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Major US stock indexes rose significantly against the background of solid quarterly results from Cisco Systems (CSCO) and Walmart (WMT), as well as optimistic macroeconomic data indicating the strength of the US economy.

Cisco reported a profit of $ 0.78 per share, which was $ 0.01 higher than the Wall Street estimate. The company's revenue also slightly exceeded analysts' expectations. In addition, Cisco presented strong forecasts for the main indicators for the current quarter. Shares of CSCO rose 6.75%.

Walmart showed adjusted quarterly earnings of $ 1.13 per share, up $ 0.11 per share from Wall Street forecasts. However, revenues were below expectations, mainly due to currency fluctuations. But comparable sales in Walmart stores in the US rose by 3.4%, which was higher than the consensus forecast of Refinitiv at + 3.3%. The value of WMT shares jumped 1.43%.

The Ministry of Labor reported that the number of applications for unemployment benefits fell more than expected last week, indicating a steady strength of the labor market, which should support the economy in the face of slower growth. According to the report, the number of applications for unemployment benefits fell by 16,000 to 212,000, taking into account seasonal fluctuations for the week ending May 11. The data for the previous week was unchanged. Economists predicted that last week the number of applications for benefits would fall to 220,000.

A report by the Department of Commerce showed that US housing construction rose more-than-expected in April. According to the report, housing construction increased by 5.7% in April to an annual rate with seasonal fluctuations of 1,235 million units, which was due to an increase in the construction of both single and multi-family residential buildings. Data for March was revised to show housing growth to 1.168 million units instead of falling to 1.139 million units, as previously reported. At the same time, building permits rose 0.6% to 1.296 million units in April. Building permits declined for three consecutive months. Single-family housing permits, however, fell for the fifth consecutive month, indicating a moderation in housing in the coming months. Economists predicted that the number of new homes in April will increase to 1.205 million units.

Investors are also closely monitoring developments in the US-China trade relations. Yesterday it became known that the US delegation is planning to visit Beijing at the end of this month to continue trade negotiations. These plans have not changed, despite reports that the US Department of Commerce has put Huawei Technologies Co and its related companies on its blacklist, which will make it harder for the Chinese telecommunications giant to do business with US companies. The ministry reported that they believe that Huawei’s free activities in the United States threaten the country's national security. China harshly criticized the decision of the US government regarding Huawei and said it would take steps to protect its companies.

Most of the components of DOW finished trading in positive territory (23 of 30). The outsider was 3M Co. (MMM; -1.27%). The leader of growth were shares of Cisco Systems, Inc. (CSCO; + 6.75%).

After all sectors of the S & P recorded an increase. The largest growth was shown by the conglomerate sector (+ 2.2%). Only the utility sector decreased (-0.1%).

At the time of closing:

Dow 25,862.68 +214.66 + 0.84%

S & P 500 2,876.32 +25.36 + 0.89%

Nasdaq 100 7,898.05 +75.90 + 0.97%

The Canadian financial system remains resilient, although the overall risk increased slightly, said the Bank of Canada in its Financial System Review Summary-2019.

• The overall risk to the Canadian financial system has increased slightly since our last assessment in June 2018. This increase is due to a slowdown in economic growth, caused in part by global trade policy uncertainty, last year’s oil price decline, ongoing difficulties in the energy sector and expanded risk-taking in global financial markets.
• The most important risks to Canada’s financial system remain a severe nationwide recession, a large house price correction and a sharp repricing of risk in financial markets. A recent stress test conducted by our staff considers these risks and finds that large if they materialized, Canadian banks would be well positioned to manage them, which in turn would mitigate the effects on the wider financial system. At the same time, the second stress shows a scenario in which a material rise in interest rates would result in large redemptions in corporate bond mutual funds, causing a material widening in corporate spreads, which may exacerbate liquidity conditions.
• Overall, the financial system remains resilient, and confidence among market participants continues to be high.

The Manufacturing Business Outlook Survey, released by the Federal Reserve Bank of Philadelphia on Thursday, revealed the expansion in the region's manufacturing activity accelerated in May.

According to the survey, the diffusion index for current general activity increased from 8.5 in April to 16.6 this month. That was the highest reading since January.

Economists had forecast the index to increase to 9.0 last month. 

A reading above 0 signals expansion, while a reading below 0 indicates contraction. 

The May increase in the headline index was due to gains in the indexes for shipments (to 27.6 from 18.4 in April) and employment (to 18.2 from 14.7). Meanwhile, the new orders index decreased modestly (to 11.0 from 15.7), but remained in the positive territory.

On the price front, prices paid accelerated (to 23.1 from 21.6), while prices received eased (to 17.5 from 20.0).

Statistics Canada released its Monthly Survey of Manufacturing on Thursday, which showed that the Canadian manufacturing sales rose 2.1 percent m-o-m in March to CAD57.97 billion, following an unrevised 0.2 percent m-o-m decrease in February.

Economists had anticipated an advance of 1.1 percent m-o-m for March.

According to the survey, sales increased in 12 of 21 industries, representing 56.4 percent of total manufacturing sales. The transportation equipment (+4.5 percent m-o-m), petroleum and coal product (+8.2 percent m-o-m), and primary metal (+5.3 percent m-o-m) industries posted the largest gains in March. Sales were also up in the aerospace product and parts (+7.1 percent m-o-m), machinery (+2.2 percent m-o-m), miscellaneous (+7.2 percent m-o-m) and computer and electronic product (+3.8 percent m-o-m) industries. These gains, however, were partially offset by declines in the paper (-2.2 percent m-o-m), electric equipment, appliance and component (-4.6 percent m-o-m) and plastic and rubber product (-1.3 percent m-o-m) industries.

Overall, sales of durable goods surged 2.9 percent m-o-m in March, while sales of non-durable goods rose 1.3 percent m-o-m.

U.S. stock-index futures rose slightly, as investors weigh strong earnings from Cisco Systems (CSCO) and Walmart (WMT) against lingering trade-war fears.

Global Stocks:

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

The Commerce Department reported on Thursday the building permits issued for privately owned housing units rose by 0.6 percent m-o-m in April to a seasonally adjusted annual pace of 1.296 million, while housing starts climbed by 5.7 percent m-o-m to an annual rate 1.235 million.

Economists had forecast housing starts jumping by 6.2 percent m-o-m last month and building permits increasing by 0.5 percent m-o-m.

Data for March was revised up to show homebuilding increasing to a pace of 1.168 million units, instead of declining to a rate of 1.139 million units as previously reported.

According to the report, permits for single-family homes, the largest segment of the market, fell 4.2 percent m-o-m at 782,000 in April, while approvals for the multi-family homes segment surged 8.9 percent m-o-m to a 514,000 unit-rate.

In the meantime, groundbreaking on single-family homes rose 6.2 percent m-o-m to a rate of 854,000 units in April, while housing starts for the multi-family segment climbed 4.7 percent m-o-m to a 381,000-unit pace.

The data from the Labor Department revealed on Thursday the number of applications for unemployment benefits decreased more than expected last week, indicating the jobs market remains tight.

According to the report, the initial claims for unemployment benefits fell 16,000 to 212,000 for the week ended May 11.

Economists had expected 220,000 new claims last week.

Claims for the prior week were remained unchanged at 228,000.

Meanwhile, the four-week moving average of claims rose 4,750 to 225,000 last week.

Westpac's Imre Speizer notes that the NZ economy has slowed by more than expected in the second half of 2018 and the first quarter of this year, and while Q1 GDP won’t be reported until June, he expects a 0.5% outturn, with the RBNZ estimating 0.4%.

• Our data pulse index remains in depressed territory and the NZD is following suit.
• We do expect a reversal by year-end, as the cancellation of the capital gains tax lifts business confidence and the housing market. That should coincide with a rebound in the NZD, but it’s a Q3 or Q4 story.
• For now, we expect NZD/USD to extend slightly lower to the 0.6425-0.6525 area over the next month or two. The RBNZ’s easing bias, plus US economic growth outperformance, should maintain downward pressure.

• Still talking with Canada and Mexico on metal tariffs
  
• Trump may choose to extend auto tariffs beyond May

Wal-Mart (WMT) reported Q1 FY 2020 earnings of $1.13 per share (versus $1.14 in Q1 FY 2019), beating analysts’ consensus of $1.02.

The company’s quarterly revenues amounted to $122.949 bln (+1.1% y/y), missing analysts’ consensus estimate of $124.509 bln.

WMT rose to $100.48 (+0.60%) in pre-market trading.

Cisco Systems (CSCO) reported Q3 FY 2019 earnings of $0.78 per share (versus $0.66 in Q3 FY 2018), beating analysts’ consensus of $0.77.

The company’s quarterly revenues amounted to $12.958 bln (+4.0% y/y), generally in line with analysts’ consensus estimate of $12.887 bln.

The company also issued in-line guidance for Q4, projecting EPS of $0.80-0.82 (versus analysts’ consensus estimate of $0.81) and revenues of +4.5-6.5% to ~$13.21-13.46 bln (versus analysts’ consensus estimate of $13.29 bln).

CSCO rose to $54.25 (+3.45%) in pre-market trading.

• Says the consolidation of Germany’s banks, triggered by the 2008 global financial crisis and low-interest rates, will continue to affect public sector banks and saving banks
• Expects to see further changes in the coming years
• Still believes the country’s threefold banking system - made up of privately-held, public and cooperative banks - was the best solution

“I want to make it clear that Labour opposes the idea of passing the Withdrawal Agreement Bill without an agreed deal ... and Labour will vote against a second reading on that basis,” Starmer told parliament. 

Analysts at TD Securities are expecting the U.S. housing starts to recover to 1,209k in April (+6.2% m/m), following two consecutive monthly declines that brought starts lower from 1,298k in January.

• Recent weakness has mostly been driven by a soft showing in starts in the single-family segment.
• Separately, the Philly Fed survey is expected to show a minor improvement in manufacturing activity to 9.0 following a -5.2 decline to 8.5 in April. This will be the second look on the manufacturing sector for May after the stronger-than-expected increase in activity reported by the NY Empire survey.

According to Sean Callow, analyst at Westpac, the kneejerk market response was to focus on the rise in unemployment, with AUD/USD dipping below 0.6900 and market pricing for a June rate cut jumping from 40% to 60%.

“AUD/USD trimmed its losses to a very modest fall but will remain fragile near term. Rate cut expectations were reinforced by a worrying slide in the employment index of the Apr NAB business survey and another quarter of sluggish wages growth. This weekend’s Australian federal election adds to the uncertain outlook. While the local data calendar goes quiet, A$ traders will still have to negotiate a keynote speech by RBA governor Lowe and no doubt daily headlines on US-China trade tensions. Given the domestic headwinds and prospect of no US-China trade breakthrough until at least the end-June G20 meeting, the risks on AUD/USD are skewed clearly to the downside.”

According to analysts at NAB, global financial markets had been recovering strongly from the turbulence of late last year, aided by a dovish turn in the direction of monetary policy, but have given up some their gains following the latest round of US-China tariff increases.

“There have been some signs of activity stabilising –Q1 GDP in some major economies was either stronger or unchanged, and the global composite PMI has basically moved sideways this year. However, our leading indicator of global activity continues to point to a slowdown in growth. Given this, and the flare up in the US-China trade dispute last week, we have lowered our forecasts for global growth in 2019 to 3.3% (3.4%). We then expect growth to slowly return to its long-term trend, rising to 3.4% in 2020 (revised from 3.5%) and 3.5% in 2021. Trade remains one of the key risks to the outlook; it is possible that the US and China will reach some accommodation in coming weeks, but equally the dispute could worsen. Moreover, trade disputes could emerge with other US trading partners, suggesting trade related uncertainty will be an enduring feature for a while to come.”

Eurostat said, the first estimate for euro area (EA19) exports of goods to the rest of the world in March 2019 was €205.6 billion, an increase of 3.1% compared with March 2018 (€199.5 bn). Imports from the rest of the world stood at €183.1 bn, a rise of 6.0% compared with March 2018 (€172.7 bn). As a result, the euro area recorded a €22.5 bn surplus in trade in goods with the rest of the world in March 2019, compared with + €26.9 bn in March 2018. Intra-euro area trade fell to €172.1 bn in March 2019, -0.3% compared with March 2018.

In January to March 2019, euro area exports of goods to the rest of the world rose to €575.6 bn (an increase of 3.9% compared with January-March 2018), and imports rose to €532.2 bn (an increase of 4.8% compared with January-March 2018). As a result the euro area recorded a surplus of €43.5 bn, compared with +€46.5 bn in January March 2018. Intra-euro area trade rose to €500.6 bn in January-March 2019, up by 2.5% compared with January-March 2018.

The European Central Bank has got tools to use if the euro area economy were to fall into a new recession, ECB's Governing Council member Ignazio Visco said.

As the economic prospects for the region are currently dominated by uncertainty, Bank of Italy's governor said it was a mistake to fear that monetary policy would be "disarmed" should the situation degenerate into a full-blown recession or lead to deflation.

"Central banks can rely on a wide range of instruments to support economic activity and, if necessary, the Eurosystem is ready to use them all in order to fulfil its mandate," Visco said.

• US auto tariffs would hit German carmakers hard

• US-China trade escalation risks 'poison' for US GDP

• Net effect of rate tiering on banks could be negative

• No need to postpone policy normalisation if outlook allows for it

China's Foreign Ministry said on Thursday that the country will take necessary measures to safeguard the rights and interests of its businesses, after the United States hit Chinese telecoms giant Huawei Technologies Co Ltd with severe sanctions.

Ministry spokesman Lu Kang made the comment at a daily news briefing in Beijing.

According to the report from Istat, in April 2019 the Italian consumer price index for the whole nation (NIC) increased by 0.2% on monthly basis and by 1.1% with respect to April 2018 (up from +1,0% in the previous month), confirming the flash estimate.

The slight acceleration of the growth on annual basis of All items index was mainly due to prices of Services related to transport (from +0.5% to +2.8%), and, to a lesser extent, of Services related to recreation, including repair and personal care (from +0.9% to +1.6%) and of Non-regulated energy products (from +3.3% to +3.7%).

The core inflation excluding energy and unprocessed food was +0.6% (up from +0.4% in March 2019) and inflation excluding energy was +0.7% (up from +0.6% in the previous month).

The Italian harmonized index of consumer prices (HICP) increased by 0.5% on monthly basis and by 1.1% with respect to April 2018 (the same as in the previous month). The flash estimate was 1.2%.

According to Chidu Narayanan, economist at Standard Chartered, the Reserve Bank of Australia’s (RBA’s) June meeting is likely to be a close call.

“April labour-market data was not sufficiently bad by itself to lead the RBA to cut rates in June, after it left rates unchanged in May. The post-meeting statement in May was only mildly dovish, suggesting rate cuts are some time away. However, the RBA’s forecasts in its quarterly Statement on Monetary Policy (SoMP) suggest persistent weakness, despite a likely 50bps of rate cuts. The June policy decision is unlikely to be driven solely by today’s labour-market print; rather, we believe the decision will depend on what drove the RBA to keep rates on hold in May. OIS markets are now pricing in a 15bps rate cut in June, up from 10bps ahead of the labour-market print. We look to Lowe’s speech to assess the timing of RBA’s rate cuts; we currently see the RBA on hold in June.”

Analysts at Standard Chartered point out that the US-China trade negotiations have suffered a serious setback after the US decided to raise tariffs on USD 200bn of Chinese imports from 10% to 25%, effective 1 June.

“On 13 May, China announced a “forced retaliation” plan to raise tariffs on USD 60bn of US imports to 25% from 5-10%, also effective 1 June. Given that both countries are committed to continuing trade talks, a deal remains likely at the G20 Japan Summit on 28-29 June. However, the heightened risk of a breakdown in the trade talks does not appear to be fully appreciated by the markets. The US is also planning to impose 25% tariffs on its remaining imports from China, valued at USD 300bn. This could drive a decline of up to 40% y/y in China’s annual exports to the US. Given that the US accounts for 3% of China’s GDP, we estimate that this would reduce China’s GDP growth by 1.2ppt. Manufacturing of furniture, computer, electronic and optical products, and textiles would likely be most affected. We think China could still achieve its GDP growth target of 6-6.5% for 2019 even if 25% US tariffs are applied to all of its exports to the US. China’s proactive fiscal policy for 2019 was designed to prepare for possible setbacks in US-China trade talks.”

Japan's government is considering downgrading its assessment of the economy next week as the intensifying Sino-U.S. trade war takes a toll on exports and factory output.

A downgrade in the crucial monthly report could fuel speculation that Prime Minister Shinzo Abe may delay once again a planned sales tax increase set for October. Speculation is swirling that Abe may delay the tax hike to 10% and call a snap election for parliament's lower house to coincide with an upper house poll this summer.

Abe has delayed the planned hike twice as he prioritised economic growth over fiscal reforms. A previous tax increase to 8% from 5% in April 2014 hit consumers hard and triggered a sharp slump in the world's third-largest economy.

In its report in April, the government said Japan's economy was recovering gradually, despite signs of weakness in exports and output. It cut its economic assessment for the first time in three years in March.

Danske Research discusses USD/CAD outlook and expects the cross to moves towards 1.33 in 1-month, and 1.31 in 3-months.

"We expect the Bank of Canada to stay on hold over the coming 12M, while markets price around 50% probability of a cut over the same time horizon. In our view, the dovish expectation largely reflects markets’ FOMC pricing, leaving less scope for the relative rate to send the cross lower. This said, with our expectation of a moderate global recovery and higher oil prices, we expect the cross to move lower eventually. Long covering should support this, as CAD positioning has become stretched short according to CFTC IMM data. Fundamentally, our long-term PPP models suggest the CAD remains heavily undervalued, with the model estimate at 1.20," Danske adds.

Axel Rudolph, analysts at Commerzbank, explains that the EUR/USD cross has reached the 55 day moving average at 1.1251 which capped and they continue to favour the topside even though short-term further consolidation below the current May high at 1.1264 is seen.

“Failure at the 1.1177 March low on a daily chart closing basis would put the 1.1110 April low back on the map. Be advised that the pattern being traced out is a potential large bullish reversal pattern. We have positive divergence on the weekly RSI and a Tom DeMark 13 count on the weekly chart. Overhead lie the 55- and 100-day moving averages at 1.1251 and 1.1313 as well as the September-to-May resistance line at 1.1333. Further up meanders the 200 day moving average at 1.1395. Support at 1.1110 is regarded as the break down point to the 2018-2019 support line at 1.1099 and the 1.0814 78.6% Fibonacci retracement.”

New home prices in China grew at a solid pace in April as Beijing sought to boost economic activity in the face of an escalating trade war with the United States, though potential bubble risks may prompt some cities to tighten policies.

Average new home prices in China's 70 major cities rose 0.6% in April, unchanged from the pace of growth in March, according to the data released by the National Bureau of Statistics (NBS).

On the whole, it logged the 48th straight month of price increases. Most of the 70 cities surveyed by the NBS still reported monthly price increases for new homes, and the number was up to 67 from 65 in March, signalling broadening strength in the market.

On an annual basis, home prices rose 10.7% in April, picking up from a 10.6% gain in March.

Most of the price gains appeared to have been driven by growth in China's four top-tier cities - Beijing, Shanghai, Shenzhen and Guangzhou. Collectively, they rose 0.6% from a month earlier, quickening from a 0.2% gain in March. Tier-2 cities, which include most of the larger provincial capitals, also posted gains (+0.8% m/m, compared with +0.6% in March). In smaller tier-3 cities, they rose 0.5%, easing from 0.7% in March.

France's unemployment rate fell slightly in the first quarter to hit its lowest level in a decade, data from INSEE statistics office showed.

The INSEE said the jobless rate had slipped to 8.7% from 8.8% in the fourth quarter, reaching its lowest level since the start of 2009.

A steady improvement in the labour market offers president Macron some relief after months of regular street protests against the high-cost of living and his pro-business economic reform drive.

Although growth has been low over the last year, the economy continues to add thousands of new jobs, pushing the employment rate to its highest level since 1980. INSEE said it was steady in the first quarter from the fourth quarter, at 66.1%. The unemployment rate in mainland France also fell to a 10-year low of 8.4%, down from 8.5% in the fourth quarter.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1330 (4317)

$1.1299 (3074)

$1.1276 (1381)

Price at time of writing this review: $1.1209

Support levels (open interest**, contracts):

$1.1159 (8117)

$1.1124 (5233)

$1.1084 (4252)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 7 is 117732 contracts (according to data from May, 15) with the maximum number of contracts with strike price $1,1500 (9037);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3043 (1004)

$1.3009 (496)

$1.2978 (369)

Price at time of writing this review: $1.2849

Support levels (open interest**, contracts):

$1.2821 (1383)

$1.2786 (2427)

$1.2731 (3587)

Comments:

- Overall open interest on the CALL options with the expiration date June, 7 is 39068 contracts, with the maximum number of contracts with strike price $1,3450 (3281);

- Overall open interest on the PUT options with the expiration date June, 7 is 38298 contracts, with the maximum number of contracts with strike price $1,2700 (4297);

- The ratio of PUT/CALL was 0.98 versus 1.00 from the previous trading day according to data from May, 15

* - 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.