CFD Markets News and Forecasts — 19-03-2019

Major US stock indexes ended the session mixed, as investors adjusted their positions on the eve of the announcement of the results of the Fed meeting.

Today started a two-day Fed meeting. Market participants do not expect the US regulator to raise interest rates at this meeting, as the set of economic data released earlier this month was worse than expected. However, investors will look for clues about the prospects for the Fed's economy. In addition, individual FOMC members' projections of interest rates, as well as any details about plans to reduce the balance of the Fed, are of particular interest to the markets.

The focus of market participants was also data on production orders. The report of the Ministry of Trade showed that the volume of production orders increased in January by 0.1%. Economists had expected orders to grow 0.3% after rising 0.1% in December. A modest increase in orders was due to the fact that orders for durable goods rose by 0.3% after increasing by 1.3% in December. Orders for transportation equipment showed an increase of 1.2% in January, after rising by 3.2% in the previous month. At the same time, orders for durable goods fell by 0.2% in January after declining by 1.1% in December. Excluding orders for transportation equipment, production orders fell by 0.2% in January.

Most of the components of DOW finished trading in the red (17 out of 30). The Walt Disney Company (DIS, -2.16%) was an outsider. The growth leader was Pfizer Inc. (PFE, + 0.97%).

Most sectors of the S & P finished trading in the red. The largest decline was shown by the utility sector (-1.2%). The health sector grew the most (+ 0.5%).

At the time of closing:

Dow 25,887.38 -26.72 -0.10%

S & P 500 2,832.57 -0.37 -0.01%

Nasdaq 100 7,723.95 +9.47 +0.12%

Ireland's prime minister Leo Varadkar and European Council President Donald Tusk met in Dublin on Tuesday ahead of the critical European Summit in Brussels later this week.

In a statement issued shortly after the meeting, Varadkar said that:

• President Tusk expressed the strong and ongoing solidarity with Ireland of the European Council and European leaders.
• They agreed that we must now see what proposals emerge from London in advance of the European Council meeting in Brussels on Thursday.
• Meanwhile, preparations continue in Ireland and across the European Union for a no deal scenario, which would have serious consequences for all concerned.

The U.S. Commerce Department reported on Tuesday that the value of new factory orders edged up 0.1 percent m-o-m in January, following an unrevised 0.1 percent m-o-m gain in December.

Economists had forecast a 0.3 percent m-o-m advance.

According to the report, orders for machinery rose 1.5 percent m-o-m in January after decreasing 0.4 percent m-o-m in December, while orders for electrical equipment, appliances and components climbed 1.4 percent m-o-m after dropping 0.3 percent m-o-m in December and transportation equipment orders jumped 1.2 percent m-o-m after a 3.2 percent m-o-m rise in December. At the same time, computers and electronic products orders fell 0.9 percent m-o-m in January after declining 0.4 percent in December, orders for mining, oil field and gas field machinery dropped 2.7 percent m-o-m after tumbling 8.2 percent m-o-m in December and orders for primary metals decreased 2.0 percent m-o-m and fabricated metal products orders fell 0.6 percent m-o-m.

Total factory orders excluding transportation, a volatile part of the overall reading, fell 0.2 percent m-o-m in January (compared to a 0.6 percent m-o-m drop in December), while orders for nondefense capital goods excluding aircraft, a measure of business spending plans, increased 0.8 percent m-o-m compared to a 0.8 percent m-o-m decline in December. The report also showed that shipments of core capital goods also rose 0.8 percent m-o-m in January, following a drop of 0.1 percent m-o-m in December.

In y-o-y terms, factory orders increased 3.8 percent in January.

• Diplomats think PM will ask for June 30 extension
• May will tell leaders at the summit this is the most important decision they face since the Greek bailout

U.S. stock-index rose on Tuesday, supported by expectations the U.S. Federal Reserve could strike a dovish tone at its March monetary-policy meeting.

Global Stocks:

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

Nike (NKE) target raised to $90 from $85 at JP Morgan

Boeing (BA) downgraded to Hold from Buy at Argus

• You see from PM and her colleagues a determination to find a way for parliament to vote on a Brexit deal, a long delay to Brexit would be a failure by politicians
• If there were to be a vote on Brexit deal on Wednesday, the government would have to submit a motion today and that hasn't happened yet
• May will write to the EU's Tusk before this week's summit on extending Article 50; the letter will be sent today or tomorrow
• Government discussed ongoing negotiations with the DUP on Brexit
• Government discussed implications of the Monday statements by parliament's speaker John Bercow

• “Revisions to Fed’s econ projections are likely to be relatively small but we expect median forecast for policy rate path (‘the dot plots’) to shift from indicating two rate hikes in 2019 to unchanged rates.
• The Fed is finalizing its plan for the balance sheet but the result will likely be presented at the 1 May meeting rather than at the March meeting.
• A first quarter growth slowdown reinforces the Fed’s “wait-and-see” approach. However, US economic activity should accelerate in the second quarter while Chinese stimulus along with a softer monetary policy from the ECB means that the global outlook should improve.
• We expect the US & China to reach a trade agreement in coming months. Financial conditions have eased in 2019 as stock markets have rebounded. In light of expectations of an improving outlook, we are sticking to our forecast that Fed will deliver a final hike in June.
• The tight relationship between Fed policy and the USD is pretty much gone. Unless the Fed delivers a very unexpected story the USD is unlikely to react much.”

According to TD Securities analysts, the U.S. Federal Reserve's March dot plot will be a key focus of markets' attention tomorrow.

• "We look for the median dots to decline in each of the next three years, but not all the way to zero for 2019.
• We also expect the Fed to give more information about the desired equilibrium supply of reserves, and to state that balance sheet runoff will end later this year.
• Markets: Only a significant deviation from the script would create a strong reaction in Treasuries as modest dovishness is already priced. The hurdle to generate an outsized reaction in FX is rather high. With the world mired in a growth slowdown and awaiting a pick-up, we see limits to sustained USD weakness. Fresh catalysts are required to flip that script."

• They anticipate the median rate expectation for 2019 will fall to one hike, and will be monitoring for any signals about balance sheet policy or what conditions are needed to allow for another hike.
• Higher Fed rate hike pricing is actually, and somewhat counterintuitively, consistent with easier financial conditions. This is because positive economic data helps equities and credit, while also boosting confidence that the Fed can hike. So we certainly seem to be in a “good news is good news” environment.

• Says EU will try to react to any wishes that the UK presents
• Wants to ensure that good ties are maintained after Brexit

• Offer said unlikely to be finalized at the summit the next week, but finalized in days before March 29
• EU plan allows for UK PM May to get deal through the next week

China will take an array of measures to support foreign trade this year amid increased uncertainty, a senior official said.

The country's foreign trade development is facing a more complicated and severe environment with greater uncertainty and more risks and challenges, Assistant Commerce Minister Ren Hongbin told.

However, China "has the foundation and necessary conditions to achieve its target of keeping foreign trade stable while improving its quality" this year, Ren said.

Authorities will ensure thorough implementation of current trade policies and steadily push the drive to build China into a major trader power, he said.

More efforts will be made to diversify the country's export destinations and optimize the market structure, according to Ren.

Jonathan Golub, the chief U.S. equity strategist at Credit Suisse, boosted his year-end forecast for the S&P 500 by 100 points to 3,025, a level that represents a 7 percent increase from Friday’s close. Growth in corporate profits is slowing more than expected, but improving sentiment means investors will be willing to pay a higher multiple for stocks, Golub says.

“Investors have not fully re-risked portfolios following 4Q’s turbulence -- despite a sharp decline in volatility and spreads -- and ... valuations will drift higher as they do so,” Golub said. “Receding risks drive market higher,” he added, referring to a less hawkish Federal Reserve and a potential U.S.-China trade deal.

According to first estimates from Eurostat, in January 2019 compared with December 2018, seasonally adjusted production in the construction sector decreased by 1.4% in the euro area (EA19) and remained unchanged in the EU28. In December 2018, production in construction grew by 1.1% in the euro area and fell by 0.2% in the EU28.

In January 2019 compared with January 2018, production in construction decreased by 0.7% in the euro area and increased by 0.7% in the EU28.

In the euro area in January 2019, compared with December 2018, civil engineering fell by 2.9% and building construction by 1.1%. In the EU28, civil engineering fell by 1.3%, while building construction grew by 0.2%.

In the euro area in January 2019, compared with January 2018, civil engineering fell by 1.5% and building construction by 0.1%. In the EU28, building construction rose by 0.8 and civil engineering by 0.3%.

According to the report from ZEW (Leibniz Centre for European Economic Research). Indicator of Economic Sentiment for Germany recorded a strong increase of 9.8 points in March 2019, with the corresponding indicator climbing to a level of minus 3.6 points. Although the indicator is still below the long-term average of 22.2 points, the expectations for the medium-term economic development are less pessimistic than they were a month or two ago. The assessment of the current economic situation in Germany decreased again in March, falling by 3.9 points to a reading of 11.1 points compared to the previous month.

“The significant increase in the ZEW Indicator of Economic Sentiment shows that major economic risks are considered to be less dramatic than before. The possible delay in the Brexit process as well as the renewed hope for a deal on the UK’s withdrawal from the EU seem to have given rise to more optimism among financial market experts. Progress made in the negotiations between China and the US to end the trade war between the two nations may also have contributed. Nevertheless, the ZEW Indicator of Economic Sentiment for Germany points to relatively weak growth in the first half of 2019,” comments ZEW President Professor Achim Wambach.

According to the report from Office for National Statistics, the UK unemployment rate was estimated at 3.9%; it has not been lower since November 1974 to January 1975. Unemployment was expected to remain at 4.0%

• The UK employment rate was estimated at 76.1%, higher than for a year earlier (75.3%) and the highest figure on record.

• The UK economic inactivity rate was estimated at 20.7%, lower than for a year earlier (21.2%) and the lowest figure on record.

• Excluding bonuses, average weekly earnings for employees in Great Britain were estimated to have increased by 3.4%, before adjusting for inflation, and by 1.4%, after adjusting for inflation, compared with a year earlier.

• Including bonuses, average weekly earnings for employees in Great Britain were estimated to have increased by 3.4%, before adjusting for inflation, and by 1.5%, after adjusting for inflation, compared with a year earlier.

Citibank analysts are seeing the current weaker sentiment indicators for Australian economy as unlikely to translate into further slowing in hard activity data, nor leading to reactive monetary policy changes.

“Data is still consistent with econ activity that can produce meaningful consumption and employment growth. Furthermore, this outlook is consistent with the RBA’s near and medium term outlook. Markets await this week’s Australian employment data on Wednesday.”

The pound is a bargain and may strengthen to $1.45 once the uncertainty surrounding Brexit starts to get resolved, according to Merian Global Investors Ltd.

The London-based money manager has a long position on sterling, betting the economy will improve as soon as the protracted chaos over the U.K.’s separation from the European Union is over.

“Sterling is cheap particularly if we get any level of clarity,” said Huw Davies, fixed-income investment director. “We’re long and trading the range. With any level of clarity, it could get well up to $1.40 or $1.45.”

Bank mergers in Germany are an effective tool to reduce costs but any deal will require a sustainable business model, Bundesbank board member Joachim Wuermeling said.

Wuermeling's comments come just days after Deutsche Bank and Commerzbank, Germany's top two lenders, announced they were in merger talks.

Wuermeling, without naming Deutsche or Commerzbank, added that supervisors will be neutral in evaluating any merger proposals and they will never actively initiate them.

Japanese commercial land prices climbed at their fastest pace in 11 years in 2018, led by strong demand for office space and a boom in tourism, a government survey showed.

Prices for land across the country's main centres rose 2.8 percent on average last year, according to the Ministry of Land, Infrastructure, Transport and Tourism.

National average commercial land price growth was the fastest since 2007, when prices rose 3.8 percent.

The average residential land price rose 0.6 percent last year, according to the ministry's data. The ministry surveyed 26,000 spots nationwide.

Richard Franulovich, head of FX strategy at Westpac, suggests that the EUR/USD pair is now in its fifth month of narrow range trading (circa 1.12-1.15) and they find it to be mildly overvalued, with the currency's equilibrium estimated at 1.1100.

“It is consistent with trends over the last several years, with EUR/USD trading consistently above fair value. However, and perhaps more importantly, we find that amid all those aforementioned competing forces EUR/USD fair value has been grinding higher – on balance the positives have outweighed the negatives. On our estimates EUR/USD equilibrium has risen around US2.5 cents in the last four months. Despite the amid the myriad of competing forces EUR/USD fair value has been slowly grinding higher, but the currency is slightly overvalued and that arguably accounts for the currency’s range bound behaviour in recent months.”

Corporate spending in Asia is likely fall for the first time in three years, as businesses conserve cash in the face of a stalling Chinese economy, an unresolved trade dispute and Brexit uncertainty, Refinitiv data showed.

Capital expenditure (capex) at 2,137 Asian companies is likely to slip an average 4 percent this year, according to the data, which is based on analyst estimates. The pace of revenue growth is likely to be flat at 3.3%. By comparison, capex - or money spent on maintenance and investment - at the same firms grew nearly 8% last year.

"We are seeing several factors working against capex growth. Credit conditions have tightened and the U.S. dollar is strong. In India and some other markets, the bank lending cycle may have peaked. Auto demand in China is slowing," said Joseph Devine, chief investment officer at Macquarie Investment Management.

• we need to look at the extension, what assurances we can give and whether that passes the speaker's test

• there will have to be a short extension

• speaker has raised the bar with his ruling to bring a vote back a third time we need a shift from lawmakers

• we will discuss Brexit this morning at Cabinet

• speaker has said before we should not be bound by precedent

• speakers ruling makes it unlikely vote will be this week

According to the report from Federal Statistical Office, as in January, exports also rose in February 2019, seasonally adjusted by 2.3 percent (real: + 1.3 percent). This continued the positive trend in exports recorded since September 2018. Meanwhile, after two strong growth months in February, imports slipped into negative territory (- 1.2 percent, real: - 3.0 percent), but remained well above the 17 billion Swiss franc mark in terms of sales. The trade balance showed a surplus of 2.0 billion Swiss francs.

Sales of chemical-pharmaceutical products made the biggest contribution; Their exports grew by 3.9 percent (+ CHF 356 million). At the same time, they posted a new monthly record of 9.5 billion Swiss francs. Since September 2018, the trend is pointing upwards. Watch exports are also on the upswing, rising by 1.1 percent in the month under review. For the other product groups, exports of metals increased by 3.2 percent. Overall, however, the division has shown a slight downward trend since early 2018.

Almost all divisions were responsible for the decline in imports. In particular, supplies of costume bijouterie and jewelery (under other categories of goods) dropped by 80 million and those of vehicles by 66 million francs. The latter show an overall downward trend since the beginning of 2018. Imports of chemical-pharmaceutical products, the largest division, showed a reduction of 49 million Swiss francs after two months of dynamic growth in February 2019.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1465 (1729)

$1.1448 (1339)

$1.1431 (344)

Price at time of writing this review: $1.1345

Support levels (open interest**, contracts):

$1.1286 (3838)

$1.1242 (3068)

$1.1196 (2830)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date April, 5 is 71360 contracts (according to data from March, 18) with the maximum number of contracts with strike price $1,1550 (4539);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3401 (636)

$1.3374 (419)

$1.3348 (793)

Price at time of writing this review: $1.3273

Support levels (open interest**, contracts):

$1.3153 (408)

$1.3125 (1095)

$1.3095 (675)

Comments:

- Overall open interest on the CALL options with the expiration date April, 5 is 23744 contracts, with the maximum number of contracts with strike price $1,3400 (4415);

- Overall open interest on the PUT options with the expiration date April, 5 is 25935 contracts, with the maximum number of contracts with strike price $1,2500 (3757);

- The ratio of PUT/CALL was 1.09 versus 1.08 from the previous trading day according to data from March, 18

* - 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.