CFD Markets News and Forecasts — 17-11-2020

• Says that Senate still wants to pass more COVID-19 aid
• Hopes Congress can reach top line bipartisan agreement on government funding measure by the end of this week

The Commerce Department announced on Tuesday that business inventories rose 0.7 percent m-o-m in September, following an unrevised 0.3 percent m-o-m advance in August.

That was slightly above economists’ forecast for a 0.6 percent m-o-m increase.

According to the report, stocks at retailers surged 1.7 percent m-o-m in September, while inventories at wholesalers rose 0.4 percent m-o-m and those at manufacturers were flat m-o-m.

In y-o-y terms, business inventories declined 4.7 percent in September.

The National Association of Homebuilders (NAHB) announced on Tuesday its housing market index (HMI) rose 5 points to 90 in November from an unrevised October reading of 85. This was the highest reading in the 35-year history of the series.

Economists had forecast the HMI to remain at 85.

A reading over 50 indicates more builders view conditions as good than poor.

All three HMI components recorded gains this month, hitting their highest levels ever. The indicator gauging current sales conditions jumped 6 points to 96 in November, while the component measuring traffic of prospective buyers increased 3 points to 77 and the measure charting sales expectations rose 1 point to 89.

NAHB Chairman Chuck Fowke noted: “Historically low mortgage rates, favorable demographics and an ongoing suburban shift for home buyer preferences have spurred demand and increased new home sales by nearly 17% in 2020 on a year-to-date basis. Though builders continue to sign sales contracts at a solid pace, lot and material availability is holding back some building activity. Looking ahead to next year, regulatory policy risk will be a key concern given these supply-side constraints.”

Meanwhile, NAHB Chief Economist Robert Dietz said: “Another record high for the HMI reflects that housing is a bright spot for the economy. However, affordability remains an ongoing concern, as construction costs continue to rise and interest rates are expected to move higher as more positive news emerges on the coronavirus vaccine front. In the short run, the shift of housing demand to lower density markets such as suburbs and exurbs with ongoing low resale inventory levels is supporting demand for home building.”

Statistics Canada reported on Tuesday the wholesale sales rose 0.9 percent m-o-m to CAD66.23 million in September, following an unrevised 0.3 percent m-o-m advance in August.

Economists had forecast a 0.4 percent m-o-m gain for September.

According to the report, sales increased in four of seven subsectors, led by higher sales in food, beverage and tobacco (+3.6 percent m-o-m) and the personal and household goods (+3.4 percent m-o-m) subsectors.

Excluding motor vehicle and motor vehicle parts and accessories subsector, wholesale sales also rose 0.9 percent m-o-m.

In y-o-y terms, wholesale sales increased 3.0 percent in September.

The Federal Reserve reported on Tuesday the U.S. industrial production rose 1.1 percent m-o-m in October, following a revised 0.4 percent m-o-m drop in September (originally a 0.6 percent m-o-m decline).

Economists had forecast industrial production would increase by 1.0 percent m-o-m in October.

According to the report, manufacturing output increased 1.0 percent m-o-m in October and the output of utilities rose 3.9 percent m-o-m. Meanwhile, mining production fell 0.6 percent m-o-m.

Capacity utilization for the industrial sector increased 0.8 percentage point m-o-m to 72.8 percent in October. That was 0.5 percentage points above economists’ forecast but 7.0 percentage points below its long-run (1972-2019) average.

In y-o-y terms, the industrial output dropped 5.3 percent in October, following a revised 6.7 percent plunge in the prior month (originally a 7.3 percent decrease).

U.S. stock-index futures traded mixed on Tuesday, as weaker-than-expected U.S. retail sales data overshadowed upbeat quarterly earnings reports from Walmart (WMT) and Home Depot (HD).

Global Stocks:

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

The Labor Department reported on Tuesday the import-price index, measuring the cost of goods ranging from Canadian oil to Chinese electronics, edged down 0.1 percent m-o-m in October, following a revised 0.2 percent m-o-m gain in September (originally a 0.3 percent m-o-m rise). This marked the first monthly decline for the index since April. Economists had expected prices to advance 0.2 percent m-o-m last month.

According to the report, the October decline was driven by a drop import fuel prices (-1.9 percent m-o-m), which, however, was partially offset by a marginal increase in prices for nonfuel imports (+0.1 percent m-o-m).

Over the 12-month period ended in October, import prices fell 1.0 percent, due to a plunge in import fuel prices (-27.4 percent), while more than offset an advance in import nonfuel prices (+1.7 percent).

Meanwhile, the price index for U.S. exports increased 0.2 percent m-o-m in October, following an unrevised 0.6 percent m-o-m climb in the previous month. The October advance was driven by higher agricultural export prices (+3.4 percent m-o-m), while prices for nonagricultural exports were flat (0.0 percent m-o-m).

Over the past 12 months, the price index for exports dropped 1.6 percent, reflecting a decline in prices of nonagricultural (-2.0 percent) exports, which more than offset higher agricultural export prices (+3.1 percent).

The Commerce Department reported on Tuesday the sales at U.S. retailers rose 0.3 percent m-o-m in October, following a revised 1.6 percent m-o-m climb in September (originally a 1.9 percent m-o-m jump).

Economists had expected total sales would advance 0.5 percent m-o-m in October.

Excluding auto, retail sales increased 0.2 percent m-o-m in October after a revised 1.2 percent m-o-m surge in the previous month (originally a 1.5 percent m-o-m increase), being worse than economists’ forecast of a 0.6 percent m-o-m rise.

Meanwhile, closely watched core retail sales, which exclude automobiles, gasoline, building materials and food services, and are used in GDP calculations, edged up 0.1 percent m-o-m in October after a downwardly revised 0.9 percent m-o-m advance in September (originally a 1.4 percent m-o-m gain). 

In y-o-y terms, the U.S. retail sales surged 5.7 percent in October after a revised 5.9 climb in the previous month (originally a 5.4 percent jump).

The Canada Mortgage and Housing Corp. (CMHC) reported on Tuesday the seasonally adjusted annual rate of housing starts was at 214,875 units in October, up 3.0 percent from a downwardly revised 208,715 units in September (originally 208,980 units).

Economists had forecast an annual pace of 222,000 for October.

According to the report, urban starts rose by 3.5 percent m-o-m last month to 202,584 units, as single-detached urban starts surged by 14.3 percent m-o-m 57,788 units, while multiple urban starts fell by a marginal 0.2 percent m-o-m to 144,796 units. At the same time, rural starts were estimated at a seasonally adjusted annual rate of 12,291 units.

GBP rose against its major rivals in the European session on Tuesday as market participants digested the latest news on the progress of the UK-EU trade talks.

Bloomberg reported on Tuesday, citing people familiar with trade negotiations, that the UK and EU could strike a deal early next week as the two sides edge closer to an agreement on the biggest sticking points. The report said that as talks continue in Brussels, officials are planning for the possibility of a breakthrough to be announced as soon as Monday, although no precise day has been settled on, people familiar with the discussions said. However, the article added that there was still the potential for negotiations to collapse. Meanwhile, the Sun reported that the UK’s chief Brexit negotiator David Frost told Prime Minister Boris Johnson there was a “possible landing zone” that could be reached as early as next Tuesday.

However, the European Commission spokesman Eric Mamer declined to comment on reports suggesting that the deal could be done next week. "What is clear is that we continue to negotiate intensively with our UK partners and we aim, obviously, to find a deal when the conditions will be there," he said, adding "We are not going to give a blow-by-blow account of what negotiators are working towards".

• What is clear is that we continue to negotiate intensively with our UK partners and we aim, obviously, to find a deal when the conditions will be there
• We are not going to give a blow-by-blow account of what negotiators are working towards

Walmart (WMT) reported Q3 FY 2020 earnings of $1.34 per share (versus $1.16 per share in Q3 FY 2019), beating analysts’ consensus estimate of $1.19 per share.

The company’s quarterly revenues amounted to $134.700 bln (+5.2% y/y), beating analysts’ consensus estimate of $131.462 bln.

WMTrose to $155.01 (+1.69%) in pre-market trading.

Home Depot (HD) reported Q3 FY 2020 earnings of $3.18 per share (versus $2.53 per share in Q3 FY 2019), beating analysts’ consensus estimate of $3.02 per share.

The company’s quarterly revenues amounted to $33.536 bln (+23.2% y/y), beating analysts’ consensus estimate of $28.664 bln.

HD fell to $274.47 (-1.82%) in pre-market trading.

"As talks continue in Brussels, officials are planning for the possibility of a breakthrough to be announced as soon as Monday, although no precise day has been settled on, people familiar with the discussions said," Bloomberg reported on Tuesday.

"They also warned that there was still the potential for the negotiations to collapse, with the two sides still some way apart on the familiar stumbling blocks that have plagued the talks since they started in March. Getting a deal will still need the U.K. to make big political decisions over whether it is prepared to compromise, particularly on the thorny topic of access to British fishing waters, an EU official said."

Baidu (BIDU) reported Q3 FY 2020 earnings of RMB20.35 per share (versus RMB1.76 per share in Q3 FY 2019), beating analysts’ consensus estimate of RMB13.08 per share.

The company’s quarterly revenues amounted to RMB28.232 bln (+0.5% y/y), beating analysts’ consensus estimate of RMB27.498 bln.

The company also issued in-line guidance for Q4 FY 2020, projecting revenues of RMB28.6-31.3 bln versus analysts’ consensus estimate of RMB28.82 bln.

BIDU fell to $144.80 (-2.06%) in pre-market trading.

• We are going towards a "new normal" in global economy
• We need to contrast the risk of over-indebtedness
• Removing stimulus too early risks jeopardising the recovery

• As well as maintaining interest rates which are consistent with achieving inflation target, in my view Quantitative Easing at a time like this can prevent unwarranted tightening in financial conditions
• BoE's actions are not monetary financing or fiscal dominance
• We have had encouraging news on the vaccine front; of course, there is a lot to do, and important steps to take and evidence to gather, but this is big step forward, and it will play major role in lowering the level of uncertainty
• If we can now see some light at the end of the tunnel, we need to focus more on important questions about how our economies will look in the future, how we want them to look, what will be the legacy of Covid, and what we can do to support and prioritise any necessary more structural changes
• If these changes [Covid-caused changes to structure of economy] persist, they could require a reallocation of labour and capital, and this reallocation could be more or less costly; my best guess is that there will be lasting changes
• Prevailing level of uncertainty means there is no cause to be complacent here – and you should expect a central bank to remain cautious
• More financing will be needed to ensure viable businesses survive, and to finance need for investment; we need to ensure that this is done without excessive leverage

Reuters reports that German foreign minister said that Germany in its role as the current holder of the European Union presidency is partly responsible for finding a solution to a row over the EU budget, and it should be possible to come up with one.

Hungary and Poland blocked the adoption of the 2021-2027budget and recovery fund at a meeting of ambassadors of EUnations on Monday, over a clause making access to money conditional on respect for the rule of law.

Reuters reports that a senior Financial Conduct Authority (FCA) official told lawmakers that diverging from the EU's securities rules would be the "exception" rather than the rule.

"Areas where we would diverge are the exception rather than the rule," Edwin Schooling Latter, FCA executive director for wholesale markets, told a parliamentary committee.

Britain left the EU in January and full access to the bloc's single market for UK financial firms ends on Dec. 31.

Bloomberg reports that according to a strategist at Daiwa Securities Co., Japan’s Nikkei 225 Stock Average may surpass 30,000 yen by the end of next year as corporate earnings improve amid an easy monetary policy and overseas demand for equities. 

Companies will post profits in fiscal 2021 as people and companies adapt to life with coronavirus, vaccines are developed and economic activity gradually normalizes, Kenji Abe, a strategist at Daiwa, wrote in a note.

The forecast is among the most bullish among the institutions beginning to price in a rally in Japanese equities. Goldman Sachs Japan Co. and Nomura Securities Co. earlier boosted their outlook for the blue-chip gauge, with Goldman setting a 12-month target of 27,200 and Nomura seeing the average at 28,000 by the end of 2021.

eFXdata reports that Danske Research flags a scope for EUR/USD to move towards 1.20 in the near-term.

"Upside risks to take us above 1.20 include the EU proving to be an engine of world growth and/or the Fed credibly committing to inflation overshooting (which it has not as of today). The combination of positive progress across US fiscal policy, Brexit, the coronavirus situation and global growth may culminate by year end. If so, we could see a new test of 1.20," Danske notes.

Reuters reports that BofA's monthly investor survey showed that investors are in "full bull" mode, deploying more money into emerging markets, small-cap stocks and the banking sector on hopes a COVID-19 vaccine will turn around these hard-hit market segments.

The euphoria sent investors' cash levels down to 4.1% in November, from 4.4% last month, to pre-COVID-19 levels last seen in January, according to the survey of 190 fund managers with $526 billion in assets under management.

With global economic growth and profit expectations running at a 20-year high among the investors surveyed, the "reopening rotation" into oversold business sectors is likely to continue in the fourth quarter, BofA said.

For 2021, investors named being "long" emerging market assets, S&P 500 and oil as their favourite trades.

CNBC reports that according to a senior European banking official, the fallout from the coronavirus pandemic on Europe’s financial institutions will become more apparent in the coming months.

Elke König, chair of the Single Resolution Board of the Single Resolution Mechanism, said she expected a rise in the number of non-performing loans (NPLs) in the region, which in turn would hit bank balance sheets.

When these loans could peak, however, was the ”$60,000 dollar question,” König said.

“I would have thought in the beginning (of the pandemic) in spring that we might see the first real impact on balance sheets in the third or fourth quarter of this year,” she told CNBC.

However, König highlighted that some government support implemented at the start of the coronavirus crisis was starting to expire, and as such, further damage to Europe’s banking sector could become apparent later in 2021.

FXStreet reports that according to FX Strategists at UOB Group, USD/CNH is likely to drop further and visit the 6.5200 level in the next weeks.

Next 1-3 weeks: “We have held a negative view in USD since earlier this month. After USD rebounded strongly from 6.5475, we indicated last Wednesday that ‘odds for further USD have diminished’. We added, ‘however, only a break of 6.6600 would indicate the current downward pressure has eased’. After trading in a quiet manner for several days, USD lurched lower and closed on a weak note yesterday (16 Nov). The rapid improvement in shorter-term momentum suggests that a break of 6.5475 would not be surprising. The next support is at 6.5200 followed by a major level at 6.4960. On the upside, the ‘strong resistance’ level has moved lower to 6.6250 from 6.6600.”

Reuters reports that a senior economist at a top government think tank said that China should set an average annual economic growth target of around 5% for the 2021-2025 period.

China's potential growth rate should be 5-6% during the 14th five-year plan (2021-2025) period, but the authorities should consider rising economic volatility from the COVID-19 pandemic, Li Xuesong, deputy director of the Institute of Industrial Economics at the Chinese Academy of Social Sciences (CASS), told.

"We suggest that China should set an average annual growth target of around 5%, which is appropriate," Li said.

China's economy could grow 2-3% this year and growth could rebound in 2021 to a "relatively high level" but slow again the following year, Li said.

CNBC reports that an economist from HSBC said that given its absence in the world’s largest trade agreement, the U.S. might want to “keep some of the doors open” with the participating Asia-Pacific countries by negotiating bilateral deals with them.

China and 14 Asia-Pacific countries signed the Regional Comprehensive Economic Partnership, or RCEP, on Sunday. Some analysts said the deal is a geopolitical win for China in the region.

“What the U.S. might do ... is strike more bilateral deals, bilateral agreements with individual RCEP members — not all of them but with some of them, just to keep some of the doors open,” Frederic Neumann, HSBC’s managing director, told CNBC.

Participating countries in RCEP include the 10-member Association of Southeast Asian Nations and their top trading partners China, Japan, South Korea, Australia and New Zealand. Among them, the U.S. only has bilateral trade deals with South Korea, Australia and Singapore, according to the Department of State.

During today's Asian trading, the US dollar was almost unchanged against the euro, yen and pound.

Traders are evaluating information about the results of tests of the next COVID-19 vaccine: american Moderna Inc. reported yesterday that the vaccine it developed showed more than 94.5 percent effectiveness in the third phase of trials.

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 0.06%.

Citigroup experts expect that the dollar index could fall by 20% in 2021 if COVID-19 vaccines become widely available, and this will help to revive global trade and economic growth.

Meanwhile, Goldman Sachs analysts believe that the dollar, which has fallen significantly since its March peak, is still overvalued by about 10%.

"The dollar will continue to weaken in 2021. The rapid recovery of the global economy will put pressure on the US currency, which is a safe haven asset, even if the economic dynamics in the US are good, "Goldman Sachs said in a review.

"Rapid economic growth will support the currencies of commodity exporters, emerging markets, as well as countries whose economies are heavily dependent on global trade, and will contribute to the weakening of the dollar," Goldman said.

Bloomberg reports that the pound will probably weaken by 5% if the U.K. and European Union fail to reach a trade agreement.

The currency may fall to $1.25 by the middle of next year, according to a Bloomberg survey of nine strategists, as the disruption exacerbates economic damage from the pandemic.

“The prospect of a no-deal exit still involves a substantial decline in sterling’s value, as the fragile U.K. economy experiences another downside shock that can’t be met with wide-sweeping fiscal stimulus measures, and is likely to involve negative rates from the Bank of England,” said Simon Harvey, a foreign-exchange analyst at Monex Europe.

That said, the results were less pessimistic than data gathered from a similar survey in June, which showed respondents expected the pound to slump to $1.18 if there’s no deal. A survey in August 2019 suggested the currency would fall to $1.10, the weakest in more than three decades.

Reuters reports that british Prime Minister Boris Johnson cast Scottish devolution as a "disaster" and ruled out any further powers for Edinburgh.

The past 14 opinion surveys have shown that a majority of Scots now support independence after a series of missteps by Johnson's government over its response to the novel coronavirus pandemic.

Johnson said that devolution had been a disaster and former Prime Minister Tony Blair's "biggest mistake", The Sun newspaper reported.

Johnson added that he did not currently "see a case" for giving the devolved government in Edinburgh any more powers from London, The Sun said.

Scots rejected independence by 55 to 45 percent in a 2014 referendum but a five-year political crisis in London over Brexit and the COVID-19 outbreak have strained the bonds that tie the United Kingdom together.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1939 (3963)

$1.1911 (2017)

$1.1889 (2741)

Price at time of writing this review: $1.1857

Support levels (open interest**, contracts):

$1.1789 (659)

$1.1761 (2344)

$1.1727 (2733)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date December, 4 is 103010 contracts (according to data from November, 16) with the maximum number of contracts with strike price $1,1200 (6546);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3374 (2043)

$1.3317 (2188)

$1.3273 (642)

Price at time of writing this review: $1.3222

Support levels (open interest**, contracts):

$1.3134 (1000)

$1.3098 (688)

$1.3049 (1259)

Comments:

- Overall open interest on the CALL options with the expiration date December, 4 is 24080 contracts, with the maximum number of contracts with strike price $1,3500 (2732);

- Overall open interest on the PUT options with the expiration date December, 4 is 27286 contracts, with the maximum number of contracts with strike price $1,2500 (2670);

- The ratio of PUT/CALL was 1.13 versus 1.13 from the previous trading day according to data from November, 16

* - 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 the upside momentum in NZD/USD could extend to the 0.6970 zone in the next weeks.

Next 1-3 weeks: “We have held a positive view in NZD for more than a week now. In our latest update from last Friday, we highlighted that ‘upward momentum has been dented and a break of 0.6800 would indicate the rally in NZD has run its course’. NZD subsequently dipped to a low of 0.6811 before staging a strong advance. The up-move has gained considerable momentum and from here, NZD is likely to advance further to 0.6940, possibly as high as 0.6970. On the downside, a break of 0.6830 (‘strong support’ level previously at 0.6800) would indicate the current NZD strength has run its course.”