CFD Markets News and Forecasts — 22-03-2019

• We are prepared for the worst but hope for the best
• Almost everything is now in the hands of the British parliament
• Anything is possible, even revoking Article 50 until April 12

The Commerce Department reported on Friday the wholesale inventories rose by 1.2 percent m-o-m in January 2019, following a gain of 1.1 percent m-o-m in December 2018.  That was the biggest increase in wholesale inventories since October last year

Economists had expected inventories to advance 0.2 percent m-o-m.

The January increase in wholesale inventories was partly due to a 1.6 percent m-o-m surge in inventories of non-durable goods, which followed a 0.1 percent uptick in December. The inventories of durable goods climbed by 0.9 percent m-o-m in January after jumping by 1.7 percent in December.

The report also revealed that wholesale sales rose by 0.5 percent in January after falling by 0.9 percent in the previous month. Sales of durable goods were flat in January after advancing 0.6 percent m-o-m in December, while sales of non-durable goods rose 0.9 percent m-o-m after dropping 2.3 percent m-o-m. The inventories/sales ratio for merchant wholesalers edged up to 1.34 in January from 1.33 in December.

U.S. existing-home sales rebound strongly in February

The National Association of Realtors (NAR) announced on Friday that the U.S. existing home sales climbed 11.8 percent to a seasonally adjusted rate of 5.51 million in February from an unrevised 4.94 million in January. 

Economists had forecast home resales increasing to a 5.10 million-unit pace last month. 

According to the report, single-family home sales stood at a seasonally adjusted annual rate of 4.94 million in February, up from 4.36 million in January and down 1.4 percent from 5.01 million a year ago. Meanwhile, existing condominium and co-op sales were at a seasonally adjusted annual rate of 570,000 units in February, unchanged from last month and down 5.0 percent from a year ago. 

In y-o-y terms, existing-home sales fell 1.8 percent in February.

The NAR’s chief economist Lawrence Yun credited a number of aspects to the jump in February sales. "A powerful combination of lower mortgage rates, more inventory, rising income and higher consumer confidence is driving the sales rebound."

Preliminary data released by IHS Markit indicated that the U.S. private sector growth in March expanded at the weakest pace since September 2018.

According to the report, the Markit flash manufacturing purchasing manager's index (PMI) fell to 52.5 this month from 53 in February, pointing to the lowest expansion in factory activity since June of 2017.

Economists had expected the reading to increase to at 53.6. 

A reading above 50 signals an expansion in activity, while a reading below this level signals a contraction. 

Softer rises in output, new orders and employment all weighed on the headline PMI in March, the survey said. The latest expansion of production volumes was only modest and the least marked since June 2016.

Meanwhile, the Markit flash services purchasing manager's index (PMI) decreased to 54.8 this month, down from 56.0 in the prior month. 

Economists had expected the reading to remain at 56. 

The survey pointed to a softer rise in new work received by service providers and the smallest increase in employment numbers since May 2017.

Overall, IHS Markit Flash U.S. Composite PMI Output Index came in at 54.3 in March, down from 55.5 in the previous month, pointing to the weakest upturn in private sector business activity since September 2018.

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit noted, “US businesses reported a softer end to the first quarter, with output growth easing to the second lowest recorded over the last year. The PMI survey data nevertheless remain encouragingly resilient, indicative of the economy growing at an annualized rate in excess of 2% in the first quarter, suggesting some potential upside to many current growth forecasts.”

Statistics Canada reported on Friday that the Canadian retail sales fell 0.3 percent m-o-m to CAD50.09 billion in January 2019, following a revised 0.3 percent m-o-m drop in December 2018 (originally a 0.1 percent m-o-m decrease). 

The result missed economists’ forecast, suggesting a 0.4 percent m-o-m advance for January. 

According to the report, sales fell in 4 of 11 subsectors, representing 52 percent of retail trade.

The January drop was primarily attributable to lower sales at sales at motor vehicle and parts dealers (-1.5 percent m-o-m). 

Excluding motor vehicle and parts dealers, retail sales edged up 0.1 percent m-o-m in January compared to an upwardly revised 0.8 percent m-o-m decline in December and economists’ forecas of a 0.2 percent m-o-m rise.

In y-o-y terms, Canadian retail sales rose 1.1 percent in January, following an unrevised 1.7 percent rise in December. 

U.S. stock-index fell on Thursday, as weak Eurozone’s manufacturing data exacerbated fears of a slowdown in global growth following the Federal Reserve’s cautious outlook on the U.S. economy, issued earlier this week.

Global Stocks:

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

Statistics Canada reported on Friday the country’s consumer price index (CPI) rose 0.7 m-o-m in January, following a 0.1 percent m-o-m gain in the prior month.

On the y-o-y basis, Canada’s inflation rate increased 1.5 percent last month after a 1.4 percent gain in January. 

Economists had predicted inflation would increase 0.6 percent m-o-m and 1.4 percent y-o-y in February. 

According to the report, prices went up in all eight major components in the 12 months to February. The alcoholic beverages, tobacco products (+4.1 percent y-o-y), food (+3.2 percent y-o-y) and shelter (+2.4 percent y-o-y) indexes posted the biggest gains. Meanwhile, the transportation component (+0.1 percent y-o-y) recorded only marginal increase, as gasoline prices (-11.9 percent y-o-y) continued to be under pressure. However, it should be noted that the gasoline index in January recorded its first m-o-m increase since July 2018 as tighter oil supplies and the temporary closure of several refineries for seasonal maintenance affected prices at the pump. 

The closely watched the Bank of Canada's core index increased 1.5 percent y-o-y in February after gaining 1.5 percent y-o-y in the previous month.

NIKE (NKE) reported Q3 FY 2019 earnings of $0.68 per share (versus $0.68 in Q3 FY 2018), beating analysts’ consensus of $0.65.

The company’s quarterly revenues amounted to $9.611 bln (+7.0% y/y), generally in-line with analysts’ consensus estimate of $9.599 bln.

NKE fell to $83.70 (-4.90 %) in pre-market trading.

• ECB sees protracted weakness and uncertainty in the economy
• International trade is the main reason for the slowdown
• In this situation, ECB sees a substantial degree of monetary policy accommodation is needed 
• Eurozone's authorities, central banks are prepared for Brexit; private sector needs to step up preparation 
• ECB aggregate consequences from Brexit on Eurozone are small

• Brexit discussions with DUP are still ongoing
• Speaker must decide whether to accept  vote on Brexit deal

• If European automakers build plants in U.S., then there won't be tariffs

• If House is being asked to decide a way forward, would be surprising if those are not free votes
• Intolerable for UK to take part in EU elections

Goldman Sachs lowered its expectations of UK Prime Minister Theresa May's Brexit deal getting ratified, and hiked its estimate of the chances of a "no-deal" exit from the EU.

The changes to the bank's previous predictions came after the EU agreed to grant the UK a short reprieve, until April 12, before Britain could lurch out of the EU if May fails to persuade lawmakers to back her withdrawal treaty.

Goldman Sachs cut the chances of May's deal being ratified to 50% from 60%, and raised the chances of a "no-deal" Brexit to 15% from 5%. Estimate of the probability of Brexit not happening at all remained unchanged, at 35%.

German 10-year bond yields crashed briefly below zero while euro fell after another set of disappointing German economic data added to fears of a global slowdown prompted by this week's dovish turn by the U.S. Fed.

Yields in Germany's 10-year government bond turned negative for the first time since October 2016 after data showed German manufacturing contracted for a third straight month in March, compounding worries that unresolved trade disputes are exacerbating a slowdown in Europe's biggest economy.

• ECB has confidence in sustained inflation path adjustment.

• No motivation to issue central bank digital currency.

Analysts at TD Securities are looking for the Canadian headline inflation to firm to 1.5% y/y in February, with prices up 0.7% m/m (market: 1.4% y/y, 0.6% m/m).

“Most of the monthly increase is driven by seasonal factors although stronger gasoline and food prices will also support the headline print. However, we do see downside risks to core inflation metrics. For retail sales, we are in line with the market and expect a 0.4% headline print on strong motor vehicle sales, leaving the ex-auto measure up 0.2%.”

• trade deal with China coming along, will probably happen

• asked about tariffs on chinese goods staying in place for a period of time, says there is no snag in trade negotiations

• hopefully Fed will not do the tightening

In view of analysis team at Rabobank, the Bank of Russia is set keep its policy rate unchanged at 7.75%. “With the Russian ruble the best performing EM currency so far this year and the negative impact of a VAT hike proving less negative than initially anticipated, Governor Nabiullina is in a relatively comfortable situation to maintain wait-and-see approach adopted after the CBR surprised the market with two 25bps hikes in September and December. The main focus will be on the official statement as the market will be looking for any clues that perhaps the next move could be a cut due to fading inflationary risk.”

Karen Jones, analyst at Commerzbank, explains that the EUR/USD pair has broken up from a falling wedge pattern, but has faltered ahead of initial resistance at the 200 day MA at 1.1478 and the 1.1570 January high together with the 55 week MA at 1.1630.

“This is a reversal pattern and it is bullish it implies that 1.1176 is an interim low in place. Dips should find initial support at the 1.1329 20 day MA, this should now hold the downside for further upside attempts.  Below 1.1185/75 (61.8% retracement) lies the 1.1110, the May 2017 low and the 1.0814/78.6% retracement.”

According to the report from European Central Bank, the current account of the euro area recorded a surplus of €37 billion in January 2019, increasing by €21 billion compared with December 2018. Surpluses were recorded for goods (€25 billion), services (€8 billion) and primary income (€15 billion). These were partly offset by a deficit for secondary income (€11 billion).

In the 12-month period to January 2019, the current account recorded a surplus of €345 billion (3.0% of euro area GDP), compared with a surplus of €380 billion (3.4% of euro area GDP) in the 12 months to January 2018.

In the financial account, euro area residents made net acquisitions of foreign portfolio investment securities totalling €45 billion in the 12-month period to January 2019 (decreasing from €702 billion in the 12 months to January 2018). Non-residents made net sales of euro area portfolio investment securities totalling €18 billion (following net purchases of €416 billion in the 12 months to January 2018).

• Flash Eurozone PMI Composite Output Index at 51.3 (51.9 in February). 2-month low.

• Flash Eurozone Services PMI Activity Index at 52.7 (52.8 in February). 2-month low.

• Flash Eurozone Manufacturing PMI at 47.6 (49.3 in February). 71-month low.

According to the report from IHS Markit, the eurozone economy lost momentum again in March, expanding only modestly as manufacturers reported their steepest downturn for six years. The service sector showed greater resilience but remained in its worst growth spell since late-2016. Stagnant order books and gloomier future expectations meanwhile led to reduced hiring.

The IHS Markit Eurozone Composite PMI® fell from 51.9 in February to 51.3 in March, according to the preliminary ‘flash’ estimate. The March reading was the third-lowest since November 2014, running only marginally above the recent lows seen in December and January.

New order growth stagnated for a second successive month following a slight decline in January, with backlogs of work dropping for the third time in four months. The reduction in backlogs was the largest since November 2014 and was indicative of excess capacity developing in the economy. Employment growth consequently slowed, down to the joint-weakest since September 2016, as increasing numbers of companies reviewed their payroll requirements in the light of reduced workloads.

According to the report from IHS Markit, March saw private sector business activity in Germany rise only modestly and at the slowest rate for almost six years. The first monthly fall in employment at goods producers in three years meanwhile saw the overall rate of jobs growth ease to the lowest since May 2016. Elsewhere, a backdrop of solid domestic demand and sustained wage pressures drove a near record rise in service sector output prices. This contrasted with the slowest increase in factory gate charges for almost two-and-a-half years.

The Flash Composite Output Index slipped to 51.5 in March, thereby reversing the interim gains seen in January and February (when the index reached a four-month high of 52.8) and signalling the slowest rate of business activity growth since mid-2013. The rate of increase in services sector business activity remained strong and eased only slightly from February’s five-month high. However, the downturn in manufacturing output gathered pace to show the steepest decline since August 2012.

The Flash Manufacturing PMI registered 44.7 in March, down from 47.6 in February and its lowest reading in over six-and-half years. The index has now fallen in 14 of the past 15 months, down from a record high of 63.3 at the end of 2017, with each of the index’s sub-components imparting a negative influence since the previous survey.

Despite all the back and forth between Donald Trump and Xi Jinping's negotiating teams, the U.S. and China will ultimately come to a trade agreement, according to one investor.

When that happens, markets could soar 15% or more for the rest of the year, said Jackson Wong, associate director at Huarong International Securities.

"The rumor is (that by the) end of April, the deal would be 90 percent done. And, by end June, (the) deal would be signed," Wong told.

Wong's prediction follows the market rally that began at the beginning of this year, roughly coinciding with investors' increasing expectations that a U.S.-China trade deal could be inked.

"Now the investors in China or around the world are expecting a deal to be done. They have been expecting since the end of last year. So I think the market has been rallying from that point on," he said.

The U.S. Fed on Wednesday kept interest rates unchanged and slashed all projections of a rate hike this year. Still, according to S&P Global Ratings, the Fed is "not yet done" with rate hikes. Its chief Asia-Pacific economist told he thinks another increase may come sometime this year or early next year.

Shaun Roache said better-than-expected economic growth and strong labor markets leave room for a hike. Given the "soft patch" the global economy is going through, Roache acknowledged that "it makes sense for the Fed to pause to watch the data to see how things evolve." Still, he said he felt that concerns about global growth were "a little bit overdone."

The ratings company expects growth to be "something north of 2 percent this year" and jobs to be created to the tune of about 130,000 per month — a number Roache said is above the "natural rate" of employment growth for the American economy.

Analysts at Danske Bank point out that today the euro area March flash PMIs are released, where they are expecting some stabilisation in the manufacturing index with an expected print of 49.1.

“We see services PMI continuing to rebound to 53.1 due to solid domestic demand. Today also brings German PMI; improving activity in Germany's industry will be an important ingredient for the euro area growth rebound we still expect to take shape in Q2. In the US, we get Markit PMIs (preliminary) for March, which will be particularly interesting on the back of this week's Fed meeting. We still think Markit manufacturing PMI will stabilise, so we expect the manufacturing index to come in at 54, up from 53. After the EU27's decision to grant a very short unconditional extension of Brexit, we will follow closely the response from leading UK politicians today and over the weekend ahead of next week's decisions in the House of Commons.”

Chinese Premier Li Keqiang stressed the implementation of larger-scale tax cuts to further boost the vitality of market entities.

Li made the remarks at a symposium held during his inspection at the Ministry of Finance and the State Taxation Administration.

China's tax and fee cuts will bring benefits to the country both in the short and long term, as it not only reduces corporate burden and helps stabilize employment but also optimizes economic and income distribution structure and promotes sustainable fiscal spending, Li said.

China should accelerate the implementation of tax cut measures to further unleash the vitality of companies, which will help the economy keep running within a reasonable range and promote high-quality development, Li said.

Li said that this round of tax cuts must ensure that the tax burden on major industries such as the manufacturing sector is decreased significantly and lowered to various extents in some industries.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1502 (3156)

$1.1480 (1705)

$1.1453 (383)

Price at time of writing this review: $1.1379

Support levels (open interest**, contracts):

$1.1322 (4660)

$1.1282 (3702)

$1.1239 (2965)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date April, 5 is 70648 contracts (according to data from March, 21) with the maximum number of contracts with strike price $1,1350 (4660);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3328 (671)

$1.3286 (423)

$1.3239 (754)

Price at time of writing this review: $1.3149

Support levels (open interest**, contracts):

$1.3040 (281)

$1.3022 (402)

$1.3001 (1442)

Comments:

- Overall open interest on the CALL options with the expiration date April, 5 is 25365 contracts, with the maximum number of contracts with strike price $1,3400 (4339);

- Overall open interest on the PUT options with the expiration date April, 5 is 28196 contracts, with the maximum number of contracts with strike price $1,2500 (4246);

- The ratio of PUT/CALL was 1.11 versus 1.08 from the previous trading day according to data from March, 21

* - 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.