CFD Markets News and Forecasts — 06-03-2019

Major US stock indices fell moderately, as investors fixed profits after a strong rally this year, and expected new reports on trade negotiations between the US and China.

Three sources told CNBC that President Donald Trump wants the US and China to conclude a deal, hoping that this will push up the stock market ahead of the 2020 election. Sources reported that Trump believes that the conclusion of a trade transaction will lead to this.

The focus of market participants were also several macroeconomic reports. The report of the Ministry of Commerce showed that the US trade deficit increased to $ 59.8 billion in December from a revised $ 50.3 billion in November, as exports showed a decline for the third consecutive month, while imports resumed growth. This was the largest trade deficit since October 2008. Economists had forecast a deficit to increase to $ 57.9 billion from $ 49.3 billion, which was reported in the previous month. At the end of 2018, the US trade deficit amounted to $ 621.0 billion - the maximum value since 2008.

Meanwhile, a report submitted by ADP showed that growth in the number of jobs in the US private sector slowed down in February after a sharp jump in January. According to the data, employment in the private sector increased by 183,000 jobs in February, after rising by 300,000 jobs in January. Economists had expected employment to grow by 189,000 jobs, compared with the addition of the 213,000 jobs previously reported in the previous month.

Most of the components of DOW finished trading in the red (21 out of 30). Walgreens Boots Alliance (WBA; -3.51%) was an outsider. The growth leader was DowDuPont Inc. (DWDP; + 1.59%).

All sectors of the S & P recorded a decline. The largest decline was shown by the health sector (-1.6%).

At the time of closing:

Dow 25,673.46 -133.17 -0.52%

S & P 500 2,771.45 -18.20 -0.65%

Nasdaq 100 7,505.92 -70.44 -0.93%

The Ivey Business School Purchasing Managers Index (PMI), measuring Canada’s economic activity, fell to 50.6 in February from an unrevised 54.7 in January. That was the lowest reading since last September 2018.

Economists had expected the gauge to hit 57.9. 

A figure above 50 shows an increase while below 50 shows a decrease. 

Within sub-indexes, the inventories indicator dropped to 52.2 in February from 53.6 in the prior month. At the same time, the prices index rose to59.8 last month from 57.4 in January, while the employment measure increased to 53.2 from 51.8 and the supplier deliveries gauge surged to 51.9 from 41.7. 

The U.S. Energy Information Administration (EIA) revealed that crude inventories rose by 7.069 million barrels in the week ended March 1. Economists had forecast an increase of 1.450 million barrels.

At the same time, gasoline stocks fell by 4.227 million barrels, while analysts had expected a drop of 1.625 million barrels. Distillate stocks reduced by 2.393 million barrels, while analysts had forecast a decrease of 1.000 million barrels.

Meanwhile, oil production in the U.S. was unchanged at 12.100 million barrels a day. 

U.S. crude oil imports averaged 7.0 million barrels per day last week, up by 1,084,000 barrels per day from the previous week.

U.S. stock-index traded flat on Wednesday in the absence of fresh reports on U.S.-China trade talks.

Global Stocks:

The Commerce Department reported on Wednesday the U.S. trade deficit widened to $59.8 billion in December from a revised $50.3 billion in November, as exports slumped for a third straight month and imports recovered. That was the largest trade deficit since October of 2008.

Economists had forecast the deficit to widen to $57.9 billion from the $49.3 billion originally reported for the previous month.

The December 18.8 percent jump in trade deficit had contributed to the $621.0-billion gap last year. The 2018 deficit was the largest since 2008 and followed a $552.3 billion shortfall in 2017.

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

Statistics Canada showed that Canada’s merchandise trade deficit stood at CAD4.59 billion in December, widening from an unrevised CAD2.06 billion gap in November. 

Economists had expected a deficit of CAD2.80 billion.  

According to the report, the country’s exports decreased 3.8 percent m-o-m to CAD46.31 billion in December, almost entirely on lower exports of energy products, which dropped 21.7 percent m-o-m due to falling crude oil prices. 

Meanwhile, imports rose 1.6 percent m-o-m to CAD50.90 billion in December, as increased imports of energy products (+19.7 percent m-o-m), motor vehicles and parts (+4.0 percent m-o-m), and metal ores and non-metallic minerals (+32.8 percent m-o-m) were partially offset by lower imports of aircraft and other transportation equipment and parts (-29.4 percent m-o-m).

Canada's merchandise trade deficit narrowed from $24.6 billion in 2017 to $21.7 billion in 2018. Annual imports were up 5.7 percent to $607.1 billion in 2018 with increases in all product sections. Consumer goods and industrial machinery, equipment and parts posted the largest increases. Despite recent monthly declines, annual exports were up 6.5 percent to $585.4 billion, led by higher exports of energy products. 

The employment report prepared by Automatic Data Processing Inc. (ADP) and Moody's Analytics showed on Wednesday the U.S. private employers added 183,000 jobs in February. That was the lowest monthly jobs gain since November 2018.

Economists had expected a gain of 189,000. 

The increase for January was revised up to 300,000 from 213,000. 

“We saw a modest slowdown in job growth this month,” noted Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Midsized companies have been the strongest performer for the past year. There was a sharp decline in small business growth as these firms continue to struggle with offering competitive wages and benefits.”

Meanwhile, Mark Zandi, chief economist of Moody’s Analytics, said, “The economy has throttled back and so too has job growth. The job slowdown is clearest in the retail and travel industries, and at smaller companies. Job gains are still strong, but they have likely seen their high watermark for this expansion.” 

• Does not expect a disorderly Brexit
• But it would almost certainly lead to a fall in UK asset prices and losses for banks

The report released by the Mortgage Bankers Association (MBA) on Wednesday revealed that a slight rise in interest rates caused a pullback in mortgage demand last week.

According to a seasonally adjusted index from the MBA, total application volume fell 2.5 percent for the week ending 1 March 2019, while volume was 2 percent lower compared with the same week one year ago.

At the same time, purchase demand reduced 3 percent for the week, despite more homes coming onto the market and Presidents Day weekend marking the unofficial start of the usually busy spring housing season. Those buyers who were in the market, however, were seeking higher-priced homes. Volume was just 1 percent higher than the same week one year ago.

"The average loan size for purchase applications increased to a record high, led by a rise in the average size of conventional loans," said Mike Fratantoni, MBA senior vice president and chief economist. "This suggests that move-up and higher-end buyers have so far become a greater share of the spring market."

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) rose to 4.67 percent from 4.65 percent, with points increasing to 0.44 from 0.42 (including the origination fee) for loans with a 20 percent down payment.

Talks take place in a constructive atmosphere, discussions have been difficult

Would be beneficial for parliament to have information on no-deal tariffs before a vote on pursing a no-deal Brexit

Government will set out for tariffs for no deal if we get to that scenario

No-deal Brexit doesn't amount to an existential threat

China won’t make big concessions to the U.S. in order to seal a trade deal, former finance minister Lou Jiwei said, calling some U.S. demands for change "unreasonable."

“China’s concessions probably won’t be very big because a lot of their demands are what we already plan to reform,” Lou, who was finance minister until 2016 and now runs the social security fund, said. Some U.S. demands are “just nitpicking," he said.

China and the U.S. are nearing the finish line on a trade deal that could be signed by Presidents Donald Trump and Xi Jinping as early as this month, though there is still a risk either side could walk away. The U.S. wants China follow through on pledges ranging from better protecting intellectual-property rights to buying more American products before Trump removes additional tariffs on $200 billion of Chinese goods.

Analysts at ABN AMRO note that some commentators have made the case for the ECB to move the deposit rate to zero based on the view that negative rates are bad for banks and hence counterproductive.

“We think these calls are unjustified and expect the ECB to keep interest rates negative for the foreseeable future. We find that the overall impact on the banking system of negative rate policy – which has been reinforced by other policy measures – has been clearly positive so far. Since the deposit rate was cut into negative territory, bank lending has expanded, lending standards have eased and bank profits have improved. Crucially, lower interest rates have supported economic growth more generally, helping to increase bank loan demand and lower provisions for the banking sector.”

• OECD sees global economic growth of 3.4 pct in 2020, down 0.1 percentage points compared to November forecasts)

• OECD sees G20 economic growth of 3.5pct in 2019, and 3.7pct in 2020

• OECD sees U.S. economic growth of 2.6pct in 2019, and 2.2pct in 2020

• OECD sees Chinese economic growth of 6.2pct in 2019 (down 0.1 percentage points from earlier forecast), and 6.0pct in 2020

• OECD sees Japanese economic growth of 0.8pct in 2019 (down 0.2 percentage points from earlier forecast), and 0.7pct in 2020

• OECD sees UK growth of 0.8pct in 2019 (down 0.6 percentage points from earlier forecast), and 0.9pct in 2020

The EU does not expect a Brexit breakthrough before the weekend, diplomats and officials said.

“It’s unlikely that there would be a deal before the weekend. We are preparing for a working weekend.” one EU official said.

Diplomats speculated that, should the EU and UK negotiators seal a deal over the weekend, May could come to Brussels on Monday to give it political endorsement and take it back to London.

US’ ambassador to London Woody Johnson said, the UK’s relationship with the US will prosper after Brexit. “I have confidence that whatever way you decide to go that the U.S. and our special relationship will continue and prosper, no matter what.” Johnson said.

Asked if that included in a no deal Brexit scenario, he replied: “In any situation I know that our two countries have to be together in this free world. There’s a lot of danger out there, so our relationship is more important now than ever whatever happens with Brexit.”

• Global GDP growth is still softening. OECD composite leading indicators show that the economic activity will decelerate further in the coming months.

• In Q4 2018, the Italian GDP decreased by 0.1% q-o-q due to the negative contribution of inventories that more than offsets the domestic demand and net exports positive ones. The value added in the services increased while in the industrial sector is still decreasing.

• In 2018, full time employment grew by 0.8% (+0.9% in 2017). The positive momentum has continued in January with a slight increase of employment characterized by the permanent positions

• In February, inflation increased but the core inflation remained moderate.

• Households and firms confidence deteriorated. The leading indicator decreased further confirming that the Italian economy cyclical position is still negative

ING discusses USD/JPY technical outlook and maintains a bullish bias on a multi-days basis, but sees rallies towards 112.95 as a selling opportunity.

"Last week’s close above the horizontal resistance around 111.70 is confirming the bullish undertone for a test of the declining trend line of the past few months coming in around 112.65 with a short-term bullish target at 112.95. A short-term top should be expected around those levels and therefore we recommend selling the rallies," ING adds.

February data from IHS Markit pointed a faster rise in eurozone construction activity following January's slowdown. The solid increase was driven by upturns in commercial and infrastructure activity, as well as a stronger expansion in housing activity. Accordingly, there were quicker increases in both employment and purchasing activity. Meanwhile, input price inflation accelerated to its fastest since March 2012.

Rising from 50.6 in January to 52.6 in February, the Eurozone Construction PMI signalled an acceleration in activity growth at eurozone construction firms.

At the national level, this was supported by a sharp rise in Germany and a return to expansion in France. Italian firms, however, saw the rate of increase ease for the fourth month in a row.

Karen Jones, analyst at Commerzbank, suggests that the GBP/USD correction lower is approaching its corrective target zone circa 1.3060-1.3000.

“Provided it recovers from this vicinity we should see the market rally towards the 1.3363 July 2018 high. Overall target remains the 1.3599 200 week MA. Below 1.3000 lies the near term support line at 1.2925 ahead of a double Fibo retracement at 1.2900/1.2895. This guards the recent low at 1.2772.”

Britain will set out its approach to tariffs on imported goods only if it has taken a decision to leave the European Union without a deal, business minister Greg Clark said.

Britain currently has tariff-free access to EU markets and it benefits from EU trade deals with other countries. But its exports will automatically face tariffs if it leaves on March 29 without a transition deal.

“This would only arise if we leave without a deal on March 29. So in those circumstances the work is continuing on developing and finalizing those tariff schedules but they will be published...once we knew that we were leaving without a deal on March 29,” Clark told BBC Radio.

China has been a strong performer among emerging economies, even if its growth has been slowing. But that's set to end, according to research firm Capital Economics.

Growth in China could plummet to 2% over the next decade - from the expected 6.0% to 6.5% target this year, predicted Capital's Chief Asia Economist Mark Williams.

"China's time as an emerging markets outperformer is ending," said Williams, at the Capital Economics annual conference in Singapore. He added that the estimated 2% growth is a "long way" from the 5% to 6% expected by the International Monetary Fund for the next decade.

Speakers at the conference pointed to a number of risks, as well as changing demographics in the world's second largest economy. That includes its debt problem, declining workforce, and increasingly weaker drivers of productivity, they said.

• Government is planning sales tax hike for fiscal reform, revenues

• Doesn't think sales tax hike alone will push the economy into recession

• Hard to measure inflation expectations

• Downside risks are rising

• BOJ will take action if risks to price target materialise

• Will ease further if risks threaten price target

• Not expecting economic recession now

Australian Bureau of Statistics said, Australia's gross domestic product (GDP) grew by 0.2% in the December quarter 2018, following a 0.3% rise in the September quarter. Economists had expected a 0.4% increase. On an annualized basis, GDP was up 2.3% - again missing forecasts for 2.6% and down from 2.8% in the previous quarter.

According to the report, government final consumption expenditure rose 1.8% in the December quarter 2018 and remains strong through the year at 5.6%. National non-defence (4.2%) was the main contributor to growth in the quarter, due to increases in social benefits to households from continued government spending on disability, health and aged care services. State and local government expenditure increased 1.1% driven by rises in non-employee expenses.

General government gross fixed capital formation increased 2.7% this quarter. The rise was driven by state and local general government (6.3%), with continued strength due to public infrastructure investment. This was offset by national general government, which fell 5.7% following defence purchases in the September quarter. Through the year general government gross fixed capital formation has risen 9.0%, again reflecting the high number of public infrastructure projects occurring across the country.

Household final consumption expenditure increased 0.4% in the December quarter 2018, with through the year growth moderating to 2.0%. The growth in household consumption was driven by spending on health, clothing and footwear, and hotels, cafes and restaurants. There were falls in household spending for electricity, gas and other fuel, purchases of vehicles and furnishings and household equipment.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1407 (6316)

$1.1368 (1921)

$1.1341 (1109)

Price at time of writing this review: $1.1296

Support levels (open interest**, contracts):

$1.1273 (5910)

$1.1238 (6442)

$1.1195 (4101)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 8 is 101948 contracts (according to data from March, 5) with the maximum number of contracts with strike price $1,1250 (6442);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3278 (1328)

$1.3245 (2574)

$1.3202 (4037)

Price at time of writing this review: $1.3130

Support levels (open interest**, contracts):

$1.3076 (1047)

$1.3036 (1302)

$1.2992 (865)

Comments:

- Overall open interest on the CALL options with the expiration date March, 8 is 40028 contracts, with the maximum number of contracts with strike price $1,3100 (4037);

- Overall open interest on the PUT options with the expiration date March, 8 is 33552 contracts, with the maximum number of contracts with strike price $1,2700 (1889);

- The ratio of PUT/CALL was 0.84 versus 0.82 from the previous trading day according to data from March, 5

* - 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.