CFD Markets News and Forecasts — 04-06-2019

Major US stock indexes rose strongly against the backdrop of heightened hopes for lowering the Fed rates and signs of weakening trade tensions.

Fed Chairman Jerome Powell made it clear that the central bank is open to loosen monetary policy in order to save the economy. According to him, the Fed will "act properly" to support economic growth. Powell noted, however, that the Fed does not know “how or when” the trade conflict will be resolved. “We are closely following the implications of these events for the US economic outlook,” he added.

Comments by the Fed Chairman have heightened expectations for the Fed rate cut. The CME FedWatch tool showed that market participants see a 92 percent chance of a rate cut in September. The odds of a second rate cut in December exceeded 80%.

The market was also supported by official statements from Mexico and China. Mexican President Andres Manuel Lopez Obrador said he expects to negotiate with the United States on immigration before Washington realizes its threat of introducing tariffs.

The Chinese Ministry of Commerce stated that “differences and friction between the two parties” should be resolved through negotiations, which “should be based on mutual respect, equality and mutual benefit.” On Wall Street, these statements were taken as a sign that Beijing had weakened harsh rhetoric.

The focus of market participants was also the latest data on the United States. According to the report of the Ministry of Commerce, production orders fell by 0.8% in April after rising by 1.3% in March (revised from + 1.9%). Economists had expected orders to fall by 0.9%. The fall in production orders was caused by a decrease in orders for durable goods - by 2.1% after rising 1.7% in March. A sharp drop occurred as orders for transportation equipment fell by 5.9%.

Almost all the components of DOW finished trading in positive territory (28 out of 30). The growth leader was NIKE, Inc. (NKE; + 4.34%). Only shares of The Coca-Cola Co. have fallen. (KO; -0.21%) and Verizon Communications Inc. (VZ; -0.63%).

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

At the time of closing:

Dow 25,332.18 +512.40 +2.06%

S & P 500 2,803.27 +58.82 +2.14%

Nasdaq 100 7,527.12 +194.10 +2.65%

• Mnuchin will see Chinese delegation at G20 but cannot confirm whether bi-lateral meeting will take place
• U.S. sees some scope for some G20 countries, including Germany, to take growth-enhancing measures
• Administration intends to make Commerce Dept currency provisions on anti-subsidy duties consistent with currency legislation
• Will not make central bank actions and monetary policy subject to countervailing duties

The U.S. Commerce Department reported on Tuesday that the value of new factory orders decreased 0.8 percent m-o-m in April, following a revised 1.3 percent gain in March (originally a 1.9 percent m-o-m surge). That was the largest decline in factory orders since October 2018.

Economists had forecast a 0.9 percent m-o-m drop.

According to the report, orders for transportation equipment tumbled 5.9 percent and orders for computers and electronic products declined 0.5 percent, while orders for electrical equipment, appliances and components rose 0.9 percent and orders for machinery edged up 0.3 percent.

Total factory orders excluding transportation, a volatile part of the overall reading, rose 0.3 percent m-o-m in April (compared to a 0.3 percent m-o-m advance in March), while orders for nondefense capital goods excluding aircraft, a measure of business spending plans, declined 1.0 percent m-o-m (compared to a 0.3 percent m-o-m gain in March). The report also showed that shipments of core capital goods were unchanged m-o-m in April, following a decrease of 0.6 percent m-o-m in March.

In y-o-y terms, factory orders increased 1.6 percent in April.

• Both remain committed to an ambitious UK-US free trade agreement
• Both UK and US want to reach same goals on Iran
• Must do everything to avoid escalation in Iran

• Two or even three times more trade is the potential of a trade deal
  
• I think Brexit will happen and should happen
• Britain wants to have its own borders and run its own affairs
• I believe Brexit would be good for the country
• We're going to have absolutely an agreement on Huawei (with the UK)
• It is more likely that tariffs go on Mexico and we will talk during that time 

U.S. stock-index futures rose on Tuesday, supported by increased hopes for Fed rate cut as well as China’s statement that trade dispute with the U.S. should be resolved with dialogue.

Global Stocks:

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

Lyft (LYFT) initiated with a Buy at Citigroup; target $70

Lyft (LYFT) initiated with an Equal Weight at Barclays; target $55

Lyft (LYFT) initiated with a Buy at BTIG Research; target $77

Lyft (LYFT) initiated with a Buy at SunTrust; target $68

Lyft (LYFT) initiated with an Outperform at RBC Capital target $72

Lyft (LYFT) initiated with a Hold at Loop Capital; target $60

Lyft (LYFT) initiated with a Neutral at Goldman; target $65

Lyft (LYFT) initiated with an Outperform at Macquarie

Uber (UBER) initiated with a Buy at Deutsche Bank; target $58

Uber (UBER) initiated with a Neutral at Citigroup; target $45

Uber (UBER) initiated with a Buy at Needham; target $52

Uber (UBER) initiated with a Buy at BofA/Merrill; target $53

Uber (UBER) initiated with an Overweight at Barclays; target $50

Uber (UBER) initiated with a Mkt Outperform at JMP Securities; target $54

Uber (UBER) initiated with a Buy at Mizuho; target $50

Uber (UBER) initiated with an Outperform at Cowen; target $58

Uber (UBER) initiated with a Buy at BTIG Research; target $80

Uber (UBER) initiated with an Outperform at Oppenheimer; target $55

Uber (UBER) initiated with an Outperform at Macquarie

Uber (UBER) initiated with a Buy at Canaccord Genuity; target $55

Uber (UBER) initiated with an Outperform at RBC Capital Mkts; target $62

Uber (UBER) initiated with an Overweight at Morgan Stanley; target $56

Uber (UBER) initiated with an Outperform at William Blair

Uber (UBER) initiated with a Buy at SunTrust; target $56

Uber (UBER) initiated with a Buy at Goldman; target $56

Uber (UBER) initiated with a Buy at Loop Capital

Twitter (TWTR) initiated with a Buy at Loop Capital

Amazon (AMZN) target raised to $2380 from $2200 at Loop Capital

Apple (AAPL) target lowered to $220 from $245 at Cowen

Apple (AAPL) target lowered to $202 from $245 at Canaccord Genuity

• There are signs that U.S. officials want to get a deal
• Talks with the US are going well

• Economy is doing well, inflation near 2%
• Dual mandate has served the Fed extremely well
• Trade uncertainty seems to be weighing on business investment
• He's comfortable with policy now but worried about inflation levels below 2%
• I'd be more aggressive in defending 2% inflation target
• Consumer and labour markets remain strong
• Can look through price increases from tariffs
• Policymakers should be overshooting 2% target to be symmetric
• Inflation pressures seem not strong or absent
• Would take it into account if the economy softens but that hasn't been seen
• If there is more softening, policymakers need to ask if they are getting in the way of the economy
• Markets are seeing something that I have not yet seen in the national data

• Common to make revisions, suggestions and adjustments during trade negotiations
• Trade differences with the U.S. should be resolved via dialogue, negotiations
  
• Trade talks should be based on mutual respect

Analysts at TD Securities note the markets are looking to the Fed's "Conference on Monetary Policy Strategy, Tools, and Communication Practices" for indications the Fed will make a dovish pivot to higher inflation "make-up" policies but are likely to be disappointed.

• “Importantly, this week is not a decision point for the Fed; rather, the conference will be heavy on academic analysis and lighter on Fed comments. The event will begin on Tuesday with opening remarks delivered by Fed Chair Jerome Powell.”

Analysts at TD Securities note that the UK’s construction PMI unexpectedly dropped in May to 48.6, its lowest reading since the Beast of the East-influenced March 2018 drop.

• 0“While house building was up modestly, engineering and commercial work were lower. Brexit uncertainty continued to dominate commercial building and civil engineering activity. We have now seen 2 of the 3 UK PMIs slip below 50 in May, which doesn't bode well for Q2 GDP, which is already expected to pullback sharply on account of an inventory unwind.”

• Europe needs a common economic policy
• We will discuss certain adjustments in corporate taxation
• Germany should not enter a race to the bottom on the corporate tax level
• U.S. will not be able to sustain a high level of public debt in the long-run

Felicity Emmett, a senior economist at ANZ, is expecting another disappointing advance in Australia’s GDP of 0.4% q/q in Q1, which would see annual growth decline to 1.7%, - its slowest pace since 2009 in the midst of the global financial crisis.

• “GDP growth, at +0.4% q/q and +1.7% y/y, looks to be a little lower than the RBA expected at the time of its May Statement on Monetary Policy, with the Bank’s June forecast of +1.7% y/y requiring growth of 0.6%-0.7% q/q on average in Q1 and Q2.
• For the RBA, the surprise weakness looks to have come from business investment which partial data suggest was soft again in Q1.
• In Wednesday’s report, the focus will once again be on the household indicators – consumption and income. Weak retail sales volumes (-0.1%) point to relatively modest growth in consumer spending. While retail spending accounts for only around 30% of consumption, falling house prices and ongoing soft income growth will have weighed on consumer spending in the quarter. We will also be watching the GDP measure of average wages. Preliminary data suggest this is likely to continue to show only fairly modest growth.
• The Q1 GDP data is already quite dated. Since March, we’ve had the announcement of large personal income tax cuts, a surprise election outcome, the prospect of imminent interest rate cuts and an easing in borrowing constraints. Conversely, we’ve also had a deterioration in the international outlook and a fall in domestic business conditions and confidence. Together, these factors raise the uncertainty around the outlook.”

Bert Colijn, a Senior Eurozone Economist at ING, notes that core inflation droped to 0.8% and headline to 1.2% in May, indicating that price pressures remain mild in times of economic uncertainty, and this puts further pressure on the ECB.

• Weaker than expected, the inflation rate remains uncomfortably stuck around 1%, despite the maturing economic cycle. The weak inflation rate comes despite continuing labour market pressures. The unemployment rate dropped from 7.7 to 7.6% in April, which was the lowest rate since August 2008. While businesses are indicating that hiring may slow over the coming months, the unemployment rate is already low enough to expect a continued gradual pick up in wage growth.
• But as the economy provides plenty of concern for businesses, higher input prices are taken into businesses’ margins instead of priced through to the consumer. In fact, business survey indicators for inflation have been cooling over the past months. This means that the delay of higher core inflation continues.
• With global growth worries increasing and the eurozone vulnerable to the global cycle, this is becoming an increasing concern, as the downside risk is that core inflation will not move much above 1% this cycle. Market-based inflation expectations trade around all-time lows, indicating that at least some investors are taking that risk seriously.
• This will no doubt make some ECB board members a little hot under the collar, as pressure to take action is mounting. At the April meeting, it was already mentioned that price pressures remain uncomfortably low, which has certainly not improved since then. Expect a dovish tone from the ECB on Thursday."

• Economic forecasts had assumed rates at 1% by year-end

• The board has not yet made a decision, much depends on labour market

• Rate decision was not in response to deterioration in outlook since May

• Rate cut is to lead lower AUD than otherwise would have been the case

• Easing aimed at spurring jobs growth, lifting inflation

• One option is for fiscal support, including spending on infrastructure

• Banks should fully pass through rate cut through mortgage rates

• Well aware that savers will be disappointed by rate cut

The international corporate taxation landscape has changed to Germany's disadvantage recently, Chancellor Angela Merkel said, adding that her ruling coalition would try to address this.

"We know that in the area of corporate taxation, things have changed very unfavourably for Germany in recent years. Competitive relations have recently changed very much to our disadvantage. So we will try, in the grand coalition, to achieve something here," Merkel told.

Merkel also described a future trade agreement between the European Union and United States as being of existential importance, saying she would keep trying to make progress despite the "regrettable" opposition from France. "We have a mandate for talks with the United States and I think it is of existential importance," Merkel told.

According to the report from Eurostat, the statistical office of the European Union, the euro area (EA19) seasonally-adjusted unemployment rate was 7.6% in April 2019, down from 7.7% in March 2019 and from 8.4% in April 2018. This is the lowest rate recorded in the euro area since August 2008. The EU28 unemployment rate was 6.4% in April 2019, stable compared with March 2019 and down from 7.0% in April 2018. This remains the lowest rate recorded in the EU28 since the start of the EU monthly unemployment series in January 2000.

Eurostat estimates that 15.802 million men and women in the EU28, of whom 12.529 million in the euro area, were unemployed in April 2019. Compared with March 2019, the number of persons unemployed decreased by 108 000 in the EU28 and by 64 000 in the euro area. Compared with April 2018, unemployment fell by 1.394 million in the EU28 and by 1.147 million in the euro area.

According to a flash estimate from Eurostat, euro area annual inflation is expected to be 1.2% in May 2019, down from 1.7% in April. Economists had expected a slowdown to 1.3%.

Looking at the main components of euro area inflation, energy is expected to have the highest annual rate in May (3.8%, compared with 5.3% in April), followed by food, alcohol & tobacco (1.6%, compared with 1.5% in April), services (1.1%, compared with 1.9% in April) and non-energy industrial goods (0.3%, compared with 0.2% in April).

Eurostat also said that core CPI fell to 0.8% y/y in May from 1.3% y/y in April. Economists had expected a slowdown to 0.9%.

According to the report from IHS Markit/CIPS, UK construction companies indicated a renewed decline in total business activity during May. Lower volumes of commercial work and civil engineering activity more than offset a modest increase in house building. New orders also decreased across the construction sector, with survey respondents noting that subdued domestic economic conditions had led to project delays and fewer tender opportunities. Average input prices continued to rise in May, which was often attributed to higher fuel and energy costs. However, the overall rate of input price inflation eased to its weakest since June 2016. Meanwhile, construction firms signalled a fall in business optimism to its weakest since October 2018.

At 48.6 in May, down from 50.5 in April, the headline seasonally UK Construction PMI registered below the 50.0 no-change mark for the third time in the past four months. The latest reading was the lowest since the snow-related downturn in construction output during March 2018.

Allan von Mehren, chief analyst at Danske Bank, notes that the GBP weakened against EUR yesterday, on a day full of headwinds.

“Softer UK PMIs, compression of Italian sovereign spreads and marginally negative but not too surprising comments from Boris Johnson combined to send the GBP lower. If indeed we are about to see a weakening of domestic data in UK combined with euro spread compression, the EUR/GBP could move towards 0.9., although this is not our main scenario. Nonetheless, forecasters have been surprised by strong UK data and a turn towards weaker growth indicators could fuel some short-term headwind for the GBP, even if Brexit news is neutral.”

Allan von Mehren, chief analyst at Danske Bank, points out that the USD sold off broadly after the Fed’s Bullard blinked late yesterday, when he argued a rate cut may be warranted soon.

“We have stressed numerous times  that a key driver for FX markets would be if the Fed started to acknowledge dovish market pricing. Bullard’s comment was a first step in that direction, but the market likely needs more confirmation (and at some point action) for further selling USD.”

Deputy Prime Minister Matteo Salvini said on Tuesday he had no intention of bringing down the Italian government, but wanted to see the cabinet act with greater urgency and push through much-needed reforms.

Italian Prime Minister Giuseppe Conte threatened on Monday to resign unless his two coalition partners, Salvini’s League and the anti-establishment 5-Star Movement, put an end to their constant feuding and start cooperating on policy.

Salvini said he was ready to meet his government partners whenever they wanted, adding that the coalition could not keep on delaying approval of measures such as a new building code and greater autonomy for the regions.

In view of analysts at Danske Bank, today's main event is the inflation print out of the euro area.

“As the Easter boost to travel-related service prices wanes, we expect both headline and core inflation to drop back in May, to 1.6% and 1.1%, respectively. It leaves the ECB with a rather bleak picture of still too low core inflation and the expected recovery being threatened by trade war escalation and weaker Chinese growth. Market inflation expectations also keep falling and are back at the lows seen in 2016.”

“US Fed Chair Powell will speak this afternoon as part of the 'Fed listens' event. The theme will be monetary policy strategy, tools and communication practices. Although the speech may not entail guidance for new policy signals near term yet, the speech is important as part of the revisit of the monetary policy framework/target discussion.”

According to analysts at TD Securities, for the Eurozone, Easter base effects were especially pronounced in 2019 owing to the timing of the Easter holiday vs 2018.

“We've now seen sharp unwinds of the April inflation data across the four major economies, and this points to a sharp slowdown in May euro area inflation figures. We look for headline inflation to drop back sharply to 1.2% y/y (consensus: 1.3%), while core inflation slides to 0.8% y/y (consensus: 0.9%). The unemployment rate for April is also released, and markets look for an unchanged reading of 7.7%.”

Mexico’s Economy Minister Graciela Marquez said that the tariffs U.S. President Donald Trump has threatened to place on Mexican exports would impact all 50 U.S. states and harm value chains, consumers and trade-related jobs in both nations.

In a joint statement with Marquez and other senior government officials, Agriculture Minister Victor Villalobos said the proposed tariffs would cause total economic damage to the agriculture sector of $117 million per month in both countries. Villalobos did not specify at what level of tariffs this damage would occur.

Trade uncertainties are high on the minds of investors and businesses — but they’re not the only risk facing the U.S. economy right now, said Mary Daly, president of the Federal Reserve Bank of San Francisco.

The global economy is slowing and the circumstances surrounding how the U.K. eventually leaves the European Union have also affected economic activity, Daly told.

“I don’t want us to get too focused on only trade when there are these other looming uncertainties that also need resolution,” she said.

Still, Daly reiterated that the U.S. economy is “in a good place” given that it is close to full employment, inflation is slowly inching up toward the Fed’s 2% target, and the federal funds rate is near “neutral.”

That means the Fed can afford to wait before making its next monetary policy move, she said. “I think patience is the way we should be right now,” she added.

Australia’s central bank (RBA) cut its cash rate to a record low 1.25% in what could be the first in a series of stimulus measures amid growing calls for policymakers to revive the country’s slowing economy.

“The Board took this decision to support employment growth and provide greater confidence that inflation will be consistent with the medium-term target,” RBA Governor Philip Lowe said.

In a signal that the door was still wide open for further cuts, if need, Lowe said: “The Board will continue to monitor developments in the labor market closely and adjust monetary policy to support sustainable growth in the economy and the achievement of the inflation target over time.”

Australia’s economy has dodged a recession since the early 1990s but is now battling falling home prices, rising unemployment, sluggish consumer spending and lukewarm inflation.

However, Lowe said monetary policy alone will not be enough to boost economic momentum as households were already up to their eyeballs in debt, putting the onus on Prime Minister Scott Morrison to slash income tax and boost spending.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1354 (5649)

$1.1306 (4719)

$1.1263 (2931)

Price at time of writing this review: $1.1250

Support levels (open interest**, contracts):

$1.1181 (3073)

$1.1159 (7405)

$1.1131 (3704)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 7 is 123912 contracts (according to data from June, 3) with the maximum number of contracts with strike price $1,1500 (9032);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2760 (626)

$1.2720 (883)

$1.2689 (443)

Price at time of writing this review: $1.2667

Support levels (open interest**, contracts):

$1.2576 (2237)

$1.2538 (858)

$1.2494 (1236)

Comments:

- Overall open interest on the CALL options with the expiration date June, 7 is 41375 contracts, with the maximum number of contracts with strike price $1,3450 (3277);

- Overall open interest on the PUT options with the expiration date June, 7 is 41496 contracts, with the maximum number of contracts with strike price $1,2700 (4008);

- The ratio of PUT/CALL was 1.00 versus 1.01 from the previous trading day according to data from June, 3

* - 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.