CFD Markets News and Forecasts — 25-03-2019

Major US stock indices have predominantly declined, as continuing concerns about the global economy outweighed reports that Special Prosecutor Muller did not find evidence of an agreement between President Trump’s team and Russia in the 2016 US presidential election.

Weak data on activity in the industrial sector from the USA, Europe and Japan on Friday led to the inversion of the yield curve of US Treasury bonds for the first time since 2007, which heightened concerns about the global economic downturn. Investors perceived this as a signal that a recession could occur soon. In addition, the Fed noted the expected slowdown in the economy last week and announced the decision not to raise interest rates this year.

Most of the components of DOW finished trading in the red (18 out of 30). The outsider was Apple Inc. stock. (AAPL, -1.40%). The growth leader was the shares of The Boeing Co. (BA, + 2.06%).

S & P sectors demonstrated mixed dynamics. The largest decline was shown by the technology sector (-0.2%). The utility sector grew the most (+ 0.6%).

At the time of closing:

Dow 25,516.83 +14.51 +0.06%

S & P 500 2,798.34 -2.37 -0.08%

Nasdaq 100 7,637.54 -5.13 -0.07%

The Federal Reserve Bank of Dallas reported its general business activity index for manufacturing in Texas dropped to 8.3 in March 2019 from 13.1 in the previous month.

Economists had forecast the indicator to decline to 7.0. 

According to the report, the production index, a key measure of state manufacturing conditions, held fairly steady at 11.5, indicating output growth continued at about the same pace as last month. At the same time, the new orders index fell from 6.9 to 2.4, and the shipments index declined five points to 5.8, while the capacity utilization index moved up four points to 10.9. The employment index held steady at 13.1. 

• As things stand there is not support to hold a third meaningful vote on Brexit deal
• Government today laid secondary legislation to change exit date law
• As things stand there is not support to hold a third meaningful vote
• Government will oppose Letwin amendment (on indicative votes)
• Cannot commit the government to delivering the outcome of any votes held by this House
• Default outcome continues to be to leave with no deal
• Alternative is to pursue different form of Brexit or a second referendum

Belgium's central bank published its monthly business survey on Monday, which showed that business confidence in the country recovered in March after three consecutive monthly declines.

According to the report, business confidence index increased to -0.7 in March from -1.7 in the previous month. That was the highest reading since November 2018.

Economists had expected the indicator to fall to -2.0. 

Confidence improved among manufacturers (-3.1 this month from -4.6 in February), traders (-5.9 from -6.8) and service providers (+5.3 from +5.1). By contrast, the business confidence worsened marginally in the building industry (+5.2 from +5.5). 

• May is inclined to hold a vote 
• PM briefed cabinet on vote plan
• Cabinet ministers expect Letwin Brexit plan to win

• Government position is to only hold third meaningful vote if there is a prospect of success
• Government understands there is no necessity to hold meaningful vote before March 29
• Sense from cabinet is that it would be in Britain's best interest to leave with a deal
• Subject of the PM's future did not come up in cabinet
• PM does not believe in revocation of Article 50
• Cabinet had a discussion on the way forward
• May will make statement to parliament at 15:30 GMT

Before the bell: S&P futures -0.12%, NASDAQ futures -0.24%

U.S. stock-index fell on Monday amid lingering concerns about global growth.

Global Stocks:

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

The Chicago Federal Reserve announced on Monday the Chicago Fed national activity index (CFNAI), a weighted average of 85 different economic indicators, stood at -0.29 in February, down from a revised -0.25 in January (originally -0.43), pointing to a decrease in economic growth. 

At the same time, the index’s three-month moving average declined to -0.05 in February from +0.12 in January.

According to the report, two of the four broad categories of indicators that make up the index fell from January, and three of the four categories made negative contributions to the index in February.

The contribution from production-related indicators to the CFNAI moved up to -0.16 in February from -0.29 in January. Employment-related indicators contributed -0.10 to the CFNAI in February, down from +0.07 in the previous month. The contribution of the personal consumption and housing category to the CFNAI decreased to -0.06 in February from -0.03 in January. Meanwhile, the sales, orders, and inventories category made a contribution of +0.03 to the CFNAI in February, up slightly from +0.01 in January.

Tesla (TSLA) target lowered to $210 from $245 at RBC Capital

ITV's correspondent Paul Brand tweeted: "Understand PM going for Meaningful Vote 3 tomorrow. Only after that will she will consider indicative votes."

• Market has priced in less optimism than the FOMC
• Sees neutral rate as being one or two moves away
• Says inflation is not running out of control
• Would want to see inflation rise and stay above 2% for a bit before hiking this year
• Would also need to see strong labour market
• Notes shortage of labour to fill job vacancies is one of the biggest risks to U.S. growth
• Doesn't see circumstances for a rate hike in the short-term
• Says dot plots are not a commitment to what the Fed will do
• If we see deep recession, would need to dip into unconventional monetary policy toolkit 

UBS analysts suggest that a slowdown in the U.S. economy, which reflects the disruption to the manufacturing sector caused by the trade dispute with China, will rein in the Fed in the near term.

• “A partial government shutdown has exacerbated the situation. The U.S. federal government was shut down from 22 December 2018 to 25 January 2019. The economists are also expecting a sharper slowing in the economy in 2020 than the Federal Open Market Committee (FOMC) does to 1.7 percent versus the FOMC's 1.9 percent.”
• "These factors will keep them on hold both this year and next," the CIO team says. "That said, we see the bar for a rate cut - which the market has priced - as very high and a rate cut as unlikely."

• Fall in German bond yields below 0 percent had more to do with excess savings rather than monetary policy

The European Union believes that a no-deal Brexit is “increasingly likely”, EU officials said on Monday after the bloc gave Britain two more weeks to solve its political stalemate, but is doubtful that would work.

“We are prepared for this scenario,” an EU official said describing the bloc’s contingency preparations.

• wait-and-see mode, favouring one rate hike at most this year, one in 2020

• balance sheet will not likely hold primarily treasuries 'for some time'

• expects GDP a bit above 2% in 2019, returning to trend around 2% in 2020

According to the report from Office of National Statistics, visits to the UK by overseas residents fell 4% in 2018 to 37.8 million and spending by tourists and other visitors was down by 7% at 22.7 billion pounds.

UK residents made 1% fewer visits abroad last year, totalling 71.9 million trips, and their expenditure grew by 2% to 45.8 billion pounds/

• There were 2.9 million visits to the UK by overseas residents in November 2018 (5% fewer than in November 2017) and 2.8 million visits in December 2018 (9% more than in December 2017).

• Overseas residents spent £1.6 billion on visits to the UK in November 2018 (10% less than in November 2017) and £1.7 billion on visits in December 2018 (9% more than in December 2017).

• UK residents made 4.3 million visits overseas in November 2018 (the same as in November 2017) and 3.8 million visits in December 2018 (4% less than December 2017).

• UK residents spent £2.6 billion on visits overseas in November 2018 (1% less than in November 2017) and spent £2.4 billion in December 2018 (9% more than in December 2017).

Former U.S. Fed chair Janet Yellen said the U.S. Treasury yield curve may signal the need to cut interest rates at some point, but it does not signal a recession.

Yellen, who led the Fed between 2014 and 2018, was speaking at the Credit Suisse Asian Investment Conference in Hong Kong.

The yield curve inverted on Friday for the first time since mid-2007, a shift that has in the past signalled the risk of recession.

Britain's expected departure from the European Union is a burden for German industry in particular, an economist at the Ifo institute said, adding that the global economy was not providing any support.

"Brexit uncertainty is particularly hitting the industrial sector. The other sectors don't appear to be affected," Ifo economist Klaus Wohlrabe said.

He said Ifo's survey supported its forecast that the German economy would grow by 0.6 percent in 2019.

Ministry of Finance said, profits earned by China's state-owned firms in the first two months of the year rose 10% from the same period a year earlier.

Total profits stood at 452.05 billion yuan in the period, while revenue increased 6.3% to 8.71 trillion yuan.

State firms' liabilities increased 8.1% on an annual basis to 121.14 trillion yuan by end-February. Profits of state firms in oil and nonferrous metals sectors grew significantly in January-February.

Wells Fargo research team points out that for the Eurozone economy, fears of a recession were back in the headlines on Friday after a series of disappointing PMI figures from the currency bloc.

“We are not convinced that the Eurozone economy is headed for recession, but it is hard to get particularly excited about the region's economic prospects, or the prospects for the euro, at this point.”

• Eurozone slowdown may continue in the medium-term

• Expects TLTRO-3 terms to be 'a bit less generous'

• Tiered deposit rate hasn't really been discussed

According to the report from Ifo Institute for Economic Research, German IFO business climate index rose to 99.6 in March from 98.5 in February. Economists had expected increase to 98.7. This monthly indicator published by the IFO economic institute based in Frankfurt defines - via a survey of 7,000 entrepreneurs - the level of confidence in the German economy. This index has a great influence on the Euro currency because it highlights the German economic dynamism and investment levels for the next 6 months. A low figure could negatively impact the euro since Germany accounts for almost one third of GNP in the Eurozone.

Data also showed:

• Ifo Expectations index March: 95.6 (exp 94.4; prev 93.8)

• Ifo Current Assessment index March: 103.8 (exp 103.0; prev 103.4)

Stock investors should heed the warning emanating from the bond market, says at least one hedge-fund manager, as the yield curve staged a stunning inversion Friday.

“I think people are going to be surprised where the S&P 500 is trading at the end of the year. We’re going at least for a 40% decline from the S&P’s top,” Otavio Costa, a macro analyst at Crescat Capital.

Costa says the inversion of the yield curve, where short-dated yields rise above their longer-dated peers, signals an ignominious end to a 10-year bull run for the S&P 500 index, which bottomed in March of 2009 but has mounted a record-long rally, by some measures, since that point.

In particular, Costa said the growing number of inversions in yield spreads across Treasury maturities suggested a bear-market for equities was at hand, in the face of a darkening global growth picture.

Karen Jones, analyst at Commerzbank, explains that the GBP/USD pair has eased back to and recovered from the 55 day ma last week as it has held over the 200 day ma at 1.2980 and for now suggest that they will continue to favour the topside.

“The market recently challenged the 1.3363 July 2018 high, reaching 1.3382 before failing. Provided that dips lower are contained by the 200 day ma, our overall target remains the 1.3563 200 week ma. Below the 200 day ma lies the double Fibo retracement at 1.2900/1.2895. This guards the recent low at 1.2772.”

Eurosceptic lawmaker from Conservative Party said, british Prime Minister Theresa May should be given time to get her Brexit deal through parliament before making way for someone else to lead the next phase of negotiations with the European Union.

“Clearly a number of people do not want the May anywhere near the next phase of negotiations which is the future trading relationship between ourselves and the European Union,” Nigel Evans told .

Evans said May should resign if she fails to get parliament behind her plan at the third time of asking.

Karen Jones, analyst at Commerzbank, explains that the EUR/USD pair has tried to break up from a falling wedge pattern, but the market faltered ahead of initial resistance at the 200 day MA at 1.1476 and has gone into consolidation mode.

“We suspect that it is trying to base but need to do more work – once above the 200 day MA this will target the 1.1570 January high together with the 55 week MA at 1.1610. We view 1.1176 as an interim low in place. Initial support lies at 1.1216 November low ahead of 1.1176 low. Long term trend (1-3 months): Completed a falling wedge – target the 55 week MA. Then the 1.1815 September 2018 high on route to 1.20.”

China will reduce direct government intervention in its vast industrial sector, the industry minister said, as Beijing seeks to ease concerns about its industrial policy, core to Washington's complaints in the Sino-U.S. trade war.

"We will gradually reduce the government's micro-management and direct intervention, in order to allow the market to effectively decide resource allocation and support the development of the manufacturing industry", Miao Wei, minister of industry and informational technology, said.

But China will continue to encourage higher-value production, he said.

• not worried about the inflation pressure

• it’s a good time to pause and be cautious

• Fed funds rate arguably close to neutral

• US monetary policy neither accommodative nor restrictive at this point

• yield curve inversion ‘pretty narrow’

• Fed is ‘mindful’ of financial market constraints

• I want to see more inflation, do not expect rate increase until H2 next year

• will take action if inflation undershoots

• we have to be nervous when yield curve gets flat

• fundamentals for U.S. growth look good

• sees 1.75pct to 2pct u.s. Gdp growth this year

• downside risks have risen, driven by uncertain outlook for global growth, trade policy

• own outlook is less sanguine than it was last autumn

• 'could be' upside surprises, but downside scenarios 'loom larger'

• Fed's wait-and-see approach is prudent, given heightened uncertainty

• some further rate hikes could be appropriate over time, if core inflation accelerates

• policy may need to be loosened, if economy softens or inflation runs too low

EUR/USD

Resistance levels (open interest**, contracts)

$1.1440 (1863)

$1.1415 (1343)

$1.1399 (390)

Price at time of writing this review: $1.1301

Support levels (open interest**, contracts):

$1.1236 (3143)

$1.1192 (2888)

$1.1145 (4579)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date April, 5 is 70984 contracts (according to data from March, 22) with the maximum number of contracts with strike price $1,1350 (4887);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3377 (1475)

$1.3332 (426)

$1.3304 (754)

Price at time of writing this review: $1.3189

Support levels (open interest**, contracts):

$1.3116 (1434)

$1.3086 (736)

$1.3053 (563)

Comments:

- Overall open interest on the CALL options with the expiration date April, 5 is 25394 contracts, with the maximum number of contracts with strike price $1,3400 (4257);

- Overall open interest on the PUT options with the expiration date April, 5 is 30304 contracts, with the maximum number of contracts with strike price $1,2500 (5061);

- The ratio of PUT/CALL was 1.20 versus 1.11 from the previous trading day according to data from March, 22

* - 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.