CFD Markets News and Forecasts — 21-10-2019

• Says the matter was decided less than 49 hours ago
• It is hard to see a change of circumstances that would warrant a reconsideration on the next sitting day
• Application for Brexit delay is not persuasive as a change of circumstance
• Today's motion is in substance the same and the house has decided the matter
• The motion will not be debated today
• It would be repetitive and disorderly to do so. It is legitimate for the government to introduce its EU withdrawal bill

Analysts at the Royal Bank of Scotland (RBS) note that China’s gradual slowdown continued in Q3 with GDP rising 6%y/y, the slowest pace since at least the early 1990s.

• “Tariffs are biting (exports fell 3.2% in September) but there’s a squeeze at home, too. Relatively tight credit conditions are keeping investment subdued. Meanwhile consumers are feeling the pinch. Inflation notched up to 3% last month (it was just 1.7% back in January). A bout of African swine fever has pushed pork inflation to almost 70%! To cap it off the IMF downgraded the country’s growth forecast for 2020 to 5.8% from 6%. The gradual slowdown looks set to roll on.”

Analysts at TD Securities are expecting Canada's retail sales to increase by 0.6% in August on another sizeable pickup in motor vehicle sales, leaving the ex-auto figure little changed for a second consecutive month.

• “August was a record month for light truck sales, helped by ideal weather conditions, a recovering housing market, and robust labour market gains. This should more than offset the decline in passenger car sales while housing market strength should provide further support to durable goods via home furnishings.
• Lower gasoline prices will exert a modest headwind to total retail sales, leaving the ex. autos and gas measure to post a modest increase, while a modest decline in overall consumer goods prices suggests a more substantial pickup in retail volumes to the benefit of industry-level GDP. This should come as relief for those concerned by the Q2 consumption slowdown, however, a muted performance across June/ July will weigh on any rebound in Q3.”

James Smith, a developed markets economist at ING, notes that, though the UK PM may have a narrow majority for his revised Brexit deal, there are plenty of things that could derail the government's efforts to ratify the agreement before 31 October.

"1. Meaningful vote 2.0

• Now that PM Boris Johnson has sent the letter asking for an Article 50 extension, there is talk that the government will have another stab at a meaningful vote.
• The hope is that if the government can demonstrate it has a majority for its deal, it will give momentum to the passage of the withdrawal agreement bill (WAB) later in the week.

2. Second reading of the Withdrawal Agreement Bill - Tuesday

• That means the first big event this week is likely to be the second reading of the Withdrawal Agreement Bill (WAB) - currently pencilled in for Tuesday, 22 October.
• This is where MPs get to give their initial consent to the Brexit legislation - so effectively this is likely to be where we find out whether there really is a majority for PM Boris Johnson's deal.
• Clearing the second reading milestone will be a big win for the government, although, in reality, this is likely to be where the real fight begins.

3. Programme motion

• If the second reading of the bill passes, then the government will need to formally spell out how it intends to get it through parliament at breakneck speed.
• Don't forget that by historical standards, 10 days is a very ambitious timeframe to get a bill approved by lawmakers.
• Lawmakers will need to approve this timeline, and given that this is a matter of significant importance, will MPs be comfortable with the legislation going through so quickly and with minimal scrutiny? This could be a challenge for the government, and failure to get this motion approved will basically rule out leaving the EU on 31 October.

4. The amendments (committee stage)

• However, if MPs give their blessing to the government's accelerated timeline, the process will move to the committee stage. This is where MPs put forward amendments - and this could make-or-break the government's ambitions of getting the Brexit deal ratified this side of a general election. You can safely bet there will be an amendment put forward to make ratification of the deal conditional on holding a second referendum. But despite the Labour Party giving their blessing, most do not think this has the numbers in parliament. 
• There may also be amendments trying to add conditions to the payment of the £39bn 'divorce bill'. But the real focus will be on an amendment to try and force the government into negotiating customs union access as part of future trade talks.

5. A vote on whether to trigger a general election - later in the week

• If the government goes with the latter option, then there may well be a vote at some point this week on whether to trigger a general election. That could feasibly see the UK go to the polls in late November or early December.
• But as we discussed last week, Labour MPs will also need to agree to an election - and with the Conservatives flying in the polls, many will be very reluctant.
• These lawmakers are unlikely to be able to resist the pressure for an election forever, but there is growing talk that the timing of it could slip into 2020. Labour MPs may be hoping that some of the recent Conservative momentum will fade over the winter, which could in-turn help Labour shift attention back to its domestic agenda."

U.S. stock-index futures rose on Monday amid optimism around U.S.-China trade talks.However, further growth was limited by continuing drop in Boeing’s shares.

Global Stocks:

Analysts at TD Securities are expecting the Bank of Canada (BoC) to cut rates by 50bps over 2020, with 25bp cuts in January and April.

• “While the Canadian economy has thus far been resilient to global headwinds, we do not believe recent actions taken by the US and China to enough to meaningfully resolve the elevated level of trade uncertainty. This should prompt the BoC to provide more stimulus to offset the impact of global headwinds, although recent messaging suggests there is a very high bar to do so by the end of 2019.
• Underscoring the BoC's (relatively) constructive outlook is a healthy starting point; Q2 GDP was stronger than expected at 3.7%, and even with an undesirable composition (domestic demand contracted by 0.7%) the output gap is nearly closed.
• Core CPI remains target at 2.0% on average and labour market strength has shown no signs of abating, which supports the narrative that soft Q2 consumption was a one-off.”

Wall Street. Stocks before the bell

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

• If trade talks go well there is a possibility that December tariffs could be postponed, but he can not guarantee that at this time
• China's "mood" continues to be good

Apple (AAPL) target raised to $280 from $225 at Raymond James

Boeing (BA) downgraded to Neutral from Buy at UBS; target lowered to $375

Boeing (BA) downgraded to Neutral from Outperform at Credit Suisse; target lowered to $323

IBM (IBM) downgraded to Neutral from Buy at UBS; target lowered to $140

According to the latest CFTC Commitment of Traders Report, USD net longs slipped for the second consecutive week, note analysts at Rabobank.

“In the spot market the EUR has been reclaiming some ground vs. the USD since the start of Oct.

• The Fed’s action to relieve pressure in the US money market may have has some psychological impact in lessening demand for USDs.
• Net EUR short positions edged down slightly having leapt higher the previous week.
• Net short GBP positions dropped back for a fifth consecutive week.
• JPY net positions dropped back into negative ground have been positive for ten straight weeks on safe haven demand.
• Latest data show CHF net shorts increasing moderately. Despite its safe haven status, signs that the SNB is prepared to intervene in the FX market have distorted demand for the CHF.
• CAD net long positions pushed higher last week. Robust jobs data strengthens the case for steady rates from the BoC going forward.
• AUD net shorts increased modestly last week but remained below recent highs. The AUD’s role as a proxy for confidence in China suggests that US/China trade talks are providing direction. The RBA cut rates again this month.”

Carsten Brzeski, the chief economist at ING, notes that Thursday's meeting will be the last one with Mario Draghi as ECB president and there might not be another confetti shower during the press conference (a protester threw paper and confetti at him in 2015) but some retrospective comments should be expected.

"Confirmation of the economic assessment. The macro data released since the September meeting as well as recent speeches and statements from ECB officials provide very little reason for changes to the macro assessment. Instead, the ECB will very likely confirm the view of a longer-than-expected economic slowdown with no signs of a bottoming out of the manufacturing slump but tentative signs of contagion to the domestic economy. Against the background of continued external risks and increased economic uncertainties, the inflation outlook should remain weak as well.

Reiteration of September decisions. With no changes to the economic assessment, the ECB’s monetary policy stance should also remain unchanged.

Downplaying of internal divergence. This will be the most interesting part of the press conference. Will Draghi address the growing criticism and voiced opposition from within the ECB’s Governing Council or will he simply downplay it? We expect Draghi to come up with a strong (emotional) plea in support of the September package, probably combined with a broader attempt to safeguard the legacy of all measures taken under his leadership. Draghi will probably also stress the fact that the ECB's unconventional measures did have a significant impact on growth and inflation over the last few years, thereby justifying the September package.

No hints at additional measures. As this will be Mario Draghi’s last meeting at the ECB and as there have been no significant changes to the economic situation, we don’t expect any hints at future measures. Instead, Draghi will try to stress the ECB’s determination to act in the future."

• Phase two/three of China deal is "where the meat is"

Analysts at TD Securities point out that in Canada, Ballot boxes open at 7:00 ET for the 43rd Federal Election.

• “Polls have tightened over the last month which (likely) puts a majority out of reach for both major parties. Most polling stations will close at 21:30 ET, but with several toss ups on the west coast it is unlikely we will know the final results before BC polls close at 22:00 ET.”

• There is no certainty that the EU will agree to an extension if UK is forced to request one
• The meaningful vote will go ahead if the speaker agrees and if no amendments are selected which would render it meaningless
• If there are amendments the government will pull the motion for a meaningful vote
• We complied with the law, parliament’s request has been conveyed to the EU
• Discussions between the government and DUP are ongoing
• We will ensure as much time as required is given to get the legislation through
• The government is opposed to the customs union and a second referendum, both have been voted on before and have not been successful
• If essentially the legislation in parliament steps too far away from the Withdrawal Agreement and political declaration, it does bring into question ratification

October 22

Before the Open:

McDonald's (MCD). Consensus EPS $2.21, Consensus Revenues $5472.43 mln

Procter & Gamble (PG). Consensus EPS $1.24, Consensus Revenues $17432.67 mln

Travelers (TRV). Consensus EPS $2.35, Consensus Revenues $7168.86 mln

United Tech (UTX). Consensus EPS $2.03, Consensus Revenues $19305.23 mln

After the Close:

Snap (SNAP). Consensus EPS -$0.05, Consensus Revenues $435.71 mln

October 23

Before the Open:

Boeing (BA). Consensus EPS $2.18, Consensus Revenues $20162.86 mln

Caterpillar (CAT). Consensus EPS $2.90, Consensus Revenues $13490.05 mln

Freeport-McMoRan (FCX). Consensus EPS $0.01, Consensus Revenues $3511.58 mln

After the Close:

eBay (EBAY). Consensus EPS $0.64, Consensus Revenues $2647.12 mln

Ford Motor (F). Consensus EPS $0.26, Consensus Revenues $33875.57 mln

Microsoft (MSFT). Consensus EPS $1.24, Consensus Revenues $32240.71 mln

Tesla (TSLA). Consensus EPS -$0.28, Consensus Revenues $6483.02 mln

October 24

Before the Open:

3M (MMM). Consensus EPS $2.50, Consensus Revenues $8196.64 mln

Comcast (CMCSA). Consensus EPS $0.74, Consensus Revenues $26793.60 mln

Dow (DOW). Consensus EPS $0.73, Consensus Revenues $10848.16 mln

Twitter (TWTR). Consensus EPS $0.20, Consensus Revenues $875.29 mln

After the Close:

Amazon (AMZN). Consensus EPS $4.50, Consensus Revenues $68707.18 mln

Intel (INTC). Consensus EPS $1.24, Consensus Revenues $18065.51 mln

Visa (V). Consensus EPS $1.43, Consensus Revenues $6099.56 mln

October 25

Before the Open:

Verizon (VZ). Consensus EPS $1.23, Consensus Revenues $32738.81 mln

Yandex N.V. (YNDX). Consensus EPS RUB23.12, Consensus Revenues RUB44304.96 mln

Analysts TD Securities note UK Parliament did not approve Boris Johnson's new Withdrawal Agreement at its special Saturday sitting, as they expected.

• “The Prime Minister has now requested an extension to 31 January 2020, and the EU will take their time to respond. The government hopes to hold another "Meaningful Vote" later today (after 4pm BST) but could be unsuccessful in its bid, in which case it will table the Brexit legislation today and hold a vote on it tomorrow, which is sure to go ahead. Key to tomorrow's vote will be amendments such as a second referendum, customs union, etc. A "clean", unamended vote on the deal would likely now pass Parliament by a slim margin."

• Hopes UK's parliament takes decision today to achieve that
• Says would not rule out a short technical Brexit extension

The CFTC Positioning Report for the week ended on October 15 notes:

• "Both gross longs and shorts in GBP went down during last week, although that was enough to drag the net short position to the lowest level since July 2nd, always on the back of rising hopes of a Brexit agreement. Ultimately, the UK and the EU reached a deal after the cut-off date, although uncertainty still persists.
• Speculators sold the Japanese safe-haven JPY and pushed it back to the negative territory for the first time since late July. The better tone in the broader risk-appetite trends continued to sustain the outflows from the safer assets.
• USD gross longs/shorts shrunk for the second consecutive week, taking the net longs to 5-week lows. Deteriorating US data releases, the ‘Phase One’ deal between the U.S.-China and the improved sentiment in the risk complex hit the mood in the buck during last week."

• Sees risk of slowdown in exports affecting domestic economy as well
• There are increasing risks of a spillover from industrial slowdown to domestic demand
• However, a deep recession is not expected

Analysts at Rabobank offered their take on the recent Brexit drama, wherein the UK parliament did not vote on the UK Prime Minister Boris Johnson’s withdrawal deal on Saturday. 

"The amendment that was put forward by former Cabinet minister Letwin threw a spanner in the works. This amendment withholds the parliamentary approval of Prime Minister Johnson’s Withdrawal Agreement with the European Union until the legislation to implement this deal is fully in place. It was passed by 322 to 306. As a consequence, the Benn Act kicked in and the PM was forced to ask the EU for a delay to the October 31 deadline. Although Johnson reluctantly complied with the law by sending an unsigned letter requesting the delay, he sent a second warning against any delay. The tightness of the Letwin vote indicated that Johnson could actually have had the numbers to get his deal through the Commons. This factor has limited the disappointment for GBP this morning. The government will seek to hold another meaningful vote on the current deal on October 21. But, Speaker Bercow isn’t obliged to allow the government to repeatedly hold debates on the same subject. Instead, the immediate focus in parliament could be on the various bills that need to be in place to facilitate the Withdrawal Agreement and on various amendments that could be put forward by the opposition. While EU leaders have been informed by Donald Tusk that PM Johnson has asked for the Article 50 to be extended, they will not be in a hurry to respond and will wait for further developments in the UK parliament".

China is seeking $2.4 billion in retaliatory sanctions against the United States for non-compliance with a WTO ruling in a tariffs case dating to the Obama era, a document published on Monday showed.

WTO appeals judges said in July that the United States did not fully comply with a WTO ruling and could face Chinese sanctions if it does not remove tariffs on solar panels, wind towers, steel cylinders and aluminium extrusions.

China, in a request posted by WTO ahead of a Dispute Settlement Body on Oct 28, said: "In response to the United States' continued non-compliance with the DSB's recommendations and rulings, China requests authorization from the DSB to suspend concessions and related obligations at an annual amount of $2.4 billion."

FX Strategists at UOB Group see the Aussie Dollar gaining further ground to the 0.69 region vs. the Greenback in the next weeks.

24-hour view: “Last Friday we held the view that “the strong rally appears to be running ahead of itself but there is room for AUD to extend higher to 0.6860”. However, AUD only touched a high of 0.6857. Upward pressure has eased and this coupled with overbought conditions suggest AUD has likely moved into a consolidation phase. In other words, AUD is expected to trade sideways for today, likely between 0.6825 and 0.6865”.

Next 1-3 weeks: “There is no change to our view from last Friday (18 Oct, spot at 0.6825) wherein the “risk has shifted to the upside and the focus is at 0.6895”. The relatively strong gain of +0.43% (NY close of 0.6857) bodes well for our view and a rise above 0.6895 would not be surprising (next resistance is at 0.6930). On the downside, a break of 0.6780 (‘strong support’ was at 0.6750 last Friday) would indicate that our view for a stronger AUD is wrong”.

China’s banking and insurance regulator’s vice chairman, Huang Hong, said that the country’s banking sector has disposed of 1.4 trillion yuan ($197.97 billion) of non-performing loans from January to September.

Outstanding loans made to small firms by China’s five largest lenders stood at 2.52 trillion yuan by the end of September, up 47.9% from the figure at end-2018, according to Zhu Shumin, another vice chairman of the China Banking and Insurance Regulatory Commission (CBIRC).

The CBIRC was also studying plans to shift peer-to-peer lenders and online lending platforms into micro lenders, according to Zhu.

Nobel-prize winning economist Robert Shiller believes a recession may be years away due to a bullish Trump effect in the market.

According to the Yale University professor, President Donald Trump is creating an environment that’s conducive to strong consumer spending, and it’s a major force that should hold off a recession.

“Consumers are hanging in there. You might wonder why that would be at this time so late into the cycle. This is the longest expansion ever. Now, you can say the expansion was partly [President Barack] Obama,” he told CNBC. “But lingering on this long needs an explanation.”

Shiller believes Americans are still opening their wallets wide based on what President Trump exemplifies: Consumption.

“I think that [strong spending] has to do with the inspiration for many people provided by our motivational speaker president who models luxurious living,” said Shiller.

Shiller emphasizes there’s still uncertainty and risk surrounding Wall Street. Before the markets can take-off, Shiller stresses President Trump needs to get past the impeachment inquiry. He sees this as the biggest threat to his optimistic forecast.

Joerg Wuttke, president of the European Union Chamber of Commerce in China, told reporters that based on a preliminary look at the country’s new foreign investment law, “It is surprisingly accommodating to all concerns ... we have.”

The law, set to take effect Jan. 1, puts a strong emphasis on preventing Chinese entities from forcing foreign companies to transfer valuable technology in order to do business in China, and also improves protection of trade secrets, Wuttke said.

If fully implemented, these aspects of the law would address two major business complaints that have been cited in the trade dispute between China and the U.S.

When the foreign investment law was passed at an annual congress in March, some business leaders worried that the new rules were turned into law too quickly — just about three months since the first draft — and contained vague wording that could make enforcement difficult.

Other analysts point out that the challenges for foreign business operations in China center on longstanding issues of state control, which has actually increased after some effort to reduce it.

Although the foreign investment law was passed in March, the Chinese government has still been soliciting comments on it.

The EU Chamber received a review copy on Oct. 10 and has 20 days to respond. He noted that there is no penalty clause included so far in the implementation, which could indicate the law is incomplete.

China made no changes to its benchmark rate, surprising many. Questions are being asked as to whether it will end the Reserve Requirement Ratio (RRR) cut cycle in 4Q19, writes Iris Pang – Economist Greater China at ING.

"We will have a clearer answer from the central bank in 4Q19 as we expect that the PBoC will cut RRR by 0.5 percentage point even if there is a "phase one deal" released in November. The Chinese economy has suffered from a long trade war (since March 2018), and the cumulative damage has been increasingly obvious when you look at the data. For example, smartphone production was down on a yearly basis in September. An RRR cut is therefore expected to put downward pressure on interest rates. This will help both the public sector to finance infrastructure projects and the private sector to reduce interest costs".

Danske Research discusses its expectations around ECB policy meeting. 

"This week’s ECB meeting is Draghi’s final meeting before leaving office on 31 October. Despite lower inflation expectations, we do not expect any new policy measures/changes as the September package is yet to be implemented. Focus will be on the recent public disagreement in the governing council as well as tiering implementation. With no change in policies at the ECB meeting, we do not expect a change in current market dynamics coming from the ECB, but rather the global environment. Market reactions are therefore expected to be relatively muted next week, albeit we acknowledge a bit of upside to EUR/USD on the day," Danske adds.

Britain could still leave the European Union within 10 days time, French Junior Economic Minister Agnes Pannier-Runacher said on Monday.

“One cannot rule out a Brexit within 10 days,” she told Sud-Radio. She said general progress had been made, but added that many small French companies still had to do more work to be ready in the case of a “no-deal” Brexit.

The British government insisted on Sunday the country will leave the European Union on Oct. 31 despite a letter that Prime Minister Boris Johnson was forced by parliament to send to the bloc requesting a Brexit delay.

China’s economic growth could moderate further in 2020 — even though the global economy is likely to pick up pace, projected the International Monetary Fund.

The fund said the Chinese economy could grow at 5.8% next year — slower than the 6.1% forecast for 2019. China grew 6.6% last year, according to the IMF.

“The Chinese economy is slowing down, which has continued an earlier trend of slowing down, which started a couple of years ago,” Tao Zhang, IMF’s deputy managing director, told.

“In recent years, what’s going on in the world — we have trade tensions, we have other geopolitical forces, we have all these uncertainties around the world ... these add further downside pressures to the Chinese economy,” he added.

Still, Zhang said such growth rates are “reasonable” given that China is restructuring its economy to expand in a more sustainable way. That means relying less on debt to fuel growth, while focusing more on domestic consumption.

Such a transition would translate to slower but better quality growth in China, according to Zhang.

FX Strategists at UOB Group expect Cable to remain bid in the next weeks, with the immediate target at the key 1.30 handle.

“While our view for GBP/USD to strengthen was correct, the pace and extent of the advance has exceeded our expectation by a wide margin as GBP/USD rallied over the past couple of weeks and touched a 5-month high of 1.2988. The ease by which the 2-1/2 year declining trend line at 1.2720 was taken out coupled with strong and impulsive momentum suggests there is room for GBP/USD to advance further in the coming weeks. The next level to focus on above the round-number resistance of 1.3000 is at 1.3150, followed closely 1.3190. At 1.3150, GBP/USD would have retraced about 50% of the 2-1/2 -year decline from the April 2018 top of 1.4377 to the early September low of 1.1959. On the downside, support is at 1.2630 followed by 1.2400. The early September low of 1.1959 is but a distant memory and is highly unlikely to come into the picture anytime soon”.

According to the report from Federal Statistical Office, in September 2019 the index of producer prices for industrial products decreased by 0.1% compared with the corresponding month of the preceding year. Economists had expected a 0.3% decrease. In August 2019 the annual rate of change all over had been +0.3%, as reported by the Federal Statistical Office. Compared with the preceding month August 2019 the overall index rose slightly by 0.1% in September 2019 (-0.5% in August 2019).

Energy prices as a whole decreased by 1.9% (+0.4% compared to August 2019). On an annual basis prices of natural gas (distribution) decreased by 6.8% and prices of petroleum products by 7.6% whereas prices of electricity rose by 3.7%. The overall index disregarding energy was 0.5% up on September 2018 and decreased slightly by 0.1% compared to August 2019.

Prices of intermediate goods decreased by 1.0% compared to September 2018 (-0.3% on August 2019). Prices of capital goods increased by 1.5%, prices of durable consumer goods were up 1.4%. Prices of non-durable consumer goods increased by 1.8% compared to September 2018 (+0.2% on August 2019). Food prices were up 2.2%.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1246 (2945)

$1.1230 (3657)

$1.1213 (2236)

Price at time of writing this review: $1.1159

Support levels (open interest**, contracts):

$1.1108 (1735)

$1.1074 (2396)

$1.1034 (2571)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date November, 8 is 72416 contracts (according to data from October, 18) with the maximum number of contracts with strike price $1,0900 (4369);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3088 (1603)

$1.3046 (1804)

$1.3024 (1111)

Price at time of writing this review: $1.2902

Support levels (open interest**, contracts):

$1.2730 (210)

$1.2698 (178)

$1.2665 (162)

Comments:

- Overall open interest on the CALL options with the expiration date November, 8 is 33485 contracts, with the maximum number of contracts with strike price $1,3200 (3670);

- Overall open interest on the PUT options with the expiration date November, 8 is 26873 contracts, with the maximum number of contracts with strike price $1,2100 (3176);

- The ratio of PUT/CALL was 0.80 versus 0.74 from the previous trading day according to data from October, 18

* - 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.