CFD Markets News and Forecasts — 20-07-2021

The Nonmanufacturing Business Outlook Survey, released by the Federal Reserve Bank of Philadelphia on Tuesday, showed the region's business activity in the non-manufacturing sector continued to grow in early July, albeit at a slower pace than in June.

According to the survey, the regional activity index came in at 44.8, down from 56.7 in June.

A reading above 0 signals expansion, while a reading below 0 indicates contraction.

According to the report, the new orders index rose 4.4 points to a reading of 31.8 in July, remaining positive for the seventh straight month, while the sales/revenues index edged down 1.4 points to 39.6. At the same, the full-time employment index more than recovered its drop from June, jumping 20.5 points to 24.8 in July. Similarly, the part-time employment index rose 8.3 points to 9.6, and the average workweek index went up 4.7 points to 25.4. On the price front, the prices paid index increased 5.8 points to 54.8, while the prices received index edged up 0.6 point to 29.5.

FXStreet reports that in response to the Reserve Bank of Australia (RBA) July meeting’s minutes released earlier this Tuesday, analysts at Goldman Sachs pushed back their tapering expectations.

“July's Minutes provided further context around the Board's decision to signal a tapering in the pace of QE purchases and fix the endpoint to the YCC program.”

“While the YCC decision was widely expected going into the meeting, the Minutes showed there was some debate around the decision to taper QE taper purchases given the RBA remained "well short" of its inflation and employment objectives.”

“Looking forward, despite signaling a taper in QE purchases beyond September at July's meeting, we note recent press reports suggest Governor Lowe may reverse this decision if lockdowns in Sydney and Melbourne are prolonged.“

“We now expect the RBA to reverse its taper decision at its August meeting. Instead, we expect the RBA to continue QE bond purchases at a pace of A$5bn/week once the current tranche ends in September, before ultimately starting to taper in November 2021."

eFXdata reports that economists at MUFG Research discuss the current market conditions amid the ongoing risk-off theme.

"The price action continues to send an ominous warning signal over the global growth outlook and indicates that market participants are becoming fearful over a more notable slowdown ahead. The price action in the foreign exchange market has been reinforced as well by position adjustment. Short US dollar positions have been cut back sharply over the past month to their lowest level in a year amongst Asset Manager/Institutional Leveraged Funds. Similarly, short yen positions had become extreme and are now being squeezed. At the opposite end of the spectrum, long Canadian dollar positions had also become extreme which continue to be challenged by recent price action."

"We favour remaining defensively positioned heading into the summer period which can be a challenging month for risk assets amidst lower market liquidity."

ActionForex reports that economists at TD Bank Financial Group discuss the U.S. residential construction statistics for June.

"Housing starts increased by 97k units in June to 1,643k (annualized), beating expectations for a modest expansion to 1,590k. Revisions to the prior months’ data subtracted 26k units from the overall tally."

"Single family construction led the way (+69k, +6.3% m/m), while the multifamily segment rose 28k (+6.2% m/m)."

"Building permits declined by 85k units to 1,598k (annualized). Permitting in the single family segment decreased by 71k, and was complemented by a pullback in multifamily permit applications (-14k)."

"New housing construction remains healthy with starts and permits in line with post-pandemic highs. Headline starts are above the six-month (1,583k) and 12-month (1,546k) moving averages. The multifamily segment also showed resiliency as the lifting of pandemic-era restrictions in urban centers increased the appeal of urban living."

"Single-family sales have slowed through the early months of 2021, reflecting some softening in demand. Meanwhile, the supply of housing has been slowly recovering with months’ supply of new single-family homes rising since October 2020, and supply of existing homes ticking higher since the turn of the year. There is still some room for improvement on the supply side and the market can certainly absorb additional construction projects in the pipeline without risk of becoming overbuilt."

"With permitting activity slowing, we anticipate some normalization in housing construction in the second half of 2021."

U.S. stock-index futures rose on Tuesday, pointing to a bounce at today's open after a sharp broad-based selloff in the previous session that was triggered by heightened concerns that growing COVID-19 Delta-variant infection rates cloud slow global economic growth.

Global Stocks:

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

Apple (AAPL) target raised to $166 from $155 at UBS

IBM (IBM) upgraded to Hold from Sell at Societe Generale; target raised to $140

The Commerce Department reported on Tuesday the housing starts surged by 6.3 percent m-o-m in June to a seasonally adjusted annual pace of 1.643 million (the highest level since March), while building permits tumbled by 5.1 percent m-o-m to a seasonally adjusted annual rate of 1.598 (the lowest level since October 2020).

Economists had forecast housing starts increasing to a pace of 1.590 million units last month and building permits growing to a pace of 1.700 million units.

Data for May was revised to show homebuilding growing to a pace of 1.546 million units, instead of increasing at a rate of 1.572 million units as previously reported.

According to the report, permits for single-family homes, the largest segment of the market, plunged 6.3 percent m-o-m in June, while approvals for the multi-family homes segment fell 2.6 percent m-o-m.

In the meantime, groundbreaking on single-family homes climbed 6.3 percent m-o-m in June, while housing starts for the multi-family jumped 6.8 percent m-o-m.

FXStreet reports that the New Zealand dollar has jumped against the Australian dollar after a more hawkish-than-expected Reserve Bank of New Zealand (RBNZ) meeting. The RBNZ will end QE this month, while the Reserve Bank of Australia (RBA) will start to taper QE from September. In the view of economists at HSBC, support for the AUD and NZD could also come from risk sentiment and commodities.

“Our economists expect the first rate hike in New Zealand to come in 3Q21, and we believe there is still room for the NZD to capitalise over the near-term.”

“In our economists’ view, the RBA’s QE adjustment is a hat-tip to the better recent economic data but the key is the still dovish 2024 cash rate guidance.”

“Other likely key drivers for both AUD and NZD look favourable in the months ahead.”

“Further support could also come through the upswing in commodity prices this year. As such, we remain bullish on the AUD and NZD in the months ahead.”

Travelers (TRV) reported Q2 FY 2021 earnings of $3.45 per share (versus -$0.20 per share in Q2 FY 2020), beating analysts’ consensus estimate of $2.38 per share.

The company’s quarterly revenues amounted to $7.616 bln (+9.5% y/y), beating analysts’ consensus estimate of $7.535 bln.

TRV rose to $157.00 (+3.79%) in pre-market trading.

USD appreciates against other major currencies in the European session on Tuesday as concerns about growing COVID-19 Delta-variant infection rates raised questions about global growth prospects.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, rose 0.14% to 93.02, being marginally below its 3-1/2-month high of 93.03 that was pegged in overnight trading.

The world’s major economies have continued to record persistently high Delta-variant infection rates. Investors remain worried that increasing infections will trigger the reintroduction of new restrictions that can hurt the global economic recovery.

FXStreet reports that S&P 500 has fallen sharply on increased volume for a test of its 63-day average, currently at 4227. Economists at Credit Suisse see scope for the overnight rebound from here to extend further but they look for 4323/27 to ideally cap for a retest and break below 4227 in due course.

“The S&P 500 has gapped lower on sharply increased volume. Near-term the violence of the decline has already seen the market fall to just shy of our first corrective target of the 63-day average, now at 4227 and our bias remains for this to hold for now and for the overnight rebound to extend.” 

“Resistance moves to 4267 initially, above which should see a move back to 4296, potentially the upper end of the price gap from yesterday and 13-day exponential average at 4323/27.” 

“Our bias is for 4323/27 to ideally cap the rebound for a retest of the 63-day average and yesterday’s low at 4233/27.”

FXStreet notes that Brent crude oil traded 2.4% lower after OPEC+ ministers agreed over the weekend to lift supply by 400,000 barrels a day each month from August 2021 through April 2022. WTI and Brent are now down around 7% each from their respective mid-July peaks, with Delta variant concerns weighing on overall risk sentiment. Despite the weekend agreement to raise supply, strategists at UBS remain positive on oil. 

“The relatively muted reaction in oil markets to the supply agreement suggests the addition of two million bpd to global oil supply by the end of the year was in line with market expectations. And with the deal settled, investors now have greater clarity regarding oil supply over the near-to-medium term. The attention of investors should now pivot back toward the economic reopening.”

“Preliminary data suggests a rise in oil demand, particularly in the US and Europe. A wave of pent-up demand for holiday travel, recreation, and business activities should further boost oil demand over the coming weeks. Global oil demand is now likely above 97mbpd, in our view, up from a low of 78mbpd in April 2020. We still anticipate global demand will exceed 99mbpd this year.”

“The OPEC+ group holds its next meeting on 1 September. If the Delta variant’s spread leads to new mobility restrictions, lowering oil demand, OPEC+ could pause or even reverse its decision to increase oil supply. Also, some countries may not be able to raise production every month given the decline in their production capacity.”

“A renewed rally in oil would also benefit commodity currencies (including the Canadian dollar, Russian ruble, and Norwegian krone) and energy equities. The energy sector is trading at attractive valuations and is also expected to step up buybacks and increase dividend payments.”

IBM (IBM) reported Q2 FY 2021 earnings of $2.33 per share (versus $2.18 per share in Q2 FY 2020), beating analysts’ consensus estimate of $2.29 per share.

The company’s quarterly revenues amounted to $18.745 bln (+3.4% y/y), beating analysts’ consensus estimate of $18.299 bln.

IBM rose to $143.14 (+3.78%) in pre-market trading.

EUR/USD: Sellers stand ready to pounce again targeting levels close to 1.17 - Societe Generale

FXStreet reports that economists at Societe Generale note that EUR/USD is trading above the 15-week low of 1.1764 but bias stays negative as dip buyers miss conviction to keep the pair over 1.18.

“EUR/USD is probing the multi month ascending trend line (1.1770) however signals of a rebound are still not visible.”

“Recent peak at 1.1900 should cap upside.”

“Next potential supports are 1.1745 and March low of 1.1700.”

FXStreet notes that AUD/USD has resumed its bear trend. Economists at Credit Suisse maintain their core bearish view for 0.7209 - the 78.6% retracement of the rally from last November - and eventually the core objective at 0.7085/43.

“Support is seen at 0.7265/54 ahead of 0.7209 - the 78.6% retracement of the rally from last November. Whilst we would look for this latter support to hold at first, below in due course should see support next at 0.7159/45 and eventually our core objective at 0.7085/43 - the ‘measured top objective’ and 38.2% retracement of the entire 2020/2021 bull trend.” 

“Near-term resistance moves to 0.7358, then 0.7391, with the immediate risk seen lower whilst below 0.7408/09. Above can see a recovery back to the 13-day exponential average and price resistance at 0.7479/89, but with this expected to remain a cap.”

FXStreet reports that analysts at Societe Generale discuss GBP/USD prospects.

“GBP/USD struggled to reclaim 1.4240 in June forming a double top. A steady decline has brought it towards the 200-DMA and more importantly, it is now threatening a breakdown from the formation. Signals of an extended bounce are still not visible.” 

“So long as last week's high at 1.3910 remains unchallenged, the downward momentum could persist.”

“Next objectives will be at projections of 1.3570 and graphical levels of 1.3510. Target for the double top is located at 1.3150/1.3130.”

eFXdata reports that Danske Research discusses its expectations for ECB policy meeting on Thursday.

"When ECB meets this week, the market attention turns to the implications and new communication on the back of the new strategic framework. We do not expect new policy signals coming from the change in language. We expect an acknowledgement of the improving data which has come in according to expectations and the positive contribution from the roll-out of the vaccines, however risks will also be mentioned, notably the by-now dominating Delta variant with a reference to still uneven and fragile recovery," Danske notes. 

"With markets having to adjust to the new communication style and potentially also new language, there is risks of larger than usual market moves, although such moves should not be over-interpreted, especially in a less liquid seasonal summer market," Danske adds.

FXStreet reports that analysts at Credit Suisse see scope for a USD/CAD move to 1.3024 – the 38.2% retracement of the 2020/2021 decline.

“USD/CAD has accelerated dramatically higher for a conclusive break and close above the major cluster of resistances at 1.2632/53, which includes the 200-day average, the 23.6% retracement of the entire 2020/2021 bear trend and a cluster of price highs. This has seen a major base established as looked for to turn the broader risks higher.” 

“We see resistance at the highs for the year at 1.2870/81 and although a fresh cap here should be allowed for, we look for a break in due course for a move to 1.2957/59 and then 1.3024 – the 38.2% retracement of the entire 2020/2021 fall. Our bias would be for this to then prove a tougher initial barrier.”

RTTNews reports that the Asian Development Bank downgraded the developing Asia's growth outlook as a resurgence of the COVID-19 infections, new virus variants and an uneven vaccine rollout weighed on the economic recovery.

The growth outlook for 2021 was revised down marginally to 7.2 percent from 7.3 percent, while the projection for 2022 was upgraded to 5.4 percent from 5.3 percent forecast in April.

East Asia's 2021 growth forecast was raised to 7.5 percent from 7.4 percent, reflecting a strong first quarter. China was projected to expand 8.1 percent in 2021 and 5.5 percent in 2022 as favorable domestic and external trends align with April forecasts.

In South Asia, new waves of infections prompted the ADB to lower growth forecast for 2021 to 8.9 percent, followed by growth at 7.0 percent in 2022.

The inflation outlook for developing Asia was revised up slightly to 2.4 percent from 2.3 percent projected in April, reflecting higher prices for oil and other commodities, as well as currency depreciation in several Central Asian economies.

Inflation was expected to reach 2.7 percent in 2022, as envisaged in Asian Development Outlook 2021.

Reuters reports that the International Energy Agency said in a report that the global rebound from the COVID-19 pandemic is set to drive emissions of greenhouse gases that stoke climate change to all-time highs.

"We estimate that full and timely implementation of the economic recovery measures announced to date would result in CO2 emissions climbing to record levels in 2023, continuing to rise thereafter," it said.

Spending plans for clean energy allocated by governments around the world in the second quarter of this year add up to $380 billion, making up just 2% of their total stimulus funds in response to the pandemic, the IEA said.

The energy watchdog said the figure represented around a third of what it envisioned was needed in order to put the world on course to reach net zero emissions by mid-century.

According to the report from European Central Bank, the current account of the euro area recorded a surplus of €12 billion in May 2021, a decrease of €10 billion from the previous month. Surpluses were recorded for goods (€25 billion) and services (€6 billion). These were partly offset by deficits for secondary income (€14 billion) and primary income (€5 billion).

In the 12 months to May 2021, the current account recorded a surplus of €310 billion (2.7% of euro area GDP), compared with a surplus of €228 billion (2.0% of euro area GDP) in the 12 months to May 2020. This increase was driven by a larger surplus for goods (up from €309 billion to €375 billion) and for services (up from €39 billion to €76 billion). These developments were partly offset by a reduction in the surplus for primary income (down from €38 billion to €27 billion) and a larger deficit for secondary income (up from €158 billion to €168 billion).

In financial account, euro area residents’ net acquisitions of non-euro area portfolio investment securities totalled €950 billion and non-residents’ net acquisitions of euro area portfolio investment securities totalled €187 billion in 12 months to May 2021

FXStreet reports that according to Jeffrey Kleintop, Managing Director and Chief Global Investment Strategist at Charles Schwab, until the COVID-19 case count gets back under control, the yen may strengthen.

“In the UK, the bond yield curve has moved inversely with the daily number of new cases in the UK, which are currently back on the rise.”

“In Japan, officials have declared a state of emergency in Tokyo and banned spectators at the Olympics in response to the latest rise in cases. We have seen moves in the yen align with new Japanese case counts. Until the COVID-19 case count gets back under control, the yen may strengthen, the UK yield curve may flatten and defensive lockdown-era leaders in the stock market may continue to outperform.”

Reuters reports that the U.S. Business Cycle Dating Committee announced that the U.S. recession touched off by the coronavirus lasted only two months, ending with a low point reached in April 2020 after the start of a sharp drop in economic activity in March of that year.

The committee said that while the country had by no means gotten back to normal operating capacity at that point, indicators of both jobs and production "point clearly to April 2020 as the month of the trough," with a rebound beginning in May.

Indeed, the resumption of growth was so rapid the committee said it was only "the unprecedented magnitude of the decline" that led members to consider what happened to be a recession in the first place, with a downturn typically requiring "depth, duration and diffusion" to qualify for the label.

The designation of the recession's end date is of historical note, but also relevant to research on the dynamics of business cycles and, in this case, into how that historic policy response played out.

The announcement makes the pandemic recession by far the shortest on record, at two months only a third as long as the six-month downturn at the start of 1980, and a fourth as long as the recession that followed the collapse of the tech bubble in 2001.

During today's Asian trading, the US dollar rose against the euro, the pound, the yen and the Australian dollar.

Demand for the assets of the "safe haven", which include both American and Japanese currencies, increased amid growing concerns related to the rapid spread of the new COVID-19 strain.

Traders are concerned that the incidence is growing in developed countries with high levels of vaccination of the population. This confirms the opinion that, although vaccinated people are protected from the severe course of the disease, they can be carriers of the virus.

The ICE index, which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose by 0.13%.

The Australian dollar fell by 0.2% against the US dollar on information about the introduction of lockdowns in two of the six states of the country due to the increased incidence of COVID-19.

The minutes of the Reserve Bank of Australia's July meeting, published on Tuesday, showed that the Central Bank's management does not see the possibility of raising the key interest rate until 2024. Executives noted that the recovery of the Australian economy from the effects of the pandemic was more powerful than expected, and this trend is likely to continue.

FXStreet reports that Westpac said that the sharp break below the 0.7400 area signals further losses ahead.

“The RBA’s heavily caveated tightening announcement in July left the A$ yield outlook unattractive as the US economy validated the Fed’s hawkish shift, the RBNZ announced a sudden end to QE and the Bank of Canada continued tapering.” 

“Near-term risks are for fresh 2021 lows in the 0.72-0.73 region. But we see AUD/USD recovering to 0.75 by end-Sep, backed by a domestic economy that recovered from pandemic job losses well ahead of other countries and a historically strong external position: 41 consecutive monthly trade surpluses and a record 8 consecutive quarters of current account surpluses.”

EUR/USD

Resistance levels (open interest**, contracts)

$1.1924 (1349)

$1.1890 (1663)

$1.1863 (168)

Price at time of writing this review: $1.1782

Support levels (open interest**, contracts):

$1.1741 (2010)

$1.1712 (5511)

$1.1677 (10627)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date August, 6 is 61026 contracts (according to data from July, 19) with the maximum number of contracts with strike price $1,1700 (10627);

GBP/USD

$1.3917 (1224)

$1.3875 (709)

$1.3836 (368)

Price at time of writing this review: $1.3641

Support levels (open interest**, contracts):

$1.3564 (1111)

$1.3535 (821)

$1.3502 (969)

Comments:

- Overall open interest on the CALL options with the expiration date August, 6 is 11539 contracts, with the maximum number of contracts with strike price $1,4000 (1381);

- Overall open interest on the PUT options with the expiration date August, 6 is 16336 contracts, with the maximum number of contracts with strike price $1,3950 (1618);

- The ratio of PUT/CALL was 1.42 versus 1.43 from the previous trading day according to data from July, 19

* - 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.

RTTNews reports that People's Bank of China left its benchmark lending rates unchanged on Tuesday.

The one-year loan prime rate was maintained at 3.85 percent and the five-year loan prime rate at 4.65 percent.

The one-year and five-year loan prime rates were last lowered in April 2020. The one-year loan prime rate was cut by 20 basis points and five-year rate by 10 basis points in April 2020.

Markets have expected the rates to remain on hold today as the People's Bank of China had kept the rate on its medium-term lending facility unchanged early this month.

The loan prime rate is fixed monthly based on the submission of 18 banks, though Beijing has influence over the rate-setting. This lending rate replaced the central bank's traditional benchmark lending rate in August 2019.

According to the report from the Federal Statistical Office, in June 2021, the index of producer prices for industrial products increased by 8.5% compared with June 2020. This was the highest increase compared to the corresponding month of the preceding year since January 1982 (+8.9%), when prices rose strongly during the second oil crisis. Economists had expected a 8.4% increase. Compared with the preceding month May 2021 the overall index rose by 1.3% in June 2021. Economists had expected a 1.1% increase.

Prices of intermediate goods increased by 12.7% compared to June 2020. Compared to May 2021 these prices were up 1.8 %. Compared to June 2020 intermediate goods’ prices increased especially regarding metallic secondary raw materials (+88.1%) and sawn timber (+84.6%) as well as reinforcing steel in bars (+62.3%). 

Energy prices as a whole increased by 16.9% compared to June 2020 and by 2.2 compared to May 2021. The price increase from June 2020 to June 2021 is mainly caused by a base effect resulting from the sharp drop in prices in spring 2020 in the course of the pandemic.

Prices of durable consumer goods increased by 1.8% compared to June 2020 (+0.2% compared to May 2021), capital goods, such as machines and vehicles, by 1.3% (+0.2% compared to May 2021).

Prices of non-durable consumer goods increased by 1.5% compared to June 2020 and rose by 0.7% compared to May 2021. From June 2020 to June 2021 food prices increased by 1.9%.