Forex-novosti i prognoze od 19-08-2019

Major US stock indexes rose significantly amid favorable news about the promotion of trade negotiations between the US and China and growing hopes that major economies will take measures to reduce the negative impact of the escalation of tension in world trade.

Over the weekend, US President Donald Trump and his economic adviser Larry Kudlow said negotiations with China are going well. In addition, Trump wrote on Twitter that Chinese officials could soon visit the White House for further negotiations. As for Huawei, US Secretary of Commerce Wilbur Ross said today that the US will postpone sanctions against the Chinese telecommunications giant for 90 days (until November 19).

It also became known that the People's Bank of China took new measures to further reduce the real interest rate for companies in China in order to support economic growth. Investors are eagerly awaiting the publication of the minutes of the last meeting of the Federal Reserve later this week, as well as speeches by central bank leaders during a symposium in Jackson Hole, Wyoming, which will be held from August 22 to 24.

1.9% jump in Apple Inc. stock (AAPL) has supported all three of Wall Street's major indices. US President Donald Trump said on Sunday that he spoke with Apple CEO Tim Cook about the impact of tariffs in the US and he made a strong case against their introduction.

Shares of chip makers, whose business is heavily dependent on China, also rose. Semiconductor maker Philadelphia Semiconductor Index (SOX) is up 1.87%.

Equity market growth was also helped by weakening demand for government bonds. Yields on 10-year treasury bonds jumped temporarily to 1.61% from 1.54% on Friday. The value of shares of major US banks increased along with the yield: Last week, the yield on 10-year bonds fell to the lowest level in more than three years and for some time was below the yield on 2-year bonds. This is called the inversion of the yield curve and is seen by traders as a signal of a potential recession.

Almost all DOW components recorded a decrease (28 out of 30). The biggest gainers were Cisco Systems Inc. (CSCO, + 3.44%). Only UnitedHealth Group Inc. declined (UNH, -0.49%) and the American Express Company (AXP, -0.03%).

All S&P sectors completed trading in positive territory. The conglomerate sector grew the most (+ 1.3%).

At the time of closing:

Dow 26,135.79 +249.78 +0.96%

S&P 500 2,923.65 +34.97 +1.21%

Nasdaq 100 8,002.81 +106.82 +1.35%

Deutsche Bank's analysts see Germany in a technical recession, as they expect another ¼% GDP drop in Q3.

• “Our forecast for 2019 is now 0.3%. Given no indication for a rebound we lowered our 2020 forecast to 0.7%. We acknowledge these revisions do not properly account for the recent accumulation of risks.
• Given the increasingly fragile state of the global economy, the realization of one or more risks could easily push the economy into a completely different scenario, where growth revisions of a few tenths of a percentage point will not be sufficient.”

Analysts at TD Securities sees Canada’s manufacturing activity to contract by 1.9% in June owing to a pullback in transportation equipment and lower prices for industrial goods.

• “Motor vehicle shipments have been unusually volatile over the last few months owing to the transitory impact of plant shutdowns, but preliminary production figures and exports both point to partial giveback of last month’s 13% gain.
• Aerospace exports also point towards a pullback, while fabricated metals will benefit from the removal of steel and aluminum tariffs on USbound shipments. Elsewhere, a sharp pullback in gasoline prices will weigh heavily on nominal sales of refined petroleum products, while a 0.5% decline in ex-petroleum prices will weigh on nominal sales for the whole manufacturing sector. As a result, real manufacturing sales should see a more modest decline of 1%, leaving them up roughly 6% q/q (ann.) in Q2.”

Analysts at Nordea Markets suggest that CAD is maybe not among the absolute worst performers after a curve inversion, but they still see a more than decent dovish re-pricing scope for the bank of Canada (BoC).

• “It seems as if BoC is narrowly focusing (some would call them obsessed) on the trade war (who isn’t?), and the latest marked shift in rhetoric came just after Trump's escalation in May, when BoC wrote on its 29th of May meeting that “…the recent escalation of trade conflicts is heightening uncertainty about economic prospects. In addition, trade restrictions introduced by China are having direct effects on Canadian exports.
• Could the latest 10% threat be just what Poloz and co needed as an excuse to take another dovish shift in early September? We think so. The Canadian yield curve inversion is much worse than the US-ditto, so cuts are needed (ASAP!).
• Furthermore, the CAD has so far weathered the trade/cold war storm decently as USD/CAD has had a negative 100-day correlation to USD/CNY. Don’t expect that negative correlation to persist. Canada is (also) very China-dependent.”

Analysts at Royal Bank of Canada (RBC) note that the two-step-forward, one-step-back escalation in U.S.-China trade tensions had a one-step-back last week with the Trump administration announcing the 3½-month delay of about 60% of a promised 10% tariff hike on imports from China planned for September 1st. 

• “The move did little if anything to reduce trade uncertainty. And earlier tariff hikes, which disproportionately have been on industrial production inputs, are still in place.
• We expect Canadian manufacturing sales will start to see more negative spill-over effects over the second half of 2019 as well after generally outperforming in data year-to-date through May.  June Canadian exports were quite soft and we expect that will be reflected in a drop in June manufacturing sales being reported next week as well to retrace a big chunk of a surprisingly large May gain.
• But another consequence of rising global trade tensions/growth-concerns has been sharply lower interest rates.
• In Canada, labour shortages are still commonly reported. Wage growth has strengthened. “Core” CPI measures look more likely to tick lower than higher in next week’s July Canadian CPI data, but underlying inflation trends still look like they’re tracking right around the Bank of Canada’s 2% target. And households have looked much less concerned about trade uncertainty than businesses. Consumer confidence is still sitting around cycle-highs in both Canada and the United States.
• In Canada, housing markets have shown clear signs of stabilizing. We expect June Canadian retail sales next week will show a tick higher, once looking through a price-related pullback in gasoline station sales, after a soft May report that looked like it might have been weather-related.  As in other countries, trade uncertainty remains a legitimately concerning downside risk for the Canadian industrial sector and will weigh on economic growth.  Yet near-term headwinds to the household sector are also looking smaller now than they did just a few months ago.”

U.S. stock-index futures climbed on Monday amid upbeat trade reports and expectations of stimulus from major central banks to mitigate a global slowdown.

Global Stocks:

Analysts at Standard Chartered note that, according to the statement from the People’s Bank of China (PBoC) dated 16 August, the loan prime rate (LPR) will replace the conventional benchmark loan rate (BLR) as the main reference rate for new bank loans, effective immediately.

“The following major changes have been made as part of the LPR reform:

1. Publish the new LPR at 09:30 on the 20th of each month, rather than daily
2. Expand the number of LPR submission banks to 18 from 10
3. New LPR to be quoted with reference to the 1-year medium-term lending facility (MLF) plus a spread, no longer linked with the BLR
4. Introduce a new 5-year LPR for mortgage and long-term loan pricing
5. Revise macro-prudential assessment (MPA) criteria to ensure new loans are priced on the LPR and banks do not set an implicit floor for the lending rate.

LPR reform will have the following major effects on banks and markets, in our view:

1. Better pass-through of PBoC’s policy rates to banks’ lending rate via the revised LPR and MLF operations, leading to lower financing costs for corporates
2. Pick-up in banks’ demand for bonds as returns on loans fall
3. Likely fall in deposit and wealth management product (WMP) rates over time as banks are under pressure to protect their net interest margins (NIMs)
4. We expect the PBoC to cut the reserve requirement ratio (RRR) and MLF rate in 2019 to alleviate pressure on banks’ NIMs and return on equity (ROE), and achieve sustainable credit growth
5. The PBoC will need to conduct MLF operations more frequently and broaden the scope of collateral to improve the influence of MLF on banks’ funding costs
6. Demand for LPR hedging is expected to pick up strongly
7. The concept of funds transfer pricing (FTP) will be enhanced.”

Chevron (CVX) initiated with an Overweight at Barclays; target $145

Exxon Mobil (XOM) initiated with an Equal Weight at Barclays; target $73

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

Deere (DE) target lowered to $175 from $185 at BofA/Merrill

Deutsche Bank's analysts note that today's key event will be the speech of the Fed’s Rosengren as well as the meeting of the French President Macron and Russian President Putin.

• “Tuesday: A quiet day for data with July PPI in Germany and August CBI survey data in the UK the only releases due. Italian PM Conte is expected to address the Senate in Rome while the Fed’s Quarles is due to speak.
• Wednesday: The July FOMC meeting minutes are due to be released in the evening. Prior to that, data includes July public sector net borrowing stats in the UK and July existing-home sales in the US. The EIA crude oil inventory report is also due to be released.
• Thursday: The annual Jackson Hole central banking symposium kicks off, continuing into the weekend. As for data, the highlight will likely be the flash August PMIs in Europe, the US and Japan. We’ll also get August CBI survey data in the UK, August consumer confidence for the Euro Area and the latest jobless claims, August leading index and August Kansas Fed survey data in the US. The latest ECB meeting minutes will also be released while a monetary policy meeting is scheduled in Indonesia.
• Friday: Fed Chair Powell is due to speak at Jackson Hole. As for data, July CPI in Japan and July new home sales in the US are scheduled.”

• Says he is very concerned about how Fed policy is affecting dollar strength
• There will be a recession eventually but yield curve inversion is not as reliable as people think
• U.S. will delay Huawei ban by 90 days to November 19
• Will delay ban for some businesses
• But U.S. had added 46 more Huawei subsidiaries to the entity list, which will not allow these units to import to U.S.
• China's currency declines are mitigating cost of tariffs to  U.S. consumer
• Import prices have been declining from a year ago and overall consumer inflation is low

• We are very confident that by October 31 we will be ready for Brexit
• There will be bumps on the road but we can get ready
• Hopes that they [Germany's Merkel and France's Macron] will compromise

Analysts at TD Securities note that Eurozone’s final reading of HICP for July was revised down to 1.0% y/y from 1.1% y/y.

• “The revision wasn't quite as big when you dig into the details, from 1.059% to 1.021%. Headline inflation is still trending lower though than the ECB forecast in June, just adding to growing expectations for a very dovish ECB announcement in September.”

• Main trigger for further stimulus is risk to the job market
• German government is studying incentives to improve energy efficiency of homes, promote short-term hiring and boost income through social welfare

• Government rules out early recall of parliament, current recess dates still apply
• UK's PM Johnson to discuss Brexit with Merkel and Macron this week

• PM Johnson will use meetings this week to deliver his message on Brexit
• Have been clear there will be no formal negotiation until backstop is removed

• No-deal Brexit not preferred but we are prepared for all eventualities
• UK will be the biggest loser in a no-deal Brexit

• Eurozone's inflation is too low

• Euro area economy growing at a subdued pace in Q3
• Sees first signs of downturn in the labour market
• German economic outlook remains unclear, hinges on exports
• It is unclear if exports will regain their footing before the domestic economy becomes more severely affected
• Sees risk of the German economy entering a recession

Following the recent price action in USD/CHF, another test of the mid-0.9800s looks likely, suggested Karen Jones, Team Head FICC Technical Analysis at Commerzbank.

“USD/CHF saw a key day reversal on Tuesday last week from .9659 and we are seeing a correction higher. A sustained break below the .9716/.9692 key support presently was not seen (location of the 25th June low, the January low and Fibo support) and we would allow for recovery to the 55 day ma at .9853. Key resistance remains the 200 day ma at .9961, our overall bearish bias is entrenched below here. Below .9659 (last weeks low) targets the .9543 September 2018 low. Longer term we target .9211/.9188, the 2018 low”

British working-age households are growing more cautious about making major purchases amid concerns about Brexit and a possible recession, a monthly consumer survey showed.

The headline index from the survey, the seasonally adjusted IHS Markit Household Finance Index (HFI) – which measures households’ overall perceptions of financial wellbeing – recorded 43.7 in August, a decrease from July’s 44.3, therefore signalling a stronger degree of pessimism towards current finances by UK households. The headline index registered the lowest reading in three months and was back below the average seen in 2018 (44.2).

The dip in current household sentiment also filtered through to financial wellbeing expectations. Having been in positive territory during June and July, UK households signalled a negative outlook towards their financial health for the year ahead in August.

Households’ views on next move in Bank of England base rate

A decisive shift in UK household interest rate expectations was recorded on the likelihood that the next move will be a cut. The proportion of UK households which foresee the next action by the Bank of England being an interest rate decline rose to nearly 23%, from approximately 16% in July, its highest since October 2016. Nonetheless, the majority (68%) of UK households expect the Bank of England will raise interest rates within the next two years. This was down from around 74% in July.

According to the report from Eurostat, the euro area annual inflation rate was 1.0% in July 2019, down from 1.3% in June. Inflation was expected to slow to 1.1%. A year earlier, the rate was 2.2%. 

European Union annual inflation was 1.4% in July 2019, down from 1.6% in June. A year earlier, the rate was 2.2%..

The lowest annual rates were registered in Portugal (-0.7%), Cyprus (0.1%) and Italy (0.3%). The highest annual rates were recorded in Romania (4.1%), Hungary (3.3%), Latvia and Slovakia (both 3.0%). Compared with June, annual inflation fell in fifteen Member States, remained stable in two and rose in eleven.

In July, the highest contribution to the annual euro area inflation rate came from services (+0.53 percentage points, pp), followed by food, alcohol & tobacco (+0.37 pp), non-energy industrial goods (+0.08 pp) and energy (+0.05 pp).

The latest survey of the US economists conducted by the National Association for Business Economics (NABE) revealed on Monday, 34% of economists believe a slowing economy will tip into recession in 2021. That's up from 25% in a survey taken in February. Only 2% of those polled expect a recession to begin this year, while 38% predict that it will occur in 2020.

The economists have previously expressed concern that Trump's tariffs and higher budget deficits could eventually dampen the economy.

The economists surveyed by the NABE were skeptical about prospects for success of the latest round of U.S.-China trade negotiations. Only 5% predicted that a comprehensive trade deal would result, 64% suggested a superficial agreement was possible, and nearly one quarter expected nothing to be agreed upon by the two countries.

The 226 respondents, who work mainly for corporations and trade associations, were surveyed between July 14 and Aug. 1. That was before the White House announced 10% tariffs on the additional $300 billion of Chinese imports. As a whole, the business economists' recent responses have represented a rebuke of the Trump administration's overall approach to the economy.

According to the report from European Central Bank, the current account of the euro area recorded a surplus of €18 billion in June 2019, a decrease of €12 billion from the previous month. Surpluses were recorded for goods (€25 billion), primary income (€4 billion) and services (€3 billion). These were partly offset by a deficit for secondary income (€14 billion).

In the 12 months to June 2019, the current account recorded a surplus of €318 billion (2.7% of euro area GDP), compared with a surplus of €391 billion (3.4% of euro area GDP) in the 12-month period to June 2018. This decline was driven by smaller surpluses for goods (down from €318 billion to €290 billion), services (down from €117 billion to €96 billion) and primary income (down from €94 billion to €91 billion), as well as by a larger deficit for secondary income (up from €138 billion to €159 billion).

In the financial account, euro area residents made net acquisitions of foreign portfolio investment securities totalling €58 billion in the 12-month period to June 2019 (decreasing from €484 billion in the 12-month period to June 2018). Non-residents’ net purchases of euro area portfolio investment securities amounted to €42 billion (down from €249 billion).

Distortions in the Treasury yield curve mean it’s not necessarily signaling the risk of recession, according to JPMorgan Chase & Co. -- but the money-market curve still is.

A surge in the stockpile of negative-yielding debt across the world has warped the pricing of U.S. duration and credit risk as foreign investors are forced into Treasuries and U.S. corporate bonds, JPMorgan strategists including Nikolaos Panigirtzoglou wrote in a note. That means the U.S. sovereign and credit-spread yield curves are losing their information content, making the less-affected money-market curve a better place to look for an economic signal, they said.

“U.S. recession risks are elevated in our mind by the inversion at the front end of U.S. money market curves which are less distorted by foreign flows,” the strategists wrote. Treasury inversions are “less of a reflection of U.S. recession risks and more of a reflection of the desperation for yield by foreign investors flocking into U.S. dollar-denominated bonds as bond yields turned more negative in Europe and Japan.”

Karen Jones, Team Head FICC Technical Analysis at Commerzbank, suggested the European cross could slip back to the 0.9020/15 band.

“EUR/GBP is at last starting to correct lower – the market has temporarily topped at 0.9327 and the market has already sold off to 0.9088, the 31st July low. We look for losses to the 55 day ma at 0.9017 and there is scope for the 50% retracement at 0.8896. Intraday rallies are likely to hold below 0.9225. Above 0.9327 targets 0.9403, the 2016 high and eventually 0.9803. Only below the July low at .8891 will alleviate upside pressure”.

Analysts at Westpac offer a sneak peek at what to expect from New Zealand’s Retail Sales data due to be reported later this week.

“NZ Q2 real retail sales Aug 22, Last: +0.7%, WBC f/c: -0.3%, Mkt: +0.2%. Retail spending rose by 0.7% in the March quarter. That followed solid gains over 2018. Increases in spending were seen in many categories. Mid-2019 has seen only muted gains in monthly gauges of spending. That’s consistent with the falls in consumer confidence and ongoing weakness in the housing market. Petrol prices also pushed higher over the quarter, constraining spending in other areas. We’re expecting that the June quarter report will show that nominal spending growth was subdued over Q2, with volumes down slightly. Price growth is expected to remain limited (other than petrol).”

August, normally a quiet month for Britain's property market, has seen a surge in sales, possibly due to buyers seeking to conclude transactions before the country leaves the European Union on Oct. 31, property website Rightmove said.

Rightmove said sales in the August period, which cover the four weeks to Aug. 10, were 6.1% higher than a year earlier and their strongest for the month since 2015, bucking a generally sluggish trend since June 2016's referendum on leaving the European Union.

"While the end of October Brexit outcome remains uncertain, more buyers are now going for the certainty of doing a deal, with some having perhaps hesitated earlier in the year," Rightmove director Miles Shipside said.

Rightmove said asking prices on its website were down 1.0% on the previous month - a smaller fall than normal for August, when many buyers are away on holiday - while prices were 1.2% higher than a year earlier.

Sales rose fastest in northeast and eastern England, and the biggest fall in asking prices was in southeast England excluding London.

According to the analysts at Danske Bank, the likelihood of an imminent German fiscal stimulus is low for now, but the German government is under heavy pressure to roll out one in a bid to spur economic growth.

“In Germany, Finance Minister Ola Scholz hinted at a EUR50bn (~1.5% of German nominal GDP) fiscal spending package in case of recession, although it is not imminent. The German government is under heavy pressure by many to ease fiscal policy, as the German economy is struggling (contracted in Q2) and there is a lack of safe assets (bonds) in the market.  Unfortunately, the fact that Scholz says a package is not imminent also highlights the time lag problem with fiscal policy: It takes time for politicians to recognize the need for fiscal easing and vote in favor of a specific package, and hence when it has an impact on real activity.”

A new benchmark interest rate Chinese banks will need to use to set lending rates will be linked to the central bank's medium-term liquidity facility, a People's Bank of China policy adviser told state media.

China's central bank unveiled a key interest rate reform on Saturday to help steer borrowing costs lower for companies and support a slowing economy that has been hurt by a trade war with the United States.

"Through the reform, it is clearly required that the banks' lending rates should be linked to the LPR (loan prime rate), and the LPR should be linked to the MLF (medium-term lending facility) interest rate, thus establishing a relatively smooth transmission mechanism. In the future, if the policy interest rate falls, the loan interest rate will also fall, which will help to reduce the financing cost of enterprises," Ma Jun said.

Under the PBOC's changes, banks must set rates on new loans using the new LPR as the benchmark for floating lending rates rather than the PBOC's benchmark bank lending rate.

Analysts believe the central bank could cut the one-year interest rate on the MLF, which stands at 3.3%, in order to guide borrowing costs lower.

Analysts say the new LPR rate will be lower than the current level, but they are divided over the scope of reductions on borrowing costs for firms.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1226 (2657)

$1.1194 (2130)

$1.1168 (793)

Price at time of writing this review: $1.1091

Support levels (open interest**, contracts):

$1.1054 (4576)

$1.1022 (4098)

$1.1003 (934)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date September, 6 is 104461 contracts (according to data from August, 16) with the maximum number of contracts with strike price $1,1400 (8878);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2274 (1183)

$1.2231 (893)

$1.2202 (322)

Price at time of writing this review: $1.2154

Support levels (open interest**, contracts):

$1.2095 (968)

$1.2069 (586)

$1.2038 (2078)

Comments:

- Overall open interest on the CALL options with the expiration date September, 6 is 30251 contracts, with the maximum number of contracts with strike price $1,2750 (4128);

- Overall open interest on the PUT options with the expiration date September, 6 is 23736 contracts, with the maximum number of contracts with strike price $1,2100 (2078);

- The ratio of PUT/CALL was 0.78 versus 0.78 from the previous trading day according to data from August, 16

* - 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.