CFD Markets News and Forecasts — 13-02-2019

Major US stock indices rose slightly amid expectations that the United States and China could make a deal during ongoing trade negotiations.

“So far, so good,” said US Treasury Secretary Stephen Mnuchin about the talks in Beijing today. The day before, American President Donald Trump announced his readiness to postpone the March deadline to conclude a trade agreement with China if the two countries were close to an agreement. The South China Morning Post reported Wednesday that Chinese President Xi Jinping will meet with US delegates, including Treasury Secretary Stephen Mnuchin and sales representative Robert Lighthizer, on Friday, and both sides will try to make a deal. In case of failure of negotiations, tariffs for Chinese goods in the United States will be increased.

The focus of investors is another deadline - Friday - before which the Congress should adopt a bill that will avoid the next partial closure of the US government. Trump said on Tuesday that he was not happy with this proposal, but added that he would study its details. Today, there were reports that Trump plans to sign an agreement on border security to avoid another partial closure of the government.

Market participants also studied inflation data for January. A report from the Department of Labor showed that consumer prices in the United States did not change in January for the third month in a row. Economists had expected consumer prices to rise 0.1%. On an annualized basis, consumer price index growth was 1.6%, which is lower than the previous value of 1.9%, but 1.5% higher than economists' forecast. Excluding food and energy prices, consumer prices rose 0.2% on a monthly basis for the fifth month in a row. The rise in base prices coincided with the estimates of economists. In the 12 months to January, the so-called base consumer price index rose by 2.2% for the third month in a row.

Most of the components of DOW finished trading in positive territory (24 out of 30). The growth leader was 3M Company (MMM, + 1.54%). Outsider were shares of Cisco Systems Inc. (CSCO, -0.82%).

Almost all sectors of the S & P recorded an increase. The sector of conglomerates grew the most (+ 1.1%). The decrease was shown only by the utility sector (-0.3%).

At the time of closing:

Dow 25,543.27 +117.51 +0.46%

S & P 500 2,753.03 +8.30 +0.30%

Nasdaq 100 7,420.38 +5.76 +0.08%

EIA’s report reveals bigger than expected build in U.S. crude oil inventories

The U.S. Energy Information Administration (EIA) revealed that crude inventories rose by 3.633 million barrels in the week ended February 8. Economists had forecast an increase of 2.400 million barrels.

At the same time, gasoline stocks rose by 0.408 million barrels, while analysts had expected a build of 1.400 million barrels. Distillate stocks climbed by 1.187 million barrels, while analysts had forecast a decrease of 1.500 million barrels.

Meanwhile, oil production in the U.S. was unchanged at 11.900 million barrels per day. 

U.S. crude oil imports averaged 6.2 million barrels per day last week, down by 936,000 barrels per day from the previous week.

• Time to put our policy on a more neutral range 
• Important that we don’t go too fast and inadvertently restrict the economy
• One increase for 2019 as my model projection
• ‏If we stay at 2.5 GDP growth for the year, consistent with my forecast of one rate hike
• Has not come to a view on what size reserves Fed should carry
• Government shutdown not going to show up in numbers too deeply, another layer of uncertainty
• Trade uncertainty with China, revision to NAFTA are risks

• Fed would use its tools to address economic downturn
• U.S. probably a little bit beyond full employment
• Wages are rising across all employee skill levels 
• Growing wages are positive in a fairly low inflation environment

Before the bell: S&P futures +0.31%, NASDAQ futures +0.49%

U.S. stock-index rose on Wednesday, helped hopes that Chinese and U.S. trade authorities would reach a trade deal.

Global Stocks:

Wall Street. Stocks before the bell

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

Ford Motor (F) initiated with a Neutral at Seaport Global Securities

General Motors (GM) initiated with a Buy at Seaport Global Securities

Twitter (TWTR) target raised to $42 from $30 at BTIG Research

Deere (DE) downgraded to Neutral from Buy at BofA/Merrill; target $170

Freeport-McMoRan (FCX) upgraded to Overweight from Equal-Weight at Morgan Stanley

The Labor Department announced the U.S. consumer price index (CPI) was flat m-o-m in January 2019 after a 0.1 percent m-o-m drop in December 2018. 

Over the last 12 months, the CPI rose 1.6 percent y-o-y last month, following a 1.9 percent m-o-m gain in the 12 months through December. That was the lowest rate since June 2017. 

Economists had forecast the CPI to increase 0.1 percent m-o-m and 1.5 percent y-o-y in the 12-month period. 

According to the report, the energy index (-3.1 percent m-o-m) decreased for the third consecutive month, offsetting advances in the indexes for all items less food and energy (+0.2 percent m-o-m) and for food (+0.2 percent m-o-m). All the major energy component indexes dropped in January, with the gasoline index declining 5.5 percent m-o-m. 

The core CPI excluding volatile food and fuel costs increased 0.2 percent m-o-m in January, the same increase as in the previous month. 

In the 12 months through January, the core CPI rose 2.2 percent, the same increase as for the 12 months ending December. 

Economists had forecast the core CPI to rise 0.2 percent m-o-m and 2.1 percent y-o-y last month.

Barrick Gold Corp. (GOLD) reported Q4 FY 2018 earnings of $0.06 per share (versus $0.22 in Q4 FY 2017), beating analysts’ consensus estimate of $0.05.

The company’s quarterly revenues amounted to $1.904 bln (-14.5% y/y), missing analysts’ consensus estimate of $1.968 bln.

GOLD fell to $13.09 (-2.09%) in pre-market trading.

The U.S. President Donald Trump intends to sign the border security deal to avoid another partial government shutdown, told CNN two sources who have spoken directly with the President.

On Tuesday, Trump said that he was "not happy" with the tentative deal reached by congressional negotiators late Monday night that falls far short of his original demands.

CNN notes the U.S. Congress faces a deadline to get a deal passed and signed by Trump before Friday.

- An extension of Brexit deadline would normally not be open-ended

• slowdown especially clear in euro area

• we continue to see high pressure on swedish labour market

• Swedish economy is still strong

• there are good conditions for inflation to remain around 2pct

• rates will need to be raised slowly in coming years

• we have to live with krona going up and down

• too early to say how fiscal policy under new government will affect inflation forecast

• pointless to hike rates only to cut them again later

A sudden, no-deal Brexit next month would have a very severe and immediately disruptive effects on almost all areas of Ireland’s economy, the head of the country’s central bank said.

The central bank forecast last month that if Britain left the European Union without a deal, it could knock as much as 4 percentage points off the economy’s growth rate in its first full year and up to 6 percentage points over a decade.

“A sudden, no-deal scenario would have immediate disruptive effects that would permeate almost all areas of economic activity,” Philip Lane said.

• China's economy is in "long-term decline" and growth from 2020 will be increasingly dependent on foreign capital

• This year, the current account shortfall could be 0.3 percent of its GDP, and slip further to 0.6 percent in 2020, the bank predicted.

• The report blamed the shrinking current account on China's aging population, and flattening market share in goods exports, among other factors. But there are opportunities for investors too, the bank said.

According to estimates from Eurostat, in December 2018 compared with November 2018, seasonally adjusted industrial production fell by 0.9% in the euro area (EA19) and by 0.5% in the EU28. Economists had expected a 0.4% decrease. In November 2018, industrial production fell by 1.7% in the euro area and by 1.2% in the EU28.

In December 2018 compared with December 2017, industrial production decreased by 4.2% in the euro area and by 2.7% in the EU28. Economists had expected a 3.2% decrease

The average industrial production for the year 2018, compared with 2017, rose by 1.1% in the euro area and by 1.3% in the EU28.

In the euro area in December 2018, compared with November 2018, production of both capital goods and nondurable consumer goods fell by 1.5% and energy by 0.4%, while production of intermediate goods remained unchanged and durable consumer goods rose by 0.7%. In the EU28, production of capital goods fell by 1.2% and non-durable consumer goods by 0.2%, while production of intermediate goods remained unchanged, energy rose by 0.4% and durable consumer goods by 0.1%.

According to the report from Office for National Statistics, the Consumer Prices Index (CPI) 12-month rate was 1.8% in January 2019, down from 2.1% in December 2018. It was the smallest increase since January 2017. Economists had expected a 1.9% increase

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 1.8% in January 2019, down from 2.0% in December 2018.

The largest downward contribution to the change in the 12-month rate came from electricity, gas and other fuels, with prices overall falling between December 2018 and January 2019 compared with price rises the same time a year ago. These downward effects were partially offset by air fares, with prices falling between December 2018 and January 2019 by less than a year ago.

The Office for National Statistics also said, the headline rate of output inflation for goods leaving the factory gate was 2.1% on the year to January 2019, down from 2.4% in December 2018. Economists had expected a 2.2% increase

The growth rate of prices for materials and fuels used in the manufacturing process slowed to 2.9% on the year to January 2019, down from 3.2% in December 2018. Petroleum products and crude oil provided the largest downward contribution to the change in the annual rate of output and input inflation respectively. Crude oil prices fell by 6.9% on the year to January 2019, the largest annual decrease since June 2016.

GBP / USD fell after the publication of data, updating the session low. Now GBP / USD is trading at $ 1.2884

• raises non-OPEC oil supply growth forecast for 2019 to 1.8 mln bpd, from prior forecast of 1.6 mln bpd

• OECD commercial oil inventories fell 5.6 mln bbls to 2.858 bln bbls in December from November

• cuts forecast for demand for OPEC crude to 30.7 mln bpd in 2019 from 31.6 mln bpd

• US sanctions on Venezuela may create problems for crude quality, not quantity

• oil market ‘still working off the surpluses built up in H2 2018

• Iran crude production fell to 2.72 mln bpd in January from 2.8 mln bpd in December

China’s President Xi Jinping “is scheduled to meet” key members of the US trade talks delegation, including US trade representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin, in Beijing on Friday, according to sources close to the matter

The "structural issue" of the United States' trade gap with China will reverse itself as the Chinese ramp up imports, Alibaba co-founder Joseph Tsai told CNBC.

The trade deficit will shrink once the Chinese government begins purchasing $40 trillion worth of goods as promised over the next 15 years, he said. Even though President Trump placed tariffs on imports in part to close the deficit, China's surplus topped $323 billion in 2018, the highest since 2006.

"With regards to the trade war, I would say this … if you look at the long term, the trade deficit itself will reverse," he said. "I talk about [the] 300 million middle-class consumers that will continue to buy more from all over the world."

China's economy is being powered by consumers, he said, and the Chinese middle-class consumer base could nearly triple by 2030.

President Mario Draghi ends his eight-year mandate in October and market players are anxious to know what direction the central bank will take when his tenure finishes. European officials have told CNBC that a French candidate is well placed to get the top job, but much depends on the upcoming European elections and the subsequent distribution of roles across the EU.

"In principle, (France) is well placed (to get the ECB presidency)," a European official with knowledge of the situation told.

The same official mentioned that France has more than one possible candidate and that Germany is more inclined to seek the presidency of the European Commission, the EU's executive arm, which also becomes available this year.

There are two possible French names circulating in European corridors: Benoit Coeure, who is a French economist and currently serves as a member of the executive board of the ECB; and Francois Villeroy de Galhau, who is France's current central bank governor. Both have said they would be keen to succeed Draghi, if asked

• The 5-year bonds will start trading on secondary market on Feb 25

• EU leaders don’t want extension of Brexit uncertainty

Goldman Sachs said, larger than expected production cuts by some major oil suppliers and falling seasonal crude inventories due to growing demand are set to push up oil prices.

The Goldman Sachs expects benchmark Brent crude prices to touch $67.50 per barrel in the second quarter of 2019.

"The production losses to start 2019 are already larger than we expected," Goldman said. "Producers are adopting a 'shock and awe' strategy and exceeding their cut commitment."

The bank also said that crude supply was being disrupted by U.S. sanctions that kicked in last month on Venezuela's oil exports.

But Goldman said it was cautious on the price-outlook for the second-half of 2019 as low-cost producers increase output.

• Need to watch out for side effects of easing policy

• "It is my duty to continue persistently easing policy"

• Overall financial system maintains stability

• Companies are becoming less cautious over wages

• Households are also becoming less cautious over prices

• risks around rates are balanced

• If growth does not pick up a rate cut may be required

• exchange rate has been "remarkably well behaved in recent times"

• open minded on capital requirement submissions

• proposed bank capital levels well within norms

• Inflation expectations are well anchored

• we expect to keep the OCR at this level through 2019 and 2020.

• employment is near its maximum sustainable level.

• core consumer price inflation remains below our 2 percent target mid-point, necessitating continued supportive monetary policy.

• sees annual CPI 1.7 pct by march 2020

• keep cash rate expansionary for considerable period

• risk of a sharper downturn in trading partner growth has heightened

• upside and downside risks to inflation

• despite the weaker global impetus, we expect low interest rates and government spending to support a pick-up in New Zealand’s GDP growth over 2019.

• low interest rates, and continued employment growth, should support household spending and business investment.

• government spending on infrastructure and housing also supports domestic demand.

• we will keep the OCR at an expansionary level for a considerable period to contribute to maximising sustainable employment, and maintaining low and stable inflation.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1437 (3650)

$1.1406 (641)

$1.1380 (472)

Price at time of writing this review: $1.1335

Support levels (open interest**, contracts):

$1.1285 (1510)

$1.1253 (3096)

$1.1228 (5387)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date March, 8 is 91954 contracts (according to data from February, 12) with the maximum number of contracts with strike price $1,1700 (6197);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3084 (3941)

$1.3029 (679)

$1.2970 (398)

Price at time of writing this review: $1.2915

Support levels (open interest**, contracts):

$1.2854 (653)

$1.2817 (1084)

$1.2778 (940)

Comments:

- Overall open interest on the CALL options with the expiration date March, 8 is 42256 contracts, with the maximum number of contracts with strike price $1,3200 (4743);

- Overall open interest on the PUT options with the expiration date March, 8 is 28968 contracts, with the maximum number of contracts with strike price $1,2400 (1903);

- The ratio of PUT/CALL was 0.69 versus 0.67 from the previous trading day according to data from February, 12

* - 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.