CFD Markets News and Forecasts — 29-11-2019

Analysts at TD Securities note that Canada's GDP growth was in line with market expectations, with the Canadian economy expanding 1.3% (annualized) in Q3 and 0.1% m/m for September. However, details were more positive with domestic demand up 3.2%.

• "Business investment was a key driver to Q3 growth which will come as a relief to the BoC, given their concern with the global outlook. We don't expect this to drive a hawkish pivot next week, but it should allow them some added comfort as they remain on the sidelines.
• Rates: Muted reaction to an in-line number, and small beat on the YoY (1.60% vs 1.40%). At the margin, this report could buy the BoC a bit more time to hold off on cutting rates, had the report been weak, that could have been a big deal."

James Knightley, the Chief International Economist at ING, previews the upcoming important market-moving economic releases/events. 

• "A batch of sentiment indicators in Europe and the US this week are likely to paint the picture of a struggling manufacturing sector. We'll also see two central bank meetings from Australia and Canada - both expected to hold. Add US non-farm payrolls to the mix on Friday, should all make for an interesting week ahead.
• Next week’s data should confirm that the Federal Reserve will be on hold in December. Officials had already indicated that they wanted to take stock after three rate cuts implemented since July and with third-quarter GDP being revised higher and the jobs report likely showing a strong rebound in employment (admittedly thanks in large part to the ending of the strike at General Motors) they will have plenty to justify a pause. Nonetheless, we remain cautious on the outlook given weak global demand, the strong dollar and lingering trade tensions. The ISM indices are likely to remind us that growth has slowed and the manufacturing sector, in particular, is struggling. We still see a strong chance of further rate cuts in early 2020.
• The bank of Canada will probably leave interest rates unchanged but there is a growing chance of a rate cut given the recent stated concern about the global backdrop and the vulnerability of Canada to global demand and commodity price moves."

Nathan Janzen, the Senior Economist at Royal Bank of Canada (RBC) notes that the Canadian GDP report showed a sharp deceleration in the quarterly growth rate to 1.3% annualized pace from 3.7% recorded in the previous quarter.

• "The impact of escalating global trade tensions was not as evident as was feared in Q3. Net exports subtracted about half a percent from top-line GDP growth. But, despite trade worries, business investment bounced back 9.5% after falling 7.0% in Q2. Consumer spending growth remained unspectacular at 1.6%, but residential investment surged 13.3% to leave households still contributing significantly more to growth in Q3 than over the first half of the year. 
• A slowing in the pace of inventory accumulation accounted for the largest drag on growth in the quarter, subtracting 1 1/2 % from GDP growth. But part of that was likely related to transitory shutdowns in commodities production. Indeed, activity excluding the commodity-producing industries increased almost 3% by our count in the separately reported monthly GDP by industry numbers.
• All-in-all, the data should do little to change the narrative that, while concerns about the economic outlook remain, current economic conditions still look relatively resilient in Canada. The GDP increase was in line with the Bank of Canada's forecast in October, and the central bank will likely take comfort in the increase in business investment as a sign that activity will continue to hold up relatively well in the near-term. "

FX Strategists at UOB Group believe the pair is posed for the continuation of the consolidative mood in the next weeks.

• "24-hour view: USD traded sideways yesterday between 7.0190 and 7.0350, narrower than our expected 7.0130/7.0350 range. While daily closing at 7.0325 is on the firm side (+0.22%), upward momentum has not improved by much. From here, USD could continue to trade sideways, albeit likely at a higher range of 7.0230/7.0430.
• Next 1-3 weeks: Two weeks ago (13 Nov, spot at 7.0200), we highlighted that USD has moved into a ‘broader consolidation phase’ and ‘USD is expected to trade sideways between 6.9750 and 7.0600 for a period’. When USD moved higher towards 7.0500, we indicated last Thursday (21 Nov, spot at 7.0475) that ‘we are not convinced that the current USD strength can be sustained’. We added, ‘only a clear move above 7.0600 would suggest further USD strength is likely’. The relatively sharp decline of -0.28% yesterday (26 Nov) reinforces our view. In other words, we continue to view the current movement in USD as part of a sideway-trading range. That said, after the rapid decline yesterday, we have adjusted the expected trading range to 6.9700/7.0500 from 6.9750/7.0600."

Before the bell: S&P futures -0.14%, NASDAQ futures -0.23%

U.S. stock-index futures are on track for a lower start to Friday's abbreviated session, (it will end at 18:00 GMT), as U.S.-China trade tensions resurfaced after Beijing rebuked U.S. president Donald Trump’s decision to ratify a bill backing protesters in Hong Kong.

Global Stocks:

Eurozone inflation jumps more than expected in November - ING

Bert Colijn, a Senior Eurozone Economist at ING, notes that Eurozone's inflation rose from 0.7 to 1% this month and core inflation jumped from 1.1 to 1.3%. 

"Except for energy prices, all the underlying series increased, with the largest jump happening in services prices.

The question is whether this is the start of a more sustained increase. Indeed, core inflation has been rising for three months in a row now and wage growth for the third quarter does suggest that upward pressure on prices is increasing. Then again, as businesses continue to lack confidence to push higher input costs onto the consumer, it is unlikely that this will lead to materially higher core inflation in the months ahead. In fact, selling price expectations for the months ahead declined again this month in both services and industry and haven’t been this low all year.

We would need to see much more optimism among businesses or substantially higher wage growth to see inflation rise sustainably. What a lovely environment to buy holiday gifts. All in all, for the ECB this increase in inflation seems to be good news for the hawks on the surface, but more evidence of a sustained increase is unlikely to follow unless business confidence increases substantially. As the economic environment is unlikely to be strong enough to see inflation move sustainably towards 2% over the course of 2020, this means that the forward guidance in place since September could keep ECB President Christine Lagarde’s first full year in office somewhat dull if economic circumstances don’t deteriorate."

Wall Street. Stocks before the bell

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

Deere (DE) downgraded to Sell from Hold at DZ Bank

Statistics Canada announced on Friday that the country’s gross domestic product (GDP) grew 0.1 percent m-o-m in September, the same growth rate as in August.

That was in line with economists’ forecast for a gain of 0.1 percent m-o-m.

In the third quarter of 2019, the Canadian GDP rose 0.3 percent q-o-q, following a 0.9 percent q-o-q surge in the second quarter.

According to the report, third-quarter growth in GDP was led by higher business investment (+2.6 percent q-o-q, the fastest pace since the fourth quarter of 2017) and increased household spending (+0.4 percent q-o-q). These increases, however, were moderated by a 0.4 percent q-o-q drop in exports, while imports were flat q-o-q.

Expressed at an annualized rate, Canada’s GDP grew 1.3 percent in the third quarter after a revised 3.5 percent climb in the previous quarter (originally 3.7 percent), while economists had predicted it would grow 1.2 percent.

Analysts at Nordea Markets consider a stronger-than-expected rise in the Eurozone inflation in November as a temporary climb until year-end and continue to expect more easing from the ECB next year.

• “The flash release comes with few details. The rise in this month’s numbers stems from various factors. Service sector price growth increased sharply compared to last month, and food prices provided a boost. Energy prices, on the other hand, remained a drag on headline, despite rising oil prices.
• Today’s numbers do not change our view of a next easing package from the ECB in March (10bp cut and 20bn additional QE). Inflation will remain below target for some time to come but the ECB is in a “wait and see” position to evaluate how the September package is playing out and what the next steps will be.”

• Says many of those preparations will be extremely valuable as we come out of EU arrangements anyway
• Thinks that they were the right thing to have done and to keep in a state of readiness
• Confident that they will have a free trade deal with the European Union by the end of 2020 to help the economy shake off the potential negative impact of Brexit

• Calls for acccommodataive monetary policy
• Says incoming information suggests growth slowdown is more protracted than expected
• Inflation outlook seems to fall short of ECB target
• September policy package will provide necessary support to the economy, inflation
• Evidence indicates that effect of NIRP on the economy has been positive
• Risk of side effects of NIRP remains
• ECB must be alert to possible unintended consequences of its policies towards the stability of the financial system

Analysts at TD Securities provided their view on Friday's only important release of Canada's GDP growth figures, scheduled later during the early North-American session.

• "Canadian GDP could spark some real fireworks, as a miss to the downside would pave the way for a large rally in Canada ahead of the BoC monetary policy meeting next week.
• We look for Q3 GDP to rise by a muted 0.9%, slightly below the market consensus and Bank of Canada projections for 1.3%. Softer net exports will weigh on growth along with muted non-residential investment growth, while strong residential investment and a rebound in consumption will provide the main drivers to growth. For industry-level GDP, we look for a 0.1% increase in September (market: 0.1%) to provide a soft handoff to the fourth quarter, with manufacturing headwinds weighing on monthly GDP growth."

FX Strategists at UOB Group note that the USD/JPY is still expected to go up to the 109.75-level in the next weeks.

"24-hour view: USD traded between 109.32 and 109.60, much narrower than our expected sideway-trading range of 109.10/109.60. The price action offers not much clues and USD could continue to trade in a quiet manner. Expected range for today, 109.30/109.65.

Next 1-3 weeks: While we highlighted on Tuesday (26 Nov, spot at 108.90) that ‘USD is likely to trade sideways even though the uptick in momentum suggests it is likely to probe the top of the expected 108.50/109.50 range first’, the rapid pace of advance in USD that quickly moved above 109.50 was not exactly anticipated (overnight high of 109.60). Upward momentum has improved considerably and the focus is at the major mid to long-term resistance at 109.75. A clear break of 109.75 would greatly increase the prospect for USD to move above 110.00. All in, USD is expected to stay underpinned unless it moves below 108.80 (‘strong support’ level)."

ISTAT reported on Friday that Italy's GDP grew 0.1 percent q-o-q in the third quarter of 2019, the same pace as in the second quarter and in line with preliminary estimates. 

On y-o-y basis, the economy expanded 0.3 percent. 

Economists had forecast Italy's GDP to increase by 0.1 percent q-o-q and 0.3 percent y-o-y in the third quarter.

According to the report, final consumption expenditure increased by 0.3 percent q-o-q, while both gross fixed capital formation and exports declined by 0.2 percent q-o-q and 0.1 percent q-o-q respectively. At the same time, imports rose by 1.3% percent q-o-q.

Compared to the correspondent period of 2018, final consumption expenditure rose by 0.8 percent, gross fixed capital formation by 2.5 percent, imports by 1.6 percent, and exports by 1.2 percent.

FX Strategists at UOB Group are expecting the continuation of the sideline trading in the NZD/USD.

• "24-hour view: NZD did not quite ‘probe the 0.6390 support’ as it rebounded after briefly dipping to 0.6402. Momentum indicators are mostly ‘neutral’ and NZD is likely to trade sideways from here. Expected range for today, 0.6405/0.6435.
• Next 1-3 weeks: After briefly rising to 0.6437 last Thursday (21 Nov), NZD traded sideways and stayed within a 40 pips range. The price action is in line with our view from last Friday (22 Nov, spot at 0.6405) wherein NZD ‘could trade sideways for a while more’. However, in view of the quiet price action, a 0.6380/0.6465 range is likely enough to contain the movement in NZD from here (narrowed from 0.6350/0.6465)."

Despite the ongoing consolidative mood, the cross is still expected to move to the 1.1057/66 area, noted Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank.

“Even though EUR/CHF continues to range trade it still has the 1.1057/66 resistance area (June low, late July and October highs, 38.2% Fibonacci resistance) in its sights. Once reached, it may well once more cap, though. Only failure at the three month uptrend line at 1.0875 would leave attention once again on the 1.0812 September low. While we would allow for this to hold the initial test, failure here would put the June 2016 and January 2017 lows at 1.0632/23 on the cards. In order to alleviate downside pressure, the cross will need to regain 1.1066 on a closing basis to generate some upside interest. We currently suspect that this will hold and a negative bias will remain entrenched below here”.

AUD/USD is expected to keep the bearish stance unchanged while below the 0.6893 level, suggested Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank.

“AUD/USD continues to weigh on the downside and while trading below the 2019 downtrend line at .6893, the immediate outlook stays bearish. This resistance is reinforced by the 200 day ma at .6923. The market is vulnerable to further losses this week to initial support offered by the .6724 October 16 low ahead of the .6671 October low. We suspect that this will again hold for further ranging. Failure at .6671 on a closing basis targets the .6548 February 1999 high. We note TD support on the weekly chart at .6535 also”.

According to the report from Eurostat, the euro area (EA19) seasonally-adjusted unemployment rate was 7.5% in October 2019, down from 7.6% in September 2019 and from 8.0% in October 2018. This is the lowest rate recorded in the euro area since July 2008.

The EU28 unemployment rate was 6.3% in October 2019, stable compared with September 2019 and down from 6.7% in October 2018. This remains the lowest rate recorded in the EU28 since the start of the EU monthly unemployment series in January 2000. 

Eurostat estimates that 15.583 million men and women in the EU28, of whom 12.334 million in the euro area, were unemployed in October 2019. Compared with September 2019, the number of persons unemployed decreased by 29 000 in the EU28 and by 31 000 in the euro area. Compared with October 2018, unemployment fell by 939 000 in the EU28 and by 761 000 in the euro area.

In October 2019, 3.240 million young persons (under 25) were unemployed in the EU28, of whom 2.261 million were in the euro area. Compared with October 2018, youth unemployment decreased by 160 000 in the EU28 and by 147 000 in the euro area. In October 2019, the youth unemployment rate was 14.4% in the EU28 and 15.6% in the euro area, compared with 15.1% and 16.7% respectively in October 2018.

According to a flash estimate from Eurostat, euro area annual inflation is expected to be 1.0% in November 2019, up from 0.7% in October. Economists had expected a 0.9% increase.

Looking at the main components of euro area inflation, food, alcohol & tobacco is expected to have the highest annual rate in November (2.0%, compared with 1.5% in October), followed by services (1.9%, compared with 1.5% in October), non-energy industrial goods (0.4%, compared with 0.3% in October) and energy (-3.2%, compared with -3.1% in October).

Meanwhile, the core figure arrived at +1.3% in the reported month when compared to +1.2% expectations and +1.1% previous.

The Eurozone inflation report comes a day after the German Prelim CPI data was released, which showed that the German consumer price inflation accelerated by 1.2% YoY but remained well below the ECB rate target of just under 2 percent for the Eurozone as a whole.

Bank of England said, the extra amount borrowed by consumers in order to buy goods and services rose to £1.3 billion in October, above the £1.1 billion average since July 2018. Economists had expected an increase to £0.9 billion from £0.785 billion in September. Net borrowing for both credit cards and other loans and advances rose, to £0.4 billion and £1.0 billion respectively. The annual growth rate of consumer credit was 6.1% in October, up from 5.9% in September. This is the first increase in the annual growth rate since June 2018, but it remains considerably lower than its post-crisis peak of 10.9% in November 2016.

Mortgage market indicators point to continued stability. Net mortgage borrowing by households was £4.3 billion in October, £0.4 billion higher than in September. The recent stability in the monthly flows has left the annual growth rate unchanged at 3.2%, close to levels seen over the past three years. Mortgage approvals for house purchase (an indicator for future lending) fell slightly in October, to 65,000, but remained within the narrow range seen over the past two years. Mortgage approvals for remortgage strengthened on the month to 51,000.

Federal Statistical Office said, unemployment rose by 24,000 to 2,180,000 from October to November. Adjusted for seasonal influences, a minus of 16,000 is calculated for November compared with the previous month. Compared with the previous year, the number of unemployed fell by 6,000. As in October, the unemployment rate is 4.8 percent. It also remained unchanged compared to November last year. The unemployment rate calculated by the Federal Statistical Office according to the ILO acquisition concept was 3.0 percent in October.

Underemployment, which also includes changes in labour market policy and short-term incapacity for work, fell by 7,000 on a seasonally adjusted basis compared with the previous month. Overall, the underemployment in November 2019 was 3,138,000 persons. That was as many as a year ago.

According to Andrew Hanlan, Analyst at Westpac, “the Australian National Accounts, to be released December 4, will provide an estimate of economic activity for the September quarter, including any boost to date from recent policy stimulus.”

“We anticipate yet another disappointing report card - with growth lopsided and private demand weak. The backdrop, the economy lost considerable momentum from mid-2018. Annual real GDP growth slowed from an above trend 3.1% to 1.4% currently - the softest result since 2009 and a pace below population growth, of 1.6%. Tail winds are from: brisk government spending (in the form of public demand), with a focus on health and investment; the export uptrend, associated with the lower dollar; and recent higher commodity prices, boosting national income (in particular mining profits and government tax revenue). RBA rate cuts and modest personal income tax cuts have had a mixed impact to date. Consumer spending remains weak, while the housing sector is responding - albeit in an uneven fashion, with prices rising but dwelling approvals still soft. Looking ahead, our assessment is that output growth will strengthen in 2020, but still be at a below trend pace given the ongoing challenging environment. The unemployment rate will likely grind higher next year, rising to around 5.6%.”

KOF Economic Research Agency said, in November, the KOF Economic Barometer fell to its lowest level since 2015. The downward movement, which has been observed since the beginning of the year, continues. The barometer is still well below its long-​term average. The outlook for the Swiss economy remains subdued.

The KOF Economic Barometer falls by 1.8 points in November, from 94.8 (revised from 94.7) to 93.0. Economists had expected an increase to 95.0.

Several bundles of indicators are equally responsible for the decline. However, negative signals from hotel and catering activities and from the banking and insurance sector stand out slightly. Indicators regarding foreign demand and other services are also declining. On the other hand, indicators for the manufacturing sector remain almost unchanged.

According to the report from INSEE, in October 2019, household consumption expenditure on goods increased slightly by +0.2% in volume*, after –0.3 % in September. Energy consumption decreased (–1.5% after +0.2%) but manufactured good spending bounced back (+0.3% after –1.2%) and food product purchases accelerated (+0.8% after +0.6%).

In October, food consumption accelerated (+0.8% after +0.6%). In particular, the consumption of fresh fruits and vegetables was dynamic for the second consecutive month. The consumption of processed products also increased. Energy consumption decreased (–1.5% after +0.2%), particularly because of the decrease in gas and electricity consumption. Refined product consumption was also decreasing, especially gasoline and heating oil.

In October, manufactured good consumption straightened out slightly (+0.3% after –1.2%). In particular, durable good purchases bounced back (+1.0% after –2.2%). On the contrary, textile-clothing spending went down again (–0.5% after –0.8%) and other manufactured good comsumption decreased (–0.2% after +0.3%).

In October, durable good expenditure bounced back, driven by transport equipment consumption (+1.8% after –3.6%), especilally demonstration and second-hand cars. Expenditure on textile-clothing decreased slightly in October for the third consecutive month (–0.5% after –0.8%), despite an increase in textile consumption.

According to the report from INSEE, in Q3 2019, GDP in volume terms grew at the same pace as the two previous quarters: +0.3%.

Household consumption expenditures accelerated slightly (+0.3% after +0.2%), while total gross fixed capital formation decelerated (GFCF: +0.9% after +1.2%). Overall, final domestic demand excluding inventory changes remained dynamic and grew at the same pace as the previous quarter: it contributed 0.5 points to GDP growth.

In Q3 2019, GDP in volume terms grew at the same pace as the two previous quarters: +0.3%.

Household consumption expenditures accelerated slightly (+0.3% after +0.2%), while total gross fixed capital formation decelerated (GFCF: +0.9% after +1.2%). Overall, final domestic demand excluding inventory changes remained dynamic and grew at the same pace as the previous quarter: it contributed 0.5 points to GDP growth.

Imports bounced back strongly (+1.4% after –0.3%) and exports grew this quarter (+0.3% after –0.1%). All in all, foreign trade balance contributed negatively to GDP growth: –0.4 points, after 0.0 points during the previous quarter. Changes in inventories contributed positively to GDP growth (+0.1 points after –0.2 points).

Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, noted that a failure in the 1.0989 level could spark further losses to the 1.0940 region.

“EUR/USD continues to hold over the 1.0989 mid-November low. Whilst it holds, last week’s high at 1.1097 may be revisited, a rise above which would have the 1.1180 October high in its sights. Above 1.1180 will target the 1.1255 one year channel. However the support is looking a little exposed and failure here will trigger another leg lower to the 1.0943 78.6% retracement”.

According to provisional data from Destatis, turnover in retail trade in October 2019 was in real terms 0.8% and in nominal terms 1.0% larger than in October 2018. The number of days open for sale was 26 in October 2019 and in October 2018.

Compared with the previous year, turnover in retail trade was in the first ten months of 2019 in real terms 2.8% and in nominal terms 3.4% higher than in the corresponding period of the previous year.

When adjusted for calendar and seasonal variations, the October turnover was in real and nominal terms 1.9% lower than in September 2019.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1152 (4911)

$1.1104 (3382)

$1.1062 (2392)

Price at time of writing this review: $1.1009

Support levels (open interest**, contracts):

$1.0984 (4094)

$1.0945 (3038)

$1.0898 (2456)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date December, 6 is 104672 contracts (according to data from November, 27) with the maximum number of contracts with strike price $1,1200 (5600);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3070 (1426)

$1.3033 (5638)

$1.3002 (1565)

Price at time of writing this review: $1.2919

Support levels (open interest**, contracts):

$1.2845 (1247)

$1.2779 (2131)

$1.2739 (985)

Comments:

- Overall open interest on the CALL options with the expiration date December, 6 is 32307 contracts, with the maximum number of contracts with strike price $1,3000 (5638);

- Overall open interest on the PUT options with the expiration date December, 6 is 33593 contracts, with the maximum number of contracts with strike price $1,2200 (2280);

- The ratio of PUT/CALL was 1.04 versus 1.03 from the previous trading day according to data from November, 27

* - 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.