CFD Markets News and Forecasts — 13-09-2021

EUR/CHF to hover around the 1.08 level on a three-month view – Rabobank

FXStreet reports that Jane Foley, Senior FX Strategist at Rabobank, expects the Swiss franc to remain underpinned by safe-haven demand over the coming months.

“Given the SNB’s expectations that the recent push higher in inflation is set to be transitory, currency strength is set to remain a concern for policy-makers.”

“In our view, EUR/CHF can edge higher over the medium-term. However, the risk of a slowdown in growth in the Eurozone and Switzerland towards the end of the year could keep investors nervous.”

“On the back of safe-haven demand, this could keep EUR/CHF close to the 1.08 level on a three-month view.”

eFXdata reports that analysts at Citi discuss their expectations for tomorrow's U.S. CPI print for August.

"We remain bearish on the USD over time as we remain optimistic on the global economic recovery in an environment where central banks continue to provide much accommodation. The highlight of the data calendar this week will be CPI on Tuesday." 

"US CPI tomorrow is expected to see a 0.24%MoM increase in core CPI in August, rounding to 0.2%MoM but with risk of a stronger print that rounds to 0.3%. Our Econ team thinks this would be a softer increase than the 0.33% rise in July, partly due to an expected pullback in used car prices."

NZD/USD: Scope for a race higher to 0.7317/24 - Credit Suisse

FXStreet reports that analysts at Credit Suisse note that NZD/USD has rebounded from 0.7090/69 but a close above the key downtrend resistance at 0.7139 is needed to reinforce the bullish view.

“The kiwi is still holding above the 0.7090/69 ‘neckline’ and breakout point to the large recently completed base and we stay biased higher. Our bullish view is based on this large base and the still bullish short-term momentum setup.” 

“Next resistance above the downtrend resistance from the 2021 highs at 0.7139 is seen at the 61.8% retracement of the 2021 fall at 0.7211/15, with scope for an eventual move to 0.7317/24. The breakout in the NZD TWI suggests we could move even beyond here.” 

“Support stays at 0.7090/69, where we recently turned tactically bullish."

FXStreet reports that strategists at Société Générale expect USD/MXN to advance nicely towards 21.30 by June 2022.

“The growth outlook still faces numerous downside risks and, although the policy buffer remains substantial, some financial market withdrawal from the EM is probably the base-case scenario when Fed tapering comes into force.”

“The Bank of Mexico will likely tighten further, although the medium-term inflation outlook is broadly stable.”

“Against this backdrop, our EM strategists expect MXN to weaken to 21.30 and long-term bond yields to rise to 7.50 by end of 1H22. Additional pressure on currency and bond yields is likely through 2023.” 

U.S. stock-index futures rose on Monday, pointing to the equity market rebound, as the S&P 500 snapped its longest losing streak since February ahead of key reports on the U.S. August inflation and retail sales later this week.

Global Stocks:

FXStreet notes that although the EUR/USD is set to appreciate in the medium-term, economists at Société Générale expect the world’s most popular currency pair to plummet from 1.18 to 1.12 in 2022.

“Medium-term, we expect the EUR/USD to appreciate.”

“We see the pair depreciating from 1.18 to 1.12 next year, due to quicker changes from the Fed.”

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

Twitter (TWTR) initiated with a Sell at Goldman; target $60

Uber (UBER) initiated with a Buy at Goldman; target $64

NIKE (NKE) downgraded to Neutral from Buy at BTIG Research

Bank of America (BAC) upgraded to Buy from Hold at Odeon; target $46.50

Reuters reports that the Organization of the Petroleum Exporting Countries (OPEC) trimmed its world oil demand forecast for the last quarter of 2021 due to the Delta coronavirus variant.

OPEC said it expects oil demand to average 99.70 million barrels per day (bpd) in the fourth quarter of 2021, down 110,000 bpd from last month's forecast.

Despite the downward revision to the fourth-quarter, OPEC said world oil demand in the whole of 2021 would rise by 5.96 million bpd, virtually unchanged from last month.

The growth forecast for 2022 was adjusted to 4.15 million bpd, compared to 3.28 million bpd in last month's report and an estimate of 4.2 million bpd given by OPEC sources during the group's last meeting on Sept. 1.

Bloomberg reports that according to Commerzbank AG Chief Economist Joerg Kraemer, nearly two years after Mario Draghi left Frankfurt, the former European Central Bank president is still influencing inflation in the euro region through his role as Italian prime minister.

“If he were to push through the urgently needed reforms and get his home country back on its feet economically, the ECB would no longer feel pressured to prop up Italy,” the economist wrote on Monday.  

With the success of his economic overhaul looking “questionable,” Italy is likely to remain hooked on ultra-low borrowing costs, Kraemer argued. That will force the ECB to keep monetary policy loose, he said, risking that faster inflation eventually becomes entrenched.

“Italy will remain dependent on help from the ECB, which will ensure low government financing costs with bond purchases and negative key interest rates,” Kraemer said, concluding that Draghi’s “actions are still influencing inflation.”

FXStreet reports that economist at UOB Group Lee Sue Ann comments on the latest ECB event (September 9).

“Amidst the economic recovery as well as surging inflation in the Eurozone, financial markets have been eagerly awaiting the European Central Bank (ECB)’s latest policy decision for signs of an imminent unwinding of pandemic-era stimulus. On Thursday (9 September), it left policy settings unchanged but opted to tweak its language on the Pandemic Emergency Purchase Programme (PEPP).” 

“Overall, the latest ECB meeting was in line with our expectations as it “communicated” its plan to slow PEPP purchases “moderately”. This leaves the bulk of the big policy decisions to the December meeting, when the ECB will also be introducing its 2024 forecasts.”

“Further out, we also continue to expect prolonged accommodative monetary policy through a more flexible and larger APP, and that the ECB is unlikely to increase interest rates before 2024.”

Reuters reports that Greece said it will pump more money into its economy to prop up businesses and households battered by the pandemic.

Greece emerged from a decade-long financial crisis in 2018 but saw its economy slump again by 8.2% last year amid restrictions to curb the spread of COVID-19.

This year, the economy is set to rebound by 5.9%, higher than the 3.6% previously forecast, Prime Minister Kyriakos Mitsotakis said on Saturday, as he outlined a series of tax relief measures.

Finance Minister Christos Skaikouras on Monday said that projection was "absolutely realistic. It may even prove to be conservative".

The government would spend 4.4 billion euros in the second half of the year, bringing the total amount of pandemic support for 2020-2022 to 42.7 billion euros, Staikouras said.

FXStreet reports that economists at Credit Suisse discuss EUR/GBP prospects.

“EUR/GBP closed last week below price support at 0.8561 and this has seen a bearish ‘reversal week’ established and with the market also below its 13-day exponential average and 55-day simple averages this should reassert a broader negative bias again.” 

“We maintain an immediate bearish bias with support seen at 0.8505/01 initially, then the lower end of the trend channel that has been in place from late February and current cycle low at 0.8450/43, with a fresh hold here expected for now.” 

Reuters reports that global equity funds lured fewer inflows in the week to Sept. 8 as investors turned cautious due to uncertainty over the pace of economic recovery and shied away from riskier assets.

Investors purchased a net $8.54 billion in global equity funds in the week, a 54% drop compared with the net buying in the previous week.

European equity funds attracted an inflow of 9.17 billion, while U.S. and Asian equity funds had outflows.

Meanwhile, global money market funds secured a net $22.17 billion, after seeing two weeks of outflows, underscoring the risk-off sentiment during the week.

Global bond funds saw inflows for a seventh straight week, obtaining $11.73 billion.

Global inflation-protected bond funds lured a net $1.4 billion, the largest in five weeks.

• Central bank balance sheets will start to shrink again as the recovery takes hold;
• BoE now has assets of nearly GBP1 trillion – equivalent to almost half the annual output of UK economy; that ratio is 10 times what it was in 2006, and more than double any previous peak in our 327 year history – including the wars of the 18th and 20th centuries;
• Other central banks have seen similar increases;
• Quantitative Easing (QE) has of course been a key driver of this increase in many countries, including UK;
• QE will start to run off when policymakers judge it to be warranted by outlook for inflation and activity;
• Central bank balance sheets of future will be very different to those we knew at start of the millennium; they will be structurally larger, even after current QE programmes unwind;
• Central banks will meet a bigger share of the structurally higher demand for liquidity and contemplate possible Central Bank Digital Currencies (CBDC)
• Central bank balance sheets will be more variable as lower global interest rates and broader liquidity insurance toolkit mean balance sheets play more active countercyclical role;
• We expect to adopt market-led approach, in which we allow reserves to fall as QE assets roll off, but stand ready to replace any demand shortfall that might arise through shorter term open market operations; this should allow us to run ‘lean’ balance sheet without suffering excessive upward pressure on short-term rates;
• As we turn to consider potential design of CBDC, there will be important decisions to take on whether to remunerate the instrument, whether to limit access to in some way, and how much functionality to provide in addition to its basic role as retail payment medium

FXStreet reports that economists at Société Générale note that S&P 500 faced resistance at the earlier highlighted level of 4540 representing a trend line connecting peaks of September 2020, April/May 2021. The Index may suffer a decline to the 4300-level, they suggest.

“The S&P 500 Index has staged a pullback and is now drifting towards 50-DMA at 4440/4420. It is worth noting that this MA has provided support to the dips since March.”

“Failure to hold above 4440/4420 can result in a deeper down move. In such a scenario, S&P 500 could head lower towards the recent trough at 4365 and 4300.”

Reuters reports that ECB policymaker Isabel Schnabel said that inflation in the euro area will "in all likelihood" ease next year after the current spike but she listed risks to that scenario from supply bottlenecks to higher wages.

"Today, against the background of rising inflation rates, particularly in Germany, it was a matter of concern to me to alleviate people's concern that inflation may remain persistently too high or even shoot up uncontrollably. In all likelihood, inflation will noticeably decrease as soon as next year," Schnabel said.

FXStreet reports that economists at the Bank of Montreal said that three factors continue to push equity markets gradually higher.

Asset inflation

“Goods price inflation remains a key factor; wage inflation is a potential concern, but asset-price inflation is still very much alive too. While the focus on this front tends to zero in on areas like housing, commercial real estate and cryptocurrency/meme stocks, it is very much supporting the broader equity market”.

Longer interest rate view

“While Fed tapering is the next major policy move on the radar, it appears the market is still comfortable assuming a low-for-long interest rate environment post-COVID. For equities, this has helped ease valuation concerns that were percolating earlier in the year.”

Lots of earnings support

“Earnings growth topped 95% YoY and, beyond base effects, the level of earnings on the S&P 500 has surged more than 20% above pre-COVID levels. Combined with the decline in longer-term interest rates, this has helped justify the move in prices. And, it reinforces that big businesses that trade on the S&P 500 can still thrive.”

Reuters reports that the economy ministry said that the German economy will pick up steam in the third quarter but business activity will cool again in the final three months of the year.

"Overall, there will likely be a noticeable increase in economic output in the current third quarter," the economy ministry said in its monthly report, adding there were signs of a normalization of growth in the fourth quarter.

It added that the spread of new coronavirus mutations and their influence on the infection dynamics could cloud the economic outlook.

According to the report from Istat, in July 2021 the number of both employed and unemployed persons decreased, while a growth was recorded for inactive people.

On a monthly basis, the slight decline of employment (-0.1%, -23 thousand) involved men, women and over 35. Overall, the employment rate remained stable at 58.4%.

In the last month, the drop of unemployed people (-1.2%, -29 thousand) concerned mainly men and youngest persons aged 15-24. The unemployment rate declined to 9.3% (-0.1 p.p.) while the youth rate dropped to 27.7% (-1.6 p.p.).

In July the increase of inactive people aged 15-64 (+0.2%, +28 thousand) was recorded only among men. The inactivity rate went up to 35.5% (+0.1 p.p.).

Compared with July 2020, the number of employed persons increased by 2.0% (+440 thousand), the growth concerning both genders and all age classes with the exception of people aged 35-49 years; the employment rate showed an increase of 1.4 p.p. .

On a yearly basis, the rise of employed people was accompanied by a decrease of both unemployed persons (-6.9%, -173 thousand) and inactive people aged 15-64 (-3.5%, -484 thousand).

FXStreet reports that UOB Group’s FX Strategists said that USD/CNH poised to extend the consolidation range within the 6.4240-6.4800 range in the next weeks.

Next 1-3 weeks: “Our latest narrative was from last Wednesday, where we highlighted that the outlook of USD is mixed and it could trade within a 6.4300/6.4800 range for a period of time. USD plummeted to 6.4261 on Friday before rebounding quickly. The choppy price actions offer no clarity and the outlook for USD remains mixed. Further choppy price actions are not ruled out but in view of the increased volatility, USD could trade in a broader range of 6.4240/6.4800.”

Bloomberg reports that an advisor to China’s central bank said that Beijing should strengthen efforts to control the expansion of technology companies because the development of internet platforms leads to a “winner takes all” dynamic, which increases inequality and slows economic growth.

“The new technological revolution with more prominent properties of increasing returns will inevitably produce an unprecedented tendency toward monopoly,” Cai Fang, a member of the People’s Bank of China’s monetary policy committee, said.

Cai’s comments are the latest indication that policy makers in Beijing intend to continue a campaign to rein in tech giants such as Alibaba Group Holding Ltd. and Tencent Holdings Ltd., which has rocked equity markets this year. 

Now that China has achieved middle-income status, future growth needs to come from productivity gains rather than increasing investment, Cai said. That requires more government action to increase competition between companies and prevent monopolies rather than relying on markets, he added.

Cai said internet companies were more prone to monopoly as they tend to be larger and have stronger barriers to entry due to their control over data. 

“There is a new phenomenon of ‘winner takes all’,” he said. “Therefore, starting from the necessity of promoting competition and innovation and protecting consumer rights, the task of preventing and breaking monopolies should not be taken lightly.”

Reuters reports that a market sentiment survey published by Deutsche Bank showed that an equity market correction of 5%-10% by the end of the year was the overwhelming consensus.

According to the report, conducted from September 7-9 and covering over 550 market professionals globally, 58% of respondents said they expected an equity selloff by year-end.

COVID-19 was still considered the biggest risk to market stability, with 53% of survey participants citing concerns over new virus variants that bypass vaccines. This was followed by higher-than-expected inflation.

The September survey also showed that belief in transitory inflation -- as flagged by central banks -- is edging down though it still remains the consensus.

CNBC reports that ratings giant S&P Global Ratings said that China’s zero-Covid approach could worsen the debt situation of the country’s companies.

The firm warned that the global resurgence of Covid and China’s zero-tolerance approach may further strain companies if outbreaks continue to lead to mobility restrictions and disruptions broadly.

“COVID-19′s latest resurgence in China came at a time when risks are rising for Chinese corporates,” analysts at S&P Global Ratings wrote.

“Higher leverage, weaker cash flows, tighter liquidity, and volatile financing conditions are biting. And all this is occurring amid unprecedented distress events and regulatory actions,” they said.

While the number of infections are still low compared to other major economies, China had demonstrated zero tolerance toward any surge in cases.

In response to the latest rebound in cases, the Chinese government embarked on a raft of measures, imposing mass testing in some cities, entry and exit controls in Beijing, and other restrictions.

S&P Global Ratings said that while the measures were effective in driving down cases, it also showed that even just a targeted response led to disruptions across large parts of the country.

S&P Global Ratings said that ratings for firms going forward could be pushed “further into the negative” if outbreaks continue to disrupt the country.

FXStreet reports that economists at ING discuss USD/JPY prospects.

“Any improvements on the US-China relationship should continue to hit JPY harder than USD, and drive USD/JPY back up. The balance of risks was skewed for a continuation of the trend higher in 10-year US yields into the week ahead, with a chance to re-test the 1.37% monthly highs.”

“We think USD/JPY could move back to the 110.40 highs in the week ahead.”

During today's Asian trading, the dollar strengthened against the euro, the pound and the yen, while investors are waiting for the publication of a number of macroeconomic statistics, in particular on US inflation.

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 0.21%.

Investors expect the publication of a number of reports on the United States during the current week. The focus is on the inflation data, which will be released on Tuesday. Analysts expect that annual inflation slowed to 5.3% in August from 5.4% a month earlier.

Later in the week, data on industrial production and retail sales will also be released, on Wednesday and Thursday, respectively. Experts note that the data may clarify the situation regarding the economic situation in the United States.

FXStreet reports that FX Strategists at UOB Group said that GBP/USD still targets the 1.3890 level as long as it does not break below 1.3760.

24-hour view: “We highlighted last Friday that “the advance in GBP has scope to extend but a break of last week’s high near 1.3890 is unlikely”. Our view was not wrong as GBP subsequently rose to within a couple of pips of 1.3890 (high of 1.3888) before pulling back. Upward pressure has eased and GBP has likely moved into a consolidation phase. In other words, GBP is likely to trade sideways for today, expected to be within a 1.3800/1.3870 range.”

According to the report from Destatis, in August 2021 the selling prices in wholesale trade rose by 12.3% compared with August 2020. This was the highest monthly annual rate of change since October 1974 after the first oil crisis (+13.2% compared with October 1973). In July 2021 and in June 2021 the annual rates of change had been +11.3% and +10.7%, respectively. From July 2021 to August 2021 the index rose by 0.5%.

The high year-on-year increase in wholesale prices is due, on the one hand, to the current sharp rise in prices for many raw materials and intermediate products. On the other hand, a base effect due to the very low price level of the previous year's months in connection with the Corona crisis comes into play.

In August 2021, the biggest impact on the rate of change in the wholesale price index compared to the same month of the previous year was due to price increases in the wholesale of ores, metals and semi-finished metals (+63.4 %) and solid fuels and petroleum products (+35.5 %).

Reuters reports that Lloyds Bank's annual sentiment survey of financial firms showed that London will remain a leading global financial centre despite uncertainty over regulation due to Brexit.

Britain fully left the European Union, its biggest single export customer, in December last year. But the survey of more than 100 banks, asset managers and insurers showed that more than two-thirds believe that London will remain a top centre.

Brexit led to the UK financial sector being cut off from the EU and the survey showed that 42% believe a resumption of access won't happen until 2023 or later, while almost a third said it will never happen.

Regulatory change is seen as the biggest threat, consistent with the "ongoing uncertainty" over the shape of regulatory reform many months after Brexit, the survey said.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1937 (2078)

$1.1907 (1765)

$1.1884 (798)

Price at time of writing this review: $1.1792

Support levels (open interest**, contracts):

$1.1779 (1233)

$1.1752 (2857)

$1.1719 (2464)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date October, 8 is 63450 contracts (according to data from September, 10) with the maximum number of contracts with strike price $1,2200 (8130);

GBP/USD

$1.3997 (993)

$1.3938 (312)

$1.3897 (155)

Price at time of writing this review: $1.3820

Support levels (open interest**, contracts):

$1.3732 (1769)

$1.3700 (954)

$1.3625 (431)

Comments:

- Overall open interest on the CALL options with the expiration date October, 8 is 11301 contracts, with the maximum number of contracts with strike price $1,4150 (2167);

- Overall open interest on the PUT options with the expiration date October, 8 is 12951 contracts, with the maximum number of contracts with strike price $1,3800 (1769);

- The ratio of PUT/CALL was 1.15 versus 1.20 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.