Forex-novosti i prognoze od 30-12-2019

• Trump administration is waiting on China trade deal to be translated into English
• China trade deal signing ceremony could happen "in the next week or so"
• Trade deal will have language on currency manipulation
• He believes workers wages will continue to rise in 2020
• Tariffs are working "beautifully"
• Asked about SCMP's report saying that Chinese delegation coming to Washington this week, says market "should not believe" reporting from unnamed sources

MNI Indicators' report revealed on Monday that business activity in Chicago rose this month, hitting a four-month high.

The MNI Chicago Business Barometer, also known as Chicago purchasing manager's index (PMI) came in at 48.9 in December, up from an unrevised 46.3 in November. Economists had forecast the index to increase to 48.0.

A reading above 50 indicates improving conditions, while a reading below this level shows worsening of the situation.

According to the report, Supplier Delivery times jumped by 5.1 points to 55.4 and it is the only component among the main five remaining above the 50-mark. Production gained 4.9 points to 47.2, hitting the highest level since August. Order Backlogs picked up in November and increased further in December, leaving the index at a three-month high of 46.2. Inventories strengthened by 4.4 points to 47.4 in December, remaining in contraction for the fifth consecutive month. Meanwhile, New Orders recorded a marginal decline to 49.1 in from November's reading of 49.4. Employment cooled to 47.4 in December, showing the largest monthly decline. Prices at the factory gate surged 9.2% to 58.4 in December, hitting the highest level since August.

The National Association of Realtors (NAR) announced on Monday its seasonally adjusted pending home sales index (PHSI) rose 1.2 percent m-o-m to 108.5 in November, after a revised 1.3 percent m-o-m drop in October (originally a 1.7 percent m-o-m decrease).

Economists had expected pending home sales to increase 1.0 percent m-o-m in November.

On y-o-y basis, the index climbed 7.4 percent after a 4.4 percent surge in October.

According to the report, the regional indices had mixed m-o-m results in November. The Northeast PHSI edged down 0.1 percent m-o-m to 96.3 in November, 2.6 percent higher than a year ago. In the Midwest, the index rose 1.0 percent m-o-m to 102.5 last month, 5.0 percent higher than in November 2018. Pending home sales in the South fell 0.2 percent m-o-m to an index of 125.0 in November, a 7.7 percent jump from last November. The index in the West grew 5.5 percent m-o-m in November to 98.4, a climb of 14.0 percent from a year ago.

Analysts at Nordea Markets note the trade war has been the hot topic for the global economy and financial markets in 2019 as increased uncertainty has been destructive for existing value-added chains and has held back investment decisions.

• "A closer look at the trade statistics confirms that the trade war is a losing game, as the list of countries managing to gain some benefits from the redirection of trade flows is very short. So far, the ability to gain from the trade war does not seem to be the crucial factor for interest rates and currencies in the EM space.
• Our hunch is that the financial market implications for the very few trade war winners may only become materially visible over time as the benefits accumulate."

U.S. stock-index futures rose slightly on Monday, as optimism over U.S.-China trade deal continued to support investor sentiment on the penultimate trading day of a record-breaking year for equities.

Global Stocks:

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

Analysts at Westpac reveal that their base case for the AUD is that it should weaken Q1/Q2 2020 as the impact of the forecast February and June RBA rate cuts plus the beginning of a weakening in iron ore prices ($80 by June) kicks in.

• "Given that the impact of QE on exchange rates tends to be front-loaded and if we are correct and the RBA cuts again in June and then moves to QE, then building expectations for QE are likely to be a negative for the currency through Q2 as well.
• A dip below 0.65 is certainly within our playbook for Q2 next year. Indeed, the midpoint for our fair value model is projected to be 0.6380, assuming the above policy rates and commodity prices.
• However, offsetting some of that fair value weakness, we see the US$ trend acting as a source of support for the A$. Indeed, as the year progresses, our official forecasts have the A$ starting to appreciate as the US$ weakens.
• Bottom line we remain of the view that the A$ will weaken further in 2020 and we see Q2 as the point at which the low will likely be seen. We would view any strength through the end of 2019 to 0.6950 as an opportunity to sell.
• Beyond H1 next year, we see the trend reversing as US$ weakness becomes a more important driving factor and would like to use weakness seen in Q2 as an opportunity to buy."

Tesla (TSLA) target raised to $210 from $190 at Cowen; maintain Underperform

The U.S. Commerce Department reported on Monday the U.S. the goods trade deficit narrowed to $63.19 billion in November from $66.80 billion in the previous month.

Economists had expected a deficit of $68.75 billion.

According to the report, exports of goods from the U.S. rose 0.7 percent m-o-m, boosted by higher sales of vehicles (+3.4 percent m-o-m), consumer goods (+2.6 percent m-o-m), capital goods (+1.3 percent m-o-m) and foods, feeds, and beverages (+2.0 percent m-o-m). Meanwhile, imports fell 1.3 percent m-o-m due to lower purchases of consumer goods (-2.2 percent m-o-m), capital goods (-2.0 percent m-o-m), industrial supplies (-1.5 percent m-o-m), foods, feeds, and beverages (-1.3 percent m-o-m), and other goods (-6.8 percent m-o-m). Imports of vehicles, however, surged 3.7 percent m-o-m in November.

“Washington has sent an invitation and Beijing has accepted it,” a source briefed on the matter has told the South China Morning Post (SCMP). The Chinese delegation is expected to stay “a few days” in the U.S. until the middle of next week, the source added.

Analysts at Nordea Markets note that we do not know all the details of the phase-one deal and the text will be finalizsed by January.

• "As expected, however, the deal concentrates on boosting bilateral trade, along with minor reductions in the existing tariffs. According to the US, China has promised to boost its imports from the US (including agricultural products) by USD 200bn during the next two years. That would be a huge increase, but we need to know more details to estimate the possible carve-out effect, eg for the EU.
• China's promises to boost intellectual property rights and liberalization of the financial sector have been on the table many times before, but these are not expected to drastically change the business environment for foreign companies in China.
• Overall, we see the US-China trade deal as a continuation of Trump's earlier deals with Mexico, Canada, and Japan - much more talk than content."

Analysts at Standard Chartered reveal that their China’s nowcasting model points to GDP growth of 6.0% YoY in the first two months of Q4 2019, in line with Q3. 

“While China’s economy started Q4 on a weak note, it rebounded in November on seasonal factors and policy support (Figure 2). Average industrial production (IP) growth for October-November edged up 0.5ppt to 5.5% y/y versus Q3 on a recovery in the manufacturing sector.

The manufacturing PMI returned to expansionary territory in November after staying below the 50-threshold for six months, indicating an improvement in the demand outlook. Meanwhile, retail sales and fixed-asset investment (FAI) growth slowed in real terms.

Our latest SMEI rose further in December, suggesting improved growth momentum towards the end of Q4. The manufacturing sector remained firm and the services sector showed signs of catching up.

Positive progress on US-China trade negotiations and the near-term prospects of signing a ‘phase one’ deal likely continued to anchor market expectations and improve business confidence. We expect Q4 growth to have picked up to 6.1% y/y.”

Analysts at TD Securities note that the Riksbank has delivered the 25bps rate increase that had been unanimously expected in its latest meet and essentially fully priced by markets, pushing the policy rate out of the negative territory and back up to zero.

1. "The Riksbank's policy rate forecasts were unchanged, and "the repo rate is expected to remain at zero percent in the coming years.
2. The Riksbank's stance is balanced: "Improved prospects would justify a higher interest rate. But if the economy were instead to develop more weakly than forecast, the Executive Board could both cut the repo rate and take other measures to make monetary policy more expansionary.
3. There were two dissents. One was Jansson, as expected, as he would prefer "a repo-rate path that indicates the repo rate will instead be raised some way into the forecast period," once inflation is closer to target. The other one was Breman, the new Executive Board member. Her reservation was a bit different, in that she'd prefer to delay the rate hike until H1 2020, giving inflation a chance to come closer to target, but then would prefer one rate hike per year in 2021-2022.
4. The Riksbank left its 2020 GDP forecast unchanged at 1.2%, and other macro forecasts were little changed. This appears to be a bit optimistic, given the downturn in the recent Swedish data. But the Riksbank needed to deliver a fairly upbeat picture in order to justify today's rate hike.
5. The bar to cutting rates again is going to be very, very high, and we think that the Riksbank will accept a fair amount of economic weakness before even considering going back to negative rates.
6. Rate hike was more about getting out of negative rates than meeting the inflation target."

• Reveales he spoke to U.S. trade representative Robert Lighthizer just before Christmas
• Says they agreed to meet in Washington in mid-January to discuss the long list of issues causing strain in the relationship between EU and US
• There is no point in getting into the details of resolving trade irritants unless we agree a line on a common trade agenda
• I will be seeking a reset of the EU/US trade relationship on issues like tariffs on steel and aluminum and the threat of US tariffs in response to a digital tax in Europe

Analysts at Nordea Markets suggest that China will announce its official growth target for 2020 only in conjunction with the People's Congress in March.

• "The media has reported, however, that the target will be lowered slightly, to around 6%. The high-level annual work conference on the economy emphasized in December that the policy stance will keep supporting stable growth.
• A part of the 2020 quota on local government special bonds to fund infrastructure projects was brought forward in November and financial requirements on infra projects were also lowered as another way to boost investments. Because the tolerance to shadow-banking growth remains low, however, we do not expect the overall financing conditions to improve dramatically.
• We still expect a slightly looser monetary policy, and only yesterday we saw another small step in that direction when the 14-day reverse repo rate was cut by 5 bp."

Analysts at Danske Bank note that China's growth took a hit from the trade war in 2019 but rays of light have emerged, that suggest the worst may be behind us.

• "We expect a moderate increase in the manufacturing sector driven by stimulus and easing trade tensions.
• The US-China trade war has calmed down again following the phase-one deal and we see a 50% chance that the US and China will strike a bigger deal in 2020 and more tariffs will be rolled back.
• China has been the epicenter of the global slowdown and we expect the lift to activity to have a positive spillover to the rest of the world.
• We expect only limited further policy stimulus from here and a slight appreciation of the CNY as activity bottoms and trade fears ease."

In view of analysts at Nordea Markets analysts, China's economic structure has continued to shift towards consumption, while investment growth has remained relatively sluggish.

"We expect that trend to continue, as the easing measures are going to be limited and the boost to infrastructure investments will remain small compared to previous business cycles. This means that developments in the labour market are key in analysing China's growth prospects, but unfortunately labour market data is relatively scarce and does not always point in the same direction as the general economic outlook. When combining the existing data with our road-trip survey in November, the general outlook seems robust. Companies have typically reported 6-8% nominal wage increases, and the recent trend of limited labour supply in the tier-one cities has revealed some signs of tightness in those areas. Obviously, the recent rise in inflation is hampering real income growth, and the increase in purchasing power is smaller than in the previous years."

Growth of the Chinese economy will remain steady, firmed up by strong economic fundamentals and long-term resilience, said the country's top economic planner.

The 6-percent GDP growth in the third quarter of this year was by no means a sign of lost momentum, as it was achieved off a larger economy size, the National Development and Reform Commission (NDRC) said in a statement on its website, adding that China's GDP in 2018 grew by the size of its entire economy in 1997.

Amid a global economic slowdown that prompted international organizations to lower their growth estimates for 2019 and 2020, China's economic expansion is expected to be the fastest among all economies larger than 1 trillion U.S. dollars.

Macroeconomic fundamentals offer more evidence of stability, with 12.79 million new urban jobs created in the first 11 months, exceeding this year's target. Per capita disposable income in the first three quarters rose 6.1 percent, faster than that of per capita GDP, while energy consumption per unit of GDP growth kept retreating during the same period.

A flourishing consumer market and ongoing structural upgrading have proved potential engines for continued growth, according to the statement.

The NDRC said China is confident and capable of maintaining steady and sustainable economic growth over great resilience, strong impetus and huge potential.

Financial services have been too slow to cut investment in fossil fuels, a delay that could lead to a sharp increase in global temperatures, Bank of England Governor Mark Carney said.

Carney, due to become the United Nations' special envoy for climate change next year when he steps down from the bank, told BBC radio that global warming could render the assets of many financial companies worthless.

Carney cited pension fund analysis that showed the policies of companies pointed to global warming of 3.7 to 3.8 degrees Celsius, compared with the 1.5-degree target outlined in the Paris Agreement on climate change.

"The concern is whether we will spend another decade doing worthy things but not enough... and we will blow through the 1.5C mark very quickly," Carney said.

"As a consequence, the climate will stabilize at the much higher level."

Carney said the financial sector had made a lot of progress in disclosing the risks to their assets from climate change, but he warned that progress was not fast enough. He called on political leaders to effect change today and avoid selective information and spin.

According to the report from UK Finance, gross mortgage lending across the residential market in November 2019 was £23.1 billion, 3.3 per cent lower than in the same month in 2018.

Mortgage approvals for home purchases by the main high street banks in November 2019 were 6.8 percent higher, remortgage approvals were 12.7 per cent higher while approvals for other secured borrowing were 4.2 per cent lower than in the same month in 2018.

The £10.9 billion of credit card spending in November 2019 was 3.3 per cent lower than in November 2018. Repayments have remained in line with credit card spending showing that consumers are managing their finances responsibly and choosing to use credit cards as a preferred method of payment. The level of credit card borrowing grew by 2.2 per cent in the year to November 2019.

Personal borrowing through loans in November 2019 was 3.6 per cent higher than in the same month a year earlier. Borrowing on overdrafts has declined over recent years with November 0.8 per cent lower than in the same month in 2018.

Personal deposits grew by 2.6 per cent in the year to November 2019. Three-quarters of deposits were held in immediate access accounts in November 2019, in line with the same period last year.

According to analysts at Nordea Markets, the main global theme in 2019 was the trade war between the US and China and even though the US and China announced the long-awaited phase-one deal in December, challenges in the relationship will persist.

"The most important outcome of the deal is that both sides promised not to raise tariffs further, as was initially planned. This clearly removes one downside risk in the global economy for 2020, although China's unwillingness to move forward with structural reforms implies that its challenges with trade relations will continue."

President Donald Trump's strategy to use import tariffs to protect and boost U.S. manufacturers backfired and led to job losses and higher prices, according to a Federal Reserve study.

"We find that the 2018 tariffs are associated with relative reductions in manufacturing employment and relative increases in producer prices," concluded Fed economists Aaron Flaaen and Justin Pierce, in an academic paper.

While the tariffs did reduce competition for some industries in the domestic U.S. market, this was more than offset by the effects of rising input costs and retaliatory tariffs, the study found.

"While the longer-term effects of the tariffs may differ from those that we estimate here, the results indicate that the tariffs, thus far, have not led to increased activity in the U.S. manufacturing sector," the study said.

Tit-for-tat trade retaliation is an idea best relegated to the past, given the presence of globally interconnected supply chains, the Fed researchers found.

In view of analysts at Nordea Markets, China's economic development in 2019 is pointing towards stabilisation of economy.

"A year ago, China's growth prospects were very uncertain, as the trade war and deleveraging policies had dented the economy, especially manufacturing and foreign trade. China's well-targeted easing measures have worked, however, and the starting point for 2020 now looks rather robust. The need for further easing measures is hence limited, but we also find the probability of a strong rebound small."

According to the report from KOF Economic Research Agency, the Economic Barometer reaches its previous year's closing level in December. The barometer, which tended to fall during the year, has thus fully recovered. However, the barometer is still below its long-​term average. The outlook for the Swiss economy at the beginning of 2020 is brightening somewhat, but remains subdued.

The KOF Economic Barometer rises by 3.8 points in December from 92.6 (revised from 93.0) to a value of 96.4. Economists had expected an increase to 94.5. The distinct increase is primarily due to bundles of indicators from the manufacturing sector. Positive signals also result from indicators covering other services and foreign demand. Indicators concerning private consumption as well as hotel and catering activities show a moderate increase.

Within the manufacturing sector, the prospects of the electrical industry are brightening up the most. Sub-​indicators for the paper and printing, the metal and the wood industry are more positive than in November. The outlook for the mechanical engineering industry, the manufacturers of food and beverages and the textile and clothing industry remain virtually unchanged compared to the previous month.

In the goods producing sectors (manufacturing and construction), indicators for the inventory show signs of recovery. Indicators for the order backlog, the overall business situation, the development of production and the development of production capacities point in a positive direction as well. Indicators regarding the purchase of intermediate products, on the other hand, are slightly negative.

Analysts at TD Securities point out that the Norges Bank left its policy rate on hold in its last meeting and also left its policy rate path essentially unchanged, with just a couple of bps of upgrades from H2 2021 onwards.

"Overall there's still no more than 10bps of rate hikes forecasted anytime out to the end of 2022. Developments since the last MPR seem to have broadly balanced each other out: "A weaker-than-projected krone implies in isolation a higher policy rate path. On the other hand, the upturn in the Norwegian economy appears to be a little more moderate than previously assumed. The recent weakness of the krone had a fairly large impact on the policy rate forecasts (+15bps at the end of 2020), essentially balancing out the slowdown in demand (-18bps in the same period). There were small, positive contributions from oil prices and the money market premium, and about 6-7bps of judgment was applied through most of 2020 to prevent the policy rate forecasts from rising."

China's Commerce Ministry has "proactively dealt with" trade frictions with the United States this year, it said on Sunday after an annual work conference.

The ministry has implemented the decisions of the central government and "resolutely safeguarded the interests of the country and the people", it said in a statement on its website.

The United States and China cooled their trade war this month, announcing a "Phase one" agreement that would reduce some U.S. tariffs in exchange for what U.S. officials said would be a big jump in Chinese purchases of American farm products and other goods.

China's commerce ministry has said it is in close touch with the United States on signing the trade deal, and both sides are still going through necessary procedures before the signing.

Analysts at TD Securities note that the US treasuries have risen by 51bp in the 10y since early-September and are reaching levels not seen since before the Fed began easing rates in July.

"Much of the move was driven by a rise in term premium. Global rates have also kept pace, with 10y bunds and Gilts rising by 49bp and 41bp respectively. We believe this move has been the result of the market pricing in lower odds of a global recession amid the removal of tail risks such as additional Chinese tariffs or hard Brexit. Over the next few months we think that term premium will remain lower due to continued strong foreign demand for Treasuries and the declining net supply of Treasuries due to Fed buying. Fed expectations have been more stable despite the rise in rates. This makes sense as the Fed has signaled a high bar to reverse the insurance cuts due to inflation running below target and risks persisting. We believe that at least 25bp of rate cuts should be priced into 2020 as the market is implicitly penciling in just 10% odds of a recession in the next year based on their cut pricing. If the economy slows as we expect, the market should price in additional rate cuts."

EUR/USD

Resistance levels (open interest**, contracts)

$1.1306 (3805)

$1.1271 (3488)

$1.1245 (3583)

Price at time of writing this review: $1.1193

Support levels (open interest**, contracts):

$1.1099 (4779)

$1.1049 (5425)

$1.0999 (2970)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date January, 3 is 60658 contracts (according to data from December, 27) with the maximum number of contracts with strike price $1,1050 (5425);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3229 (3916)

$1.3198 (849)

$1.3173 (1431)

Price at time of writing this review: $1.3110

Support levels (open interest**, contracts):

$1.2982 (1920)

$1.2939 (846)

$1.2894 (1571)

Comments:

- Overall open interest on the CALL options with the expiration date January, 3 is 26644 contracts, with the maximum number of contracts with strike price $1,3400 (4321);

- Overall open interest on the PUT options with the expiration date January, 3 is 28132 contracts, with the maximum number of contracts with strike price $1,2500 (2271);

- The ratio of PUT/CALL was 1.05 versus 1.15 from the previous trading day according to data from December, 27

* - 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.