Forex-novosti i prognoze od 23-07-2019

Major US stock indices rose moderately, as investors reacted positively to quarterly reports and forecasts of companies such as Coca-Cola and United Technologies. The market was also supported by news that US trade negotiators will travel to Shanghai on Monday for talks.

Coca-Cola (KO; + 6.22%) reported receiving quarterly profit of $ 0.63 per share, which was above the analysts' average forecast of $ 0.61. The company's revenue also exceeded forecasts, and Coca-Cola raised its annual revenue forecast due to increased demand for some new soft drinks and coffee.

United Technologies (UTX) reported a profit of $ 2.20 per share, which turned out to be $ 0.15 above the analysts' average forecast. In addition, conglomerate revenue slightly exceeded Wall Street's estimate, and United Technologies raised its forecast for key financial indicators for the entire year, as it benefits from the purchase of Rockwell Collins.

Meanwhile, the quarterly earnings of Travelers (TRV) for the reporting period reached $ 2.02 per share, which turned out to be lower than the average forecast of analysts at $ 2.30. The revenue of the insurance company exceeded forecasts for higher net investment income and premiums, but the insurer also saw higher losses from non-weather accidents than it was a year earlier. Shares of TRV sank 1.61%.

Over 18% of S & P 500 companies have already published quarterly figures for the second quarter. According to FactSet, of these companies, 78% showed higher than expected earnings for the last reporting period. After a strong start to the corporate reporting season, interviewed by Refinitiv, they now predict that the profits of the S & P 500 companies will increase by about 1% y / y, whereas they had previously expected a slight decline.

Another positive thing for the market was the announcement of an agreement between President Trump’s administration and Congress leaders on the country's budget for fiscal years 2020–2021 and an increase in the national debt ceiling. This agreement will help to avoid a technical default of the government at the end of this year, but will increase the budget deficit.

Meanwhile, some pressure on the market has been reported that the International Monetary Fund (IMF) has again lowered its forecast for global economic growth, as the trade war between the US and China continues, Brexit fears persist, and inflation remains restrained. The fund now expects the world economy to grow by 3.2% in 2019, while in April it predicted a growth of 3.3%. The IMF also warned that a further increase in tariffs by the United States and China, the introduction of tariffs on imported cars or indiscriminate Brexit may slow down growth even further. 

Most of the components of DOW finished trading in positive territory (24 out of 30). The growth leader was The Coca-Cola Co. (KO; + 6.22%). Outsiders were The Travelers Companies (TRV; -1.61%).

Almost all sectors of the S & P recorded an increase. The industrial goods sector grew the most (+ 1.2%). Only the utility sector decreased (-0.2%).

At the time of closing:

Dow 27,349.19 +177.29 + 0.65%

S & P 500 3,005.48 +20.45 + 0.69%

Nasdaq 100 8,251.40 +47.27 + 0.58%

• Adds EU has a rebalancing list worth €35 billion if the U.S. imposes car tariffs

The European Commission reported on Tuesday its flash estimate showed the consumer confidence indicator for the Eurozone increased 0.6 points to -6.6 in July from the previous month.

Economists had expected the index to stay at -7.2.

Considering the European Union (EU) as a whole, consumer sentiment also rose 0.6 points to -5.9.

Given these gains, both indicators stand well above their respective long-term averages of -10.7 (Eurozone) and -10.0 (EU), the report said.

The National Association of Realtors (NAR) announced on Tuesday that the U.S. existing home sales fell 1.7 percent to a seasonally adjusted rate of 5.27 million in June from a revised 5.36 million in May (originally 5.34 million).

Economists had forecast home resales decreasing to a 5.33 million-unit pace last month.

In y-o-y terms, existing-home sales dropped 2.2 percent in June.

According to the report, single-family home sales stood at a seasonally adjusted annual rate of 4.69 million in June, down from 4.76 million in May and down 1.7% from 4.77 million a year ago. The median existing single-family home price was $288,900 in June, up 4.5% from June 2018. Meanwhile, existing condominium and co-op sales were recorded at a seasonally adjusted annual rate of 580,000 units in June, down 3.3% from the prior month and down 6.5% from a year ago.

The NAR’s chief economist Lawrence Yun said the nation is in the midst of a housing shortage and much more inventory is needed. “Imbalance persists for mid-to-lower priced homes with solid demand and insufficient supply, which is consequently pushing up home prices,” he said.

ING analysts see downside risk to EUR/USD coming from the ECB meeting.

• "Despite the market already pricing a 40% probability of a 10bp cut this week, more than one 10bp cut by September and close to 20bp overall easing by the end of this year, we see a downside risk to EUR/USD coming from the ECB meeting this Thursday. This is because:

1. The ECB is likely to change the forward guidance and signal the upcoming cuts (in September and potentially beyond), thus cementing the markets' dovish expectations, and 
2. President Draghi is likely to deliver a dovish press conference, with a potential hint at QE.

• The latter in particular should be a negative factor for EUR over the coming months as the expectations for ECB QE will continue to build.
• On a short term basis, EUR/USD currently does not exert any meaningful risk premia. Coupled with the fairly light short EUR/USD positioning, there is scope for EUR/USD downside stemming from the dovish press conference (the short-term effect – coming days) and a further build-up of ECB QE expectations (the medium-term effect – coming months)."

U.S. stock-index futures rose on Tuesday, supported by a number of better-than-expected earnings reports from companies, including Coca-Cola (KO) and United Technologies (UTX), that soothed concerns over the pace of economic growth.

Global Stocks:

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

Richard Franulovich, the head of FX strategy at Westpac, suggests the trade war’s impact on U.S. housing construction costs and immigration could be hurting housing and the U.S. financial conditions are very easy and signal a stronger data pulse.

• “US housing has struggled to find its gear even though mortgage rates have tumbled by nearly 100bp since late last year.
• The impact of the 2018 Trump tax reforms - reducing the deductibility of mortgage interest and the deductibility of state and local property taxes at the federal level - could still be lingering too but the adjustment should have mostly played out by now.
• Anecdotally trade tensions and tariffs could be an important and less well-appreciated brake on US housing.
• Trade and business investment have been key focal areas for assessing potential fallout for the US economy from trade tensions but housing could be another area to keep an eye on too. Substitution effects will moderate the impact but that plays out slowly over time.
• Outside of housing, the US has produced an impressive run of data in recent weeks – payrolls, core CPI, core retail sales and the Philly Fed all comfortably beat estimates. Surely by now a very meaningful easing in US financial conditions and the trade war truce should begin to show up in yet more data points in coming weeks?”

Intel (INTC) initiated with a Hold at The Benchmark Company

Snap (SNAP) upgraded to Buy from Hold at Stifel; target raised to $17

Iris Pang, the economist for Greater China at ING, notes the People's Bank of China (PBoC) added liquidity today using unconventional tools. 

• "Its medium-term lending facility provided CNY200 billion while its targeted medium-term lending facility added CNY297.7 billion, both for one year at interest rates of 3.3% and 3.15%, respectively. 
• TMLF funding can be rolled over twice and so is viewed as a three-year liquidity injection with an annual interest rate of 3.15%.
• Still, these combined liquidity injections only offset part of the liquidity that matured today. The net result is still an absorption of CNY164.3 billion.
• Regular liquidity injections into the system via MLF and TMLF once a quarter are unlikely to be sufficient to suppress the upward pressure on interest rates due to funding demand for infrastructure investment projects. 
• We have yet to see any RRR cut from the PBoC. But the central bank can't wait much longer if it wants to support the economy, which is being squeezed further by the trade and technology war.
• The Chinese economy will need more liquidity and lower interest rates in 2H19 to support investment in infrastructure projects.
  
• We expect two 0.5 percentage point RRR cuts together with 5bp cuts in the benchmark rate in 3Q and 4Q, respectively. The benchmark rate cuts will send a signal to the market that the PBoC is easing, and could help the market to form self-fulfilling easing expectations, which should push down interest rates further.
• It's possible that the PBoC won't cut the RRR as this could result in a large and rigid change in the system's liquidity, which would be very difficult to reverse. More frequent MLF and TMLF injections could replace RRR cuts instead. But equally, RRR cuts would send a strong message to the market that the central bank is serious about easing. The choice will really depend on the pace of growth in 2H19."

United Tech (UTX) reported Q2 FY 2019 earnings of $2.20 per share (versus $1.97 in Q2 FY 2018), beating analysts’ consensus estimate of $2.05.

The company’s quarterly revenues amounted to $19.634 bln (+17.5% y/y), generally in line with analysts’ consensus estimate of $19.583 bln.

The company also raised guidance for FY 2019, projecting EPS of $7.90-8.05 (prior $7.80-8.00) versus analysts’ consensus estimate of $7.96 and organic sales growth +4-5% (prior +3-5%).

UTX rose to $136.50 (+2.67%) in pre-market trading.

Travelers (TRV) reported Q2 FY 2019 earnings of $2.02 per share (versus $1.81 in Q2 FY 2018), missing analysts’ consensus estimate of $2.30.

The company’s quarterly revenues amounted to $6.988 bln (+4.4% y/y), generally in line with analysts’ consensus estimate of $7.030 bln.

TRV fell to $148.95 (-0.51%) in pre-market trading.

Coca-Cola (KO) reported Q2 FY 2019 earnings of $0.63 per share (versus $0.61 in Q2 FY 2018), beating analysts’ consensus estimate of $0.61.

The company’s quarterly revenues amounted to $9.997 bln (+6.1% y/y), beating analysts’ consensus estimate of $9.858 bln.

The company also reaffirmed FY 2019 EPS growth -1%-1% growth versus $2.08 in 2018(versus analysts’  consensus estimate of $2.10) and raised FY 2019 organic revenue growth to +5% from +4%.

KO rose to $52.50 (+2.50%) in pre-market trading.

Analysts at TD Securities note that the ECB released its quarterly bank lending survey for Q2, and the results are a bit softer than we've seen lately with credit conditions tightening for the first time since 2014.

“Expectations for Q3 are still reasonably optimistic, but the tighter credit conditions are just one more factor in favour for further easing from the ECB. From the survey: "According to the July 2019 bank lending survey, credit standards tightened in the second quarter of 2019 for loans to enterprises, marking the end of the net easing period started in 2014, as concerns about the economic outlook and increased risk aversion translated into tighter internal guidelines and loan approval criteria despite favourable funding conditions. Credit standards also tightened for consumer credit, in line with developments in the previous quarter."

Krishen Rangasamy, an analyst at National Bank Financial (NBF), raises a question that after having failed to stem the deteriorating U.S. trade deficit with tariffs, could Trump resort to currency intervention to weaken the USD?

• “Who would do the job for him? Jerome Powell quickly washed his hands of this by pointing out it’s not the Fed but rather the Treasury that is responsible for currency policy.
• Steven Mnuchin, the Treasury Secretary, seems more amenable to the idea based on his recent statement that there is no change to dollar policy “as of now”, implying he is open to intervention at a later date. If the Treasury decides to intervene, how would that work?
• Secretary Mnuchin would have to direct the New York Fed, which is the fiscal agent of the U.S. Treasury’s Exchange Stabilization Fund (ESF) to execute the required trades using that fund’s holdings of euros, yen, SDRs, and government securities to achieve the objective of lowering the value of the dollar. Will that be enough to significantly improve the U.S. trade balance? Probably not.
• So, if the White House wants to achieve its objective of sustainably shrinking the U.S. trade deficit (and hence its current account), it has to sufficiently increase the national savings rate. But that would mean reducing the U.S. budget deficit and encouraging consumers to save more, i.e. things that would slow near-term economic growth.
• Barring a recession/slowdown (which would automatically lift the national savings rate as observed after the 2008/09 slump) and considering the current breed of politicians is unlikely to promote such corrective policies, expect red ink on U.S. trade to persist regardless of whether or not there is currency intervention from Secretary Mnuchin.”

Analysts at TD Securities are expecting the U.S. existing home sales to retreat marginally by -0.2% to 5.33mn units in June.

• “Although sales appear to have failed to jumpstart in Q2, we expect them to gradually strengthen in the second half of the year on the back of lower mortgage rates and a still-strong consumer fundamentals.
• Separately, the Richmond Fed manufacturing survey for July is likely to show an increase to 5 from 3 before. This would be directionally in line with the results of the NY Empire and Philly Fed survey results, which suggest the ISM manufacturing is nearing a bottom in July.”

The latest survey by the Confederation of British Industry (CBI) showed on Tuesday the UK manufacturers’ order books declined sharply in July.

According to the report, the CBI's monthly factory order book balance dropped to -34 in July from -15 in the previous month. That was the lowest reading since April of 2010. Economists had expected the reading to stay at -15.

According to the report, new orders declined noticeably in the quarter to July, as both new domestic and new export orders dropped at their fastest respective paces since the financial crisis. Manufacturers continued to grow their stocks of raw materials and finished goods, but at a slower pace than in the three months to April, when stocks were increased at the fastest pace on record. Firms expect their stocks of finished goods to reduce a little over the quarter ahead, but stocks of raw materials and work in progress are expected to remain stable.

China strongly opposes U.S. sanctions on a Chinese energy firm accused of violating curbs on Iran’s oil sector levied over Tehran’s nuclear program, its foreign ministry said.

Beijing firmly opposed the sanctions, foreign ministry spokeswoman Hua Chunying said, adding that China’s cooperation with Iran was normal under international law.

“We urge the U.S. to correct this wrongdoing and stop its illegal sanctions on companies and individuals,” she told.

“The U.S. has neglected the legitimate rights of all countries and randomly applies sanctions, this is in violation of international law,” Hua added.

Results of a quarterly survey by the European Central Bank showed that euro area banks unexpectedly tightened the conditions business firms should meet to get loans during the second quarter, due to an uncertain economic outlook. 

By contrast, banks had expected credit standards to ease in the second quarter during the previous survey.  These are set to remain unchanged in the three months to September, the latest Bank Lending Survey from the ECB showed.

The latest tightening in credit standards for loans to enterprises marked the end of the net easing period that began in 2014. While credit standards for loans to small and medium-sized enterprises, those for large firms were broadly unchanged.

Japan's government retained its view that the economy is recovering at a moderate pace, while saying that weakness continued to centre on exports, according to a monthly economic report for July released by the Cabinet Office on Tuesday.

Risks to the outlook posed by lacklustre overseas demand could add to pressure on the government to boost spending in order to counter a potential blow to demand from a scheduled sales tax hike in October. On the positive side, the government lifted its assessment of industrial output for the first time in more than a year-and-a-half, raising it to flat from weak.

The improvement stemmed mainly from strength in car production and construction machinery, an official said, adding the government remained cautious over the outlook for industry.

Karen Jones, analyst at Commerzbank, suggests that for the USD/CHF pair, their view remains negative as the market remains dominated by the 2 month downtrend at .9886 today.

“The market recently failed at its 50% retracement at .9967 and the 200 day ma at .9980. This is tough resistance and we suspect that the market has topped here. We look for further losses to .9695, the 25th June low. Above the 200 moving average lies the mid-June high at 1.0014. Longer term we target .9211/.9188, the 2018 low. Only a close above 1.0014 (high 19th June) would alleviate immediate downside pressure and target 1.0097 and possibly 1.0128 before failure again (November and March highs at 1.0124/28).”

Brexit might stop the Bank of England from raising interest rates, Michael Saunders, one of the policymakers who has talked in recent months about the likely need for higher borrowing costs, was quoted as saying by Bloomberg.

The discrepancy between the BoE's base-case assumption of a smooth Brexit and investors' fears that Britain will leave the EU without a transition deal meant that BoE's official outlook might not be "a key driver of people's policy vote," Saunders said.

"The economy right now is clearly not overheating - the underlying pace of growth, stripping out all of the funny effects, inventories, car shutdowns and so forth, is weak and below trend," Saunders said.

The European Union is keen to work with Washington to reform the World Trade Organization and cooperate on common challenges to global trade, but will retaliate if Washington makes good on its threat to raise car tariffs, a top EU official said on Monday.

Sabine Weyand, the European Commission’s director general of trade and former deputy Brexit negotiator, struck a conciliatory but firm tone in remarks during her first official visit to Washington since taking on her new role a month ago.

The longtime EU diplomat underscored the EU’s interest in avoiding a spiral of escalating tariffs on cars, aircraft and other goods, and work instead with the United States to address mutual concerns about China’s behavior on world markets. But she said Brussels would not be bullied by the threat of sanctions that it views as illegal under World Trade Organization rules, and was pursuing a more assertive path.

If Washington pushed ahead with its threat to raise auto tariffs to 25%, Brussels would respond with tariffs of its own, resulting in a “lose-lose” situation for all involved, she said.

Danske Bank analysts suggest that today's main even is the announcement around midday of the next UK Conservative Party leader, who is also going to succeed Theresa May as Prime Minister.

“Everyone expects it to be Boris Johnson. While Boris Johnson is more pro-Brexit than Theresa May, the arithmetic in the House of Commons is unchanged making it difficult for him to force a no-deal Brexit despite it being the default option from a legal point of view. Noticeably, pragmatic Conservative Philip Hammond has said he will step down as Chancellor if Boris Johnson wins and has not ruled out he will bring down his own government if necessary to prevent a no-deal Brexit.”

Some argue the Federal Reserve risks exacerbating any coming economic slowdown by keeping interest rates excessively low.

Steve Ricchiuto, the U.S. chief economist of Mizuho Americas, is one of those critics. He contends that the Fed would make a big mistake if it cuts already-low interest rates at the conclusion of its two-day policy gathering July 31 as widely expected. The central bank has expressed anxieties about U.S.-China trade tensions and other headwinds could threaten an economy in a record-setting 11th year of expansion.

Stubbornly low inflation, hovering below an annual target of 2%, is no longer the Fed’s biggest bugaboo, he said, and it hasn’t been for several decades. The problem is the quality of credit and the health of U.S. financial institutions.

Ricchiuto argues the last three recessions in 1990-91, 2000-2001 and 2007-2009 stemmed from credit bubbles that the Fed inadvertently helped to form through lax monetary policy. It’s about to repeat that mistake again, he said.

A rate cut “will incite undesired risk taking by borrowers and deepen the next recession, which will unnecessarily increase the cost to society,” Ricchiuto told clients in a new research note.

Recessions are becoming deeper, he said, and the economy is taking longer to recover.

ANZ analysts point out that the synchronised slowdown in global growth has become more pronounced, against a backdrop of below-target inflation in many economies.

“Major central banks are to set to ease policy rates further, but many have little monetary policy ammunition to spare. Back home, the direct impacts of slower global growth on the New Zealand economy have so far been muted. But confidence effects are likely weighing on business sentiment, employment and investment intentions. Domestic growth looks set to trough at 2% in Q2, but the outlook from there is murky. Fiscal and monetary stimulus should provide a bit of a boost, which we expect will support a gradual acceleration in growth. But downside risks are heightened. The inflation outlook is troubling – we’ve likely seen the peak in domestic inflation pressures, and more is needed from the RBNZ to help met their employment and inflation objectives. We think cuts in August and November, taking the OCR to 1%, should do the trick.”

Interest rate cuts might come too late to save an economy that is dangerously close to slipping into recession, according to Morgan Stanley economists.

“For now, the path to the bear case of a U.S. recession is still narrow, but not unrealistic,” a team led by the firm’s chief U.S. economist, Ellen Zentner, told Morgan Stanley clients in a lengthy analysis that spells out the likelihood of negative growth within the next 12 months and what investors should do if that comes to pass.

Trade tensions that could lead to layoffs and a pullback from consumers are at the center of the recession case. Zentner said the current “credible bear case” probability is about 20%, but that could change quickly.

“If trade tensions escalate further, our economists see the direct impact of tariffs interacting with the indirect effects of tighter financial conditions and other spillovers, potentially leading consumers to retrench,” she wrote. “Corporates may start laying off workers and cutting capex as margins are hit further and uncertainty rises.”

The effects would be a “large demand shock” that would take growth from a projected 2.2% in 2019 to a negative 0.1% in 2020 — a shallow recession but nonetheless a substantial retreat for an economy that grew 2.9% in 2018.

From an investing standpoint, that could mean a significant hit to stocks, with the best bets being defensive sectors like health care and consumer staples, with autos and tech hardware the areas most likely to underperform, according to the analysis.

According to Nick Kounis, head of Financial Markets Research at ABN AMRO, there is a possibility of a cut in policy rates already at this week’s ECB meeting.

“The macroeconomic conditions for easing set out by the ECB do seem to have already been met. In addition, Chief Economist Philip Lane outlined that below-target inflation outcomes meant that the ECB needed to prove its commitment to price stability by taking relatively earlier action than if inflation outcomes had been closer to target. On the other hand, the ECB has tended to take decisions at meetings when it has updated macro projections and the next update is in September. So although it is a close call, we expect the ECB to stand pat in July, but cut all its main policy rates by 10bp in September. As well as a 10bp rate cut in September, we expect an even stronger signal that the ECB is investigating the design of a new asset purchase programme. By December, we expect the ECB to announce the full modalities of a EUR 630bn QE package, to be implemented for 9-months from January 2020 at a pace of EUR 70bn per month. The second 10bp rate reduction will follow in Q1 of next year. However, recent comments from officials suggest that the balance of risks are towards earlier moves”.

China’s industry ministry said that “arduous efforts” will be needed to achieve this year’s industrial output growth target, as trade protectionism weighs on exports and clouds the outlook for the world’s second-largest economy.

Ongoing reforms and restructuring of the country’s industrial sectors pose additional challenges, vice industry and information technology minister Xin Guobin told reporters at a news conference in Beijing.

China’s economic growth slowed to 6.2% in the second quarter, its weakest pace in at least 27 years, as demand at home and abroad faltered in the face of mounting U.S. trade pressure.

China set a 2019 industrial output growth target of 5.5%-6.0%. Output growth fell to a 17-year low of 5.0% in May from a year earlier, but rebounded to 6.3% in June. Still, analysts are unsure if the gains are sustainable, with the Sino-U.S. trade war still raging and factory surveys showing new orders are continuing to shrink.

Output grew 6% in the first half of the year, Xin said, adding that the country still faces significant challenges in stabilizing production given a big drop in growth of industrial product exports.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1340 (1093)

$1.1312 (745)

$1.1278 (241)

Price at time of writing this review: $1.1190

Support levels (open interest**, contracts):

$1.1170 (3026)

$1.1133 (3220)

$1.1091 (3592)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date August, 9 is 66724 contracts (according to data from July, 22) with the maximum number of contracts with strike price $1,1300 (3598);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2675 (1745)

$1.2608 (850)

$1.2563 (346)

Price at time of writing this review: $1.2454

Support levels (open interest**, contracts):

$1.2402 (2435)

$1.2367 (2068)

$1.2327 (775)

Comments:

- Overall open interest on the CALL options with the expiration date August, 9 is 16371 contracts, with the maximum number of contracts with strike price $1,3000 (2051);

- Overall open interest on the PUT options with the expiration date August, 9 is 17052 contracts, with the maximum number of contracts with strike price $1,2450 (2435);

- The ratio of PUT/CALL was 1.02 versus 1.03 from the previous trading day according to data from July, 22

* - 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.