ActionForex reports that analysts at TD Bank Financial Group discuss the Commerce Department's second estimate of the U.S. real gross domestic product (GDP) for the first quarter of 2021.

"Real GDP grew 6.4% (annualized) in the first quarter, unchanged from the first estimate."

"Upward revisions to consumer spending and business investment were offset by downward revisions to exports and inventories."

"The core PCE deflator was also revised up 0.2 percentage points to 2.5% (quarter/quarter, annualized), due to upward revisions for used vehicle prices."

"There was not a lot of new news in today’s GDP revisions, but overall the details were pretty positive. Consumer spending and business investment were a little stronger than previously reported, while the impact on the headline was dampened by a larger inventory drawdown and weaker demand from abroad."

"Looking ahead to the second quarter, the more important piece of data this week is the April personal income and spending numbers, which will be released tomorrow. Retail sales were flat in April, but the monthly PCE numbers include spending on services, which we expect to continue to ramp up as more Americans are fully vaccinated and local restrictions are eased. So far, growth in Q2 is tracking more than 10% annualized, driven by another round of double-digit growth for consumer spending. Tomorrow’s data will firm up expectations on that score."

FXStreet notes that gold (XAU/USD) looks to be establishing itself back above its 200-day average at $1843. Strategists at Credit Suisse expect the yellow metal to advance towards the $1959/66 neighborhood.

“Gold now looks to be establishing itself above its 200-day average, now at $1843 and in an ideal world we see a fresh test and hold of this average to reinforce this as a floor for a move to resistance seen next at the high for the year and November 2020 high at $1959/66.” 

“Whilst we would expect a fresh phase of consolidation beneath the $1959/66 region, an eventual break should open the door to a move back to the $2075 record high.”

“A close below $1843 would reinforce a sideways trend but with a move below $1764 needed to warn of a retest of $1682/71.”

The National Association of Realtors (NAR) announced on Thursday its seasonally adjusted pending home sales index (PHSI) plunged 4.4 percent m-o-m to 106.2 in April, after a revised 1.7 percent m-o-m increase in March (originally a 1.9 percent m-o-m gain).

Economists had expected pending home sales to increase 0.8 percent m-o-m in April.

On y-o-y basis, the index surged 51.7 percent after an unrevised 23.3 percent jump in March. This was the biggest gain on record, reflecting a sharp rebound from April 2020, when pandemic-related shutdowns slumped sales to an all-time low.

According to the report, three of the four regional indices recorded m-o-m drops in April, but each index showed double-digit y-o-y growth. The Northeast PHSI tumbled 12.9 percent m-o-m to 85.3 in April, a 96.5 percent jump from a year ago. Pending home sales transactions in the South decreased 6.1 percent m-o-m to an index of 128.9 in April, up 45.3 percent from April 2020. The index in the West fell 2.6 percent m-o-m in April to 92.0, up 57.3 percent from a year prior. Meanwhile, the PHSI for the Midwest rose 3.5 percent m-o-m to 101.1 last month, up 39.4 percent from April 2020.

"Contract signings are approaching pre-pandemic levels after the big surge due to the lack of sufficient supply of affordable homes," noted Lawrence Yun, NAR's chief economist. "The upper-end market is still moving sharply as inventory is more plentiful there."

The U.S. Commerce Department reported on Thursday that the durable goods orders fell 1.3 percent m-o-m in April, following a revised 1.3 percent m-o-m advance in March (originally a 0.5 percent m-o-m gain). This represented the first decline in durable goods orders since April 2020.

Economists had forecast a 0.7 percent m-o-m increase.

According to the report, the April drop was driven by a 6.7 percent m-o-m decline in orders for transportation equipment. Meanwhile, orders for durable goods excluding transportation rose 1.0 percent m-o-m in April, following a revised 3.2 percent m-o-m jump in March (originally a 1.6 percent m-o-m gain), beating economists’ forecast for a 0.8 percent m-o-m advance.

Elsewhere, orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, surged 2.3 percent m-o-m in April after a revised 1.6 percent decline m-o-m in March. Economists had called for a 1.0 percent m-o-m increase in core capital goods orders in April.

Shipments of these core capital goods went up 0.9 percent m-o-m in April after a revised 1.5 percent m-o-m drop in the prior month.

U.S. stock-index futures were mixed on Thursday, as investors digested several upbeat U.S. economic reports and the NY Times’ report that the U.S. President Biden is to propose a $6 trillion budget for FY 2022. 

Global Stocks:

• It includes American Jobs Plan and American Family Plan that Biden already proposed but Congress has not yet passed
• The budget must be approved by Congress

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

Lyft (LYFT) resumed with an Outperform at RBC Capital Mkts; target $70

Uber (UBER) resumed with an Outperform at RBC Capital Mkts; target $65

NVIDIA (NVDA) target raised to $750 from $700 at BofA Securities 

NVIDIA (NVDA) target raised to $705 from $675 at Cowen

Ford Motor (F) upgraded to Outperform from Sector Perform at RBC Capital Mkts; target raised to $17

A report from the Commerce Department showed on Thursday that the U.S. economy expanded as initially estimated in the first quarter of 2021, reflecting the upward revisions to consumer spending and nonresidential fixed investment, which were offset by the downward revisions to exports and private inventory investment; in addition, imports, which are a subtraction in the calculation of GDP, were revised up.

According to the second estimate, the U.S. gross domestic product (GDP) grew at a 6.4 percent annual rate in the first quarter, matching the advance estimate.

Economists had expected the decline rate to be revised to 6.5 percent, following the previous quarter's advance of 4.3 percent.

The increase in real GDP in the first quarter reflected gains in personal consumption expenditures (PCE), nonresidential fixed investment, federal government spending, residential fixed investment, and state and local government spending that, however, were partly offset by declines in private inventory investment and exports. Meanwhile, imports rose.

The data from the Labor Department revealed on Thursday the number of applications for unemployment decreased more than forecast last week, hitting a fresh pandemic-era low.

According to the report, the initial claims for unemployment benefits dropped by 38,000 to 406,000 for the week ended May 22. This was the lowest reading since March 2020, when the COVID-19 pandemic struck.

Economists had expected 425,000 new claims last week.

Claims for the prior week were left unrevised at 444,000.

Meanwhile, the four-week moving average of jobless claims dropped to 458,750 from an unrevised 504,750 in the previous week.

Continuing claims fell to 3,642,000 from a downwardly revised 3,738,000 in the previous week.

USD changed little against its major rivals in the European session on Thursday, as market participants awaited the release of the U.S. data on the core personal consumption expenditures price index (PCE), the Fed’s preferred inflation measure, set for Friday, hoping to receive any cues on the near-term direction of the U.S. monetary policy.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, dropped 0.02% to 90.03.

Hotter-than-anticipated April's U.S. CPI data, which were released earlier this month, raised worries that accelerating inflation might prompt the Federal Reserve to pull back on its stimulus for the U.S. economy. But the Fed's officials have been playing down the risk of rising prices, reiterating the view that any spike in inflation will be temporary. The Fed's governor Randy Quarles, however, acknowledged yesterday that a stronger-than-expected growth of the economy, employment and inflation over the coming months could prompt a discussion on the adjustment of the pace of asset purchases, although he heightened the need for patience in tracking inflation data. 

FXStreet reports that the rally in the S&P 500 has lost some steam lately. Economists at Capital Economics expect the S&P 500 to make only small gains over the next few years. Nonetheless, they think some sectors – such as financials – will continue to do better than the index as a whole.

“We don’t expect the index to resume its rapid gains any time soon. The boost from higher valuations it received last year has, in our view, largely run its course. Indeed, we expect real long-dated Treasury yields will rise over the next two years, which would prove a drag on the valuation of the stock market. And we doubt there is much scope for risk premia to narrow much further to compensate either. As such, we suspect further gains in the S&P 500 will have to come from earnings growth.”

“As the recovery from the pandemic has progressed, expectations for the earnings of the hardest-hit sectors of the stock market – such as financials – have steadily been revised up relative to those that were less affected, such as IT. Despite these cumulative revisions, we suspect there is still room for the gap in expected earnings of these sectors to close further as the economy continues to recover. So we wouldn’t be surprised if the rotation trade continues a bit longer.”

“We forecast the S&P 500 index to reach 4,700 by end-2023, which would represent an annualised gain of ~4%, compared with ~40% over the past twelve months and ~12% over the past decade.”

NVIDIA (NVDA) reported Q1 FY 2021 earnings of $3.66 per share (versus $1.80 per share in Q1 FY 2020), beating analysts’ consensus estimate of $3.28 per share.

The company’s quarterly revenues amounted to $5.660 bln (+83.8% y/y), beating analysts’ consensus estimate of $5.409 bln.

The company also issued upside guidance for Q2 FY2021, projecting revenues of $6.30 bln, +/-2%, equating to revenue of approximately $6.174-$6.426 bln versus analysts’ consensus estimate of $5.48 bln.

NVDA rose to $631.25 (+0.52%) in pre-market trading.

FXStreet reports that the Credit Suisse analyst team notes that NZD/USD completed a clear bullish “pennant” pattern on Wednesday following the break above 0.7272 and the Reserve Bank of New Zealand meeting – which should reassert the core uptrend, with next resistance at 0.7353 and then 0.7465.

“We are now watching for a close above the more important May 10th and early March highs at 0.7306, as this should reinforce the new bullish pattern and reassert the broader uptrend, with the next resistance seen at the 78.6% retracement of the Q1 fall at 0.7353, where we would expect another temporary pause.”

“The ‘measured objective’ to the new bullish pattern suggests a move towards the 0.7465 high.” 

“With a major base in place from last year, our longer-term bias stays higher, with our medium-term objective remaining at 0.7555/59, which is the 2017 high and the 61.8% retracement of the downmove from 2014.”

• An early rate hike is possible if there is smooth transition from furlough
• However, tightening policy too early would be a much costlier mistake than tightening too late
• Once furlough scheme ends, we will have better idea of economic slack
• It will not take years for interest rates increases to start having an effect
• It will be a communication challenge to keep reminding people that upcoming inflation is likely temporary in nature
• Bond markets almost entirely reflect improved economic outlook rather than ominous signs
• Medium-term outlook consistent with US/UK inflation targets
• No signs of increases in perceived tail risks of higher inflation

USD/JPY sticks to the rangebound trade - UOB

FXStreet reports that FX Strategists at UOB Group suggest that USD/JPY is still seen navigating the 108.50-109.55 range in the next weeks.

24-hour view: “USD soared to 109.17 yesterday before closing on a firm note at 109.14 (+0.35%). Robust upward momentum suggests that further USD strength is likely. That said, any advance is not expected to threaten the major resistance at 109.55.”

Next 1-3 weeks: “We have expected USD to trade within a 108.50/109.55 range since last week. USD has not moved out of the expected range since then. There is no change in our view even though shorter-term upward momentum is beginning to improve. That said, at this stage, it appears too early to expect the start of sustained directional move.”

FXStreet reports that USD/CHF pushed higher on Wednesday, but remains capped below first resistance at 0.8998/9003, as well as more important resistance at 0.9049/77. Analysts at Credit Suisse are still biased directly lower for a move to 0.8910 next.

“We maintain our downside bias following the recent break below the 200-day average, which suggested the medium term downtrend was resuming. With this in mind, we look for a renewed turn back lower, with next support seen at .8922/10, which is the 78.6% retracement of the Q1 recovery, before .8871/62, which is an important price low.” 

“Near-term resistance is seen at 0.9049/53. As above, the 200-day average at 0.9077 should ideally continue to cap. Above would instead complete a base to turn the risks higher.”

FXStreet reports that in the opinion of FX Strategists at UOB Group USD/CNH could move into a consolidative phase in the near term ahead of potential pullbacks.

24-hour view: “USD plunged to 6.3768 yesterday before rebounding. The sharp and rapid drop appears to be overdone and USD is unlikely to weaken much further. For today, USD is more likely to consolidate, expected to be within a 6.3740/6.3960 range.”

Next 1-3 weeks: “USD subsequently cracked 6.4015 and while it not did close below 6.4015, it plunged to 6.3768 yesterday (26 May). Strong downward momentum suggests that USD could weaken further to 6.3550. That said, shorter-term conditions are deeply oversold and this could lead to a couple of days of consolidation first. Overall, the risk for USD remains on the downside unless it can move above 6.4150 (‘strong resistance’ level previously at 6.4300).”

According to the report from Istat, in May 2021, the consumer confidence index increased from 102.3 to 110.6 thanks to a rise in all its components, but mostly in the future climate and the economic one. In more details, the future climate surged from 109.6 to 122.5, the economic one progressed from 91.6 to 116.2, the personal one grew from 105.9 to 108.7 and, finally, the current one rose from 97.4 to 102.6.

With reference to the business confidence climate, the index (IESI, Istat Economic Sentiment Indicator) made progress from 97.9 to 106.7.

The confidence index in manufacturing rose from 106.0 to 110.2. The confidence index in construction went up from 148.5 to 153.9. The market services confidence index got on from 87.6 to 98.4. The retail trade confidence index confirmed the last month positive trend passing from 96.0 to 99.3.

eFXdata reports that Nomura Research notes that speculators look ready to take risks again.

"As the curtain falls on this month’s “sell in May” impetus, we are seeing early signs of a resumption of risk-taking. It has been a bumpy May, with investors at times taking a disliking to such developments as the spike in inflation signals, the market turbulence in Taiwan, and the cryptocurrency sell-off. However, the S&P seems to have quickly recovered from what turned out to be a shallow dip. To all appearances, there is still quite a bit of dip-buying demand among investors looking ahead to an expected resumption of economic activity," Nomura adds. 

FXStreet reports that economists at Westpac discuss US Dollar Index prospects.

“A breakdown in DXY to fresh 2021 appears to be just a matter of time, even as short-term sentiment and positioning metrics suggest the DXY’s slow bleed lower is looking very mature. Vice Chair Clarida and Governor Quarles backed the FOMC minutes’ signal that they will begin a tapering discussion at upcoming meetings if the recovery unfolds as expected. That will throw a lifeline for the DXY, but with substantial progress on the economy unlikely to be achieved until late 2021, sustained taper-driven DXY upside is likely to prove fleeting. Until then, the Fed’s resolutely dovish stance and excess liquidity conditions at the front-end will leave the front-end well contained.”

CNBC reports that the global surge in commodity prices is adding another burden to China’s small businesses. In a sign of how severe the problem is, Chinese Premier Li Keqiang and other leaders emphasized they would increase support for privately run businesses — first, in the persistent issue of getting financing, and second, for coping with rising prices of raw materials.

The statement marked the latest central government announcement in the last few weeks on record high commodity prices, as authorities rush to limit the negative impact on the economy.

If businesses selling to consumers keep prices steady in order to remain competitive, the rise in commodity prices will cut into profit margins.

Already, on Thursday, China’s statistics bureau said industrial profit growth slowed to a 57% year-on-year increase in April, down from 92.3% in March. Although these figures are distorted by the contraction of the economy in the first quarter last year, the bureau noted the negative impact of rising commodity prices, among other factors.

Bloomberg reports that according to the Federation of the Swiss Watch Industry, swiss watch exports are returning to pre-pandemic levels after their biggest annual slump since the financial crisis, boosted by demand in China and the U.S.

Shipments rose 2% to 1.8 billion francs ($2 billion) in April compared with the same month in 2019. Exports started to recover in March.

Swiss watch exports fell 22% in 2020 as tourism ground to a halt and lockdowns shuttered stores. The next two months will be decisive in confirming the trend of recovery, the federation said in a statement. So far, the cumulative start to 2021 is identical to the performance two years ago, it added.

Reuters reports that Britain said that any global deal on a minimum corporate tax rate must ensure that large tech companies pay their fair share of tax.

The United States proposed last week that multinational companies' profits should be taxed at a minimum rate of 15%, less than an initial proposal of 21%, drawing public support from Germany and France.

But Britain, which is chairing meetings of the Group of Seven rich nations this year, has been more cautious. Finance minister Rishi Sunak is keen that large tech giants with overseas headquarters pay more tax in the United Kingdom.

"Our consistent position has been that it matters where tax is paid and any agreement must ensure digital businesses pay tax in the UK that reflects their economic activities. We welcome the U.S.'s renewed commitment to tackling the issue and agree that minimum taxes might help to ensure businesses pay tax - as long as they are part of that package approach," the British official added.

French finance minister Bruno Le Maire called on Thursday for countries to reach an agreement on a minimum tax rate next week, when Sunak will host an in-person meeting of finance ministers in London from June 4-5.

FXStreet reports that economists at MUFG Bank discuss EUR/USD prospects.

“ECB Executive Board member Fabio Panetta reinforced the dovish shift in rhetoric yesterday when he stated that ‘only a sustained increase in inflationary pressures, reflected in an upward trend in underlying inflation and bringing inflation and inflation expectations in line with our aim, could justify a reduction in our purchases… But this was is not what we projected in March. We no longer expect the ECB to explicitly commit to a slower pace of QE purchases at the June meeting despite the improving growth outlook and still loose financial conditions in the euro-zone.”

“Recent comments from Fed officials have signalled that they are moving closer to talking about tapering QE potentially as soon as at their upcoming policy meetings.” 

“The recent dovish shift in ECB policy rhetoric and contrasting hawkish shift in Fed rhetoric is a bearish development for the euro. So far it is helping dampen EUR/USD’s upward momentum at just above the 1.2200-level, but remains to be seen whether it will be sufficient to trigger a correction lower in the coming months.” 

According to the report from the Society of Motor Manufacturers and Traders (SMMT), UK car production rose significantly, but artificially, in April. Britain made 68,306 cars compared to just 197 a year ago when Covid restrictions effectively halted manufacturing. The performance was -3.8% below the April 2019 output. So far this year UK factories have turned out 374,864 cars, with April’s performance offsetting earlier declines to drive a 17.3% overall increase, but -15.0% down on the same four-month period in 2019.

When compared with a five-year average, production was down -42.9% for the month and -31.1% for the period January – April, reflecting the scale of the challenge facing the industry as it seeks to recover from the pandemic.

The April figures also reveal UK automotive manufacturing’s increasing shift towards electrified vehicles. In the month, 22.8% of all UK car manufacturing was for battery electric, plug-in hybrid and hybrid cars, while in the year-to-date alternatively fuelled model production is up 33.1% on the same period in 2019, demonstrating the UK industry’s commitment to meeting demand for these ultra-low and zero emission vehicles. 

Compared with 2020, since January, production for the UK market has declined -3.1% while car exports have risen 22.5% with more than eight in every ten (83.3%) cars made shipped overseas. So far this year the European Union remains by far the most important destination for British cars, taking 52.1% of all exports, followed by the US (17.4%) and China (7.4%).

During today's Asian trading, the US dollar was trading steadily against the major currencies, following yesterday's rally.

The ICE index, which tracks the dollar's performance against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), rose 0.03%.

Investors today expect the publication of revised data on the change in US GDP in the 1st quarter of 2021. As part of the GDP report, the dynamics of the PCE Core index, a key indicator of inflation tracked by the Federal Reserve System (Fed), is traditionally published. The consensus forecast of experts provides for the growth of the PCE Core index in the first quarter by 2.3%. In the fourth quarter of last year, the index increased by 1.3%.

The Vice Chairman of the Federal Reserve System (Fed), Randal Quarles, said yesterday that the regulator will need to start discussing changes in the pace of asset repurchases at the next meetings if the US economy continues to recover confidently. Quarles expects US inflation to temporarily exceed the 2% target as the economy recovers and unemployment declines.

FXStreet reports that economists at Rabobank said that RBNZ Governor Orr could attempt to push against the perceived hawkishness of the RBNZ if the value of the NZD continues to appreciate.

“The RBNZ has made clear that any rate hike will be ‘conditional on the economic outlook’. Additionally, Governor Orr signalled a willingness to remain vague by commenting that ‘who knows where we will be by then’, in reference to Q3 2022.” 

“Clearly the direction of the pandemic and of the vaccine programme will be instrumental in dictating the outlook for the economy into next year and beyond, but it is likely that the RBNZ will also have one eye on the exchange rate. The RBNZ has previously been successful at knocking the value of NZD lower by announcing pre-emptive or larger than expected rate cuts. This suggests a strong focus on the NZD.” 

“In light of the hawkish outlook on rates by the RBNZ we have raised our 3-month forecast for NZD/USD very moderately from 0.72 to 0.73.”

CNBC reports that China’s Ministry of Commerce said that the leaders of trade talks between the U.S. and China held their first call Thursday under U.S. President Joe Biden’s administration.

U.S. Trade Representative Katherine Tai and Chinese Vice Premier Liu He had a “candid, pragmatic and constructive” conversation, the ministry said.

The statement did not share any details on developments for trade, or whether tariffs applied under the Trump administration would be rolled back.

However, the ministry said both sides agreed to further communication and characterized the call as one bearing an attitude of “mutual respect.” Beijing often uses the phrase when calling for more favorable communication with the U.S.

In a separate statement, the USTR’s office said Tai discussed the administration’s “worker-centered trade policy and her ongoing review of the U.S.-China trade relationship, while also raising issues of concern.”

EUR/USD

Resistance levels (open interest**, contracts)

$1.2272 (1755)

$1.2242 (3553)

$1.2221 (2019)

Price at time of writing this review: $1.2187

Support levels (open interest**, contracts):

$1.2155 (1408)

$1.2126 (877)

$1.2088 (1534)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date June, 4 is 68502 contracts (according to data from May, 26) with the maximum number of contracts with strike price $1,2100 (3614);

GBP/USD

$1.4171 (1861)

$1.4154 (1023)

$1.4142 (1088)

Price at time of writing this review: $1.4105

Support levels (open interest**, contracts):

$1.4054 (538)

$1.4021 (313)

$1.3983 (295)

Comments:

- Overall open interest on the CALL options with the expiration date June, 4 is 21188 contracts, with the maximum number of contracts with strike price $1,4350 (2949);

- Overall open interest on the PUT options with the expiration date June, 4 is 33045 contracts, with the maximum number of contracts with strike price $1,3100 (3957);

- The ratio of PUT/CALL was 1.56 versus 1.53 from the previous trading day according to data from May, 26

* - 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.

According to the GfK Consumer Climate Study Germany for May 2021, German consumer sentiment was rather bright than muted during the month of May. Economic and income expectations are on the rise. By contrast, the propensity to buy suffered moderate losses after three consecutive increases. As a result, GfK is forecasting a value of -7.0 points in consumer confidence for June 2021, up 1.6 points from May this year (revised from -8.6 points). Economists had expected an increase to -5.2.

The good news is that German consumer confidence about the economy appears to be returning. The economic expectations indicator rises significantly in May. After rising by almost 34 points, it jumped to 41.1 points, its highest level in more than three years. The measurement in March 2018 was 42.8 points.

In the wake of a sharp rise in the economic outlook, income expectations also increased in May. After an increase of 10.2 points, the indicator climbs to 19.5 points. This compensates for a substantial part of the previous month's losses (-13 points). This actually represents an increase of currently more than 25 points compared to the same period of the previous year.

In contrast to income expectations, the propensity to buy is apparently unable to benefit from the sharp rise in economic optimism. After three consecutive increases, the propensity to buy suffered moderate losses, with the indicator dropping 7.3 points to a current value of 10 points. This is still 4.5 points higher than the corresponding figure for the previous year.

Despite the openings and relaxations that have been made or announced to date, a number of consumption options, especially in service sectors, are still not possible or only possible to a very limited extent. This is likely to slow down a noticeable recovery in propensity to buy at present.