CFD Markets News and Forecasts — 16-11-2020

• Monetary policy has limits, lower bound is constraint
• Fiscal relief is essential
• No conflict between Fed's dual goals of jobs, inflation
• Strong job market brings benefits to minorities
• Fed shouldn't target any groups unemployment rate

According to ActionForex, analysts at RBC Financial Group note that Canada's manufacturing sales rose 1.5%, but remained 3.6% below pre-shock (February) levels.

"Manufacturing sales continued to edge higher in September, though held below pre-shock levels and were down 6.2% from a year ago."

"Early data for October was mixed. Manufacturing hours worked edged down 1.1% but were within 1.5% of year-ago levels. The October Markit manufacturing PMI also eased albeit to a still high 55.5. The rise in September manufacturing sales was led by increases in chemical and wood products."

"The more pressing immediate concern remains accelerating COVID-19 spread and re-imposition of containment measures. Employment in accommodation & food services fell 48k in October as restaurants, gyms, etc. shut down once again in some of the country’s hot spots."

"Overall employment still rose in October. But the spread of virus will remain a limit on the recovery in the economy until a vaccine can be widely distributed."

Statistics Canada released its Monthly Survey of Manufacturing on Monday, which showed that the Canadian manufacturing sales rose 1.5 percent m-o-m in September to CAD53.80 billion, following a revised 1.4 percent m-o-m drop in August (originally a 2.0 percent m-o-m decline).

Economists had forecast a 1.5 percent m-o-m advance for August.

According to the survey, sales increased in 13 of 21 manufacturing industries led by the wood (+9.6 percent m-o-m), chemical (+6.7 percent m-o-m) and food (+1.3 percent m-o-m) industries.

Overall, sales of durable goods industries went up 1.2 percent m-o-m in September, while sales of non-durable goods industries jumped 1.9 percent m-o-m.

• For now, there is no intention to change supranational buying limits
• There are many arguments against average inflation targeting

U.S. stock-index futures traded mixed on Monday, as hopes of a swift economic recovery from a pandemic-led recession heightened after Moderna (MRNA) announced positive news on COVID-19 vaccine development.

Global Stocks:

• Significant differences remain in trade talks with EU
• No change in UK's approach to trade talks with EU

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

Int'l Paper (IP) upgraded to Buy from Neutral at Citigroup

The report from the New York Federal Reserve showed on Monday that manufacturing activity in the New York region expanded slightly in early November.

According to the survey, NY Fed Empire State manufacturing index fell from 10.5 in October to 6.3 in November, pointing to a slower pace of growth than in the previous month. This was the lowest reading since August.

Economists had expected the index to come in at 13.5.

Anything below zero signals contraction.

According to the report, the new orders index decreased nine points to 3.7, indicating a slight advance in orders, and the shipments index fell twelve points to 6.3. Meanwhile, the employment index went up two points to 9.4, its highest level in nearly a year, indicating a modest gain in employment levels. Elsewhere, delivery times were little changed, while unfilled orders and inventories continued to drop. On the price front, the prices paid index was little changed at 29.1, a sign that input prices increased at the same pace as last month, while the prices received index rose six points to 11.3, indicating a pickup in selling price increases.

• European countries need to provide more focused support to the coronavirus-battered economy, prioritizing investment projects already underway
• Debt levels make massive support prohibitive
• We need to be more demanding than before and the support measures have to be more focused... and temporary

• ECB's governing council should further increase monetary accommodation to potentially avoid problems of market fragmentation given a worsening outlook for both economic activity and inflation

USD weakened against most of its major counterparts in the European session on Monday as investors' risk appetite improved following more positive news on COVID-19 vaccine development as well as stronger-than-expected economic data from Japan and China, pointing to a post-COVID recovery in the world's second- and third-largest economies.

Moderna (MRNA) announced on Monday that its coronavirus vaccine candidate reached a 94.5% efficacy rate in late-stage trials. Thus, the efficacy rate of Moderna's vaccine surpassed the 90%-threshold reported by Pfizer (PFE)/BioNTech (BNTX) last week. The announcements of effective COVID-19 vaccines raised hope for a swift economic recovery.

Japan's Cabinet Office reported that the country’s GDP surged by 21.4% y-o-y in the third quarter of 2020. That was the largest advance on record and exceeded economists' expectations for a jump of 18.9 percent y-o-y following the 28.8 percent y-o-y tumble in the second quarter. Meanwhile, China's industrial production (+6.9 percent y-o-y) and retail sales (+4.3 percent y-o-y) rose at a faster-than-forecast pace in October as the Chinese economy shrugged off the negative impact of COVID-19.

Market optimism was also supported by reports that President-elect Joe Biden's advisers opposed a nation-wide lockdown but preferred targeted measures to control the spikes in the U.S. COVID-19 cases.

FXStreet reports that according to Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, there is scope for USD/CHF to attempt a move to the area above 0.92 the figure.

“USD/CHF is consolidating following the recent strong reversal from the current November trough at .8983 and looks capable of challenging initial resistance provided by the recent high at .9207. Key resistance remains the September high at .9296. This guards the seven month downtrend at .9327. For now Elliott wave counts are suggesting dips back to .9100/.9080 should hold for another upside attempt.”

Francesco Pesole, FX Strategist at ING, notes that sterling remains in wait-and-see mode as yet another unofficial deadline for the EU-UK trade deal is breached. Given that time for a deal is running out, both parties are expected to rush into a deal as early as this week, which could have material implications for the pound, he adds.

"Sterling is staying in wait-and-see mode as yet another unofficial deadline (yesterday) for a EU-UK trade deal has been breached."

"Our UK economist keeps noting that the prospects of a deal are looking slightly brighter, but also that (a) the core set of issues remains largely unresolved; (b) time for a deal is running out and while we see officials suggesting more than one week may still be needed, the technical time for ratification in the EU and UK is dangerously shrinking."

"In light of this, we could see both parts rushing into a deal already this week, which could have material implications for the pound, and UK data including (CPI, retail sales, PMIs) will likely play second fiddle this week."

FXStreet reports that Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, noted AUD/USD could move into a consolidative phase before a potential test of the 0.7413 level.

“AUD/USD last week tested and held below the .7345 mid-September high and looks set to consolidate just below here ahead of a move to the early September peak at .7413. This guards the long term Fibonacci retracements at .7574 and .7639.”

“Initial support is offered by the 55 day moving average at .7187 and the 20 day ma at .7167.”

• Germany's economy could stagnate or shrink in Q4 due to coronavirus-related restriction measures
• But economic hit from virus curbs to be less severe than in Q2
• Stabilizing fiscal policy remains important next year
• Government has enough scope to significantly expand public stabilization if needed

• Progress made in drafting legal text of new trade treaty 
• But no mutually acceptable solutions yet on fisheries, governance, level playing field
• Personnel changes at No.10 may be distracting UK, depriving British trade negotiator Frost of clear guidance on how far he can go to seal deal

• PM has been clear that we will not accept any proposals in negotiations that undermine our status as sovereign, independent country
• If EU don't respect the sovereignty of UK, we will leave on Australian terms 

Reuters reports that German Economy Minister Peter Altmaier said that Germany hopes that trade barriers between the United States and Europe will be dismantled once the new administration under President-elect Joe Biden takes office.

"I hope from the bottom of my heart that the new U.S. administration will help us broker a consensus on the trade relationship between the United States and the EU," Altmaier said in Berlin.

Altmaier said that also applied to Europe's trade partners in China and other parts of Asia, adding: "We made clear to them that we cannot accept dumping practices and that we insist on fair and open markets."

On Sunday, 15 Asia-Pacific economies formed the world's largest free trade bloc, a China-backed deal that excludes the United States.

According to the report from Istat, in October 2020 the rate of change of Italian consumer price index for the whole nation (NIC) was +0.2% on monthly basis and -0.3% on annual basis (from -0.6% in September), confirming the flash estimate.

The halving of the decrease of consumer price indices was mainly due to the speed-up of the growth of the the prices of Unprocessed food (from +2.7% to +3.5%) and to the reduction of the drop of those of Regulated energy products (from -13.6% to -7.2%). On the contrary the decrease of the prices of Non-regulated energy products was wider than in September (from -8.2% to -9.4%). 

Core inflation (excluding energy and unprocessed food) was +0.2% (up from +0.1% in the previous month) and inflation excluding energy was +0.5% (up from +0.2%).

The increase on monthly basis was mainly due to the of prices of Regulated energy products (+10.5%) and, to a lesser extent, of prices of Unprocessed food (+0.9%), only partially offset by the decrease of those of Services related to transport (-1.1%).

In October the rate of change of the Italian harmonized index of consumer prices (HICP) was +0.6% with respect to the previous month and -0.6% on annual basis (from -1.0%), confirming the flash estimate.

FXStreet reports that analysts at Danske Bank forecast the EUR/CHF pair at 1.08 in one month and at 1.10 in a one-year horizon. 

“Positive vaccine news recently caused a significant jump in EUR/CHF but the lack of clear reflation support from the Fed and still no new fiscal boost in the US has left EUR/CHF with little overall direction. The SNB is preparing to continue to sweat out the deflationary pressure in the Swiss economy and intervention remains the key policy tool. With the ECB set to hold rates and opt for other easing tools, Swiss policy rates are also set to stay unchanged at the long-standing -0.75% for an extended period of time.”

“We see EUR/CHF range-bound in the absence of a clear reflation or recovery catalyst, still stuck in a 1.07-1.09 range ahead of year-end. Risks remain asymmetric longer term as the SNB holds the downside in check and a global recovery in 2021 may bring some relief to the undervalued pair.”

Reuters reports that Irish Foreign Minister Simon Coveney said that Britain and the European Union have a week to 10 days to find a way to unlock trade talks.

The trade talks resume on Monday in Brussels after there was little movement on the most contentious areas last week when the two sides missed the latest mid-November deadline.

"We really are in the last week to 10 days of this, if there is not a major breakthrough over the next week to 10 days then I think we really are in trouble and the focus will shift to preparing for a no trade deal and all the disruption that that brings," Coveney told Ireland's Newstalk radio station.

"I think the British government understand only too well that's required for a deal this week, the real question is whether the political appetite is there to do it. I think we will (get a deal), that's been my prediction for a while but I won't be shocked if it all falls apart."

FXStreet reports that Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, said that cable could lose further momentum and recede to the 1.3000 region.

“GBP/USD last week rallied to and failed at the 78.6% retracement at 1.3310 and is expected to fail shortly. Nearby support is offered by the 55 day moving average at 1.3000 and also by 1.2922 the 5 month uptrend. We would allow for a slide back to here short term.”

“Directly above here lies key resistance offered by the 1.3422 multi-year downtrend and we look for this to cap the market and provoke failure. This is reinforced by the 1.3515 December 2019 high.”

Reuters reports that board member Takako Masai said that the Bank of Japan must deepen debate on how to address the rising cost of prolonged monetary easing, such as by making its purchases of exchange-traded funds (ETF) more flexible.

With the coronavirus pandemic likely to keep Japan's economic recovery moderate, the central bank must seek ways to make its policy framework sustainable, she said.

The need to enhance the effect of its monetary tools has also heightened because cutting already low interest rates will likely give a limited boost to growth, Masai said.

"The BOJ's ETF buying, along with forward guidance, will remain among tools to enhance the effect of monetary easing," Masai told a news conference.

Bloomberg reports that Morgan Stanley strategists said an expected “V-shaped” economic recovery, greater clarity on Covid-19 vaccines and continued policy support offer a favorable environment for stocks and credit next year.

In an outlook for 2021, a team including Andrew Sheets recommended investors overweight equities and corporate bonds against cash and government debt, and sell the U.S. dollar. Volatility is set to decline, and investors should be “patient” in commodity markets, the strategists said.

“This global recovery is sustainable, synchronous and supported by policy, following much of the ‘normal’ post-recession playbook,” they wrote. “Keep the faith, trust the recovery.”

Morgan Stanley joins JPMorgan Chase & Co. and Goldman Sachs Group Inc. in painting a positive outlook for equities. JPMorgan strategist Marko Kolanovic said U.S. election results create a bull case for markets, while David Kostin at Goldman Sachs expects society to normalize gradually next year.

FXStreet reports that in the view of Gareth Aird, Commonwealth Bank’s (CBA) Head of Australian Economics, the Australian economy is expected to rebound from its worst recession in a hundred years much faster than previously thought.

“When GDP and employment collapsed in Australia over Q2 20 comparisons were made with the Great Depression.”

“Provided transmission of COVID-19 in Australia remains low, particularly community transmission, the strength of the economic recovery in 2021 will surprise many.”

“We believe the metaphorical ‘bridge’ has been built very well and sets Australia up for a prosperous next two years.”

“The upshot is that we will see a savings drawdown in 2021. This will provide a significant tailwind to consumption as pent up demand is unleashed.”

Reuters reports that a survey showed that nearly half of small and medium-sized British manufacturers have no idea how the end of the Brexit transition period at the end of this year will affect their business.

The survey from consultancies South West Manufacturing Advisory Service (SWMAS) and the Manufacturing Growth Programme underlined the uncertainty around Britain's future trade ties with the European Union, at a time when many companies are struggling with COVID-19 restrictions.

Some 47% of manufacturers surveyed said they did not know what the end of the transition would mean for their business, while 32% said it would hinder their recovery. Only 3% predicted a boost.

"It's like a perfect storm for management teams trying to plan, but have no idea what they are planning for and many are also coping with lower levels of resource as a result of the pandemic," said Nick Golding, managing director of SWMAS.

During today's Asian trading, the yen rose moderately against the US dollar and declined against the euro on data on the record growth of the Japanese economy in the 3rd quarter.

Japan's GDP soared by a record 21.4% year-on-year in the 3rd quarter after the largest decline in history of 28.1% in April-June, preliminary official data showed. In quarterly terms, growth in July-September was 5%, which is also a record, after falling by 8.2% in the 2nd quarter. This is the first increase in the index in the last four quarters, as the economy recovers from the shock caused by the COVID-19 pandemic.

The ICE index, which tracks the US dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell 0.18%.

Investors are looking ahead to the EU summit this week, which could be key to agreeing a draft trade agreement with the UK. Meanwhile, British Prime Minister Boris Johnson was forced to go into self-isolation after coming into contact with a coronavirus-infected member of the British Parliament.

Data on China also came into focus. Retail sales in China increased by 4.3% compared to the same month last year, the National Bureau of Statistics of China reported. Meanwhile, analysts on average predicted an increase of 4.9%. The volume of industrial production in China last month increased by 6.9% in annual terms - the highest since December last year. Experts expected growth of 6.5%.

eFXdata reports that Danske Research maintains a limited bullish bias on JPY, expecting USD/JPY to remain in 103-105 range over the coming weeks.

"We keep our expectations for further JPY strength. This strength is not due to a negative view on global risk sentiment but rather that we expect Asian outperformance to help JPY versus USD. Thus, the key risk to our profile becomes a shock that steepens the US yield curve and/or raises oil prices into the high USD50s per barrel for Brent and/or substantial USD strength," Danske notes.

FXStreet reports that Heng Koon How, CAIA, Head of Markets Strategy and Senior FX Strategist Peter Chia at UOB Group expect the dollar’s outlook to remain negative for the time being.

“Our base case remains that the US Dollar will weaken gradually and that many of the prevailing drivers for US Dollar weakness have not changed at all.”

“While the recent news of progress in COVID-19 vaccine is indeed encouraging and very much welcomed, the logistical requirements of distributing the vaccine are challenging and the subsequent rebound in the USD is likely to be temporary short covering.”

“We continue to see Renminbi strength in the months ahead, pushing USD/CNY down to 6.40 by 2Q21. Concurrently, the SGD will continue to strengthen alongside the Renminbi and as a result, we see a lower USD/SGD to 1.32 by 2Q21.”

RTTNews reports that according to the report from the National Bureau of Statistics, industrial production in China was up 6.9 percent on year in October, beating forecasts for a gain of 6.5 percent and roughly unchanged from the September reading.

The bureau also said that fixed asset investment rose 1.8 percent on year - exceeding expectations for 1.6 percent and up from 0.8 percent in the previous month.

Retail sales gained 4.3 percent on year, missing forecasts for 4.9 percent but still up from 3.3 percent a month earlier.

The unemployment rate came in at 5.3 percent, down from 5.4 percent in September.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1942 (3962)

$1.1912 (2020)

$1.1889 (2928)

Price at time of writing this review: $1.1850

Support levels (open interest**, contracts):

$1.1778 (659)

$1.1751 (2457)

$1.1719 (2663)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date December, 4 is 103516 contracts (according to data from November, 13) with the maximum number of contracts with strike price $1,1200 (6546);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3294 (1470)

$1.3273 (646)

$1.3240 (1264)

Price at time of writing this review: $1.3220

Support levels (open interest**, contracts):

$1.3118 (1000)

$1.3035 (1259)

$1.2974 (899)

Comments:

- Overall open interest on the CALL options with the expiration date December, 4 is 23917 contracts, with the maximum number of contracts with strike price $1,3500 (2723);

- Overall open interest on the PUT options with the expiration date December, 4 is 27108 contracts, with the maximum number of contracts with strike price $1,2500 (2670);

- The ratio of PUT/CALL was 1.13 versus 1.11 from the previous trading day according to data from November, 13

* - 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.