CFD Markets News and Forecasts — 13-11-2020

• Fed's current pace of asset purchases has been effective and its monetary policy is in very good place
• Even if Fed's emergency programs are shut down at the end of year, markets would know they can be reopened, trust the Fed's willingness to act as a backstop
• Fed is still not thinking about thinking about raising interest rates, still a long climb for the economy
• Financial stability is not a key concern in midst of the pandemic

• We had a strong economy before the pandemic struck
• Economy is not just going to snap right back where it was
• It will be important to retrain workers for better jobs

A report from the University of Michigan revealed on Friday the preliminary reading for the Reuters/Michigan index of consumer sentiment decreased 5.9 percent m-o-m to 77.0 in early November. This was the lowest reading since August.

Economists had expected the index would rise to 82.0 this month from October’s final reading of 81.8.

According to the report, the index of current U.S. economic conditions edged down 0.1 percent m-o-m to 85.8 in November from 85.9 in the previous month. Meanwhile, the index of consumer expectations plunged 10.0 percent m-o-m to 71.3 this month from 79.2 in October.

“Consumer sentiment fell in early November as consumers judged future economic prospects less favorably, while their assessments of current economic conditions remained largely unchanged”, noted Surveys of Consumers chief economist, Richard Curtin. “The outcome of the presidential election as well as the resurgence in covid infections and deaths were responsible for the early November decline,” he added.

U.S. stock-index futures rose on Friday, as upbeat quarterly results from Disney (DIS) and Cisco(CSCO) supported the U.S. equity market on the final day of a volatile trading week, which was marked by record spikes in COVID-19 cases and heightened hopes of an effective vaccine.

Global Stocks:

• Says downside risks remain substantial
• Sees room for U.S. unemployment to improve substantially
• Even in light of new outbreak economy appears to be adapting to the pandemic
  
• Monetary and fiscal policy have been very effective

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

Dow (DOW) downgraded to Mkt Perform from Outperform at Bernstein; target $57

Dow (DOW) downgraded to Hold from Buy at Deutsche Bank; target $56

Walt Disney (DIS) upgraded to Outperform from Sector Perform at RBC Capital Mkts; target raised to $170

• Says that her team supports targeted restrictions based on geography

The Labor Department reported on Friday the U.S. producer-price index (PPI) rose 0.3 percent m-o-m in October, following an unrevised 0.4 percent m-o-m gain in September.

For the 12 months through October, the PPI increased 0.5 percent after an unrevised 0.4 percent advance in the previous month. That was the largest advance since the 12 months ended in February.

Economists had forecast the headline PPI would increase 0.2 percent m-o-m last month and 0.4 percent over the past 12 months.

According to the report, nearly 60 percent of the October increase in the final demand index can be traced to a 0.5-percent m-o-m gain in prices for final demand goods. Meanwhile, the index for final demand services rose 0.2 percent m-o-m.

Excluding volatile prices for food and energy, the PPI edged up 0.1 percent m-o-m and jumped 1.1 percent over 12 months. Economists had forecast gains of 0.2 percent m-o-m and 1.2 percent y-o-y.

GBP appreciated against its major rivals in the European session on Friday, supported by news that the UK's Prime Minister Boris Johnson’s chief adviser Dominic Cummings was to leave his role by the end of the year. Cummings ran the pro-Brexit Vote Leave campaign in the UK's EU referendum in 2016 and news about his departure raised hopes that London could take a less hard-line approach in talks with Brussels.

The EU-UK negotiation over a trade deal will resume in Brussels next week. Earlier this week, it was reported that the EU and the UK are likely to continue discussions of their post-Brexit trade relations past the mid-November deadline.

The UK PM's spokesman acknowledged today that familiar differences remain on level playing field and fisheries. He also noted the UK's position in relation to the future trade agreement negotiations is unchanged. "We want to reach a deal but it has to be one that fully respects the sovereignty of the United Kingdom," the spokesman added.

• Government's position in relation to the future trade agreement negotiations is unchanged
• We want to reach a deal but it has to be one that fully respects sovereignty of UK
• Notes that talks will be paused over the weened and will resume in Brussels next week

• Says that news on the economy has been much better than expected
• Economic indicators still show economy on a positive trajectory
• Economy may slow somewhat due to recent virus surge
• Sees a lot of downward pressure on inflation
• Inflation will be lower than what we want in the next few years
• Markets are reacting to the better outlook, not inflation

Applied Materials (AMAT) reported Q4 FY 2020 earnings of $1.25 per share (versus $0.80 per share in Q4 FY 2019), beating analysts’ consensus estimate of $1.17 per share.

The company’s quarterly revenues amounted to $4.688 bln (+24.9% y/y), beating analysts’ consensus estimate of $4.603 bln.

The company also issued upside guidance for Q1 FY 2021, projecting EPS of $1.20-1.32 versus analysts’ consensus estimate of $1.11 and revenues of $4.75-5.15 bln versus analysts’ consensus estimate of $4.53 bln.

AMAT rose to $71.89 (+2.99%) in pre-market trading.

ING's Carsten Brzeski and Suvi Platerink expect the European Central Bank's (ECB) Targeted Longer-Term Refinancing Operations (TLTRO) to be at the heart of its stimulus package that we're expecting in December.

"It's been a very active week for ECB officials with comments by, amongst others, Christine Lagarde, Klaas Knot and Madis Muller, all suggesting the Bank is still keeping all options on the table going into its December meeting. While Klaas Knot didn’t want to exclude a rate cut, stressing that no single option should be ruled out in the decision-making process, ECB president Lagarde put the most focus on the PEPP, its Pandemic Emergency Purchase Programme and TLTROs as being highly effective and flexible instruments during the crisis."

"ECB Governing Council member Madis Muller indicated that the central bank’s stimulus package aimed for December should have the TLTRO operation at its core. According to Muller the PEPP by itself may not be the best tool."

"The TLTRO-III operation lasts for three years and currently has €1,699bn funds allotted to the banking sector. The operation has seven tranches altogether, with two more to go. The 6th tranche is allocated in December 2020 and the last one in March next year. To ease the TLTRO-III conditions the ECB has put in place a special interest rate period, during which banks can get the funds for a one year time period at -1% subject to meeting certain lending conditions. Currently, it runs from June 2020 for twelve months."

"Among the options the central bank could do in terms of the TLTRO-III programme could be to extend this special interest rate period to make it even more attractive to banks. This would also make the risk of substantial early repayments from tranches one to five in September 2021 less likely."

"Another option would be related to the lending benchmarks. Most participating banks are likely to be well-positioned to meet the two different lending thresholds. But for those which experience difficulties in meeting these conditions due to the sheer lack of lending demand, the ECB could take another look at how the lending benchmark calculation is set. It could even come up with another set of lending requirements."

"Should the ECB not provide new tranches to the TLTRO-III programme, easing some of its conditions would give even more importance to the last tranche due to be allotted next March. The ECB’s monetary policy had already been stretched when the eurozone entered the crisis. Besides stabilising financial markets and ensuring that the eurozone is not hit by another existential euro crisis on top of the current one (aka restoring transmission mechanisms), the ECB can only provide cheap liquidity to support the real economy."

"Going into the December meeting, it is clear that views on what to do still differ. We continue expecting the ECB to increase QE, spread across both the PEPP and APP, and to alter both the conditions and duration of the TLTROs."

Cisco (CSCO) reported Q1 FY 2021 earnings of $0.76 per share (versus $0.84 per share in Q1 FY 2020), beating analysts’ consensus estimate of $0.70 per share.

The company’s quarterly revenues amounted to $11.929 bln (-9.3% y/y), roughly in line with analysts’ consensus estimate of $11.855 bln.

The company also issued upside guidance for Q2 FY 2021, projecting EPS of $0.74-0.76 versus analysts’ consensus estimate of $0.73 and revenues of $11.77-12.01 bln versus analysts’ consensus estimate of $11.67 bln.

CSCO rose to $41.50 (+7.32%) in pre-market trading.

FXStreet reports that according to FX Strategists at UOB Group, USD/JPY stays on track to advance further and targets the 106.00 level and probably above in the next weeks.

24-hour view: “Our expectation for USD to ‘test 105.75 first’ was wrong as it eased to a low of 105.05. The underlying has weakened and the bias from here is tilted to the downside. That said, any weakness is unlikely to threaten the strong support at 104.40.”

Next 1-3 weeks: “There is not much to add to our update from Tuesday (10 Nov, spot at 105.15). As highlighted, there is ‘room for the current strong advance in USD to test the major resistance at 106.10’. At this stage, the odds for a sustained rise above this level are not high. On the downside, a break of 104.40 (‘strong support’ level previously at 104.00) would indicate that USD is not ready for 106.10.”

Walt Disney (DIS) reported Q4 FY 2020 loss of $0.20 per share (versus earnings of $1.07 per share in Q4 FY 2019), better than analysts’ consensus estimate of -$0.65 per share.

The company’s quarterly revenues amounted to $14.707 bln (-23.1% y/y), beating analysts’ consensus estimate of $14.096 bln.

DIS rose to $141.50 (+4.41%) in pre-market trading.

• ECB is going to be there for as long as it is necessary
• There are reasons why we did not cut rates in the past
• Have to review those reasons again now
• ECB is facing a different situation than in March
• We have to discuss the intensity/pace of asset purchases
• Monetary policy cannot do it all alone, fiscal policy also still needed

Reuters reports that European Central Bank policymaker Pablo Hernandez de Cos said that it will take time before any COVID-19 vaccine has a positive impact on the economy. 

New restrictions imposed in euro zone countries to curb the second wave of the pandemic mean that the ECB's upcoming macroeconomic projections in December would be most likely revised downwards, de Cos added.

"The vaccine is very positive news, regarding investor confidence, consumers confidence and economic activity. But I would like to be cautious. In the short term, restrictions will continue across Europe," de Cos said.

The good news on the vaccine "will take time to translate into economic activity," he added.

Eurostat, the statistical office of the European Union, said that the first estimate for euro area (EA19) exports of goods to the rest of the world in September 2020 was €190.3 billion, a decrease of 3.1% compared with September 2019 (€196.4 bn). Imports from the rest of the world stood at €165.5 bn, a fall of 7.1% compared with September 2019 (€178.1 bn). 

As a result, the euro area recorded a €24.8 bn surplus in trade in goods with the rest of the world in September 2020, compared with +€18.3 bn in September 2019. Intra-euro area trade fell to €164.2 bn in September 2020, down by 1.0% compared with September 2019.

In January to September 2020, euro area exports of goods to the rest of the world fell to €1 545.2 bn (a decrease of 11.3% compared with January-September 2019), and imports fell to €1 394.8 bn (a decrease of 12.4% compared with January-September 2019). As a result the euro area recorded a surplus of €150.4 bn, compared with +€151.0 bn in January-September 2019. Intra-euro area trade fell to €1 313.6 bn in January-September 2020, down by 11.1% compared with January September 2019.

According to the flash report from Eurostat, in the third quarter of 2020, seasonally adjusted GDP increased by 12.6% in the euro area and by 11.6% in the EU compared with the previous quarter. These were by far the sharpest increases observed since time series started in 1995, and a rebound compared with the second quarter of 2020, when GDP had decreased by 11.8% in the euro area and by 11.4% in the EU. Economists had expected a 12.7% increase in the euro area.

Compared with the same quarter of the previous year, seasonally adjusted GDP decreased by 4.4% in the euro area and by 4.3% in the EU in the third quarter of 2020, which represents a partial recovery after -14.8% and -13.9% respectively in the previous quarter.

The number of employed persons increased by 0.9% in both the euro area and in the EU in the third quarter of 2020, compared with the previous quarter. These were the strongest increases observed since time series started in 1995. In the second quarter of 2020, employment had decreased by 2.9% in the euro area and by 2.7% in the EU.

Compared with the same quarter of the previous year, employment decreased by 2.0% in the euro area and by 1.8% in the EU in the third quarter of 2020, after -3.1% and -2.9% in the second quarter of 2020

Reuters reports that the Economy Ministry said that Germany's economic recovery continued until October but has slowed since August, and lockdown measures implemented to slow the spread of the coronavirus hit the economy in November.

The ministry said it did not look like the recovery would end in the fourth quarter though, as long as restrictions remain limited.

The German government's council of economic advisers on Wednesday said it expected Europe's largest economy to shrink less than initially feared this year thanks to a strong summer, but a second wave of the COVID-19 pandemic was clouding the growth outlook for 2021.

FXStreet reports that FX Strategists at UOB Group said that prospects of further decline in USD/CNH could be losing traction.

Next 1-3 weeks: “In our latest narrative from Monday, we indicated that ‘the outlook for USD is still weak and the next support is at 6.5300’. USD subsequently dropped to 6.5476 before snapping back up. Downward momentum has eased considerably and the odds for further USD weakness have diminished. However, only a break of 6.6600 (no change in ‘strong resistance’ level) would indicate that the current downward pressure has eased.”

Reuters reports that british employers are advertising the most jobs since early March, though sectors such as hospitality and leisure remain hard-hit by the COVID pandemic, recruiters said on Friday.

The Recruitment and Employment Confederation said 1.36 million jobs were being actively advertised in the first week of November, with the strongest recovery in construction, logistics and food processing.

REC chief executive Neil Carberry said there were big regional differences in the number of job adverts.

"With the stark difference in demand across different regions, avoiding a skills mismatch will require serious planning," he said.

Vacancies for food and drink factory workers were 53% higher than in March, and demand for van drivers was 43% higher, while adverts for bar staff and chefs were down by almost half.

FXStreet reports that FX Strategists at UOB Group said that AUD/USD is expected to trade within the 0.7130-0.7305 range in the next weeks.

24-hour view: “We highlighted yesterday that ‘the underlying tone has softened somewhat and this could lead to AUD edging downwards towards the bottom of the expected range of 0.7240/0.7305’. We added, ‘a sustained decline below 0.7240 is unlikely’. The subsequent weakness in AUD exceeded our expectation as it dropped to a low of 0.7224 before closing on a soft not at 0.7233 (-0.65%). Downward momentum has improved, albeit not by all that much. From here, AUD could grind lower towards 0.7200. A dip below this level is not ruled out but the next support at 0.7170 is not expected to come into the picture. Resistance is at 0.7260 followed by 0.7285.”

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

Investors' attention shifted to the growing number of cases of coronavirus infection and its impact on the economic forecast.

The Chairman of the Federal reserve system Jerome Powell believes that it is too early to speak about progress in developing a vaccine against coronavirus will affect the US economy, especially given the increase in the number of infections that could weaken the recently started economic recovery. "The next few months may not be easy," he said on Thursday.

News earlier this week of the success of trials of the COVID-19 vaccine developed by Pfizer and BioNTech has stirred global markets, including foreign exchange. However, analysts say the introduction of the vaccine means less stimulus in the US.

Traders are still waiting for the official results of the US presidential election held on November 3, which also determines the fate of new incentives. It is already clear that the Democratic candidate Joe Biden won enough votes to become the new President of the country. Meanwhile, the current President, Donald Trump, does not admit defeat, and his lawyers have filed lawsuits in a number of States where, as they claim, violations were committed.

The ICE index, which tracks the dollar's performance against six currencies (the euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell 0.07%.

According to the report from INSEE, in October 2020, the Consumer Price Index (CPI) was stable over a month, after –0.5% in September 2020. The food prices (+0.2% after –0.5% in September) and those of energy (+0.2% after –0.7%) rebounded after a fall in September. Those of services declined less than in the previous month (–0.3% after –1.5%). The prices of tobacco were stable. Those of manufactured goods slowed down strongly after a rebound in the last month (+0.4% after +1.6%).

Seasonally adjusted, consumer prices were stable in October, after –0.2% in September.

Year on year, consumer prices were stable for the second month in a row. The acceleration in the food prices (+1.5% after +0.9% in September) and the reduced decrease of energy prices (–7.8% after –8.0%) and of those of manufactured goods (–0.1% after –0.2%) were offset by the slowdown in service prices (+0.4% after +0.6%).

Year on year, core inflation increased, in October, by 0.3% year on year, after 0.5% in September. The Harmonised Index of Consumer Prices (HICP) was stable over a month, after –0.6% in the previous month; year on year, it increased by 0.1% after being stable in September.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1906 (2001)

$1.1880 (2926)

$1.1860 (826)

Price at time of writing this review: $1.1801

Support levels (open interest**, contracts):

$1.1759 (659)

$1.1735 (2456)

$1.1705 (2670)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date December, 4 is 103446 contracts (according to data from November, 12) with the maximum number of contracts with strike price $1,1200 (6548);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3297 (1788)

$1.3243 (648)

$1.3203 (1264)

Price at time of writing this review: $1.3148

Support levels (open interest**, contracts):

$1.3071 (1001)

$1.3042 (686)

$1.2977 (646)

Comments:

- Overall open interest on the CALL options with the expiration date December, 4 is 22835 contracts, with the maximum number of contracts with strike price $1,3500 (2703);

- Overall open interest on the PUT options with the expiration date December, 4 is 25369 contracts, with the maximum number of contracts with strike price $1,2500 (2653);

- The ratio of PUT/CALL was 1.11 versus 1.06 from the previous trading day according to data from November, 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.

FXStreet reports that FX Strategists at UOB Group noted that cable is likely to trade between 1.3000 and 1.3250 in the next weeks.

Next 1-3 weeks: “After GBP surged earlier this week, we indicated on Wednesday that ‘further GBP strength appears likely even though it is a bit too soon to expect a move to the year-to-date high at 1.3481’. We added, ‘on a shorter-term note, 1.3380 and 1.3420 are already quite strong resistance levels’. That said, we did not quite expect the sharp drop yesterday (12 Nov) that took out our ‘strong support’ level of 1.3120 (low of 1.3108). The rapid loss in momentum suggests GBP is not ready to move higher just yet. From here, GBP could trade sideways within a broad 1.3000/1.3250 range for a period of time.”

Reuters reports that former Chinese finance minister Lou Jiwei said that trade frictions between the United States and China may not ease in the near term even if Joe Biden becomes president.

Lou made the remarks during the Caixin Summit in Beijing.

When asked about the outlook for the U.S.-China economic and trade relationship, the outspoken former minister Lou said: "Even if Biden is elected, the U.S. suppression of China will be inevitable."

Lou called for pragmatism in U.S.-China trade relations, saying it was difficult for Washington to cut its trade deficit, given the dollar's position as the dominant global currency.

"After four years, the trade deficit (with China) is still widening. We need to return to common sense and return to science. Everyone needs to be reasonable," said Lou.

But Lou said he would be cautiously optimistic about trade relations if Trump were to remain in office.