CFD Markets News and Forecasts — 08-09-2021

The Ivey Business School Purchasing Managers Index (PMI), measuring Canada’s economic activity, climbed to 66.0 in August from 56.4 in July.

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

Within sub-indexes, the employment measure rose to 66.9 in August from 62.1 in the previous month, while the supplier deliveries gauge increased to 34.2 from 31.1. At the same time, the inventories indicator edged down to 60.3 from 60.4, while the prices index declined to 69.7 from 77.1, its lowest level since December 2020.

The U.S. Treasury Secretary Janet Yellen sent a letter to Congressional leadership, convincing to take action on the debt limit.

"After the debt limit was reinstated on August 1, Treasury began employing certain extraordinary measures to continue to finance the government on a temporary basis... Once all available measures and cash on hand are fully exhausted, the United States of America would be unable to meet its obligations for the first time in our history."

"Our estimates of the period of time that extraordinary measures will last have been refined in recent weeks, although they continue to be subject to considerable uncertainty due to the normal challenges of forecasting the payments and receipts of the U.S. government, including the uncertainty in the level of corporate and individual taxes due September 15, heightened by the additional uncertainty due to the pandemic and related economic relief, and other factors.

Given this uncertainty, the Treasury Department is not able to provide a specific estimate of how long the extraordinary measures will last. However, based on our best and most recent information, the most likely outcome is that cash and extraordinary measures will be exhausted during the month of October. We will continue to update Congress as more information becomes available."

The Job Openings and Labor Turnover Survey (JOLTS) published by the Labor Department on Wednesday revealed a 7.4 percent m-o-m climb in the U.S. job openings in July after a revised 7.4 percent m-o-m surge in June (originally a 6.2 percent m-o-m climb).

According to the report, employers posted 10.934 million job openings in July compared to the June figure of 10.185 million (revised from 10.073 million in the original estimate) and economists’ expectations of 10.000 million. This was the highest reading since the series began in December 2000. The job openings rate was 6.9 percent in July, up from an unrevised 6.5 percent in the previous month. The report showed that the job openings rose in several industries, with the largest gains in health care and social assistance (+294,000), finance and insurance (+116,000), and accommodation and food services (+115,000).

Meanwhile, the number of hires fell 2.3 percent m-o-m to 6.667 million in July from a revised 6.827 million in June (originally 6.719 million). The hiring rate was 4.5 percent in July, up from a revised 4.7 percent in the prior month (originally 4.6 percent). Hires declined in retail trade (-277,000), durable goods manufacturing (-41,000), and educational services (-23,000), but increased in state and local government education (+33,000) and in federal government (+21,000).

The separation rate in July was 5.786 million or 3.9 percent, compared to 5.612 million or 3.8 percent in June. Within separations, the quits rate was 2.7 percent (flat m-o-m), and the layoffs rate was 1.0 percent (+0.1 p.p. m-o-m).

The Bank of Canada (BoC) maintained its benchmark interest rates unchanged at 0.25 percent on Wednesday, as widely expected. The Bank also kept the pace of its quantitative easing (QE) program unchanged at CAD2 billion per week.

In its policy statement, the Canadian central bank noted:

• Global economic recovery continued through Q2;
• Supply chain disruptions are restraining activity in some sectors and rising cases of COVID-19 in many regions pose risk to the strength of global recovery;
• Canada’s GDP contracted by about 1 percent in Q2, reflecting mainly a contraction in exports, due in part to supply chain disruptions, especially in auto sector;
• Housing market activity pulled back from recent high levels, largely as expected;
• Employment rebounded through June and July, with hard-to-distance sectors hiring as public health restrictions eased;
• BoC continues to expect the economy to strengthen in H2, although the fourth wave of COVID-19 infections and ongoing supply bottlenecks could weigh on recovery;
• CPI inflation remains above 3 percent as expected
• Factors pushing up inflation are expected to be transitory, but their persistence and magnitude are uncertain and will be monitored closely;
• Medium-term inflation expectations remain well-anchored;
• Governing Council judges that Canada’s economy still has considerable excess capacity, and that recovery continues to require extraordinary monetary policy support;
• We remain committed to holding the policy interest rate at effective lower bound until economic slack is absorbed so that 2 percent inflation target is sustainably achieved. In BoC's July projection, this happens in H2 of 2022;
• Decisions regarding future adjustments to the pace of net bond purchases will be guided by Governing Council's ongoing assessment of strength and durability of recovery;
• We will continue to provide appropriate degree of monetary policy stimulus to support recovery and achieve inflation objective.

FXStreet reports that the S&P 500 Index is seeing a sharp loss of near-term momentum. Analysts at Credit Suisse look for a test of key support from its 13-day exponential average at 4502, a close below which would confirm a corrective setback is underway.

“The rally in the S&P 500 is showing signs of stalling with near-term momentum turning sharply lower. Key near-term support remains seen at the rising 13-day exponential average at 4502, a close below which should confirm a corrective phase lower is indeed underway for a test of the 4469 recent low, with scope then for the potential uptrend from July and price support at 4446/42.” 

“Resistance is seen at 4529 initially, with a break above 4546 needed to curtail thoughts of a correction to reassert the uptrend with resistance then seen next at 4565 ahead of 4600/15.”

U.S. stock-index futures traded flat on Wednesday, as investors took a cautious stance amid concerns about the spread of the Delta coronavirus variant and its impact on the global economic recovery.

Global Stocks:

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

AT&T (T) initiated with a Buy at Lightshed Partners; target $36

Intel (INTC) resumed with a Hold at Deutsche Bank; target $58

FXStreet reports that фnalysts at Credit Suisse still see scope for EUR/CHF's move to the 2021 downtrend at 1.0925.

“The recent break above the 1.0847 point confirmed a large base to suggest that the medium-term downtrend may have come to an end, with daily MACD also firmly in bullish territory now.”

“We expect further short-term strength, with the medium-term downtrend at 1.0925 the next level to watch, above which would confirm the medium-term downtrend is indeed over.” 

“Support stays at the 1.0847/44 breakout point, which ideally holds into the close to maintain a high level of confidence in the base."

FXStreet reports that in the view of economists at Westpac, the outlook for the Japanese yen is bleak. They see USD/JPY at 111 by year-end and at 115 by end-2023.

“Japan is one of very few developed nations globally that, come the end of 2022, is expected to still be struggling to get GDP back above its pre-pandemic level.”

“Despite the effect of global supply disruptions on consumer prices, annual inflation is presently negative and unlikely to break above 1.0%yr sustainably, let alone challenge the Bank of Japan's 2.0%yr target anytime soon.” 

“The JPY is expected to underperform the USD as the latter falls to March 2022, and then decline further to the end of 2023 as the US dollar appreciates. At that time, we see USD/JPY at 115 versus its spot level of 110 and end-2021 forecast of 111.”

• Sees no mid-term inflationary pressure
• We will keep balance sheet as high as necessary, can expand further
• Says Swiss franc is highly valued at current levels

FXStreet notes that gold remains capped at its July/August highs at $1832/34, and strategists at Credit Suisse suggest that only above here would see a small base to open the path towards the $1871 mark.

“Gold strength has stalled at the July and August highs at $1832/34. Only a break above here would be seen to complete an in-range base to clear the way for a deeper recovery to $1871, then $1917.” 

“Only below $1671 though would mark a major top to mark an important change of trend lower with support then seen at $1620/15 initially, then $1565/60."

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. declined 1.9 percent in the week ended September 3, following a 2.4 percent decrease in the previous week. 

According to the report, refinance applications dropped 2.8 percent, while applications to purchase a home edged down 0.2 percent.

Meanwhile, the average fixed 30-year mortgage rate remained unchanged at 3.03. 

“Mortgage rates have stayed just above 3% for several weeks,” noted MBA Chief Economist Mike Fratantoni. “Refinance volume has been moderating, while purchase volume continues to be lower than expected given the lack of homes on the market. Economic data has sent mixed signals, with slower job growth but a further drop in the unemployment rate in August.”

FXStreet reports that analysts at Bank of America (BofA) discuss what they expect from today's Bank of Canada (BOC) monetary policy decision.

"We expect the BoC to remain on hold at this meeting with the policy rate at 0.25% and with bond purchases at C$2bn per week. Despite high inflation, the economy is still too weak to withdraw stimulus, and the US Fed is providing room to wait. A Federal Election on 20 September may be one more consideration to wait.” 

"A potentially dovish tone to the statement suggests idiosyncratic downside risks to the Canadian dollar as relative monetary policy drivers remain alive and well. Still, CAD will continue to be influenced by terms of trade developments (i.e. commodity prices) and global risk appetite, both of which have rebounded of late on expectations that Fed accommodation will persist as US data have softened."

"Per our recent forecast revision, we expect USD/CAD at 1.30 at end-year."

FXStreet reports that FX Strategists suggest that USD/CNH could now attempt a consolidative phase, likely between 6.4300 and 6.4800 in the short-term horizon.

24-hour view: “Yesterday, we expected USD to ‘trade between 6.4400 and 6.4580’. However, USD rose to 6.4646 before easing off. Despite the advance, upward momentum has not improved by much and USD is unlikely to strengthen much further. For today, USD is more likely to consolidate and trade between 6.4540 and 6.4660.”

Next 1-3 weeks: “USD rose to 6.4646 yesterday (07 Sep) before easing off. While our ‘strong resistance’ level at 6.4660 is still intact, upward momentum has more or less dissipated. The sharp but short-lived drop to 6.4244 last Friday and the subsequent sharp and rapid rebound has resulted in a mixed outlook. From here, USD could trade within a 6.4300/6.4800 for a period of time.”

EUR traded mixed against other major currencies in the European session on Wednesday, as investors remained cautious ahead of the European Central Bank's (ECB) policy meeting on Thursday, at which its policymakers are to review the bank’s massive stimulus measures.

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

There are speculations that the ECB may announce a reduction of its emergency asset purchases tomorrow. Analysts polled by Reuters forecast the PEPP purchases are likely to decline to EUR60 billion a month from the current EUR80 billion, before a further decrease early next year and the program's end in March.

Market participants also digested the latest comments by the ECB’s policymakers. The central bank's governing council member Robert Holzmann said he saw the possibility that the ECB might be able to normalize monetary policy sooner than most financial market experts expect. Meanwhile, another ECB official Boštjan Vasle stated that in his view the Eurozone still needs a “highly accommodative” monetary policy. He also warned that the new waves of the coronavirus pandemic might slow the region’s economic recovery.

FXStreet reports that strategists at ANZ Bank reiterate their positive stance on gold over the next three months, as record-low U.S. real-yield, delay in tapering, expensive equity valuation and prospects of weaker U.S. dollar still suggest the XAU/USD to grind higher towards $1,900/oz. 

“Record low yields are again turning in favour of non-yielding gold investment.” 

“Weakness should continue to be a key support for investor demand.”

“Physical demand in India and China is set to improve ahead of festive season.” 

“Waning likelihood of monetary tightening looks supportive in the near-term.”

• BoJ will continue to take persistent stance when it comes to monetary easing, even after COVID-19 pandemic abates, until the goal of 2% inflation is reached
• There is strong uncertainty regarding the impact of infections
• We will continue our present measures of monetary easing, and help with companies' financing
• If necessary, we are prepared to take additional easing measures without hesitation
• There is a "considerable difference in the labor market" behind inflation gap with U.S. and Europe
• Japan has maintained employment during COVID, so even if consumer demand returns, it will be able to respond immediately in terms of supply
• Regarding the exit strategy from large-scale easing, including purchase of ETFs, he says that "it should be decided based on situation when the 2% [inflation] target approaches"

FXStreet reports that with the AUD/USD pair now back below the top end of the 0.7100-0.7450 target range, strategists at Credit Suisse do not see a strong reason for changing their view on the aussie, for the following reasons.

“Markets are now likely to focus on the Jan 2022 meeting as the likely next important date for RBA policy. A strong upside surprise in the Q3 wage price index data on 16 Nov might dictate increased market interest in the Dec meeting, but focusing on that seems premature for now. In the meanwhile, policy expectations have already moved quite a bit in favour of AUD over the past month.”

“The current level of vaccinations (38.7% of adults fully vaccinated) might still be too low for markets to comfortably take the view that the peak in hospitalizations and the end of lockdowns are around the corner.”

“The uncomfortable message about the state of Asian demand is worth taking into consideration, especially at a time when ongoing pledges from monetary authorities might be keeping sentiment somewhat vulnerable to the possibility of a sudden mark-to-market against economic reality.”

• New waves of the pandemic may slow recovery

The National Institute of Statistics and Economic Studies (Insee) reported on Wednesday that the French private payroll employment rose sharply in the second quarter of 2021.

According to the Insee’s final estimate, private payroll employment increased by 265,100 (or 1.4 percent) q-o-q in the second quarter after an upwardly revised 149,800 (or 0.8 percent) q-o-q advance in the first quarter. The Insee’s initial estimate, which was released a month ago, suggested a gain of 239,500 (or 1.2 percent) q-o-q in private payroll employment in the second quarter.

Payroll employment exceeded its pre-crisis level (end of 2019) by 0.4 percent in the private sector.

In the reviewed period, the market services (+246,700) recorded the largest increase in private payroll employment, followed by non-market services (+10,700) and construction (+3,100). Employment in industry (+2,600) and agriculture (+2,000) also rose.

In y-o-y terms, private payroll employment increased by 719,500 jobs (or 3.8 percent).

USD/JPY: Rising bets for a move above 110.55 - UOB

FXStreet reports that FX Strategists at UOB Group suggest that the chances for USD/JPY to surpass the 110.55 level in the near term remain on the rise.

24-hour view: “Yesterday,... USD dropped to 109.67 before staging a surprisingly strong advance (high of 110.31 in NY). The advance has gathered momentum and USD could strengthen further. That said, overbought conditions suggest that a break of the major resistance at 110.55 is unlikely. Support is at 110.10.”

Next 1-3 weeks: “We have expected USD to trade within a 109.30/110.55 range for about 3 weeks now. Our view was not wrong but after the strong advance yesterday (07 Sep), upward momentum is beginning to improve and the risk of a break of 110.55 has increased. Looking ahead, the next resistance above 110.55 is at 110.80. On the downside, if 109.95 is breached within these few days, it would indicate that USD is still ‘caught’ in a 108.30/110.55 range.”

• Sees potential upside inflation risks

USD rose slightly against most of its major rivals in the Asian session on Wednesday amid raised expectations that the Federal Reserve might go ahead with its plans to scale back stimulus despite a sharp slowdown in the U.S. jobs growth in August. 

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, edged up 0.07% to 92.57.

Some investors believed that the U.S. central bank’s policymakers might look past the August disappointing employment data and stick with their tapering plans. This view was supported by the latest comments of the St. Louis Fed president James Bullard, who told the Financial Times that the Fed should begin reducing its bond-buying program soon, despite weak U.S. jobs growth in August. “When you’re in a crisis, you have to be prepared for twists and turns,” Bullard noted, adding that he is looking for job gains to average out around 500,000 a month this year. He also noted that there is plenty of demand for workers but the workers may not want to take jobs right now. To give the Fed “optionality” to hike interest rates in 2022, the U.S. central bank should wrap up its asset purchases by the end of the first quarter, the president of the St. Louis Fed added.

As a reminder, the U.S. employment situation report for August, which was released on Friday, appeared to be mixed relative to economists’ estimates. The headline reading significantly missed expectations (actual 235,000 vs. economists' consensus estimate of 750,000), while the unemployment rate average fell in line with forecasts (to 5.2% from 5.4% in July) and hourly earnings increased 0.6% m/m, twice the expected pace. On this backdrop, market participants’ taper expectations cooled, while inflation concerns stoked. As a result, the U.S. dollar index declined to its lowest level since early August.

The report from the Ministry for the Economy and Finance of France showed that the country’s merchandise trade deficit widened to EUR6.96 billion in July from an upwardly revised EUR6.05 billion in June (originally EUR5.82 billion). This was the largest gap since August 2020. 

According to the report, exports declined 2.0 percent m-o-m to EUR40.7 billion, while imports edged up 0.1 percent m-o-m to EUR47.6 billion.

FXStreet reports that FX Strategists at UOB Group note that EUR/USD is now seen navigating the 1.1795-1.1895 range.

24-hour view: "Despite the relatively sharp decline, downward momentum has not improved by much. That said, there is room for EUR to weaken to 1.1820. The major support at 1.1795 is not expected to come into the picture. Resistance is at 1.1860 followed by 1.1875.”

Next 1-3 weeks: “In our latest narrative from Monday (06 Sep, spot at 1.1885), we indicated that ‘while overbought shorter-term conditions could lead to a couple of days of consolidation first, a clear break of the major resistance at 1.1910 would not be surprising’. We added, ‘the prospect for the current EUR strength to extend to 1.1970 is not high’. However, 1.1910 remains intact as EUR dropped sharply to 1.1836 during NY session. While our ‘strong support’ level at 1.1830 is still intact, upward momentum has dissipated. In other words, the 2-week EUR strength has run its course. The current movement is viewed as the early stages of a consolidation phase and EUR is likely to trade between 1.1795 and 1.1895 for now.”

• There is plenty of demand for workers and there are more job openings than there are unemployed workers
• If we can get the workers matched up and bring the pandemic under better control, it certainly looks like we’ll have very strong labour market going into 2022
• Big picture is that taper will get going this year and will end sometime by H1 2022
• Looking for job gains to average out around 500,000 per month this year; these numbers are going to bounce up and down
• When you’re in crisis, you have to be prepared for twists and turns
• Jobs are there, it’s that workers may not want to take those jobs right now
• Expects the unemployment rate to drop below 5 percent by the end of this year
• Many have said that once you get into 2022 inflation will moderate. There a case to be made for that, but there’s a case to be made that it won’t moderate and may go in other direction 
• To give Fed “optionality” to raise interest rates in 2022, it should wrap up its asset purchases by the end of Q1 2022
• Another reason to taper quickly is “incipient housing bubble” that might be fuelled in part by Fed’s ultra-loose monetary policy

Japan's Cabinet Office reported on Wednesday that its Economy Watchers Survey showed that an assessment of the current economic conditions worsened sharply in August

According to the survey, the Economy Watchers’ index for current conditions fell 13.7 points to 34.7 in August (on a seasonally adjusted basis). This was the lowest level since January. The reading for the previous month was unrevised at 48.4.

Any reading above 50 indicates optimism and a reading below 50 suggests pessimism.

Meanwhile, the Economy Watchers’ outlook index, an assessment of future economic conditions, went down to 43.7 in August from 47.7 in July.