CFD Markets News and Forecasts — 04-03-2019

Major US stock indexes fell moderately after data showed that construction spending in the US unexpectedly fell in December, which is another indication that the US economy lost momentum at the end of 2018.

A report published by the US Department of Commerce showed that construction costs fell 0.6% after rising 0.8% in November. Economists had expected spending to rise by 0.2%. The unexpected decline reflected a decline in private construction spending — by 0.6% after a 1.3% increase in November. Meanwhile, housing expenses fell by 1.4%, which more than offset a 0.4% increase in non-residential construction costs.

The data released sent a negative stock market, which showed moderate growth in the morning on the news that the United States and China may conclude a trade deal this month. Over the weekend, there were reports that US President Donald Trump and his Chinese counterpart Xi Jinping may sign an official trade agreement at a special summit around March 27, given the progress in negotiations between the two countries. According to The Wall Street Journal, Beijing offers to reduce tariffs on American agricultural, chemical and other products. In turn, Washington is considering the possibility of lifting most, if not all, sanctions imposed on Chinese goods from last year.

Most of the components of DOW finished trading in the red (18 out of 30). The outsider was UnitedHealth Group (UNH; -4.54%). The growth leader was DowDuPont Inc. (DWDP, + 1.65%).

Almost all sectors of the S & P recorded a decline. The greatest decline was shown by the health sector (-1.3%). Only the utility sector (+ 0.1%) and the conglomerate sector (+ 0.1%) grew.

At the time of closing:

Dow 25,820.80 -205.52 -0.79%

S & P 500 2,792.82 -10.87 -0.39%

Nasdaq 100 7,577.57 -17.79 -0.23%

The Commerce Department reported on Monday the U.S. construction spending fell 0.6 percent m-o-m to a seasonally adjusted annual rate of $1.30 trillion in December of 2018, following an unrevised 0.8 percent m-o-m increase in November.

Economists had forecast a 0.2 percent m-o-m gain. 

According to the report, spending on private construction decreased 0.6 percent m-o-m, while investment in public construction dropped 0.6 percent m-o-m. 

In y-o-y terms, construction spending rose 1.6 percent in December. 

The U.S. construction spending grew 4.1 percent in 2018, the weakest reading since 2011. 

U.S. stock-index were higher on Monday amid rising expectations that the U.S. and China would reach a trade deal as early as this month.

Global Stocks:

• More likely to do so in June
• June meeting is likely to extend oil supply сurbs until the end of 2019
• OPEC may discuss easing curbs if production drops further in exempt producers

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

• Trade deal is in final stages
• U.S. President Donald Trump will meet with his trade team today
• U.S. wants to be able to put tariffs back on if deal is not working out 

Reuters says that many trade experts believe China will acknowledge concessions made in any trade deal with the U.S. sake of stabilizing shaky relations but is unlikely to yield to demands it alters its economic model even if faced with continued tariffs.  

Chinese concessions in any deal are likely to fall short of U.S. demands for deep change in the way the world’s second-largest economy works.

Revamping decades of state planning will not happen overnight, Chinese experts argue.

And President Xi Jinping faces political realities at home, where being seen as kowtowing to Trump would be less palatable than navigating the near-term impact continued trade tensions might have on China’s own slowing economy, they say.

One Chinese official told Reuters that China’s domestic reform was a long-term process.

“If the United States carries out overall restrictions or pressure based on its own interests, China will not accept it,” the official added.

Tu Xinquan, a trade expert at Beijing’s University of International Business and Economics, said it would be difficult for Xi to agree to U.S. demands that China revamp the role of state-owned enterprises and other core industrial policies.

Xi would likely be prepared to go as far as to give “visible, politically influential commitments” to Trump, such as to buy more American goods and improve protection of intellectual property rights.

Sources have suggested that the two sides are getting closer to a deal that could roll back some tariffs and set forth agreements on structural issues in China’s economic model, but that details of an enforcement mechanism to ensure Beijing follows through on policy pledges are still not set.

While no plans have been announced, there is widespread speculation in trade circles that Xi could travel to Trump’s Mar-a-Lago resort in Florida to hammer out a final deal in late March, on the tail end of a planned trip to Europe.

Some in U.S. diplomatic and business communities, concerned that Trump could rush into accepting weak Chinese commitments, have been for weeks referring, with mock grandiosity, to a possible deal as the “Mar-a-Lago Accord”.

Shi Yinhong, director of the Center for American Studies at Renmin University, said beyond those types of openings China had to attend to its "own basic dignity and authority".

"If China makes too big a concession to the United States, it might create domestic economic disorder. And also how would you explain it to Communist Party members and the Chinese people?" said Shi, who has advised the government on diplomatic matters.

• We definitely have been making progress with the EU, more work needs to be done
• Attorney General continues to pursue legally binding changes to Irish backstop
• We are at a critical stage in negotiations
• Government wants parliament to vote on Brexit deal by March 12th
• We understand lawmakers will want to scrutinize any changes we secure
• Stronger Towns Funds are absolutely not a bribe for Labour Brexit votes
• PM has always said that prosperity has for too long been unfairly spread across Britain

According to Reuters, the UK's Prime Minister Theresa May will on Monday set out plans for a 1.6-billion pound ($2.11-billion) fund to help to boost economic growth in Brexit-supporting communities with ministers denying it was a bribe to win support for her EU exit deal.

The “Stronger Towns Fund”, details of which appeared in newspapers last month, is considered by many as part of May’s efforts to win support for her Brexit deal from opposition Labour lawmakers, who represent areas that voted strongly in favor of withdrawing from the EU.

China is planning to cut the value-added tax rate that covers the manufacturing sector by 3% as part of measures to support the slowing economy, a person familiar with the matter said.

The reduction in the highest of the nation’s three VAT brackets could be announced as soon as this week, when political leaders are gathering in Beijing for the annual National People’s Congress.

A 3% cut to VAT could deliver a boost worth up to 600 billion yuan or 0.6% of GDP, according to estimates by Morgan Stanley.

The move helps corporate profits at a time when the economy is facing pressure from the U.S. trade standoff and the impact of a domestic debt cleanup. The tax cut is also part of broader, more “proactive” fiscal support.

National Bank of Canada’s (NBC) analysis team suggest that the EUR has been under pressure so far this year due to weak economic data, and is unlikely to get much help from ECB which is set to present downgraded forecasts for the Eurozone’s GDP growth and inflation at its March meeting.

“Potential disruptions to trade flows could also hurt the EUR. The possibility of a “hard” Brexit, whereby the UK leaves the European Union without a deal on March 29th, & additional tariffs imposed by U.S. on Eurozone exports cannot be ruled out. Those risks have increased in recent weeks and we have, as a result, lowered our targets for EUR/USD.”

According to the report from Eurostat, in January 2019, compared with December 2018, industrial producer prices rose by 0.4% in the euro area (EA19) and by 0.3% in the EU28. In December 2018, prices decreased by 0.8% in the euro area and by 0.9% in the EU28. In January 2019, compared with January 2018, industrial producer prices rose by 3.0% in the euro area and by 2.9% in the EU28.

Industrial producer prices in the euro area in January 2019, compared with December 2018, rose by 0.6% for capital goods, by 0.5% for durable consumer goods, by 0.4% in the energy sector and by 0.3% for intermediate goods, while prices remained stable for non-durable consumer goods. Prices in total industry excluding energy rose by 0.3%. In the EU28, industrial producer prices rose by 0.5% for both capital goods and durable consumer goods, by 0.4% in the energy sector, by 0.2% for intermediate goods and by 0.1% for non-durable consumer goods. Prices in total industry excluding energy also rose by 0.3%.

Industrial producer prices in the euro area in January 2019, compared with January 2018, rose by 7.3% in the energy sector, by 1.7% for intermediate goods, by 1.4% for both capital goods and durable consumer goods and by 0.4% for non-durable consumer goods. Prices in total industry excluding energy rose by 1.2%. In the EU28, industrial producer prices rose by 6.2% in the energy sector, by 2.1% for intermediate goods, by 1.7% for durable consumer goods, by 1.5% for capital goods and by 0.6% for non-durable consumer goods. Prices in total industry excluding energy rose by 1.5%.

According to the report from IHS Markit, UK construction companies indicated that business activity levels fell during February.

At 49.5 in February, down from 50.6 in January, the headline seasonally adjusted UK Construction Total Activity Index registered below the 50.0 no-change threshold for the first time since the snow disruptions seen in March 2018. Aside from this brief weather-related decline in output, the latest reading was the lowest since September 2017. Economists had forecast a score of 50.3

Residential work was the best performing area of construction activity in February, with growth recorded for the thirteenth month running. However, the rate of expansion was only modest and therefore could not offset the declines recorded for commercial and civil engineering activity. In both cases, the pace of contraction was the steepest since March 2018.

February data signalled only a marginal overall rise in new work received by construction firms, with the latest index reading the weakest since May 2018. Political uncertainty was widely cited as a factor contributing to a lack of invitations to tender, particularly on commercial projects.

The index measuring business expectations for the year ahead remained inside positive territory, but the degree of confidence eased to a four-month low and was well below the long-run survey average.

Input buying fell for the first time since September 2017, reflecting softer demand. However, suppliers' delivery times lengthened to the greatest extent since last August. Input cost inflation meanwhile edged up since January, but was still at the second-lowest level since June 2016.

• Nomura now sees the RBA cutting its cash rate by 50 bps this year

• The firm previously saw the RBA staying on hold throughout 2019

• firm is revising its call on the RBA interest rate decisions citing further signs of weaker growth and increasing downside risks.

• RBA will probably lower the cash rate by 25 bps each in July and August

• unlikely for the central bank to hold off on easing for too long as it can take a while for the impact of a rate cut to filter through to the economy.

According to a New York Times report, citing two people familiar with the matter, the Chinese electronics giant Huawei is preparing to sue the United States government for banning federal agencies from using the company’s products. The company plans to announce the suit later this week.

Huawei's suit is likely to argue that the provision is a "bill of attainder," or a legislative act that singles out a person or group for punishment without trial, according to the newspaper report.

Karen Jones, analyst at Commerzbank, suggests that they will go with the move to the topside for the USD/JPY pair after last week it eroded the 200 day ma, which was key resistance.

“Immediate resistance is 112.23, the 6 th December low, the 112.43 55 quarter moving average and recent high at 113.71. It is underpinned by the 20 day MA at 110.68 and this guards the base of the channel at 109.57. While above here we will assume an upside bias. Long term trend (1-3 months): break of the 200 day MA opens path to the 113.71 recent high and the top of the range at 114.55/73.”

According to the report from Ministry of Employment, in February 2019 registered unemployment has been reduced by 181,208 people with respect to the same month of the previous year, with a year-on-year reduction rate of 5.22%. In seasonally adjusted terms, unemployment decreased by 10,445 people compared to the previous month.

The number of unemployed registered in the month of February 2019 has increased by 3,279 workers in relation to the previous month. In relative values, the increase in unemployment is 0.10%. Thus, the total number of unemployed stands at 3,289,040.

Male unemployment stood at 1,360,225 people, decreasing by 223 people (-0.02%). Unemployed workers account for 58.64% of the total number of unemployed, having increased their figure by 3,502 from the previous month (+ 0.18%) and having decreased by 69,063 with respect to February 2018. The year-on-year rate of decrease in unemployment female is 3.46% (compared to 7.61% of male unemployment). Although the employment of female workers is at record highs in a month of February, there are still almost two million women unemployed.

• Trade talks with the US principally focused on goods.

• Would like to start at the best time for both nations.

• Have never said the US trade talks will only handle goods.

• Believe services such as financial will be excluded.

• Will exclude issues that require long time to negotiate.

According to the report from Confederation of British Industry (CBI), UK private sector activity was broadly unchanged in the quarter to February.

The composite measure – based on 650 respondents across the distribution, manufacturing and service sectors – showed the balance of firms reporting growth stood at -3%, the weakest since April 2013. This marked the fourth consecutive month of no growth in activity.

The stagnation in overall volumes reflected falling services volumes and slower manufacturing growth, which were partially offset by a rebound in distribution growth. Within distribution, retail volumes continued to fall, for the fourth consecutive month.

Looking ahead, private sector activity is expected to fall slightly over the three months to May (-4%), with services volumes set to fall at a sharper pace alongside similar manufacturing growthю Meanwhile, distribution volumes growth is expected to pick-up.

The US and China appear close to a deal that would roll back U.S. tariffs on at least $200 billion worth of Chinese goods, as Beijing makes pledges on structural economic changes and eliminates retaliatory tariffs on U.S. goods, a source said.

U.S. President and Chinese President could seal a formal trade deal at a summit around March 27 given progress in talks between the two countries, the Wall Street Journal reported.

The Wall Street Journal said that in the pending agreement, China would lower tariffs on U.S.-made goods including agricultural products, chemicals and cars in exchange for sanctions relief from Washington, citing people briefed on the matter on both sides.

The newspaper’s sources cautioned that hurdles remain, and each side faces possible resistance at home that the terms are too favorable to the other side.

• still intend on maintain powerful monetary policy

• important to lay out exit strategy from easy policy at some point to ensure market stability

• achieving price target by fiscal 2020 somewhat difficult

• corporate innovation contributing to low inflation

• Japanese economy no longer in deflation

• Bond Market Function Was Facing Problems

• BoJ took measures in july to improve situation

• regional banks currently have plenty of capital

• need to keep watching banks' intermediary functions

EUR/USD

Resistance levels (open interest**, contracts)

$1.1461 (3119)

$1.1425 (6429)

$1.1400 (1485)

Price at time of writing this review: $1.1362

Support levels (open interest**, contracts):

$1.1322 (3277)

$1.1287 (5732)

$1.1244 (6268)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 8 is 102590 contracts (according to data from March, 1) with the maximum number of contracts with strike price $1,1400 (6429);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3367 (1150)

$1.3327 (1140)

$1.3293 (1315)

Price at time of writing this review: $1.3229

Support levels (open interest**, contracts):

$1.3135 (856)

$1.3106 (884)

$1.3072 (981)

Comments:

- Overall open interest on the CALL options with the expiration date March, 8 is 40328 contracts, with the maximum number of contracts with strike price $1,3100 (4044);

- Overall open interest on the PUT options with the expiration date March, 8 is 32745 contracts, with the maximum number of contracts with strike price $1,2700 (1894);

- The ratio of PUT/CALL was 0.81 versus 0.86 from the previous trading day according to data from March, 1

* - 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.