CFD Markets News and Forecasts — 04-01-2019

The rate of growth in new business eased to a 14-month low, but the pace of job creation picked up. Subsequently, panellists registered a renewed fall in backlogs as pressure on capacity decreased. Concerns surrounding the longevity of the upturn in new business led to the weakest expected rise in future output since December 2017.

The seasonally adjusted final IHS Markit U.S. Services Business Activity Index registered 54.4 in December, down from 54.7 in November, but up from the earlier reported flash figure of 53.6. The upturn in business activity was driven by a further rise in new orders and increased repeat business. Although down on growth rates seen earlier in the year, the upturn was solid overall. The final quarterly average of 2018 matched that seen in the third quarter at 54.7.

U.S. stock-index futures rose on Friday, as investors digested better-than-expected U.S. jobs report, which allayed fears over economic health, but bolstered concerns that the Fed would continue to hike interest rates.

Global Stocks:

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

United Tech (UTX) downgraded to Sector Perform from Outperform at RBC Capital Mkts

Honeywell (HON) upgraded to Outperform from Sector Perform at RBC Capital Mkts

Intel (INTC) upgraded to Buy from Neutral at BofA/Merrill

Prices for products sold by Canadian manufacturers, as measured by the Industrial Product Price Index (IPPI), decreased 0.8% in November, mainly due to lower prices for energy and petroleum products. Prices for raw materials purchased by Canadian manufacturers, as measured by the Raw Materials Price Index (RMPI), fell 11.7%, largely reflecting lower prices for crude energy products.

In the 12 months to December, employment increased by 163,000 (+0.9%), entirely driven by gains in full-time work (+185,000 or +1.2%). Over the same period, total hours worked rose 0.9%.

In December, employment increased in Newfoundland and Labrador, while it fell in Alberta, New Brunswick and Prince Edward Island. Little change was observed in the other provinces.

While employment held steady overall, increases were recorded in manufacturing, transportation and warehousing, as well as in health care and social assistance. At the same time, there were declines in wholesale and retail trade as well as in public administration.

The number of employees was little changed in the public and private sectors, while self-employment increased.

In December, average hourly earnings for all employees on private nonfarm payrolls rose 11 cents to $27.48. Over the year, average hourly earnings have increased by 84 cents, or 3.2 percent. Average hourly earnings of private-sector production and nonsupervisory
employees increased by 9 cents to $23.05 in December.

The average workweek for all employees on private nonfarm payrolls increased by 0.1 hour to 34.5 hours in December. In manufacturing, both the workweek and overtime increased by 0.1 hour to 40.9 hours and 3.6 hours, respectively. The average workweek for production and nonsupervisory employees on private nonfarm payrolls held at 33.7 hours.

Total nonfarm payroll employment increased by 312,000 in December, and the unemployment rate rose to 3.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, food services and drinking places, construction, manufacturing,
and retail trade.

The unemployment rate rose by 0.2 percentage point to 3.9 percent in December, and the number of unemployed persons increased by 276,000 to 6.3 million. A year earlier, the jobless rate was 4.1 percent, and the number of unemployed persons was 6.6 million.

The labor force participation rate, at 63.1 percent, changed little in December, and the employment-population ratio was 60.6 percent for the third consecutive month. Both measures were up by 0.4 percentage point over the year.

According to preliminary estimates, in December 2018 the Italian consumer price index for the whole nation (NIC) decreased by 0.1% on monthly basis and increased by 1.1% with respect to December 2017, down from +1.6% in the previous month.

In 2018, the average annual rate of change of consumer prices, measured by NIC, was +1.2 and excluding energy and unprocessed food, core inflation was +0.7%, the same rate of change as in 2017 for both.

In December, the slowdown of the growth on annual basis of All items index was mainly due to prices of Non regulated energy products (from +7.8% in November to +2.6%) and to a lesser extent, to prices of Processed food (from +1.1% to +0.7%) and of Services related to transport (from +2.0% to +0.6%).

In November 2018, compared with October 2018, industrial producer prices fell by 0.3% in the euro area (EA19) and by 0.4% in the EU28, according to estimates from Eurostat. In October 2018, prices increased by 0.8% in both zones. In November 2018, compared with November 2017, industrial producer prices rose by 4.0% in the euro area and by 4.3% in the EU28.

In the EU28, industrial producer prices fell by 1.8% in the energy sector, while prices remained stable for intermediate goods, capital goods and durable and non-durable consumer goods. Prices in total industry excluding energy rose by 0.1%. The largest decreases in industrial producer prices were recorded in Greece (-2.7%), the Netherlands (-1.4%), Lithuania and the United Kingdom (both -1.3%), and the highest increases in Estonia (+1.7%), Denmark (+1.2%) and Sweden (+0.8%).

Euro area annual inflation is expected to be 1.6% in December 2018, down from 1.9% in November 2018, according to a flash estimate from Eurostat, the statistical office of the European Union. Looking at the main components of euro area inflation, energy is expected to have the highest annual rate in December (5.5%, compared with 9.1% in November), followed by food, alcohol & tobacco (1.8%, compared with 1.9% in November), services (1.3%, stable compared with November) and non-energy industrial goods (0.4%, stable compared with November).

• Consumers borrowed an additional £0.9 billion to spend on goods and services in November, in line with the average since July. The annual growth rate of consumer credit slowed further in November, to 7.1%.

• Overall, businesses did not borrow much money from banks and capital markets in November: the highest borrowing from banks since July 2017 was offset by net redemptions of bonds.

• Within household money, the relative strength of sight deposits compared to time deposits continued in November.

Mortgage market activity has been broadly stable since 2016, looking through month to month changes, and this has continued into November. Households borrowed an extra £3.5 billion secured against their homes in November, slightly lower than the £4.1 billion in October but broadly in line with the average since 2016 of £3.6 billion. The annual growth rate of mortgage lending ticked down to 3.2% in November. It has been around 3% since late 2016, and remains modest compared to the pre-crisis period. The number of mortgages approved for house purchase - which lead to future mortgage lending - fell slightly, to 63,700 in November. The number of approvals for remortgaging was broadly unchanged on the month at 48,600.

The headline seasonally adjusted IHS Markit/CIPS UK Services PMI Business Activity Index registered 51.2 in December, up only slightly from the 28-month low seen in November (50.4). Reports from survey respondents suggested that Brexit-related concerns were a key factor weighing on business-to-business spending at the end of 2018. A number of firms also noted that subdued consumer demand had acted as a brake on sales in December.

Registering a final reading of 51.1, down from 52.7 in November and lower than the earlier flash estimate of 51.3, the index was at its weakest level for over four years. The slowdown in growth during December in part reflected lower activity in France, where the ‘gilets jaunes’ movement reportedly led to a first fall in economic output for two-and-a-half years.

December's headline seasonally adjusted IHS Markit Germany Services PMI Business Activity Index came in at a 27-month low of 51.8, down from 53.3 in November (and below the earlier 'flash' estimate of 52.5), to signal a third successive month of slower growth in the sector.

Commenting on the PMI data, Phil Smith, Principal Economist at IHS Markit said: "In Germany, when the manufacturing sector sneezes, there's a good chance the rest of the economy will catch a cold, and that seems to be what's happened in the service sector in the final quarter of 2018. "The PMI showed service sector business activity growth slowing throughout Q4, down to its lowest in over two years in December, with the month's final data coming in slightly weaker than the flash estimates to suggest that the slowdown continued right up to the end of the year. "Alongside the lingering uncertainties towards Brexit and trade wars, worries about a general slowdown in the economy have helped undermine business confidence across the service sector, with expectations towards the outlook sliding to their lowest for over three years at the close of play in 2018”.

French service providers saw output fall for the first time in two-and-a-half years during December, amid disruption due to the recent 'gilets jaunes' protests. The demonstrations also led to the first decline in new business since February 2016, which partly reflected a contraction in new exports. Lower demand led to softer growth in outstanding business, despite the weakest pace of hiring for 20 months. Meanwhile, confidence towards the business outlook fell for the third month in a row to reach its lowest level since November 2016.

The headline seasonally adjusted IHS Markit France Services Business Activity Index - which is based on a single question asking respondents to report on their actual change in business activity at their companies compared to one month ago - fell to 49.0 in December, down from 55.1 in November. The result pointed to a first decline in business activity for two-and-a-half years.

Over a year, the Consumer Price Index (CPI) should slow down for the second consecutive month: +1.6% in December 2018 after +1.9% in November and +2.2% in October, according to the provisional estimate made at the beginning of January 2019. The fall in inflation should result from a deceleration in the prices of energy, services and tobacco and a more pronounced drop in those of manufactured products. Contrariwise, food prices should accelerate.

Over one month, consumer prices should be stable after a 0.2% downturn in November. Energy prices should fall sharply, in the wake of petroleum product prices. Those of manufactured products should edge down after a slight rise in the previous month. Conversely, those of services should pick up due to a seasonal rebound in airfares. Food prices should rise, after a drop in the previous month.

The manufacturing sector in Japan continued to expand in December, and at a faster rate, the latest survey from Nikkei revealed on Friday with a PMI score of 52.6.

That's up from the 15-month low of 52.2 in November, and it moves further above the boom-or-bust line of 50 that separates expansion from contraction.

Individually, There was solid output expansion on overage over the fourth quarter, but demand pressures remained subdued

EUR/USD

Resistance levels (open interest**, contracts)

$1.1540 (415)

$1.1522 (375)

$1.1507 (528)

Price at time of writing this review: $1.1404

Support levels (open interest**, contracts):

$1.1349 (1826)

$1.1321 (2115)

$1.1289 (6957)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date February, 8 is 54577 contracts (according to data from January, 3) with the maximum number of contracts with strike price $1,1350 (6957);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2828 (261)

$1.2809 (63)

$1.2777 (35)

Price at time of writing this review: $1.2636

Support levels (open interest**, contracts):

$1.2578 (207)

$1.2545 (405)

$1.2504 (1249)

Comments:

- Overall open interest on the CALL options with the expiration date February, 8 is 15966 contracts, with the maximum number of contracts with strike price $1,4800 (1356);

- Overall open interest on the PUT options with the expiration date February, 8 is 18372 contracts, with the maximum number of contracts with strike price $1,2600 (1900);

- The ratio of PUT/CALL was 1.15 versus 1.02 from the previous trading day according to data from January, 3

* - 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.

The Caixin China Composite PMI data (which covers both manufacturing and services) showed a further rise in overall Chinese business activity during December. Furthermore, the rate of expansion picked up from November, with the Composite Output Index rising from 51.9 to a five-month high of 52.2.

The improved headline index reading was supported by higher activity levels across both the manufacturing and service sectors. Services companies registered a solid rate of activity growth, while manufacturing output expanded slightly after two months of stagnation. The solid upturn in services activity was shown by the seasonally adjusted Caixin China General Services Business Activity Index edging up from 53.8 in November to a six-month high of 53.9 at the end of 2018.

• Annual house price growth slows to its weakest pace since February 2013

• Prices fell 0.7% in the month of December, after taking account of seasonal factors

• Outer Metropolitan and London regions both recorded small house price declines in 2018

Commenting on the figures, Robert Gardner, Nationwide's Chief Economist, said: “UK house price growth slowed noticeably as 2018 drew to a close, with prices just 0.5% higher than December 2017. “This marks a noticeable slowdown from previous months, where prices had been rising at a c2% pace. However, it is broadly in line with our expectations (since the start of the year we had been anticipating a price rise of c1% in 2018). “Indicators of housing market activity, such as the number of property transactions and the number of mortgages approved for house purchases, have remained broadly stable in recent months, but forward-looking indicators had suggested some softening was likely”.