CFD Markets News and Forecasts — 30-11-2020

• We will assess vaccine news in next forecasts
• Expects that main economic boost from progress on COVID-19 vaccines will only come when jabs are rolled out
• BoE should prevent rising market interest rates from threatening the recovery
• Some households may delay spending until vaccines are actually reducing health risks
• Sees some reduction in uncertainty helping businesses due to vaccine
• My rationale for recent QE expansion was to mitigate the risk of any tightening in monetary conditions that might make it harder to bring inflation back to 
• My view is that the reduction in uncertainty about vaccine production, makes it even more essential that we avoid those risks

Carsten Brzeski, the Global Head of Macro for ING Research, notes that headline inflation continues its downward trend in Germany, leading to the longest deflationary streak since 2009.

"Based on the inflation outcomes in several regional states, German inflation came in at -0.3% year-on-year in November, from -0.2% in October. The harmonised index, relevant for European Central Bank policymaking, dropped to -0.7% YoY, from -0.5% in October. Headline inflation has now been in negative territory since August. The last time German headline inflation was negative in four consecutive months was in 2009."

"The negative base effect from low energy prices and above all, the VAT cut in July are the reasons for this negative inflation streak. The VAT reduction is most visible in prices for clothing, other consumer goods and increasingly for other leisure activities and packaged holidays. At the same time, the fact that the increase in hotel and restaurant prices is still very much in line with the trend seen prior to the VAT cut suggests that lower taxes are also used to support businesses and are not necessarily entirely passed on to consumers."

"Looking ahead, after another negative reading in December, the path of headline inflation will depend on whether or not the German government sticks to its plan of reversing the VAT reduction in January."

The National Association of Realtors (NAR) announced on Monday its seasonally adjusted pending home sales index (PHSI) fell 1.1 percent m-o-m to 128.9 in October, after a revised 2.0 percent m-o-m decrease in September (originally a 2.2 percent m-o-m decline).

Economists had expected pending home sales to advance 1.0 percent m-o-m in October.

On y-o-y basis, the index jumped 20.2 percent, following a revised 20.8 percent climb in September (originally a 20.5 percent m-o-m surge).

According to the report, all four regional indices recorded double-digit year-over-year gains in pending home sales transactions in October, but only the South saw a month-over-month increase. Pending home sales in the South edged up 0.1 percent m-o-m to an index of 151.1 in October, up 21.0 percent from October 2019. Meanwhile, the Northeast PHSI decreased 5.9 percent m-o-m to 112.3 in October, an 18.5 percent advance from a year ago. In the Midwest, the index dropped 0.7 percent m-o-m to 119.6 last month, up 19.6 percent from October 2019. The index in the West remained the same in October, at 116.8, which was up 20.8 percent from a year ago.

MNI Indicators’ report revealed on Monday that business activity in Chicago grew for the fifth straight month in November, albeit at a slower pace than in October.

The MNI Chicago Business Barometer, also known as Chicago purchasing manager's index (PMI) came in at 58.20 in November, slightly down from 61.10 in October. This was the lowest reading since August. Economists had forecast the index to decrease to 59.0.

A reading above 50 indicates improving conditions, while a reading below this level shows worsening of the situation. 

According to the report, New Orders and Production posted the only declines among the main five indicators, while Supplier Deliveries recorded the largest advance.

U.S. stock-index futures traded mixed on Monday, as investors decided to take partial profits on the last day of an incredibly strong month for the U.S. equity market.  

Global Stocks:

CNBC reported that the U.S. Federal Reserve announced Monday that an interest rate that banks around the world use as a benchmark for short-term borrowing will be phased out and eventually be replaced by June 2023.

"The Federal Reserve Board on Monday welcomed and supported the release of a proposal and supervisory statements that would enable a clear end date for U.S. Dollar (USD) LIBOR and would promote the safety and soundness of the financial system," the Fed said in its release. "The announcements today by regulators in the United States and United Kingdom and by the benchmark administrator for LIBOR together lay out a path forward in which banks should stop writing new USD LIBOR contracts by the end of 2021, while most legacy contracts will be able to mature before LIBOR stops." Contracts using LIBOR should wrap up by June 30, 2023, the directive added.

• Says next EU summit will be crucial in this respect
• Economic consequences of COVID-19 pandemic to stay with us for years

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

Bank of America (BAC) downgraded to Underweight from Overweight at Morgan Stanley

Goldman Sachs (GS) downgraded to Underweight from Equal-Weight at Morgan Stanley; target $273

JPMorgan Chase (JPM) downgraded to Underweight from Overweight at Morgan Stanley

Apple (AAPL) upgraded to Buy from Hold at Loop Capital; target raised to $131

Statistics Canada reported on Monday that the country’s current account (C/A) gap widened by CAD0.5 billion to CAD7.5 billion in the third quarter of 2020 from a downwardly revised CAD7.0-billion deficit in the previous thee-month period (originally a gap of CAD8.6 billion).

Economists had expected a CAD9.1-billion shortfall.

According to the report, the expansion in C/A deficit reflected a larger deficit in trade in goods and services (+CAD0.7 billion to CAD8.2 billion in the third quarter), which was moderated by a higher investment income surplus (+CAD0.4 billion to CAD1.7 billion in the third quarter).

Statistics Canada announced on Monday that the value of building permits issued by the Canadian municipalities tumbled 14.6 percent m-o-m in October, following a revised 18.6 percent m-o-m jump in September (originally a surge of 17.0 percent m-o-m).

Economists had forecast a 5.0 percent decrease in October from the previous month.

According to the report, the value of residential permits fell 5.9 percent m-o-m in October, as single-family permits dropped 2.2 percent m-o-m, while permits for multi-family dwellings plunged 9.0 percent m-o-m.

At the same time, the value of non-residential building permits declined 29.5 percent m-o-m in October, due to decreases in commercial (-40.9 percent m-o-m), industrial (-19.8 percent m-o-m) and institutional (-9.9 percent m-o-m) permits.

In y-o-y terms, building permits decreased 3.3 percent in October.

Germany's Federal Statistical Office (Destatis) reported on Monday the country’s consumer price index (CPI) is expected to drop 0.8 percent m-o-m in November after gaining 0.1 percent m-o-m in the previous month.

On the y-o-y basis, Germany’s CPI is seen to fall 0.3 this month, following a 0.2 percent decrease in October. This was the biggest decline since January 2015.

Economists had predicted inflation would drop 0.7 percent m-o-m and 0.1 percent y-o-y in November.

According to the report, food price rose 1.4 percent y-o-y in November, the same pace as in October. Services costs growth accelerated to 1.1 percent y-o-y in November from 1.0 percent y-o-y in the previous month. Energy prices fell 7.7 percent y-o-y after a 6.8 percent y-o-y decline in October.

Meanwhile, the harmonized index of consumer prices for Germany (HICP), which is calculated for European purposes, is expected to fall 1.0 percent m-o-m and 0.7 percent y-o-y.

GBP rose against most of its major rivals in the European session on Monday as market participants still hope that a trade deal between Britain and the EU can be completed by Friday, despite reports about remaining "massive divergences". 

Reuters reported today that the EU source told that UK-EU talks in London over the weekend were “quite difficult” and “massive divergences” still remain on fisheries, economic fair play and settling disputes. The EU negotiating team will stay in London for more talks in the coming days. Meanwhile, the UK PM Boris Johnson's spokesman reiterated that the UK remains committed to securing a free trade agreement with the EU as soon as possible but noted that they are not to change their negotiating position. He also confirmed that there are still differences on fisheries and a level playing field. In its turn, the European Commission (EC) stated that the block is fully concentrated on Brexit negotiations right now. It also added that there will be changes at the end of 2020 regardless of whether there is a new UK deal or not.

Good news on the coronavirus vaccine front provided additional support to the pound. Moderna (MRNA) announced it plans to request an Emergency Use Authorization (EUA) from the U.S. Food and Drug Administration (FDA) and conditional approval from the European Medicines Agency (EMA). The company reaffirmed that the data analysis indicates that the efficacy of its vaccine was 94.1%.

• Trade talks over the weekend were "quite difficult"
• EU negotiating team to stay in London for more talks in coming days

• Company reaffirms that data analysis indicates a vaccine efficacy of 94.1%

• People, businesses have had time to prepare for end of Brexit transition period
• If no-deal contingency measures are needed, they would be limited and adopted in time for January 1
• There will be changes at the end of 2020 regardless of whether there is a new UK deal or not

USD/CNH moved into a 6.5400-6.6200 range - UOB

FXStreet reports that FX Strategists at UOB Group see USD/CNH consolidating within the 6.5400-6.6200 range in the next weeks.

24-hour view: “USD traded between 6.5637 and 6.5802 last Friday, narrower than our expected consolidation range of 6.5550/6.5780. The quiet price actions offer no fresh clues and USD could continue to consolidate, expected to be within a 6.5560/6.5820 range.”

Next 1-3 weeks: “...the recent weak phase in USD has ended and the current movement is viewed as part of a consolidation phase. From here, USD is expected to trade between 6.5400 and 6.6200 for a period of time.”

FXStreet reports that the Citibank Analysts have downgraded their gold-price forecasts for 2021 alongside their estimate for flows in gold ETFs, in the face of economic improvement in the developed economies.

“Net investment into gold ETFs to hit 800 tons in 2020, 75 tons less than previously forecast and 50% lower again in 2021.”

“Sees support for gold in short term at $1,700.”

“See a move above $2,000 likely in next 3-6 months but barring a fiat crisis, prices may then trend lower.”

• Monetary policy cannot be as targeted as fiscal measures can be
• Fiscal and monetary policy coordination has helped a great deal

FXStreet reports that FX Strategists at UOB Group see USD/CNH consolidating within the 6.5400-6.6200 range in the next weeks.

Next 1-3 weeks: “There is not much to add to our update from Tuesday (24 Nov, spot at 6.5710). As highlighted, the recent weak phase in USD has ended and the current movement is viewed as part of a consolidation phase. From here, USD is expected to trade between 6.5400 and 6.6200 for a period of time.”

Reuters reports that Italian Economy Minister Roberto Gualtieri signaled that he was ready to back a delayed reform of the euro zone ESM bailout fund, telling parliament that its approval would not mean Italy wished to use it.

Euro zone countries agreed almost a year ago "in principle" on widening the responsibilities of the European Stability Mechanism (ESM) and ministers from the 19 countries sharing the euro currency are expected to give the deal a final go-ahead later on Monday.

"Today's decisions only concern the reform of the ESM, the early introduction of the common backstop and the positive assessment of the reduction of risks in the banking system. All these decisions do not in any way affect the use of the ESM," Gualtieri said.

eFXdata reports that Societe Generale notes that the consensus view on EUR/USD in 2021 doesn't reflect this year's scale of the FX regime change.

"There isn't a big (very) long-term trend in G10 currencies but rather, a series of regime shifts. The consensus is at its best when the change of regime is obvious, and at its worst when it fails to understand that the regime has changed," SocGen notes. 

"In 2018 and 2019, and at the start of 2020, the consensus looked for EUR/USD to rise back towards the pre-2015 range. There is a bias to be bullish euros. Now the consensus looks for EUR/USD to trundle slowly towards 1.23. That's just more of the same, and fails to reflect the scale of the FX regime change that has occurred this year as a result of the pandemic and hasn't even begun to think about whether vaccines trigger another structural shift,"SocGen adds.

FXStreet reports that according to FX Strategists at UOB Group, USD/JPY could slip back to the mid-103.00s and below in the next weeks.

Next 1-3 weeks: “Last Tuesday, we indicated that ‘downward pressure has dissipated’ and we expected USD to ‘trade between 103.70 and 105.30’. USD subsequently traded mostly sideways but is currently approaching the bottom of the range and downward momentum is beginning to improve. That said, USD has to close below 103.50 in order to indicate that it is ready to tackle the month-todate low at 103.18. The odds for such a move appear to be quite high as long as USD does not move above 104.50 within these 1 to 2 days.”

According to the report from Bank of England, the mortgage market remained strong in October. On net, households borrowed an additional £4.3 billion secured on their homes, following borrowing of £4.9 billion in September. The continued strength in borrowing follows high levels of mortgage approvals for house purchase seen over recent months. Mortgage borrowing troughed at £0.2 billion in April, but has since recovered and is slightly higher than the average of £3.9 billion in the six months to February 2020.

The number of mortgage approvals for house purchase continued increasing in October, to 97,500 from 92,100 in September. This was the highest number of approvals since September 2007, 33% higher than approvals in February 2020 and around 10 times higher than the trough of 9,400 approvals in May. Approvals for remortgage (which only capture remortgaging with a different lender) were broadly unchanged in October, at 32,900, and remain around 40% lower than in February 2020.

Consumer credit remained weak in October, with households making net repayments of £0.6 billion. Effective rates on new personal loans increased by 37 basis points to 5.15%.

Private corporates borrowed £7.8 billion from capital markets in October but this was broadly offset by a net repayment of bank loans.

Overall, household and business deposits were strong in October, at £12.3 billion and £13.0 billion respectively. Deposit interest rates remain at historically low levels.

Bloomberg reports that a panel of OPEC+ ministers couldn’t reach an agreement on whether to delay January’s oil-output increase.

Most participants in an informal online discussion on Sunday evening supported maintaining the production curbs at current levels into the first quarter, said a delegate. 

Unless the agreement is revised this week, they will restart about 1.9 million barrels a day of halted output, potentially pushing the global market back into surplus and undermining the recent surge in crude prices. 

“Saudi Arabia will have to lean hard to get an agreement,” said Mohammad Darwazah, an analyst at research firm Medley Global Advisors LLC. “There have been particularly acute rumblings of dissatisfaction with the status quo from Abu Dhabi.”

The Organization of Petroleum Exporting Countries and its allies made vast production cuts during the depths of the pandemic to offset a historic collapse in fuel demand. The alliance had planned to ease some of those curbs at the start of 2021, in anticipation of a global economic recovery.

Reuters reports that Environment Secretary George Eustice said that Britain and the European Union are running out of time to clinch a Brexit trade deal but if good progress is made this week then the talks could be extended.

"We really are now running out of time, this is the crucial week, we need to get a breakthrough," Eustice told Sky.

"I really do think we are now in to the final week or 10 days, of course if great progress were made this week and you're nearly there it's always possible to extend those negotiations," he said.

Talks between EU chief negotiator Michel Barnier and British chief negotiator David Frost continued on Sunday. British Foreign Secretary Dominic Raab said it was a very significant week for Brexit.

"David Frost had made clear that we're continuing the negotiations because we still think there is a prospect that we can get an agreement and while there is we should persevere with those," Eustice said.

According to the report from KOF Economic Research Agency, the economic barometer declines in November for the second time in a row, after a brief recovery in the summer. The barometer currently stands at 103.5 points, 2.8 points lower than in October (revised from 106.6 to 106.3 points). Economists had expected a decrease to 101. The barometer is thus moving towards its long-​term average, which means that the outlook for the Swiss economy remains subdued also in view of the current pandemic situation.

The decline of the KOF Economic Barometer in November is primarily due to a bundle of indicators from the manufacturing sector and private consumption. In addition, indicators relating to foreign demand and the other services sector send a negative signal. By contrast, indicators for accommodation and food service activities, the construction industry and the financial and insurance services sector remained virtually constant.

In the goods producing sector (manufacturing and construction), indicators for the further development of new orders and profits are in particular showing a negative development. Furthermore, sub-​indicators for the assessment of production and the overall business situation are pointing in a downward direction. On the other hand, sub-​indicators assessing the export prospects of companies show a slightly positive tendency.

During today's Asian trading, the US dollar declined against the euro and the japanese yen.

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 0.08%. The index value is close to the lowest level in two and a half years.

The value of the pound rose 0.3% against the dollar. For the UK and the EU negotiating relations after Brexit, this is an extremely important week, said the UK foreign Minister Dominic Raab. 

The yuan fell 0.2% against the dollar. The People's Bank of China (PBOC) has poured 200 billion yuan into the banking system under the medium-term lending program (MLF). The rate on one-year loans was left at 2.95% per annum. The Chinese Central Bank also provided 150 billion yuan in reverse REPO operations.

The purchasing managers ' index (PMI) in China's industry in November was 52.1 points, compared with 51.4 points a month earlier, according to data from the State statistical office. The value of the indicator reached its highest since September 2017, while analysts expected a less significant increase in the indicator - up to 51.5 points.

Meanwhile, the PMI of the services and construction sector of China in November reached the highest level in eight and a half years. The indicator was 56.4 points against 56.2 points a month earlier. The indicator is above the 50-point mark for the ninth consecutive month.

According to the report from the Federal Statistical Office (FSO), turnover adjusted for sales days and holidays rose in the retail sector by 2.6% in nominal terms in October 2020 compared with the previous year. Seasonally adjusted, nominal turnover rose by 3.3% compared with the previous month.

Real turnover adjusted for sales days and holidays rose in the retail sector by 3.1% in October 2020 compared with the previous year. Real growth takes inflation into consideration. Compared with the previous month, real, seasonally adjusted retail trade turnover registered an increase of 3.2%.

Retail sector excluding service stations

Adjusted for sales days and holidays, the retail sector excluding service stations showed a 4.5% increase in nominal turnover in October 2020 compared with October 2019 (in real terms +4.7%). Retail sales of food, drinks and tobacco registered an increase in nominal turnover of 10.7% (in real terms +9.7%), whereas the non-food sector registered a nominal negative of 1.1% (in real terms –0.1%).

Excluding service stations, the retail sector showed a seasonally adjusted increase in nominal turnover of 3.8% compared with the previous month (in real terms +3.7%). Retail sales of food, drinks and tobacco registered a plus of 5.6% (in real terms +5.4%). The non-food sector showed a plus of 1.8% (in real terms +1.6%).

FXStreet reports that FX Strategists at UOB Group said that cable is seen extending the upside while above the 1.3365 level in the near-term.

Next 1-3 weeks: “We have held a positive view in GBP for more than 2 weeks now. Our latest narrative was from last Thursday wherein ‘a break of 1.3400 would shift the focus to the year-to-date high at 1.3481’. GBP subsequently touched 1.3399 before dropping to a low of 1.3284 last Friday (27 Nov). While our ‘strong support’ level at 1.3280 is still intact, upward momentum has waned and the odds for further GBP strength have diminished. In order to rejuvenate the flagging momentum, GBP has to move and stay above 1.3365 within these 1 to 2 days or a break of 1.3280 would not be surprising and would indicate that the positive phase in GBP has run its course.”

Reuters reports that China’s factory activity expanded at the fastest pace in more than three years in November, while growth in the services sector also hit a multi-year high.

China’s official manufacturing Purchasing Manager’s Index (PMI) rose to 52.1 in November from 51.4 in October, data from the National Bureau of Statistics showed. It was the highest PMI reading since September 2017 and remained above the 50-point mark that separates growth from contraction on a monthly basis. It was also higher than the 51.5 median forecast in a Reuters poll of analysts.

“The rise in November manufacturing PMI, with broad-based improvements across the sub-indices, suggest the recovery momentum in the industrial sector has become more certain,” Zhang Liqun, analyst at China Federation of Logistics & Purchasing.

“But the results also showed inadequate demand is still a common issue facing firms. We need to consolidate the policy support aimed to expand domestic demand.”

In the services sector, activity expanded for the ninth straight month. The official non-manufacturing Purchasing Managers’ Index (PMI) rose to 56.4, the fastest since June 2012 and up from 56.2 in October, as consumer confidence gathered pace amid few COVID-19 infections.

Railway and air transportation, telecommunication and satellite transmission services and the financial industry were among the best performing sectors in November.

EUR/USD

Resistance levels (open interest**, contracts)

$1.2026 (5401)

$1.1997 (1257)

$1.1979 (4304)

Price at time of writing this review: $1.1974

Support levels (open interest**, contracts):

$1.1882 (272)

$1.1841 (1677)

$1.1795 (2596)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date December, 4 is 105398 contracts (according to data from November, 27) with the maximum number of contracts with strike price $1,1200 (6560);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3439 (1172)

$1.3408 (1009)

$1.3351 (2182)

Price at time of writing this review: $1.3342

Support levels (open interest**, contracts):

$1.3260 (1023)

$1.3234 (219)

$1.3203 (743)

Comments:

- Overall open interest on the CALL options with the expiration date December, 4 is 23553 contracts, with the maximum number of contracts with strike price $1,3500 (2766);

- Overall open interest on the PUT options with the expiration date December, 4 is 41599 contracts, with the maximum number of contracts with strike price $1,2700 (11992);

- The ratio of PUT/CALL was 1.77 versus 1.73 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.