Forex-novosti i prognoze od 25-07-2019

Major US stock indexes have declined markedly, as investors analyzed a block of mixed quarterly reports indicating a slowdown in the global economy, as well as comments from the President of the European Central Bank (ECB) on monetary policy.

About a third of the S & P 500 companies have already announced financial results for the second quarter. According to FactSet, of these companies, 75% reported receiving quarterly earnings that exceeded expectations. After the close of the trading session, the publication of quarterly reports Alphabet (GOOG), Amazon (AMZN), Intel (INTC) and Starbucks (SBUX) is expected.

On Wall Street, the ECB President Draghi’s comments were also carefully considered on the eve of a key Fed meeting next week. The head of the ECB said he did not see a significant risk of recession in the region. Many traders saw this as a sign that the incentives offered would be less significant than expected. Earlier, the ECB kept interest rates unchanged, hinting at a further easing of monetary policy, as well as lower rates.

Market participants also studied several important macroeconomic reports. A report from the Ministry of Labor showed that the number of initial claims for unemployment benefits fell to a three-month low last week, indicating a steady strength of the labor market, even though the economy seems to be losing momentum. According to the report, the number of applications for unemployment benefits fell from 10,000 to 206,000, taking into account seasonal fluctuations in the week to July 20, which is the lowest level since mid-April. Economists predicted that the number of applications will increase to 219,000.

At the same time, a report published by the US Department of Commerce showed a much stronger than expected growth in new orders for durable goods in the US in June, although the report also showed a much sharper than previously reported drop in orders in May. Orders rose 2.0% after falling to a revised 2.3% in May. Economists had expected orders to rise by 0.7% compared with a decrease of 1.3%, which was originally reported.

Most of the DOW components recorded a decline (20 of 30). Outsider were shares of Dow Inc. (DOW; -3.83%). The growth leader was Caterpillar Inc. (CAT; + 2.08%).

All sectors of the S & P finished trading in the red. The largest decline was in the raw materials sector (-1.2%).

At the time of closing:

Dow 27,144.94 -125.03 -0.46%

S & P 500 3,003.92 -15.64 -0.52%

Nasdaq 100 8,238.54 -82.96 -1.00%

• He told EU diplomats that UK PM Johnson's comments on the backstop were "unacceptable" and that his speech was “rather combative"

Carsten Brzeski, the chief economist ING Germany, notes that the ECB refrained from cutting rates or new monetary stimulus at its today's meeting, but suggests that the European regulator is clearly preparing markets for a rate cut and probably even more at the September meeting.

• "In the just-released press statement, the ECB changed its language on three crucial issues:

1. They included that interest rates will remain at present “or lower” levels, sending a clear hint at a future rate cut.
2. Added new language, demonstrating its willingness to act by repeating Draghi’s Sintra words that the ECB will act if the medium-term inflation outlook continues to fall short of its aim. The ECB stands ready to adjust all instruments.
3. Used the magic words: “Governing Council has tasked the relevant Eurosystem Committees with examining options, including ways to reinforce its forward guidance on policy rates, mitigating measures, such as the design of a tiered system for reserve remuneration, and options for the size and composition of potential new net asset purchases.”

U.S. stock-index futures traded mixed on Thursday, as investors digested the latest batch of mixed corporate earnings and the ECB’s comments on monetary policy. 

Global Stocks:

• Inflation pressures muted
• We have tasked Eurosystem Committees to examine options
• Data point to somewhat weaker growth in Q3 and Q4
• Weakness primarily due to softer global growth, and hurting Eurozone manufacturing
• Significant monetary stimulus is needed
• Risks around growth outlook are still tilted to the downside, relating to uncertainty and protectionism
• Inflation likely to decline in coming months but will rise near year-end
• Underlying inflation muted
• Labor-cost pressures strengthened due to tight labor market, but pass through not as fast as anticipated
• Cross-check confirms that ample degree of monetary policy accommodation is still needed
• Outlook is getting worse and worse
• Previous forecasts showed rebound in Q2 but now incoming signs show weakness
• The balance of risks is on the downside
• The prolonging of uncertainty is a materializing of risks
• Highlights easing bias and high degree of optionality
• We had a broad discussion, on most things we converged
• There were different nuances, as you would expect from such a broad package
• Mandate to committee is broad
• We don't like what we see on the inflation front
• Any rate cut would come with mitigating measures
• No discussion about cutting rates today
• Want to see next round of projections before taking action

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

AT&T (T) upgraded to Neutral from Underperform at Credit Suisse; target $29

UPS (UPS) upgraded to Buy from Neutral at BofA/Merrill; target $130

Freeport-McMoRan (FCX) upgraded to Sector Perform at RBC Capital Mkts

The U.S. Commerce Department reported on Thursday that the durable goods orders rose 2.0 percent m-o-m in June, following a revised 2.3 percent m-o-m drop in May (originally a 1.3 percent m-o-m decline). That was the fastest rate of growth since August 2018.

Economists had forecast a 0.8 percent m-o-m increase.

According to the report, orders for transportation equipment (+3.8 percent m-o-m) drove the increase. Meanwhile, orders for durable goods excluding transportation rose 1.2 percent m-o-m, following a revised 0.5 percent m-o-m advance in May (originally a 0.3 percent m-o-m advance) and beating market expectations of a 0.2 percent m-o-m gain.

Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, surged 1.9 percent m-o-m in June, after increasing 0.3 percent m-o-m in May (revised from +0.4 percent m-o-m). Economists had forecast core capital goods orders advancing 0.1 percent m-o-m in June.

Shipments of these core capital goods went up 0.6 percent m-o-m in June after a revised 0.5 percent m-o-m gain in the prior month (originally a 0.7 percent m-o-m climb).

The data from the Labor Department revealed on Thursday the number of applications for unemployment benefits fell last week, pointing to strong labor market conditions.

According to the report, the initial claims for unemployment benefits decreased by 10,000 to a seasonally adjusted 206,000 for the week ended July 20, the lowest level since mid-April.

Economists had expected 219,000 new claims last week.

Claims for the prior week were remained unchanged at 216,000.

Meanwhile, the four-week moving average of claims decreased by 5,750 to 213,000 last week.

• Says banks made progress in reducing risks

Int'l Paper (IP) reported Q2 FY 2019 earnings of $1.15 per share (versus $1.19 in Q2 FY 2018), beating analysts’ consensus estimate of $1.00.

The company’s quarterly revenues amounted to $5.667 bln (-2.8% y/y), missing analysts’ consensus estimate of $5.771 bln.

IP fell to $43.66 (-1.04%) in pre-market trading.

The European Central Bank (ECB) left its main refinancing rate unchanged at 0.00 percent on Thursday, as widely expected.

Its interest rates on the marginal lending facility and the deposit facility were also kept unchanged at 0.25% and -0.40% respectively.

In its policy statement, the ECB said that its key interest rates are expected to remain at their present or lower levels at least through the first half of 2020. It also added that its Governing Council stood ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner. In this context, the Governing Council also tasked the relevant Eurosystem Committees with examining options, including ways to reinforce its forward guidance on policy rates, mitigating measures, such as the design of a tiered system for reserve remuneration, and options for the size and composition of potential new net asset purchases, the statement said.

Analysts at TD Securities think that RBA Board is likely to keep the cash rate on hold at 1% at its 6th Aug meeting but expects the RBNZ to cut the cash rate by 25bps to 1.25% on 7th Aug.

• “The RBA's Statement on Monetary Policy (SoMP) is likely to reveal near term cuts to GDP, likely cuts to underlying inflation, and a near term uplift in the unemployment rate.
• The RBNZ's projections are likely to show downward revisions to the Bank's GDP forecasts and a lower cash rate profile.
• Ultimately we anticipate the latest set of forecasts reinforcing our current RBA and RBNZ calls for further easing."

Comcast (CMCSA) reported Q2 FY 2019 earnings of $0.78 per share (versus $0.65 in Q2 FY 2018), beating analysts’ consensus estimate of $0.75.

The company’s quarterly revenues amounted to $26.858 bln (+23.6% y/y), generally in line with analysts’ consensus estimate of $27.081 bln.

CMCSA rose to $45.30 (-0.96%) in pre-market trading.

3M (MMM) reported Q2 FY 2019 earnings of $2.20 per share (versus $2.59 in Q2 FY 2018), beating analysts’ consensus estimate of $2.07.

The company’s quarterly revenues amounted to $8.171 bln (-2.6% y/y), generally in line with analysts’ consensus estimate of $8.105 bln.

The company also reaffirmed guidance for FY 2019, projecting EPS of $9.25-9.75 versus analysts’ consensus estimate of $9.36.

MMM rose to $187.50 (+4.50%) in pre-market trading.

Richard Franulovich, the head of FX strategy at Westpac, believes the risks to the U.S. outlook appear to be subsiding as lawmakers have forged a debt ceiling deal and US-China trade talks are set to resume next week.

• “A comprehensive deal will remain elusive but the goodwill gesture nevertheless underscores that trade risks will remain dormant for a few weeks.
• Against that Markit’s preliminary US July PMIs and the Richmond Fed index point to stagnant conditions for manufacturing (12% of GDP) and housing continues to look spotty despite lower rates. But, financial conditions are overall incredibly supportive (see over), June payrolls were solid (+224k), retail sales were very decent (control group +0.7%) and the core CPI rose more than expected (+0.3%). The Fed is unlikely to be dragged into a larger 50bp easing July 31.
• By contrast, the Eurozone data is still grim and the earlier very well worn US growth leadership story appears to be regaining legs. Short of an abandonment of the longstanding strong dollar policy (not entirely impossible) its still far too early to call the high for the USD.”

Ford Motor (F) reported Q2 FY 2019 earnings of $0.28 per share (versus $0.27 in Q2 FY 2018), missing analysts’ consensus estimate of $0.31.

The company’s quarterly revenues amounted to $35.905 bln (+0.4% y/y), beating analysts’ consensus estimate of $35.207 bln.

The company also issued downside guidance for FY 2019, projecting EPS of $1.20-1.35 versus analysts’ consensus estimate of $1.39.

F fell to $9.79 (-5.23%) in pre-market trading.

Tesla (TSLA) reported Q2 FY 2019 loss of $1.12 per share (versus -$3.06 in Q2 FY 2018), worse than analysts’ consensus estimate of -$0.36.

The company’s quarterly revenues amounted to $6.350 bln (+58.7% y/y), missing analysts’ consensus estimate of $6.441 bln.

The company also said it continued to aim for positive GAAP net income in Q3 and the following quarters.

TSLA fell to $233.20 (-11.96%) in pre-market trading.

Facebook (FB) reported Q2 FY 2019 earnings of $1.99 per share (versus $1.74 in Q2 FY 2018), beating analysts’ consensus estimate of $1.87.

The company’s quarterly revenues amounted to $16.886 bln (+27.6% y/y), beating analysts’ consensus estimate of $16.493 bln.

FB rose to $207.70 (+1.49%) in pre-market trading.

• Says we want to make this country the greatest place on earth
• Would prefer to leave the EU with a deal
• But committed to leaving the EU on 31 October whatever the circumstances
• Existing Brexit deal i.e. withdrawal agreement is unacceptable to parliament
• Says backstop must be abolished to reach a deal
• Wants to negotiate new Brexit deal in good faith
• Other Brexit arrangements are "perfectly possible"
• UK is better prepared for no-deal than many believe

Analysts at Rabobank notes that today’s main event is the ECB policy decision and the Eurozone PMIs have certainly increased the risk that the ECB acts today already.

• “Although the manufacturing PMI indicated that the outlook for this sector continues to weaken, the still okay reading for the services sector should give the Governing Council a little respite.
• Despite another day of record-high temperatures across Europe, we, therefore believe that the Council will be able to keep their cool at today’s meeting: we do not see sufficient reasons for the ECB to accelerate new easing measures and, instead, we are still looking for a series of rate cuts starting in September.
• That leaves today’s meeting to lay the groundwork for these cuts. While the market is already fully pricing in a rate cut by September, the forward guidance still states that key interest rates will stay at present levels until at least mid-2020.
• The ECB can give a nod to the market by changing their forward guidance to include the possibility of lower rates again. Such a change should cement market expectations of easing measures being implemented by September.”

The Confederation of British Industry (CBI) reported on Thursday its latest survey of 93 firms, of which 46 were retailers, showed retail sales volume balance improved to -16 in July from -42 in June. It was the third consecutive month of decline in retail sales, the longest period of contraction since 2011.

Economist had forecast the reading to come in at -10.

The report also revealed that orders placed on suppliers also fell for the third consecutive month, but at a slower pace than the previous month.

However, both sales and orders are expected to be broadly flat next month.

According to the report, grocers were the largest positive contributor to headline sales growth this month, reversing fortunes after a large fall last month. However, this was more than offset by drops in other categories, particularly department stores, clothing and other normal goods.

Rain Newton-Smith, CBI Chief Economist, noted: “Whilst last year’s summer strength in retail sales is driving some of the comparative weakness this year, it is still hugely concerning that sales have fallen for the longest period in almost eight years. Despite the recent pick-up we’ve seen in households’ real earnings, the sun is clearly not shining on the British High Street. The UK economy has reached a fork in the road. The new Prime Minister must now do everything in his power to achieve a good Brexit deal, thus protecting jobs and our economy.” 

The European Central Bank said on Thursday it had "no objection" to Christine Lagarde becoming its new president, saying she has the experience required for the job.

"The Governing Council has no objection to the proposed candidate, Christine Lagarde, who is a person of recognised standing and professional experience in monetary or banking matters," the ECB said.

The ECB's announcement is a formal step towards Lagarde's appointment by euro zone governments. She would then replace Mario Draghi on Nov. 1.

Analysts at Westpac are recommending to sell NZD/USD pair at 0.6705 levels for the target price of 0.6500, while maintaining trailing a stop loss of 0.6800.

"We expect RBNZ to cut OCR by 25bp to 1.25% on 7 August, and signal potential for more. We expect a follow-up cut in November to 1.0%, with a risk this is delivered in September, and the OCR ultimately falls below 1.0%. Domestic activity is weaker than the RBNZ had forecast. Markets are pricing 20bp of easing in August, and 42bp by November, implying markets should fall further if our forecasts prove correct. NZ-US yield spreads have explained much of the NZD’s recent gains, but they should soon become a headwind: markets have priced in plenty for the Fed (100bp) but arguably not enough for the RBNZ. Technically, NZD/USD’s 3c rise since May looks corrective, and may be giving way to a revisit of May’s 0.6500 low.”

“At the July Governing Council meeting, we expect the ECB to signal that a monetary easing package is becoming an increasingly likely prospect. It will very likely change its forward guidance on interest rates from the current expectation that ‘the key ECB interest rates (will) remain at their present levels at least through…’ to ‘the key ECB interest rates (will) remain at their present levels or lower at least through. This would signal that a cut in policy rates is likely at the next Governing Council meeting in September. There is also the possibility that the Council will signal the increasing likelihood of a re-start of QE by adding a line to its forward guidance on its asset purchase programme. For instance, it could say that the ECB would ‘re-start net asset purchases if necessary to ensure sustained convergence of inflation to levels that are below, but close to, 2% over the medium term’. The current guidance refers only to re-investments. There is a possibility of a cut in policy rates already at this week’s meeting.” - said ABN AMRO.

In view of Karen Jones, analyst at Commerzbank, GBP/USD pair is attempting to stabilise very near term, but remains contained by 2 month downtrend at 1.2538 today.

“This maintains an overall neutral to negative bias very near term and we would allow for a retest of the 1.2382 recent low. This may again hold as there is a distinct lack of downside momentum. Below 1.2366 (April 2017 low) we have very little support until the 1.2108, the 78.6% retracement of the entire move up from the 2016 low. What is interesting is that we have a 13 count on the weekly chart, however there remains scope for a further sell off - TD support lies at 1.2184. Above the downtrend this would introduce scope top the 55 day ma at 1.2658 and the June high at 1.2784. A rise above the June high at 1.2784 would indicate that a bottom is being formed (not favoured).”

According to the report from Ifo Institute for Economic Research, German business morale deteriorated more than expected in July, hitting its lowest level since April 2013. Today's survey is a further sign that a manufacturing crisis is dragging on overall private sector activity in Europe's largest economy. 

German Business Climate Index drops to 95.7 in July from 97.4 in June. Economists had expected a decrease to 97.1. Meanwhile, the Current Economic Assessment arrived at 99.4 points in the reported month as compared to last month's 100.8 and 100.4 anticipated. On the other hand, the IFO Expectations Index – indicating firms’ projections for the next six months, came in at 92.2 for July, down from previous month’s 94.2 reading and worse than market expectations of 94.0.

"The German economy is navigating troubled waters," Ifo President Clemens Fuest said in a statement. He also said that companies were less satisfied with their current business situation and are also looking ahead with increased scepticism.

According to analysts at TD Securities, markets are looking for Germany's IFO index to slip a bit lower again in July, but that will likely be largely ignored ahead of the much more interesting ECB decision today.

“We look for the ECB to keep rates on hold and alter its forward guidance, but think that the odds of a dovish surprise are at least twice as high as odds of a more hawkish surprise. The press conference will bear close watching, since assuming the ECB doesn't already deliver a full easing package today (we attribute a 10% chance), that's where Draghi will likely give us a much better idea of what's to come in September. We'll be looking for more insight into the floor for interest rates, potential QE, the level of concern around low inflation expectations, and reinforcing a "symmetric" inflation target. Our base case sees a fairly muted market reaction in both FX and rates as it's largely in line with market expectations, but there is certainly a larger than usual scope for surprise.”

Tax cuts could end up supporting economic growth in China, even if Beijing’s trade war with the U.S. doesn’t improve, according to the chief economist of a Chinese investment banking firm.

Earlier this month, China said its second-quarter GDP growth was 6.2%, its slowest quarterly rate in 27 years. Still, Liang Hong, chief economist of widely followed China International Capital Corporation said the government has done “enough” to support the economy.

“I think a lot of people forgot the Chinese government, this year, had launched a personal income tax cut (and) a lot of other tax cuts as well. That has supported domestic demand, particularly consumer demand,” Liang said, pointing to retail sales, which surprised the market with a 9.8% increase in June from a year ago. Analysts had expected an 8.3% rise.

The effects of the tax cuts are still feeding through the system and will add to confidence, she projected, which will be enough to offset the slowdown caused by U.S. tariffs on Chinese goods.

Most Chinese estimates put the impact of the trade war at 0.5% to a “maximum 1% of GDP,” she said. “But if we look at the tax cuts, that’s more than 1% of GDP. So if we just do a net net, that seems to be enough.”

CIBC Research discusses CHF outlook and holds a range-bound bias but prefers to buy CHF as a protection over the coming months.

"Although the carry trade has performed well in FX over the past couple of months, the trade-weighted CHF has perked up over 3.6% since reaching lows in late-April. Of course, the bulk of the gain in CHF has been due to currency depreciation of its largest trading partners – namely CNH, EUR, USD, and GBP. With EUR/CHF at the 1.10 handle, we don’t believe that EUR/CHF can head much lower before the SNB intervenes. That being said, upside in EUR/CHF and USD/CHF doesn’t look likely either, with both the Fed and ECB erring dovish, and with a soft European manufacturing sector. With a range-bound outlook for CHF, we prefer a bias to buy CHF as protection, should trade concerns resurface, or should Brexit get out of hand," CIBC adds.

Dominick Stephens, chief economist at Westpac, suggests that the Reserve Bank of New Zealand to cut the OCR in August and again in November, taking the OCR to an all-time low of 1%.

“And the risk to our new call is skewed towards earlier and/or more aggressive cuts – there is a possibility that the RBNZ could cut the OCR in September, and even a possibility that the OCR could drop below 1%. There is some risk the RBNZ could deliver the cuts more rapidly, in August and September, depending on how weak the labour market gets. The domestic economy has clearly slowed further than anticipated. Low business confidence is translating into slower hiring, and the forestry downturn could cause job losses. The recent rise in the exchange rate will also bother the RBNZ. If we are correct, retail fixed interest rates are going to fall even further. Lower mortgage rates will strengthen our call for a housing market upturn over the year ahead.”

Karen Jones, analyst at Commerzbank, notes that EUR/USD has eased lower following the erosion of the March and mid-June lows at 1.1181/76 and attention has reverted to 1.1110/06 the April and May lows.

“It is on the defensive very near term and while we look for this to ideally hold the initial test (we have a 13 count on the 240 minute chart), failure here on a closing basis will introduce scope to the 1.0980 2018-2019 support line, which in turn guards the 78.6% retracement at 1.0814/78.6% retracement. The intraday Elliott wave counts indicate that the 1110/06 lows should hold. Initial resistance lies at 1.1285, the 11th July high guards the 55 week ma at 1.1382. The market will need to regain the 55 week ma at 1.1382 to generate upside interest.”

The Reserve Bank of Australia is ready to ease monetary policy further if needed, Governor Philip Lowe said.

"If demand growth is not sufficient, the Board is prepared to provide additional support by easing monetary policy further," he said.

It is reasonable to expect an extended period of low interest rates, Lowe added. It will be some time before inflation is comfortably back within the target range.

The RBA had reduced its benchmark rate in June and July, by 25 basis points each. This was the first back-to-back rate cut since mid-2012.

The governor said two rate cuts will support demand. Recent tax reductions, higher commodity prices, some stabilization in the housing market, ongoing investment in infrastructure and a lift in resource sector investment will also support the economy, he noted.

The bank expects these factors together with rate cuts to put pressure on the economy's supply capacity and lift inflation in a reasonable timeframe, Lowe said.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1282 (1594)

$1.1251 (1416)

$1.1227 (246)

Price at time of writing this review: $1.1134

Support levels (open interest**, contracts):

$1.1107 (3307)

$1.1073 (4489)

$1.1034 (3360)

$1.1034 (3360)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date August, 9 is 71186 contracts (according to data from July, 24) with the maximum number of contracts with strike price $1,1100 (4489);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2673 (1712)

$1.2606 (854)

$1.2555 (347)

Price at time of writing this review: $1.2474

Support levels (open interest**, contracts):

$1.2405 (2438)

$1.2371 (1992)

$1.2331 (764)

Comments:

- Overall open interest on the CALL options with the expiration date August, 9 is 16332 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 17576 contracts, with the maximum number of contracts with strike price $1,2450 (2438);

- The ratio of PUT/CALL was 1.08 versus 1.05 from the previous trading day according to data from July, 24

* - 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.