CFD Markets News and Forecasts — 13-10-2020

FXStreet reports that economists at Charles Schwab evaluate the possible impacts a “Blue Wave” in the US election could have on the economy and markets. There are five key areas targeted for change: taxes, labor, the environment, oil and trade. This potential change in US political leadership could introduce more risk to earnings and market performance of US stocks and lead to relative outperformance of international markets.  

“Although markets typically welcome new spending initiatives, those proposed by democratic candidates are likely to be accompanied by higher corporate taxes. Among other proposed taxes on US based multi-national companies is an increase in the U.S. corporate tax rate from 21% to 28% which could result in the average company seeing after-tax profits fall by 10%, which may put downward pressure on stock prices. There is a chance that US stocks may underperform international stocks if it appears that the 2017 tax cuts are likely to be reversed, lowering after-tax profits for US companies.”

“One of the democratic party’s priorities emphasizes putting workers before shareholders and restoring labor’s share of national income by strengthening unions and their bargaining rights... Europe’s labor costs rose to their highest percentage of GDP in the last 20 years. If the US trend of falling labor share of income reverses, it could act as a drag on the profit growth of US companies relative to their international peers.” 

“If the Senate remains in Republican control, the US embracing major climate change legislation in parallel with Europe’s New Green Deal – including climate-related taxes and tariffs on high carbon products – seems unlikely.”

“Biden’s proposed efforts to try to stop Iran from enriching uranium, in exchange for dropping sanctions, could lead to the markets pricing in an increase in oil supply. Any supply increase could keep a lid on energy prices while demand continues to recover in 2021 and limit the market performance of traditional energy companies.”

“In recent years, we have seen the outlook for trade having a heavy influence on the economy and markets. The potential for a less confrontational US stance combined with a multi-lateral approach could mean less overall market volatility tied to trade, particularly for companies dependent upon operations in both the US and China.”

“The stock markets may welcome the potential for more fiscal stimulus (including infrastructure and green initiatives) and lower tariff risk that may come with a Democratic sweep. The trade-off could include higher taxes and labor costs, a tougher and more costly regulatory environment for U.S. companies relative to international peers. Looking to our portfolios, these outcomes could handicap earnings and market performance of US stocks, and lead to relative outperformance of international markets, who have lagged in recent years.”

• We need to consider negative interest rates
• Prepared to wait to tighten rates
• Level of economic scarring now is hard to estimate
• As Covid returns, scarring could increase
• Some activities may turn out to be once without demand
• Long-term scarring, detachment of people from work is one of the most damaging things we can have in economy

• UK economy at end Q3 about 9-10% below end of 2019
• Talk of v-shaped recovery needs perspective
• If cost of borrowing is below economic growth rate, there is room for the government to use that

• PM tells cabinet EU trade talks at "crucial stage" before European Council
• As we approach October 15, chief negotiator will have to advise PM on whether his conditions have been met
• EU must show more urgency
• There is a need for us to provide clarity in the middle of this month

• Significant changes must be made to remedy the Trump proposal’s deficiencies
• I remain hopeful that the White House will finally join us to recognize the needs of the American people, and take action to address the health and economic crisis in their lives

• Projects global economy to shrink by 4.4% in 2020 compared to 5.2% contraction in June's estimate
• Forecasts 2021 global growth at 5.2% compared to 5.4% in June
• Sees 2020 US GDP contraction at 4.3% compared to -8.0% in June; 2021 US GDP growth at 3.1% compared to 4.5% in June
• Sees 2020 China GDP growth at 1.9% compared to 1.0% in June; 2021 China growth at 8.2%, unchanged from previous forecast
• Forecasts 2020 Eurozone GDP contraction at 8.3% compared to -10.2% in June; 2021 Eurozone GDP growth seen at 5.2% compared to 6.0% in June
• Improved forecasts due to somewhat less dire Q2 contraction, stronger-than-forecast Q3 rebound as advanced economies and China reopened
• 2020 contraction in emerging markets, excluding China was lowered to 5.7% from -5.0% in June forecast, reflecting the continued spread of the virus, greater dependence on tourism, remittances, commodities, external finance
• Sees world trade to rebound by 8.3% 2021 compared to  +8% in June estimate

U.S. stock-index futures traded mixed on Tuesday as investors assessed a setback in a coronavirus vaccine trial being conducted by Johnson & Johnson (JNJ) and the first batch of corporate earnings. 

Global Stocks:

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

Morgan Stanley (MS) resumed with an Overweight at JP Morgan; target $57

Exxon Mobil (XOM) upgraded to Neutral from Sell at Goldman; target raised to $36

Micron (MU) upgraded to Buy from Hold at Deutsche Bank; target raised to $60

Walt Disney (DIS) upgraded to Buy from Hold at Loop Capital; target $150

The Labor Department announced on Tuesday the U.S. consumer price index (CPI) rose 0.2 percent m-o-m in September after increasing 0.4 percent m-o-m in the previous month.

Over the last 12 months, the CPI increased 1.4 percent y-o-y last month, following an unrevised 1.3 percent m-o-m gain in the 12 months through August. This was the highest reading since March.

Economists had forecast the CPI to gain 0.2 percent m-o-m and to climb 1.4 percent y-o-y in the 12-month period.

According to the report, the index for used cars and trucks surged 6.7 percent m-o-m in September (its largest monthly increase since February 1969) and accounted for most of the monthly advance in the seasonally adjusted all items index. The energy index climbed 0.8 percent m-o-m in September, while the food index was flat m-o-m.

Meanwhile, the core CPI excluding volatile food and fuel costs also rose 0.2 percent m-o-m in September after an unrevised 0.4 percent m-o-m increase in the previous month.

In the 12 months through September, the core CPI surged 1.7 percent, the same pace as in the 12 months ending August.

Economists had forecast the core CPI to edge up 0.2 percent m-o-m and to rise 1.8 percent y-o-y last month.

• Final deal needed on fair competition through the level playing field
• Many issues in relation to fishing outstanding, some progress on the level playing field
• No progress on fishing
• Fair to say there is progress made on Ireland Protocol
• We are running out of time
• Domestic legislation in UK will need to be removed for any final deal

FXStreet reports that S&P 500 has surged higher again after completing its “head & shoulders” base above the mid-September highs at 3429/44 and analysts at Credit Suisse look for a resumption of the core uptrend back to the 3588 high and then for new record highs.

“Another strong move higher after the completion of its ‘head & shoulders’ base above key resistance from the mid-September highs and 61.8% retracement of the fall from September at 3429/44, with the market gapping higher yet again. Given the strength of the past four days, a knee-jerk pullback should be allowed for, but dips will stay seen as corrective and we maintain our bullish outlook and look for strength back to not only the 3588 record high but beyond in due course.” 

“We see resistance above the high of yesterday at 3565 next and eventually the 3588 high, also essentially the upper end of its ‘typical’ extreme (15% above the 200-day average). Whilst this should clearly be respected we look for a break in due course with the ‘measured base objective’ at 3653.” 

Citigroup (C) reported Q3 FY 2020 earnings of $1.40 per share (versus $1.97 per share in Q3 FY 2019), beating analysts’ consensus estimate of $0.87 per share.

The company’s quarterly revenues amounted to $17.300 bln (-6.9% y/y), generally in line with analysts’ consensus estimate of $17.184 bln.

С rose to $46.98 (+2.40%) in pre-market trading.

GBP traded mixed against its major counterparts in the European session on Tuesday as market participants digested the latest news coming out of the negotiations between the UK and the EU. The pound rose slightly against JPY, EUR, CHF and AUD, fell against NZD and CAD, and changed little against USD.

Reuters reported, citing EU sources, that the EU's Brexit chief negotiator Michel Barnier told the EU ministers that movement in Brexit talks isn't sufficient so far. According to the sources, level playing field, fishery and enforcement measures remain the key controversial issues. Later in the day, Barnier tweeted that the block "will continue to work for a fair deal in the coming days and weeks". He also noted that the strong EU unity is confirmed ahead of the summit that starts Thursday.

Meanwhile, the UK's foreign minister Dominic Raab told the British parliament today that "the scope and the prospects for a deal are there". He also said that he is hopeful that the two sides can close the gap but "ultimately it will require the same goodwill, the same pragmatism, the same flexibility" on the EU side that the UK and PM Boris Johnson have shown.

FXStreet notes that AUD/USD has not managed to follow through on Friday’s break higher. Nonetheless, analysts at Credit Suisse look for an eventual resumption of the core bull trend with resistance seen at 0.7235/43. 

“AUD/USD has not managed to follow through on Friday’s gains, keeping the market in a rangebound environment, hovering around key moving averages. However, with daily MACD momentum also pointing higher, we keep our bias for an eventual early resumption of the core bull trend.”

“Resistance moves initially to 0.7218, then 0.7235/43, above which would see 0.7254 next. Removal of here would subsequently see a move back up to 0.7324 – the beginning of a key price resistance area, which stretches up to 0.7345 – and where we would expect to see fresh sellers at first. Beyond here though should see a renewed test of the current year high at 0.7414 and eventually beyond over the medium-term.” 

• Says that the scope and prospects for a deal are there

• Economic growth in Europe seems to be slowing
• Economic damage from second virus wave probably less dramatic than first wave

JPMorgan Chase (JPM) reported Q3 FY 2020 earnings of $2.92 per share (versus $2.68 per share in Q3 FY 2019), beating analysts’ consensus estimate of $2.24 per share.

The company’s quarterly revenues amounted to $29.941 bln (-0.2% y/y), beating analysts’ consensus estimate of $28.122 bln.

JPM rose to $103.85 (+1.38%) in pre-market trading.

FXStreet notes that the pace of CNY appreciation following the re-opening of Chinese markets after the Golden Week holidays likely caused a degree of concern among officials. Consequently, the People’s Bank of China (PBoC) announced the lowering of the risk reserves ratio for FX forwards trading (from 20% previously to 0%). Economists at TD Securities see the PBoC move as a means to slow, but not stop, the strength in China's currency as China still wants a stable to firm currency as a means to attract inflows and maintain domestic confidence.

“We see the PBoC move as a means to slow, but not stop the strength in China's currency. We do not expect it to have a significant impact on other Asian currencies given the declining sensitivity of Asian FX with CNY.” 

“We think China still wants a stable to firm currency as a means to attract inflows and maintain domestic confidence. Economic data has strengthened and China's economy is quickly getting back on its feet. Taken together, with an attractive yield differential and likely broad USD weakness post US elections, it implies that CNY weakness will be limited and short-lived unless the USD can get back on its feet, something that we think is unlikely in the months ahead.”

Johnson & Johnson (JNJ) reported Q3 FY 2020 earnings of $2.20 per share (versus $2.12 per share in Q3 FY 2019), beating analysts’ consensus estimate of $1.98 per share.

The company’s quarterly revenues amounted to $21.082 bln (+1.7% y/y), beating analysts’ consensus estimate of $20.155 bln.

The company also issued upside guidance for FY 2020, projecting EPS of $7.95-8.05 versus analysts’ consensus estimate of $7.89 and its prior guidance of $7.75-7.95 and revenues of +0.0-1.0% y/y to ~$82.0-82.8 bln versus analysts’ consensus estimate of $80.66 bln and its prior guidance of $79.9-81.4 bln.

JNJ fell to $150.28 (-1.03%) in pre-market trading.

FXStreet notes that US oil prices hit an all-time high of $145/barrel on July 4, 2008. Today, the same barrel of oil is worth about $40 and instead of a peak in oil supply, commodity markets are now contemplating a peak in demand. How we got here is a story of technology and environmental advocacy, and one that has material cross-asset implications, as per Morgan Stanley. 

“The technological shift was in shale oil. New processes allowed producers, largely in the US, to dramatically increase output and do so much more cheaply than things like deep-water drilling. US oil production, which had declined steadily from 1985 to 2008, has more than doubled in the years since. But a shift in environmental attitudes has mattered as well. New technologies have improved energy efficiency, while green investment is becoming a major policy theme.”

“One of the largest oil producers recently released long-term projections for oil over the next 20+ years. Those projections saw oil demand failing to ever really rise above pre-COVID levels in their base case. And in the scenario where there's even greater environmental policy action than we see today, oil demand could fall materially.”

“We think prices will really struggle to move above $50/barrel, as levels above this will encourage producers to hedge much more aggressively at these prices. As such, oil prices should lag other ‘reflationary’ assets in this cycle that we like a lot more.”

FXStreet notes that GBP/USD maintains its base above the mid-September high at 1.3007 and with the 55-day average also removed, analysts at Credit Suisse stay bullish and look for a move back to the ‘neckline’ to the August/September top, today seen at 1.3174 and eventually at medium-term resistance at 1.3482/1.3514.  

“GBP/USD maintains its looked-for break above key resistance from the mid-September high at 1.3007 and with talk of negative interest rates growing and with the USD itself still seen in a core bear trend this should confirm a more important base has been established as we have been looking for to turn the core trend higher again. The close above the 55-day average should also now reinforce the base for a move back to the ‘neckline’ to the August/September top, today seen at 1.3174."

“Whilst we would look for 1.3174 to cap at first, we look for a break in due course with resistance seen at 1.3310 next and eventually at medium-term resistance at 1.3482/1.3514. Beyond here, which we remain biased for would see the completion of a much more significant base and long-term turn higher.” 

• Level playing field, fishery and enforcement measures remain the key controversial issues

CNBC reports that Sean Darby, global head of equity strategy at Jefferies. said that global real estate prices have largely held their own in the face of an unprecedented economic hit from the coronavirus pandemic.

“It’s been perhaps one of the most fortunate events for policymakers in that we’ve not really seen any significant declines in global property prices,” Darby told CNBC.

Underlying demand in places such as the U.S., U.K. and China have been “very strong,” Darby pointed out.

This has served as a “huge backstop” for policymakers as they grapple with the economic meltdown of the pandemic, he said. “Importantly, it has really allowed the domestic banking system to be relatively unimpaired by asset deflation.”

He said Australia has been an exception and property prices there have seen a “modest decline.”

FXStreet reports that economists at Credit Suisse look for the EUR/CHF range bottom to hold once more and remain biased for a rebound higher from here. 

“EUR/CHF saw a sharp move lower on Monday, moving back to the bottom of its neutral range and breaking the uptrend from July at 1.0735. Although the risk of a clear range breakout lower has increased, we ideally look for the lower end at 1.0727/22 to hold once again to maintain the range and see a rebound higher from here.” 

“We see resistance initially at 1.0734, then 1.0774. Above here can see 1.0801/06, where we would expect to see a pause at first.”

“Beneath 1.0727/22 would see a topping structure complete to suggest further weakness may unfold with support seen thereafter at 1.0712/02. Beyond here though can see a fall back to the 200-day average at 1.0680.”

According to the report from ZEW, the Indicator of Economic Sentiment for Germany declined very sharply in the current October 2020 survey, plummeting 21.3 points to a new reading of 56.1 points. By contrast, the assessment of the economic situation in Germany improved again, and currently stands at minus 59.5 points, 6.7 points higher than in September

“The ZEW Indicator of Economic Sentiment is still very clearly in positive territory. However, the great euphoria witnessed in August and September seems to have evaporated. The recent sharp rise in the number of COVID-19 cases has increased uncertainty about future economic development, as has the prospect of the UK leaving the EU without a trade deal. The current situation in the run-up to the presidential election in the United States further fuels uncertainty,” comments ZEW President Professor Achim Wambach on the current expectations.

The financial market experts’ sentiment concerning the economic development of the eurozone also took a nosedive, dropping 21.6 points to a current level of 52.3 points. The indicator for the current economic situation in the eurozone, on the other hand, climbed 4.3 points to a level of minus 76.6 points.

Reuters reports that a German minister demanded "substantive" movement from Britain on fisheries, dispute settlement and state aid rules in post-Brexit trade.

EU affairs minister Michael Roth said the EU was working hard for a deal, but was also ready to trade from 2021 without any accord to limit tariffs or quotas.

"We are at a very critical stage in the negotiations and we are extremely under pressure. Time is running out," Roth said.

The talks are aimed at reaching a new partnership agreement with Britain on everything from trade to transport and nuclear cooperation from Jan. 1, when London's post-Brexit standstill transition has run its course. Around a trillion euros' worth of annual trade are at stake.

British Prime Minister Boris Johnson has also said he wants to know by Oct. 15 if a deal is within reach.

FXStreet reports that strategists at OCBC bank continue to expect Brent to trend from $40-$43/bbl heading ever closer to the US Presidential elections while OPEC is jawboning again.

“Oil prices spiked last Thursday after OPEC remarked that ‘the worst is behind for the oil market.’ Recall three weeks ago, Saudi Arabia took its war against short-sellers public. We expect Brent to correct back into the $40- $43/bbl range.” 

“Crack margins for gasoline declined on the week while that of diesel rose, adding to further mixed signals. Separately, Saudi Arabia raised its OSP for its Arab Light crude oil by 10c/bbl to -40c/bbl off the Oman/Dubai average.” 

“We continue to expect Brent to range trade until after the US Presidential elections.”

CNBC reports that German Finance Minister Olaf Scholz said he is confident the economy can return to pre-crisis levels by 2022, but that European leaders needed to work together.

“If I look to the data, we could be quite confident about the future, we have an increase in economic growth, we will have a chance that we go back to the situation we had before the crisis in the beginning of (20)22, possibly a bit earlier,” Scholz told CNBC.

“So, there is a good development we can see ... but we have to understand that we all depend on each other. And this is even so for the economy.”

Scholz said the EU has an opportunity for closer fiscal union now, describing it as “Hamiltonian moment” for the region, referencing the deal struck in 1790 by the first U.S. Treasury Secretary Alexander Hamilton to convert individual states’ debts into joint obligations of the federal union.

FXStreet reports that economists at Westpac believe AUD/USD correction to below 0.70 seems plausible given news coming from China.

“Despite the positive risk sentiment, the A$ appears to have been well contained by further indications that Chinese imports of met and thermal coal have been banned (joining wheat, beef and wine to varying degrees). This is important given that 22% of Australian thermal coal exports went to China in the last year and 28% of met coal.” 

“We stick to the view that the near-term risks for the A$ are lower and a dip below 0.70 through end October/early November is still possible. However, near-term, the A$ looks well contained by 0.7260 on the topside and 0.7124 on the downside.”

During today's Asian trading, the US dollar rose against the euro and the japanese yen.

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), rose 0.09%.

The dollar may continue to strengthen in the near future against the background of continuing contradictions between the US authorities regarding the stimulus package, experts say. Also, we cannot exclude the risk that the results of the US presidential election will not be known immediately or will be disputed, which may provide additional support to the dollar.

Market participants continue to closely monitor the situation around the US election campaign. According to polls, democratic presidential candidate Joe Biden is leading, and his margin of victory over incumbent President Donald Trump is increasing.

The yuan traded steadily against the dollar. China's exports in dollar terms in September increased by 9.9% relative to the same month last year, according to data from the General customs administration. Growth was recorded for the fourth consecutive month. Experts on average expected an increase of 10%. The volume of Chinese imports jumped 13.2% compared to September 2019 after declining for two consecutive months. At the same time, experts expected an increase of 0.3%.

Reuters reports that Housing Secretary Robert Jenrick said that the British government may have to impose stricter restrictions than it currently has if the second wave of the novel coronavirus accelerates in high risk areas.

Prime Minister Boris Johnson introduced a new tiered system of restrictions for England on Monday, with Liverpool and the surrounding Merseyside placed in the highest level, with pubs shut, to curb an acceleration in COVID-19 cases.

“The message that we did deliver to those leaders in Merseyside was that we need to take these steps, we probably even need to go further but that we want to design those steps jointly between ourselves and local government,” Jenrick said.

Bloomberg reports that the International Energy Agency (IEA) said, the oil market will suffer a long-lasting blow from the coronavirus, with demand taking years to recover and peaking at a lower level.

After an unprecedented 8% drop this year, global oil consumption will return to pre-crisis levels in 2023, provided Covid-19 is brought under control next year, the IEA said.

Even in that case, which is the most optimistic scenario for oil considered by the IEA, the pandemic has an enduring impact. The IEA reinforced its view that global oil demand will plateau around 2030, topping out at lower levels than forecast last year.

“The era of global oil demand growth will come to an end in the next decade,” IEA Executive Director Fatih Birol said.

According to the report from the Federal Statistical Office (Destatis), the inflation rate in Germany, measured as the year-on-year change in the consumer price index, stood at -0.2% in September 2020. This was the second time this year that the inflation rate fell below zero (July 2020: -0.1%). A lower rate was last measured in January 2015 (-0.3%). Destatis also reports that consumer prices also decreased by 0.2% when compared with August 2020.

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.

The prices of goods (total) fell 1.7% from September 2019 to September 2020. This is mainly due to price decreases for energy products (-7.1%), which accelerated again (August 2020: -6.3%).

The marked year-on-year decrease in energy product prices had a downward effect on the inflation rate. Excluding energy product prices, the inflation rate would have been +0.6% in September 2020.

Compared with August 2020, the overall consumer price index fell by 0.2% in September 2020. Due to seasonal factors, at the end of the summer holidays, prices decreased for overnight stays (-1.6%). Also, energy product prices declined by 0.7%; consumers paid less especially for heating oil (-6.9%). The prices of goods (total) went down slightly (-0.3%) compared with the previous month. However, prices were substantially up both for clothing (+5.6%) and for footwear (+3.6%). A major reason here was the changeover to the autumn/winter collection.

According to the report from Office for National Statistics, early estimates for September 2020 suggest that there is little change in the number of payroll employees in the UK; up 20,000 compared with August 2020. Since March 2020, the number of payroll employees has fallen by 673,000; however, the larger falls were seen at the start of the coronavirus (COVID-19) pandemic.

Data from our Labour Force Survey show the employment rate has been decreasing since the start of the coronavirus pandemic, while the unemployment rate and the level of redundancies have been increasing in recent periods. Total hours worked, while still low, show signs of recovering and there are fewer people temporarily away from work.

Estimates for June to August 2020 show an estimated 1.52 million people were unemployed, 209,000 more than a year earlier and 138,000 more than the previous quarter. The estimated UK unemployment rate for all people was 4.5%; this is 0.6 percentage points higher than a year earlier and 0.4 percentage points higher than the previous quarter

The Claimant Count increased in September 2020, reaching 2.7 million; this includes both those working with low income or hours and those who are not working.

After a record low of 343,000 vacancies in April to June 2020, there has been an estimated record quarterly increase of 144,000 to 488,000 vacancies in July to September 2020; vacancies remain below the pre-coronavirus (COVID-19) pandemic levels and are 332,000 (40.5%) less than a year ago.

Growth in average total pay (including bonuses) among employees for the three months June to August was unchanged from a year ago, while regular pay (excluding bonuses) growth was positive at 0.8%.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1928 (2591)

$1.1902 (4017)

$1.1881 (451)

Price at time of writing this review: $1.1800

Support levels (open interest**, contracts):

$1.1747 (1062)

$1.1723 (928)

$1.1694 (1050)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date November, 6 is 50456 contracts (according to data from October, 12) with the maximum number of contracts with strike price $1,1800 (4017);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3236 (929)

$1.3171 (1006)

$1.3128 (1681)

Price at time of writing this review: $1.3042

Support levels (open interest**, contracts):

$1.2930 (325)

$1.2876 (230)

$1.2845 (551)

Comments:

- Overall open interest on the CALL options with the expiration date November, 6 is 30707 contracts, with the maximum number of contracts with strike price $1,3950 (3694);

- Overall open interest on the PUT options with the expiration date November, 6 is 22153 contracts, with the maximum number of contracts with strike price $1,2050 (2420);

- The ratio of PUT/CALL was 0.72 versus 0.71 from the previous trading day according to data from October, 12

* - 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.