CFD Markets News and Forecasts — 02-08-2019

• Has not heard anything definitive about possibility of delay in tariffs
• A lot of good things could happen in a month before new tariffs on Chinese goods go into effect
• Additional Chinese purchases of U.S. agricultural products would be a plus
• Does not think more quantitative easing or liquidity will do the job in Europe
• President Trump doesn't like the idea that Europe is essentially manipulating the euro
• Fed’s latest rate cut is a step in the right direction

• Doesn’t seen any inflation

The U.S. Commerce Department reported on Friday that the value of new factory orders rose 0.6 percent m-o-m in June, following a revised 1.3 percent decline in May (originally a 0.7 percent m-o-m drop). 

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

According to the report, orders for transportation equipment surged 3.7 percent m-o-m in June after plunging 7.5 percent m-o-m in May, while machinery orders increased 2.1 percent m-o-m, following a 0.1 percent m-o-m advance in the previous month. At the same time, orders for computers and electronic products edged down 0.2 percent m-o-m after a 0.5 percent m-o-m gain in May. 

Meanwhile, total factory orders excluding transportation, a volatile part of the overall reading, edged up 0.1 percent m-o-m in June (compared to a flat m-o-m performance in May), while orders for nondefense capital goods excluding aircraft, a measure of business spending plans, increased 1.5 percent m-o-m (compared to a 1.9 percent m-o-m climb in May). The report also showed that shipments of core capital goods rose 0.3 percent m-o-m in June, following an advance of 0.6 percent m-o-m in May.

In y-o-y terms, factory orders increased 0.2 percent in June.

The final reading for the July Reuters/Michigan index of consumer sentiment was confirmed at 98.4, above the June final reading of 98.2.

Economists had forecast the index to be revised upwardly to 98.5.

According to the report, the index of the current economic conditions fell to 110.7 from June’s final reading of 111.9.

Meanwhile, the index of consumer expectations increased to 90.5 from June’s final reading of 89.3.

The report notes that economic confidence has been remarkably stable since the start of 2017, despite ongoing trade uncertainties. The resilience displayed has been primarily due to a renewed sense of personal financial optimism.

James Knightley, the chief international economist at ING, notes that U.S. non-farm payrolls rose 164,000 in July, almost identical to the 165,000 consensus forecast. 

• "There were 41,000 downward revisions to the past couple of months and we are running well below the 220,000 or so average seen through 2018. On balance, however,  the report shows that US companies still have an appetite to hire. Indeed, we continue to argue that a slowdown in hiring should be expected. This is the longest US economic expansion since records began in 1854 with unemployment close to 50-year lows at 3.7% (same as in June) so it is unsurprising that companies complain that difficulty finding suitable workers is the biggest constraint on hiring.
• This competition for workers helped push wage growth higher in July. A second consecutive 0.3% MoM gain has lifted the annual rate of wage growth up to 3.2%. This is well ahead of the 1.6% consumer price inflation figure so real household disposable incomes are rising at a decent clip, which should underpin support for spending.
• The latest escalation of trade tensions and the fear that it will hurt confidence, put up costs, damage supply chains and make business less inclined to invest and hire new workers will continue to drive market sentiment. Nonetheless, a strong domestic jobs market helps to mitigate the threat to activity in the near term. With unemployment at such low levels and the competition of staff remaining intense, workers have a sense of job security. With wages rising in a benign inflation environment, they have spending power too.
• However, the “uncertainties” that the Federal Reserve worries about – trade and a weaker global growth story – are being ratcheted up and the Fed looks set to follow this week’s rate cut with another 25bp move in September. What happens thereafter depends largely on how trade talks progress."

However, Larry Kudlow on Fox Business says he does not know anything about the CNBC report the President is open to delaying tariffs if China takes positive action

U.S. stock-index futures fell on Friday, as escalation in trade tensions between the U.S. and China continued to weigh on market sentiment. Investors also digested a key employment report, which revealed that U.S. job growth slowed in July.

Global Stocks:

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

Chevron (CVX) reported Q2 FY 2019 earnings of $2.27 per share (versus $1.78 in Q2 FY 2018), beating analysts’ consensus estimate of $1.82.

The company’s quarterly revenues amounted to $38.850 bln (-8.0% y/y), missing analysts’ consensus estimate of $40.141 bln.

CVX rose to $121.06 (+0.27%) in pre-market trading.

The U.S. Commerce Department reported on Friday U.S. the goods and services trade deficit narrows to $55.2 billion in June from a revised $55.3 billion in the previous month (originally a gap of $55.5 billion).

Economists had expected a deficit of $54.6 billion.

According to the report, the June decline in the goods and services deficit reflected a decrease in the goods deficit of $0.8 billion to $75.1 billion and a fall in the services surplus of $0.6 billion to $20.0 billion.

Exports of goods and services from the U.S. dropped 2.1 percent m-o-m to $206.3 billion in June, while imports decreased 1.7 percent m-o-m to $261.5 billion.

Year-to-date, the goods and services deficit rose 7.9 percent (or $23.2 billion) from the same period in 2018. Exports increased less than 0.1 percent (or $0.5 billion), while imports jumped 1.5 percent (or $23.8 billion).

Amazon (AMZN) resumed with a Buy at MKM Partners; target raised to $2350

Facebook (FB) resumed with a Buy at MKM Partners; target raised to $245

The U.S. Labor Department announced on Friday that nonfarm payrolls increased by 164,000 in July after a downwardly revised 193,000 gain in the prior month (originally an increase of 224,000).

According to the report, notable job gains occurred in professional and technical services (+31,000 jobs in July), health care (+30,000), social assistance (+20,000), and financial activities (+18,000).

At the same time, the unemployment rate remained unchanged at 3.7 percent in July.

Economists had forecast 164,000 new jobs and the jobless rate to stay at 3.7 percent.

The labor force participation rate edged up to 63.0 percent from 62.9 percent in June, while hourly earnings for private-sector workers rose 0.3 percent m-o-m (8 cents) to $27.99, following a revised 0.3 percent m-o-m gain in June (originally a 0.2 percent m-o-m increase). Economists had forecast a 0.2 percent m-o-m advance in the average hourly earnings. Over the year, average hourly earnings have increased by 3.2 percent, following a 3.1 percent rise in June.

The average workweek decreased by 0.1 hour to 34.3 hours in July, slightly below economists’ forecast of 34.4 hours.

Analysts at TD Securities note that the U.S. President Donald Trump has announced that the U.S. will impose 10% tariffs on the remaining $325bn of Chinese imports that are not yet subjected to tariffs.

• “Given that these imports are more consumer-oriented, we expect a larger impact on US growth and inflation, compared to previous tariff hikes.
• The rates market reacted sharply, pricing in 50bp of rate cuts in 2019 (up from 35bp yesterday). We think that the move is reasonable, especially with Powell referencing trade uncertainty as a key driver of rate cuts.
• We believe that China is likely to react, as in the two previous episodes of tariff imposition, adjusting the REER lower in order to offset the impact of tariffs. This will likely place upward pressure on USD/Asia as China-linked, trade-sensitive economies accommodate fundamental pressure on FX.”

Exxon Mobil (XOM) reported Q2 FY 2019 earnings of $0.61 per share (versus $0.92 in Q2 FY 2018), missing analysts’ consensus estimate of $0.73.

The company’s quarterly revenues amounted to $69.091 bln (-6.0% y/y), beating analysts’ consensus estimate of $64.474 bln.

XOM rose to $74.17 (+2.36%) in pre-market trading.

Analysts at TD Securities note that the UK’s construction PMI rebounded from June's 10-year low of 43.1 to 45.3 in July, though fell short of consensus at 46.0.

• “Business expectations are at their lowest level since 2012, and there was a sharp drop in new work and purchasing activity.”

Danske Bank's analysts note that the U.S. President Trump made another surprise move in the trade war yesterday by putting 10% tariffs on another USD300bn worth of Chinese exports.

• “Interestingly, he also tweeted that the U.S. looks forward to continuing the "positive dialogue" with China on a comprehensive trade deal.
• The tariff announcement was probably a response to the high-level trade talks in Shanghai this week, where China likely showed little movement. Even so, a White House statement called the talks "constructive". The last time it used this word was right before the previous tariff increase in early May, so it might be a warning sign in the future. Talking to reporters yesterday, Trump warned that tariffs could go to 25% or higher.
• It is quite clear that China does not agree with Trump that the dialogue is positive.”

Analysts at TD Securities are expecting Canada’s international merchandise trade for June to show a return to a CAD0.30bn deficit, following the largest surplus since 2016.

• “Weaker exports should provide the main driver behind the soft print owing to a pullback in transportation equipment alongside weaker energy exports while imports should see little change on the month.”

Bert Colijn, a senior Eurozone economist at ING, notes that, while Eurozone's retail sales dipped in May, a 1.1 percent MoM recovery in June resulted in growth over the quarter, albeit slower than in the first quarter. 

• "Growth in sales was broad-based with increases across all product groups, led by clothing which was up 3.5% MoM. The outlook remains decent as the labour market continues to add jobs and wage growth is also contributing to better household incomes across the Eurozone. With inflation mild for now, which is likely to remain the case over the coming months, the porridge continues to be just the right temperature for consumers at the moment.
• The big question remains whether consumers remain optimistic about the economy despite being surrounded by global growth worries. Consumer confidence has moved sideways over recent months thanks to optimism about improving household income on the one hand and concerns about the economic outlook on the other. Still, more consumers indicate they are making major purchases at present, which is boosting retail sales figures. Even though consumers do view the months ahead with reservations, this is not leading to lower consumption of big ticket items, at least not right now."

ANZ analysts suggest that the Reserve Bank of Australia is likely to cut the cash rate further in coming months, but they no longer expect a move at the Board’s August meeting next week.

“The June quarter CPI, which was in line with the Bank’s forecasts, provides some flexibility, as it wasn’t the smoking gun that some expected. Governor Lowe suggested last week that the RBA is prepared to watch the data for a period to determine whether “we’re going to need further stimulus. Market pricing pared expectations of an August rate cut. We expect the RBA’s forecasts, which will be updated in the Statement on Monetary Policy on Friday, to explicitly acknowledge the high likelihood that further rate cuts will be needed to get unemployment down. That could result in a communication problem for the RBA, as it did at the Board’s May meeting. The forecasts will show that monetary policy likely needs to be eased further to get to where the RBA wants to be, but the Governor will want to wait for further data.”

Karen Jones, analyst at Commerzbank, points out that EUR/USD pair has seen a return to point of break down over night as it has not overcome any resistance of note and therefore remains under pressure.

“Previous lows will offer good resistance 1.1110/06. It targets the 1.0974 2018-2019 support line, which in turn guards the 78.6% retracement at 1.0814/78.6% retracement. The market will stay directly offered below 1.1176/88 (mid June low and March low) and only a close above here would signal recovery to the 55 day ma at 1.1235 and the highs from last week at 1.1285. But while capped here it will remain on the defensive. The market will need to regain the 55 week ma at 1.1372 to generate upside interest.”

Eurostat said, in June 2019, compared with May 2019, industrial producer prices fell by 0.6% in both the euro area (EA19) and EU28. In May 2019, prices decreased by 0.1% in the euro area and remained unchanged in the EU28. In June 2019, compared with June 2018, industrial producer prices rose by 0.7% in the euro area and by 0.9% in the EU28.

Industrial producer prices in the euro area in June 2019, compared with May 2019, fell by 2.2% for the energy sector and by 0.3% for intermediate goods, while prices remained stable for capital goods and rose by 0.1% for durable consumer goods and by 0.3% for non durable consumer goods. Prices in total industry excluding energy remained unchanged.

In the EU28, industrial producer prices fell by 2.9% for the energy sector and by 0.3% for intermediate goods, while prices remained stable for capital goods and rose by 0.2% for both durable and non durable consumer goods. Prices in total industry excluding energy remained unchanged.

According to the report from Eurostat, in June 2019 compared with May 2019, the seasonally adjusted volume of retail trade increased by 1.1% in the euro area (EA19) and by 1.2% in the EU28. In May 2019, the retail trade volume decreased by 0.6% in the euro area and by 0.7% in the EU28.

In June 2019 compared with June 2018, the calendar adjusted retail sales index increased by 2.6% in the euro area and by 2.8% in the EU28

In the euro area in June 2019, compared with May 2019, the volume of retail trade increased by 1.6% for automotive fuel, by 1.2% for food, drinks and tobacco, and by 1.1% for non-food products. In the EU28, the retail trade volume increased by 1.7% for automotive fuel, by 1.3% for non-food products, and by 1.0% for food, drinks and tobacco.

In the euro area in June 2019, compared with June 2018, the volume of retail trade increased by 4.1% for nonfood products, by 1.0% for automotive fuel and by 0.8% for food, drinks and tobacco. In the EU28, the retail trade volume increased by 4.7% for non-food products, by 1.2% for automotive fuel, and by 0.9% for food, drinks and tobacco

According to the report from IHS Markit/CIPS, UK construction sector output declined for the third month running in July, reflecting lower volumes of work across all three broad categories of activity. The latest survey also revealed a sharp drop in new order intakes, which survey respondents mainly attributed to subdued economic conditions and domestic political uncertainty. Weaker demand contributed to a slide in business optimism towards the year-ahead outlook for construction activity, with the degree of confidence the lowest since November 2012.

At 45.3 in July, the headline seasonally adjusted UK Construction Total Activity Index posted below the 50.0 no-change value for the fifth time in the past six months. The latest reading was up from June's ten-year low of 43.1 but still signalled a marked downturn in total construction activity. 

Commercial construction was the worst performing category in July, followed closely by civil engineering activity. House building fell for the second month in a row during July, but the rate of decline was only modest and eased from the three-year record seen in June. Reports from construction companies suggested that sluggish housing market conditions had a negative influence on residential work during the latest survey period.

European Union finance ministers are set on Friday to choose the bloc's candidate to lead the International Monetary Fund from a list of four names, a spokeswoman for the French government said.

The list includes Jeroen Dijsselbloem, the Dutch former head of euro zone finance ministers; Nadia Calvino, the Spanish economy minister; Olli Rehn, the Finnish central bank governor; and Bulgaria's World Bank chief executive Kristalina Georgieva.

Mario Centeno, the Portuguese chairman of euro zone finance ministers, said on Thursday he was pulling out of the race "in this stage of the process", adding that he would be available if needed for a compromise solution.

Britain did not field a candidate because it could not come up with a name on time, a European official said. It had been expected to name a candidate and the deadline was extended by a few hours on Thursday to allow it to do so.

Analysts at TD Securities are expecting the US Non-Farm Payrolls to trend lower to 170k in July, following the strong 224k print in the previous month.

“In particular, we expect job creation in the manufacturing sector to mean-revert after the five-month high 17k increase in June. Together with somewhat slower hiring in construction, this should bring employment in the goods sector back to its recent average. Likewise, we forecast employment in the services sector to moderate somewhat from its firm June print. All in, the household survey should show the unemployment rate remained steady at 3.7%, while we expect wages to rise 0.2% m/m, leaving the annual print unchanged at 3.1% in July.”

China will have to take countermeasures if the United States is bent on putting more tariffs on Chinese goods, the Chinese foreign ministry said on Friday.

China doesn't want a trade war, but it isn't afraid of fighting one, Hua Chunying, spokeswoman at the foreign ministry, said at a daily press briefing.

U.S. President Donald Trump on Thursday vowed to put additional 10% tariffs on $300 billion of Chinese imports from Sept. 1, sharply escalating a bruising trade war between the world's two largest economies and rocking financial markets. The additional duties will extend Trump's trade tariffs to nearly all of the Chinese goods that the United States imports and marks an end to a truce in a year-long trade row.

Goldman Sachs Inc. economists now see a greater chance that the Federal Reserve will lower interest rates in September after Donald Trump threatened to impose new tariffs on Chinese goods.

"We now see a 70% chance of a 25 basis point cut, a 10% chance of a 50 basis point cut, and a 20% chance of no policy change in September," the bank’s economists led by Jan Hatzius wrote in a note.

They had previously pegged a 55% chance for a quarter-point cut next month.

Chairman Jerome Powell this week partly attributed the Fed’s first interest rate cut since the financial crisis to the effects of the U.S. and China trade war.

"We now see a 90% chance of at least one additional cut (beyond that announced on Wednesday) at some point this year (vs. 80% previously)," Goldman’s economists wrote. "We have not changed our baseline forecast that the Fed will cut by a total of 50 basis points, but the announcement tilts the risks toward deeper cuts."

According to Danske Bank analysts, today's release of US labour market data for July will be the icing on the cake of this data-intensive week.

“As markets were left perplexed by the Fed's hawkish stance earlier this week, focus will now be on macro data from the US in order to assess the Fed's future actions. Thus, today's data on change in non-farm payrolls and average hourly earnings could cause another notable move in the markets. We are likely to see a smaller amount of jobs added in July, even lower than the one-year average of 193,000 versus the June figure of 224,000. University of Michigan consumer sentiment index for July will be out late afternoon, possibly confirming that consumer attitudes and expectations are still holding up well on brisk economic growth in the US. June retail sales data from the Eurozone and Italy are due out today. Despite the economic slowdown across Europe, retail growth has been steady and positive, albeit not inspiring enough to boost economic expansion.”

According to the report from Federal Statistical Office (FSO), the consumer price index (CPI) fell by 0.5% in July 2019 compared with the previous month, reaching 102.1 points (December 2015 = 100). Economists had expected a 0.5% decrease. Inflation was 0.3% compared with the same month of the previous year. Economists had expected a 0.5% increase

The decrease of 0.5% compared with the previous month can be explained by several factors including falling prices for clothing and footwear due to seasonal sales. The prices of international package holidays also declined, along with prices for air transport. In contrast, prices for heating oil and berries increased.

Nick Kounis, head of financial markets research at ABN AMRO, points out that the global manufacturing PMI slipped somewhat further in July, dropping to 49.3 from 49.4 in June.

“The good news in the survey was the rise in overall new orders (to 49.3 from 49), while the output index was flat (at 49.5). However, both indicators remain at very depressed levels, consistent with contraction. In addition, there was a further deterioration in the new export orders index (to 48.3 from 48.8) to the weakest level since October 2012 (which was the aftermath of the euro crisis). The new export orders index tracks world trade growth and at current levels is consistent with an annual decline of more than 1%. In addition, the employment index fell further (to 49.2 from 49.8) adding to evidence that the weakness in manufacturing could spill over into domestic demand. Leading indicators for the PMI – such as M1 money supply growth have improved moderately over recent months and signal that manufacturing should bottom out towards the end of this year.”

Bank of Japan policymakers discussed further easing as most members shared the view that it was appropriate to persistently continue with the powerful monetary easing, the minutes of the monetary policy held on June 19 and 20, showed.

"The key to overcoming deflation was for the Bank to maintain its stance of taking some kind of policy response if any changes emerged in the baseline scenario of the outlook for prices," the minutes said.

Another member viewed that the bank needed to strengthen monetary easing amid changes in the external environment and expectations for monetary easing in the U.S. and Europe.

One member said despite high uncertainties regarding overseas economies going forward, BoJ should aim to achieve the price stability target by persistently continuing with the current monetary easing policy.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1212 (1558)

$1.1176 (832)

$1.1152 (814)

Price at time of writing this review: $1.1077

Support levels (open interest**, contracts):

$1.1035 (2275)

$1.0992 (2343)

$1.0946 (328)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date August, 9 is 77011 contracts (according to data from August, 1) with the maximum number of contracts with strike price $1,1100 (5175);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2406 (108)

$1.2359 (226)

$1.2277 (409)

Price at time of writing this review: $1.2105

Support levels (open interest**, contracts):

$1.2070 (1052)

$1.2032 (282)

$1.1989 (342)

Comments:

- Overall open interest on the CALL options with the expiration date August, 9 is 16856 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 22452 contracts, with the maximum number of contracts with strike price $1,2450 (2362);

- The ratio of PUT/CALL was 1.33 versus 1.34 from the previous trading day according to data from August, 1

* - 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.