CFD Markets News and Forecasts — 27-02-2020

Analysts at ING note that the Australian dollar has led losses within the G10 space over the past few days and AUD/USD has dropped by more than 4% in the spot market since the Covid-19 outbreak became public. 

"While this may appear like a sizable loss for the currency, we think it has actually been relatively contained. A hawkish tone by the RBA in the February policy statement and broadly supportive data flow have likely curbed the currency's losses. The above-mentioned negative implications of the Covid-19 outbreak on the Australian economy and the additional downside risks stemming from the extended bushfire emergency would have probably warranted AUD/USD around the 0.64 area."

"Looking ahead, how much the virus will eventually spread (or, has spread) among developed economies will determine the short-term fate for AUD, but looking at the other drivers, we note that the AUD may not find much additional support. As we have highlighted above, it will be difficult for the RBA to deliver another hawkish surprise in light of the Covid-19 outbreak, which has spread to such an extent that the number of cases outside of China now exceeds those inside the country. On the domestic side, the employment picture has remained quite mixed."

According to ActionForex, analysts at TD Bank Financial Group note the fourth-quarter GDP growth was unrevised at 2.1%, as markets expected.

"Personal consumption expenditure was revised down a tick to 1.7% from 1.8% in the advance estimate. The downward revision was due to weaker consumption of nondurable goods (-0.3% annualized, prev. +0.8%). Both durables and services spending were revised up."

"Non-residential fixed investment was revised down to a 2.3% decline (prev. -1.5%). The downward revision was due to weaker spending on equipment (-4.4% from -2.9%) and intellectual property  (+4.0% versus 5.8% previously)."

"On the plus side residential investment was revised higher (+6.2% vs 5.8% previously)."

"Exports were revised up to 2.0% from 1.4%, while the drop in imports was basically unchanged (-8.6% from -8.7%). The drag from inventories was revised down a touch."

"Core inflation was revised slightly weaker, rising only 1.2% annualized in the fourth quarter (previously 1.3%)."

"The BEA is getting better at producing the advance estimate of GDP. The second release has featured fewer revisions than in the past. However, while real GDP was unchanged, there was slightly less domestic spending growth. Final domestic demand – spending by American households, businesses and governments –  was revised down a tenth, offset by a smaller drag from inventories."

"With attention squarely focused on the spread of Covid-19 and the economic fallout from containment measures, this report doesn’t provide much new information. Before the outbreak, the U.S. economy had been growing a solid 2.0% pace. But the first quarter of 2020 is likely to take a hit due to the negative impact of Covid-19 and ongoing production shutdown at Boeing."

The National Association of Realtors (NAR) announced on Thursday its seasonally adjusted pending home sales index (PHSI) rose 5.2 percent m-o-m to 108.8 in January 2020, after a revised 4.3 percent m-o-m decline in December 2019 (originally a 4.9 percent m-o-m drop).

Economists had expected pending home sales to increase 2.0 percent m-o-m in January.

On y-o-y basis, the index climbed 5.7 percent after a 4.6 percent jump in December.

According to the report, almost all regional indices recorded m-o-m gains in January. The only exception was the West PHSI, which declined 1.1 percent m-o-m in January to 92.6, but recorded a jump of 5.5 percent from a year ago. Meanwhile, the Northeast PHSI increased 1.3 percent m-o-m to 92.9 in January, 1.2 percent higher than a year ago. In the Midwest, the index surged 7.3 percent m-o-m to 105.3 last month, 6.5 percent higher than in January 2019. Pending home sales in the South climbed 8.7 percent m-o-m to an index of 129.4 in January, a 7.1 percent advance from January 2019.

"This month's solid activity - the second-highest monthly figure in over two years - is due to the good economic backdrop and exceptionally low mortgage rates," noted Lawrence Yun, NAR's chief economist. "We are still lacking in inventory," he said, noting December's and January's combined supply was at the lowest level since 1999. "Inventory availability will be the key to consistent future gains."

• Will have intensive talks with Scholz [Germany's finance minister]about pulling forward economic measures
• At the moment, we have no major disruption in orders or to supply chains in Germany
• Ready to adjust size of financial measures as needed

U.S. stock-index futures plunged on Thursday as investors sold riskier assets after the rapid spread of the coronavirus outside China deepened concerns about growth and corporate earnings.

Global Stocks:

A report from the Commerce Department showed on Thursday the U.S. economy grew as initially estimated in the fourth quarter of 2019, an upward revision to private inventory investment was offset by a downward revision to nonresidential fixed investment.

According to the third estimate, the U.S. gross domestic product (GDP) grew at a 2.1 percent annual rate in the fourth quarter, as reported in advance estimate.

Economists had expected the growth rate to remain unrevised at 2.1 percent.

In the third quarter, the economy also expanded by 2.1 percent.

The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures (PCE), federal government spending, exports, residential fixed investment, and state and local government spending that were partly offset by negative contributions from private inventory investment and nonresidential fixed investment. Meanwhile, imports, which are a subtraction in the calculation of GDP, fell

The GDP flat q-o-q performance in the fourth quarter reflected a downturn in imports and an acceleration in government spending, offset by a larger drop in private inventory investment and a slowdown in PCE.

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

The U.S. Commerce Department reported on Thursday that the durable goods orders edged down 0.2 percent m-o-m in January 2020, following a revised 2.9 percent m-o-m surge in December 2019 (originally a 2.4 percent m-o-m climb).

Economists had forecast a 1.5 percent m-o-m decline.

According to the report, orders for durable goods excluding transportation jumped 0.9 percent m-o-m in January (fastest growth since April 2018), following a revised 0.1 percent m-o-m increase in December (originally a drop of 0.1 percent m-o-m) and beating market expectations of 0.2 percent m-o-m rise.

Meanwhile, orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, surged 1.1 percent m-o-m in January (the largest gain since January 2019) after a revised 0.5 percent fall m-o-m in December (originally a 0.8 percent m-o-m drop). Economists had called for a 0.1 percent m-o-m uptick in core capital goods orders in January.

Shipments of these core capital goods climbed 1.1 percent m-o-m in January after an upwardly revised 0.1 percent m-o-m advance in the prior month (originally a 0.3 percent m-o-m decline).

The data from the Labor Department revealed on Thursday the number of applications for unemployment benefits increased last week, but the underlying trend remained consistent with strong labor market conditions.

According to the report, the initial claims for unemployment benefits increased by 8,000 to a seasonally adjusted 219,000 for the week ended February 22.

Economists had expected 212,000 new claims last week.

Claims for the prior week were revised upwardly to 211,000 from the initial estimate of 210,000.

Meanwhile, the four-week moving average of claims rose by 500 to 209,750 last week.

Best Buy (BBY) reported Q4 FY 2019 earnings of $2.90 per share (versus $2.72 per share in Q4 FY 2018), beating analysts' consensus estimate of $2.67 per share.

The company's quarterly revenues amounted to $15.196 bln (+2.7% y/y), roughly in line with analysts' consensus estimate of $15.053 bln.

BBY fell to $81.60 (-0.71%) in pre-market trading.

GBP depreciated against other major currencies in the European session on Thursday as investors' disappointment intensified over the prospect of the UK's newly appointed finance minister Rishi Sunak not providing the fiscal stimulus he had been expected to on March 11, when the Budget is sceduled to be presented.

The Financial Times (FT) reported the UK's Treasury officials had told Mr. Sunak that "there simply is no way of simultaneously increasing public spending as fast as prime minister Boris Johnson would like, keeping taxes down and adhering to new Treasury fiscal rules that only allow borrowing for capital investment."

Because of this, the UK's new chancellor of the exchequer could put off his decision on loosening fiscal policy until later in the year. The possibility of this decision was the main reason why GBP appreciated in recent weeks, despite worries that the UK may not agree a trade deal with the EU by the end of this year.

"We have cut our 2020 global growth forecast to 2.8% (from 3.2%). This would be the lowest reading since 2009," the Bank of America's (BofA) economists stated in a note, adding it would also be the first time since the crisis that it was projected to be under 3%.

The bank's economists also noted that extended disruptions in China were likely to hurt global supply chains. Weak tourist flows are seen to be another headwind for Asia. And limited outbreaks, similar to that in Italy, are possible in many countries, leading to more quarantines and weighing on confidence.

"Therefore, we have cut our forecasts across the board," they said. China is now expected to grow by 5.2% from 5.6% previously. "We project just 2.2% growth outside China, also the lowest rate since 2009."

FXStreet reports that according to FX Strategists at UOB Group, the consolidative theme in USD/CNH is seen unaltered in the next weeks.

24-hour view: “USD traded between 7.0150 and 7.0382 yesterday, close to our expected sideway-trading range of 7.0150/7.0400. The quiet price action no fresh clues and we continue to expect USD to trade between 7.0150 and 7.0400 for now.”

Next 1-3 weeks: “After USD staged a strong rally last Thursday, we highlighted on Friday (21 Feb, spot at 7.0460) that ‘further USD strength is likely’ but we were of the view ‘it is too early to anticipate a move to the Dec’s peak at 7.0865’. USD subsequently rose to 7.0567 before easing off. The weak opening this morning suggests 7.0567 is likely an interim top. From here, USD could trade sideways for a period, likely between 6.9800 and 7.0500.”

FXStreet reports that FX Strategists at UOB Group believe USD/JPY is likely to keep the side-lined theme in the next weeks.

24-hour view: “USD traded between 110.00 and 110.70 yesterday, narrower than our expected range of 109.65/110.60. The outlook from here is mixed and we continue to expect USD to trade sideways for now. Expected range for today, 109.80 and 110.60.”

Next 1-3 weeks: We highlighted yesterday (24 Feb) that ‘if USD were to break 111.20, it would indicate it need more time to muster enough momentum to challenge to the critical 112.40 level’. However, the manner by which USD cracked 111.20 and the subsequent plunge to a low of 110.32 came as a surprise. The price action suggests that last Thursday’s (20 Feb) high of 112.21 is a top, albeit likely a temporary one. From here, USD could continue to trade in volatile manner but is expected to stay to within last week’s broad 109.64/112.21 for a while.”

• We will not trade away our sovereignty
• We will not accept any obligations where our laws are aligned with EU
• There is ample time to strike deal with EU
  
  

• We can see inflation pressures coming from UK labour market
• The question is how much of weak UK domestic inflation is cyclical versus structural
• Expects domestic cost pressures to feed through into inflation
• That should push inflation slightly above target
• We may be seeing trend decline in British firms' margins and profitability
• Trend real interest rate for UK is between zero and 100 bps
• We cannot explain very low interest rates purely through trend rate
• There is an entrenched pessimism in real interest rate curve
• There is long-term pessimism about productivity in advanced economies
• BoE should not rush into radical conclusions about changing framework for its monetary policy
• We should use policy space rapidly to avoid a liquidity trap in case of shock
• There is space for a conventional fiscal policy without helicopter money
• We need to revisit fiscal sustainability benchmarks in light of low-interest rate environment

• Price pressures are subdued
• ECB 'very worried' about coronavirus outbreak, raises uncertainty to a large degree

CNBC reports that even if OPEC cuts production by 600,000 barrels a day, oil prices could remain weak until April, according to a senior analyst at S&P Global Platts.

That's because inventories are rising amid lower oil demand due to the coronavirus outbreak, Kang Wu, Asia's head of analytics, told CNBC.

Oil prices have been under pressure because of the virus that shuttered Chinese businesses for weeks and forced flight cancellations around the world. Infections first surfaced in the Chinese city of Wuhan, and the virus has since killed nearly 2,800 people in China. It has also spread globally, with cases in South Korea, Iran and Italy surging this week.

That's what S&P Global Platts expects at the March 5 and 6 OPEC meeting, Wu said.

"Saudi Arabia is the key player, they're already over compliant," he said. "So the 600,000 barrels a day will add to that supply constraint, will lend some support to the market."

However, the current buildup in inventories may need to be absorbed in April, he said. "In terms of prices, (the market) could still be weak in March and April, before it improves in the summer."

FXStreet reports that FX Strategists at UOB Group see NZD/USD could drop to the 0.6240 region if it clears 0.6270 in the near-term.

24-hour view: "Our expectation that NZD 'could try to break the strong 0.6300 support' was proven right as it dropped to an overnight low of 0.6287. The break of the strong 0.6300 level suggests there is room for further weakness towards 0.6270. The next support at 0.6240 is not expected to come into the picture. Resistance is at 0.6310 followed by 0.6325."

Next 1-3 weeks: "The 0.6270 level that we first highlighted last Friday (21 Feb, spot 0.6330) appears to be within reach. While the decline is severely oversold, a break of 0.6270 would suggest NZD could weaken further to 0.6240, possibly revisiting last year's low at 0.6204. All in, only a move back above 0.6330 ('strong resistance' level previously at 0.6380) would indicate the current weakness in NZD has stabilized."

According to the report from European Commission, in February 2020, the Economic Sentiment Indicator (ESI) increased in both the euro area (by 0.9 points to 103.5) and the EU (by 0.5 points to 103.0). The Employment Expectations Indicator (EEI) eased mildly in the euro area (by 0.3 points to 105.0) and the EU (by 0.6 points to 104.5).

The improvement of euro-area sentiment resulted from higher confidence among consumers and, to a lesser extent, industry managers, while sentiment in services, retail trade and construction remained virtually unchanged.

Industry confidence posted the second monthly increase in a row (+0.9). While managers' production expectations and views on the stocks of finished products remained largely flat, their appraisals of the current level of overall order books improved by the highest margin in some 2 ½ years.

Retail trade confidence remained largely flat (-0.1), as more cautious views on the present business situation and volume of stocks were counterbalanced by a brighter expected business situation.

Construction confidence moved broadly sideways (-0.5), reflecting a combination of grimmer assessments of the level of order books and more optimistic employment expectations. Finally, financial services confidence (not included in the ESI) weakened (-7.0), as managers' assessments of the past business situation and past demand clouded over and their demand expectations remained broadly unchanged.

FXStreet reports that cable is still expected to navigate the 1.2850-1.3030 range in the next weeks, suggested FX Strategists at UOB Group.

24-hour view: "While we noted yesterday that the 'swift advance appears to be running ahead of itself', we were of the view that 'there is room for GBP to probe 1.3030'. Our expectation was incorrect as GBP slumped from 1.3008 and touched an overnight low of 1.2896. The rapid swing has resulted in a mixed outlook. That said, the rapid pull-back could extend lower but last week's low near 1.2850 is not likely to come into the picture (minor support is at 1.2875). Resistance is at 1.2945 followed by 1.2980. The 1.3008 high is expected to be 'safe' for today."

Next 1-3 weeks: "We highlighted on Monday (24 Feb, spot at 1.2950) that an 'interim bottom is in place' and expected GBP to 'trade sideways between 1.2850 and 1.3030'. While GBP is approaching the top of the expected range at 1.3030, there is no marked improvement in momentum. That said, a move above 1.3030 is not ruled out but only a clear break of 1.3070 would indicate that last week's low at 1.2849 could hold for longer than expected."

According to the report from European Central Bank, annual growth rate of broad monetary aggregate M3 increased to 5.2% in January 2020 from 4.9% in December 2019 (revised from 5.0%). Economists had expected a 5.3% increase.

Annual growth rate of narrower monetary aggregate M1, comprising currency in circulation and overnight deposits, stood at 7.9% in January, compared with 8.0% in December.

The annual growth rate of short-term deposits other than overnight deposits (M2-M1) decreased to -0.2% in January from 0.1% in December. The annual growth rate of marketable instruments (M3-M2) was -0.4% in January, compared with -7.9% in December.

Annual growth rate of adjusted loans to households stood at 3.7% in January, compared with 3.6% in December

Annual growth rate of adjusted loans to non-financial corporations stood at 3.2% in January, unchanged from previous month

• We could see a significant impact on Europe, which has been weak to start with, and it's just conceivable that it could throw the United States into a recession.

• If it doesn't hit in a substantial way in the United States, that's less likely. We had a pretty solid outlook before this happened -- and there is some risk, but basically I think the US.

• The global economy was weak but starting to recover before the virus hit

• The decline in the 10-year Treasury yield this week to historic lows. Yields have plunged as fears about the spreading coronavirus have rocked global financial markets.

• Market participants will look to the Fed to provide some support.

• In most developed countries, interest rates are really low -- and they are very low in the United States, but higher than they are in most other developed economies. And the Fed does have some scope -- it's not a cure-all. But it will provide a little bit of support to consumer spending and to the U.S. economy and for financial markets. And, of course, if it becomes very serious, fiscal policy could play a more active role too.

eFXdata reports that Bank of America Global Research discusses the EUR curve outlook.

Depending on your sector of choice, the EUR curve has either reached its flattest levels since the crisis or since pre-2015 Bund tantrum extremes. While the moves are superficially akin to last summer, a number of key differences suggest additional flattening risks cannot be ruled out; we are only at Stage 3 of 5 in the flattening move," BofA notes.

"Stage 1 was driven by 50y, arguably on the back of expected Dutch pension discounting rule changes that increase the sensitivity of Dutch PFs to rates beyond the 30y. Stage 2 looks like insurance receiving, but with the regulatory push far in the offing, this may have been anticipatory flow, rather than actual hedging. In Stage 3, negative gamma on the other hand does seem to have been a driver, more so than in 2019. However, we may have yet to see broad-based capitulation of underweight duration positions in core EUR, though arguably price action Monday/Tuesday suggests this may be starting,"BofA adds.

Bloomberg reports that Goldman Sachs Group Inc. boosted its gold forecast to $1,800 an ounce as the coronavirus, depressed real rates, and increased focus on the U.S. election continue to drive demand for the metal as a haven.

The bank raised its 12-month projection by $200, and said "in the event that the virus effect spreads to Q2, we could see gold top $1,800/oz already on a 3-month basis." Spot gold, which is up more than 8% this year, traded at $1,651.70 an ounce on Thursday.

Gold is trading near a seven-year high, supported by an increasing number of coronavirus cases worldwide that threaten to curtail global economic activity. The metal has outperformed traditional haven currencies including the Japanese yen and Swiss franc as "the haven of last resort," Goldman analyst Mikhail Sprogis said in a note Wednesday.

The bank expects prices to climb to $1,700 an ounce in three months, and to $1,750 in six months. It previously forecast $1,600 for both time frames. Goldman also raised its silver forecast.

FXStreet reports that economist Barnabas Gan at UOB Group assessed the industrial sector figures in Singapore.

"Singapore's industrial production (IP) surprised market estimates with an encouraging +3.4% y/y growth in January 2020. This marks the fastest year-on-year growth pace in three months (Oct 2019: +3.9% y/y). On a month-on-month seasonally adjusted basis, industrial production rose by a strong 18.2%, the firmest growth since January 2011."

"The pick-up in industrial production growth momentum was underpinned chiefly by a surge in biomedical manufacturing and precision engineering output."

"A mix of seasonality factors and growth headwinds were likely the key drivers for the decline in the remaining clusters."

"The prognosis for Singapore's industrial production is arguably dim at this juncture, owing to potential headwinds from several uncertainties, including the COVID-19 outbreak. Even as Singapore's tourism and retail sectors experienced the initial negative knockon effects from the reduced tourism activities, manufacturing confidence may have already deteriorated to-date as the global supply chain weathers disruption from the numerous factory closures in China… As such, we downgrade our full-year outlook for industrial production to contract by 1.0% in 2020, down from our initial forecast for a 'cautiously optimistic' view of +0.5% y/y."

The US dollar declined against the world's major currencies. The euro was boosted by reports that the German Finance Ministry is considering easing restrictions on government spending to maintain economic growth. At the same time, the yen is getting more expensive against the Euro.

Most currency pairs are traded in narrow ranges, as traders closely monitor the situation with the spread of the COVID-19 coronavirus outside of China.

US President Donald trump said yesterday that the country's authorities are ready for any scenarios with the coronavirus. "In any situation, we will be ready," he said. According to trump, the large-scale spread of the coronavirus in the country is not at all inevitable. "We are developing a vaccine quickly," he said.

"Markets are still making sense of the scale of the impact of coronavirus on the rise in global GDP and, more importantly, on revenue growth for many companies," said Nadia Lovell, an analyst at J. P. Morgan Private Bank.

The ICE Dollar index, which shows the value of the dollar against six major world currencies, fell by 0.12% compared to the previous day.

eFXdata reports that ANZ Research discusses EUR/USD outlook and sees a scope for retesting 1.04 in the medium-term.

"We have downgraded our 2020 GDP forecasts for the euro area as COVID-19 related disruption will delay the anticipated recovery in global trade and Europe's manufacturing sector. We now expect GDP to rise by 0.9% vs 1.1%," ANZ notes.

"The euro has reached our pre-coronavirus Q1 target of 1.08 vs USD. Severely limited reflationary policy room leaves the risks to the single currency skewed to the downside. A re-test of the post-crisis lows at 1.04 is expected," ANZ adds.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1015 (3198)

$1.0977 (1601)

$1.0949 (2135)

Price at time of writing this review: $1.0915

Support levels (open interest**, contracts):

$1.0863 (2300)

$1.0831 (2666)

$1.0791 (2462)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 6 is 115083 contracts (according to data from February, 26) with the maximum number of contracts with strike price $1,1200 (6357);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3094 (3889)

$1.3067 (2228)

$1.3031 (368)

Price at time of writing this review: $1.2933

Support levels (open interest**, contracts):

$1.2876 (3591)

$1.2836 (2854)

$1.2792 (3672)

Comments:

- Overall open interest on the CALL options with the expiration date March, 6 is 28793 contracts, with the maximum number of contracts with strike price $1,3050 (3889);

- Overall open interest on the PUT options with the expiration date March, 6 is 30544 contracts, with the maximum number of contracts with strike price $1,2800 (3672);

- The ratio of PUT/CALL was 1.06 versus 1.06 from the previous trading day according to data from February, 26

* - 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.