CFD Markets News and Forecasts — 07-03-2019

Major US stock indexes fell markedly under pressure from stocks in the financial and technology sectors, as reports that the ECB lowered growth forecasts and announced a new round of incentives to help banks in the region caused concern about the global economy.

ECB President Mario Draghi reported a downgrade in GDP growth to 1.1% from the 1.7% projected in December. The European regulator also announced that its new targeted incentive program for long-term refinancing operations (TLTRO-III) will begin in September and last until March 2021. TLTROs are loans provided by the ECB to European banks at low rates, making it easier for them to lend to consumers, which in turn can help stimulate the economy. This is the third series of incentives from the ECB since 2014. In addition, the ECB has changed its rate forecast, saying it expects key interest rates to remain at the current level, at least until the end of 2019, whereas it was previously announced about the end of the summer of 2019.

The focus was also on data on the US labor market. According to a report by the Ministry of Labor, the number of initial claims for unemployment benefits fell from 3,000 to 223,000, taking into account seasonal fluctuations in the week ending March 2. The data for the previous week was revised to show 1,000 applications more than previously reported. Economists predicted that the number of complaints would remain unchanged at 225,000.

Almost all the components of DOW finished trading in the red (27 out of 30). Walgreens Boots Alliance (WBA; -2.45%) was an outsider. The growth leader was Exxon Mobil Corporation (XOM, + 0.98%).

Almost all sectors of the S & P recorded a decline. The largest decrease was shown by the service sector (-1.6%). Only the conglomerate sector grew (+ 0.1%).

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%

Germany's economy minister Peter Altmaier on Thursday held out hope that the United States and the European Union could solve their trade dispute, Reuters reported. Altmaier also added that he would travel to Washington later this year to push for a deal.

According to him, a solution could be based on an understanding reached in July between President Donald Trump and European Commission President Jean-Claude Juncker that foresees the U.S. holding back on imposing tariffs on cars while the two sides discuss cutting other trade barriers.

Statistics Canada reported that the value of building permits issued by the Canadian municipalities fell 5.5 percent m-o-m in January 2019, following a revised 6.4 percent m-o-m gain in December 2018 (originally a 6.0 percent m-o-m increase). 

Economists had forecast a 4.8 percent decline in January from the previous month. 

According to the report, the value of residential permits grew by 1.6 percent m-o-m as both single-family (+3.1 percent m-o-m) and multi-family dwellings (+0.7 percent m-o-m) posted gains.

Meanwhile, non-residential building permits plunged by 15.8 percent m-o-m in January, hurt by lower construction intentions for commercial buildings (-25.3 percent m-o-m). At the same time, increases were reported for both the industrial (+4.8 percent m-o-m) and institutional (+0.4 percent m-o-m) components.

In y-o-y terms, building permits edged down 0.1 percent in January.

U.S. stock-index traded flat on Thursday as investors continued to wait for any U.S.-China trade updates while digesting the ECB's latest monetary policy decision.

Global Stocks:

GDP growth forecasts:

• 2020 GDP 1.6% vs 1.7% prior
• 2021 GDP 1.5% vs 1.5% prior

Inflation estimates:

• 2019 1.2% vs 1.6% prior
• 2020 1.5% vs 1.7% prior
• 2021 1.6% vs 1.8% prior

• ECB decision aimed at lifting inflation
• Some idiosyncratic factors hurting growth are starting to fade
• Other factors will extend through the year
• Protectionism and political tensions are weighing on sentiment
• Underlying inflation remains muted
• Governing Council stands ready to adjust all instruments as appropriate
• Incoming data have continued to be weak, particularly in manufacturing
• Slowdown is largely due to slower external demand but also country-specific factors
• Risks to economic outlook still tilted to the downside
• Inflation to decline towards the end of the year
• Labor-cost pressures have strengthened and broadened
• Underlying inflation is expected to increase over the medium term

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

The data from the Labor Department revealed the number of applications for unemployment benefits fell slightly last week, pointing to strong labor market conditions despite signs that job growth was slowing.

According to the report, the initial claims for unemployment benefits decreased 3,000 to 223,000 for the week ended March 2. 

Economists had expected 225,000 new claims last week. 

Claims for the prior week were revised upwardly to 226,000 from the initial estimate of 225,000.

Meanwhile, the four-week moving average of claims dropped 3,000 to 226,250 last week, the lowest level in a month.

Coca-Cola Co (KO) initiated with Neutral at Credit Suisse

Procter & Gamble Co (PG) initiated with Neutral at Credit Suisse

Key interest rates were left unchanged, as widely expected

• Main refinancing rate 0.00%
• Marginal lending facility 0.25%
• Deposit facility -0.40%

Forward guidance on interest rate was changed

• The key ECB interest rates are now expected to remain at their present levels at least through the end of 2019

The launch of new targeted longer-term refinancing operations (TLTRO-III) was announced

• TLTRO-III will start in September 2019 and end in March 2021, each with a maturity of two years

The latest report released by Challenger, Gray, and Christmas Inc. revealed that job cuts announced by the U.S.-based employers surged 45 percent m-o-m to 76,835 in February from 52,988 in the previous month, and were up by 117 percent y-o-y. That was the highest reading since January of 2015, primarily due to the U.S. Army’s cutting over 50,000 jobs and tanking oil prices, causing thousands of cuts in the Energy sector.

According to the report, retail leads all sectors in job cut announcements with 41,201 this year, 92 percent higher than the 21,484 retail cuts announced through February 2018. It was the highest January-February total since 2009. Meanwhile, industrial goods, which includes heavy and industrial manufacturers, announced 31,948 job cuts through February, while companies in health care announced 7,766. Transportation companies have announced 7,193 cuts so far this year. The Automotive sector has announced 7,049 cuts this year, 239 percent higher than the 2,078 cuts announced through this point in 2018.

Most of the cuts this year were due to restructuring, as companies cited this reason for 42,882 layoff announcements. At the same time, bankruptcy has claimed 38,863 jobs so far this year. Technological updates were directly blamed for 1,022 cuts. Companies relocating operations overseas claimed 683 jobs, while tariffs led to 300 cuts. 

Votes on no-deal and Brexit delay will take place as promised if that's the case

EU wants an orderly Brexit; to achieve that we need to keep working together

• The EU is simply not moving on Brexit

• Bloc trying to prevent direct talks between 27 leaders and UK PM May
• Attorney General Cox's "mini-backstop" would envisage fewer checks on the Irish border than the backstop already envisaged in the EU-UK withdrawal deal
  

According to Bill Diviney, senior economist at ABN AMRO, US growth momentum looks to be slowing significantly into 2019, in spite of a solid Q4 GDP print last week and as a result, ABN AMRO is lowering their growth forecast for this year by 0.4pp, to 2.3% from 2.7% previously.

“The ISM manufacturing PMI fell significantly in late 2018, and has continued to fall into 2019. Meanwhile, global activity has weakened further, and this is now feeding through into significantly lower US exports. With the downturn in global manufacturing likely to persist over the coming quarters, US exports are likely to face further headwinds in the near-term. A further reason for our growth forecast downgrade is the impact of the government shutdown.All told, we think the negative impact on Q1 GDP growth could be closer to 1.0pp annualised, although some of this will be made up in Q2 and Q3.”

Eurostat, the statistical office of the European Union, said, the number of persons employed increased by 0.3% in the euro area and by 0.2% in the EU28 in the fourth quarter of 2018 compared with the previous quarter. In the third quarter of 2018, employment increased by 0.2% in both zones.

Compared with the same quarter of the previous year, employment increased by 1.3% in the euro area and by 1.2% in the EU28 in the fourth quarter of 2018 (after +1.4% and +1.3% respectively in the third quarter of 2018). Over the whole year 2018, employment rose by 1.5% in the euro area and by 1.3% in the EU28. The annual growth rate for 2017 was +1.6% for both the euro area and the EU28.

Based on seasonally adjusted figures, Eurostat estimates that in the fourth quarter of 2018, 239.8 million people were employed in the EU28, of whom 158.9 million were in the euro area. These are the highest levels of employment ever recorded in both areas. More specifically, the number of persons employed has increased by 10.2 million in the euro area and 15.7 million in the EU28 since the lowest level of employment after the financial crisis (2013 Q2 for euro area, 2013 Q1 for EU28).

According to the final estimate from Eurostat, seasonally adjusted GDP rose by 0.2% in the euro area (EA19) and by 0.3% in the EU28 during the fourth quarter of 2018, compared with the previous quarter. In the third quarter of 2018, GDP had grown by 0.1% in the euro area and by 0.3% in the EU28.

Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 1.1% in the euro area and by 1.4% in the EU28 in the fourth quarter of 2018, after +1.6% and +1.8% respectively in the previous quarter. Over the whole year 2018, GDP rose by 1.8% in the euro area and by 1.9% in the EU28. The annual growth rate for 2017 was +2.4% for both the euro area and the EU28.

During the fourth quarter of 2018, household final consumption expenditure rose by 0.2% in the euro area and by 0.3% in the EU28 (after +0.1% and +0.2% respectively in the previous quarter). Gross fixed capital formation increased by 0.6% in the euro area and 0.4% in the EU28 (after +0.6% and +0.4% also). Exports increased by 0.9% in the euro area and by 1.1% in the EU28 (after +0.2% in both zones). Imports increased by 0.5% in the euro area and 0.8% in the EU28 (after +1.1% and +0.8%).

According to Richard Franulovich, head of FX strategy at Westpac, the cratering volatility environment and the strong prospects of a trade war truce are not conducive to USD gains but the data portrays an economy that is rebounding in February.

“Rebounding momentum is apparent on many fronts (13yr highs in the new orders index of the Feb services ISM a notable example) but is uneven (2yr lows in the manufacturing ISM a case in point), underscoring the lingering drag from trade tariffs. Continuing dovish signals from a range of G10 central banks including the ECB, the BoC and the RBA limit the downside for the USD that would have surely transpired thanks to Fed patience. We suspect there is one more hike from the Fed this year and that could prove to be a meaningful catalyst for USD upside, given that rates markets price in a 45% chance of a Fed cut by mid-2020, but that won’t be a story until well into H2 2019.”

• easy to envisage other scenarios requiring opposite response

• sterling would likely appreciate after a smooth Brexit, which would limit inflation pressure

• will need a small amount of tightening over next 3 years after smooth Brexit

• before voting for rate hikes, need to be confident of demand growing faster than supply, increase in domestic inflation pressure

• i suspect UK economy ended 2018 with some amount of spare capacity

• supply in UK has been growing in line with demand over past couple of years, if not slightly faster

• trade tensions, US tariffs on china are biggest drivers of global slowdown

According to the report from Istat, in January 2019 retail sales increase by 0.5% in value and by 0.6% in volume. The overall growth is mainly due to the trend of food products (+1.0% in value and +1.1% in volume), while there is a more moderate trend for non-food products (+0.1% in value, +0.2% by volume).

In the quarter November 2018-January 2019 retail sales recorded a slight increase, compared to the previous three months, of 0.1% in value and 0.2% in volume. Sales of food products grew by 0.1% in value and by 0.3% in volume, while those in non-food goods were stationary in value and increased by 0.3% in volume.

On an annual basis, retail sales increased by 1.3% in value and by 1.5% in volume. Both food goods are growing (+ 2.3% in value and + 1.9% in volume) and, to a lesser extent, non-food goods (+ 0.5% in value and + 1.2% in volume).

According to the report from Halifax Bank of Scotland, house prices in the three months to February were 2.8% higher than in the same three months a year earlier – up from the 0.8% annual growth rate recorded in January.

In the latest quarter (December - February) house prices were 1.8% higher than in the preceding three months (September - November). The average house price is now £236,800

Russell Galley, Managing Director, Halifax, said: “House prices have grown on an annual, quarterly and monthly basis for the first time since October 2018. The shortage of houses for sale will certainly be playing a role in supporting prices. House price growth is now at 1.8%, an increase from the 0.6% fall last month, and back at the rate we saw from July to September 2018. Annual house price growth at 2.8%, is within our expectations, but is fairly subdued compared to 2015 and 2016, when the average growth rate was 8.3%. People are still facing challenges in raising a deposit which means we continue to expect subdued price growth for the time being.”

According to analysts at TD Securities, all eyes will be on the ECB’s March policy decision today.

“While we don't expect any changes to policy and forward guidance, we expect the staff to make sharp downward revisions to the forecasts (and leave risks tilted to the downside), with growth in particular reflecting the weak data at the turn of the year. We do not expect the Governing Council to change its forward guidance (that rates will remain on hold until "at least after Summer 2019" and as long as necessary to ensure inflation returns to target), and while there are risks that they further talk up new TLTROs, we do not yet expect a formal announcement.”

Karen Jones, analyst at Commerzbank, explains that the EUR/USD pair remains under pressure in its range but they continue to view this as a potential base.

“Initial upside resistance is its 6 month resistance line at 1.1444. Directly above here lies the 200 day MA at 1.1500. It has not cleared the 100 day MA at 1.1383 yet but we look for it to remain underpinned by the 1.1216 November low. We continue to favour recovery. Above the 200 day MA will re-target the 1.1623 mid-October high and slightly longer term we look for gains to 1.1667, the 55 week MA”.

China's decision to increase its budget deficit ratio to 2.8% this year from 2.6% in 2018 is appropriate for the economy, and leaves room for policymakers to manoeuvre, Finance Minister Liu Kun said.

But a proactive fiscal policy does not mean China will open the floodgates for stimulus, Liu said, reiterating past government pledges of restraint.

"We will not spend a penny that is not supposed to be spent, and we'll strive to guarantee the money that is supposed to be spent," Liu said.

For 2019, Beijing is planning cuts of nearly 2 trillion yuan in taxes and fees for companies, featuring long-awaited reductions in value-added tax for manufacturing, transport and construction sectors.

Liu acknowledged that the planned tax cuts will exert some pressure on local government finances, but he pledged more funds will be transferred from the central government to localities.

According to the report from State Secretariat for Economic Affairs (SECO), at the end of February 2019, 119,473 unemployed people were registered in the Regional Employment Centers (RAV), 4,489 fewer than in the previous month. The unemployment rate fell from 2.8% in January 2019 to 2.7% in the reporting month. Compared with the same month last year, unemployment fell by 24,457 (-17.0%).

Youth unemployment (15-24 year-olds) decreased by 684 (-5.1%) to 12,779. Compared to the same month of the previous year, this corresponds to a decrease by 3'012 persons (-19.1%).

The number of unemployed 50 and more decreased by 926 people (-2.7%) to 33,377. Compared to the same month of the previous year, this represents a decrease of 5,745 persons (-14.7%).

A total of 197,072 job seekers were registered, 3,053 fewer than the previous month. Compared to the same period of the previous year, this number fell by 11,545 (-5.5%).

EUR/USD

Resistance levels (open interest**, contracts)

$1.1406 (5974)

$1.1368 (2703)

$1.1342 (1266)

Price at time of writing this review: $1.1305

Support levels (open interest**, contracts):

$1.1276 (5923)

$1.1241 (6550)

$1.1196 (4066)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 8 is 102576 contracts (according to data from March, 6) with the maximum number of contracts with strike price $1,1250 (6550);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3308 (997)

$1.3267 (2574)

$1.3237 (2625)

Price at time of writing this review: $1.3176

Support levels (open interest**, contracts):

$1.3117 (919)

$1.3083 (1322)

$1.3042 (1304)

Comments:

- Overall open interest on the CALL options with the expiration date March, 8 is 40023 contracts, with the maximum number of contracts with strike price $1,3100 (4047);

- Overall open interest on the PUT options with the expiration date March, 8 is 33866 contracts, with the maximum number of contracts with strike price $1,2700 (1889);

- The ratio of PUT/CALL was 0.85 versus 0.84 from the previous trading day according to data from March, 6

* - 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.