CFD Markets News and Forecasts — 05-11-2019

Major US stock indexes closed trading mixed, as investors evaluated new reports on trade negotiations between the US and China.

Reuters reported that China insisted that US President Donald Trump abolish additional tariffs on Chinese goods worth about $ 125 billion, introduced in September, as part of the "first phase" of the trade deal. The Chinese publication South China Morning Post said today that China needs a more “firm US commitment to abolish tariffs” for Xi Jinping to visit the United States to sign the “first phase." According to sources, Beijing is worried that it may have made too many concessions and wants something from Washington to “make the deal more balanced.”

Market participants also drew attention to several important macro reports. The US Department of Commerce said the US trade deficit narrowed in September, as imports fell more than exports. According to the report, the US international trade deficit narrowed to $ 52.5 billion in September from $ 55.0 billion in August. Economists had expected a deficit to be reduced to $ 52.2 billion from the $ 54.90 billion reported a month earlier. The deficit narrowed as imports fell 1.7% to $ 258.4 billion, while exports fell 0.9% to $ 206.0 billion.

A report by the Institute for Supply Management (ISM) indicated accelerated growth in US service activity in October. According to the report, the ISM services business activity index rose to 54.7 in October from 52.6 in September. Economists had expected the indicator to rise to 53.4.

A job vacancy and labor turnover survey (JOLTS) published by the US Bureau of Labor Statistics showed that in September the number of vacancies fell to 7.024 million from 7.301 million in August (revised from 7.051 million). Analysts had expected that the number of vacancies would decrease to 7.211 million. The level of vacancies decreased by 0.2 pp and amounted to 4.4%.

DOW components completed bidding in different directions (16 in the red, 14 in the red). The biggest gainers were Walgreens Boots Alliance, Inc. (WBA; + 2.72%). Outsider were shares of Visa Inc. (V; -1.43%).

S&P sectors completed trading mixed. The largest decline was shown by the utilities sector (-0.8%). The raw materials sector grew the most (+ 0.6%).

At the time of closing:

Dow 27,492.63 +30.52 +0.11%

S&P 500 3,074.62 -3.65 -0.12%

Nasdaq 100 8,434.68 +1.48 +0.02%

James Knightley, the Chief International Economist at ING, notes that the U.S. trade deficit narrowed slightly in September to stand at US$52.5bn versus US$55.0bn in August. 

• "This is the smallest deficit since April. The US-China trade tensions are clearly evident in the numbers with the US deficit with China narrowing to US$28bn from US$38.5bn in December last year. On the face of it this appears to be a victory for President Trump and his use of tariffs in his efforts to change China’s trade policy. However, the details suggest that there is no clear “winner” with imports from China falling 4.9% while US exports to China fell by 10%.
• Moreover, the decline in the deficit with China is being offset by larger deficits with other countries. The deficit in goods with both the EU and Mexico looks set to hit an all-time high this year based on the January to September run rate. In aggregate the US trade deficit is currently on track to be broadly in line with the record trade deficit experienced last year.
• As we highlighted in our recent piece on who is winning the US-China trade war, while China is obviously feeling some pain, the deterioration in the trade balance of what is likely to be around US$60bn this year equates to around 0.5 percentage points of Chinese GDP. However, there is evidence that this impact may be mitigated by some Chinese exports to the US being re-routed via Vietnam to avoid tariffs. After all, Vietnam manufacturing output is only rising 10% YoY yet exports to the US are running at nearly 40% YoY. As our Asia team continues to point out China is being hurt far more by the downturn in the tech cycle than through the imposition of tariffs."

The Job Openings and Labor Turnover Survey (JOLTS) published by the Labor Department on Tuesday showed a 3.8 percent m-o-m drop in the U.S. job openings in September.

According to the report, employers posted 7.024 million job openings in September, compared to the August figure of 7.301 million (revised from 7.051 million in original estimate) and economists’ expectations of 7.211 million. The job openings rate was 4.4 percent in September, down from a revised 4.6 percent in the prior month. The report showed that the number of job openings edged down for total private (-262,000 jobs) and was little changed for government. The job openings level declined in health care and social assistance (-124,000), retail trade (-102,000), and federal government (-19,000). Job openings rose in information (+25,000).

Meanwhile, the number of hires rose by 0.8 percent m-o-m to 5. 349 million in September from 5.884 in August. The hiring rate was 3.9 percent, unchanged from August. The number of hires was little changed for total private and for government. The hires level fell in federal government (-30,000).

The separation rate in September was at 5.808 million or 3.8 percent, compared to 5.732 million or 3.8 percent in August. Within separations, the quits rate was 2.3 percent (-0.1 pp m-o-m), and the layoffs rate was 1.3 percent (-0.1 pp m-o-m).

The Institute for Supply Management (ISM) reported on Tuesday its non-manufacturing index (NMI) came in at 54.7 in October, which was 2.1 percentage points above the September reading of 52.6 percent. This represents continued growth in the non-manufacturing sector, at a faster rate.

Economists forecast the index to increase to 53.4 last month. A reading above 50 signals expansion, while a reading below 50 indicates contraction.

Of the 18 manufacturing industries, 13 reported growth last month, the ISM said, adding that the respondents continued to be concerned about tariffs, labor resources and the geopolitical climate.

According to the report, the ISM’s non-manufacturing business activity measure rose to 57 percent, 1.8 percentage points higher than the September reading of 55.2 percent. That reflected growth for the 123rd consecutive month, at a slower rate in August. The new orders gauge increased to 55.6 percent, up 1.9 percentage points from the reading of 53.7 percent in September. The Employment indicator surged 3.3 percentage points in October to 53.7 percent from the September reading of 50.4 percent. Meanwhile, the Prices Index declined 3.4 percentage points from the September reading of 60 percent to 56.6 percent, indicating that prices increased in October for the 29th consecutive month.

Analysts at ING believe the BoE meeting should have a fairly limited impact on the pound given that:

"1. The outcome of an early election should be the prime GBP driver in coming weeks
 2. The BoE's interest rate path is conditional on the outcome of Brexit talks.

As the latter is firmly tied to the former, the BoE meeting and its interest rate path (and the continued signalling of a hike) should have a muted impact on GBP. The signal that monetary policy could eventually tighten is not overly relevant given the Brexit uncertainty.

The correlation of sterling to economic data surprises is currently non-existent. The sole driver of the GBP rally last month was the changing perceived odds of a 'no deal' Brexit rather than economic data points. This also suggests a limited impact of the BoE's guidance on GBP at this point.

GBP gains have stalled recently and we don’t see many catalysts for further upside from here as:

1. The Conservative party election victory is widely expected

2. The passage of the Withdrawal Agreement Bill is not an imminent topic

3. There is inherent uncertainty associated with early elections.

Should the pre-election polls start to show an increasing likelihood of a hung Parliament (the latest ICM voting intention poll shows a narrowing gap between the Conservatives and Labour), EUR/GBP is likely to move closer towards the 0.8800 level."

U.S. stock-index futures rose on Tuesday on increased hopes of  a potential U.S.-China trade deal as both sides consider more rollbacks in tariffs.

Global Stocks:

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

Statistics Canada announced on Tuesday that Canada’s merchandise trade deficit stood at CAD0.98 billion in September, narrowing from a revised CAD1.24 billion gap in August (originally a CAD0.96-billion gap).

Economists had expected a deficit of CAD0.70 billion.

According to the report, the country’s exports fell 1.3 percent m-o-m in September, led by decreases in exports of metal and non-metallic mineral products (-7.3 percent m-o-m), farm, fishing and intermediate food products (-7.3 percent m-o-m) and energy products (-2.6 percent m-o-m). Meanwhile, imports declined 1.7 percent m-o-m in September, mostly on lower imports of metal and non-metallic mineral products (9.2 percent m-o-m), other transportation equipment and parts (-27.7 percent m-o-m) and metal ores and non-metallic minerals (-20.5 percent m-o-m).

Facebook (FB) upgraded to Buy from Outperform at Daiwa Securities; target raised to $250

The U.S. Commerce Department reported on Tuesday U.S. the goods and services trade deficit narrowed to $52.5 billion in September from a revised $55.0 billion in the previous month (originally a gap of $54.9).

Economists had expected a deficit of $52.5 billion.

According to the report, the September decline in the goods and services deficit reflected a decrease in the goods deficit of $2.7 billion to $71.7 billion and a drop in the services surplus of $0.1 billion to $19.3 billion.

Exports of goods and services from the U.S. fell 0.9 percent m-o-m to $ 206.0 billion in September, while imports decreased 1.7 percent m-o-m to $258.4 billion.

Year-to-date, the goods and services deficit surged 5.4 percent from the same period in 2018. Exports fell 0.4 percent, while imports rose 1.8 percent.

• As long as US consumers keep spending, U.S. economy in a good place
• Risks to U.S. economy still tilted to the downside
• Does not discount idea that US could talk itself into a recession
• He is closely watching whether this year's rate cuts have the intended effect on the US economy
• The biggest boost of the US economy would be from lessening uncertainty
• Economic headwinds mostly driven by uncertainty on trade and politics
• Risk slowing global growth will affect U.S.

Analysts at TD Securities note that the UK services PMI improved to 50.0 in October, beating consensus of 49.7.

• “The report though still had fairly soft details, and just about every paragraph mentioned Brexit uncertainty. New business orders are still contracting, and jobs are still being shed, with a combination of non-replacement of voluntary leavers and compulsory redundancies (previously just non-replacement of voluntary leavers).
• The 12-month outlook improved a bit, based entirely on the expectation that Brexit uncertainty would be resolved in early-2020. Overall, the PMIs are consistent with flat to slightly negative GDP for Q4.”

Arconic (ARNC) reported Q3 FY 2019 earnings of $0.58 per share (versus $0.32 in Q3 FY 2018), beating analysts’ consensus estimate of $0.52.

The company’s quarterly revenues amounted to $3.559 bln (+1.0% y/y), generally in line with analysts’ consensus estimate of $3.586 bln.

The company also issued guidance for FY 2019, projecting EPS of $2.07-2.11 (compared to its prior guidance of $1.95-2.05 and analysts’ consensus estimate of $2.05) and revenues of $14.15-14.35 bln (compared to its prior guidance of $14.3-14.6 bln and analysts’ consensus estimate of $14.38 bln).

ARNC fell to $28.50 (-0.97%) in pre-market trading.

Analysts at TD Securities are expecting Canada’s merchandise trade deficit to narrow to $600m from $960m in September, in line with the market consensus.

• “Softer imports will provide the main catalyst, with a partial offset by a more modest decline in export activity.”

Allergan (AGN) reported Q3 FY 2019 earnings of $4.25 per share (versus $4.25 in Q3 FY 2018), beating analysts’ consensus estimate of $4.20.

The company’s quarterly revenues amounted to $4.026 bln (+2.9% y/y), beating analysts’ consensus estimate of $3.881 bln.

The company also issued guidance for FY 2019, projecting EPS of >$16.55 versus analysts’ consensus estimate of $16.74 and revenues of $15.6-15.8 bln compared to its prior guidance of $15.4-15.6 bln and analysts’ consensus estimate of $15.58.

AGN rose to $179.74 (+0.53%) in pre-market trading.

• I trust the UK will choose the same path after election on December 12
• Until now no no-one has ever managed to explain to me the added value of Brexit
• Brexit creates risks and problems in Ireland, region needs peace and stability
• Together we delivered, found solution to unique situation in Ireland and Nothern Ireland 
• Even when deal is ratified it will not the end of the story
• Need to build new partnerships with the UK

FX Strategists at UOB Groupsuggested that following the recent price action, USD/JPY is still seen navigating within a sideline theme.

• "24-hour view: Our expectation for USD to trade sideways was wrong as it soared to an overnight high of 108.64. While the rapid rise appears to have room to extend higher, the prospect for a sustained break above 108.90 is not high (next resistance is at 109.10 followed closely by the major level of 109.30). Support is at 108.40 followed by 108.20.
• Next 1-3 weeks: Our view from last Friday (01 Nov, spot at 108.05) for USD to “trade lower towards 107.50” was proven wrong quickly as USD edged above the 108.60 ‘strong resistance’ level (overnight high of 108.64). The rapid rebound after the sharp drop to 107.87 last week has resulted in a mixed outlook. From here, USD could trade sideways between the two strong levels of 107.90 and 109.30 for a period. At this stage, there is no pre-indication on which side of the range is more ‘vulnerable’."

Analysts at TD Securities are expecting a modest rebound in the U.S. ISM non-manufacturing index to 53.7 following the drop to a three-year low in September.

• “We expect the services sector to have improved in October on the back of a solid US consumer. Service sector surveys suggest small gains during the month, while consumer spending has continued to prove resilient.”

Uber (UBER) reported Q3 FY 2019 loss of $0.68 per share, better than analysts’ consensus estimate of -$0.84.

The company’s quarterly revenues amounted to $3.813 bln (+29.5% y/y), beating analysts’ consensus estimate of $3.685 bln.

The company also raised FY 2019 adj. EBITDA guidance by $250 mln to ($2.9)-($2.8) bln.

UBER fell to $29.13 (-6.27%) in pre-market trading.

• Numbers we are seeing now suggest that 2020 may have upside potential
• Optimistic that oil market is going to gain stability
• Deeper oil cut is question now

A slowdown in economic growth in the euro zone since last year may be sharper than expected, but that does not necessarily mean a recession is looming, Klaus Regling, head of the euro zone's bailout fund, said. "We are in a phase of slowdown but not of recession," Regling told.

The euro zone's GDP expanded by 0.2% in the second quarter, after a 0.4% expansion in the first three months of the year. It confirms a gloomy outlook for the 19-nation currency bloc.

Regling, who heads the European Stability Mechanism, said the euro zone had strong economic fundamentals and that growth was close to potential.

"We have to remember that not every cyclical slowdown leads to a recession, and not every recession implies another crisis," Regling said.

"It is important to look at the underlying dynamics. This slowdown in growth relates mainly to external factors, while domestic demand remains resilient."

He said the single currency area was better equipped now to deal with any future crises than it was a decade ago, but that more could be done to strengthen its financial architecture.

OPEC will supply a diminishing amount of oil in the next five years as output of U.S. shale and other rival sources expands, the exporter group said, despite a growing appetite for energy fed by global economic expansion.

OPEC's production of crude oil and other liquids is expected to decline to 32.8 million barrels per day (bpd) by 2024, the group said in its 2019 World Oil Outlook published on Tuesday. That compares with 35 million bpd in 2019.

"Non-OPEC supply prospects have been revised up sharply, as U.S. tight oil, in particular, has again outperformed expectations," OPEC Secretary-General Mohammad Barkindo wrote in the foreword of the report, using another term for shale.

Vienna-based OPEC expects supply of U.S. tight oil to reach 16.9 million bpd in 2024 from 12.0 million bpd in 2019, although the expansion will slow and peak at 17.4 million bpd in 2029.

The organisation, which pumps almost a third of global oil supply, now sees oil consumption in 2023 reaching 103.9 million bpd, down from 104.5 million bpd in last year's report. Longer-term, oil demand is expected to increase by 12 million bpd to reach 110.6 million bpd by 2040, also lower than last year's forecast.

According to estimates from Eurostat, in September 2019, compared with August 2019, industrial producer prices rose by 0.1% in both the euro area (EA19) and in the EU28. In August 2019, prices decreased by 0.5% in the euro area and by 0.4% in the EU28. In September 2019, compared with September 2018, industrial producer prices fell by 1.2% in the euro area and by 0.7% in the EU28.

Industrial producer prices in the euro area in September 2019, compared with August 2019, rose by 0.5% in the energy sector, by 0.2% for durable consumer goods and by 0.1% for non-durable consumer goods, while prices remained stable for capital goods and fell by 0.2% for intermediate goods. Prices in total industry excluding energy remained stable. In the EU28, industrial producer prices rose by 0.2% in the energy sector and by 0.1% for durable consumer goods, while prices remained stable for capital goods and non-durable consumer goods, and fell by 0.1% for intermediate goods. Prices in total industry excluding energy remained stable.

According to the report from IHS Markit/CIPS, the UK service sector registered no change in output in October compared with one month previously. Although this represented a slight improvement on September's contraction, business levels were supported by existing contracts as the volume of new work declined further. This led to more job losses in the sector, albeit at a slower rate. The outlook improved slightly as a number of firms expected Brexit to be resolved early next year, reducing uncertainty, but overall sentiment remained historically weak.

The seasonally adjusted UK Services PMI Business Activity Index ticked up to 50.0 in October, from September's 49.5, signalling no change in service sector output. Economists had expected an increase to 49.7. The latest figure was among the lowest registered in the past ten-and-a-half years, and below each of the trend levels for the first, second and third quarters of 2019 (50.1, 50.5 and 50.5 respectively).

Mitul Kotecha, senior emerging markets strategist at TD Securities, suggests that their composite GDP weighted Asia manufacturing PMI measure recorded a renewed slip into contraction in October while the average Asia PMI measure remained in contraction for a fifth straight month.

“Our ex-China measures of PMI also remained in contraction. The outcome is disappointing given US-China trade deal hopes, but highlights the reality that a "Phase 1" deal may provide limited relief. The data also shows that Asia remains vulnerable to the worsening US manufacturing outlook. An eventual trade deal will likely boost the PMIs but the down draft on global manufacturing will not ease quickly. The October manufacturing PMIs revealed declines in 5 out of 9 countries; China (-0.5), Taiwan (-0.2), Thailand (-0.6), Indonesia (-1.4), and India (-0.8), recording falls. In contrast Singapore (+0.1), South Korea (+0.4), Philippines (+0.3) and Malaysia (+1.4) gained. PMIs are in contraction territory in 6 out of 9 countries, with Taiwan re-joining others recording below 50 readings. Philippines registered the strongest reading at 52.1 while Indonesia recorded the weakest at 47.7. Notably China revealed its weakest reading since February.”

U.S. Commerce Secretary Wilbur Ross said on Tuesday that he was eager to make further progress on trade talks with India and wanted to hear Indian proposals that could lead to the restoration of some trade preferences.

“We are eager to make further progress with India on that topic,” Ross said during a call with reporters during a visit to Thailand for regional meetings.

In June, the United States ended its preferential trade treatment for India, removing it from the Generalized System of Preferences (GSP) program, but Ross said he was waiting for a proposal from Indian officials to address that.

“We’re eager to hear it. And hopefully things can be dealt with. There’s nothing irreversible about the GSP decision,” he said.

Danske Bank analysts note that China’s Caixin service PMI index was 51.1 in October in line with the consensus expectation and slightly down from 51.3 last month.

“The composite PMI inched up to 52.0 in October from 51.9 in September. Hence, according to these data service activity in China is still deteriorating, while overall economic activity has started to pick up supported by a recovery in manufacturing activity. When we factor in a broader set of leading indicators for the Chinese economy we think there is scope for a moderate recovery in economic activity over the coming months. In the bigger picture, JP Morgan global manufacturing PMI rose to 49.8 from 49.7 in October - a small rise, but still the second consecutive month of gains.”

British consumers kept a tight rein on their spending ahead of December's election, despite being tempted by retailers offering heavy discounts last month, surveys showed on Tuesday.

The British Retail Consortium (BRC) said overall retail spending rose 0.6% year-on-year in October, marking the strongest growth since April when spending was boosted by the timing of Easter.

Still, the BRC said the longer-term outlook remained bleak, with the 12-month rolling average of sales growth falling to a new low of 0.1%.

"With Brexit still unresolved and a December election creating new uncertainties, retailers will be looking nervously at the months ahead," BRC chief executive Helen Dickinson said.

Consumers have propped up Britain's economy since the 2016 Brexit referendum, helping to offset reduced company investment. But economists say recent signs of a weakening in spending by households raise the risk of a recession as the country prepares to leave the European Union.

Economist Alvin Liew at UOB Group gave his views on the recent results from October’s Non-farm Payrolls.

“October’s employment situation rose above expectations, giving assurance that the US economy is indeed still “in a good place.” After missing expectations for two straight months, the US Labor Market report on Friday (1 Nov) showed a better-than-expected pace of 128,000 jobs added in October… despite the expected drag from manufacturing job losses (-36,000, which is quite good considering markets were expecting 55,000 job losses) due to strikes at a major US car maker. In addition, more cheer was added to the employment situation with a very sizeable 95,000 upward revision of payrolls for the preceding two months… Job creation is now averaging at 167,000 monthly so far this year (from 161,000 previously), but still below the 223,000 monthly average recorded for 2018. Within the private sector, job creation was mainly concentrated in services industries (157,000) while goods-producing industries lost 26,000 jobs which was largely due to manufacturing job losses mainly reflecting the 41,600 jobs losses in the motor vehicles and parts industry (which suffered a strike at a major US car maker in October but has since been settled) while construction sector added a steady 10,000 new jobs (from 11,000 in September)”.

Bank of Japan Governor Haruhiko Kuroda said a mix of fiscal and monetary stimulus would give a bigger boost to the economy than taking fiscal and monetary steps individually, signalling that the government could play a bigger role in helping spur growth.

But he said the BOJ would not time any easing steps with the government's decision to ramp up spending, stressing that keeping current ultra-low interest rates alone would enhance the effect of fiscal policy.

"If the government saw the need to use fiscal policy (to support growth), a mix of fiscal and monetary policies would have a bigger impact than deploying fiscal and monetary steps separately," he told.

"That's not to say we have any particular plan to take monetary steps in tandem with bigger government spending."

Kuroda has repeatedly said if the BOJ were to ease, it would seek to push down short- to medium-term borrowing costs without causing an excessive decline in super-long yields. One way to keep long-term yields from falling too much could be for the government to issue more super-long bonds, he said.

Danske Bank analysts point out that in the UK, focus remains on politics as the election campaign has started.

“We will also get the PMI service index for October today. Based on other soft indicators, we expect the index was broadly unchanged at 49.5. In the Scandi markets, today's key event will be the Riksbank minutes from the October meeting amid its continued signal for a December hike. In Norway, October housing prices will be in focus. In the US ISM non-manufacturing is due out. In the past couple of months the US service sector has begun to show weakness, pointing to weaker private consumption growth. We would not be surprised if ISM non-manufacturing has fallen further to 52, down from 52.6.”

China's central bank cut the interest rate on its medium-term lending facility (MLF) on Tuesday for the first time since early 2016, as policymakers work to prop up a slowing economy hit by weaker demand at home and abroad.

With growth cooling faster than expected and nearing 30-year lows, a number of economists worry there is a risk that Chinese policymakers may be falling behind the curve by moving too cautiously. But some analysts said Tuesday's reduction, though modest, may be a sign the central bank is turning more proactive.

The People's Bank of China (PBOC) said it was lowering the rate on its one-year medium-term lending facility (MLF) loans to financial institutions by 5 basis points to 3.25% from 3.30% previously.

The move could pave the way for a reduction in China's new benchmark Loan Prime Rate (LPR) in a few weeks. It is linked to the MLF rate and is published on the 20th of every month.

The PBOC said it had lent 400 billion yuan ($56.92 billion) to financial institutions through the liquidity tool, slightly less than a batch of MLF loans worth 403.5 billion yuan due to mature on Tuesday.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1208 (2854)

$1.1176 (2918)

$1.1163 (3610)

Price at time of writing this review: $1.1127

Support levels (open interest**, contracts):

$1.1094 (3812)

$1.1048 (2512)

$1.0999 (3974)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date November, 8 is 77011 contracts (according to data from November, 4) with the maximum number of contracts with strike price $1,1000 (3974);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3010 (1542)

$1.2970 (1683)

$1.2940 (873)

Price at time of writing this review: $1.2879

Support levels (open interest**, contracts):

$1.2856 (184)

$1.2827 (339)

$1.2752 (1137)

Comments:

- Overall open interest on the CALL options with the expiration date November, 8 is 26135 contracts, with the maximum number of contracts with strike price $1,3400 (3252);

- Overall open interest on the PUT options with the expiration date November, 8 is 29736 contracts, with the maximum number of contracts with strike price $1,2100 (3166);

- The ratio of PUT/CALL was 1.14 versus 1.14 from the previous trading day according to data from November, 4

* - 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.