CFD Markets News and Forecasts — 05-03-2021

According to ActionForex, analysts at TD Bank Financial Group note that Canada’s international merchandise trade balance switched to a $1.4 billion surplus in January, following a deficit of $2 billion in December, aided by a strong 8.1% (m/m) increase in nominal exports. Meanwhile, imports were up 0.9% on the month.

"The increase in exports was broad-based, with all 11 industries expanding on the month. A sizeable portion of the strong headline increase was driven by a transitory spike in the volatile aircraft and other transportation equipment and parts (+72.3%) category. Statistics Canada cited that a Canadian airline had retired a large number of aircrafts in its fleet, which were then exported to the United States."

"The increase in imports spanned 7 of the 11 industries, with the headline increase largely driven by greater energy imports (+20.5%). Imports of industrial machinery and equipment were up 3%."

"Canada’s merchandise trade surplus with the U.S. widened to $6.2 billion (from $2.5 billion in December). This is the largest trade surplus with the U.S. since late 2008. Meanwhile, Canada’s merchandise trade deficit with the rest of the world widened to $4.8 billion (from $4.5 billion in December)."

"January’s strong international trade report joins a list of other indicators in suggesting a better-than-expected start to 2021 for the Canadian economy. It is important to highlight that part of January’s export strength is transitory, including sizeable contributions from the volatile aircraft component and unusually high transactions of retail gold bars."

According to ActionForex, analysts at RBC Financial Group note that U.S. payroll employment added 379k jobs in February, as restrictions were relaxed nation-wide amid lower number of COVID cases and accelerating vaccine distribution. 

"The gain was broadly-based among private sector industries, led by a 355k increase in leisure and hospitality – although these industries still accounted for the largest shortfall of jobs relative to pre-shock levels (over a third of the remaining 9.5 million total). Mining and construction both shed jobs, likely impacted by severe weather in parts of the country."

"The unemployment rate was little changed at 6.2%, and similarly the participation rate held at 61.4%. That’s still short of the 63.3% reading from just a year ago. Indeed, the official unemployment rate has likely been biased lower as many of the unemployed simply stopped looking for work and were subsequently dropped out of the labour force. And by our count, the unemployment rate would have been closer to 9% in February 2021 had no one left the labour force since last spring."

"Household disposable incomes likely remained elevated in February, as average hourly earnings rose again."

"The prospect of another round of support cheques as part of the proposed $1.9 trillion stimulus package will likely add further to an already large savings stockpile in the spring, boosting household purchasing power that will support the economic recovery as the threat of the virus eases."

The Ivey Business School Purchasing Managers Index (PMI), measuring Canada’s economic activity, increased to 60.0 in February from 48.4 in January. This pointed to the strongest expansion in economic activity since August 2020.

A reading above 50 signals expansion, while a reading below 50 indicates contraction.

Within sub-indexes, the employment measure climbed to 54.0 in February from 41.5 in the previous month, while the supplier deliveries gauge increased to 38.6 from 34.7 and the inventories indicator rose to 57.8 from 56.7. At the same time, the prices index fell to 80.2 in February from 82.8 in January.

Statistics Canada announced on Friday that Canada recorded a trade surplus of CAD1.41 billion in January, compared with a revised CAD1.98-billion deficit in December (originally a CAD1.67-billion gap). This was the first surplus since May 2019 and the largest surplus since July 2014.

Economists had forecast a deficit of CAD1.40 billion.

According to the report, Canada’s exports surged by 8.1 percent m-o-m (the most since the rebound in the summer of 2020) to CAD51.12 billion in January, led by a climb in exports of aircraft and other transportation equipment and parts (+72.3 percent m-o-m). Meanwhile, imports increased by 0.9 percent m-o-m to CAD49.78 billion in January, primarily due to higher imports of energy products (+20.5 percent m-o-m).

U.S. stock-index futures rose on Friday, despite a spike in the U.S. Treasury yields, as better-than-expected U.S. jobs report heightened optimism about a faster economic reopening.

Global Stocks:

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FXStreet notes that the S&P 500 has fallen sharply on increased volume to remove as expected key support from the 63-day average and early February price gap at 3792/74. Economists at Credit Suisse believe the market is set for a potentially lengthy consolidation/corrective phase and look for a test of support at 3694/78 next.

“We look for further weakness back to 3723, then what we look to be better support at 3694/78 – the late January low and 38.2% retracement of the rally from late October. Our bias would be for a floor to be found here, for now at least.” 

“Should weakness directly extend, this would suggest a more important top is in place and further weakness can be seen, with support then seen next at 3663, then 3636/33, with the 200-day average some way distant at 3467.” 

Cisco (CSCO) upgraded to Overweight from Neutral at JP Morgan; target to $55

The U.S. Commerce Department reported on Friday that U.S. the goods and services trade deficit widened to $68.2 billion in January 2021 from a revised $67.0 billion in the previous month (originally a gap of $66.6 billion).

Economists had expected a deficit of $67.5 billion.

According to the report, the January increase in the goods and services reflected an advance in the goods deficit of $1.3 billion to $85.4 billion and a gain in the services surplus of $0.1 billion to $17.2 billion.

In January, exports of goods and services from the U.S. rose 1.0 percent m-o-m to $191.9 billion, while imports went up 1.2 percent m-o-m to $260.2 billion, reflecting both the ongoing impact of the COVID-19 pandemic and the continued economic recovery from the steep declines in 2020.

Year-over-year, the goods and services deficit jumped 53.7 percent from January 2020. Exports fell 7.6 percent, while imports grew 3.2 percent.

The U.S. Labor Department announced on Friday that nonfarm payrolls jumped by 379,000 in February after a revised 166,000 increase in the prior month (originally a gain of 49,000), reflecting the impact of the coronavirus pandemic. This marked the largest monthly advance since October 2020.

According to the report, most of the job gains occurred in leisure and hospitality (+355,000 jobs), with smaller advances in temporary help services (+53,000), health care and social assistance (+46,000), retail trade (+41,000), and manufacturing (+21,000).

The unemployment rate fell to 6.2 percent in February from 6.3 percent in January. This was the lowest rate since March 2020.

Economists had forecast the nonfarm payrolls to increase by 182,000 and the jobless rate to remain at 6.3 percent.

The labor force participation rate remained at 61.4 percent in February, while hourly earnings for private-sector workers rose 0.2 percent m-o-m (or $0.07) to $30.01, following a revised 0.1 percent m-o-m advance in January (originally a gain of 0.2 percent m-o-m). Economists had forecast the average hourly earnings to increase 0.2 percent m-o-m in February. Over the year, average hourly earnings surged by 5.3 percent in February, following a revised 5.4 percent jump in January (originally a climb of 5.4 percent).

The average workweek decreased by 0.3 hour to 34.6 hours in February, being below economists' forecast for 34.9 hours.

USD rose against most of its major counterparts in the European session on Friday, as investors continued to digest Thursday's comments by the U.S. Federal Reserve Chair Jerome Powell while awaiting the U.S. jobs report for February.

While speaking at a conference hosted by The Wall Street Journal, the Fed's Chair Powell said the recent spike in U.S. Treasury yields caught his attention but added that the U.S. central bank "will be patient" before changing policy even if they see “transitory increases in inflation". In other words, the Fed is not going to intervene in the bond market, which has been pricing in inflation through higher Treasury yields. Some investors had expected Powell would signal that Fed could adjust its asset purchase program. The 10-year Treasury yield, which was little changed prior to Powell's remarks, surged by eight basis points to 1.55%. At the moment, the benchmark rate is trading at 1.574%, up by 1 basis point. 

The expectations of further increases in U.S. yields lifted the U.S. Dollar Index (DXY), which measures the U.S. currency's value relative to a basket of foreign currencies, to 92.03 early Friday, its highest level since late November 2020. Currently, the DXY is at 91.89 (+0.28%).

Markets are now awaiting a crucial U.S. jobs report for February, set to be released at 13:30 GMT. Economists forecast the U.S. to have added 182,000 last month, higher than January's disappointing gain of 49,000. Meanwhile, the unemployment rate is seen to remain unchanged at 6.3%.

FXStreet reports that the Credit Suisse analyst team expects EUR/USD to see a closing break below support at 1.1952/45 for a fall to its 200-day average.

“We continue to look for a clear break below  the February low and 23.6% retracement of the entire 2020/2021 bull trend at 1.1952/45 for a fall to support at 1.1895/85 next – the lower end of the downtrend channel from early January and the 61.8% retracement of the November/January rally – which we look to hold at first.”

“Below 1.1895/85 in due course should see a move to 1.1845, then the 200-day average at 1.1816, where we look for a better floor on a closing basis."

FXStreet reports that OPEC+ countries agreed to extend the majority of petrol production cuts through April. The surprising move came despite previous gains in the black gold. WTI Crude Oil surged above $64 and economists at ANZ Bank forecast Brent Crude Oil at $70 in the near-term.

“OPEC+ alliance surprised the market by extending production cuts at its meeting with non-OPEC producers. The ministers approved the continuation of current levels, except in the case of Russia and Kazakhstan which are allowed to increase by 130kb/d and 20kb/d respectively.”

“We are upgrading our short-term (0-3 month) target for Brent crude to $70/bbl. Investors are likely to add bullish bets, comfortable that Saudi Arabia and OPEC will provide a backstop should the market hit any hurdles.”

FXStreet reports that USD/JPY is already pushing above the 61.8% retracement of the fall from last March and July 2020 high at 108.17/23 and analysts at Credit Suisse stay bullish for a move to the 109.85 high of June 2020.

“USD/JPY has already extended to and currently above our next objective of 108.17/23 – the 61.8% retracement of the fall from last March and the July 2020 high. Whilst a cap should be allowed here initially on a closing basis, we stay bullish and look for a clear break in due course.”

“We would see resistance next at 108.55 ahead of 109.03 and then the high of June 2020, 50% retracement of the entire 2016/2020 bear trend and 78.6% retracement from the fall from last March at 109.76/92, which should prove a tough initial barrier.” 

“Support moves to 107.82 initially, below which can ease the immediate upside bias for a fall back to 107.15, with 106.97 then ideally holding.” 

Gap (GPS) reported Q4 FY 2020 earnings of $0.28 per share (versus $0.58 per share in Q4 FY 2019), beating analysts’ consensus estimate of $0.18 per share.

The company’s quarterly revenues amounted to $4.424 bln (-5.3% y/y), missing analysts’ consensus estimate of $4.658 bln.

GPS rose to $26.02 (+2.52%) in pre-market trading.

FXStreet reports that Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, notes that the AUD/USD pair has eroded the 55-day moving average (DMA) at 0.7718, which suggests further weakness towards the 0.7564 February low.

“AUD/USD has started to erode its 55-day ma at 0.7718, this hot on the heels of a key week reversal last week suggests further weakness.” 

“A close below last Friday's low at 0.7693 should trigger losses to the 0.7564 February low.” 

“Intraday Elliott wave counts are implying that rallies to the 0.7840 region are likely to fail.”

Costco (COST) reported Q2 FY 2021 earnings of $2.14 per share (versus $2.10 per share in Q2 FY 2020), missing analysts’ consensus estimate of $2.31 per share.

The company’s quarterly revenues amounted to $44.769 bln (+14.6% y/y), beating analysts’ consensus estimate of $43.714 bln.

COST fell to $316.10 (-0.92%) in pre-market trading.

FXStreet reports that strategists at Capital Economics notes that Jerome Powell, Chair of the Federal Reserve, has said that the move in debt markets "caught my attention" but stressed that the bank is looking at a broad range of financial conditions and seemed to allow for yields to further rise. Rates rose after Powell's remarks, led by the 10y sector and real rates. The 10y hit the highest level since February 2020 and risk assets struggled. 

“The Fed chair once again struck a dovish tone, but that dovishness does not mean doing something to directly counter the recent rise in bond yields. Instead, it means no rush for tapering or tightening. The chair did say that last week's bond market moves were ‘notable,’ and ‘caught my attention,’ and that he ‘would be concerned by disorderly conditions in markets or a persistent tightening in financial conditions that threaten the achievement of our goals,’ but the implication is that bond market action to date is not very concerning.” 

“We revise our US rates forecasts, looking for 1.75% on the 10y in the near-term and 2% by year-end. We expect a more stable 0-5y sector given the high bar for the Fed to hike rates. We remain long 5s for carry and rolldown, and look to sell 10s on rallies.”

Broadcom (AVGO) reported Q1 FY 2021 earnings of $6.61 per share (versus $5.25 per share in Q1 FY 2020), beating analysts’ consensus estimate of $6.56 per share.

The company’s quarterly revenues amounted to $6.655 bln (+13.6% y/y), roughly in line with analysts’ consensus estimate of $6.614 bln.

The company also issued upside guidance for Q2 FY 2021, projecting revenues of $6.50 bln versus analysts’ consensus estimate of $6.33 bln.

AVGO fell to $436.50 (-1.60%) in pre-market trading.

FXStreet reports that Terence Wu, FX Strategists at OCBC Bank, notes the USD/JPY trades above the 108.00 resistance as the pair runs higher narrowly on UST-JGB yield differentials, and this leaves scope of pull-back if UST yields retrace after Nonfarm payrolls (13:30 GMT).

“The USD/JPY rise extended to 108.00 before pausing, as higher UST back-end yields support. This has brought the pair way higher beyond the usual confidence intervals on the short-term implied valuations.” 

“Expect yield differential dynamics to continue being the driver for now.” 

“If the pair can stay sustained to close the week, a march towards 110.00 cannot be ruled out.”

FXStreet reports that following the policies announced in the Budget economists at HSBC maintain that the UK is well placed to generate a strong economic recovery from Q2 2021.

“UK Chancellor Rishi Sunak announced that levels of taxation would rise in the coming years in order to close a gap in the public finances created by the Covid-19 pandemic.”

“We expect the successful vaccine rollout to lead to a gradual and durable lifting of restrictions, releasing pent-up demand as households run down savings accumulated over the past year. In this context, we think it makes sense to remain overweight UK equities, which are exposed to cyclical sectors that typically benefit from periods of strong economic growth.”

“We continue to see UK gilts as overvalued and prefer to be underweight in this asset class, along with other European government bonds where we are in effect being penalised relative to holding cash. Positively, however, dovish global central banks limit the scope for volatility or a sharp jump in yields.”

Reuters reports that a survey of employment agencies showed that britain's coronavirus lockdown squeezed demand for staff last month, with spending on temporary workers growing at its slowest rate in seven months.

The Recruitment and Employment Confederation said overall demand for staff had stabilised at a lower level after falling sharply in February, with a further decline in permanent hiring.

"The jobs market remains on hold with hiring decisions stalled, people reluctant to seek new roles and the growth in temporary billings has also slowed," said James Stewart, vice chair of accountants KPMG, who sponsor the survey.

On Wednesday finance minister Rishi Sunak extended the government's furlough scheme - currently supporting around one in five private-sector workers at a cost of 53.8 billion pounds ($74.3 billion) so far - until the end of September.

FXStreet reports that economists at MUFG Bank expect CHF strength to gradually ease and forecast the EUR/CHF pair at 1.14 by year-end.

“The traditional safe haven and low-yielding G10 currencies have been the worst performers so far this year. The Swiss franc has been undermined by building optimism over the outlook for a stronger global recovery and rising expectations for higher inflation.”

“A further negative development for the Swiss franc this month has been the reduction in Italian political risk which has helped ease a downside tail risk for the eurozone economy and euro. PM Draghi is expected to focus on utilizing the European Recovery Funds effectively, and his appointment will encourage optimism over the potential for further beneficial eurozone reforms.”

eFXdata reports that MUFG Research sees a scope for further pound gains.

"The Budget proved more stimulative than expected for the UK economy which should help to support the recovery more as COVID-restrictions are eased in the coming months. The OBR also expressed more optimism over the near-term outlook for growth in the UK. They noted that the rapid rollout of effective vaccines offers hope of swifter and more sustained economic recovery... The improving UK growth outlook and reduction in downside risks should remain supportive for the pound in the coming months," MUFG adds.

According to the report from Istat, in January 2021 estimates for seasonally adjusted index of retail trade fell by 3.0% in value terms in the month on month series, likewise volume dropped by 3.9%.

In the three months to January 2021, value of sales was down 6.7% and volume decreased by 7.3% when compared with the previous three months.

Year on year, value of retail trade was down 6.8%, with a 15.5% fall in non-food sales and a 4.5% increase in food sales. Volume sales contracted by 8.5%.

In January 2021, all channels of distribution, besides e-commerce, continued their fall when compared with January 2020. Online sales continued their rise in January 2021, with sales up 38.4% compared with the same period a year earlier.

Looking at the value of sales for non-food products, all sectors experienced no growth besides electric household appliances, audio-video equipment (+11.7%) and computers and telecommunications equipment (+9.9%).

Reuters reports that people familiar with the matter said that China's regulators are telling banks to trim their loan books this year to guard against risks emerging from bubbles in domestic financial markets.

The banks, including foreign and state-owned lenders, have received guidance from the central bank in the past few days telling them to restrict the overall size of their lending this year, said three bankers on condition of anonymity.

The China Banking and Insurance Regulatory Commission (CBIRC) is also "seriously" looking into the misuse of business loans to individual borrowers for personal investments, two of them said, which violates Chinese regulations.

China significantly boosted credit support to the economy in 2020 as the COVID-19 pandemic hit, but some individuals spent the money buying properties and stocks, fanning bubbles in the markets, the sources said.

Lending to micro and small businesses by big commercial banks increased 50% last year and is aimed to expand 30% further this year, according to the government report released on Friday. China also asked banks to boost lending and lower interest rates to small businesses in 2020.

FXStreet reports that strategists at Capital Economics discuss oil outlook.

“While we don’t think that we are on the cusp of another commodity supercycle, we doubt that oil prices would outperform other commodities in the next one – whenever it may be – for two key reasons. The transition to green energy will lead to a structural decline in oil consumption. We expect that global oil demand will peak in around 2030 and fall continuously thereafter.” 

“We think that an abundance of oil supply will place further downward pressure on oil prices. The greater flexibility of US shale production and the desire by many oil producers, particularly in OPEC+, to avoid their reserves being left untapped means that the world will soon be awash with oil. By contrast, metals mine supply involves much longer lead times, suffers from dwindling ore quality and production can’t be ramped up as quickly.”

According to the report from Halifax, on a monthly basis, house prices in February were 0.1% lower than in January. Economists expected prices to remain unchanged. In the latest quarter (December to February) house prices were 0.5% higher than in the preceding three months (September to November). House prices were 5.2% higher than in February last year.

Russell Galley, Managing Director, Halifax, said: “Having enjoyed an extremely strong period of activity in the second half of last year, the housing market continued its softer start to 2021, with average prices down very slightly (-0.1%) compared to January. However, with annual house price inflation currently at +5.2%, property values remain comfortably higher than 12 months ago, when February was the last full month before lockdown. In the longer-term, the performance of the housing market remains inextricably linked to the health of the wider economy. The pace and extent of recovery are still highly uncertain, and much will depend on the ongoing success of the UK’s vaccination roll out.”

During today's Asian trading, the US dollar rose against the euro, the yen and the pound on the back of continued growth in US Treasury yields.

US Treasury yields continue to rise on the statements of the head of the Federal Reserve Jerome Powell. Powell confirmed the central bank's intention to maintain a soft monetary policy. "Today, we are still far from the goals of achieving maximum employment, as well as an average inflation rate of 2%," he said.

Asked about the rise in US Treasuries yields that has been worrying investors lately, Powell said that "it was noticeable and caught his attention." However, he made it clear that the Fed is not preparing any steps to curb the rise in interest rates.

The yield on 10-year US Treasuries is at 1.55% on Friday. The growth in the yields of US government securities traditionally supports the dollar: the higher the rates, the more attractive the US currency is for buyers.

China has set a 2021 GDP growth target of " 6% or higher." The goal, which was announced by the Premier of the State Council of the People's Republic of China Li Keqiang, is significantly lower than the forecasts of the vast majority of experts who expect the Chinese economy to grow by more than 8% this year. At the same time, many economists believed that China would refuse to set a target for economic growth for the current year at all, as it did last year, when it did so for the first time since 1994.

The ICE index, which tracks the dollar's performance against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose 0.10%.

FXStreet reports that UOB Group’s FX Strategists discuss USD/CNH outlook.

Next 1-3 weeks: “We have held a positive view in USD for two weeks now. After USD retreated from 6.5080 and traded mostly sideways, in our latest narrative from Wednesday (03 Mar, spot 6.4725), we indicated that USD ‘has to move and stay above 6.4900 within these few days or prospect for further USD strength would diminish quickly’. USD rose to 6.4920 yesterday (04 Mar) but upward momentum has not improved by all that much. That said, the overall outlook is still deemed as positive as long as USD does not move below 6.4400 (no change in ‘strong support’ level for now). Looking ahead, the next resistance above February’s peak of 6.5080 is at 6.5150.”

EUR/USD

Resistance levels (open interest**, contracts)

$1.2053 (1739)

$1.2011 (771)

$1.1985 (527)

Price at time of writing this review: $1.1958

Support levels (open interest**, contracts):

$1.1932 (7219)

$1.1893 (3697)

$1.1847 (2628)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 5 is 105213 contracts (according to data from March, 4) with the maximum number of contracts with strike price $1,2000 (7338);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3958 (499)

$1.3926 (472)

$1.3896 (1781)

Price at time of writing this review: $1.3864

Support levels (open interest**, contracts):

$1.3794 (1059)

$1.3747 (397)

$1.3699 (1122)

Comments:

- Overall open interest on the CALL options with the expiration date March, 5 is 15072 contracts, with the maximum number of contracts with strike price $1,4250 (2483);

- Overall open interest on the PUT options with the expiration date March, 5 is 19191 contracts, with the maximum number of contracts with strike price $1,3500 (1331);

- The ratio of PUT/CALL was 1.27 versus 1.23 from the previous trading day according to data from March, 4

* - 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.

RTTNews reports that China's government at the annual parliamentary meeting has set growth target for 2021.

Premier Li Keqiang announced that the government targets to achieve above 6 percent economic growth this year.

In 2020, the government avoided setting an annual growth target due to uncertainty caused by the coronavirus pandemic.

The economy had expanded 2.3 percent last year, making China the only major economy to avoid a contraction amid the Covid-19 pandemic. However, this was the weakest growth since 1970s.

The fiscal deficit is expected to be about 3.2 percent of GDP compared to 3.6 percent in 2020.

The surveyed jobless rate in urban areas is projected to reach 5.5 percent this year. The government plans to create more than 11 million urban jobs compared to over 9 million employment in 2020.

The government forecast consumer prices to rise around 3 percent in 2021.

According to provisional results of the Federal Statistical Office (Destatis), real (price adjusted) new orders increased by a seasonally and calendar adjusted 1.4% in January 2021 compared with December 2020. Economists had expected a 0.7% increase. Compared with January 2020, the increase in calendar adjusted new orders amounted to +2.5%. Excluding major orders, real new orders in manufacturing (seasonally and calendar adjusted) were 2.8% higher than in the previous month.

Compared with February 2020, the month before restrictions were imposed due to the corona pandemic in Germany, new orders in January 2021 were 3.7% higher in seasonally and calendar adjusted terms.

Domestic orders decreased by 2.6% and foreign orders increased by 4.2% in January 2021 on the previous month. New orders from the euro area went up 3.9%, and new orders from other countries increased by 4.4% compared with December 2020.

In January 2021, the manufacturers of intermediate goods saw new orders increase by 0.2% compared with December 2020. The manufacturers of capital goods saw an increase of 3.3% on the previous month. Regarding consumer goods, new orders fell by 5.8%.

For December 2020, revision of the preliminary outcome resulted in a decrease of 2.2% compared with November 2020 (provisional: -1.9).