Forex research

Weekly market preview – 2 September 2013

A hugely significant week ahead for the markets as the possibility of Syrian conflict and Fed tapering are likely to dominate global affairs. When we also factor in several monetary policy decisions and PMI figures, there is a potential for one of the volatile weeks in recent months. The main event for the UK economy comes on Wednesday, with the services PMI figure, while the monetary policy decision is likely to take somewhat of a backseat following the promise of relative stability from Mark Carney. Friday dominates the headlines for the US economy, with the release of critical jobs data, providing the final core readings prior to the September asset purchase tapering decision. Meanwhile in the eurozone, the main event of the week is likely to be Thursday’s ECB press conference that accompanies the interest rate decision, where Mario Draghi yet again takes to the stage which has typically led to an attempt to talk down the value of the single currency.

In Asia, an unusually busy week sees the Chinese release the headline manufacturing PMI figure over the weekend, preceding the final HSBC figure on Monday. Whereas in Japan, the BoJ monetary policy decision on Thursday brings the innate weaknesses of the economy back into the light. Finally, the Australian economy has a particularly eventful week, where the RBA monetary policy decision (Tuesday) and GDP figure (Wednesday) round off a highly notable week.


US

For all the talk of potential tapering, we are fast approaching the first possible meeting that this could occur. Markets have been repositioning somewhat in anticipation and thus there are questions as to whether some form of tapering has already been factored into the markets. The primary factor driving the Fed’s decision-making process is job market strength and thus the release of key employment data throughout the week increase the likeliness of volatility despite a four day week owing to the Labour day bank holiday on Monday.

The August ADP non-farm employment change figure on Thursday is the first of four releases, where market expectation is for a reduced figure of around 187k after the July figure broke the 200k barrier for the first time in seven months. This figure is generally seen as a secondary indicator, where Friday’s headline NFP figure dominates. However, given the comments regarding a potential lack of data for tapering from some Fed members, this will be scrutinised more than ever. Therefore watch out for any rise above expectations to likely be dollar positive or negative should it dissapoint.

This is closely followed by the weekly unemployment claims figure, also on Thursday. Owing to the regularity of this figure, the markets largely see the claims data as somewhat insignificant in ‘normal’ climates. However, given the proximity to potential tapering, along with a perceived lack of data, this figure has become increasingly important over recent months. Expectation is for a marginal drop from 331k to 330k, which would further clarify a continuing downward trajectory in this measure, strengthening the taper argument.

Friday will no doubt dominate the week in terms of volatility and importance, given the release of both the non-farm payroll and the headline unemployment rates. The non-farm payroll figure is generally seen as the leading indicator of current employment conditions and thus irrespective of any tapering talk, this release will typically bring about high volatility and speculation. However, with a potential taper on the line at the 17-18 September FOMC meeting, this will be one of the most hotly anticipated releases yet. Bear in mind that expectation is for a rise to 175k from 162k, where any beat of this would likely bring about increased likeliness of reduced asset purchases later in the month.

The final employment release is the unemployment rate, which is largely expected to remain at 7.4%. This headline figure is key owing to the fact that abolition of US quantitative easing was originally linked with a target of 7% unemployment. Thus the ability of this measure to fall is crucial for Fed members to consider the environment conducive to both tapering and an absolute halt of asset purchases.

Apart from the jobs data, it is clear that US involvement in the Syrian crisis has the ability to shock the markets, with recent rises in crude and gold weighing against losses in the stock indices. The UN inspectors are expected to leave the country on Saturday, leaving it open to potential intervention from the US and allies. US Secretary of State John Kerry has indicated that irrespective of the UN findings, it is clear that there has been chemical attacks within the country, paving the way for potential military action. Should this occur, we will be watching for any retaliation from Syria or its allies to judge whether this conflict could be somewhat more of a long term issue. One such potential attack could come from the Syrian Electronic Army, where targets such as financial institutions could be at risk from cyber attacks.

Other key events to look out for are the ISM manufacturing PMI (Tuesday), ISM non-manufacturing PMI (Thursday) and the trade balance (Wednesday) readings. However, for this week it is likely that on the whole markets will be focusing predominantly upon the jobs data.

UK

A similarly notable week for the UK economy, with the three core PMI figures (manufacturing, construction & services) dominating the first half of the week. This is followed by the MPC monetary policy decision on Thursday, which is largely expected to remain as is.

The first release of the week comes in the form of the manufacturing PMI figure on Monday morning, which is expected to continue the positive trend seen over the past five months. Market forecasts point towards a rise to 55.2 from the July figure of 54.6, which would be the highest figure in over two years. Overall the manufacturing sector is not as substantial as some of the more industrially focused economies, however this will certainly watched closely.

The same goes for the construction PMI figure, due out on Tuesday. The importance of the housing market is undoubtable, with recent indicators pointing to a clear boom in existence. Subsequently, the outlook remains positive, with a high likeliness of a strong figure after five consecutive months of upward movement in this figure. Expectation is for a rise to 58.4 from 57.0 and given the recent perceived strength within the housing sector, there is certainly a strong possibility of another beat in this survey.

The third and most important PMI is the services PMI figure due out on Wednesday. The overreliance of the UK upon services led growth is widely known, and thus the ability of this survey to perform well is absolutely crucial for the overall health of the economy going forward. Market expectation is for the first reduction in over eight months, with predictions estimating that a figure around 59.8 would be likely off the back of the 60.2 figure seen last month. However, it is worth bearing in mind that the PMI figure has outperformed expectations on the last seven occasions and thus there is the potential for a positive surprise should it do so again.

The final event of note for the week comes on Thursday when the MPC release their latest monetary policy decisions at midday. The recent strength of the UK economy, coupled with an emphasis upon stability from Mark Carney points to very few surprises in this meeting. Subsequently whilst this has typically been seen as a major event, it seems to be diminishing in importance given the forward guidance from the BoE and a seemingly stable pathway to higher growth currently within the region. Interest rates are expected to remain at 0.5% and asset purchases at GBP375 billion.

Eurozone

A particularly strong period for the eurozone has seen the likes of PMI and GDP readings moving back into positive territory, bringing a more optimistic tone from many in the markets. In a largely quiet week for the region, the focus will shift towards some of the peripheral countries, followed by the monetary policy decision from the ECB on Thursday.

The first half of the week brings Spain and Italy into focus with the release of manufacturing (Monday) and services (Wednesday) PMI figures. One criticism of the apparent strength of the eurozone has largely been that there seems to be a two tiered system, where the emphasis is upon the likes of France and Germany, and less upon weaker nations such as Spain, Italy and Portugal. Thus a strong move into expansion for some of these figures would be highly notable in the path to stability for the region. Only the Italian manufacturing PMI is currently above the key 50 mark and thus markets will be hoping to see as many as possible of the remaining three move above 50 and into expansion.

On Thursday the ECB will announce the latest interest rate decision, with almost certainty that there will be no change from the current 0.5% level. For all the talk of potential negative interest rates and alike, there is little appetite to make any tangible changes at the moment, especially just as the indicators are pointing towards a better than expected period. Mario Draghi has done a good job of talking the euro down throughout 2013 and this meeting will most likely only provide another opportunity to do so yet again. That being said, the markets are somewhat used to the dovish rhetoric Draghi tries to tout as a means to push the single currency lower and thus I do not see too much volatility off the back of this event.

Asia & Oceania

A particularly busy week for the Asian region, where China kicks off affairs over the weekend with the provision of the official manufacturing PMI figure on Sunday. Much has been made of the differential between the official and HSBC measures in recent months, where HSBC has portrayed a much more bleak picture of the key sector. However, this is largely associated with the overemphasis upon small and medium sized enterprises (SMEs) in the HSBC figure. Given recent positive tones from the region, I expect to see a further recovery in this figure. Market expectation is for a rise from 50.3 to 50.6, which would be the highest survey reading in over three months.

Later in the week, the Japanese economy comes into focus, with the release of the monetary policy statement from the BoJ on Thursday. The Japanese economy is likely to become increasingly central in the coming months, as an increasingly worrying picture in relation to debt is likely to force through some fairly drastic measures. The initial measure which is likely to be taken to stave off such debt will be the much discussed sales tax. However, this is likely to have little impact to the overall debt scenario and thus monetary policy is likely to be used as a means to address the issue. It is unlikely that any changes will be made at this meeting, however it is worth noting any reference to supply side measures such as the sales tax to understand whether there is a tangible desire to address the ongoing issue of debt.

Finally, in Australia we are keenly awaiting the release of their latest interest rate decision and GDP figure in what is a highly significant week for the island nation. The monetary policy decision from the RBA is first to grab the headlines when Glenn Stevens takes to the stage on Tuesday. There is significant appetite for devaluation in the Australian dollar and this has typically been the forum for such efforts. Given we saw a reduction from 2.75% to 2.5% at the last meeting I do not expect to see a further reduction this month. However, the statement has the potential to make an impact should the dovish stance be reiterated as I see likely.

The following day sees the release of the Q3 GDP figure, which markets expect to bring a maintained level of 0.6%. The downturn in the economy associated with the Chinese slowdown and depressed commodities prices has been dragging growth lower and thus this will be key in understanding how the RBA will act going forward in terms of further monetary policy. Given the recent downward pressure on the economy I would be more inclined to say that a miss would be negative rather than positive.
 
Daily Market Update - 2 September 2013 - Alpari UK

0:09 Delay in potential Syrian conflict buoys markets
1:00 US labour day expected to reduce volumes
1:17 China manufacturing PMI continues strong trend
2:03 UK manufacturing PMI spikes higher ahead of the construction & services figures
2:29 Spanish & Italian PMIs rise, boosting Eurozone recovery outlook

Daily Market Update - 2 September 2013 - Alpari UK - YouTube
 
UK Opening Call from Alpari UK on 3 September 2013

Investors remain cautious ahead of key jobs report

Today’s UK opening call provides an update on:

• Investors on the sidelines ahead of central bank meetings and US jobs report;
• Caution ahead of Congressional vote next week;
• RBA opts to keep interest rates on hold at 2.5%;
• UK construction PMI and Spanish jobless claims released this morning.

European indices are lacking any real direction ahead of the open on Tuesday. With a number of key central bank meetings to come over the next couple of days, as well as a huge US jobs report on Friday, investors are understandably cautious as we head towards the end of the week.

The US jobs report on Friday is the big one, with it coming less than two weeks before the September FOMC meeting, when many expect the Fed to scale back its $85 billion per month of asset purchases. While the Fed isn’t going to draw a conclusion on the state of the economy on that one release, it is the most current data available and could therefore prove decisive, given that the Fed until this point has been split on which move to start tapering.

What will probably prove more influential than the jobs report when it comes to the FOMC vote is conflict in Syria. Further escalation involving the US is sure to have a negative impact on the economy and may force the Fed to prolong its support longer than it had previously intended to. A major concern is oil prices, which despite retreating in recent days, have soared recently. It’s believed that a $10 rise in the price of oil can wipe 0.5% off of GDP in the West, which could have a significant impact at a time when we’re seeing such a fragile recovery. The impact on consumer spending, with disposable incomes being squeezed, not to mention businesses, could be very harmful to the economies of the West.

We’re likely to see an element of caution in the markets throughout the course of the week, ahead of a massive Congressional vote on Syria when lawmakers return on Monday from their summer break. US President, Barack Obama, clearly feels there is sufficient evidence to support a limited military strike in Syria, however he has decided to seek the approval of Congress before any response is carried out.

China and Russia remain firmly against any military action against the Assad regime, which is making life very difficult for the West, who would rather do things properly through the UN than take exceptional measures. That said, it is unlikely to stop the US launching a military attack of some kind, even if Obama is unsuccessful in gathering enough support on Monday. The potential for a military response is likely to leave investors on edge later this week, especially as we head into what could be a hugely decisive weekend. It is worth noting though that in the past, only the uncertainty surrounding military actions has weighed on markets, rather than the strike itself. Therefore it we do we a strike in the early part of next week, stocks could stage a recovery.

The Reserve Bank of Australia kept interest rates on hold as 2.5% over night, which came as no surprise to the markets. The comments that followed appeared to leave the door open to a further rate cut later this year though, with Governor, Glenn Stevens, warning that economic growth would be slightly below trend, while pointing out that the Aussie dollar remains at a high level despite falling 15% since April.

The economic calendar is looking a little light today, ahead of what is going to be a very busy end to the week. This morning, we have the release of the UK construction PMI which is expected to fall slightly to 56.9, from 57 previously. Also being released is the Spanish jobless claims figure for August, which is expected to fall by 5,200, marking a sixth consecutive decline, a clear sign that the jobs market is finally turning around.

Over in the US, the markets will reopen following the bank holiday on Monday. In terms of data, it’s looking a little quiet again, with the two pieces of manufacturing data the only noteworthy releases. The official manufacturing PMI is expected to rise to 54 for August, while the ISM manufacturing PMI is expected to fall slightly to 54.5.

Ahead of the open we expect to see the FTSE up 17 points, the CAC up 2 point and the DAX up 29 points.
 
US Opening Call from Alpari UK on 3 September 2013

Investors on red alert following missile tests

Today’s US opening call provides an update on:

* Markets jittery on ballistic missiles reports;
* Investors remain on red alert following tests;
* UK construction PMI close to six year high;
* US manufacturing PMIs in focus next.

European indices are trading lower on Tuesday, following reports that two ballistic missiles had been seen headed towards the East Mediterranean.

Indices were trading higher in the lead up to the reports, as were US futures, but this changed rapidly with traders becoming instantly risk averse on fears that the US had initiated a military strike without Congressional approval. This turned out not to be the case though, with reports later confirming that the launch was a test and the missiles landed in the water.

Markets struggled to recover following these reports, with European indices remaining in the red across the board and US futures pointing to a similar open. While this was only a test, the message was loud and clear; the US is prepared for a military attack on Syria and it’s only a matter of time until it happens.

While the markets may recover as the day goes on, traders will remain on red alert for any further noises out of the middle east. For now, caution is key for traders but it’s only a matter of time until risk aversion takes over.

Brent crude spiked following the news, hitting $115.74 before settling back below $115, while Gold benefitted from its safe haven status, coming close to $1,400 before settling around $1,395.

The FTSE and sterling had earlier benefitted from the release of the UK construction PMI which rose to 59.1 in August, the highest level since September 2007. Construction has been a real weak point for the UK economy in recent years, but the growth in the sector in the second quarter combined with the improvements in the PMIs suggests things are only going to get better.

While focus will now remain on Syria today, there is a couple of key economic releases out which should be followed closely. The two manufacturing PMIs for the US are expected to remain comfortably in growth territory, with the official PMI rising to 54 and the ISM, falling slightly, also to 54.

Ahead of the open we expect to see the S&P down 2 points, the Dow down 17 points and the NASDAQ down 15 points.
 
Daily Market Update - 3 September 2013 - Alpari UK

Chief Market Analyst James Hughes discusses the major stories moving the financial markets, including the nervous anticipation surround Syria and the possible G20 comment surrounding the crisis. He also looks ahead to a very busy week on the economic calendar with PMI's, rate decisions and the US jobs report.

Daily Market Update - 3 September 2013 - Alpari UK - YouTube
 
UK Opening Call from Alpari UK on 4 September 2013

Europe higher ahead of PMIs, retail sales and GDP figures

Today’s UK opening call provides an update on:

• Europe higher, but traders cautious as the end of the week approaches;
• European services PMIs, eurozone GDP and retail sales in focus this morning;
• Beige Book and Dudley speech followed closely later.

European indices are expected to open slightly higher on Wednesday, although investors remain very cautious as we approach the end of the week.

There are two main reasons for this cautious approach in the markets. Firstly, a military response to the use of chemical weapons in Syria looks increasingly likely after House Speaker, John Bohner, and House of Representatives majority leader, Eric Cantor, both gave their backing to Obama’s calls for a limited strike against the Assad regime. Congress will now vote on the matter when it returns on Monday, and if they vote in favour, as now seems likely, the strikes will probably come shortly after.

The second reason for this caution is that we have three central bank meetings tomorrow (Bank of Japan, Bank of England and European Central Bank) followed by the US jobs report on Friday. While the central bank meetings are undoubtedly important, it’s the jobs report that traders are most uneasy about, as it comes less than two weeks before the September FOMC meeting and could have a significant bearing on whether or not the Fed reduces its asset purchases.

As we’ve seen since May, the timing of the Fed’s taper has a significant impact on the financial markets. As it stands, the markets have priced in tapering in September, but that could change quickly if we see a spike in the unemployment rate and/or a significant drop in the number of jobs added in August. This, combined with an escalation in the Syrian conflict, would make it very difficult for the Fed to start withdrawing its support for the economy.

Despite the caution early on, there is a lot of economic data out on Wednesday which should have an impact on the markets. First up we have the European services PMIs for August, the majority of which are expected to be revised higher following the preliminary release last month.

This will be followed by the release of the eurozone retail sales figure for July, which is expected to show a 0.4% month on month improvement, and the revised second quarter GDP figure. The first release of this last month showed the eurozone grew by 0.3% in the second quarter, faster than had been expected, pulling the eurozone out of recession much quicker than most people thought would happen earlier this year. If we can avoid a downward revision today, it would be very positive for the eurozone going forward, although I still believe the region will stagnate over the next couple of years as countries continue to push through the unpopular reforms and trim their budget deficits.

After this it’s over to the US, where there’s actually very little data due out. Two things to keep an eye on though will be the release of the Beige Book tonight, which should provide insight into how the Fed views the performance of the economy ahead of the meeting in two weeks, and the speech from William Dudley. These speeches have the potential to cause big swings in the markets, in the lead up to the September meeting, with traders looking to get ahead of the game and successfully predict whether or not the Fed will taper, and if so, by how much.

Ahead of the open we expect to see the FTSE up 20 points, the CAC up 13 point and the DAX up 23 points.
 
US Opening Call from Alpari UK on 4 September 2013

Beige Book and Dudley comments in focus

Today’s US opening call provides an update on:

* Europe lower on Bohner support for military action;
* Markets historically rally following limited military strikes;
* Gold and oil retreat following yesterday’s rally;
* Beige Book and Dudley comments followed on Wednesday.

European indices are in the red across the board this morning, while US futures are trading water following comments yesterday from two Republican leaders that they will vote in support of military action against Syria next week.

Much of the reaction in the US indices came when the comments were made yesterday, which is why we’re not seeing as much negativity in the futures market. The comments from House Speaker, John Bohner, and House of Representatives majority leader, Eric Cantor, gave a major boost to President Barack Obama’s hopes of getting Congressional approval for a military strike.

Interestingly, a look a previous limited military strikes by the US have shown that markets react negatively in the lead up to the strikes, but rally once the first rockets are launched. While this may not make sense at first, it’s simply another case of the markets hating uncertainty, which builds in the lead up to any strikes. Once it becomes clear that the situation is not going to escalate as previously feared, the markets rally.

With only a few trading days to go until Congress votes, that would explain why the S&P 500, despite trading near a major support level, around 1,625, is not breaking lower. An ascending trend line dating back to November last year is continuing to provide support for the index, which should fall back towards 1,560 if the support level is broken.

In the commodities markets, gold and oil are both retreating on Wednesday, after both made significant gains the day before on Bohner’s comments. Both are very sensitive to the situation in Syria, oil obviously due to the potential disruption in the middle east oil supply and gold because of its safe haven aspect.

I expect both to rally further as we head into the weekend, with a military strike looking more and more likely and investors seeking safer assets ahead of Monday’s vote in Congress. One thing we’ve learned from the eurozone crisis is that anything can erupt over the weekend.

Today is looking a little quieter during the US session, with no significant economic data being released. The Beige Book will be of interest ahead of the jobs report on Friday and FOMC meeting in two weeks, although it’s only expected to confirm that the economy is recovering at a moderate pace, without shedding any light on what this means for tapering.

Later on we’ll hear from voting FOMC member, William Dudley, who’s comments will be picked apart for tapering clues. These comments certainly have the potential to move the markets, as we have seen on numerous occasions in recent months.

Ahead of the open we expect to see the S&P up 1 point, the Dow down 2 points and the NASDAQ up 1 point.
 
Daily Market Update - 4 September 2013 - Alpari UK

0:10 Mixed markets as Syria and tapering worries persist
1:00 Australian GDP beats expectations, bringing a sunnier outlook
2:03 UK services PMI reaches 7 year high
3:02 China services PMI beats expectations
3:50 Eurozone strength continues amid strong services and composite PMI readings

Daily Market Update - 4 September 2013 - Alpari UK - YouTube
 
UK Opening Call from Alpari UK on 5 September 2013

Expectations low ahead of central bank meetings

Today’s UK opening call provides an update on:

• Fed’s Beige Book points to modest to moderate improvement in US economy;
• BoJ leaves monetary policy unchanged over night;
• Expectations low ahead of BoE decision;
• Investors seek more clarity on guidance, rates and minutes from ECB.

European indices are expected to open higher on Thursday, following largely positive sessions over night in both the US and Asia.

The Fed’s Beige Book, release shortly before the closing bell in the US, provided a boost to the markets ahead of the jobs report on Friday. Aside from reiterating what Bernanke said a couple of months ago, that the economy improved at a modest to moderate pact, it also highlighted an improvement in the services sector, which is hugely important to the US economy, a boost in consumer spending and no evidence that higher mortgage rates were having a negative impact on the housing market.

Clearly this is encouraging for the US economy, but it’s hardly the substantial improvement that the Fed was initially targeting when it announced the quantitative easing program last year. One of the major concerns is consumer spending, at a time when oil prices have risen significantly and could rise further if the conflict in Syria escalates, which would be a significant squeeze of disposable incomes. This combined with higher mortgage rates could quite easily choke off whatever recovery we’re currently seeing and the Fed is going to be very aware of this.

It’s been a relatively quiet start to the week so far, which isn’t that unusual in the first week of the month when we have so many central bank meetings on the Thursday and the US jobs report on the Friday. Major events like these can encourage traders to act with a little more caution, and this is especially true in the lead up to one of the most important jobs reports in a long time, with it coming less than two weeks before the September FOMC meeting, when many are expecting the first round of tapering. Also adding to this is the wait for an inevitable military strike in Syria, from either the US or a Western coalition, in response to Assad’s suspected use of chemical weapons, which will now probably come in the early part of next week.

The central bank meetings today are the first major events of the week on the economic calendar, and to be honest, the first has been a bit of a non-event, although this was expected. The Bank of Japan unanimously voted for no change in monetary policy over night, which comes as no surprise given the size of the bond buying program already in place and the fact that, so far, “Abenomics” appears to be working, with small amounts of growth and inflation being seen. This may change once the government brings in the sales tax hike, which many believe could choke off the recovery, discourage consumers and wipe out any inflation that we are seeing. That would require further stimulus from the BoJ, but that is months away.

Next up we have the decision from the Bank of England at midday, although like the BoJ, this is likely to be another non-event. That is, unless we get an accompanying statement, as we got following Mark Carney’s first meeting as Governor a couple of months ago. No change in monetary policy is expected from the BoE today, although any statement could attempt to clarify the banks position on forward guidance, given that so far, it has little no impact on the markets and reassured no one that rates will remain low for a prolonged period of time.

To be fair to Carney, he does have his hands tied on the matter, due to the stubbornly high inflation in the UK and the potential for huge swings, as we’ve seen over the last couple of years. That said, his target of not hiking rates until unemployment falls 0.8% wasn’t overly ambitious, and markets weren’t exactly convinced by the inflation caveat either, with inflation currently at 2.8% and forward expectations only needing to rise to 2.5% before a rate hike is discussed. That said, while a statement or press conference would be welcome, I don’t expect it today, although it is certainly something the BoE should look into in the future if it wants to be more transparent.

Finally we have the ECB meeting today, followed by the decision at 12.45, UK time, and the press conference 45 minutes later. No change is expected again on the interest rates front, but as always, the press conference should create some volatility in the markets. While most of Draghi’s statement tends to sound like a carbon copy of his last, he does usually attempt to provide some verbal stimulus, in the way of dovish comments on interest rates, as seen by his woeful attempt at forward guidance a couple of months ago.

The prospect of a negative deposit rate appears to be off the table again for now, having not been mentioned at recent meetings. I think today, once again people are going to want more from the ECBs use of forward guidance. Draghi has given very little in terms of thresholds in the past, only claiming that by sustained period of time, he means at least a year, which is hardly comforting. As always, the Q&A after should provide the most volatility in the markets, with Draghi receiving very specific questions on guidance, rates and the banks attempts to improve the transmission of cheap funding to the periphery. We may also get more information on the ECBs decision to publish minutes of the meeting in order to provide more transparency, although that looks some way off at the moment.

Ahead of the open we expect to see the FTSE up 21 points, the CAC up 10 point and the DAX up 19 points.
 
US Opening Call from Alpari UK on 5 September 2013

US employment data eyed ahead of September meeting

Today’s US opening call provides an update on:

* BoE expected to keep rates unchanged;
* Draghi to be quizzed on minutes and forward guidance;
* US employment data in focus ahead of FOMC meeting in two weeks

European indices are relatively flat on Thursday, as are US futures, ahead of two major central bank decisions and some key US economic releases.

The Bank of England is expected to leave interest rates and asset purchases unchanged this morning. While no change is expected, markets are hoping that the MPC releases a statement with its decision, as it did a couple of months ago following Mark Carney’s first meeting as Governor.

Usually the release of a statement is reserved for major announcements. However, with central banks trying harder to appease the markets and reduce the large amounts of volatility that centre around their decision making, we are expecting the BoE to follow the Fed and the ECB in releasing a statement along with the decision. Additional transparency is one of the things that Mark Carney is expected to bring to the BoE and I imagine it’s only a matter of time until we also see a press conference following the decision, as we get from both the Fed and the ECB.

While it could be argued that the ECB is more transparent than the BoE, there’s still a lot that could be done. For example, ECB President, Mario Draghi, has faced many questions in recent press conferences about the prospect of releasing minutes of the meetings so that we can get a better idea about the positions of the different members. So far, Draghi has not really taken to the idea but there are signs that he, and the other members of the ECB, are coming round to it.

Other things that will be discussed at the press conference will be the ECBs forward guidance. The ECB appears to have given up on the idea of negative deposit rates and further cuts to the refi rate at this stage, and is instead focusing more on forward guidance, if it can be called that given how vague and utterly pointless it was.

Once again, people will be looking for further clarity on the forward guidance, including objective thresholds regarding when the ECB will consider hiking rates again. So far this has not been provided, with Draghi instead suggesting it could be at least a year, but this was far from a commitment. Even if it was, no one was expecting a rate hike in the next 12 months, so it provided no comfort to anyone. Draghi may also be less inclined to elaborate further on the central banks forward guidance, now that the area has climbed out of recession and PMIs suggest the economy is improving.

One thing to note with these press conferences is that the markets tend to interpret Draghi’s words in whatever way suits them, which can create large amounts of volatility.

Finally, we have some key economic releases due out of the US, including ADP non-farm employment change and weekly jobless claims. The ADP figure is seen as an estimate of the final non-farm payrolls figure, which will be released tomorrow, although it has often lacked accuracy, even since the new calculation started being used. People now tend to pay less attention to the actual figure and more to whether we see big swings in it, as this suggests we may see a similar miss when the payrolls figure is released.

The weekly jobless claims figure will also be watched closely and is expected to remain low, around 330,000. There’s been a lot more emphasis on the US labour market, since Fed President, Ben Bernanke, claimed the central bank will reduce its asset purchases later this year, as long as the economy performs in line with expectations.

Employment is a key part of the Fed’s mandate, so it’s no surprise that any figures relating to the labour market are used to predict when tapering will begin. So far we have seen an improvement in the unemployment rate, but questions are being raised over whether the improvement is sustainable. Also, the conflict in Syria has already prompted a significant increase in oil prices and could inflate them further, which could choke off whatever recovery we’ve seen so far, with rising prices at the pump hitting people’s disposable income as well as businesses.

Ahead of the open we expect to see the S&P up 3 points, the Dow up 15 points and the NASDAQ up 8 points.
 
UK Opening Call from Alpari UK on 6 September 2013

Cautious tone in the markets ahead of the US jobs report

Today’s UK opening call provides an update on:

• Traders cautious ahead of US jobs report;
• Markets price in tapering as 10-year Treasury yields rise above 3%;
• US intervention in Syria to affect Fed decision;
• UK manufacturing and GDP estimate being released.

European indices are expected to open slightly higher on Friday, although the overall tone in the markets appears to be one of caution ahead of a hugely important US jobs report this afternoon.

A lot of people in the markets have been convinced for weeks that the Fed will scale back its asset purchases at the next meeting in September, but the number has increased significantly in the last week or two. The recent economic data has been extremely encouraging, with everything from consumer confidence, to manufacturing and services PMIs and jobless claims posting strong improvements.

A strong jobs report today would just be the icing on the cake really, leaving many with little doubt that the Fed will taper come September. That said, a quick look at the markets suggests that most don’t need convincing any further. I’d say tapering is almost entirely priced in, especially in the bond market where US 10-year Treasury yields rose above 3% for the first time in more than two years. That’s a huge rise when you consider that only four months ago, they we’re trading at a little over half this.

What all this suggests to me is that, while the jobs report today is hugely important, I don’t think people will change their view on tapering unless we see some terrible figures. While many would see a good non-farm payrolls figure, say above 200,000, as the final nail in the coffin for asset purchases in their current form, they won’t be overly concerned by a disappointing figure. Clearly they’re already convinced and today’s release is just a formality.

What these people don’t seem to be considering is the impact that Syria is already having on oil prices, the impact it could have on them and what this means for the consumer. The consumer is hugely important to the US economy and with limited military strikes in Syria looking all the more likely, potentially leading to a wider conflict in the middle east, they are likely to bit hit hard by rising prices at the pump. Bernanke and the rest of the Fed will have to consider this when making the decision on whether to taper in two weeks as corresponding spike in both mortgage rates and fuel prices could choke off the recovery in its infancy. As a result, I think the Fed will hold off for now and see how this plays out and what impact it will have on the economy.

The other concerning thing is the unemployment rate. While this has fallen significantly over the last year or so, a closer look at the data really highlights the problem with this. Fallen participation rates combined with high levels of part-time and temporary hiring have hugely contributed to this drop and none of these suggest that the US is on the path to a sustainable recovery. The rate is expected to remain at 7.4% today, although this could fluctuate depending on whether we see an increase or a further drop in the participation rate.

Elsewhere today, things are looking a little quieter. In the UK, we have the release of the manufacturing production figure for July, which is expected to show an increase in activity of 0.3%. The NIESR GDP estimate for the three months ending August will be released later this afternoon and many expect another jump here, based on recent UK data which has continued to improve. We also have the German industrial production figure being released, which is expected to show a small drop in July.

Finally, we’ll hear from a couple of Fed members throughout the day, which is always worth paying attention, especially now in the lead up to the September meeting. Of particular note is Esther George’s in Omaha as it comes shortly after the release of the US jobs report.

Ahead of the open we expect to see the FTSE up 2 points, the CAC up 10 point and the DAX up 4 points.
 
US Opening Call from Alpari UK on 6 September 2013

Caution remains ahead of jobs data

Today’s US opening call provides an update on:

* Caution ahead of US jobs report;
* Recent data encouraging, longer term mixed;
* Unemployment key, headline figure deceiving;
* Speeches from Fed members followed closely ahead of September meeting.

We’re seeing a lot of caution in the markets this morning, with European indices and US futures trading relatively flat ahead of the US jobs report.

It’s not unusual to see traders more cautious in the hours before the jobs report is released. However, today’s report is one of the most hotly anticipated in a long time, coming less than two weeks before the September FOMC meeting, which means we’re likely to see even more caution today.

Today’s non-farm payroll and unemployment figures could prove decisive when the FOMC meet in two weeks. The Fed has repeatedly claimed that it will only taper if the economy improves in line with their forecasts, which I’m not convinced it has.

The recent data out of the US has been more encouraging, with consumer confidence surveys, manufacturing and services PMIs, and employment figures all improving. That said, over the course of the last few months, the data has been more mixed, which already suggests there’s no evidence of a sustainable recovery.

In terms of the labour market, which the Fed has a particular focus on, while we have seen improvements in some of the headline figures, the breakdown of these are not quite as positive. For example, the unemployment rate fell to 7.4% last month, which equates to a 0.9% drop in a little over a year. However, at the same time, the participation rate has fallen rapidly which really flatters the headline figure. Also, the number of people being hired on a temporary basis has grown, which isn’t sustainable as these would be easily let go should the economy take a turn for the worse.

There’s also issues around the number of hours worked by employees, which is coming down as firms hire more staff on a part-time basis. This is not of huge benefit to the economy as consumer spending is a big contributor to GDP and if people’s disposable income is being hit as a result of not working full time, they don’t spend and the economy suffers.

These are the details that are going to matter most when the data is released this afternoon as this is what the Fed is going to be looking at, rather than just the headline figures.

The impact that the figures have will be interesting this afternoon. To a certain extent, Fed tapering in September is priced in, with US 10-year Treasury’s rising above 3% yesterday for the first time in two years. Unless we see a terrible jobs report today, with the non-farm payrolls figure falling below 150,000 and unemployment rising, I don’t think the markets will change their view on tapering. Therefore we could see yields creep higher and the dollar rally.

In terms of the equity markets, they have responded quite positively to improving fundamentals recently, which suggests they’ve come to terms with tapering and have moved on. That said, a terrible figure today could also prompt a rally if it’s taken to mean that tapering will begin later.

We should also keep an eye on any speeches from Fed members today, as the Q&A sessions will tend to focus on monetary policy, in particular, asset purchases. Charles Evans is due to speak before the jobs report is released in South Carolina. After that, we’ll hear from Esther George, a voting FOMC member, in Omaha, who will speak after the jobs report so could provide some post jobs report insight.

Ahead of the open we expect to see the S&P flat, the Dow down 18 points and the NASDAQ up 1 point.
 
UK Opening Call from Alpari UK on 9 September 2013

Focus on Syria and the Fed this week

Today’s UK opening call provides an update on:

• Syria to dominate as Congress returns from summer break;
• Tapering less likely after poor jobs report on Friday;
• Asia boosted by data, Japans winning Olympic bid and Australian election.

Speculation over whether the US will lead a military response against Syria and the Fed will taper in September is likely to drive markets this week, with the economic calendar looking extremely thin.

The Fed has been a key driver in the financial markets over the last five years or so, with low interest rates, forward guidance and three quantitative easing programs being hugely influential on investors decision making. Right now though, as we approach the September meeting, when many expect the Fed to announce its first tapering of its third QE program, investors are focused more on Syria and whether Congress will vote in favour of a military response against the Assad regime, despite not having the full backing of the UN.

Congress returns from its summer recess on Monday and will immediately begin discussing whether a limited military strike is warranted based on the evidence collected by US officials in relation to a chemical attack carried out against the rebels. A decision on the matter is not expected straight away, although comments are likely to leak out to the media throughout the week which should provide some indication as to how both the Senate and House will vote. It is worth noting that a no vote won’t necessarily put an end to the matter. Obama can still act without the approval of Congress if he believes it’s the correct response.

While Syria is likely to be the biggest driver of financial markets again this week, next week’s Fed meeting is also going to have a significant impact as well. Friday’s jobs report could not have been much worse, with August’s figure coming in below expectations, both June and July’s figures being revised significantly lower and the unemployment rate falling due to a further drop in the participation rate to 1978 lows.

The market consensus in the lead up to the report was for tapering in September but now it’s pretty much a coin toss. For me, the Fed can’t possibly reduce its purchases now when the economy is struggling to get going, the labour market is only showing small signs of recovery and the US is facing a potential conflict in Syria and debt ceiling discussions in the next couple of months.

Things were much more positive in Asia over night. Data out over the weekend showed China’s trade surplus rising to 28.6 billion in August, up from 17.82 billion the month before. This was driven by both a jump in exports, up 7.2%, and a slowdown in imports, up only 7%. Chinese inflation remained low in August, at 2.6%, which is significantly below the PBOCs 3.5% upper boundary, meaning any tightening of monetary policy remains unlikely, while at the same time the government can continue with its targeted stimulus program without being concerned about the inflationary impact.

Japanese second quarter growth was revised to 3.6% on an annualised basis, compared to an initial reading of 2.6%. “Abenomics” has certainly had its critics this year, but figures such as these are very difficult to argue with. The first real test of this will come when Prime Minister, Shinzo Abe, carries out the “third arrow” which is economic reforms, starting with the unpopular sales tax which many believe could derail the recovery.

Japanese markets weren’t concerned about this over night though, after finding out that Tokyo had been chosen to host the 2020 Olympic Games. The Nikkei is up more than 2% on Monday, boosted by the strong data, the winning Olympic bid and further weakness in the yen, with the dollar temporarily rising above 100 against it over night.

Finally, Australian markets were boosted over night by the election result, which saw Labour leader Kevin Rudd concede to Conservative leader Tony Abbot. Abbot has vowed to cut taxes, including an unpopular tax on carbon emissions and a mining tax, as well as provide some much needed fiscal stimulus, while looking to looking to cut government spending and reduce the country’s debt. This mammoth task proved popular with the Australian public and clearly equally popular with the markets, with Australia’s main index rising more than half a percentage point over night.

Ahead of the open we expect to see the FTSE up 15 points, the CAC up 6 point and the DAX up 21 points.
 
Weekly market preview – 9 September 2013

The usual comedown following the first week of the year, as the markets digest the raft of data recently released. Top of the agenda is likely to be the ongoing outlook for Fed tapering given the impending proximity of the FOMC meeting on 17-18 September. Given this focus, we are looking towards the weekly unemployment claims figure from the US as the big ticket item. Meanwhile, it is the UK’s turn to focus upon the jobs market, with both the claimant count and unemployment rate highlighting forward guidance prospects going forward. In Asia, the release of trade balance data out of China will most likely take the headlines as markets watch to see if import and export figures pick up. This will be highly relevant for the result of the Australian elections, where the economy will no doubt figure as a main driver. Finally, the New Zealand economy has a busy week, with an RBNZ monetary policy statement likely to steal the headlines on Thursday.


US

The release of somewhat mixed employment data recently has provided markets with ever more convoluted opinions regarding whether the Federal Reserve will taper at the September meeting. Given the potential impact tapering will have upon the markets, we are expecting the unemployment claims figure to represent the most notable release of the week. Apart from that, the retail sales and UoM consumer sentiment figures will play a role towards the back end of the week.

The release of key jobs data was expected to provide markets with a greater sense of direction to start the month. However, mixed signals have further convoluted market perceptions of whether asset purchases are likely to be tapered at the upcoming FOMC meeting. One thing is clear, the markets are likely to become ever more volatile as we approach the meeting, especially with the release of any key data that could affect the decision making process.

It is for this reason that I expect the release of the weekly unemployment claims figure to be watched closely on Thursday. The market expectation is for an increase to 332k from the 323k figure last week. Overall this data release has been on a clear downward trajectory and thus supporting of a potential tapering scenario. The employment data has been weakening over the past two weeks and thus a rise would not be unexpected.

The second notable release comes on Friday with the retail sales figure which is perceived by many as one of the core barometers to economic health. The importance of retail sales comes from the ability to fully understand the perception of everyday people. Where there are increased sales, we can attribute some of this to a better outlook for future wages, economic and inflationary conditions. The expectation is for a rise from 0.2% to 0.5% and any significant deviation from this figure is likely to drive the markets into fairly volatile grounds.

Lastly the preliminary University of Michigan consumer sentiment figure is also due out of Friday, with markets expecting a rise from 82.1 to 82.6. This indicator is tied closely to the retail figure, yet is more of a qualitative measure of a consumers outlook rather than solely the quantitative purchasing portrayed in the retail sales. The failure of this figure to justify expectations over the past months is no doubt worth noting, with 5 of the last 6 releases falling short of market forecasts. Thus I expect this figure to fall short yet again, with markets likely to tie such an event to potential weaknesses in the tapering story.

UK

A quiet week for the UK after recent indicators pointed to impressive strength within the region. The major event of the week is no doubt the claimant count change and unemployment rate announcements owing to the association with forward guidance provided a month ago.

The claimant count change represents the UK’s version of the non-farm payroll and provides a more clear and granular picture of changes within the jobs market than the headline unemployment rate. The market expectation is for a somewhat more moderate reduction in claimants, with a fall of -21.2k expected after last month’s 29.2k fall. Despite representing a rise, this figure would not necessarily be seen as a negative should it occur, given it would still be the second highest monthly reduction since May 2010. However, given the recent trend of this figure beating expectations, along with very positive readings coming out of the UK, I am expecting a strong performance in this figure on Friday.

The unemployment rate is now one of the core indicators after Mark Carney set forward guidance to be linked with the attainment of 7% unemployment last month. Unfortunately for the markets, it is also one of the least volatile figures and thus is not necessarily the most interesting to watch. In line with this, the markets are expecting the rate to remain at 7.8% for the fifth consecutive month. This is likely to be the case, however any change in this figure will be highly notable owing to its link with potential interest rates in the future.

Eurozone

A very quiet week in the eurozone, where markets have little to sink their teeth into. The one event of note comes in the form of the industrial production figure for the eurozone as a whole, due out on Thursday. This figure is worth looking out for owing to the importance of the manufacturing sector throughout some of the dominant eurozone nations. Market expectations point towards a disappointing figure of -0.1% after last month’s 0.7% growth.

Asia & Oceania

The main event of the week out of Asia is likely to be the Chinese trade balance figure, due on Monday. The importance of China cannot be overstated in the context of the global economy, with almost every major open economy dependent upon the country for exports or imports. Subsequently, the release of the trade balance figures will provide clarity over whether international activity is truly picking up in the region. Expectation is for a rise from 17.8 billion to 20.3 billion, yet it is likely to be the separate import and export growth figures which will provide a better picture.

In Japan, minutes from the last monetary policy meeting at the BoJ are likely to take precedence, with people seeking direction after a somewhat uninspiring time for the Asian markets. There continues to be significant threats to the stability of the Japanese economy, with the debt/GDP ratio above 200% and a government with runaway costs associated with the ***ushima disaster amongst other things. Attention should be paid to the minutes for any clues as to whether there would be a willingness to raise the current ¥70trillion annual asset purchase scheme. There are clearly bills to pay and with doubts surfacing about the ability of Shinzo Abe’s third arrow, there is a potential that monetary policy will fill that gap.

In Australia, the focus will be firmly centered upon Saturdays election showdown between current incumbent Kevin Rudd and opposition leader Tony Abbott. Despite the ability of the ruling labour party to keep the economy clear of recession throughout the 2008-13 period, it seems that voters are ready to make a change with a view to avoid the seemingly impending fate of a prolonged slowdown in the country. A widely publicised shift in China towards domestic consumption and service industries means that the future no longer rests upon the Australian shoulders to such a degree. This perception of lowered demand is likely to impact export prices and thus a seismic shift is being touted by Rudd towards a less commodity focused economy. This does not seem so popular with the voters, who appear to believe an appointment of the historically unpopular Tony Abbott could delay or avert such a downturn.

Finally, a big week for the New Zealand economy sees the RBNZ release the latest interest rate for the coming month on Wednesday. There is little expectation for a rate cut, with the current 2.50% level having held since January 2011. However, the desire within the RBNZ to further devalue the NZD is undeniable and for that reason we will be watching very closely for the accompanying statement for any dovish tones that have been a feature of RBNZ releases throughout 2013.
 
UK Opening Call from Alpari UK on 9 September 2013

Risk aversion builds ahead of Congress vote on Syria

Today’s US opening call provides an update on:

* Europe lower despite strong session in Asia;
* Risk aversion builds ahead of Congress vote on Syria;
* Traders wary ahead of FOMC meeting next week.

It’s been a mixed start to the week in the financial markets, with stocks in Asia trading higher off the back of some strong economic releases, while European indices are mostly in the red in what has been a very quiet morning.

The week got off to a good start over the weekend, with the release of the Chinese trade balance data, which showed the surplus rising to $28.6 billion in August. The increase was driven by a 7.2% increase in exports, which suggests external demand is on the rise again as the economies of the US and Europe begins to recover.

Another positive from China was the inflation figure, which showed prices rising by 2.6%, in line with expectations. This is still well below the central bank’s upper limit of 3.5%, which reduces the odds of monetary tightening by the PBOC in the short term, while giving the government room to continue with its targeted stimulus efforts without being concerned about the inflationary impact.

It was an equally positive session for Tokyo, which was basking in the glory of being awarded the 2020 Olympic games. Research showed that the Olympics should add around 0.5% to Japanese GDP, with a number of sectors feeling the benefit. We saw a similar impact in the UK following the London Olympics, with the economy climbing out of recession to grow 0.9%. Since then the economy has not fallen back into recession and has instead gone from strength to strength.

Obviously the Olympics won’t come around for another seven years, but preparation begins straight away so the impact on the economy between now and then, for example in the construction sector, will be very welcome. This could bring about additional support the economy, which is already in recovery mode following the appointment of Shinzo Abe as Prime Minister. GDP figures released over night showed the economy growing by 3.8% on an annualised basis in the second quarter, an significant upward revision on the original 2.6% estimate.

This week the focus is going to be predominantly on the US, where Congress is due to reconvene following the summer break to discuss the potential for military strikes against the Assad regime. While there is no hard evidence linking Assad with the use of chemical weapons last month, hence the lack of support for action from both Russia and China at the UN, President Barack Obama believes there is sufficient evidence to suggest beyond all reasonable doubt that Assad is responsible.

If Congress supports Obama’s call for military action, which looks likely after House Speaker, John Bohner confirmed his support for a response, air strikes could begin as early as this week. In terms of how this effects the markets, in the lead up to the decision and probably shortly after, we’re likely to see a lot of risk aversion, as we’re seeing this morning. However, historically, following limited military reaction from the US, the markets have rallied as the uncertainty fades.

Also in focus will be the Federal Reserve, following the release of the extremely disappointing jobs report on Friday. The figures have thrown into doubt something the markets had pretty much priced in, tapering in September. A terrible jobs report combined with a potential conflict in Syria and debt ceiling negotiations in the coming months is surely not the backdrop that the Fed was looking for to begin scaling back its asset purchases.

While there are few Fed members scheduled to talk this week, we could still get comments between now and the meeting next week, which will undoubtedly have an impact on the markets. Today we’ll hear from John Williams, a dovish non-voting member of the Fed. While his opinion doesn’t necessarily count, he could provide some insight into what the consensus is among the Fed following the jobs report on Friday.

Ahead of the open we expect to see the S&P up 3 points, the Dow up 22 points and the NASDAQ up 9 points.
 
UK Opening Call from Alpari UK on 10 September 2013

Investors buoyed by prospect of no military action in Syria

Today’s UK opening call provides an update on:

• Investor sentiment boosted by the prospect of no US military strikes in Syria;
• Oil prices retreat on reports that Damascus could put its chemical weapons stock under international control;
• Another strong batch of Chinese figures boosts equity markets.

Reports that a US military strike in Syria could be avoided provided a significant boost to equity markets over night, with major indices in both the US and Asia trading comfortably in the green and European futures pointing to a similar open.

Until now, a US-led military response against the Assad regime, for the suspected use of chemical weapons against its own people, looked almost inevitable. However, reports that Syria has welcomed a suggestion by Russia for the government to put its stock of chemical weapons under international control could be a game changer, although at this stage there has not been confirmation that Assad would approve such a move.

If these reports turn out to be correct, it would significantly reduce the chance of a military strike being agreed in Congress this week and make it very difficult for US President, Barack Obama, to act without Congressional support. At the very least, these reports should severely delay any strike in Syria, buying the Assad regime even more time to prepare for such a strike.

The prospect of strikes in Syria, potentially leading to the involvement of other countries in the region, has weighed heavily on risk appetite over the last couple of weeks, with investors pulling money out of stocks and other risky assets in favour of safe havens, including gold.

Oil prices retreated over night on hopes that military action in Syria could be avoided. Syria itself doesn’t actually produce much oil at all, however the countries around it do. If things escalate as a result of a US military strike, which could easily happen, the supply of oil would most likely be affected, leading to a significant ramp up in the price. The recent spikes in oil have simply been in anticipation of such a move.

With the economic calendar looking pretty light for the rest of the day, focus is likely to remain on whether Damascus is willing to accept the Russian proposal, and whether this would convince the US not to carry out the military strike. We could therefore see some volatile markets, as officials comment on the reports, aided by the lower trading volumes which we are still seeing as the summer draws to a close.

Comments from Fed officials will also have an impact on the markets between now and the FOMC meeting next week. As always, any insight into the Fed’s thinking on the economy will be welcomed, especially following that terrible jobs report on Friday, as will opinions on whether Syria or the debt ceiling will have an impact on the Fed’s decision to taper.

European futures received a significant boost shortly before the open, following the release of another batch of strong Chinese figures. Industrial production increased by 10.4% in August, ahead of expectations and the biggest increase since March last year. Retail sales were also better than expected, rising 13.4%, while fixed asset investment was up 20.3%, slightly ahead of expectations.

The recent improvement in the Chinese data clearly shows that the targeted stimulus being carried out by the government is having the desired effect. Whether we’ll continue to see these improvements is another matter altogether, however these early signs are encouraging.

Ahead of the open we expect to see the FTSE up 30 points, the CAC up 30 point and the DAX up 66 points.
 
Top