanwhile, the average fixed 30-year mortgage rate decreased to 4.06 percent from 4.14 percent.

“Markets last week reacted to a more dovish FOMC statement and forecast, with Treasury yields falling after the meeting,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. “Mortgage rates dropped again for most loan types, which led to an increase in refinance activity, partly driven by a 9% jump in VA applications.”

• Tightness in UK labour market has been feeding through into pay growth
• Not seeing ddebt-fuelled consumption growth in any shape or form
• Survey data points to lacklustre business investment in Q2
• Doesn’t expect turnaround in weak business investment in short term
• Expectations of a no-deal Brexit have risen, thus affecting the economy
• But markets are not saying that no-deal is the most likely Brexit scenario
• Business uncertainty is as high as it was before the 29 March deadline
• Housing market has been affected by Brexit deadlines
• If headwinds in the economy lift, higher rates would be appropriate
  
• Monetary policy is accommodative but not extraordinarily accommodative
  

Raoul Leering, the head of international trade analysis at ING, suggests that there are too many bridges to be crossed for a smooth path towards a trade deal between the U.S. and China. He also thinks there will be another round of tariffs before the pain of the trade war forces both parties to strike a deal in the last quarter of this year.

• "Failure to agree on the resumption of the negotiations during the G20 or failure to come to a deal after a new round of negotiations will inflict extra economic pain. This increases the willingness to make concessions and strike a deal on both sides. Let’s not forget: both sides want a deal in the end. China can hurt the US economically but it knows that the US can hurt China even more. President Trump needs a deal to show the American people that he delivers on his promises to get better terms of trade for the US. He knows that this is best done without the US economy having to suffer from Chinese retaliation for an extended period of time. We expect a deal to be struck in the last quarter of this year.
• So it is likely that China as well as the US are prepared to make concessions in the end. After all, this is what's happened in the renegotiation of Nafta. To strike a deal, Trump had to accept that Mexico and Canada would not agree to all of his original demands."

Fitch Ratings says that the imposition by the U.S. of 25% tariffs on the remaining $300 billion of imports from China would reduce world economic output by 0.4pp in 2020.

• "Global GDP growth would slow to 2.7% this year and 2.4% next year.
• China's growth rate would be reduced by 0.6pp, and US growth by 0.4pp, in 2020.
• The imposition of tariffs on all imports from China being considered by the U.S. administration would mark a significant escalation of trade tensions.
• For China and the U.S, the tariffs would initially feed through to lower export volumes and higher import prices, with the latter raising firms' costs and reducing r.eal wages.
• Business confidence and equity prices would also be dampened, further weighing on business investment and reducing consumption through a wealth effect. 
• Export competitiveness in the countries subject to tariffs would decline, resulting in lower export volumes. 
• Import substitution would offset some of the growth shock in the countries imposing import tariffs. 
• Countries not directly involved in the trade war would also see their GDP falling below baseline, though in most cases by less than the US and China."

Timme Spakman, economist at ING, points out that world trade volume declined by 0.7% in April and the outlook for a rebound seems difficult given export orders continued to slow further in May.

“The trade war is really starting to bite and this can be clearly seen in global trade flows. Since the further escalation of the trade war, we have seen the biggest fall in world trade since 2009 during the last few months of 2018 - and trade volumes haven't recovered since. The month on month decline in April signifies the effects of the trade war as the decline is mostly concentrated in US and Chinese trade flows. The outlook for trade remains bleak as new export orders are slowly converging on the negative side of their historic means. We expect the trade war will get worse before any deals are closed.

Treasury Secretary Steven Mnuchin told that the U.S. and China were almost there on a trade deal. “We were about 90% of the way there (with a deal) and I think there’s a path to complete this,” he told.

He said he’s confident President Donald Trump and Chinese President Xi Jinping can make progress in stalled trade talks at the forthcoming Group of 20 (G-20) meeting this weekend. 

“The message we want to hear is that they want to come back to the table and continue because I think there is a good outcome for their economy and the U.S. economy to get balanced trade and to continue to build on this relationship.

Mnuchin said he was hopeful a deal could be struck by the end of the year but said “there needs to be the right efforts in place.”

• response to interest rates is not automatic if there is a no-deal Brexit

• BOE forecasts do not include no-deal Brexit risk which is priced into market interest rate forecasts, GBP unmoved

• Risk of no-deal Brexit has pushed down market path for interest rates.

• If there is progress towards a Brexit deal, current BOE forecast will be "very relevant".

• BOE will change its forecasts if government's official Brexit policy changes.

Banks in Britain are showing signs of restarting preparations for a no-deal Brexit after a lull in the shift of financial services jobs and capital from Britain to the European Union in the past few months, consultants EY said.

EY's Brexit Tracker of public announcements from 222 of the largest financial services firms in the three months ending May 31 found that the 7,000 planned job and a trillion pounds in capital relocation to new EU hubs was little changed from the prior quarter.

Banks, insurers and asset managers had prepared for a March 31 Brexit but departure was delayed to October 31. The prospect that Britain could leave the EU without a deal by the end of October has started to have an impact.

Many firms have been reluctant to make the final decision to move to the EU until they absolutely have to, though investment banks have already moved nearly 1,000 jobs to Europe, EY said.

Arjen van Dijkhuizen, senior economist at ABN AMRO, suggests that they have recently adopted a more negative view on trade tensions and the impact thereof on the global economy and as a result, they have lowered their growth forecasts for a wide range of advanced and emerging economies, while expecting a global easing cycle to cushion the blow.

“We have also cut our growth forecasts for export-oriented emerging Asia, as the (re)escalation of the US-China trade/tech conflict has left its mark on regional supply chains, on business confidence and on financial conditions, while external demand has softened. We cut our growth forecasts for China only modestly (for 2019 from 6.3% to 6.2% and for 2020 from 6.0% to 5.8%), as we expect more policy support to offset the larger drag from the trade conflict. For the majority of the other EM Asian countries, we cut our 2019-20 growth forecasts by around 0.5 ppt. As a result, we now expect regional growth to slow from 6.1% in 2018 to 5.7% (down from 5.9%) in 2019 and to 5.5% (down from 5.8%) in 2020.”

Japanese Prime Minister Shinzo Abe said on Wednesday that he hoped the United States and China would resolve their trade war through constructive dialogue when they meet at a gathering of leaders from the Group of 20 major economies.

Abe, who hosts this week's summit in Osaka, also said he wanted the G20 to deliver a strong message on issues such as the promotion of free trade, innovation-driven global growth and rule-making for the digital economy.

"I expect that the United States and China will resolve their trade friction in a constructive manner through dialogue such as their bilateral meeting at G20," Abe told.

According to Karen Jones, analyst at Commerzbank, GBP/USD pair continues to struggle at the 1.2763/72 resistance (the 7th June high and February low) and has in fact charted a key day reversal.

“For caution we will exit our longs here. The market will have to overcome this on a closing basis in order to generate some further upside interest. This will target the 200 day ma at 1.2923, but we are looking for this to then cap the topside. Meanwhile we would allow for a possible near term pull back towards the 1.2667/00 region ahead of another leg higher (previous downtrend should now act as support). Failure here will see the 1.2559/1.2506 recent lows retested. Below 1.2506 would target the 1.2444 December 2018 low. This is the last defence for 1.2108, the 78.6% retracement of the move up from 2016.”

A crucial government meeting over Italy's new budget deficit target scheduled for Wednesday might be postponed due to disagreements within the ruling coalition over an unrelated policy issue, daily Il Corriere della Sera reported.

Unless Rome makes concessions this week on its spending plans for 2019 and 2020, the EU Commission is expected on July 2 to open a disciplinary procedure against Italy for excessive debt.

The coalition of the anti-establishment 5 Star Movement and the far-right League party is due to formalise the new target on Wednesday, and also to discuss a deficit goal for 2020. However, 5 Star and the League are in disagreement over the latter's plan to give greater fiscal autonomy to the rich northern regions, il Corriere della Sera said.

Jens Nærvig Pedersen, senior analyst at Danske Bank, explains that the EUR/USD pair faced a reality check of Fed pricing yesterday when the Fed’s Bullard argued that a 50bp rate cut would be overdone and Powell failed to commit to easing.

“Comments from the two sent EUR/USD temporarily lower as USD rates shot higher. There is still some time to go before the 31 July FOMC meeting and more data and speeches to come, which means the market will likely continue to be in a limbo over whether to price a 50bp cut or not at the July meeting. In turn, EUR/USD should stay range-bound close to 1.14 near term before eventually rising to 1.15 in 3M as the Fed starts easing. Notably, there is still room for further reversal of short EUR/USD positions. Technically, the market will keep an eye on the 1.1448 top from 20 March.”

Data published today by the Recruitment & Employment Confederation (REC) shows that employers’ confidence, both in the UK economy and in their own businesses’ ability to hire and invest, has started to improve since the extension to the Brexit deadline.

The latest  shows that employers’ confidence in making hiring and investment decisions increased by 4 percentage points from the previous rolling quarter, returning to positive territory at net: +1. Confidence in the UK economy also improved, rising by 3 percentage points to net: -26.

Hiring intentions for temporary agency workers continued to rise rolling quarter-on-quarter, with the balance of forecast demand increasing from net: +2 to net: +4 in the short-term, and from net: +4 to net: +5 in the medium-term.

Neil Carberry, Chief Executive of the Recruitment & Employment Confederation, said: “The strength of our jobs market is one of the biggest assets the UK has, as it keeps people in work and raises their pay. Ensuring we protect the flexibility and opportunity it offers should be at the heart of any new government’s agenda. Today’s survey shows that businesses believe in their own prospects and are ready to grow if the pall of economic uncertainty is removed".

Leaders of the G20 top economies will call this week for the promotion of free trade to achieve strong global growth, Japanese media said on Wednesday, as the United States and China seek to resume talks to resolve their bitter trade dispute.

In preparing a joint communique, Japan, the chair of the meetings, seeks common ground between the United States, which opposes language denouncing protectionism, and other nations, which want a stronger warning against the risk of trade tension.

A draft of the document shows G20 nations will highlight the promotion of free trade and technological innovation as two of the key drivers of the global economy, the Asahi newspaper said.

It also stresses the importance for nations of the grouping to create a positive cycle so that the benefits of solid growth are distributed broadly, the paper added.

According to the report from National Institute of Statistics and Economic Studies (Insee), in June 2019, households’ confidence in the economic situation has increased for the sixth consecutive month. The synthetic index has gained 2 points. At 101, it now stands above its long term average (100) for the first time since April 2018.

In June, households’ opinion balance on their future personal situation has declined: it has lost 1 point and now stands at its long term average. Households’ opinion balance regarding their past financial situation has remained unchanged. It remains slightly below its long term average. In addition, the share of households considering it is a suitable time to make major purchases has increased again, for the sixth consecutive month. The corresponding balance has gained 1 point and remains just above its long term average.

In June, households’ opinion balance on their saving capacity has improved. Indeed, the expected saving capacity balance has gained 3 points while the current one has gained 1 point. The share of households considering it is a suitable time to save has slightly declined: the corresponding balance has lost 1 point and remains below its long term average.

Analysts at TD Securities, points out that the BoE's Carney, Cunliffe, Tenreyro, and Saunders appear before Parliament's Treasury Select Committee at 09:15 am GMT.

“Given the age of the report (it was issued nearly 2 months ago, and the session was delayed on account of Parliamentary drama), the officials are likely to focus more on recent developments. In particular, this could give Saunders (and perhaps others) a chance to explain his hawkish comments ahead of the somewhat cautious MPC meeting only days later.”

Karen Jones, analyst at Commerzbank, suggests that EUR/USD’s rally has reached the 1.1416 55 week moving average and has charted a key day reversal.

“We note the 13 count on the 60 minute chart and we would allow for a small near term retracement into the 1.1360/25 band ahead of further gains. Above 1.1416 we look for a test of the 1.1570 2019 high. Beyond this we target 1.1815/54 (highs from June and September 2018). Initial support lies at 1.1348 the 7th June high ahead of 1.1176 the 7th March high. We regard recent lows at 1.1110/06 as an interim turning point and continue to view the market as based longer term and we target 1.1990 (measurement higher from the wedge).”

Market research group GfK said that consumer mood is displaying a very uneven image in June 2019. Propensity to buy is increasing again, while income expectations suffer significant setbacks. Economic expectations have ceased their downward spiral, for the time being at least. 

For July, GfK is predicting a consumer climate value of 9.8 points, following a June figure of 10.1 points. Economists had expected decrease to 10.0.

The consumer climate is recording losses for the second time in a row. A key factor behind this is the noticeable decrease in the income indicator this month (the indicator lost 12.2 points, falling to 45.5 points, this is the lowest level since March 2017 when it stood at 41.6 points). Propensity to buy, on the other hand, is managing to more than make up for losses suffered last month and is displaying largely stable development (this indicator rose by 3.2 points to 53.7). Economic expectation is currently not decreasing further (the indicator rose by 0.7 points and now stands at 2.4 points). 

EUR/USD

Resistance levels (open interest**, contracts)

$1.1496 (3592)

$1.1474 (3881)

$1.1454 (4422)

Price at time of writing this review: $1.1356

Support levels (open interest**, contracts):

$1.1294 (2774)

$1.1247 (2743)

$1.1198 (2918)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date July, 5 is 70631 contracts (according to data from June, 25) with the maximum number of contracts with strike price $1,1300 (4422);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2831 (1184)

$1.2801 (738)

$1.2779 (374)

Price at time of writing this review: $1.2673

Support levels (open interest**, contracts):

$1.2627 (1663)

$1.2586 (1407)

$1.2542 (1935)

Comments:

- Overall open interest on the CALL options with the expiration date July, 5 is 17300 contracts, with the maximum number of contracts with strike price $1,3000 (2756);

- Overall open interest on the PUT options with the expiration date July, 5 is 15873 contracts, with the maximum number of contracts with strike price $1,2500 (2199);

- The ratio of PUT/CALL was 0.92 versus 0.92 from the previous trading day according to data from June, 25

* - 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.