Forex-novosti i prognoze od 14-10-2019

Major US stock indices fell slightly amid fears that a partial US deal with China, which US President Trump announced on Friday, could break.

Pressure on the market was also exerted by stocks of energy companies amid falling oil prices by more than 2%, which, according to some analysts, is associated with weakening hopes for a trade deal between the US and China.

Bloomberg said this morning that informed sources are reporting that Chinese officials are reluctant to sign the “first phase” of the deal, announced on Friday by the US president, without further discussion. According to them, at the end of this month, China may send a delegation led by Deputy Prime Minister Liu He to agree on details before President Xi Jinping agrees to sign a partial deal. Beijing also wants Washington to also cancel the planned tariff increase in December in addition to the planned increase this week.

Meanwhile, US Treasury Secretary Stephen Mnuchin told CNBC today that if the US does not enter into a trade deal with China before December 15, they will introduce tariffs on Chinese goods, but added that he hopes for a deal. According to him, the parties reached a fundamental agreement in principle, but there remain a number of issues that still need to be worked out.

Investors are also preparing for the start of the corporate reporting season for the third quarter, which starts on Tuesday with the publication of the results of the largest banks - Citigroup (C), Goldman Sachs (GS), J.P. Morgan Chase (JPM) and Wells Fargo (WFC). According to FactSet, analysts expect S&P 500 earnings to fall 4.6% in the third quarter from the same period last year.

DOW components completed trading mixed (17 in the red, 13 in the red). Outsiders were shares of Cisco Systems, Inc. (CSCO; -1.18%). The biggest gainers were 3M Company shares (MMM .; + 1.45%).

All S&P sectors recorded a decline. The conglomerate sector showed the largest decline (-1.1%).

At the time of closing:

Dow 26,786.95 -29.64 -0.11%

S&P 500 2,966.18 -4.09 -0.14%

Nasdaq 100 8,048.65 -8.39 -0.10%

ANZ analysts note that China’s commodity imports for September were mixed amid uncertainty surrounding global economic backdrop.

• “Energy imports showed continued strength, while industrial metals were largely weaker. We suspect volumes may also have been boosted by restocking ahead of the 70th anniversary holiday, suggesting overall demand remains weak.
• With maintenance season wrapping up, oil imports stayed buoyant. Attractive profit margins continued to favour higher imports; despite the industry burdened by higher products inventories. LNG imports slipped only slightly from their August levels, but were up strongly on a y/y basis.
• Copper imports weakened sharply last month. Primary copper imports fell 14.6% while concentrate imports were down further. Overall, this saw total copper units imported (refined metal + copper in concentrates) fall 16% y/y. This likely reflects subdued activity in the manufacturing sector, particularly considering the uncertainty that the US-China trade conflict presented during this period.
• The continued recovery from recent disruptions in Australia and Brazil were reflected in stronger iron ore imports. Coal imports tailed off from strong levels the previous month but remained relatively elevated. However, with the peak demand season coming to a close, import demand is likely to weaken further.”

Analysts at TD Securities are expecting a 3.0% y/y outcome for China's CPI in September.

• “Inflation has risen over past months due largely to higher food inflation, in particular, pork prices, which were up 23.1% m/m, 47% y/y in August in the wake of the spread of African Swine Disease. This has also helped to push other meat prices higher. However, other CPI components remain soft, resulting in ex-food CPI matching its lowest reading since May 16. We expect a similar picture in September, with little sign of any let-up in the rise in pork prices.”

Analysts at Deutsche Bank list down major market-moving events and economic releases for the week ahead.

• “Tuesday.

1. Data: China September CPI, PPI; Japan August capacity utilisation, tertiary industry index, final industrial production; France final September CPI; UK August unemployment, average weeekly earnings; Germany October Zew survey; US October Empire State manufacturing survey; Canada September existing home sales;
2. Central Banks: RBA minutes from October meeting released; BoJ's Kuroda, Fed's Bullard, Bostic, George and Daly, BoE's Carney, Vlieghe speak;
3. Other: Tariff hike from 25% to 30% scheduled on $250bn worth of Chinese goods by US; IMF release World Economic Outlook.

• Wednesday.

1. Data: South Korea September unemployment rate; EU27 September new car registrations; Italy August industrial sales, industrial orders; UK September CPI, RPI, PPI; Euro area August trade balance, final September CPI, core CPI; US weekly MBA mortgage applications, September retail sales, October NAHB housing market index, August business inventories; Canada September CPI;
2. Central Banks: Bank of Korea decision, Federal Reserve publishes Beige Book; ECB's Knot, Lane, Weidmann, Villeroy, BoE's Carney, Fed's Evans and Brainard speak.

• Thursday.

1. Data: Australia September unemployment rate; Italy August trade balance; UK September retail sales; Euro area August construction output; US September building permits, housing starts, October Philadelphia Fed business outlook survey, weekly initial jobless claims, continuing claims, September industrial production, capacity utilisation; Canada August manufacturing sales;
2. Central Banks: ECB's Villeroy, Visco, Knot, De Cos, Fed's Evans, Bowman and Williams speak;
3. Politics: European Council summit meets.

• Friday.

1. Data: Japan September nationwide CPI; China September industrial production, retail sales, Q3 GDP; Italy August current account balance; Euro area August current account; US September leading index;
2. Central Banks: Fed's Kaplan, George and Clarida speak;
3. Politics: European Council summit continues Earnings: Coca-Cola, American Express;
4. Other: US tariffs scheduled to come into effect on EU goods.”

• Low level of interest rates a structural trend
• Monetary policy is not powerless, but expect more tools will be needed to stimulate demand in a downturn
• It is too early to say that we need more coordination between monetary and fiscal policy
• Need to approach any fundamental reengineering of relationship between BoE and treasury very cautiously
• Lower market interest rates probably reflect over pessimism about long term growth
• Expects increase pressure on banks to hunt for yield, take more risk
• As not yet seen banks take significantly more risk, regulation and memory of crisis may be restraining this, but this could be changing
• Tension U.S. reported last month were surprised
• Repo tension may tell us something about fragility of sentiment
• Brexit uncertainty generally weighing on investment
• Global economy is weaker, trade disruption hurting investment globally
• Economic outlook weaker than expected a year ago, reiterates rates can move in either direction after no-deal Brexit
• When told by audience member that people did not believe BoE would ever raise rates after a no-deal Brexit, says people expectations aren't always right
• Asked about negative BoE rates, said that they were be a very big shift to world as people know it
• Says that the BoE has other tools that would be more effective than negative rates

Analysts at ABN AMRO say the global economy has slowed markedly since early 2018 and their outlook is for continued sluggish, below-trend growth but no recession.

• “What would make me more optimistic is a reasonably convincing deal between the US and China and evidence that business confidence is responding positively to that. That is certainly a possibility, but we have been hopeful in the past only to be disappointed eventually. Bar a US-China deal, we cannot see what should make us much more optimistic.
• On the other hand, we do not think a (US) recession is imminent. US consumers are simply too strong. It usually requires consumers to throw in the towel to push the US economy into a recession. But unemployment is very low, income gains reasonable, the savings rate high and the debt service ratio very low. No wonder consumer confidence is high. While we expect things to deteriorate as slower investment spending growth will have an impact on the labour market that will take a while.
• Meanwhile, the Fed has eased twice and may ease more. Hawkish critics argue that the Fed’s actions are premature and that they should not be easing when unemployment is at record lows.
• There wasn’t much important data out in recent days. Industrial production rose 0.3% mom in Germany in August after falling 0.4% in July. The yoy rate deteriorated from -3.9% to -4.0%. Industrial orders in Germany fell again in August, by 0.6% mom. The yoy rate deteriorated from -5.6% in July to -6.7%. This is pretty dire.
• French industrial performance has been more positive than Germany’s in recent months. However, August was a poor month for France. Industrial production fell 0.9% mom and 1.4% yoy. This is still better than Germany but it is heading in the same direction.”

U.S. stock-index futures fell on Monday as hopes of a quick resolution to the U.S.-China trade dispute were dashed by Bloomberg’s report that China wanted more talks before signing the “phase one” trade deal, announced by President Donald Trump on Friday.

Global Stocks:

According to CFTC Commitment of Traders Report, USD net longs slipped for the first time since the middle of August, though levels remain elevated, note analysts at Rabobank.

• “In the spot market the EUR has been reclaiming some ground vs. the USD since the start of the month.
• Net EUR short positions leapt higher last week. Some members of the Governing Council pushed back against the easing package announced at the September policy meeting.
• Net short GBP positions dropped back for a fourth consecutive week.
• JPY net positions have been back in positive ground for ten straight weeks on safe-haven demand, but longs have been dropping back for four weeks.
• Latest data show CHF net shorts edging lower. 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 edged lower last week. The fall back in oil prices since the middle of September has weighed on the CAD.
• AUD net shorts dropped back last week. The AUD’s role as a proxy for confidence in China suggests that trade talks between the US and China are providing direction. The RBA cut rates again this month.”

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

• Downward pressure on economy is increasing
• Overall economy is generally stable
• Will make good use of counter-cyclical adjustments

McDonald's (MCD) downgraded to Neutral from Buy at Kalinowski

NIKE (NKE) upgraded to Neutral from Underperform at BofA/Merrill; target $98

• Progress made last week. Phase 1 deal is substantial
• China will step up agricultural purchases
• There needs to be a dispute resolution enforcement provisions
• Has "every expectations" that if US China trade deal is not in place Decembe- 15 tariffs will be imposed, but expects a deal
• Dispute resolution mechanism is important
• There is a fundamental agreement in principle; there are still some issues that need to be worked out 
• But we have every expectations that phase-1 will close
• The deputy level calls this week; Lighthized and Mnuchin to make a call to vice premier next week
• NBA must work out China deal on its own

Analysts at the Royal Bank of Scotland (RBC) note that both sides in the trade war were in rapprochement mode last week.

• “China committed to doubling its annual purchase of American agricultural products to as much as $50bn. The US, in turn, held back from implementing tariff increases scheduled for this week. But there are still plenty of clouds on the horizon.
• All the existing tariffs remain in place and the threat of escalation remains (tariffs increases due on the 15 December would hit consumer goods) and the core issues of national security and technology transfer have yet to be thrashed out. Long way to go in this saga.”

Analysts at National Bank Financial (NBF) believe that, in Canada, a lot of attention will be on September’s consumer price index.

• “Gasoline prices were essentially in line with seasonal patterns in the month, a development which may translate into a flat reading for headline inflation (m/m, not seasonally adjusted). This rather soft print would still allow the 12-month rate to gain 5 ticks to 2.4%, thanks to a positive base effect. The annual rate of CPI-common, for its part, could rise one tick to 1.9%.”

Analysts at Deutsche Bank suggest that the focal point of the week for the markets will be the EU Council summit, taking place on Thursday and Friday. 

• “Amidst the negotiations with the EU, the UK government will also be outlining its legislative programme for the coming session of Parliament in a Queen’s Speech today. Surreal timing given all that’s going on but it will effectively be an election manifesto. This all comes before a planned special sitting of Parliament, which is also the deadline set under the Benn Act, which says if MPs either haven’t approved a deal by that date, or explicitly approved leaving the EU without a deal, then the Prime Minister has to ask for a three-month extension to the Article 50 deadline, currently set for 31 October. So a bumpy path to a binary moment on Saturday.
• Our FX strategist became bullish on Sterling on Friday morning and target $1.35. They are slightly less concerned as to whether the deal passes as they think the latest developments mean that as a minimum the Tories should now campaign on their deal if they get voted down in Parliament. So they believe the next election will be based around a deal (if one hasn't been reached) or a second referendum and that no deal risks have fallen.”

Bert Colijn, a senior Eurozone economist at ING, notes that despite the fact the Eurozone's industrial production increased by 0.4% in August, it doesn't really seem like the industrial recession has ended just yet.

• "While the industrial downturn has hit Germany and Italy the hardest out of the larger eurozone economies, August data showed some relief for both.
• On the other hand, France saw a decline, confirming that it isn't immune to the global problems that the industry is facing. Overall, as production data is rather volatile, it does not look like this is a turning point for any of the large industries as concerns persist.
• The outlook for the industry does not show much light at the end of the tunnel as September survey data suggest continued contraction at the end of Q3. Production peaked almost two years ago, but spillovers to the service sector have remained limited for now. That means that GDP growth can remain positive in the short run although worries about the coming quarters persist.
• Given that the industrial downturn has been significantly impacted by the global trade conflict, Friday’s partial agreement between China and the US can be seen as a first positive sign.
• With Brexit developments and possible car tariffs still to be decided in the coming months, Q4 is set to be a key quarter for the medium-term industrial outlook."

The CFTC Positioning Report for the week ended on October 8th notes:

• Speculators took their net short positions in EUR to the highest level since June 11, always on the back of the persistent slowdown in the euro area and prospects of ECB easing and in spite of the broad-based sell-off in the Greenback during the past sessions.
• GBP net shorts shrunk to the lowest level since early July following renewed speculations of a positive outcome from the Brexit negotiations before the October 31st deadline.
• The positive tone in the risk-associated universe motivated speculators to trim further their long positions in the safe-haven JPY, taking net longs to the lowest level since August 6th.

• Saudi Arabia's oil output in October was at 9.86 million barrels per day, same in November
• We will maintain exports at 6.9-7 mln bpd to the end of the year
• Current export levels are 6.9 mln bpd
• Oil market is not stable yet; we see the volatility on the market
• We hope that Nigeria, Gabon, South Sudan and Iraq will be fully compliant with OPEC+ deal in October
• We have time to review the details of OPEC+ deal if needed before the December meeting

• China wants further talks as soon as the end of October to hammer out the details of the “phase one” trade deal touted by Donald Trump before Xi Jinping agrees to sign it
• China may send a delegation led by Vice Premier Liu He to finalize a written deal that could be signed by the presidents at the Asia-Pacific Economic Cooperation summit next month in Chile
• China also wants U.S.  to also scrap a planned tariff hike in December in addition to the hike scheduled for this week

The German economy is unlikely to slide into a prolonged recession even as it languishes in a weak growth cycle, the Economy Ministry said on Monday.

The German economy is expected to contract slightly in the third quarter as it did in the April-June period as exports weaken on uncertainties linked to Britain’s planned departure from the European Union as well as trade conflicts.

“A stronger slowdown or a pronounced recession are not to be expected at the moment,” the ministry said. “The export-oriented German industry is facing weak global trade, stagnating global manufacturing and falling demand for cars.”

“The German economy remains in stagnation,” it added. “Economic activity is stuck at the existing level.”

Economists have voiced concern that the slowdown in manufacturing would sooner or later spread to other sectors of Europe’s biggest economy, whose robust labor market is starting to feel the effects of the drag.

The ministry said that growth in services and construction was largely compensating for a recession in the export-dependent manufacturing sector.

Finance minister Sajid Javid said on Monday he planned to deliver Britain's first post-Brexit budget statement on Nov. 6, less than a week after the country's deadline for leaving the European Union, if it exits with a deal.

"I will be setting out our plan to shape the economy for the future and triggering the start of our infrastructure revolution," Javid said in a statement.

However, in the event of a no-deal Brexit - which would cause a major shock to the world's fifth-biggest economy - the government would act quickly to outline its approach and "take early action to support the economy, businesses and households", followed by a budget in the weeks after, the government said.

Prime Minister Boris Johnson says he will take Britain out of the EU on Oct. 31, if necessary without a transition deal to soften the economic turmoil. But lawmakers have passed legislation aimed at forcing him to seek a delay if there is no transition.

According to estimates from Eurostat, in August 2019 compared with July 2019, seasonally adjusted industrial production rose by 0.4% in the euro area (EA19) and by 0.1% in the EU28.  Economists had expected a 0.3% increase in the euro area. In July 2019, industrial production fell by 0.4% in the euro area and by 0.1% in the EU28. In August 2019 compared with August 2018, industrial production decreased by 2.8% in the euro area and by 2.0% in the EU28.

In the euro area in August 2019, compared with July 2019, production of capital goods rose by 1.2% and intermediate goods by 0.3%, while production of non-durable consumer goods fell by 0.3%, and durable consumer goods and energy by 0,4%. In the EU28, production of capital goods rose by 0.8% and intermediate goods by 0.2%, while production of durable consumer goods fell by 0.5%, and energy and non-durable consumer goods by 0.6%.

In the euro area in August 2019, compared with August 2018, production of non-durable consumer goods fell by 2.0%, capital goods by 2.9%, intermediate goods by 3.1% and energy by 3.3%, while production of durable consumer goods rose by 0.4%. In the EU28, production of non-durable consumer goods fell by 0.4%, intermediate goods by 2.3%, capital goods by 2.6% and energy by 3.0%, while production of durable consumer goods rose by 0.8%.

In their latest note, the firm says that they do not expect the offshore yuan to strengthen beyond 7.00 per dollar in the near-term. However, they do see the potential for recent gains in the currency to run further. 

"There has been continued inflows into CNH from both leveraged and real money community in recent weeks but we do not expect a material risk of long USD/CNH positions unwinding. The caveat for any significant yuan strength pushing USD/CNH below 7.00 is "if market prices in a deal with tariff rollback", which the firm concedes as being unlikely for now. 

They add that they are "skeptical of a comprehensive trade deal before the 2020 election".

The Danske Bank analysts provide brief insights on the key events of note later in the day ahead.

"Today, focus is first and foremost on the ongoing Brexit negotiations, as the deadline for reaching a deal before the EU summit is tomorrow. There was 'no breakthrough' over the weekend and the rest of the EU seems less upbeat than the Irish. It was also a blow for Johnson that DUP's deputy leader Dodd said 'no' to the current proposal. We now think the probability of a deal is 20% (from below 10% previously) but our base case remains another Brexit extension followed by a snap election. For more details see our Brexit Monitor: 20% probability of a deal but another extension followed by snap election remains our base case , 13 October. Markets will also focus on the ongoing trade negotiations between the US and China after they completed 'phase one' of the negotiations on Friday. Despite the renewed optimism, in particular from the US side, we think there are still significant hurdles for a more comprehensive deal. Today we have a thin calendar in terms of economic data releases. The euro area industrial production in August will likely attract attention given the weak PMIs. We do not expect the data to bring any cheer, showing the industrial recession dragging out in Q3".

Morgan Stanley says President Donald Trump’s partial trade deal with China is an “uncertain” arrangement at best and there does not appear to be viable path to reduce existing tariffs at the moment. 

The U.S. agreed to suspend a tariff increase on at least $250 billion in Chinese goods to 30% from 25% set for Tuesday, but a tariff hike implemented in September was not rolled back and plans for another hike just before the the Christmas holiday on Dec. 15 remain in place.

Without a durable dispute settlement mechanism in place, another round of tariff increases cannot be ruled out, according to Morgan Stanley. 

“There is not yet a viable path to existing tariffs declining, and tariff escalation remains a meaningful risk,” the bank said in a note. “Thus, we do not yet expect a meaningful rebound in corporate behavior that would drive global growth expectations higher.”

The president said that the first phase of the trade deal will be written over the next three weeks. As part of phase one, China will purchase between $40 billion and $50 billion in U.S. agricultural products.

According to Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, EUR/USD could extend the recovery to the area above 1.1100 the figure.

“EUR/USD last week eroded the four month downtrend and given that the market has recently reversed from the base of the weekly channel at 1.0892, we view the market as a base. We look for recovery to initially the mid September high at 1.1110. A close above here would trigger another leg higher to the 200 day ma at 1.1218. Longer term the critical resistance to overcome is the top of the one year channel at 1.1396 and the 200 week ma at 1.1353. Dips lower should be contained by 1.0990 and 1.0941 for an immediate upside bias to be maintained”.

Auto sales in China fell for a 15th consecutive month in September, with the number of new energy vehicles (NEVs) sold contracting for the third month in a row, data from the country’s biggest auto industry association showed.

Total auto sales fell 5.2% from the same month a year earlier, the China Association of Automobile Manufacturers (CAAM) said. That followed declines of 6.9% in August and 4.3% in July. 

Sales of new energy vehicles (NEVs) fell 34.2% in September, CAAM said, following a 15.8% decline in August. NEV sales jumped almost 62% last year as the broader auto market contracted. NEVs include plug-in hybrids, battery-only electric vehicles and those powered by hydrogen fuel cells. China has been a keen supporter of NEVs and has implemented sales quota requirements for automakers.

MUFG Research discusses USD/JPY tactical outlook and adopts a neutral bias, expecting the 109 level to cap further upside in the near-term.

"Retail sales data due out on the 16th will be important to watch, given the sudden slump in the non-manufacturing ISM index and weak wage growth. Retail sales undershooting market expectations could push down on USD/JPY temporarily. But widening USD/JPY basis shows that demand for the USD will be strong through year’s end. Outward investing unhedged for currency risk is likely to continue, so JPY selling by Japanese will likely support a lower bound for USD/JPY," MUFG adds.

Financial Times (FT) said that more than 25% of the United Kingdom (UK) government debt is being owned by foreign investors.

The news report mentions that overseas fund managers snap up more than £100 billion of gilts since the EU referendum while affirming that foreign investors own roughly 28% of the gilt market.

“In the past, overseas investors have tended to pause their purchases when they are worried about depreciation of the UK currency, such as during the financial crisis. But the money flowing into the gilt market may also be a direct result of declines in the value of the pound since 2016. In recent years, investors at home and abroad have seen rising risks of a disruptive Brexit as a reason to buy gilts, betting that the resulting damage to the economy would force the BoE to cut interest rates or even restart its bond-buying programme.”

As reported by the Federal Statistical Office (Destatis), the selling prices in wholesale trade fell by 1.9% in September 2019 from the corresponding month of the preceding year. In August 2019 and in July 2019 the annual rates of change had been -1.1% and -0.1%, respectively.

From August 2019 to September 2019 the index fell by 0.4%.

The biggest influence on the overall development compared to the same month of the previous year in September 2019 was the 11.0% lower prices in the wholesale trade in mineral oil products. Likewise, there were substantial price declines compared to the previous year in the wholesale of waste and scrap (-12.8%), cereals, raw tobacco, seeds and animal feed (-9.4%), as well as in computing, peripherals and software (-6.6%) %). In contrast, prices for live animals (+13.8%) and for meat and meat products (+5.2%) at wholesale level were higher than in September 2018.

China's exports declined more than expected in September reflecting weak global growth and trade disputes with the US administration.

In dollar terms, exports fell 3.2% year-on-year in September, data from the General Administration of Customs showed. This was bigger than the expected 3 percent decrease and prior month's 1% fall.

At the same time, imports decreased 8.5% annually versus the expected decline of 6%.

As a result, the trade surplus increased to $39.65 billion from $34.83 billion a month ago. The expected level was $33.33 billion.

In yuan terms, exports and imports dropped 0.7% and 6.2%, respectively in September.

Data came after the US and China reached a "phase one" trade deal last week. The US agreed to hold off on tariff hikes planned for this week.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1165 (3822)

$1.1141 (3055)

$1.1111 (596)

Price at time of writing this review: $1.1030

Support levels (open interest**, contracts):

$1.0999 (2648)

$1.0967 (3819)

$1.0929 (3587)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date November, 8 is 67453 contracts (according to data from October, 11) with the maximum number of contracts with strike price $1,1100 (3822);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2832 (1747)

$1.2792 (1113)

$1.2762 (729)

Price at time of writing this review: $1.2605

Support levels (open interest**, contracts):

$1.2506 (256)

$1.2455 (94)

$1.2394 (1208)

Comments:

- Overall open interest on the CALL options with the expiration date November, 8 is 33534 contracts, with the maximum number of contracts with strike price $1,2950 (3624);

- Overall open interest on the PUT options with the expiration date November, 8 is 19743 contracts, with the maximum number of contracts with strike price $1,2000 (1662);

- The ratio of PUT/CALL was 0.59 versus 0.57 from the previous trading day according to data from October, 11

* - 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.