CFD Markets News and Forecasts — 08-06-2021

ActionForex reports that analysts at TD Bank Financial Group discuss the Canadian trade balance data for April. 

"Canada recorded a trade surplus of $594 million in April, following a deficit of $1.3 billion in March. Merchandise exports were down 1% (m/m), but merchandise imports fell by even more (-4.7%)."

"The decline in exports spanned 6 of the 11 industries. The culprit was the motor vehicles and parts category (down 18.1% on the month), where the global semiconductor chip shortage was still weighing on output. Excluding this industry, exports were up 1.6%. Statistics Canada cited that the impact of these disruptions will be reduced (though not necessarily eliminated) in May. Exports of consumer goods (+14.4%) provided a partial offset. According to Statistics Canada, this was driven by a spike in the exports of packaged seafood products."

"The decline in imports was more broad-based (9 of the 11 industries), and follows a sizeable 6.1% lift in March. It was similarly led by a pullback in imports of motor vehicles and parts (-22.1%)."

"Net trade was not spared the temporary weakness seen in Canada’s economy during the spring. However, the softening momentum in trade appears to be predominantly caused by global supply chain disruptions - a hinderance that isn’t limited to Canada’s economy."

"Looking ahead, the underlying foreign demand picture for exports remains solid. Canada’s largest trading partner, the U.S., is witnessing a strong economic rebound and solid manufacturing sentiment readings, supported by an early reopening and sizeable fiscal stimulus... That said, supply chain disruptions in the form of input shortages and longer supplier delivery times, often cited in manufacturing sentiment reports, may introduce more volatility in the data."

• Inequality is being made worse by Covid crisis
• Inequality now is more troubling in past 15 months
• Early signs are encouraging for job market rebound
• Uncertainties about the future of jobs market remain pretty acute
• Very likely that the housing boom will worsen pre-existing inequalities
• Not much the BoE can do on house inequality

The Job Openings and Labor Turnover Survey (JOLTS) published by the Labor Department on Tuesday revealed a 12.0 percent m-o-m jump in the U.S. job openings in April after a revised 10.1 percent m-o-m climb in March (originally a 7.9 percent m-o-m surge).

According to the report, employers posted 9.286 million job openings in April compared to the March figure of 8.288 million (revised from 8.123 million in the original estimate) and economists’ expectations of 8.300 million. This was the highest reading since the series began in December 2000. The job openings rate was 6.0 percent in April, up from a revised 5.4 percent in the prior month (originally 5.3 percent). The report showed that the number of job openings rose in a number of industries with the largest gains in accommodation and food services (+349,000), other services (+115,000), and durable goods manufacturing (+78,000), which, however, were partly offset by declines in educational services (-23,000) and in mining and logging (-8,000).

Meanwhile, the number of hires increased 1.1 percent m-o-m to 6.075 million in April from a revised 6.006 million in March (originally 6.009 million). The hiring rate was 4.2 percent in April, unchanged from the prior month. Hires went up in accommodation and food services (+232,000) and in federal government (+10,000), but fell in construction (-107,000), durable goods manufacturing (-37,000), and educational services (-32,000).

The separation rate in April was 5.760 million or 4.0 percent, compared to 5.436 million or 3.8 percent in March. Within separations, the quits rate was 2.7 percent (+0.2 p.p. m-o-m), and the layoffs rate was 1.0 percent (-0.1 p.p. m-o-m).

ActionForex reports that analysts at TD Bank Financial Group discuss the U.S. Trade Balance report for April.

"The U.S. trade deficit decreased to $68.9 billion in April from $75.0 billion in March. Total exports (goods and services) increased by 1.1% (+7.5% in March), while imports went down by 1.4% (+7.1% in March)."

"Goods exports increased by 1.1% in April (+10.1% in March). Capital goods (4.9%), foods, feeds & beverages (2.0%) and industrial supplies (1.6%) registered the largest increases in April."

"Goods imports decreased by 1.9% (compared to +7.7% in March). Most product categories registered losses, with other goods (8.0%) and consumer goods (3.9%) seeing the biggest drops compared to March."

"Meanwhile, exports of services expanded by 1.2% (+1.5% in March) for the month, while imports grew by 1.8% (+4.0% in March)."

"The monthly trade deficit in goods and services decreased for the first time this year. Still, exports are down 2.5% from April 2019. Meanwhile, imports are now 5.2% higher than two years ago."

"Delving deeper into the data reveals the services sector still struggling to come to terms with the pandemic. Services exports are still 18.2% lower than April 2019."

"Despite massive fiscal stimulus, we expect the stop-and-go trend in U.S. trade to continue."

U.S. stock-index futures rose slightly on Tuesday, as large-cap technology stocks gained amid some slippage in longer-term Treasury yields, while the overall market sentiment remained cautious ahead of the release of the U.S. key inflation data later in the week.

Global Stocks:

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Statistics Canada announced on Tuesday that Canada recorded a trade surplus of CAD0.59 billion in April, compared with a revised CAD1.35-billion gap in February (originally a CAD1.14-billion shortfall). 

Economists had forecast a deficit of CAD0.70 billion.

According to the report, Canada’s exports fell 1.0 percent m-o-m to CAD50.21 billion in April, as a sharp decline in exports of motor vehicles and parts (-18.1 percent m-o-m) was partly offset by a jump in exports of consumer goods (+14.4 percent m-o-m). Meanwhile, imports dropped 4.6 percent m-o-m (the most since the historic declines of April 20200 to CAD49.61 billion in April, in large part due to a significant decrease in Imports of motor vehicles and parts (-22.1 percent m-o-m). The plunge in the trade of motor vehicles and parts was mainly the result of production shutdowns in the auto assembly industry in April because of the shortage of semiconductor chips, the report noted.

The U.S. Commerce Department reported on Tuesday that the U.S. goods and services trade deficit narrowed to $68.9 billion in April from a revised $75.0 billion in the previous month (originally a gap of $74.4 billion). This was the smallest trade deficit since January.

Economists had expected a deficit of $69.0 billion.

According to the report, the April decrease in the goods and services reflected a decline in the goods deficit of $6.2 billion to $86.7 billion and a drop in the services surplus of $0.1 billion to $17.8 billion.

In April, exports of goods and services from the U.S. rose 1.1 percent m-o-m to $205.0 billion, while imports fell 1.4 percent m-o-m to $273.9 billion, as the global COVID-19 pandemic and the economic recovery continued to impact international trade.

Year-to-date, the goods and services deficit surged 50.5 percent from the same period in 2020. Exports jumped 5.6 percent, while imports climbed 14.6 percent.

FXStreet reports that copper (LME) so far holds in the 9795.00/9617.00 support zone, a bounce off which, in the opinion of Axel Rudolph, Senior FICC Technical Analyst at Commerzbank, would be bullish.

“Copper continues to be supported by the 9795.00/9617.00 support zone in which the February high, May and current June lows as well as the 55-day moving average can all be found. While these underpin on a daily chart closing basis, we will retain our medium-term bullish outlook.”

“An ascent towards the all-time high at 10747.50, made marginally below the 161.8% Fibonacci extension of the October-to-January advance and projected higher from the January low at 10890.80, may thus still be in the making. Resistance is seen at the 10525.00 May 18 high and also at 10747.50.”

EUR traded mixed against its major rivals in the European session on Tuesday as investors assessed a raft of economic data from the eurozone and Germany, the region's biggest economy, awaiting the European Central Bank's (ECB) policy decision later this week.

The single European currency rose against GBP and NZD, fell against USD, CHF and CAD, and changed little against JPY and AUD.

Eurostat reported that the euro area's GDP contracted 0.3% q/q in the first quarter of 2021, compared with a preliminary estimate of 0.6% q/q drop. Economists had forecast the reading to be unrevised. In y/y terms, the GDP dropped 1.3% in the first quarter, much less than a previously estimated fall of 1.8%. 

Eurostat also said the eurozone's employment dropped 0.3% q/q in the first quarter and 1.8% y/y.

Meanwhile, data from Destatis revealed an unexpected decline in Germany's industrial production in April. According to the report, German industrial output dropped 1.0% m/m in April, following a revised 2.2% m/m rise in March. Economists had forecast an advance of 0.5% m/m. On a yearly basis, industrial production climbed 26.4% (primarily due to low base effects from 2020) after a 4.8% growth in the previous month.

Elsewhere, the latest survey from the ZEW showed that economic sentiment in Germany weakened unexpectedly in June. The ZEW Indicator of Economic Sentiment decreased to 79.8 early this month from 84.4 in the previous month. Economists had forecast the indicator to rise to 86.0. On a positive note, the indicator for the current economic situation improved to -9.1 from -40.1, returning to the pre-pandemic level of August 2019. Due to the very high economic expectations, the outlook is now much more positive than in summer 2019, the survey said.

Market participants are looking for outcomes of the ECB monetary policy meeting, which will be announced on Thursday. The bank will reconsider the pace of emergency bond buys that it jacked up in March to prevent an increase in borrowing costs hurting a recovery.

FXStreet reports that USD/JPY weakness has been contained by key 55-day average and uptrend support at 109.22/17 – economists at Credit Suisse look for an attempt to establish a floor here.

“USD/JPY weakness has extended further following its bearish ‘reversal day’ for a move below price support and its 13-day exponential average at 109.36/33, but importantly holding its 55-day average and uptrend from early January at 109.22/17 and we continue to look for an attempt to hold here.”

“A break above near-term resistance at 109.64 remains needed to ease the immediate pressure off this support for strength back to 109.96 initially ahead of 110.12 and then the 110.29/35 ‘reversal day’ highs."

FXStreet reports that ahead of Thursday’s critical US CPI data, analysts at JP Morgan lay down their inflation expectations, predicting the price pressures to outpace the Fed’s target on a sustainable basis.

“Inflation is on the upswing in our view and will eventually surpass the Fed's targets on a sustainable basis.”

“However, expectations have increased too and now price this rise in many asset markets.”

FXStreet reports that Benjamin Wong, Strategist at DBS Bank, notes that USD/CAD’s decline has driven to a 1.2007 low, satiating a 50% Fibonacci marker at 1.2048. This allows a period of stabilisation and slight momentum loss before USD returns to its bearish trend that hugs a major 1.4690-1.4668 double top.

“The Bank of Canada (BoC) meets this Wednesday (9 June). This is a low key statement only policy meeting and hence, there are not a lot of expectations going into this meeting. Hence the next policy meeting on 14 July is what the market would look to and monitor closely.” 

“There have been bumps of late in economic data. However, the June jobs data (due 9 July) and the BoC 2Q business outlook survey (due 5 July) can easily allow the BoC to stage another taper decision (which would support further CAD strength) should they turn more supportive.”

“Bear also in mind that Canada has had a successful vaccination programme which saw two thirds of its population have at least a first vaccine jab. This does lend credence for the BoC to be a taper leader.”

“Loss of downward momentum would allow a counter mildly bullish USD trend to wade in. The dropped-down resistance line that begins from 1.4265 has dropped further to around 1.2405. Read that with the lower boundary of the Ichimoku daily chart at 1.2459; both are robust resistance levels to cross.”

“USD/CAD’s bearishness stems from a major 1.4690-1.4668 double top, which remains ongoing. In the current dip to a 1.2007 low, it has merely calibrated the price objective of the neckline erosion that began with a 1.3665 break. Naturally, the most recent decline has also satiated the 50% Fibonacci retracement of 0.9407-1.4690 (July 2011 lows to January 2016 peak) at 1.2048, leaving the fuller 61.8% Fibonacci retracement still open ended.”

FXStreet notes that USD/JPY is easing lower near-term as the dollar remains corrective. Karen Jones, the Team Head FICC Technical Analysis Research at Commerzbank, expects the pair to hold off the 108.55 support.

“USD/JPY is easing lower near-term. It will find some minor support at 109.06/22 (20-day ma) ahead of the 108.55 pivot.”

“The pair looks to be consolidating ahead of the 110.97 March high and the 111.13/38 October 2018 low and mid-February 2019 high.” 

“Our medium-term target is 112.23/50, which represents the April 2019 high, the 2020 high and a long-term Fibonacci retracement.”

CNBC reports that former top White House trade negotiator Clete Willems said that China made a “huge strategic blunder” when it retaliated against Europe by imposing sanctions on EU politicians. 

Beijing’s actions killed a major investment agreement between the European Union and China, and the deal is “off the table now,” Willems told.

In March, China imposed sanctions on 10 European Union politicians and four other entities. They came as an immediate retaliation for sanctions the EU imposed on China for “arbitrary detentions” of members of an ethnic minority in China.

The European Parliament last month paused the ratification of a new investment pact with China until Beijing lifts sanctions on the EU. 

“It does show that with China, it’s overreaching and overreacting and not addressing legitimate issues like forced labor,” Willems, a former deputy director of the National Economic Council, told.

The EU-China Comprehensive Agreement on Investment had been in the works for seven years and was finally agreed by negotiators in December. It would have put EU companies on an equal footing in China and cement Beijing’s status as a trusted trading partner. It would also have given each party’s businesses greater access to the other’s markets.

“The question that the U.S. always had with Europe though, is they are much more dependent on China as an export market — and so the question is how tough will they really be,” Willems pointed out.

According to the report from ZEW, indicator of economic sentiment for Germany decreased in the current June 2021 survey, falling 4.6 points to a new reading of 79.8 points. Economists had expected an increase to 86.0. By contrast, the assessment of the economic situation in Germany improved very significantly, with the corresponding indicator currently standing at minus 9.1 points, 31.0 points higher than in the previous month. The assessment of the economic situation in Germany is now back to the pre-pandemic level of August 2019. Due to the very high economic expectations, the outlook is now much more positive than in summer 2019.

“The economic recovery is progressing. Although the ZEW Indicator of Economic Sentiment has experienced a drop in June, it remains at a very high level. The decline in expectations is probably largely due to the considerably better assessment of the economic situation, which is now back at pre-crisis levels. The financial market experts therefore continue to expect a strong economic recovery for the next six months,” comments ZEW President Professor Achim Wambach on current expectations.

The financial market experts’ sentiment concerning the economic development of the eurozone also decreased in June, bringing the indicator to a current level of 81.3 points, 2.7 points lower than in the previous month. The indicator for the current economic situation in the eurozone climbed 27.0 points to a level of minus 24.4 points compared to May 2021.

Аccording to an estimate published by Eurostat, in the first quarter of 2021, seasonally adjusted GDP decreased by 0.3% in the euro area and by 0.1% in the EU compared with the previous quarter. Economists had expected a 0.6% decrease in the euro area. These declines follow falls in the fourth quarter of 2020 (-0.6% in the euro area and -0.4% in the EU) after a strong rebound in the third quarter of 2020 (+12.6% in the euro area and +11.7% in the EU). Before, the sharpest decreases since the time series started in 1995 were observed in the second quarter of 2020 (-11.5% in the euro area and -11.1% in the EU).

Compared with the same quarter of the previous year, seasonally adjusted GDP decreased by 1.3% in the euro area and by 1.2% in the EU in the first quarter of 2021, after -4.7% and -4.4% respectively in the previous quarter.

During the first quarter of 2021, GDP in the United States increased by 1.6% compared with the previous quarter (after +1.1% in the fourth quarter of 2020). Compared with the same quarter of the previous year, GDP increased by 0.4% (after -2.4% in the previous quarter).

FXStreet reports that in the view of economists at HSBC, the recent measures and comments out of China suggest a policy preference for broad RMB stability.

“We believe the recent comments and countercyclical measures out of China (with some examples listed below) suggest that, while there is no line in the sand, there is still a policy preference for basic stability of the RMB exchange rate.”

“We do not believe the recent downward momentum is the beginning of a long-term RMB appreciation trend. Cyclical indicators are pointing to a likely slowdown of GDP growth and smaller yield advantage for China in 2H21. We expect these cyclical developments to see net FX flows to China moderating in 2H21.”

“We think that China’s broad FX framework has not changed, namely two-way capital account liberalisation is maintained with the aim of achieving a balanced flow. Our base case sees USD/RMB exhibiting more two-way movement and then rise slightly later this year, when China’s outbound investment liberalisation accelerates, likely in 2H21.”

According to the report from Istat, in April 2021 estimates for seasonally adjusted index of retail trade decreased by 0.4% in value terms, likewise volume was down 0.5% in the month on month series. In April 2021 total retail sales levels for both value and volume were still lower than pre-pandemic levels of February 2020.

In the three months to April 2021 both value and volume of sales increased by 4.3% when compared with the previous three-month period.

Year on year, value of retail trade rose by 30.4% and volume sales grew by 31.5% comparing to April 2020 when the closure of non-essential retail stores was introduced across Italy during the first national lockdown.

In April 2021, all channels of distribution increased when compared with April 2020. Large-scale distribution was up 22.8%, small-scale distribution grew by 38.1% and non-store retail sales rose by 61.0%.

Online sales continued to grow in April 2021, rising by 35.2% when compared with the same period a year earlier.

Looking at the value of sales for non-food products, all sectors witnessed growth.

Reuters reports that the Bank of England set out its first stress test to check the financial system's ability to cope with climate change, saying the results will not be used to determine capital requirements.

The test will scrutinise the resilience of Britain's biggest banks and insurers to stresses from shifting to a net zero-carbon economy over coming decades.

FXStreet reports that economists at Westpac discuss AUD/USD prospects.

“Our base case remains for the Aussie to trend higher, to 0.80 by end-Q3 and 0.82 by year-end.

“A$ should benefit from anticipation of synchronised global recovery over 2021. However, A$ is the weakest G10 currency over the past month, reflecting the RBA’s aggressive balance sheet expansion (QE exceeding the pace of debt issuance) and perhaps also investor anticipation of China-related headwinds for Australian exports and FDI beyond the current resources boom.”

“Australia’s sluggish vaccine rollout also puts a limit on the breadth of economic recovery from the pandemic.”

During today's Asian trading, the US dollar strengthened against the euro, pound and yen, and was almost unchanged against the australian dollar.

Traders took a wait-and-see attitude ahead of the release of May data on consumer prices in the United States, which the Ministry of Labor will release on Thursday. They will look for clues about whether the post-pandemic economic recovery will trigger price pressures and pose a threat to loose monetary policy.

The ICE index, which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose by 0.13%.

US Treasury Secretary Janet Yellen said on Sunday that US President Joe Biden, in her opinion, should pursue the implementation of his proposed programs to support the economy totaling $4 trillion, even if this will increase inflationary pressures and increase interest rates in the country.

As for the data, the experts ' forecast provides for an acceleration of inflation in the US in May to 4.7%. In April, consumer prices rose 4.2%, the fastest pace in 12 years.

With inflation concerns still on the minds of investors, the data is likely to be a key event for markets this week, IG analysts said.

CNBC reports that according to Goldman Sachs, the worst may soon be over when it comes to disruptions stemming from the global chip shortage.

Andrew Tilton, chief Asia economist at the bank, said the situation could improve in the second half of 2021. He said there have been “noticeable tightening” of supply chains and shipment delays in North Asian economies such as Japan, Taiwan and South Korea, which are involved in the semiconductor supply chain.

“Our analysts believe we’re probably in the worst period of that right now. That is, we’re seeing the biggest disruption downstream (in) industries like auto right now and that will gradually ease over the back half of the year,” Tilton said.

The world has been grappling with a chip shortage that has hit the production of household electronics, including everything from toasters to washing machines. It is also expected to cost the global auto industry $110 billion in revenue in 2021, according to consulting firm AlixPartners. The firm expects the largest impact to car production to hit in the second quarter, before progressively getting better during the second half of the year and into 2022.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2313 (1416)

$1.2287 (787)

$1.2252 (359)

Price at time of writing this review: $1.2178

Support levels (open interest**, contracts):

$1.2131 (509)

$1.2101 (1356)

$1.2066 (947)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 7 is 34376 contracts (according to data from July, 9) with the maximum number of contracts with strike price $1,1650 (3885);

GBP/USD

$1.4297 (1300)

$1.4253 (255)

$1.4224 (146)

Price at time of writing this review: $1.4154

Support levels (open interest**, contracts):

$1.4062 (273)

$1.3998 (327)

$1.3961 (2974)

Comments:

- Overall open interest on the CALL options with the expiration date July, 9 is 12099 contracts, with the maximum number of contracts with strike price $1,4500 (3530);

- Overall open interest on the PUT options with the expiration date July, 9 is 13584 contracts, with the maximum number of contracts with strike price $1,4000 (2974);

- The ratio of PUT/CALL was 1.12 versus 1.13 from the previous trading day according to data from June, 7

* - 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 the Cabinet Office said in final reading that Japan's gross domestic product shrank an annualized 3.9 percent on year in the first quarter of 2021. That exceeded expectations for a decline of 4.8 percent following the 11.7 percent surge in the three months prior. On a quarterly basis, GDP was down 1.0 percent - again beating forecasts for a decline of 1,2 percent following the 2.8 percent increase in the previous three months.

External demand was down 0.2 percent on quarter after rising 1.1 percent in the previous three months, while private consumption dropped 1.5 percent on quarter after gaining 2.2 percent three months earlier.

Also the Ministry of Finance said that Japan posted a current account surplus of 1,321.8 billion yen in April. That missed expectations for a surplus of 1,500.6 billion yen following the 2,650.1 billion yen surplus in March. The capital account showed a surplus of 3.4 billion yen, while the financial account saw a shortfall of 242.7 billion yen.

The Bank of Japan said that overall bank lending in Japan was up 2.9 percent on year in May, standing at 578.366 trillion yen. That follows the 4.8 percent increase in April.

According to provisional data of the Federal Statistical Office (Destatis), in April 2021, production in industry was down by 1.0% on the previous month on a price, seasonally and calendar adjusted basis. Economists had expected a 0.5% increase. Compared with April 2020, the increase in calendar adjusted production in industry amounted to 26.4%, when many enterprises had reduced, or temporarily stopped production. Compared with February 2020, the month before restrictions were imposed due to the corona pandemic in Germany, production in April 2021 was 5.6% lower in seasonally and calendar adjusted terms.

In April 2021, production in industry excluding energy and construction was down by 0.7%. Within industry, the production of consumer goods showed a decrease of 3.3% and the production of intermediate goods of 0.2%. The production of capital goods decreased by 0.1%. Outside industry, energy production was up by 6.0% in April 2021 and the production in construction decreased by 4.3%.

In March 2021, the corrected figure on the production in industry showed an increase of 2.2% (provisional: +2.5%) from February 2021.