CFD Markets News and Forecasts — 13-03-2019

Major US stock indexes rose moderately, as the block of ambiguous economic data increased the likelihood that the Fed will be patient in the matter of further rate increases.

The report of the Ministry of Labor showed that the producer price index increased by 0.1% in February, after declining by 0.1% in January. Economists had expected prices to rise by 0.2%. According to the report, the rise in producer prices occurred against the background of a significant increase in energy prices, which rose by 1.8% in February after falling 3.8% in January. At the same time, food prices fell by 0.3% in February, increasing the decline by 1.7% in the previous month. Excluding prices for food and energy, prices of main producers also increased by 0.1% in February, after rising by 0.3% in the previous month. Base prices are also projected to increase by 0.2%. On an annualized basis, producer prices rose 2., 3% in February, reflecting a slowdown in growth of 2.5% in January. The annual growth rate of basic producer prices also slowed to 2.5% in February from 2.6% recorded in January.

At the same time, the Ministry of Commerce reported that orders for durable goods increased by 0.4% in January, after rising by 1.3% in December (revised from 1.2%). Economists had expected orders to fall by 0.5%. The unexpected increase in orders for durable goods was mainly due to the continued growth in orders for transport equipment, which grew by 1.2% in January after rising by 3.1% in December.

Another report by the Ministry of Commerce showed that construction spending rose by 1.3% in January after two months of recession. This was the largest increase in nine months, as the strength in non-residential construction and government projects compensated for the continued weakness in housing construction.

Almost all the components of DOW finished trading in positive territory (27 out of 30). The growth leader was UnitedHealth Group Inc. (UNH, + 2.43%). Outsider turned out to be shares of The Home Depot Inc. (HD; -1.45%)

Almost all sectors of the S & P recorded an increase. The base materials sector grew the most (+ 1.3%). Only the utility sector decreased (-0.1%).

At the time of closing:

Dow 25,702.89 +148.23 + 0.58%

S & P 500 2,810.92 +19.40 + 0.69%

Nasdaq 100 7,643.40 +52.37 +0.69%

The Commerce Department reported on Wednesday the U.S. construction spending surged up by 1.3 percent m-o-m to an annual rate of $1.280 trillion in January 2019 after a revised 0.8 percent m-o-m fall in December 2018 (originally, a 0.6 percent m-o-m drop).

Economists had expected construction spending to rise by 0.4 percent m-o-m.

According to the report, spending on highway construction spiked by 11.8 percent m-o-m to a rate of $99.9 billion, while spending on educational construction jumped by 2.2 percent m-o-m to a rate of $77.8 billion.

Spending on private construction rose by 0.2 percent m-o-m to a rate of $964.2 billion, as an advance in spending on non-residential construction was partially offset by a decline in spending on residential construction.

In y-o-y terms, construction spending rose by 0.3 percent in January.

The U.S. Energy Information Administration (EIA) revealed that crude inventories fell by 3.862 million barrels in the week ended March 8. Economists had forecast an increase of 2.655 million barrels.

At the same time, gasoline stocks fell by 4.624 million barrels, while analysts had expected a drop of 2.532 million barrels. Distillate stocks climbed by 0.383 million barrels, while analysts had forecast a decrease of 1.8580 million barrels.

Meanwhile, oil production in the U.S. decreased by 100,000 barrels a day to 12.000 million barrels a day. 

U.S. crude oil imports averaged 6.7 million barrels per day last week, down by 255,000 barrels per day from the previous week.

U.S. stock-index rose slightly on Wednesday, as investors took a cautious stance ahead of another parliamentary vote on Brexit, which could send a shock through global markets.

Global Stocks:

2020 forecast at 1.4% (unchanged)

2021 forecast at 1.6% vs 1.4% prior

2022 forecast at 1.6% vs 1.5% prior

2023 forecast at 1.6% (unchanged)

2018/19 deficit to GDP at 1.1% vs 1.2% prior

Sees real wage growth in every year of the forecast

Has revised up wage growth to 3% or higher in every year

Economy forecast to grow in each of next 5 years

Economy itself is remarkably robust

Last night's vote leaves cloud of uncertainty over economy

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

The U.S. Commerce Department reported that the durable goods orders rose 0.4 percent m-o-m in January 2019, following a revised 1.3 percent m-o-m gain in December 2018 (originally a 1.2 percent m-o-m advance). 

Economists had forecast a 0.5 percent m-o-m decrease. 

According to the report, transportation equipment (+1.2 percent m-o-m) drove the increase. Meanwhile, orders for durable goods excluding transportation edged down 0.1 percent m-o-m, following an upwardly revised 0.3 percent m-o-m gain in December and missing market expectations of a 0.1 percent m-o-m gain.

Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 0.8 percent m-o-m in January, after declining 0.9 percent m-o-m in December.

Barrick (GOLD) upgraded to Buy from Hold at Desjardins

The Labor Department reported the U.S. producer-price index (PPI) inched up 0.1 percent m-o-m in February after an unrevised 0.1 m-o-m decrease in January. 

For the 12 months through February, the PPI surged 1.9 percent compared to a 2.0 percent jump recorded in the prior month. 

Economists had forecast the headline PPI would increase 0.2 percent m-o-m last month and 1.9 percent over the past 12 months. 

According to the report, the February advance in the final demand index can be traced to a 0.4-percent rise m-o-m in prices for final demand goods. Meanwhile, the index for final demand services was unchanged m-o-m.

Excluding volatile prices for food and energy, the PPI edged up 0.1 percent m-o-m and rose 2.5 percent over 12 months, missing economists’ forecasts for gains of 0.2 percent m-o-m and 2.6 percent y-o-y, respectively.

Reuters reported that Goldman Sachs said it sees a 55 percent probability of the UK's Prime Minister Theresa May getting a Brexit divorce deal ratified even though parliament overwhelmingly rejected the deal for a second time.

At the same time, the probability of a no-deal Brexit is seen by Goldman at 15 percent and the probability of no Brexit at around 35 percent.

Goldman also said the third vote on May’s deal is likely within weeks after the EU summit on 21-22 March.

China's banking and insurance regulator urged banks to continue increasing lending to smaller firms and further cut their financing costs, as policymakers work to avert an economic slowdown.

Banks should work hard to achieve targets on increasing loans for small companies and keep the lending rates on a reasonable level, the China Banking and Insurance Regulatory Commission (CBIRC) said.

Big state-owned commercial banks should increase outstanding loans to smaller companies by more than 30% in 2019, the CBIRC said, adding that it would also increase its tolerance for non-performing loans at small companies.

The regulator reiterated its demands for state-owned banks to target faster growth in loans to small businesses as economic growth slowed to its weakest in nearly three decades in 2018.

Nordea Markets analysts suggest that the US yield curve is indicating that the next US recession is ten months away.

“The most important economic key figures are also within the range at which they have normally been ten months before a recession. This is not a prediction of an upcoming recession, however, as most of the key figures are coincident at best. A trigger is needed for the expected slowdown to become a recession.” analysts said.

According to estimates from Eurostat, in January 2019 compared with December 2018, seasonally adjusted industrial production rose by 1.4% in the euro area (EA19) and by 1.0% in the EU28, In December 2018, industrial production fell by 0.9% in the euro area and by 0.4% in the EU28.

In January 2019 compared with January 2018, industrial production decreased by 1.1% in the euro area and by 0.4% in the EU28.

In the euro area in January 2019, compared with December 2018, production of energy rose by 2.4%, non-durable consumer goods by 2.0%, durable consumer goods by 1.1%, capital goods by 0.9% and intermediate goods by 0.2%.

In the EU28, production of energy rose by 1.4%, durable consumer goods by 1.3%, non-durable consumer goods by 1.0%, capital goods by 0.9% and intermediate goods by 0.3%.

Citibank analysts suggest that their point forecasts show that the USD is around 1% weaker vs. G10 over 0-3m and around 4% weaker over 6-12m.

“The USD can fall when there is positive growth convergence (RoW growth outperforms the US, a la 2017) and negative growth convergence (US and ROW growth falls but RoW growth falls less). For example, in 2015, US growth retreated from 3.8% y/y to 1.3% yoy but Eurozone growth slowed down from 2.0% yoy to 1.8% yoy only. Dollar index fell from 100 to 93 in this period. We expect the differential between US and EA growth to peak in 2Q this year. Growth outperformance may narrow from 2% to 1.8% in Q2 and further reduce to 0.7% in Q4, which may undermine the USD.”

• Brexit is Britain’s decision alone

• up to UK to find way out of impasse

• orderly Brexit remains goal of EU27

• asks whether UK wants to actually leave the EU

• Brexit accord is only possible exit deal for UK

• EU27 went as far as possible to sway UK parliament

• Italy’s recession is another factor weighing on euro zone economy

• Italian recession is self inflicted, stemming from policy choices that drove up government bond yield spreads

• higher government bond yields spreads translate into tightening of credit conditions

• terms of new TLTRO tenders will be defined in best possible way to stimulate financing of real economy

• ECB ready to intervene if necessary

Karen Jones, analyst at Commerzbank, points out that the AUD/USD pair has continued to bounce higher very near term, and suggest that their Elliott wave counts are negative and are looking for failure in this zone and for further weakness to 0.6950, this is the 61.8% retracement of the move up from January 2019.

“There is scope for the 0.6857/78.6% retracement. Rallies will find initial resistance at 0.7125 (55 day MA) and 0.7207 (end of February high) and are likely to remain capped by the 0.7231 200 day MA. Price action in January was exhaustive – the market charted a hammer (reversal). This suggests the down move ended at 0.6738.”

According to Mikael Olai Milhøj, senior analyst at Danske Bank, although the EUR/USD edged higher yesterday and is now not too far from pre-ECB levels.

“We still see ECB as a game changer and notably stress that this, in our view, makes EUR/USD more reactive to negative news. And from a cyclical point of view, we expect the cross will face headwinds near term, including from a possible Fed repricing. If the Commons rejects a no deal Brexit today, it could lift EUR/USD slightly in the very near term.”

According to the report from Ine, the annual rate of the general Consumer Price Index (CPI) for the month of February is 1.1%, one tenth higher than that registered the previous month.

The groups with the greatest positive influence on the increase in the annual rate are:

Transport, with a rate of 1.8%, two points higher than the previous month, as a result of which the prices of fuels and lubricants rise this month, while they decreased in February 2018.

Food and non-alcoholic beverages, which increased its annual variation by five tenths and placed it at 1.4%, due to the increase in the prices of vegetables, which fell last year. The decrease in the prices of fish and shellfish also has a greater influence this month than in 2018. It should be noted in this group also, although in the opposite direction, that the prices of fruit rise this month less than in February last year.

On the other hand, the groups with negative influence that stand out are:

Housing, whose rate decreases one point and a half, standing at 0.9%, due to the fall in electricity prices, compared to the increase recorded last year. It should also be noted, although in the opposite direction, the increase in the prices of heating oil, which fell in 2018.

Leisure and culture, with a variation of -1.6%, seven tenths lower than the previous month. It stands out in this evolution that the prices of the tourist packages raise this month less than in February of the previous year.

Communications, whose rate decreases more than one point, to 1.5%, because the prices of telephony and fax services rose more in 2018 than they do this month.

The annual variation rate of core inflation (general index without unprocessed foods and energy products) decreases one tenth, to 0.7%, and is four tenths below that of the general CPI. It is the lowest rate since July 2016

Italy will protect its strategic infrastructure such as telecoms and avoid transferring key know-how as part of a planned agreement with China, Prime Minister Giuseppe Conte said.

Italy is studying mechanisms to monitor commercial accords signed under the "Belt and Road" memorandum agreement with China, as well as other measures to protect "strategic activities and national interests," Conte told.

In separate comments to Corriere, a spokesman for the White House's group of national security advisers, Garrett Marquis, warned the accord was "a political hazard."

China has denied its Belt and Road projects, which fund and build global transport and trade links in more than 60 countries, are a debt trap.

Karen Jones, analyst at Commerzbank, explains that the EUR/USD pair is correcting higher near term following the recent sell off to the 61.8% Fibonacci retracement of the 2017-18 advance at 1.1186, which has held the initial test.

“The bounce higher has been tepid so far and there is now a considerable amount of resistance above the market extending up to the 200 day MA at 1.1491. Rallies will find initial resistance at 1.1315 the 20 day MA, which guards the 1.1420 end of February high and the 1.1435 downtrend. Below 1.1185/75 lies the 1.1110, the May 2017 low and the 1.0814/78.6% retracement.”

• up to EU how long any extension would be

• UK PM May can carry on as PM for a long time

The UK says that up to 87% of total imports are to be tariff-free as compared to the current 80%, should a no-deal Brexit materialise. However, the UK will keep a number of tariffs such as those on finished vehicles and on goods such as bananas, raw cane sugar, and some fish to avoid a hit to developing countries with preferential trade deals.

Japan's regional bank lobby called on the central bank to focus on the rising costs of prolonged monetary easing.

Takashige Shibato, head of the Regional Banks Association of Japan, said the BOJ's ultra-loose policy likely helped the economy achieve one of the longest uninterrupted post-war expansion. While various risks are clouding the outlook for Japan's economy, the BOJ must take into account the dangers of prolonged easing such as the hit to bank profits and dwindling liquidity in the bond market.

"The BOJ said it will achieve 2 percent inflation in two years. But six years have passed" since the implementation of a radical stimulus programme. The policy has provided sufficient benefits to the economy. On the other hand, various side-effects are emerging in areas like financial intermediation and bond market functions. We hope the BOJ takes these into account." Shibato said.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1437 (1483)

$1.1420 (403)

$1.1408 (346)

Price at time of writing this review: $1.1284

Support levels (open interest**, contracts):

$1.1229 (3073)

$1.1187 (2798)

$1.1141 (3909)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date April, 5 is 69922 contracts (according to data from March, 12) with the maximum number of contracts with strike price $1,1500 (4581);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3304 (372)

$1.3265 (313)

$1.3235 (804)

Price at time of writing this review: $1.3092

Support levels (open interest**, contracts):

$1.3015 (1085)

$1.2667 (427)

$1.2940 (1400)

Comments:

- Overall open interest on the CALL options with the expiration date April, 5 is 23485 contracts, with the maximum number of contracts with strike price $1,3400 (4327);

- Overall open interest on the PUT options with the expiration date April, 5 is 24133 contracts, with the maximum number of contracts with strike price $1,2500 (3455);

- The ratio of PUT/CALL was 1.03 versus 0.90 from the previous trading day according to data from March, 12

* - 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.