CFD Markets News and Forecasts — 01-04-2020

FXStreet notes that the dollar has traditionally been a safe-haven currency. Its trade-weighted exchange rate, which is now appreciating, suggests that this is still the case but against the euro and the yen has been more or less stable, analysts at Natixis report.

“We see that since the start of the coronavirus crisis the dollar has b een quite stable against OECD currencies and appreciated markedly against emerging currencies.”

“The dollar is a safe-haven currency only with respect to emerging countries. As is usual during crises, capital is flowing out of emerging countries and returning to the dollar.”

“If the dollar had not been boosted by the capital flows from emerging countries, it would have depreciated against the euro and the yen.”

FXStreet notes that the EUR has weathered the recent storm reasonably well. Looking ahead, how EUR trades in the coming months could be closely linked with political developments in the Eurozone, economists at Rabobank report.

“While the Eurozone’s current account surplus may afford the EUR some protection, it is unlikely that investors have much of stomach for another long stretch of tensions within the Eurozone.”  

“It is our view that broad-based USD strength will persist through this crisis and until green short of recovery become evident in parts of the global economy.”  

“How well the EUR performs vs the USD could be driven by domestic politics and whether or not the fiscal cracks in the Eurozone are again laid bare.  We see risk of a dip to EUR/USD 1.05 on a 3-month view.”

The U.S. Energy Information Administration (EIA) revealed on Wednesday that crude inventories jumped by 13.834 million barrels in the week ended March 27. That was the largest increase since the week ended February 3, 2017. Economists had forecast an advance of 3.997 million barrels.

At the same time, gasoline stocks surged by 7.524 million barrels, while analysts had expected a gain of 1.949 million barrels. Distillate stocks fell by 2.194 million barrels, while analysts had forecast an increase of 1.026 million barrels.

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

U.S. crude oil imports averaged 6.0 million barrels per day last week, down by 70 thousand barrels per day from the previous week.

People familiar with the matter told CNN that "most members of President Donald Trump's coronavirus task force have come to agree that Americans should begin wearing face coverings in public and could issue formal guidance on the matter soon."

The Commerce Department announced on Wednesday that construction spending fell 1.3 percent m-o-m in February after a revised 2.8 percent m-o-m surge in January (originally a 1.8 percent m-o-m jump). This was the biggest monthly drop in construction spending since October 2018.

Economists had forecast construction spending increasing 0.5 percent m-o-m in February.

According to the report, spending on private construction decreased 1.2 percent m-o-m, while investment in public construction fell 1.5 percent m-o-m.

On a y-o-y basis, construction spending jumped 6.0 percent in February.

A report from the Institute for Supply Management (ISM) showed on Wednesday the U.S. manufacturing sector's activity contracted in March.

The ISM's index of manufacturing activity came in at 49.1 percent last month, down 1.0 percentage point from the February reading of 50.1 percent. That was above economists' forecast for a 45.0 percent reading.

A reading above 50 percent indicates expansion, while a reading below 50 percent indicates contraction.

According to the report, the New Orders Index stood at 42.2 percent in March, a decline of 7.6 percentage points from the February reading, while the Production Index registered 47.7 percent, down 2.6 percentage points compared to the February reading, the Backlog of Orders Index posted 45.9 percent, a drop of 4.4 percentage points compared to the February reading, and the Employment Index came in at 43.8 percent, a fall of 3.1 percentage points from the February reading. Meanwhile, the Supplier Deliveries Index registered 65 percent, up 7.7 percentage points from the February reading, limiting the decline in the composite PMI.

Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee, noted: "Comments from the panel were negative regarding the near-term outlook, with sentiment clearly impacted by the coronavirus (COVID-19) pandemic and energy market volatility." He also added that "The past relationship between the PMI® and the overall economy indicates that the PMI for March (49.1 percent) corresponds to a 1.8-percent increase in real gross domestic product (GDP) on an annualized basis."

The latest report by IHS Markit revealed on Wednesday the seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers' Index (PMI) stood at 48.5 in March, down from 50.7 in February and down from the earlier released "flash" figure of 49.2. The reading pointed to the worst contraction in the manufacturing sector since August 2009.

Economists had forecast the index to stay unrevised at 49.2.

According to the report, the decline in headline indicator was driven by downturns in output and new orders, which contracted at the fastest rates since the financial crisis in 2009 amid weak domestic and foreign demand conditions following the outbreak of COVID-19. In addition, employment decreased at the quickest pace since October 2009.

U.S. stock-index futures plunged on Wednesday, as the White House's dire coronavirus death projections and worsened expectations of economic damage from the pandemic forced investors to sell equities and buy safe-haven assets.

Global Stocks:

FXStreet reports that analysts at Danske Bank take a look at how the coronavirus crisis is affecting the euro inflation outlook.

“A sharp drop in the oil price and significant price decreases in clothing and footwear as well as travel-related items are set to take their toll on the euro inflation outlook in the short term and we expect core inflation to average now only 0.7% in 2020.”

“We do not expect announced fiscal and monetary measures to result in a marked inflationary boost for the euro area economy.”

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FXStreet reports that economists at Danske Bank apprise the U.S. jobs report is considered perhaps the most important economic indicator, but the jobs report for March due out on Friday is already outdated before it is released.

“The jobs report is based on the pay period covering the 12th of the month, which is before the US really started to lock down. Instead, the focus is on the initial jobless claims for last week, which is due out tomorrow Thursday.”

“If claims have risen by another 3.5m, the April jobs report will show a decline in employment of at least 7m but, unfortunately, probably more.” 

“As the jobs report is already outdated, we do not expect it to be a major market mover this week.”

Altria (MO) resumed with a Neutral at Goldman; target $35

Coca-Cola (KO) resumed with a Neutral at Goldman; target $46

AT&T (T) downgraded to Neutral from Overweight at JP Morgan; target lowered to $35

Citigroup (C) downgraded to Market Perform from Outperform at Keefe Bruyette

Verizon (VZ) added to Conviction Buy List at Goldman

JPMorgan Chase (JPM) upgraded to Outperform from Market Perform at Keefe Bruyette

The employment report prepared by Automatic Data Processing Inc. (ADP) and Moody's Analytics showed on Wednesday the U.S. private employers cut 27,000 jobs in March. That marked the first decrease in private payrolls since September 2017.

Economists had expected a drop of 150,000.

The increase for February was revised down to 179,000 from the originally reported 183,000.

"It is important to note that the ADP National Employment Report is based on the total number of payroll records for employees who were active on a company's payroll through the 12th of the month. This is the same time period the Bureau of Labor and Statistics uses for their survey," said Ahu Yildirmaz, co-head of the ADP Research Institute. "As such, the March NER does not fully reflect the most recent impact of COVID-19 on the employment situation, including unemployment claims reported on March 26, 2020."

EUR weakened against most other major currencies in the European session on Wednesday as market participants continued to assess the latest news on the coronavirus and the EU macro reports. The European single currency fell against USD, JPY, GBP, and CHF, but it rose against AUD and CAD.

According to data, compiled by Johns Hopkins University, the total number of global cases now stands at 874,081. Meanwhile, U.S. cases of COVID-19 have topped 189,600. The mounting cases deepened the gloom over the potential impact of the coronavirus epidemic on the world economy, as it caused shutdowns across the globe.

Additional pressure on EUR came from the IHS Markit's report, which showed that Eurozone's manufacturing activity contracted at the fastest pace in more than seven years in March amid the coronavirus outbreak. The IHS Markit Eurozone Manufacturing PMI fell to 44.5 from 49.2 in February. That was below the earlier flash reading and the lowest reading since July 2012. Output, new orders and purchasing all fell sharply, whilst jobs were cut markedly, and supply-side constraints intensified at a record pace, the report said.

Meanwhile, the European Commission (EC) proposed a new short-time work scheme called "SURE" to address the impact of coronavirus. The EC president Ursula von der Leyen tweeted: "This is European solidarity in action! EU Commission proposes the new short-time work scheme SURE to help the most affected EU countries, including IT & ES. This will save millions of jobs during the crisis & allow us to quickly restart Europe's economic engine afterwards."

• All viruses have ever been temporary
  
  

FXStreet reports that the US will release ADP Employment Change at 12:15 GMT and ISM Manufacturing PMI at 14:00 GMT. Analysts at TD Securities forecast the figures of the American data.

“March ISM data are likely to portray an economy plunging into recession, even with many of the responses to the survey largely reflecting activity in the first half of the month.” 

“A sharp decline in the headline index looks likely even with a boost from slower delivery times. We forecast a drop to 44.0 for March following a small decline to 50.1 in February. April should be even weaker.” 

“We're forecasting an ADP employment print at -100k for March, with consensus looking for a larger drop at -150k.”

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. surged 15.3 percent in the week ended March 27, following a 29.4 percent plunge in the previous week.

According to the report, refinance applications climbed 25.5 percent, while applications to purchase a home decreased 10.8 percent.

Meanwhile, the average fixed 30-year mortgage rate fell to 3.47 percent from 3.82 percent. That was the lowest level in the MBA's survey.

"Mortgage rates and applications continue to experience significant volatility from the economic and financial market uncertainty caused by the coronavirus crisis," noted Joel Kan, MBA's associate vice president of economic and industry forecasting. "The bleaker economic outlook, along with the first wave of realized job losses reported in last week's unemployment claims numbers, likely caused potential homebuyers to pull back," he added.

FXStreet reports that economists at Standard Chartered Bank note the Chinese State Council announced more stimulus measures aimed at promoting investment, increasing support to SMEs and enhancing household welfare to help people affected by the epidemic.

“We now forecast a widening of China’s broad budget deficit to 8% of GDP in 2020 (from 6.5% previously). Last year, China implemented a broad-based budget deficit of 5.6% of GDP.”

“We maintain our forecast that the PBoC will cut the MLF rate by another 10bps in Q3, and the benchmark deposit rate by 25bps in Q2 (as soon as in April).”

FXStreet notes that manufacturing PMI will give an early look at COVID's impact on the Canadian industrial sector. Analysts at TD Securities forecast the data. 

“TD looks for the index to fall to 45.0, surpassing 2015 lows, following a collapse in the CFIB Business Barometer which sent business confidence to record lows.”

“Although services should see a larger immediate impact than manufacturing, Markit does not produce a service sector PMI for Canada, leaving investors in the dark until we receive Ivey PMI on April 7 and the March LFS on April 9th.”

• Talks with Saudi Arabia could be set up in a timely manner if necessary
  
  

The total number of virus-related deaths climbed by 864, or 10.6%, to 9,053 from 8,189 on Tuesday. That represented a record number of deaths in one day from the coronavirus in Spain.

FXStreet reports that the impact of the coronavirus started to hit the US in March. As the days went by, we all know what has happened. And that hasn't been lost on the American consumer, as confidence levels plummeted, Jennifer Lee from BMO Capital Markets Economics briefs.

"The U.S. Conference Board's consumer confidence survey lost 12.6 pts in March to a near 3-year low of 120.0, the largest monthly plunge since August 2011."

"This reading wasn't as bad as expected. Interestingly, consumers were quite calm about their current status, as the 'present situation' only slipped 1.6 pts to a 4-month low of 167.7 but there are very deep concerns about what will unfold in the next six months or so."

"The 'expectations' component took a 19.9 pt nosedive. So many obvious reasons why, but I'll point to the job situation."

FXStreet reports that economist Ho Woei Chen, CFA, at UOB Group, assessed the recent improvement of the key PMIs for the month of March.

"China's official Purchasing Manager's Index (PMI) did a dramatic turnaround in March with both the manufacturing and non-manufacturing indexes surging as dramatically as they had plummeted a month earlier."

"The manufacturing PMI rose 16.3 points to 52.0 in March from a record low of 35.7 in February. This was the highest reading since September 2017 and notably even better than the months prior to the COVID-19 outbreak."

"Meanwhile, the non-manufacturing PMI rebounded a sharper 22.7 points to 52.3 in March from record low 29.6 in February."

"With the global economy heading into a recession and with expectation of large job losses ahead as the COVID-19 pandemic continues its spread in the major economies, it is difficult to conclude from China's PMI that we are now back in a business-as-usual environment. The initial euphoria from the return to a semblance of normality in China is likely to ease as other major economies take a bigger hit from the pandemic due to factors including lockdowns of cities. This could cause China's PMIs to moderate lower in the months ahead until the pandemic tops out globally."

"Looking ahead, we continue to expect a contraction in China's 1Q20 GDP by -3.4% y/y (4Q19: 6.0%) when the data is released on 17 April. From there, we expect the economy to recover to +5.7% y/y in 2Q20."

Eurostat, the statistical office of the European Union, said, the euro area seasonally-adjusted unemployment rate was 7.3% in February 2020 - the month before COVID-19 containment measures began to be widely introduced by Member States -, down from 7.4% in January 2020 and from 7.8% in February 2019. This is the lowest rate recorded in the euro area since March 2008. Unemployment was expected to be 7.4%.

The EU unemployment rate was 6.5% in February 2020, stable compared with January 2020 and down from 6.9% in February 2019. This remains the lowest rate recorded in the EU since the start of the monthly unemployment series in February 2000.

Eurostat estimates that 13.984 million men and women in the EU, of whom 12.047 million in the euro area, were unemployed in February 2020. Compared with January 2020, the number of persons unemployed decreased by 62 000 in the EU and by 88 000 in the euro area. Compared with February 2019, unemployment fell by 784 000 in the EU and by 663 000 in the euro area.

In February 2020, 2.734 million young persons (under 25) were unemployed in the EU, of whom 2.258 million were in the euro area. Compared with February 2019, youth unemployment decreased by 85 000 in the EU and by 56 000 in the euro area. In February 2020, the youth unemployment rate was 14.9% in the EU and 15.5% in the euro area, compared with 15.5% and 16.1% respectively in February 2019.

According to the report from IHS Markit/CIPS, the outbreak of coronavirus disease 2019 (COVID-19) and subsequent mitigation efforts across the world led to a substantial contraction of UK manufacturing production during March. Output fell to the greatest extent since July 2012 following a similarly severe reduction in intakes of new business. The impact was also felt in the labour market and through supply chains. Transport delays and shortages of raw materials led to the steepest increase in vendor lead times in the 28-year survey history, further disrupting production.

The seasonally adjusted manufacturing PMI fell to a three-month low of 47.8 in March, down from 51.7 in February and the flash estimate of 48.0. Economists had expected a decrease to 47.0.

The downturns in output and new orders were widespread, with contractions seen across the consumer, intermediate and investment goods sub-industries. Manufacturers reported that disruption resulting from the COVID-19 outbreak, lower market confidence and company shutdowns had all contributed to the drops in production and new business. Business sentiment was also affected, falling to a series-record low.

According to the report from IHS Markit, the global coronavirus disease (COVID-19) led to a notable deterioration in euro area manufacturing sector operating conditions during March. Output, new orders and purchasing all fell sharply, whilst jobs were cut markedly, and supply-side constraints intensified at a record pace. Confidence about the future sank to a historical low.

After accounting for seasonal factors, the IHS Markit Eurozone Manufacturing PMI registered below the 50.0 no-change mark for a fourteenth successive month and fell considerably from February's one year high of 49.2 to 44.5 in March. That was below the earlier flash reading and the lowest reading for 92 months. Latest data indicated that all market groups registered a deterioration in operating conditions compared to the previous month, led by the investment goods category.

All country level PMIs were lower compared to the previous month. Italy saw the sharpest deterioration in operating conditions, with the respective PMI the lowest in nearly 11 years. Having consistently recorded the best growth in recent months, Greece was the second worst performer during March. Elsewhere, France, Ireland and Spain all saw multiyear low readings for their PMIs. Only the Netherlands recorded a PMI above the 50.0 no change level in March, though growth here was marginal.

At the aggregate level, the deterioration in manufacturing output was the greatest since April 2009. Output fell sharply in line with a similar fall in manufacturing new orders, which also deteriorated to a degree unsurpassed for just under 11 years. Export trade fell sharply and at the sharpest rate since March 2009. Latest data marked an eighteenth successive month in which export sales have fallen.

FXStreet reports that USD/JPY may enter a near term rangebound, consolidation mood in the coming sessions, with the pair corridors between 107.00 and 109.00, OCBC Bank's strategist Terence Wu briefs.

"Continue to expect consolidation between 107.00 and 109.00, after the pair bounced higher after approaching the 107.00 level for the second consecutive session."

"Downside support at 107.00 is considerable, and may prevent further downside extension."

"Expect resistance at 108.50, before 109.00. Note that short-term implied valuations have effectively flat-lined."

Bloomberg reports that according to Goldman Sachs Group Inc., the bruised and battered U.S. shale industry is poised to emerge from the oil crash a winner.

Shale's high-pressured wells and short drilling time mean the industry is well positioned to benefit if the current plunge in oil causes long-term damage to production capacity, resulting in a price jump when demand returns, Goldman analyst Damien Courvalin said in a note.

Shale's flexibility is similar to the spare capacity that OPEC stalwarts such as Saudi Arabia and the U.A.E. keep on hand to be able to boost production on short notice, Courvalin said. "This implies that the coronavirus-led demand collapse may ultimately benefit shale and low-cost producers alike."

Shale wells' high initial pressure means that there is a strong likelihood that companies can shut them in and later resume production with limited lost capacity, Courvalin said. That's not the case for many more mature wells that face being shut-in amid low prices and storage and logistics constraints, with production being potentially lost forever, he said.

"Shale's flexibility is likely to be finally monetized by producers once demand starts to recover to fill any global supply gap," Courvalin said.

During today's Asian trading, the US dollar rose slightly due to its status as a safe currency, while global markets were preparing for probably the worst economic downturn in decades amid global restrictions to combat the coronavirus pandemic.

The ICE index, which tracks the dollar's performance against six currencies (the euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose 0.32% in trading.

However, the dollar remained below the highs reached against most currencies the day before.

The Fed on Tuesday expanded the ability of foreign Central banks to access dollars during the coronavirus-triggered crisis, allowing them to exchange their existing us Treasury securities for "overnight" loans in dollars.

Meanwhile, data on business activity in Asia brought disappointment to markets. Manufacturing activity in Japan and South Korea declined by the most in about a decade.

Economic data to be released later on Wednesday, including from the Euro zone and the US, is not expected to add to investor optimism, while US private sector employment data is likely to point to a decline in the number of jobs.

eFXdata reports that Credit Suisse discusses EUR/USD technical outlook and adopts a tactical bearish bias targeting a move towards 1.0786-62

"EURUSD remains back in the middle of its range and exactly where we started the month after false breakouts in both directions. Going forwards though, the broader trend still points lower in our view, with MACD negative across all time horizons.

Furthermore, the market is now showing tentative signs of topping out in the shorter term after breaking back below the 200-day average at 1.1078 on Monday. Key support is now seen at 1.0953, below which would complete an intraday 'head and shoulders' top to confirm that the downtrend is resuming. The next key levels are seen at 1.0896/89, before the long term uptrend from 2000 at 1.0786/62, then the recent year-to-date low at 1.0635. A move below these latter levels should finally allow momentum to re-accelerate for a medium term move lower," CS notes.

"Short term resistance moves to 1.1056/78, which now ideally caps the market to maintain the potential for a top. Thereafter, more important resistance is at 1.1148/66," CS adds.

• CNBC reports that the fast-spreading coronavirus, which causes the disease COVID-19, has killed at least 42,081 people around the world.

• Most of the deaths occurred in Europe: 12,428 people have died in Italy, 8,464 in Spain and 3,523 in France.

• China recorded 3,309 deaths to-date, though some have raised questions about the accuracy of the reported numbers there.

• HSBC and Standard Chartered shares in Hong Kong fell after both lenders canceled dividend payments at the request of the U.K. financial regulator in light of the coronavirus pandemic.

• Global cases: More than 856,900

• Global deaths: At least 42,081

• Top 5 countries: United States (187,919), Italy (105,792), Spain (95,923), China (82,278), and Germany (71,808)

According to the report from the Federal Statistical Office (Destatis), in the corona crisis, retailers are experiencing strong demand for convenience goods. In part, the increased demand is clearly reflected by retail turnover in February 2020.

The real (price-adjusted) turnover of all retail enterprises in Germany was 6.4% higher and the nominal (not price-adjusted) turnover was 7.7% higher in February 2020 than in February 2019. With a total of 25 trading days, February 2020 had one more trading day.

When adjusted for calendar and seasonal variations, the February 2020 turnover was in real terms 1.2% and in nominal terms 1.4% higher than in January 2020. Economists had expected a 0.1% increase in real terms.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1130 (2250)

$1.1100 (1378)

$1.1080 (4060)

Price at time of writing this review: $1.1026

Support levels (open interest**, contracts):

$1.0999 (1523)

$1.0970 (3611)

$1.0933 (3266)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date April, 3 is 86856 contracts (according to data from March, 31) with the maximum number of contracts with strike price $1,0700 (4078);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2675 (362)

$1.2601 (324)

$1.2545 (605)

Price at time of writing this review: $1.2380

Support levels (open interest**, contracts):

$1.2221 (290)

$1.2178 (76)

$1.2039 (116)

Comments:

- Overall open interest on the CALL options with the expiration date April, 3 is 19187 contracts, with the maximum number of contracts with strike price $1,3200 (2376);

- Overall open interest on the PUT options with the expiration date April, 3 is 22827 contracts, with the maximum number of contracts with strike price $1,2900 (2837);

- The ratio of PUT/CALL was 1.19 versus 1.19 from the previous trading day according to data from March, 31

* - 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.