CFD Markets News and Forecasts — 30-03-2020

The number dead in England increased by 159 to 1,284, in Wales by 14 to 62, in Scotland by 6 to 47, in Northern Ireland by one to 22

FXStreet reports that in the opinion of analysts at HSBC, in the near-term, gold may consolidate after a stellar week last week. 

“The gold market may take a short break and consolidate in the near term, with the US fiscal package finally passed, and no fresh stimulus imminent from the EU.”

“We think any sense that the US economy could be hit more than other countries could undermine the USD ‘safe-haven’ status. This would likely benefit gold as ‘safe-haven’ demand may be channelled into bullion instead of the USD.”

“Massive fiscal spending on a global level, combined with monetary accommodation and near-zero interest rates in many countries, all contribute to a bullish outlook for gold. These factors will likely support gold longer-term.”

The National Association of Realtors (NAR) announced on Monday its seasonally adjusted pending home sales index (PHSI) rose 2.4 percent m-o-m to 111.5 in February, after a revised 5.3 percent m-o-m climb in January (originally a 5.2 percent m-o-m gain).

Economists had expected pending home sales to decrease 0.3 percent m-o-m in February.

On y-o-y basis, the index surged 9.4 percent after a 5.7 percent jump in January. That represented the highest pace in exactly three years.

According to the report, all regional indices recorded m-o-m gains in February. The Northeast PHSI rose 2.8 percent m-o-m to 96.3 in February, 5.9 percent higher than a year ago. In the Midwest, the index jumped 4.5 percent m-o-m to 110.1 last month, 14.9 percent higher than in February 2019. Pending home sales in the South edged up 0.1 percent m-o-m to an index of 129.2 in February, a 7.1 percent advance from February 2019. The PHSI in the West grew 4.6 percent m-o-m to 97.1, a surge of 10.8 percent from a year ago.

"February's pending sales figures show the housing market had been very healthy prior to the coronavirus-induced shutdown," noted Lawrence Yun, NAR's chief economist. He also stressed that the data does not capture the significant fallout from the pandemic or the measures taken to control the outbreak. "Numbers in the coming weeks will show just how hard the housing market was hit, but I am optimistic that the upcoming stimulus package will lessen the economic damage and we may get a V-shaped robust recovery later in the year."

FXStreet reports that according to analysts at Westpac Institutional Bank, recent gains in NZD/USD are due to falling US dollar.  

“The best explanation for the US dollar’s recent fall is that USD short term funding stresses have been alleviated in a number of areas by Federal Reserve actions, slowing the earlier scramble for USD cash.”

“In turn, that has lifted the NZD/USD exchange rates. Such resilience doesn’t necessarily imply the worst is over, and we forecast the kiwi to fall further over the next few weeks, NZD/USD to see the 0.55-0.57 area.”

• We will release instructions for small businesses on how to obtain stimulus loans/grants today
• Small business will get eight weeks of payroll
• Small business lending could start early on Friday
• If small business program runs out of money, administration will ask for more
• Believes U.S. stock prices will be higher one year from now

U.S. stock-index futures rose on Monday, with investors remaining preoccupied with the coronavirus situation and its potential impact on the economy.

Global Stocks:

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

3M (MMM) downgraded to Underperform from Hold at Gordon Haskett

McDonald's (MCD) downgraded to Neutral from Buy at Kalinowski

Alphabet A (GOOG/L) upgraded to Outperform from Market Perform at BMO Capital Markets

NIKE (NKE) upgraded to Overweight from Equal Weight at Wells Fargo; target raised to $99

Procter & Gamble (PG) upgraded to Buy from Hold at Jefferies; target lowered to $128

• Says peak of infections is likely to occur in April
• Will consult medical experts on social-distancing guidelines
• Is proud of Abbott for developing five-minute COVID-19 test; new test will be easier and less invasive
• Is happy that US regulators will allow emergency use of hydroxychloroquine to treat coronavirus
• Says people of country are doing a great job with social distancing
• Defense production act is "great leverage"

Germany's Federal Statistical Office reported on Monday the country's consumer price index (CPI) is expected to increase 0.1 m-o-m in March after increasing 0.4 percent m-o-m in the previous month.

On the y-o-y basis, Germany's inflation rate is seen to rise 1.4 percent this month, following a 1.7 percent advance in February.

Economists had predicted inflation would increase 0.1 percent m-o-m and 1.4 percent y-o-y in March.

According to the report, food price growth accelerated to 3.7 percent y-o-y in March from 3.3 percent y-o-y in February, while energy prices fell 0.9 percent y-o-y after a 2.0 percent y-o-y climb in the previous month. Services costs rose 1.4 percent y-o-y in March, decelerating from 1.6 percent y-o-y in February.

Meanwhile, the harmonized index of consumer prices for Germany (HICP), which is calculated for European purposes, is expected to advance 0.1 percent m-o-m and 1.3 percent y-o-y.

USD strengthened against most other major currencies in the European session on Monday, paring some of its losses from last week, as demand for safe-haven currencies renewed as concerns about the economic impact of the coronavirus heightened as governments around the world continue to tighten lockdowns to fight the virus. The U.S. Dollar Index (DXY) rose by 0.6% to 98.96. Another safe-haven currency JPY was little changed at 108.07 yen per dollar.

According to the latest data compiled by Johns Hopkins University, coronavirus cases around the world climbed to 735,560. This added to the uncertainty over when the lockdowns will be removed and the economy can return to normal. The U.S. leads the world in reported COVID-19 cases with more than 143,000.

The U.S. President Donald Trump signed into law Friday afternoon a massive $2 trillion stimulus package designed to respond to the economic fallout from the coronavirus pandemic after the House lawmakers voted to approve it earlier in that day. The vote in the House happened after the package was unanimously approved by the Senate on Wednesday. The key elements of the package include $250 billion in direct payments to individuals and families, $350 billion in small business loans, $250 billion in unemployment insurance benefits, $500 billion in loans for distressed companies, $130 billion in funding for hospitals as well as $150 billion for state and local governments.

On Sunday, Trump extended the national social-distancing guidelines to April 30 and said the coronavirus outbreak in the U.S. was likely to peak in two weeks.

FXStreet reports that economists at TD Securities note the Australian Government announced a significant A$130b fiscal package to encourage employers to hold on to their staff for the following six months.

“The Australian Government announced the 3rd fiscal package in as many weeks, delivering a $130b stimulus in the form of wage subsidies, going to 6 million workers at a flat rate of $1500 per fortnight, regardless of their salary under the JobKeeper program.”

“This is the biggest fiscal package ever announced in Australia. Fiscal stimulus from the three packages comes in at A$213b, which equates to roughly just under 11% of GDP.” 

“For the AUD, we expect markets to reward those countries and currencies viewed as proactive in addressing risks to growth, so the FX hit should be shallow if any.”

FXStreet reports that Lee Sue Ann, Economist at UOB Group, reviewed the recently announced stimulus measures by the BoE to tackle the negative impacts of the COVID-19 on the UK economy.

“Following two off-calendar rate decisions on 11 March and 19 March, the Bank of England (BOE) monetary policy committee (MPC) kept the Bank Rate on hold at 0.10%, an all-time low, and did not announce any new additional measures at its scheduled meeting on Thursday (26 March).”

“In the accompanying Monetary Policy Summary and minutes of the Monetary Policy Committee meeting, the BOE cautioned that “there is little evidence as yet to assess the precise magnitude of the economic shock from COVID-19”, but added that “there is a risk of longer-term damage to the economy, especially if there are business failures on a large scale or significant increases in unemployment”.

“Despite yesterday’s relatively uneventful meeting, the BOE declared that it “stands ready to respond further as necessary to guard against an unwarranted tightening in financial conditions and support the economy.”

“We think the Bank Rate will remain at 0.10% for some time, and the BOE will follow up with additional QE if more needs to be done. Fiscal measures will also increase along the way especially if the COVID-19 pandemic proves to be more protracted and severe.”

FXStreet reports that in the opinion of economists at Natixis, it would be legitimate for central banks to buy equities and corporate bonds.

“When activity declines, monetary policy becomes far more expansionary to stimulate activity, but the decline in share prices and the rise in credit spreads go in opposite directions and cancel out the positive effect of the expansionary monetary policy.”

“We estimate that a 10% fall in share prices leads to a 0.7% fall in GDP in the United States and 0.3% in the euro zone.”

“The fall in share prices and the widening of credit spreads prevent an efficient monetary policy transmission, since they eliminate the positive effect of the expansionary monetary policy.” 

“It is in line with central bank' objectives to buy equities and corporate bonds with the objective of restoring normal monetary policy transmission and enabling expansionary monetary policies to stimulate the economy.”

• Virus outbreak has put an end to incipient economic recovery
• Recession in the first half of 2020 is unavoidable
• Baseline scenario is German economy to shrink by 2.8% this year and grow by 3.7% in 2021
• Baseline scenario is for economic situation to normalize over the summer
• Second scenario involves a V-shaped trajectory with widespread production halts
• That will see the economy shrink by 5.4% this year and grow by 4.9% in 2021
• Third scenario involves a U-shaped trajectory where recovery begins next year
• That will see the economy shrink by 4.5% this year and grow by 1.0% in 2021

FXStreet notes that the crisis caused by the coronavirus has upended conventional economic thinking. This is evident in several different ways, as Neil Shearing from Capital Economics notes.

“The role of governments is being rethought.  One of the legacies of this crisis will be higher debt burdens, but now is not the time to worry about this. The immediate priority is to cushion the collapse in demand.”

“The spirit of individualism that has prevailed for the past thirty years is being supplanted by a new spirit of collectivism. Public health is, after all, the ultimate public good.”

“One lesson for the future is that we should resist the temptation to view new economic shocks through the prism of previous shocks.”

“The road ahead is unusually uncertain. What we can be sure of at this stage is that the slump in output over the coming months will be huge and the virus will leave a complex set of questions in its wake.”

• The increase in the daily number of confirmed cases moderated from 9% yesterday and 13% the day before
• The total number of deaths related to the virus rose by 812, or 12%, to 7,340
• 838 deaths were recorded on Sunday and 832 deaths on Saturday.

CNBC reports that the oil market is facing a "double crisis" with a collapse in the OPEC+ alliance affecting supply and the slowdown in the global economy crushing demand, oil guru Dan Yergin said.

"The breakdown of OPEC+ is only part of the picture," the vice chairman of IHS Markit told CNBC. "The big thing is the coronavirus and the showdown of much of the world economy."

Countries have implemented travel bans and instituted lockdowns to stem the spread of the virus.

"Cars not on the road, airplanes not in the air, factories not working, people not going to work," Yergin said. "We see, in this month of April that's coming, what could be a 20 million barrel a day decline in oil demand."

"It's unprecedented. That's six times larger than the biggest downturn during the financial crisis period (in 2008)," he added.

World oil demand in 2019 stood at around 99.67 million barrels a day, according to OPEC's estimate.

While demand is set to fall, major producers such as Saudi Arabia and Russia have announced they will increase supply in April after the OPEC+ agreement expires at the end of March.

"This is what people are now looking at ... where are you going to put all of the oil?" he asked. When oil storage runs out, prices could fall further, he added. "I think the prices that we're seeing, that you're talking about today are really precursors ... April is going to be a very difficult month."

FXStreet reports that the economic implications of extended lockdowns are large. Large sectors of the economy have shut indefinitely. Tourism and travel are closed, as is the retail sector outside of food, pharmacies and petrol stations, analysts at ANZ Bank brief.

"If an economy completely stops operating for one week, that leads to a 2% drop in GDP (100/52 weeks). By extension, operating at 50% capacity will drive a fall of 1.0%."

"Given the high observed European mortality rate of 6.2% (11% in Italy), a base case assumption might now be that severe lockdowns of varying degrees could last for 12 weeks."

"For economies operating at 50% capacity, that would imply GDP falling by 12% q/q following an estimated 3.0% q/q drop in Q1."

According to the report from European Commission, in March 2020, the Economic Sentiment Indicator (ESI) fell dramatically in both the euro area (-8.9 points down to 94.5) and the EU (-8.2 down to 94.8 points). Also the Employment Expectations Indicator (EEI) plummeted (by 10.9 points to 94.1 in the euro area and by 9.7 points to 94.8 in the EU).

In the euro area, the strongest monthly decline in the ESI on record (since 1985) resulted from slumping confidence among consumers and in all the business sectors. The collapse was particularly strong in services and retail trade. Amongst the largest euro-area economies, the ESI plummeted in Italy (-17.6) and Germany (-9.8), and fell significantly also in France (-4.9), the Netherlands (-4.0), and Spain (-3.4). Importantly, in many countries the vast majority of survey responses were collected before strict containment measures were enacted to combat the spread of the Corona virus.

Industry confidence decreased significantly (-4.6), reflecting managers' crashing production expectations. The record decrease in services confidence (-13.3) was fuelled by managers' tumbling demand expectations, but also assessments of the past business situation and past demand deteriorated strongly. Behind the strongest decline on record in consumer confidence (-5.0) was an exceptionally strong fall in expectations concerning the general economic situation. The stark decrease in retail trade confidence (-8.1) was due to an unprecedented fall in retailers' assessment of the expected business situation. The comparably minor decrease in construction confidence (-2.7) resulted from managers' more pessimistic employment expectations and a somewhat lower assessment of the level of order books. Finally, financial services confidence (not included in the ESI) slumped (-15.0). Again, the fall was steepest in the assessment of demand expectations, but significant declines were also registered in the assessment of the past business situation and past demand.

According to the report from Germany's engineering body VDMA, the mechanical engineering industry is feeling the consequences of the corona pandemic with increasing force. A second current survey by the VDMA, which was answered by 965 member companies, clearly shows this.

The proportion of companies whose operations are affected rose from 60 to 84 percent within two weeks. Almost one in two affected companies (45 percent) suffers from "serious" or "noticeable" disruptions along the supply chain. Only 5 percent have been spared so far. "Logically, as the virus spreads, the problems in the factories increase as well. Parts and components that were ordered in Asia a few weeks ago have not arrived at the local plants. In addition, there are failures of European, also German suppliers. This leads to noticeable production burdens and also production losses", says VDMA chief economist Dr. Ralph Wiechers.

According to the latest survey, disruptions in supply chains are particularly prevalent in Italy (75 percent of those affected), Germany (55 percent), China (51 percent), France (36 percent) and the USA (25 percent). "However, the situation in China and South Korea seems to be easing slightly. In addition, many engineering companies are reporting a significant increase in orders from their Chinese customers," explains Wiechers.

Reuters reports that European Central Bank's vice-president Luis de Guindos said that so-called 'coronabonds', or common EU bonds, are not the only or the most effective instrument in the fight against the coronavirus..

"It is neither the only defensive tool nor certainly the most powerful," De Guindos told radio station Cadena Cope on Monday.

"The most powerful is undoubtedly the European Central Bank," he said.

FXStreet reports that the launch of the QE-ternity program from the Fed will likely prove to be a material negative USD gamechanger down the road, according to analysts at Nordea.

"A lot of new USDs will be printed, which is usually a USD negative story, but we are not sure that QE matters a lot in the short term, if curfews are prolonged and disinflationary risks remain high."

"So far, the price action since the Fed launched the QE-bazooka has been supportive of inflation expectations, which is a negative USD story."

"We remain firm that a negative USD bias is very warranted over the next 6-12 months (10% weaker USD is not out of the question), but we think it is too early to really buy into the negative USD story."

Bloomberg reports that oil demand is getting hammered at a faster pace than anyone had predicted and landlocked crude production in the U.S., Russia and Canada is most vulnerable, according to Goldman Sachs Group Inc.

Consumption will drop by 26 million barrels, or 25%, this week as social-distancing measures to contain the coronavirus now impact 92% of global GDP, analysts including Jeff Currie and Damien Courvalin said in a note. There's been at least 900,000 barrels a day of announced shut-ins at the wellhead, with the true number likely higher and growing by the hour, they said.

"The ultimate magnitude of these shut-ins, which is still unknown, will likely permanently alter the energy industry and its geopolitics," the analysts said. Landlocked crude prices are heading into negative territory and will eventually create an inflationary oil supply shock because so much production will have been halted, they said.

Brent crude will likely stay near cash costs of $20 a barrel with temporary downward spikes as waterborne varieties are better positioned compared with landlocked oil in the U.S., Canada and Russia that's sitting behind pipelines, Goldman said. Shut-ins will be not be based upon where wells sit on the cost curve but rather on logistics and access, it said.

FXStreet reports that the necessary measures to stop the spreading of the pandemic have a profound impact on the economy causing a recession which is expected to be deep and short, Willian De Vijlder from BNP Paribas briefs.

"INSEE communicated this week that the loss of activity due to one month of confinement, could lower annual GDP by 3%. A confinement of two months would have an impact on annual GDP of 6%."

"The Ifo Institute calculated that in case of a partial standstill for two months 'the costs will range from EUR 255 to 495 billion, depending on the scenario. That means output for the year will shrink by 7.2 to 11.2 percentage points'."

"The lifting of the lockdowns will, mechanistically, trigger a rebound in activity but additional stimulus will probably be needed to maintain the momentum."

According to the report from KOF Economic Research Agency, the reading of the KOF Economic Barometer dropped drastically in March. Accordingly, the Swiss economy can be expected to see a marked decline in growth rates in the near future. This plunge of the Barometer reflects the first economic consequences of the accelerated spread of the Coronavirus.

The KOF Economic Barometer fell by 8.9 points in March, from 101.8 (revised from 100.9) down to 92.9. Economists had expected a drop to 81.6 from 101.8 in February. The Barometer plunged from its long-​term average about as low as after the minimum exchange rate for the Swiss franc was abandoned in January 2015. Its troughs at the time of the economic crisis in 2008/9 were still significantly lower, but a large part of the survey responses underlying the Barometer were received in the first half of March, i.e. before the measures taken by the Federal Council on 16 March severely restricted economic activity in Switzerland.

None of the indicator bundles feeding into in the barometer were able to counteract this slump of the barometer, which has so far been largely driven by the manufacturing sector. The weakest negative impulses are stemming from the export related indicators.

The downturn in sentiment in the goods producing sectors (manufacturing and construction), which is reflected by the barometer, included all branches without exception, the textile and metal industries most of all, and the food industry least of all. It was largely driven by the assessment of orders and production.

Reuters reports that China's central bank unexpectedly cut the rate on reverse repurchase agreements by 20 basis points on Monday, the largest in nearly five years, as authorities stepped up measures to relieve pressure on an economy ravaged by coronavirus pandemic.

The People's Bank of China (PBOC) said on its website that it was lowering the 7-day reverse repo rate to 2.20% from 2.40%.

Ma Jun, a central bank advisor told state media that China still has ample room for monetary policy adjustment and the rate decision took into consideration the return of Chinese companies to work, the global virus situation and a deterioration in the external economic environment. It was the third cut in the 7-day rate since November.

FXStreet reports that in opinion of FX Strategists at UOB Group, EUR/USD is expected to keep the range bound trading within the 1.0840/1.1200 area.

24-hour view: "EUR rose to 1.1146 last Friday before ending the day on a strong note at 1.1140 (+1.02%). The rally appears to be running ahead of itself. While EUR could move above the 1.1150 level and move towards 1.1200, a sustained advance above 1.1200 appears unlikely for today. Support is at 1.1050; a breach of 1.1010 would indicate the current rally has run out of steam."

Next 1-3 weeks: "The breach of our 1.0940 'strong resistance' was not exactly unexpected but the manner by which EUR surged to a high of 1.1058 yesterday came as a surprise. After dropping sharply last week, the rapid upswing from Monday's (23 Mar) low of 1.0635 has resulted in a mixed outlook. Near-term, the bias is tilted to the upside but for now, we view any advance in EUR as part of broad 1.0840/1.1200 range."

"Nothing would be worse than declaring victory before the victory has been won," Trump said at an evening press briefing after suggesting that the coronavirus death rate would likely peak in two weeks.

CNBC reports that public health experts had warned that loosening restrictions by Easter, on April 12, would result in unnecessary death and economic damage.

Trump said the administration is working to keep the projected death toll below 100,000.

Nikkei business daily reports that Group of 20 trade ministers will hold an emergency video conference on Monday to discuss cooperation on supply chains.

They are likely to confirm cooperation to maintain and strengthen supply chains to respond to the impact from the coronavirus outbreak, according to the Nikkei.

• CNBC reports that total number of coronavirus infection cases globally has crossed 700,000, according to data compiled by Johns Hopkins University.

• President Donald Trump on Sunday extended the national social distancing guidelines to April 30 after suggesting that the coronavirus death rate would likely peak in two weeks.

• China's National Health Commission said there were 31 new confirmed cases of the virus reported on the mainland, of which 30 were "imported" cases from abroad.

• Global cases: More than 720,100

• Global deaths: At least 33,925

• Top 5 countries: United States (139,675), Italy (97,689), China (82,122), Spain (80,031) and Germany (62,095)

EUR/USD

Resistance levels (open interest**, contracts)

$1.1256 (2849)

$1.1228 (1312)

$1.1206 (2087)

Price at time of writing this review: $1.1073

Support levels (open interest**, contracts):

$1.1051 (1629)

$1.1016 (1733)

$1.0976 (3742)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date April, 3 is 86816 contracts (according to data from March, 27) with the maximum number of contracts with strike price $1,1000 (4234);

GBP/USD

Resistance levels (open interest**, contracts)

$1.2594 (132)

$1.2554 (87)

$1.2531 (341)

Price at time of writing this review: $1.2384

Support levels (open interest**, contracts):

$1.2306 (354)

$1.2156 (31)

$1.1979 (154)

Comments:

- Overall open interest on the CALL options with the expiration date April, 3 is 18982 contracts, with the maximum number of contracts with strike price $1,3200 (2379);

- Overall open interest on the PUT options with the expiration date April, 3 is 22575 contracts, with the maximum number of contracts with strike price $1,2900 (2837);

- The ratio of PUT/CALL was 1.19 versus 1.20 from the previous trading day according to data from March, 27

* - 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.