CFD Markets News and Forecasts — 15-09-2021

• This will imply a more patient reaction function
• Markets may be overestimating the risks to global economic growth outlook from the spread of more contagious Delta variant

The U.S. Energy Information Administration (EIA) reported on Wednesday that crude inventories plunged by 6.422 million barrels in the week ended September 10, following a draw of 1.529 million barrels in the previous week. Economists had forecast a drop of 3.903 million barrels.

At the same time, gasoline stocks fell by 1.858 million barrels, while analysts had expected a decrease of 1.957 million barrels. Distillate stocks declined 1.688 million barrels, while analysts had forecast a fall of 1.612 million barrels.

Meanwhile, oil production in the U.S. increased 100,000 barrels a day to 10.100 million barrels a day.

U.S. crude oil imports averaged 5.8 million barrels per day last week, down by 48,000 barrels per day from the previous week.

• Sees ongoing virtuous cycle of corporate profits and investment
  
• Virtuous cycle of corporate profits and business fixed investment will continue, despite impact of supply chain disruptions and factory shutdowns in South-East Asia
• Japan's private consumption has remained stagnant
• Japan's economy will recover with the impact of COVID-19 waning due to further progress in vaccinations
  
• Japan's inflation rate to steadily go up and eventually reach 2%-target, although not before 2023
• If necessary, BoJ will further relax monetary policy such as by reducing interest rates
  

The report from the New York Federal Reserve showed on Wednesday that manufacturing activity in the New York region grew at a swift pace in early September.

According to the survey, NY Fed Empire State manufacturing index climbed from 18.3 in August to 34.3 in September, pointing to a strong growth of business activity in the region.

Economists had expected the index to come in at 18.0.

Anything below zero signals contraction.

According to the report, the new orders index jumped 18.9 points to 33.7, and the shipments index surged 22.5 points to 26.9, indicating solid growth in both orders and shipments. Meanwhile, the delivery times index increased 8.2 points to a record-high of 36.5, indicating significantly longer delivery times. Elsewhere, the employment index went up 7.7 points to 20.5, indicating a strong rise in employment. On the price front, both price indexes were at/near record highs: the prices paid index edged down 0.4 point to 75.7, while the prices received index rose 1.8 points to 47.8, registering its third consecutive record high.

The Federal Reserve reported on Wednesday the U.S. industrial production increased 0.4 percent m-o-m in August, following a revised 0.8 percent m-o-m growth in July (originally a 0.9 percent m-o-m jump).

Economists had forecast industrial production would increase 0.4 percent m-o-m in August.

According to the report, late-month shutdowns related to Hurricane Ida held down the advance in industrial production by an estimated 0.3 percentage point. Although the hurricane forced plant closures for petrochemicals, plastic resins, and petroleum refining, overall manufacturing output rose 0.2 percent m-o-m. At the same time, mining production declined 0.6 percent m-o-m, reflecting hurricane-induced disruptions to oil and gas extraction in the Gulf of Mexico. Elsewhere, the output of utilities climbed 3.3 percent m-o-m, as unseasonably warm temperatures boosted demand for air conditioning.

Capacity utilization for the industrial sector rose 0.2 percentage point m-o-m to 76.4 percent in August. That was in line with economists’ forecast but 3.2 percentage points below its long-run (1972-2020) average.

In y-o-y terms, the industrial output surged 5.9 percent in August, following an unrevised 6.6 percent increase in the prior month. This was the smallest annual increase in industrial production since March.

U.S. stock-index futures rose slightly on Wednesday,  as investors remained cautious amid increased growth concerns and persistent uncertainty over Fed’s tapering timeline.

Global Stocks:

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

The Labor Department reported on Wednesday the import-price index, measuring the cost of goods ranging from Canadian oil to Chinese electronics, fell 0.3 percent m-o-m in August, following a revised 0.4 percent m-o-m advance in July (originally a 0.3 percent m-o-m gain). This was the first monthly decline for the index since October 2020. Economists had expected prices to increase 0.3 percent m-o-m last month.

According to the report, the August drop was driven by lower fuel (-2.3 percent m-o-m) and nonfuel (-0.1 percent m-o-m) prices.

Over the 12-month period ended in August, import prices jumped 9.0 percent, with higher fuel (+56.5 percent) and nonfuel (+5.6 percent) prices contributing to the surge. This, however, was the smallest 12-month increase since March 2021.

Meanwhile, the price index for U.S. exports rose 0.4 percent m-o-m in August, following a revised 1.1 percent m-o-m increase in the previous month (originally a 1.3 percent m-o-m climb). This was the smallest one-month gain since October 2020. U.S. export prices have not recorded a monthly decrease since April 2020. Economists had forecast export prices to increase 0.4 percent m-o-m in August.

The August advance was driven by higher prices for both agricultural (+1.1 percent m-o-m) and nonagricultural (+0.2 percent m-o-m) exports.

Over the past 12 months, the price index for exports climbed 16.8 percent, reflecting climbs in prices of both agricultural exports (+33.4 percent) and nonagricultural exports (+14.9 percent).

Statistics Canada reported on Wednesday the country’s consumer price index (CPI) rose 0.2 percent m-o-m in August, following a 0.6 percent m-o-m increase in the previous month. This represented the slowest pace this year.

On the y-o-y basis, Canada’s inflation rate surged 4.1 percent last month, accelerating from 3.7 percent in July. This was the highest rate since March 2003.

Economists had predicted inflation would increase 0.1 percent m-o-m and 3.9 percent y-o-y in August.

According to the report, prices increased in seven of the eight major components in August, with transportation prices (+8.7 percent y-o-y) contributing the most to the all-items gain. At the same time, prices declined for clothing and footwear (-0.2 percent y-o-y).

Meanwhile, the closely watched the Bank of Canada's core index jumped 3.5 percent y-o-y in August, following a 3.3 percent y-o-y climb in July.

FXStreet reports that strategists at Credit Suisse suggest that Brent crude oil could surge above the $76.38/77.84 region.

“Brent Crude Oil extends its recovery after its recent successful hold of its key 200-DMA support at $65.78, and our bias remains for this to stay a solid floor.”

“A weekly close above $73.69/85 would see the downtrend from July broken, and recent highs cleared to add weight to our view that a floor is in place for a move back to the top of the range at $76.38/77.84 and higher in due course.”

USD weakened against other major currencies in the European session on Wednesday, as yesterday’s slightly-better-than-feared report on the U.S. consumer inflation for August cooled somewhat concerns of a sudden tapering in the  Federal Reserve’s monetary stimulus, but gave no answer on investors’ major question - when the U.S. central bank will start paring its debt purchases. 

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, decreased  0.17% to 92.47.

The U.S. Labor Department reported on Tuesday that the U.S. consumer prices in August rose 0.3% m/m and 5.3% y/y. Economists had forecast the consumer price index (CPI) to increase 0.4% m/m and 5.3% y/y. Meanwhile, stripping out food and energy, the CPI  was up  0.1% m/m and 4.0% y/y.

Market participants judged that the latest CPI report corroborates the Fed's view that the inflationary pressures are likely to be transitory and could provide the bank’s policymakers with a bit more time to decide on further policy actions. However, it doesn't provide clarity on the timing of the Fed tapering.

Earlier this month, several Fed officials stated that the U.S. central bank should start reducing bond purchases by the end of the year, despite a steep slowdown in the U.S. jobs growth in August. Investors’ focus is shifting towards the Fed’s two-day policy meeting, set to begin on September 21.

Meanwhile, China’s latest set of economic data, which pointed to weaker growth, added to growth concerns. The world's second-largest economy reported retail sales, industrial production, and fixed asset investment data for August that missed economists’ forecasts.

The Mortgage Bankers Association (MBA) reported on Wednesday the mortgage application volume in the U.S. went up 0.3 percent in the week ended September 10, following a 1.9 percent fall in the previous week. This marked the first advance in total mortgage application volume in the last three weeks.

According to the report, applications to purchase a home surged 7.5 percent, while refinance applications dropped 3.2 percent.

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

“Purchase applications - after adjusting for the impact of Labor Day - increased over 7 percent last week to their highest level since April 2021,” noted Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Compared to the same week last September, which was right in the middle of a significant upswing in home purchases, applications were down 11 percent - the smallest year-over-year decline in 14 weeks." He added that both conventional and government purchase applications increased, while the average loan size for a purchase application rose to $396,800. "The very competitive purchase market continues to put upward pressure on sales prices. While the 30-year fixed rate was unchanged at just over 3 percent, it was not enough to drive more refinance activity. Refinance applications slipped to their slowest pace since early July, and the refinance share of applications fell to 65 percent, which was also the lowest since July.”

FXStreet reports that FX Strategists at UOB Group note that USD/CNH keeps the mixed outlook unchanged and points to further consolidation within the 6.4240/6.4800 range so far.

24-hour view: “Yesterday,... USD dropped to 6.4298 before rebounding to close little changed at 6.4370 (-0.08%). The underlying tone has weakened somewhat and USD could retest the 6.4300 level before a more sustained rebound can be expected. Resistance is at 6.4460 followed by 6.4550.”

Next 1-3 weeks: “There is not much to add to our update from Monday (13 Sep, spot at 6.4445). As highlighted, the outlook for USD remains mixed and it could trade within a 6.4240/6.4800 range for now.”

FXStreet reports that gold (XAU/USD) remains entrenched in its range, but is capped at its July/August highs at $1832/34. Strategists at Credit Suisse suggest that a break below $1775 would lead to further falls.

“Gold extends its consolidation beneath the July and August highs at $1832/34. Below $1775 can reassert a negative bias again for a fall back to $1691.”

“Only a break above $1834 would be seen to complete an in-range base to clear the way for a deeper recovery to $1863, then $1917.”

• Current inflation increase in Eurozone is largely temporary 
• ECB will closely monitor inflation performance 
• In the event of persistent upward pressure of inflation, ECB has tools at its disposal

Reuters reports that data from the statistics service ELSTAT showed that Greece's jobless rate dropped to 14.2% in July from 15.0% in the previous month. Seasonally adjusted data showed 664,384 people were officially unemployed, with those aged under 24 the hardest hit.

After hitting a record high of 27.8% in September 2013, Greece's jobless rate has been falling but it remains the highest in the euro zone.

Greece's economy grew strongly in the second quarter, beating forecasts, with its annual expansion rate hitting 16.2% as consumer spending and investments picked up.

Last week Prime Minister Kyriakos Mitsotakis said the economy was set to grow by a better-than-expected 5.9% for this year as a whole.

The Office for National Statistics said that UK average house prices increased by 8.0% over the year to July 2021, down from 13.1% in June 2021. June was the last month for buyers in England and Northern Ireland to take full advantage of a temporary tax break on property purchases.

The average UK house price was £256,000 in July 2021, which is £19,000 higher than this time last year, following the record high of £265,000 in June 2021.

Average house prices increased over the year in England to £271,000 (7%), in Wales to £188,000 (11.6%), in Scotland to £177,000 (14.6%) and in Northern Ireland to £153,000 (9.0%).

London continues to be the region with the lowest annual growth (2.2%) for the eighth consecutive month.

According to the report from Eurostat, in July 2021, the seasonally adjusted industrial production rose by 1.5% in the euro area and by 1.4% in the EU, compared with June 2021. Economists had expected a 0.6% increase in the euro area. In June 2021, industrial production fell by 0.1% in the euro area and remained stable in the EU.

In July 2021 compared with July 2020, industrial production increased by 7.7% in the euro area and by 8.3% in the EU. Economists had expected a 6.3% increase in the euro area.   

In the euro area in July 2021, compared with June 2021, production of non-durable consumer goods rose by 3.5%, capital goods by 2.7%, durable consumer goods by 0.6% and intermediate goods by 0.4%, while production of energy fell by 0.6%. 

In the EU, production of non durable consumer goods rose by 2.8%, capital goods by 2.4% and intermediate goods by 0.5%, while production of energy remained stable and durable consumer goods fell by 0.2%.

Reuters reports that the European Union pledged to increase financial support to help poorer countries fight climate change and adapt to its impacts, and called on the United States also to step up.

"We will now propose an additional 4 billion euros for climate finance until 2027," European Commission President Ursula von der Leyen said.

"But we expect the United States and our partners to step up too. This is vital, because closing the climate finance gap together, the U.S. and the European Union, would be such a strong signal for global climate leadership," she said.

The EU already contributes $25 billion per year in climate finance, von der Leyen said.

Climate finance is expected to be a decisive issue at the United Nations' COP26 summit in November, where world leaders will attempt to unlock commitments to cut emissions faster and stave off catastrophic climate change.

Bloomberg reports that according to European Central Bank President Christine Lagarde, the greatest challenge facing Europe’s rebounding economy is whether authorities can implement the changes needed to transform its potential.

Unprecedented monetary and fiscal aid and more vaccinations have brought the region to a point where it is “recovering more rapidly than we had anticipated,” she said. The euro area is now expected to reach pre-pandemic output levels before the end of this year.

A key test now hinges on how Europe acts to close the longstanding gap between northern and southern countries, reduce inequalities exacerbated by the pandemic, and aid the transition to a more environmentally-sustainable economy, Lagarde observed.

“The single biggest challenge always is to deliver,” she said. “It’s a question of directing the financing to the right investment, making sure that the economies are going to bounce back in the right shape, with the right structural reforms that will improve the productivity of those economies, that will position them to be more digital and to be be greener.”

Reuters reports that British health minister Sajid Javid, a former finance minister, said he thought the 3.2% jump in inflation in August was probably a temporary increase but keeping an eye on inflation would make sense for governments around the world.

"My view is I think it is probably a temporary increase. We are globally seeing an increase in inflation and that is something that, for any government, they're going to have to take account into future spending plans," - Javid said.

FXStreet reports that analysts at TD Securities discuss USD/CAD prospects.

“MRSI's extreme implied short CAD position has improved, though it remains underweight against other currencies. That said, CAD's trading with a nice discount on the balance of valuation (HFFV and GMPCA) positioning models.”

“We're likely nearing the top in USD/CAD, where we prefer to sell rallies back towards 1.28.”

“The loonie is likely waiting for the return of some form of reflation-lite this fall, with potentially some BoC-inspired carry support.”

During today's Asian trading, the US dollar was trading steadily against the euro and the australian dollar, but declined slightly against the pound and the yen.

Data released on Tuesday showed a slight slowdown in US inflation in August compared to the July level, which was the highest in 13 years. Consumer prices rose by 5.3% per annum, the Ministry of Labor reported. A month earlier, the increase was 5.4%. The increase in consumer prices compared to July was 0.3% and was the weakest in the last seven months.

The slowdown in inflation may weaken investors ' expectations regarding the pace of the Fed's base interest rate hike, the expert says.

Inflation in the United States, however, still remains high, which is supported both by consumer demand, stimulated by payments to citizens during the pandemic, and by continuing problems in supply chains.

The ICE index, which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell by 0.03%.

According to the report from INSEE, in August 2021, the Consumer Price Index (CPI) rose by 0.6% over one month, after +0.1% in July. The prices of manufactured goods rebounded sharply (+1.1% after −1.8%) linked to the end of summer sales. The prices of food accelerated (+0.7% after +0.1%) and those of tobacco were stable after a decrease in the previous month. The prices of services (+0.4% after +0.7%) and those of energy (+0.6% after +2.2%) slowed down.

Seasonally adjusted, consumer prices rose by 0.4% in August, as in July.

Year on year, consumer prices grew by 1.9%, after +1.2% in July. This increase in inflation resulted from the rebound in manufactured good prices (+1.1% after −1.1%). The prices of food (+1.3% after +0.9%) and those of energy (+12.7% after +12.3%) accelerated. The prices of services increased slightly (+0.7% after +0.6%). The increase in tobacco prices maintained at the same level as in the last month (+5.1%).

Year on year, core inflation grew in August, up to +1.5%, after +0.4% in July. The Harmonised Index of Consumer Prices (HICP) rose by 0.7% over one month after +0.1% in the previous month; year on year, it increased by 2.4%, after +1.5% in July.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1931 (2085)

$1.1899 (2350)

$1.1875 (839)

Price at time of writing this review: $1.1805

Support levels (open interest**, contracts):

$1.1779 (1276)

$1.1754 (3360)

$1.1721 (2493)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date October, 8 is 65662 contracts (according to data from September, 14) with the maximum number of contracts with strike price $1,2200 (8310);

GBP/USD

$1.3950 (1063)

$1.3919 (374)

$1.3873 (155)

Price at time of writing this review: $1.3814

Support levels (open interest**, contracts):

$1.3766 (1301)

$1.3722 (1770)

$1.3693 (954)

Comments:

- Overall open interest on the CALL options with the expiration date October, 8 is 11910 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 13807 contracts, with the maximum number of contracts with strike price $1,3800 (1770);

- The ratio of PUT/CALL was 1.16 versus 1.16 from the previous trading day according to data from September, 14

* - 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.

CNBC reports that China’s retail sales grew a disappointing 2.5% in August from a year ago as the country dealt with the worst outbreak of Covid-19 since its initial spread in early 2020. Economists had expected a 7.0% increase.

Industrial production growth was also slightly below expectations, up 5.3% in August versus predictions of 5.8% growth. Fixed asset investment for the first eight months of the year rose 8.9% from a year ago, the data showed.

Mainland China controlled a late July outbreak of the highly contagious delta variant by mid-August. Under Beijing’s “zero tolerance” policy, authorities had imposed travel restrictions and local lockdowns within the country during a major part of the summer holidays.

National Bureau of Statistics spokesperson Fu Linghui pointed out at a press conference Wednesday that after declining in the wake of the pandemic, retail sales returned to growth in August 2020.

He added in response to a separate question that “some large-scale real estate companies have encountered some difficulties in the process of production and operations, and the impact to the entire industry needs to be observed.”

According to the report from the Office for National Statistics, the Consumer Prices Index (CPI) rose by 3.2% in the 12 months to August 2021, up from 2.0% in July: the increase of 1.2 percentage points is the largest ever recorded increase in the CPI National Statistic 12-month inflation rate series, which began in January 1997; this is likely to be a temporary change. Economists had expected a 2.9% increase.

On a monthly basis, CPI increased 0.7% in August 2021, compared with a fall of 0.4% in August 2020. Economists had expected a 0.5% increase.

The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 3.0% in the 12 months to August 2021, up from 2.1% in the 12 months to July.

The increase of 0.9 percentage points is the largest increase ever recorded in the CPIH National Statistic 12-month inflation rate series, which began in January 2006; however, this is likely to be a temporary change.

The largest upward contribution to change is a base effect, because, in part, of discounted restaurant and café prices in August 2020 resulting from the government's Eat Out to Help Out scheme and, to a lesser extent, reductions in Value Added Tax (VAT) across the same sector.

The largest upward contribution to the August 2021 CPIH 12-month inflation rate came from transport (0.87 percentage points) with further large upward contributions from restaurants and hotels (0.65 percentage points), housing and household services (0.65 percentage points), and recreation and culture (0.28 percentage points).

CPIH increased by 0.6% on the month in August 2021, compared with a fall of 0.3% in August 2020.

Restaurants and hotels, recreation and culture, and food and non-alcoholic beverages made the largest upward contributions to the change in the CPIH 12-month inflation rate between July and August 2021.