CFD Markets News and Forecasts — 18-02-2021

The U.S. Energy Information Administration (EIA) revealed on Friday that crude inventories plunged by 7.258 million barrels in the week ended February 12. Economists had forecast a draw of 2.429 million barrels.

At the same time, gasoline stocks rose by 0.672 million barrels, while analysts had expected an advance of 1.397 million barrels. Distillate stocks declined by 3.422 million barrels, while analysts had forecast a decrease of 1.571 million barrels.

Meanwhile, oil production in the U.S. fell by 200,000 barrels a day to 10.800 million barrels a day.

U.S. crude oil imports averaged 5.9 million barrels per day last week, up by 41,000 barrels per day from the previous week.

According to ActionForex, analysts at TD Bank Financial Group note that the U.S. housing starts fell by 6.0% to 1.58 million units (annualized) in January from an upwardly revised 1.68 million units in December. The January outturn came in below market expectations, which called for a slight moderation to 1.66 million units.

"The decline was concentrated in the single-family market, which fell by 12.2% (or 161k) to 1.16 million units. By contrast, starts in the more volatile multi-family segment rose 17.1% (or 61k) to 418k units, more than making up for a 4% decline in the month prior."

"Building permits increased by 10.4% to 1.88 million in January. Both single-family and multifamily permits improved on the month, with the former up 3.8% to 1.27 million and the latter up 27.2% to 612k."

"Housing starts had a strong run soon after the onset of the pandemic, as low mortgage rates and a shift in consumer preferences toward more spacious dwellings lifted housing demand. As a result, single-family starts rose at rapid pace of about 9% per month in the eight months ending in December 2020. Given this, the fact that starts fell in January is not entirely unexpected. While last month’s increase in building permits suggests that there is likely some more gas in the tank, the rapid run-up in activity recorded over the last few months will be hard to replicate."

"Homebuilding activity is expected to return to a more sustainable pace, potentially starting with the second quarter of the year, but several elements support the notion that it will remain elevated. Homebuilders, for one, despite facing several supply-side hurdles, such as high lumber prices, remain in relatively good spirits. According to the NAHB housing market index, builder confidence is still near the highest level on record, despite having eased a bit in recent months. This positive outlook is underpinned by a very low housing inventory environment and expectations for an improved economic backdrop."

The European Commission (EC) said on Thursday its flash estimate showed the consumer confidence indicator for the Eurozone rose by 0.7 points to -14.8 in February from an unrevised -15.5 in the previous month.

Economists had expected the index to increase to -15.0.

Considering the European Union (EU) as a whole, consumer sentiment improved by 0.8 points to -15.7.

Despite this month’s gains, both indicators stood well below their long-term averages of -11.1 (Eurozone) and -10.6 (EU).

Statistics Canada reported on Thursday the New Housing Price Index (NHPI) rose 0.7 percent m-o-m in January2021, following a 0.3 percent m-o-m advance in the previous month.

Economists had forecast the NHPI to increase 0.5 percent m-o-m in January.

According to the report, new home prices increased in 22 out of the 27 census metropolitan areas (CMAs) surveyed in January, with Hamilton (+3.9 percent m-o-m) and Charlottetown (+3.3 percent m-o-m) recording the largest monthly gains in new home prices, mainly due to higher construction costs.

In y-o-y terms, NHPI surged 5.4 percent in January, following a 4.6 percent climb in the previous month. This was the largest y-o-y increase since March 2008.

U.S. stock-index futures fell on Thursday, following worse-than-expected jobless claims and disappointing quarterly earnings from Walmart (WMT). Investors continued to take some profits in the Big Tech stocks that had pushed the market to record levels. 

Global Stocks:

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The Commerce Department reported on Thursday the housing starts fell by 6.0 percent m-o-m in January 2021 to a seasonally adjusted annual pace of 1.580 million, while building permits surged by 10.4 percent m-o-m to a seasonally adjusted annual rate of 1.881 (the highest level since May 2006).

Economists had forecast housing starts decreasing to a pace of 1.658 million units last month and building permits dropping to a pace of 1.678 million units.

Data for December was revised to show homebuilding growing to a pace of 1.680 million units, instead of increasing at a rate of 1.669 million units as previously reported.

According to the report, permits for single-family homes, the largest segment of the market, rose 3.8 percent m-o-m to a rate of 1.269 million units in January, while approvals for the multi-family homes segment surged 28.0 percent m-o-m to a 557,000 unit-rate. 

The Labor Department reported on Tuesday the import-price index, measuring the cost of goods ranging from Canadian oil to Chinese electronics, rose 1.4 percent m-o-m in January 2021, following a revised 1.0 percent m-o-m gain in December 2020 (originally a 0.9 percent m-o-m advance). This was the largest monthly advance since March 2012. Economists had expected prices to increase 1.0 percent m-o-m last month.

According to the report, the January gain was driven by higher prices for both fuel (+7.4 percent m-o-m) and nonfuel (+0.8 percent m-o-m) imports.

Over the 12-month period ended in January, import prices rose 0.9 percent, as a climb in import nonfuel prices (+2.5 percent) more than offset a tumble in import fuel prices (-13.4 percent). This represented the first over-the-year increase since January 2020 and the largest 12-month advance since October 2018.

Meanwhile, the price index for U.S. exports jumped 2.5 percent m-o-m in January, following a revised 1.3 percent m-o-m gain in the previous month (a 1.1 percent m-o-m growth).

The January rise was driven by higher prices for both agricultural exports (+6.0 percent m-o-m) and nonagricultural exports (+2.2 percent m-o-m).

Over the past 12 months, the price index for exports rose 2.3 percent, reflecting surges in prices of both agricultural exports (+9.4 percent) and nonagricultural exports (+1.5 percent). This marked the largest 12-month advance since October 2018.

The data from the Labor Department revealed on Thursday the number of applications for unemployment unexpectedly rose last week.

According to the report, the initial claims for unemployment benefits increased by 13,000 to 861,000 for the week ended February 13. This was the highest reading since the week ended January 17. 

Economists had expected 765,000 new claims last week.

Claims for the prior week were revised upwardly to 848,000 from the initial estimate of 793,000.

Meanwhile, the four-week moving average of jobless claims fell to 833,250 from an upwardly revised 836,750 in the previous week.

Continuing claims decreased to 4,494,000 from an upwardly revised 4,558,000 in the previous week.

• Financial firms should be bracing for climate risks now
• Tools like scenario analysis being studied for possible use in supervision on climate risks
• System would ultimately need standardized, reliable and mandatory disclosures on how firms are prepared to cope with climate risks
• Physical risk from weather events may be hard to assess but shorter-term shifts in policy, for example, could lead to swift changes in asset prices

Walmart (WMT) reported Q4 FY 2021 earnings of $1.39 per share (versus $1.38 per share in Q4 FY 2020), missing analysts’ consensus estimate of $1.51 per share.

The company’s quarterly revenues amounted to $152.100 bln (+7.3% y/y), beating analysts’ consensus estimate of $147.024 bln.

WMT fell to $140.10 (-4.82%) in pre-market trading.

• The ECB released account of its January 20-21 monetary policy meeting. It noted that:
• Risks surrounding Eurozone’s growth outlook remained tilted to downside but had become less pronounced;
• Ongoing pandemic and its implications for economic and financial conditions continued to be sources of downside risk;
• Members highlighted the dichotomy between risks to short-term outlook and more positive developments in medium term;
• An ambitious and coordinated fiscal stance was seen as remaining critical, in view of sharp contraction in the euro area economy;
• Members agreed that ample monetary stimulus remained essential to preserve favourable financing conditions over the pandemic period;
• It was deemed important for Governing Council to emphasize need for continued and ambitious fiscal policies to support recovery;
• Governing Council continued to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in sustained manner, in line with its commitment to symmetry;
• Members also widely agreed that there was no room for complacency and that Governing Council had to continue to stand ready and use all of its instruments, as appropriate, to ensure a robust convergence of inflation towards its aim
• It was maintained that not every increase in nominal yields should be interpreted as unwarranted tightening of financing conditions and trigger corresponding policy response

GBP strengthened against its major rivals in the European session on Thursday amid expectations that the UK's successful rollout of the COVID-19 vaccination program would speed up the country's economic recovery.

The head of Britain's vaccine taskforce Clive Dix reported on Tuesday that the UK has so far vaccinated 15.6 million people with a first dose and 546,165 with a second dose, the fastest roll-out per capita of any large country so far. He also added that every adult in the country could be vaccinated by August or September.

The UK's prime minister Boris Johnson said yesterday that the government was considering a staged exit from the third national COVID-19 lockdown, which began on January 5. He will outline the path out of lockdown next Monday (February 22). 

Market participants also digested the remarks of the Bank of England's (BoE) policymaker Michael Saunders, who acknowledged that cutting interest rates below zero could well prove the best tool for the central bank under some future circumstances, but the BoE did not need to make a judgment on this yet.

FXStreet notes that record low inventory should continue to drive strong house price gains in Canada in the first half of the year, but economists at Capital Economics expect house price inflation to slow beyond then as bond yields and mortgage rates start to rise.

“While prices should rise strongly in the first half of 2021, the market will soon have to contend with higher interest rates. We still think the Bank of Canada will keep its policy rate at 0.25% until 2023, but we have changed our assessment of inflation breakevens now the global vaccination process is underway and governments, at least those in North America, are still eyeing further stimulus. We now expect Canada’s 10-year bond yield to rise to 1.5% this year and 1.75% in 2022, from the current 1.1%.”

“We expect house price inflation to slow from an average of 10% in the first quarter to 5% by the end of the year, and to little more than 2% by the end of 2022.”

Baidu (BIDU) reported Q4 FY 2020 earnings of RMB20.08 per share (versus RMB26.54 per share in Q4 FY 2019), beating analysts’ consensus estimate of RMB16.73 per share.

The company’s quarterly revenues amounted to RMB30.263 bln (+4.8% y/y), roughly in line with analysts’ consensus estimate of RMB30.116 bln.

BIDU fell to $305.44 (-1.05%) in pre-market trading.

Barrick (GOLD) reported Q4 FY 2020 earnings of $0.35 per share (versus $0.17 per share in Q4 FY 2019), beating analysts’ consensus estimate of $0.31 per share.

The company’s quarterly revenues amounted to $3.279 bln (+13.7% y/y), beating analysts’ consensus estimate of $3.234 bln.

GOLD rose to $21.28 (+2.16%) in pre-market trading.

FXStreet reports that FX Strategists at UOB Group expect USD/CNH to advance further once 6.4500 is cleared.

24-hour view: “The subsequent advance exceeded our expectation as USD popped to 6.4500 before easing off. The pullback from the high could extend lower but any weakness is likely limited to 6.4200. The next support at 6.4000 is not expected to come into the picture. Resistance is at 6.4400 followed by the rather solid level at 6.4500.”

Next 1-3 weeks: “Yesterday (17 Feb, spot at 6.4285), we held the view that rebound in USD ‘could extend higher but any advance is likely limited to a test of 6.4500’. However, we did not anticipate the rapid manner by which USD popped to 6.4500 (overnight high). The swift retreat from the high suggests that 6.4500 is a solid resistance and USD has to break this level before further gains can be expected. Meanwhile, USD could trade between 6.4100 and 6.4500 for a few days.”

• UK economy has significant spare capacity
• Jobless rate in the UK has risen markedly
  
• Unemployment to rise when furlough ends
• 5 million jobs are estimated to be furloughed
  
• Furlough has helped to limit unemployment level
• I see factors that could cause slow, incomplete recovery
  
• Risks include household caution over spending, fears of unemployment
• Even when UK economy regains pre-crisis size, it may still have spare capacity
• Cutting interest rates below zero would be the most effective way to lower yield curve in financial markets, which drives borrowing costs
  
• But BoE do not need to decide yet on negative rates
  

FXStreet notes that rising US yields have taken USD/JPY higher with JPY’s sensitivity to US rates openly in play. Economists at DBS bank assume USD’s rise from January’s 102.59 lows should start to lose momentum once the pair nears the 106.95 level. 

“JPY sensitivity to US yields is obvious. USD is dragged higher as the US Treasury 10-year yield fetched its highest since last August with a 1.331% high.”

“In the near-term, as long as USD/JPY stays above 104.13, there is a fair chance for it to continue advancing past a 38.2% Fibonacci marker at 106.27 to meet the calibrated target of the wedge at 106.95.”

“USD’s advance would look for a pause as the next Bank of Japan (BoJ) policy meeting on 19 March draws closer, for which positions would be adjusted.”

FXStreet reports that economists at Danske Bank still believe sterling will strengthen this year and forecast the EUR/GBP pair at 0.85 on a six-to-twelve month view. 

“Near-term the economic outlook still looks grim amid the third national lockdown. However, the UK is vaccinating at a much faster pace than the rest of Europe, which, combined with the Brexit deal, means the UK is set to outperform the rest of Europe beyond Q1 21.”

“We expect the EUR/GBP to remain in the 0.87-0.88 range for now. We expect the cross to move lower when it gets more clear that the UK will exit the pandemic as one of the first countries, benefitting from its ‘first dose first’ strategy. We forecast EUR/GBP at 0.86 in three months and 0.85 in six-to-twelve months.”

FXStreet reports that strategists at ANZ bank think output is likely to sit below pre-pandemic levels this year, which should make OPEC more comfortable about easing restrictions when it meets in early March.

“Extreme cold weather has shocked the eastern and central states of the US. The consequent spike in demand for power and the freezing over of power infrastructure have caused blackouts across Texas, in particular. After freeze offs, it usually takes a couple days of above freezing temperatures to return to production after which damage to valves, compressors and pipes will need repair. So, even as temperatures rise, operators will be dealing with intermittent power outages that will slow the recovery. US shale oil output could take up to a week to return to normal.”

“Despite the expectation of gains in oil prices as economic growth recovers, government stimulus continues and vaccines slow the pandemic, we don’t expect US oil companies to start chasing volume growth just yet. In fact, we expect US output to remain below pre-pandemic levels and end this year at 12mb/d.”

Reuters reports that the European Central Bank will pay the currency bloc's 19 central banks 1.6 billion euros in dividends this year, down from the 2.4 billion euros it paid a year ago as its profit declined, it said in a statement on Thursday.

The ECB's net profit for 2020 fell to 1.64 billion euros from 2.37 billion a year earlier, mostly on a drop in net interest income to 2.02 billion euro from 2.69 billion euros.

FXStreet reports that economists at Westpac are discussing EUR/USD prospects.

“The level of covid infections remains high within Europe and within the Eurozone. A key factor that will mark the path for recovery will be how quickly current lockdown restrictions can be unwound and rapidly vaccinations are rolled out. The persistence of covid infections across the region and stuttering vaccine rollouts risk impeding recovery.” 

“The strength in ZEW expectations continue to suggest that a notable recovery should develop, but it is clear that current monetary and fiscal support will need to be equally as persistent. EUR/USD is likely to remain within a range centred around 1.20-1.22 until the region is more clearly containing the pandemic.”

Reuters reports that Civil Aviation Administration of China (CAAC) said that China’s air passenger traffic fell 45.16% year-on-year over Lunar New Year, though signs of a quick recovery are emerging due to the country’s success in curbing domestic transmission of the COVID-19 virus.

Passenger numbers stood at 3.57 million over the 7-day holiday period, the CAAC said, adding that average load factor, a measure of seats filled, stood at 57.51%.

However, signs of a pick-up are emerging.

CAAC data showed the number of international cargo flights during the 7-day period surged 212.48% year-on-year.

Data from the brokerage Jefferies also showed domestic seat capacity, which during the week of February 8 plunged to the lowest level since February last year, is slated to increase 65.5% this week, compared with the previous week.

eFXdata reports that Bank of America Global Research discussing USD prospects.

"Major US fiscal policy stimulus is another plus for the USD. In addition to the $900bn that the last administration agreed during the holidays, the Biden administration is now proposing $1.9tn, with even more later in the year for infrastructure. Even if the plan weakens during the negotiations, the starting point is substantial. It would bring total fiscal stimulus in the US to about 15% of GDP, equal to fiscal stimulus last year and three times more than the EU Recovery Fund," BofA notes. 

FXStreet reports that economists at ING Bank believe the current dollar rally is a bear market correction and that it does not need to push too much further ahead.

“The central tenant point from the Fed's minutes is no material change in tone – still dovish. At the same time the Fed has nodded approval for the December stimulus, and on the likely positives coming from vaccine effects on the economy in due course. “

“The Fed has shown no panic on inflation as of yet, acknowledging the likelihood for a ‘spring jump’, but also noting that the economy is far from where it needs to be. There is also no material evidence that the Fed is considering a near-term tapering, with conditions not likely to be met for some time, they suggest.”

“Dollar bulls will struggle to find much from the FOMC minutes to support their cause. Until there are much clearer signs that the Fed is prepared to take its foot off the accelerator, we believe the current dollar rally is a bear market correction and that it does not need to push too much further ahead.”

Reuters reports that European Union trade commissioner said that the EU will become more assertive in trade talks and push for its international partners to include combating climate change in future deals.

Valdis Dombrovskis said the EU would seek an overhaul of the World Trade Organisation's dispute settlement system and ensure it set rules for digital trade. 

"To defend ourselves when other parties do not play by the rules, the EU will take steps to be tougher and more assertive," Dombrovskis was quoted by Politico as saying. "We will strengthen the tools at our disposal to stand up for our rights and values, and protect ourselves from unfair trade practices."

The Commission will also propose on Thursday that the 2015 Paris climate change agreement be an essential part of future trade deals and seek commitments from G20 partners on climate neutrality targets, the Financial Times reported him as saying.

FXStreet reports that analysts at Westpac expect that despite potential for a consumer led rebound, lack of near-term confidence may keep the cable range bound.

“Recent data in the UK has been more robust than forecast and it appears likely that a technical recession will be avoided, despite the likelihood of a sharp contraction in Q1 21.”

“Although there have been pronounced rebounds in certain activity surveys other business and confidence surveys have struggled to rebound. This disparity suggests that extended lockdowns, as in Europe, are constraining confidence.”

“How confidence fares on the announcement of the unwinding of the lockdown and the continued effective rollout of vaccinations will be critical in determining whether there may be a pre-Budget push for GBP to break above its current 1.3750-1.4000 range.”

During today's Asian trading, the US dollar declined slightly against the euro, stabilized against the yen, and fell against the pound.

Traders are evaluating the minutes of the Federal Reserve System (Fed) meeting published yesterday. The minutes showed that the forecasts of the Federal Reserve leaders regarding the long-term prospects of the US economy have become more optimistic. However, they did not consider it possible that in the foreseeable future the conditions would be formed for the Central Bank to reduce the volume of its large-scale asset purchase program.

The pound rose slightly despite statements by the Deputy Governor of the Bank of England, Dave Ramsden, that the Central Bank has the opportunity to expand the asset purchase program to stimulate economic growth. This is probably a signal that the Bank of England would not want to move to a policy of negative interest rates. According to Ramsden, the Bank of England may reconsider a number of restrictions in the quantitative easing (QE) program, which is a "tried and tested tool".

The ICE Dollar index, which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell by 0.08%

Bloomberg reports that Fed staff members gave a potentially more worrisome assessment of the risks to financial stability in the central bank’s policy meeting last month than the one presented publicly by Chair Jerome Powell.

Powell called financial stability vulnerabilities overall “moderate.” Central bank staff gave a less sanguine assessment in their presentation at the January meeting, telling policy makers that vulnerabilities on balance were “notable,” according to the minutes of the gathering released on Wednesday.

The Fed’s appraisal of financial stability risks is important because it can play a role in determining the central bank’s stance on monetary policy and its approach to financial regulation. If policy makers consider the weaknesses of the financial system to be elevated, they can tighten rules governing banks or even raise borrowing costs to try to rein in any excesses they see.

Fed officials showed no sign at last month’s meeting of wanting to pull back anytime soon on their support for the pandemic-stricken economy and financial markets. They expected it would be “some time” before conditions were met to scale back their massive bond buying, according to the meeting’s minutes.

RTTNews reports that Australian Bureau of Statistics said that the unemployment rate in Australia came in at a seasonally adjusted 6.4 percent in January. That was beneath expectations for 6.5 percent and down from 6.6 percent in December.

The Australian economy added 29,100 jobs last month to 12,939,900 - shy of forecasts for 40,000 new jobs after gaining 50,000 jobs in the previous month.

Full-time jobs added 59,000 after gaining 35,700 a month earlier. Part-time jobs lost 29,800 after adding 14,300 in the previous month.

The participation rate came in at 66.1 percent, missing expectations for 66.2 percent - which would have been unchanged from the December reading. The rate increased by 0.1 pts for men (to 71.2 percent) and decreased by 0.2 pts for women (to 61.2 percent).

Unemployed people decreased by 34,300 to 877,600 (and increased by 156,000 over the year to January 2021). The youth unemployment rate remained at 13.9 percent (and increased by 1.8 pts over the year to January 2021). Over the year to January 2021, employment decreased by 0.4 percent or 45,600 people.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2137 (3991)

$1.2107 (1494)

$1.2085 (689)

Price at time of writing this review: $1.2045

Support levels (open interest**, contracts):

$1.2006 (2309)

$1.1986 (2581)

$1.1958 (4324)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 5 is 88565 contracts (according to data from February, 17) with the maximum number of contracts with strike price $1,1950 (5362);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3918 (1843)

$1.3891 (538)

$1.3876 (474)

Price at time of writing this review: $1.3843

Support levels (open interest**, contracts):

$1.3773 (244)

$1.3744 (241)

$1.3710 (200)

Comments:

- Overall open interest on the CALL options with the expiration date March, 5 is 14850 contracts, with the maximum number of contracts with strike price $1,4200 (2830);

- Overall open interest on the PUT options with the expiration date March, 5 is 14398 contracts, with the maximum number of contracts with strike price $1,3100 (1225);

- The ratio of PUT/CALL was 0.97 versus 0.95 from the previous trading day according to data from February, 17

* - 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.