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Danske Bank's analysts provided their views on next week's key market-moving releases, including September PMI data and other important events.

•  “After two weeks of central bank action, focus will likely turn to the real economy, where we will start to get PMI data for September.
• If there is no increase in PMIs in the US, this will indicate that Q3 showed the weakest growth since 2009.
• In Europe, it will be interesting to see if the service sector can continue to support growth despite the weakness in manufacturing.
• A trade deal between the US and Japan could be signed and there could be news about the US-China trade war, with high-level talks expected in early October.
• Swedish NIER survey data will be scrutinized for clues whether the recent bad labour market data paint a true picture of the economy.”

• There is a range of views on the committee right now
• Will take decisions meeting by meeting
• Going into October and beyond, we'll go one meeting at a time
• We're going to be very attentive to data and to risks to the outlook
• We clearly have a slowing global economy
• There are some deflationary forces in the pipeline
• Negative factors have been worsening since the start of the year
• Global growth has been worsening
• Not surprised US economy is resilient
• Economy has done well this year
• I think a lot of the flattening of the U.S. yield curve was money flowing in to take advantage of higher yields
• Higher U.S. rates are symptom of strength, not weakness
• Quarterly tax payments and Treasury bond sales were behind upward adjustment in repos, it was larger than expected
• The US is much less sensitive to oil shocks now because of US production
• The consumer is in good shape, the savings rate is higher
• "I can never remember a time in my career when the consumer has been in better shape."
• We think its important to put inflation in place policies to meet inflation near target
• We are starting to see inflation trend towards target

• China is having a bad year
• China wants to make a deal

The European Commission reported on Friday its flash estimate showed the consumer confidence indicator for the Eurozone increased 0.6 points to -6.5 in September from the previous month.

Economists had expected the index to edge down to -7.0.

Considering the European Union (EU) as a whole, consumer sentiment also dropped 0.6 points to -6.4.

Given these gains, both indicators remain on a broadly horizontal trajectory well above their respective long-term averages of -10.7 (Eurozone) and -10.0 (EU), the report said.

Nathan Janzen, the senior economist at Royal Bank of Canada (RBC), notes that the Canadian retail sales have remained soft.

• "The headline sales increase in July was the first in three months and, excluding price impacts, volume sales were unchanged, both from a month earlier and from year-ago levels. Flat volume sales from a year ago compare with, ostensibly, strong growth in household purchasing power over the last year. Employment was up 2% from a year ago in July, wage growth was well-above the rate of inflation, and external trade risks have pushed interest rates sharply lower. All of that should be boosting household purchasing power, and consumer confidence levels remain around cycle-highs.
• And, indeed, the broader household spending backdrop arguably still has looked a little better recently. Overall consumer spending growth outperformed the retail sale numbers over the first half of this year. E-commerce sales, not all of which are included in the headline retail sales number, were up 32.8% in July. And housing markets have firmed with home resales increasingly appearing to have passed their near-term bottom in the spring. We expect household spending will continue to grow at a respectable, if unspectacular, pace over the second half of this year. And that will probably be needed given still elevated uncertainties about the potential for international trade disruptions to spill over into slower Canadian manufacturing sales activity.”

U.S. stock-index futures rose moderately on Friday as investors reacted positively to global stimulus efforts by central banks. 

Global Stocks:

• It risks further inflating the prices of risky assets and encouraging households and firms to take on too much leverage
• While risks clearly exist related to trade and geopolitical concerns, lowering rates to address uncertainty is not costless

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

Apple (AAPL) target raised to $270 from $260 at Cascend Securities

Statistics Canada reported on Friday that the Canadian retail sales rose 0.4 percent m-o-m at CAD51.48 billion in July, following a revised 0.1 percent m-o-m drop in June (originally unchanged m-o-m).

The result was below economists’ forecast, suggesting a 0.6 percent m-o-m gain for July.

According to the report, sales grew in 6 of 11 subsectors, representing 71 percent of retail trade.

The July m-o-m increase was mainly due to higher sales at motor vehicle and parts dealers (+1.5 percent m-o-m; their largest gain since February). Sales also increased at health and personal care stores (+2.6 percent m-o-m), electronics and appliance stores (+0.7 percent m-o-m) and food and beverage stores (+0.6 percent m-o-m).

Excluding motor vehicle and parts dealers, retail sales edged down 0.1 percent m-o-m in July compared to an unrevised 0.9 percent m-o-m climb in June and economists’ forecast of 0.3 percent m-o-m advance. Excluding motor vehicle and parts dealers and gasoline stations, retail sales also dropped 0.1 percent m-o-m in July.

In y-o-y terms, Canadian retail sales jumped 1.2 percent in July, accelerating from +1.0 percent in July.

• It is essential that there is a fully workable and legally operational solution included in the Withdrawal Agreement
• Remains willing to examine any proposals that meet all the objectives of the backstop

Analysts at Australia and New Zealand Banking Group (ANZ) express their views on the Bank of England's (BoE) monetary policy decision announced on Thursday.

• “The BoE left interest rates unchanged, but noted that if Brexit uncertainty continued, this would likely dampen the domestically generated inflation pressures.
• The BoE might be late to the party, but it was dovish, cautious about growth and starting to lay the framework for future rate cuts.
• Sterling was unmoved, but leapt later when EC President Juncker expressed optimism about a Brexit deal, saying he wasn’t wedded to the Irish backstop as long as its objectives were met.”

Analysts at TD Securities are expecting the Canadian retail sales to increase 0.9% in July. The data will be reported later today at 12:30 GMT.

• “CAD Retail sales are expected to post a 0.9% increase in July, helped by stronger auto sales and higher prices for consumer goods.
• The latter should translate into a more moderate increase in real retail sales although the report should still provide a strong signal for Q3 consumption after a disappointing performance from the Canadian consumer in Q2.”

Iris Pang, the economist for Greater China at ING, notes the People's Bank of China (PBoC) cut the one-year loan prime rate (LPR) by five basis points to 4.2% while keeping the five-year LPR rate unchanged at 4.85%.

• "We believe that the decision to cut the rate came from very weak August data released a few days ago. Industrial production grew just 4.4% year-on-year, the lowest level since February 2002, while fixed asset investments grew 5.5%, down from 5.7% previously, even with support from infrastructure stimulus.
• A 5 bps cut in the one-year LPR will guide interest rates lower in bank loans and other financial assets, including local government special bonds which are used to fund infrastructure projects. This means that production costs and investment costs will be lowered slightly. 
• As the trade war is expected to continue for some time, this rate cut is clearly necessary.
• A rate cut doesn't necessarily mean a weaker yuan. There is very little arbitrage opportunity given that China's capital account is not fully open. Put simply, the theory that lower interest rates weaken the currency doesn't apply in China.
• USD/CNY peaked at 7.1054 on Thursday then closed at 7.0965. After the rate cut today, the USD/CNY moved to 7.0903. That is, the yuan actually strengthened rather than weakened. 
• We expect a weaker yuan if the trade talks go poorly. Our USD/CNY forecast is 7.20 by the end of 2019. "

• I dissented Fed decision because a 50 bps rate cut was more appropriate
• There are signs U.S. growth will slow in the near horizon
• The manufacturing sector appears to be in a recession
• Dissent also prompted by inverted yield curve as well as low inflation
• Says a 50 bps rate cut would provide insurance against slowing economy
• It would also promote a more rapid return of inflation and inflation expectations

In opinion of FX Strategists at UOB Group, USD/JPY needs to clear the 108.50 area in order to attempt a move to 108.85 in the near term.

24-hour view: “The strong 108.50 resistance remains untouched as USD staged a surprisingly rapid retreat from a high of 108.46. The recent strong upward pressure has waned and the current movement is viewed as part of consolidation phase. In other words, USD is expected to trade sideways for today, likely within a 107.80/108.40 range”.

Next 1-3 weeks: “USD touched 108.47 yesterday, just a few pips below the 108.50 level that was first highlighted last Thursday (12 Sep, spot at 107.95) before ending the day on a firm note at 108.44 (+0.29%). We highlighted yesterday (18 Sep, spot at 108.10), “the combination of overbought conditions and waning momentum suggests that USD could be close to making a short-term top” and added, “in order to revive the flagging momentum, it has to move and stay above 108.30 by end of today (18 Sep)”. The firm daily closing suggests a break of 108.50 would not be surprising and the focus would then shift to 108.85. On the downside, a break of 107.50 (no change in ‘strong support’ level) would suggest USD is not ready to tackle 108.85 just yet”.

Britain and the European Union are not yet close to a Brexit deal that could resolve the Irish border riddle and London needs to come up with serious proposals, Ireland said.

Irish Foreign Minister Simon Coveney was speaking after hopes of a resolution to the tortuous three-year Brexit process were raised in recent days. 

Coveney repeated Juncker’s sentiment but cautioned that the gap was still wide and he underscored the risks of a disorderly Brexit - civil unrest on the island of Ireland and a dislocation of trade.

“I think the mood music has improved,” Coveney told BBC radio. “We all want a deal, we all know that a no-deal will be a lose, lose, lose for everybody, but particularly for Ireland and Britain.

“But I think we need to be honest with people and say that we’re not close to that deal right now. But there is an intent I think by all sides to try and find a landing zone that everybody can live with here.”

According to Louis Boisset - an analyst at BNP Paribas - the current economic slowdown in the eurozone fits within a more global slowdown that can be seen in both the advanced economies and in the emerging markets. After a robust year in 2017, GDP growth in the eurozone seems to have weakened.

“Structurally, activity in the manufacturing sector is more sensitive to shocks, especially external ones. However, the current situation seems to be rather unprecedented with regards to the eurozone’s short history. For several months, manufacturing PMI is particularly weak compared to the high score reported by the services sector. With the exception of the great financial crisis, this has been the widest gap ever reported since the euro’s creation. This observation is especially true for the German economy, which has a bigger manufacturing sector and higher openness than its trade partners. The absence of a rebound in world trade, confirmation of China’s economic slowdown and uncertainty generated by trade tensions and Brexit negotiations are straining external demand and the manufacturing sector in particular. In fact, manufacturing products still account for about 80% of global exports. How long can this situation last? How long can activity in the services sector resist the troubles in the manufacturing sector? The key lies in the dynamics of domestic demand, and household consumption in particular. Consequently, we should keep a close eye on the job market situation in the short term.”

According to the report from Insee, French labor cost declined at a faster pace in the second quarter.

Insee said, wages and salaries in the non-farm business sector decreased 1.2 percent sequentially, reversing a 1.8 percent rise in the first quarter. Without the special bonus for purchasing power, or PEPA, wages and salaries would have risen by 0.7 percent in the second quarter.

Wages in industry and construction dropped 1.7 percent each in the second quarter. Wages in services were down moderately by 0.9 percent. The wages decreased more sharply in the sectors where more PEPA bonuses were paid in the first quarter.

On a yearly basis, wages and salaries increased 1.5 percent, which was slower than the 3.1 percent rise in the previous quarter.

The down move in EUR/GBP appears to have met strong contention in the 0.8800 neighbourhood for the time being, noted Senior FICC Technical Analyst at Commerzbank Axel Rudolph.

“EUR/GBP finally slipped through the 200 day moving average at .8794 as expected with the 61.8% Fibonacci retracement of the May-to-August advance at .8794 currently being tested. For now it seems to hold, though. Below it lies the May 27 low at .8769. Minor resistance above the .8891 July low and the .9016 September 9 high can be seen between the mid-July high and the 55 day moving average at .9043/52. Further resistance comes in at the .9149 current September high. Still further up sits the August peak at .9327”.

China’s currency-swap lines with nations spanning the globe, designed to bolster the international role of the yuan, could backfire badly in a world crisis.

So argues Mansoor Mohi-uddin, a senior macro strategist at NatWest Markets in Singapore. The danger is that foreign central banks would exchange their currencies for yuan with the People’s Bank of China, then dump those holdings for dollars if a crisis hits, he wrote in a research note Friday.

“This would exert downward pressure on the yuan’s exchange rate against the greenback at a time when the PBOC would also likely be trying to shore up sentiment on its own currency,” Mohi-uddin wrote. Swaps “may be the yuan’s weakest link in a major financial crisis.”

Such an exchange would highlight how, though the yuan is now officially a reserve currency -- with the imprimatur of the International Monetary Fund -- its global appeal is well short of the dollar’s. China’s currency is used in 4.3% of global foreign-exchange transactions, against the dollar’s 88.3% share, according to the Bank for International Settlements.

China has set up currency swap lines with dozens of countries to grease trade and, if needed, to act as an emergency backstop. NatWest calculates the total as a potential 3.7 trillion yuan ($523 billion).

FX Strategists at UOB Group expect EUR/USD to extend the ongoing sideline trading in the next weeks.

24-hour view: “Instead of “drifting lower”, EUR traded in a quiet manner and registered an ‘inside day’. Momentum indicators are most ‘neutral’ which suggest EUR could continue to trade sideways for now. Expected range for today, 1.1015/1.1075”.

Next 1-3 weeks: “EUR traded in a quiet manner and ended the day little changed at 1.1040 (+0.09%). The price action offers no fresh clues and for now, our view from one week ago (13 Sep, spot at 1.1055) wherein EUR is expected “trade sideways” still stands. From here, EUR could continue to trade within the broad 1.0925/1.1130 range for a while more. Looking forward, EUR has to register a NY close out of the expected range before a more sustained directional price action can be expected”.

Sterling could tumble to parity with both the dollar and the euro if the U.K. crashes out of the European Union without a deal, according to Shamik Dhar, chief economist at BNY Mellon Investment Management.

“It’s pretty clear under ‘no deal’ you’ll get a very big fall in sterling -- I’d say 10% to 15% from here,” said Dhar, a former senior manager in monetary analysis at the Bank of England. “We’ll test parity against the euro, probably the dollar as well in that circumstance, and we’ll be entering a world where the central bank will be cutting rates.”

The pound has declined about 16% against the dollar since the U.K.’s referendum to leave the bloc in June 2016, with the currency swinging on every political development. It rose as much as 0.7% to the highest in two months on Thursday after Sky News reported that European Commission President Jean-Claude Juncker thought a Brexit deal can be reached by Oct. 31.

If the U.K. manages to clinch a deal to leave the bloc amicably, sterling is likely to rise about 5% from the 1.25 level, Dhar said. For those looking to trade the currency as the Oct. 31 deadline draws near, buying volatility options remains one of the best strategies, he said.

Analysts at Australia and New Zealand Banking Group (ANZ) offer a sneak peek at what to expect from next Wednesday’s Reserve Bank of New Zealand (RBNZ) monetary policy decision.  

“We expect the RBNZ will leave the OCR on hold at 1.00% next Wednesday, but leave the door open to further cuts. The Bank will most likely want to let the dust settle a little following August’s surprise 50bp move, but with this pre-emptive Committee nothing is certain. We continue to forecast three more 25bp cuts (in November, February and May).”

The U.S. economy doesn’t need any rate cuts, billionaire investor and Oaktree Capital’s co-chairman Howard Marks told CNBC, predicting there won’t be a recession for another two years.

“If your goal is to make sure we don’t have a recession this year, next year ... (then) maybe you want to cut rates,” Marks told.

But the U.S. economy is doing “pretty well,” Marks said, with sources of strength which could be mostly attributed to the American consumer.

When asked if a recession was about to his the U.S., he replied: “It doesn’t feel to me like a recession is imminent. I don’t think we’re going to go 5 years without it, so some time two years from now — something like that.”

Central banks usually cut rates to get the economy going, he said, citing that the Fed’s rate cuts 10 years ago helped stall global financial crisis. “Ten years later, do you want to cut rates to extend an economic expansion which is the longest in history?” he asked. “I question whether that’s a legitimate goal.”

But the work of preventing the next recession from happening isn’t the Fed’s job, Marks said. Traditionally, the Fed’s role was to control inflation, and in the past few decades, it was to support growth so that jobs would be created, he pointed out.

Nomura Research discusses the latest market conditions and flags a scope for the recent risk to fizzle out in the near-term.

"In the US stock market, neither sentiment nor major market indices registered anything like a forceful rebuke of the Fed by market participants, but it does seem that the willingness to take on risk took a slight hit, as factor performance revealed that investors reacted by selling value and high beta while buying momentum and quality," Nomura notes. 

"Going by the pattern traced by our gauge of US stock market sentiment, we have argued that the risk rally that has been underway since the beginning of the month is likely to fizzle out in the absence of fresh fuel in the form of some new good news for the market during the week of 16-23 September,"Nomura out.

According to the report from the Federal Statistical Office (Destatis), in August 2019 the index of producer prices for industrial products rose by 0.3% compared with the corresponding month of the preceding year. Economists had expected a 0.6% increase. In July 2019 the annual rate of change all over had been +1.1%.

Compared with the preceding month July 2019 the overall index decreased by 0.5% in August 2019 (+0.1% in July 2019).

The greatest impact on the growth of the overall index compared to August 2018 had the development of electricity prices. These were up 6.0% (-1.1% compared to July 2019). Energy prices as a whole decreased by 0.3% (-1.6% compared to July 2019). On an annual basis prices of natural gas (distribution) decreased by 5.0% and prices of petroleum products by 5.7%. 

The overall index disregarding energy was 0.6% up on August 2018 and remained unchanged compared to July 2019.

Prices of non-durable consumer goods increased by 1.7% compared to August 2018 (+0.1% on July 2019). Food prices were up 2.2%. Prices of capital goods increased by 1.5%, prices of durable consumer goods were up 1.3%. Prices of intermediate goods decreased by 0.9% compared to August 2018 (-0.2% on July 2019). Prices decreased especially regarding electronic integrated circuits (-13.7%) and metallic secondary raw materials (-13.6%).

EUR/USD

Resistance levels (open interest**, contracts)

$1.1180 (2050)

$1.1155 (2012)

$1.1131 (1431)

Price at time of writing this review: $1.1057

Support levels (open interest**, contracts):

$1.1034 (12976)

$1.0992 (5371)

$1.0946 (3178)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date October, 4 is 94948 contracts (according to data from September, 19) with the maximum number of contracts with strike price $1,1050 (12976);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2659 (1442)

$1.2638 (1751)

$1.2622 (846)

Price at time of writing this review: $1.2561

Support levels (open interest**, contracts):

$1.2439 (423)

$1.2405 (623)

$1.2367 (598)

Comments:

- Overall open interest on the CALL options with the expiration date October, 4 is 16262 contracts, with the maximum number of contracts with strike price $1,2500 (1751);

- Overall open interest on the PUT options with the expiration date October, 4 is 17945 contracts, with the maximum number of contracts with strike price $1,1900 (1462);

- The ratio of PUT/CALL was 1.10 versus 1.02 from the previous trading day according to data from September, 19

* - 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.