CFD Markets News and Forecasts — 11-09-2020

According to ActionForex, analysts at TD Bank Financial Group notes that U.S. consumer prices rose 0.4% month/month in August, slightly cooler than July’s 0.6% jump, but a little hotter than markets were expecting. 

"Total CPI was up 1.3% year-on-year in August,  continuing its acceleration from only 0.1% in May."

"Core inflation had another hotter-than-expected 0.4% month/month increase in August. That is slower than July, where the jump up was 0.6%. However, the gain was not broad based. The sharp rise in the index for used cars and trucks (+5.4% m/m) accounted for over 40 percent of the increase. This lifted core inflation on a year/year basis to 1.7%, up from 1.6% in July."

"Another hot reading for core inflation is likely to raise some eyebrows, and the term “stagflation” is starting to get thrown around. It is likely a bit premature to talk about that. The sizeable rebounds recently are largely in categories that had big COVID-related discounts, primarily in core goods. Looking at the level of core prices it has now returned to where it would have been if the pre-virus trend of monthly price increases had continued since February. No doubt, safety protocols and social distancing requirements are raising costs for many businesses, and these are likely to be passed on to consumers in many cases, but this would be a one-time increase."

"At the same time, other key categories are seeing a loss in inflation momentum. Shelter inflation has fallen from 3.3% in February on a year-on-year basis to 2.3%. And trends in this category typically have some staying power. The last couple of months of sharp increases have really come on the goods side, services have lost momentum for the most part."

"As discussed in our report, reduced demand has dramatically lowered inflation pressures. This is why the Federal Reserve acted decisively early in the crisis to stave off the risk of a deflation trap. Data through the summer provides evidence that some of these deflationary forces have ebbed. Still, some of the more persistent categories in inflation, namely shelter, continued to cool. On net, we expect inflation to remain muted over the next couple of years."

FXStreet notes that the European Central Bank (ECB) decided to keep interest rates and its QE programs unchanged on Thursday, as expected. Analysts at BBVA Research see the central bank continues to be very cautious but does not seem to be ready to extend the PEPP for the moment unless further risks on the pandemic and on the economy materialize.

“The Governing Council showed some concern over the implications of euro appreciation for inflation, but with the usual language that they do not target the euro.”

“Did not provide any surprises on the reaction by the ECB to the hottest topics post-summer - the most recent inflation figures and especially the appreciation of the euro. The ECB continues to be very cautious and dovish but does not seem to be ready to extend the PEPP for the moment, unless further risks on the pandemic and hence on the economy materialize.”

• This is why our focus now is on trying to maintain our asset purchase programmes
• Eurozone's growth between April and August/September was a mechanical rebound
• Recovery is far from complete
• Inflation will recover with economy

National Institute of Economic and Social Research (NIESR) reported on Friday that its estimates revealed the UK’s economy is likely to grow by about 7 percent in the three months to August. Economists had forecast a 6.3 percent drop. In the third quarter, GDP is seen to show a growth of around 15 percent, NIESR added.

NIESR also noted that the ONS statistics published this morning revealed the UK economy contracted by 7.6 percent in the three months to July, largely in line with what the institute had forecast last month.

“There has been a welcome resumption of economic growth in the third quarter as the lockdown eased, signaling the end of a short, yet severe, recession in the first half of the year,” noted Dr. Kemar Whyte, Senior Economist of Macroeconomic Modelling and Forecasting at NIESR. “However, despite this recovery, we have still only recovered just over half of the output lost due to the Covid-19 pandemic. The evolution of the pandemic and the scale of expected withdrawals of government support pose downside risks on the pace of the recovery as we move to the end of this terrible year.”

• Sometimes it takes time for measures to work
• Not worried about legal case filed against PEPP

U.S. stock-index futures rose on Friday, as tech shares set for recovery after a volatile session on Thursday, supported by Oracle’s (ORCL; +4.7% in premarket trading) solid quarterly results, underscoring the resilience of tech-related companies during the corona crisis.

Global Stocks:

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

Kroger (KR) reported Q2 FY 2020 earnings of $0.73 per share (versus $0.44 per share in Q2 FY 2019), beating analysts’ consensus estimate of $0.54 per share.

The company’s quarterly revenues amounted to $30.489 bln (+8.2% y/y), beating analysts’ consensus estimate of $30.026 bln.

KR rose to $34.85 (+0.32%) in pre-market trading.

FedEx (FDX) target raised to $264 from $167 at Cowen

Travelers (TRV) upgraded to Equal Weight from Underweight at Wells Fargo; target raised to $115

The Labor Department announced on Friday the U.S. consumer price index (CPI) rose 0.4 percent m-o-m in August after increasing 0.6 percent m-o-m in the previous month.

Over the last 12 months, the CPI increased 1.3 percent y-o-y last month, following an unrevised 1.0 percent m-o-m gain in the 12 months through July. This was the highest reading since March.

Economists had forecast the CPI to gain 0.3 percent m-o-m and to climb 1.2 percent y-o-y in the 12-month period.

According to the report, a surge in the used cars and trucks index (+5.4 percent m-o-m, its largest monthly increase since March 1969) was the largest contributor to the August increase in headline CPI. The indexes for gasoline (+2.0 percent m-o-m), shelter (+0.1 percent m-o-m), recreation (+0.7 percent m-o-m), and household furnishings and operations (+0.9 percent m-o-m, its largest monthly increase since February 1991) also made a solid positive contribution. In addition, the food index rose marginally (+0.1 percent m-o-m) in August after falling in July.

Meanwhile, the core CPI excluding volatile food and fuel costs also rose 0.4 percent m-o-m in August after an unrevised 0.6 percent m-o-m increase in the previous month.

In the 12 months through August, the core CPI surged 1.7 percent, accelerating from 1.6 percent in the 12 months ending July. This was the highest rate since March.

Economists had forecast the core CPI to edge up 0.2 percent m-o-m and to rise 1.6 percent y-o-y last month.

• Says that UK-EU talks this week has been relatively more constructive than expected
• Ultimately, progress will be determined by whether we get more realism from EU on key areas of divergence
• Big important areas remain unresolved

James Smith, a Developed Market economist at ING, notes that the UK economy rebounded strongly for the second month in July but we are likely to see the pace of expansion slow in August/September and stall as we head into the winter as the 'mechanical rebound' ends and unemployment rises.

"The fact that the UK economy has bounced for the second month in a row should come as little surprise."

"The 6.6% increase in GDP through July really just reflects the reopening of a wider number of sectors, including of course the food and accommodation sectors."

"This ‘mechanical rebound’ process should see a further increase in August, perhaps in the region of 3%, and a subsequent bounce in September to reflect the reopening of education venues (this part of the national accounts is as we understand it heavily dependent on the volume of people attending them). All in, we think the third quarter will register around 17% growth."

"In all likelihood, we’re likely to see growth stall as we head into autumn."

"Unemployment looks set to rise over the coming months, albeit perhaps it’s still too early to see major signs of it in next week’s jobs report."

"The fireworks surrounding UK-EU negotiations also serve as a reminder that the forthcoming end to the transition carries a further risk to the recovery. While we don’t expect another Covid-19 style collapse in GDP early next year (at least, not as a direct result of Brexit), the increased cost burden on firms comes at an already difficult time for cashflow."

"In the short-term though, a lot will depend on the way the virus spreads. As we’ve also seen in Europe, the UK government is likely to prioritise limiting gatherings over re-closing chunks of the economy."

"We think the overall size of the UK economy is unlikely to return to pre-virus levels until late 2022, or perhaps later. This in turn will increase the pressure on the Bank of England to increase their stimulus package at the November meeting."

GBP traded mixed against other major currencies in the European session on Friday, as worries of a no-deal outcome of current UK-EU trade negotiations were partially offset by the UK’s GDP data showing the economy expanded for the third straight month in July as coronavirus restrictions continued to ease. The pound rose against USD, CHF and JPY, but fell against EUR, AUD and NZD.

Risk of a no-deal increased significantly this week after the UK’s government introduced a bill, which would overwrite the Brexit Withdrawal Agreement, - the step, which was appraised by the European Commission (EC) Vice-President Maroš Šefčovič as the move that “has seriously damaged trust between the EU and the UK”. Šefčovič also stated that  “if the Bill were to be adopted, it would constitute an extremely serious violation of the Withdrawal Agreement and of international law”. 

The EC spokesman said earlier today that the EU would consider the next Brexit steps after the end-September deadline. "We are going to wait for the reaction of the UK by that deadline and we will consider the next steps once we have reached that particular bridge”, he said. “And in the meantime, we will make no further comment." 

The Office for National Statistics (ONS) reported that the UK’s GDP expanded 6.6 percent m-o-m in July, following an 8.7 percent m-o-m gain in June. GDP was forecast to increase 6.7 percent m-o-m. In y-o-y terms, the UK’s GDP shrank 11.7 percent in July, compared to a 16.8 percent plunge in June and economists forecasts of an 11.3 percent decline. In the three months to July, GDP contracted 7.6 percent, following a record 20.4 percent tumble in the three months to June. Economists had forecast a 7.5 percent fall.

• Economic recovery in Eurozone is uneven, incomplete and asymmetric
• Can't afford complacency, fiscal efforts needed
• Second wave of COVID adds to uncertainty

• Says China has adopted reciprocal restrictions on staff from U.S. embassy and consulates in the mainland and Hong Kong
• China's actions are just necessary response to U.S. wrongdoings
• China urges U.S. to withdraw restrictions on China's embassy and consulates in U.S.

• We have set deadline for UK and therefore ... we are going to take this step by step
• We are going to wait for the reaction of UK by that deadline 
• We will consider next steps once we have reached that particular bridge. And in the meantime, we will make no further comment

FXStreet reports that in the opinion of FX Strategists at UOB Group, AUD/USD is now forecasted to navigate within the 0.7200-0.7350 range in the next weeks.

24-hour view: “Yesterday, we held the view that AUD ‘could edge higher but a sustained advance above 0.7315 appears unlikely’. AUD subsequently popped to a high of 0.7325 before dropping back down quickly. Momentum indicators appear to be “neutral” for now and AUD is likely to consolidate and trade between 0.7235 and 0.7305.”

Next 1-3 weeks: “AUD rose to a high of 0.7325 yesterday (10 Sep) and despite closing on a soft note at 0.7257 (-0.36%), downward momentum has more or less dissipated. To look at it another way, the current movement in AUD is viewed as part of a consolidation phase and it could trade between 0.7200 and 0.7350 for a period of time.”

Oracle (ORCL) reported Q1 FY 2021 earnings of $0.93 per share (versus $0.81 per share in Q1 FY 2020), beating analysts’ consensus estimate of $0.86 per share.

The company’s quarterly revenues amounted to $9.400 bln (+2.0% y/y), beating analysts’ consensus estimate of $9.181 bln.

The company also issued upside guidance for Q2 FY 2021, projecting EPS of $0.98-1.02 versus analysts’ consensus estimate of $0.94 and revenues growth of +1-3% versus analysts’ consensus estimate of +0.2%.

ORCL rose to $59.40 (+3.61%) in pre-market trading.

• Says that ECB is in the wait-and-see phase

• Does not mention the appreciation of the euro 

FXStreet reports that USD/JPY remains side-lined and is expected to trade between 105.95 and 106.35 in the next weeks.

Next 1-3 weeks: “There is not much to add to our latest narrative from Monday (07 Sep, spot at 106.25). As highlighted, the current movement in USD is likely part of a consolidation phase and USD is expected to trade between 105.50 and 106.90 for a period of time. The price actions over the past few days offer no fresh clues and we continue to hold the same view for now.”

Reuters reports that Britain is not threatening to "tear up" the Withdrawal Agreement that it signed with the European Union in January said UK trade policy minister Greg Hands on Friday, as the row between the two sides continues.

Prime Minister Boris Johnson's government has refused to revoke a plan that will break the divorce treaty even though Brussels says it could sink four years of talks.

Hands said that a trade deal between the UK and Japan reached on Friday showed that trading partners were still keen to do deals with the UK.

RTTNews reports that Spain's consumer prices declined for the fifth consecutive month in August, as initially estimated, final data from the statistical office INE showed.

The consumer prices fell 0.5 percent on a yearly basis in August, following a 0.6 percent drop in July. Prices have been falling since April. The rate came in line with the estimate released on August 31. At the same time, underlying inflation eased to 0.4 percent from 0.6 percent in July.

On a month-on-month basis, consumer prices remained unchanged in August, as estimated, but in contrast to a 0.9 percent drop in July.

The harmonized index of consumer prices declined 0.6 percent annually in August versus a 0.7 percent drop in July. 

FXStreet reports that analysts at Scotiabank offer a sneak peek at what to expect from Friday’s US Consumer Price Index (CPI) release.

“Headline inflation is forecast to rise from 1% YoY in July to 1.4% principally due to forecast month-ago gains in core CPI combined with a mild assist from gasoline prices.” 

“Core CPI has risen by 0.6% m/m in seasonally adjusted terms in each of June and July and the reopening effect upon price pressures buoyed by the stimulus is expected to repeat.”

Reuters reports that Chinese banks extended more new loans in August than the previous month, while broad credit growth quickened, pointing to continued policy support to help the economy recover from a coronavirus-induced slump.

Banks extended 1.28 trillion yuan ($187.25 billion) in new yuan loans, up from July and slightly exceeding analyst expectations, according to data released by the People's Bank of China (PBOC) on Friday.

Analysts had predicted new yuan loans would rise to 1.22 trillion yuan in August as the economy continued to recover, up from 992.7 billion yuan in the previous month but largely in line with 1.21 trillion yuan a year earlier.

Household loans, mostly mortgages, rose to 841.5 billion yuan from 757.8 billion yuan in July, while corporate loans jumped to 579.7 billion yuan from 264.5 billion yuan.

August data so far suggests China's economic recovery is continuing to build up steam after a record slump in the first quarter fuelled by coronavirus outbreaks and lockdowns.

Reuters reports that chairman of euro zone finance ministers Pascal Donohoe said that Britain must respect its commitments in the withdrawal treaty it signed with the European Union if it wants to have an agreement on future trade relations with the bloc.

Britain explicitly said this week that it plans to break international law by breaching parts of the Withdrawal Agreement treaty it signed in January. This plunged talks on a future trade relationship between the EU and Britain into crisis less than four months before the United Kingdom is due to leave the EU's orbit at the end of a transition period.

"As the United Kingdom looks to what kind of future trade relationship it wants with the European Union, a prerequisite for that is honouring agreements that are already in place," Donohoe told.

The European Commission, which conducts talks on the future trade deal with London on behalf of the 27-nation bloc, asked Britain on Thursday to drop by the end of September the parts of a planned bill that would break the treaty with the EU.

FXStreet reports that FX Strategists at UOB Group see further downside in USD/CNH as unlikely in the near-term.

Next 1-3 weeks: “Our latest narrative was from Monday (07 Sep, spot at 6.8360) wherein ‘downward momentum has eased somewhat but there is still chance for USD to push lower towards 6.8000’. Momentum has eased further as USD staged a relatively strong advance of +0.32% yesterday (NY close of 6.8536). From here, unless USD moves and stays below 6.8350 within these 1 to 2 days, a breach of the ‘strong resistance’ at 6.8800 (no change in level) would not be surprising and would indicate that the negative phase in USD that started in midAugust has run its course. To put it another way, the odds for further USD weakness have diminished considerably.”

Bloomberg reports that ECB chief economist Philip Lane said that the recent appreciation of the euro dampens the inflation outlook and the European Central Bank is ready to act if needed.

Inflation will remain negative for the rest of the year and upward revisions in core price growth because of the economic rebound have been “significantly muted” by the stronger exchange rate, he wrote in a blog post on Friday.

“It should be abundantly clear that there is no room for complacency,” he wrote. “The Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves toward its aim in a sustained manner, in line with its commitment to symmetry.”

eFXdata reports that Bank of America discusses the USD seasonal outlook and maintains a bullish USD bias for the rest of the year. 

"The US dollar calendar seasonal picture improves markedly over the next 3 months. Since 2010, the BBDXY has been up an average 2% over the next 60 trading days. The strongest USD seasonal is against JPY, with USD/JPY rising 9 out of 10 times for an average gain of about 4% over the next 60 trading days. The second strongest is against CAD," BofA notes. 

"Separately, this also coincides with a bullish event seasonal around US Presidential elections. Specifically, the DXY has been up 7 out of 10 times over the next 60 trading days since the 1980 election for an average gain of 2.5%. If we condition for positively correlated instances in which USD has sold off as now, we find that DXY was up all 4 times for an average gain of 3.4% over the next 40 trading days," BofA adds. 

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

Yesterday, the results of the meeting of the European Central Bank (ECB) were announced. The regulator expected to keep the base interest rate on loans at 0.0%, and the deposit rate at -0.5%. The rate on margin loans remained at 0.25%.

The ECB also did not change the volume of the Pandemic Emergency Purchase program (PEPP), leaving it at 1.350 trillion euros, as experts expected. The ECB will continue to buy back assets under this program until at least the end of June 2021. It also intends to reinvest proceeds from redeemable bonds under PEPP until at least the end of 2022.

ECB President Christine Lagarde said at a press conference after the meeting that the ECB governing Council discussed the situation with the strengthening of the euro, but does not target the currency exchange rate. According to her, the regulator will closely monitor the impact of euro dynamics on inflation.

The ICE index, which tracks the dynamics of the US dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell by 0.07%.

The pound rose slightly against the US dollar, following yesterday's collapse. In negotiations on the future relationship between the EU and the UK, significant differences remain in important areas for the EU, said the EU's chief negotiator Michel Barnier. Barnier noted that the UK refuses to include guarantees of fair competition in the future agreement, while requesting free access to the EU single market. There are still no guarantees that London will comply with EU social, environmental, labor and climate standards.

According to the report from Office for National Statistics, in July 2020, the Index of Production (IoP) was 7.0% below February 2020, the previous month of "normal" trading conditions, prior to the coronavirus (COVID-19) pandemic.

Production output rose by 5.2% between June and July 2020. Economists had expected a 0.3% increase. Manufacturing providing the largest upward contribution, rising by 6.3%; there were also rises from electricity and gas (2.7%), water and waste (2.4%) and mining and quarrying (0.7%).

The monthly increase of 6.3% in manufacturing output was led by transport equipment, which rose by 18.5%; all of the 13 subsectors displayed upward contributions.

Total production output decreased by 3.5% for the three months to July 2020, compared with the three months to April 2020; this was led by manufacturing output, which fell by 4.4%.

For the three months to July 2020, compared with the three months to July 2019, production output decreased by 13.5%; this was led by a fall in manufacturing of 15.7%, where 12 of the 13 subsectors displayed downward contributions.

According to the report from Federal Statistical Office (Destatis), the inflation rate in Germany, measured as the year-on-year change in the consumer price index, stood at 0.0% in August 2020. This means the inflation rate remained at a low level in August 2020, too. In July 2020, it had been -0.1%. 

One of the reasons for the low inflation rate is still the temporary value added tax reduction, which was implemented on 1 July 2020 as a measure of the Federal Government's stimulus package. Since then, it has had a downward effect on the consumer prices compared with a year earlier. As, however, many other factors have an impact on the price development, it is difficult to measure the extent to which the lower tax rates were passed on to the consumers.

Compared with July 2020, the overall consumer price index fell by 0.1% in August 2020. Energy product prices declined by 0.5%; consumers paid less especially for heating oil (-4.1%) and motor fuels (-0.6%). Food prices (total) fell slightly, too (-0.3%, including vegetables: -2.7%). Price rises were observed, for example, for clothing (+0.9%).

EUR/USD

Resistance levels (open interest**, contracts)

$1.1979 (3797)

$1.1926 (600)

$1.1891 (343)

Price at time of writing this review: $1.1833

Support levels (open interest**, contracts):

$1.1771 (902)

$1.1724 (2881)

$1.1659 (4401)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date September, 4 is 61881 contracts (according to data from September, 10) with the maximum number of contracts with strike price $1,1700 (4401);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3090 (259)

$1.3030 (195)

$1.2959 (212)

Price at time of writing this review: $1.2811

Support levels (open interest**, contracts):

$1.2747 (554)

$1.2718 (706)

$1.2678 (460)

Comments:

- Overall open interest on the CALL options with the expiration date September, 4 is 13341 contracts, with the maximum number of contracts with strike price $1,3500 (1156);

- Overall open interest on the PUT options with the expiration date September, 4 is 14320 contracts, with the maximum number of contracts with strike price $1,3150 (2619);

- The ratio of PUT/CALL was 1.07 versus 1.05 from the previous trading day according to data from September, 10

* - 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.

According to the report from Office for National Statistics, monthly gross domestic product (GDP) grew by 6.6% in July 2020 as lockdown measures continued to ease, following growth of 8.7% in June and 2.4% in May and a record fall of 20.0% in April 2020. Economists had expected a 6.7% increase in July.

July 2020 GDP is now 18.6% higher than its April 2020 low. However, it remains 11.7% below the levels seen in February 2020, before the full impact of the coronavirus pandemic.

Gross domestic product (GDP) fell by 7.6% in the three months to July 2020 following two consecutive quarterly falls, as government restrictions on movement dramatically reduced economic activity.

Commenting on today’s GDP figures for July, ONS director of economic statistics Darren Morgan said:

“While it has continued steadily on the path towards recovery, the UK economy still has to make up nearly half of the GDP lost since the start of the pandemic. Education grew strongly as some children returned to school, while pubs, campsites and hairdressers all saw notable improvements. Car sales exceeded pre-crisis levels for the first time with showrooms having a particularly busy time. All areas of manufacturing, particularly distillers and car makers, saw improvements, while housebuilding also continued to recover. However, both production and construction remain well below previous levels.”