Forex research

UK Opening Call from Alpari UK on 11 September 2013

Risk aversion subsides as US explores diplomatic solution

Today’s UK opening call provides an update on:

• US and Asian markets rally as expectations for diplomatic solution in Syria grow;
• Obama delays vote in Congress, as diplomatic solutions explored;
• Gold and oil retreat as markets begin to price in no military strikes;
• UK in focus this morning, with unemployment figures being released.

European indices are expected to open relatively flat on Wednesday, as a diplomatic solution to the suspected use of chemical weapons by the Assad regime begins to look more and more likely.

While Obama is continuing to push for military action against Assad, in a bid to deter any future use of chemical weapons by the Syrian President or anyone else, he will now find it very difficult to get the congressional approval that previously looked likely. Americans, like their counterparts in Britain, are very reluctant to get involved in Syria, with memories of the Iraq war still fresh in people’s minds. If a solution exists that involves Assad handing over his chemical weapons to the international community, they’re likely to take it.

The only question now is whether Assad will go along with the proposal, or whether this is, as some suspect, just a tactic to delay the vote in Congress. Whichever it is, the markets are liking it. The news that Obama has asked Congress to hold off on voting on military action spurred on gains in US and Asian equities over night.

Gold and oil both fell yesterday on news that a military response from the US is looking more unlikely. Gold has benefitted from its safe haven status in recent weeks, while oil prices have spiked on fears of a wider involvement in the conflict in the middle east. Gold may now become more of a focus for those trying to predict whether the Fed will taper come September.

An easing of oil prices will certainly be welcomed by those at the pump, who already complain about sky high fuel prices. Further declines will also be a huge benefit to western economies, with a $10 rise in Brent crude, as seen between the end of June and the end of August, equating to a 0.5% loss in GDP. This could potential derail any recovery currently being seen in countries such as the US and the UK, where the consumer and businesses would be hardest hit.

Today we could see a little more focus on the economic calendar, with a few important pieces of data being released. First up it’s over to the UK, where the unemployment rate will be released alongside the change in the number of people claiming unemployment benefits. The latter has been on the decline since the end of last year, although it’s had little or no impact on the unemployment rate. Looking at these figures it’s no surprise that Bank of England Governor, Mark Carney, believes it will take three years for the rate to drop to 7%. Another 22,000 people are expected to have stopped claiming unemployment benefits in August, although once again, the unemployment rate is expected to remain at 7.8%.

Over in the US, we have a few small economic releases, including the MBA mortgage applications,, wholesale inventories and the EIA crude oil stocks change. The main focus this evening was originally going to be on the vote in Congress, but with this now delayed, we could be in for a quiet evening.

Ahead of the open we expect to see the FTSE down 2 points, the CAC up 2 point and the DAX up 11 points.
 
US Opening Call from Alpari UK on 11 September 2013

UK unemployment rate falls as recovery gathers pace

Today’s US opening call provides an update on:

* US futures flat as investors treat developments with scepticism;
* Split opinion on Fed tapering also preventing markets from rallying;
* UK unemployment falls as recovery gathers pace;
* Carney’s message on low interest rates not helped by fall in unemployment rate.

Most European indices are trading higher on Wednesday, while US futures are pointing to a relatively flat open.

Investors are clearly relieved at the prospect of no US-led military strike being carried out against the Assad regime, but as we see today, they’re not getting too carried away with it. The reports are clearly being treated with a degree of scepticism, with people fully aware that things can escalate again rapidly, should Obama convince lawmakers that a military strike is still necessary or Assad refuse to hand over his chemical weapons to the international community.

There remains a lot of uncertainty in the financial markets at the moment and as we know, the markets hate uncertainty. This is not just centred around the conflict in Syria, opinions are still split on whether the Fed will scale back its asset purchases when it meets next week. This has been a major driver in the markets over the last year and will continue to be until the middle of next year when the Fed plans to bring it to an end. You get the feeling though that the first taper is the most important though, which is why so much is being made of it. I don’t expect so much to be made of future meetings once the first reduction is announced.

As for today, we could be in for another quiet session, with traders remaining on red alert for further progress on the Syria front. So far, the European session has been quite positive on the economic data side of things.

The only noteworthy release this morning came from the UK and further confirmed that the recovery is well underway. The number of people claiming unemployment benefits in the UK fell for a tenth consecutive month in August, dropping 32,600, well ahead of expectations of 22,000, while July’s figure was also revised lower to 36,300.

That led to the first drop in the unemployment rate in four months. This may lead to fears among some that the unemployment rate could fall to the Bank of England’s 7% threshold faster than Governor Mark Carney suggested. Questions have already been raised about whether three years is a realistic timeline and this may prompt some to factor in an earlier rate hike.

That said, it’s been 10 months since the unemployment rate first fell to 7.8%, so maybe three years for it to fall to 7% isn’t that unrealistic. A number of UK companies still have a massive problem with productivity and these are the issues that are likely to be addressed first, before they begin hiring again. This is the message that Carney is struggling to get through to the markets and today’s drop in the unemployment rate may not help his cause.

Ahead of the open we expect to see the S&P down 1 point, the Dow flat and the NASDAQ down 6 points.
 
UK Opening Call from Alpari UK on 12 September 2013

Risk appetite on the rise as odds of US strikes slashed

Today’s UK opening call provides an update on:
• Most indices trade higher as odds of military action in Syria drop;
• US jobless claims watched closely ahead of next week’s FOMC meeting;
• Mario Draghi likely to talk down the euro when he talks in Latvia;
• Markets pricing in another RBA rate cut after poor employment figures.

With the odds of a US-led military response in Syria now being slashed by the day, risk appetite is on the rise in financial markets. Overnight we saw most US and Asian indices trading in positive territory and we’re expecting a similar story when the European session gets underway this morning.

We could have seen gains across the board in the US, had it not been for the mass disapproval of Apple’s new handsets, in particular the “cheaper option” that is cheap in quality but far from that in price. Apple has a big weighting in the Nasdaq, so it was no surprise to see a 5.4% drop in the stock leave the index in negative territory for the day.

The news that Syria is willing to give up its chemical weapons to the international community to be destroyed and that the US is willing to consider this has provided a major boost to the markets. As we can see by the approval ratings in most countries, people do not want another war and this provides an alternative. Obviously, it’s unlikely to be plain sailing from here, with complications arising along the way, but this is an encouraging development from last week.

With Syria no longer posing a threat, for now, focus can switch back to the economic data and more so, next week’s FOMC meeting. With this now at the forefront of traders’ minds, today’s weekly jobless claims figure is going to be watched closely for any signs that the US recovery is stalling.

Given the consistently low figures we’ve seen here this year, I very much doubt we’ll see a spike in this figure today. On top of that, it would also take substantial revisions to previous figures to further convince the markets that the Fed will not taper next week, following the poor jobs report on Friday. As it stands, another solid figure around 330,000 is expected, which should leave the markets very much split on when tapering will begin. That said, I’d say there’s still a slight majority that favour September tapering, although the gap is now much smaller.

On the European side, there are a few events that have the potential to shake up the markets today. We’ll hear from Mario Draghi at 12.40 BST, when he speaks at the Bank of Latvia’s Economic Conference in Riga. Draghi could provide further insight into the ECBs forward guidance here but that’s very unlikely. Instead, he’ll probably use this as an opportunity to warn of potential risks to the recovery and try and talk down the euro some more.

We also have the ECB monthly bulletin and the UK inflation report. Both of these are unlikely to move the markets, although with them being focused around two of the most important central banks, you never know, so it’s worth keeping an eye out for these this morning. In terms of data, eurozone industrial production is the only noteworthy release this morning and is expected to show a 0.1% decline in activity in July, compared to a year earlier.

Things are going from bad to worse for Australia, where data released over night confirmed the unemployment rate rose to 5.8%, as expected, while the number of fulltime and part-time staff continued to plummet. The number of people employed in Australia was expected to rise by around 10,000, but this instead swung significantly in the other direction, with a drop 10,800 instead being reported.

The Reserve Bank of Australia said a couple of months ago that while the economy may continue to suffer in the short term, things should improve as the year goes on. This is not looking like the case at the moment. Obviously it’s still early days, but it would appear that the improvement in the Chinese economy is not rubbing off on Australia. Based on the reaction in the fx markets, where the Aussie fell almost 100 pips against the dollar, it seems as though traders are now pricing in another rate cut from the RBA before the end of the year.

Ahead of the open we expect to see the FTSE up 17 points, the CAC up 14 points and the DAX up 33 points.
 
US Opening Call from Alpari UK on 12 September 2013

US futures flat ahead of key jobs data

Today’s US opening call provides an update on:

* US futures flat ahead of key jobs data;
* Eurozone industrial production falls 2.1% in July;
* Saudi offer to support oil output has minimal impact;
* Gold breaks through significant support.

US futures are flat on Thursday, ahead of the final release of the weekly jobless claims before next week’s FOMC meeting.

New jobless claims are expected to have remained low again last week, at 330,000. Throughout the course of this year, the figure has remained comfortably below 350,000 on the majority of occasions, which certainly points to a changing of attitude among employers, who no longer have their finger on the redundancy button.

That said, there is still a problem in the US labour market in that hiring is still weak, hence the plummeting participation rate as people give up the hunt for work. As a result, today’s jobless claims figure is unlikely to have too major impact on people’s views on when the Fed will taper, unless we see a complete collapse in the data, including significant revisions to past figures.

The morning has been relatively quiet so far, with a few pieces of lower impact data being released. The only noteworthy release this morning was the eurozone industrial production figure which showed activity falling 2.1% in July, well below expectations of -0.1%. The recent recovery in the eurozone meant people paid little attention to this release as it’s probably just a one-off. If we continue to see more poor data out of the region, people will start to sit up and take notice more.

Oil prices are on the rise again on Thursday, despite a pledge from the Saudi oil minister to support the supply of oil in the event that geopolitical issues disrupt the supply from other countries. Obviously, he was referring to the potential conflict in the middle east, with Iran threatening to bomb Israel if the US carries out a military strike against the Assad regime.

Concerns around this have eased in the past couple of days, along with the oil price, which is why the reaction to the comments has been minimal. Should we see further escalation in this conflict, this pledge could help limit any significant upside moves in oil prices, although it’s unlikely to stop it entirely.

Gold prices retreated again today, smashing through a massive technical support level around $1,353 to reach lows of $1,338. This move clearly highlights two things: Firstly, traders are no longer overly concerned about a broader conflict in the middle east, and secondly, the market is continuing to price in a September tapering, despite woeful jobs figures last week.

Ahead of the open we expect to see the S&P flat, the Dow up 2 points and the NASDAQ up 1 point.
 
UK Opening Call from Alpari UK on 16 September 2013

Markets buoyed as Larry Summers leaves Fed race

Today’s UK opening call provides an update on:
• Syrian military action unlikely despite UN report release today
• Markets looking towards Wednesday FOMC announcement
• Larry Summers withdraws from race to be Fed chairman

Market expectations begin to climb today as we enter the week which many within the city perceive will mark the beginning of Federal Reserve tapering. As the worries surrounding Syria subside somewhat, it appears that the anxieties are dissipating, only to be shifted towards the US sequestration and debt limit, due to come into play at the beginning middle of October respectively. However, it seems that the markets do not have this in mind quite yet, with tapering seemingly tapered in, and Syrian conflict seeming distant, the week looks set to begin in a very strong way.

President Barack Obama yesterday used an interview with ABC to discuss some of these main topics, in particular the ongoing Syrian issue and the potential for the Senate to come to some form of amicable solution during spending and debt discussions. The market anxiety over Syria has certainly subsided in response to the Geneva agreement, with the price of Brent crude retracting over $40 from last weeks Monday high of 11613.

Today marks the release of the UN report into the Syrian chemical attack and as such has the propensity to bring the topic back to front and centre. The report is widely expected to provide details to prove that the attack did occur and what exact toxin was used. However, it is likely to fall short in naming the exact perpetrator of the offence and thus would avoid the one key detail that would facilitate the ratification of US claims that Assad carried out the attacks. Irrespective of the findings, the pathway towards any attacks now seems increasingly convoluted where Russia has seemingly used John Kerry's off the cuff remarks to provide a situation where the Syrian regime is allowed the room to enter into a cat and mouse scenario of partial weapons declaration seen in Iran and North Korea.

The major topic of the week and main driver of market volatility is likely to be the FOMC where the decision to trim back on the volume of asset purchases is widely expected to be taken. The ability of the economy to show sufficient signs of improvement within the jobs markets has been a core driver of expectations and the trends appear to point towards the economy being just about accommodative to such a move. Ben Bernanke set out the original timeline in reference to an altogether removal of QE around the 7% level of unemployment, later speculating that it would occur around mid-2014. Thus with the current level at 7.3% and markets seemingly positioned for such a cut, it is likely that it will come on Wednesday.

In the lead up to Wednesdays decision, interest within markets is likely to shift somewhat towards the specific factors of any taper. The somewhat unknown nature of the process makes market responses more difficult for the Fed to gauge, and for that reason markets are expecting to see a somewhat moderate reduction between $10-15 billion.

Furthermore, markets will be looking towards where exactly such reductions are likely to come from, where I expect to see a proportionately larger propensity to reduce treasury purchases ahead of the MBS element. Ultimately, there is much talk of the taper having been factored into the markets already, however this price discovery process is likely to continue throughout the early part of the week. I some ways the decision to not alert is likely to have a more profound effect upon the markets than a taper.

Last night saw the withdrawal of Larry Summers from the candidacy for the upcoming Federal Reserve Chair position despite recent rumours that he was expected to be appointed later this week. The widely hot-tipped favourite was clearly Obama's favourite candidate and thus this acts as yet another blow to the president at a tough time for the White House. Summers was an unpopular choice for many, given his hand in the creation of the Commodities Futures Modernization Act of 2000, which prevents the regulation and oversight of derivatives products. With the focus upon the dangerously unregulated CDO market as one of the core drivers of the 2008 crash, some see Summers as the main man behind the crisis.

The focus will now shift towards alternate candidates, of which Janet Yellen is no likely to assume the mantle of market favourite. It is clear that Yellen is less aligned with Obama and would thus provide a more independent opinion rather than the White House puppet that Summers was widely expected to be.

Looking ahead to the day's economic releases, there are no tier one events to note, with the majority of focus expected to be around the eurozone and US regions. The morning sees ECB governor Mario Draghi take to the stage once more with the rhetoric likely to remain around a 'negative bias' and particularly dovish monetary outlook. Later in the day, the emphasis will shift to the US where the Empire State manufacturing index and industrial output figures will drive markets.

European indices are expected to open higher, with the FTSE +70, CAC +53.5 and DAX +120 points.
 
Weekly market preview - 16 September 2013

A crucial week ahead for the markets as the FOMC meets to discuss the potential commencement of tapering throughout Tuesday and Wednesday. While this is expected to represent the mainstay of market attention, there are also a number of key releases due out elsewhere. In the UK, the CPI inflation rate is likely to dominate, with markets having one eye on Mark Carney’s forward guidance CPI element. In the eurozone, a relatively quiet week is largely dominated by the ZEW economic sentiment figures on Tuesday.

In Asia, a very quiet week ahead, where a number of bank holidays lead Japan into a 3 day week and China in a 4 day week. That being said, the existence of two speeches from BoJ governor Haruhiko Kuroda has the potential to move markets towards the end of the week. In Australia, a similarly quiet week looks set to revolve around the minutes from the last monetary policy meeting at the RBA, due out on Tuesday. Finally, the New Zealand GDP figure on Wednesday provides another big ticket item to keep track of.


US

The week that everyone has been looking forward to, with the potential beginning of a pullback in asset purchases on Wednesday. Whilst this is certain to take precedence, the week is also punctuated by a number of key data releases in the form of the Philly Fed manufacturing index and a number of housing figures.

Ever since Ben Bernanke mentioned the potential of a drawback in asset purchases on 22 May, the markets have been deciphering every speech and data point for clues as to when this is likely to occur. The record highs seen in global indices has been driven in many ways through the creation of a market bubble through the quantitative easing measures undertaken by the Fed. Thus should we see a reduction and eventual halt to the current asset purchase program, it is likely that this will have a profound effect on the markets in the long run.

The tapering question will come to a head this week, when the FOMC reconvene for a two day meeting, culminating in the FOMC press conference from Ben Bernanke on Wednesday. Everyone will be seeking a finite answer to whether tapering is set to commence at this meeting and in many ways, this has been priced in. A decision from the Fed to avert tapering at this meeting would push the decision back to the next time the FOMC reconvene in October, yet given the fact that markets seem to all be expecting a taper, it is likely to occur on Thursday. To many, it seems that potentially the decision not to taper could be just as big a shock as the decision to reduce the asset purchases. Other key features to note from any would be taper are the amount ($10-15 billion is expected) and whether the cut will be to the treasury or MBS aspect of the current $85 billion asset purchases scheme.

Other than the FOMC meeting there are a number of interesting events this week. However, given that markets have been associating recent events with likeliness of tapering, then those occuring after the FOMC meeting on Thursday are likely to have less impact. This includes the existing home sales and Philly fed manufacturing figures.

However, the building permits figure does occur before the FOMC meeting begins and thus markets will be on the look out for any last minute clues as to whether the committee will begin tapering. The expectation is for the 0.95 million figure to remain steady this month, yet this seems unlikely given that market estimates have been incorrect on the last nine occasions. A strong figure would likely be treated as tapering inducing, whereas a poor figure would be seen to decrease the likeliness of the taper. That being said, it is unlikely that this will change the decision to taper or not. It may influence the decision as to whether the FOMC tapers treasuries or MBS, where a weak figure could point towards treasury cuts.

UK

A moderately busy week for the UK economy, with the main event coming in the form of the CPI inflation figure due out on Tuesday. Other than that, the release of the MPC minutes from the last BoE meeting, along with the retail sales figures will dominate the rest of the week. The CPI measure of inflation represents the single primary target for the BoE as mandated by the chancellor of the exchequer and for that reason it is always of significant importance. However, this figure has taken on increased importance owing to the inclusion of inflation within the forward guidance provided by Mark Carney.

The expectation is for a fall from 2.8% to 2.7%, which would be highly notable given the requirement for inflation below 2.5% in 18-24 months under forward guidance. That would represent the second consecutive monthly fall in the figure. However, given the rise in fuel prices driven by the Syrian crisis last month, my bias would be for the rate to remain and disappoint the markets somewhat.

On Tuesday, the minutes and votes from the MPC are released from their meeting back on 5 September. The release is expected to have few surprises, with both the asset purchase facility and headline bank rate votes likely to come in unchanged at 9-0 against any change to the current levels.

Finally, on Thursday the retail sales figure is released, providing yet another indication of how the UK economic conditions are from a domestic consumption standpoint. The expectation is for a slowdown somewhat, falling to 0.5% from 1.1% the prior month. All signs have been very reassuring recently from the UK and there is a high likeliness that this is going to beat estimates much like the PMI data has been, especially when considering that this figure has come in above estimates on two of the last three occasions.

Eurozone

A very quiet week for the eurozone, where the one main event occurs on Tuesday, with the release of both German and eurozone ZEW economic sentiment figures. The eurozone has seen a period of significant resurgence over the recent months, with GDP figures moving out of recession, along with very positive shifts into expansion for many of the key PMI figures. Along this same theme, we are expecting to see strong figures out for both these releases. The German ZEW economic sentiment figure typically takes precedence and markets will be boosted should we see a significant rise in line with expectations. Market forecasts point towards a rise from 42.0 to 45.3, which would be a six month high for the figure.

The eurozone ZEW economic sentiment figure is somewhat ahead the German number and the markets expect a proportionately larger rise, from 44.0 to 47.2. This would be a major boost for the eurozone at a notable period and seems attainable given the recent rate of growth in this figure along with a clear pickup in sentiment for the single currency.

Asia & Oceania

A quiet week within Asia, where the existence of bank holidays mean that it is a three day week for China and four day week for Japan. Later in the week, we are looking towards keynote speeches from the BoJ governor Haruhiko Kuroda on Thursday and Friday. Much of the devaluation of the yen has come from the power of the word, especially from both Kuroda and Shinzo Abe. Subsequently, markets will be watching closely as these two speeches provide yet more opportunities to do much of the same.

In Australia, the minutes from the latest RBA monetary policy meeting seems to represent the only notable event of the week. The minutes, released on Tuesday, are expected to continue on the dovish tone from the RBA and given the recent strength in the Australian dollar, this could be key in seeing some of those gains wiped off.

Finally, in New Zealand, the Q2 GDP figure is set to be released on Wednesday. Expectation is for a fall from 0.3% to 0.2%, and this would be consistent with the slowdown seen in the region. The weakness seen in the New Zealand dollar has been consistent with both weakened economic prospects and a concerted effort to devalue the currency from the RBNZ. Should we see a fall in this GDP figure, it would likely drive further dovish rhetoric and actions from the RBNZ and that is likely to impact the NZD.
 
US Opening Call from Alpari UK on 16 September 2013

Strong morning for the markets as Summer fades

Today’s US opening call provides an update on:

* Larry Summers withdraws Fed chair candidacy, boosting markets
* Syria worries subside despite Obama interview and impending UN report
* Draghi continues to tout dovish rhetoric

Markets have taken to the news that the next Fed chairman (or chairwoman) could be even more dovish than Ben Bernanke following the news late last night that Larry Summers has pulled out of the running for the Fed chair position being vacated by Bernanke in January 2014. Summers was widely touted as Obama’s choice for the role, with reports suggesting that he was expected to be appointed as early as this week. The upshot of this latest development is dovish in two aspects, both of which involve the newly appointed favourite Janet Yellen. There was a perception that should Summers take the top job, Yellen would vacate her role in the Fed and return to academia, thus depriving the committee of one of their most dovish members. However, should Yellen be appointed, we would be watching the removal of a notably hawkish potential governor and replacing him with a highly dovish one. Thus there is no surprise that the markets have taken to this move in a highly positive manner, given the fact that tapering would likely be more drawn out under Yellen than Summers.

The Syrian crisis appears to have abated somewhat despite increased warning over the weekend from Barack Obama that the US would remain “prepared to act” should diplomacy fail on this issue. In an interview with ABC over the weekend, Obama laid out a notably pessimistic stance regarding the agreement of the Syrian regime to join the global Chemical Weapons Convention on 14 October. This response is likely to be in response to the feeling that Russia and Syria have won the tactical game of chess, providing Syria with an ongoing platform to utilise their significant stockpile of Russian made armaments to crush what is left of the Free Syrian Army (FSA). It also comes amid accusations from the FSA that the Assad regime has been moving its chemical weapons to Lebanon and Iraq to avoid confiscation.

Mario Draghi took to the podium once again this morning to give another speech which continued to emphasise a notably dovish outlook for the Eurozone going forward. Draghi has reiterated a somewhat pessimistic outlook for the region throughout this crisis, failing to utilise the recent improvements in the region to let up on warning the markets of ‘risks to the downside’. Today he reiterated his forward guidance outlook, declaring that “given the overall subdued outlook for inflation, the ECB expects headline interest rates to remain at present or lower levels for an extended period of time. This was always likely to be the case and will be going forward, with Draghi’s ability to utilise monetary policy somewhat stifled by the convoluted Eurozone structure which limits his easiest and most realistic tools to forward guidance and interest rate setting. Thus going forward, we expect the ECB to continue to talk down the value of the euro and reiterate that the current recovery remains “in its infancy”.

Taking a look ahead, the market will be focusing on data points out of the US, ahead of the FOMC meeting on Tuesday and Wednesday. Any strong or weak performances will be likely to be viewed in the context of potential tapering of asset purchases and thus for the moment it is likely that we will remain in the ‘good data is bad’ and ‘bad data is good’ in respect to the markets. Markets will be focusing in particular upon the empire state manufacturing index and industrial production figures, which are both predicted to show notable improvments.

US markets are expected to follow European indices higher, with the S&P50 +19 and DJIA +172 points.
 
UK Opening Call from Alpari UK on 17 September 2013

Market retrace gains as thoughts turn to the FOMC and CPI

Today’s UK opening call provides an update on:

• Poor US data slows yesterdays bullish ascent
• FOMC meeting begins today ahead of potential tapering
• RBA minutes point to potential future rate cuts
• UK CPI expected to fall for second consecutive month
• Eurozone sentiment release to continue positive eurozone sentiment

European markets are expected to open lower today off the back of a significant coup yesterday with the announcement that commonly perceived hawk Larry Summers retracted his candidacy for the Fed chair position, leaving the dovish Janet Yellen to take the favourite mantle. However, as expected, the Summer seems to have soured somewhat as the markets once again return to the reality of impending troubles in the US.

Yesterday saw the release of two key manufacturing figures, with both coming in below market estimates and pointing to yet more confusion as to whether the FOMC outlook will see the US economy as sufficiently strong enough to withstand a reduction in the current rate of asset purchases. The fall of the empire state manufacturing figure to four month lows of 6.3, along with a more moderate ride in the rate of industrial production that estimated highlights the somewhat fragile ground on which the current US economy appears to be built upon.

The week long blackout period for the FOMC members comes to a close today, with the commencement of the two day Fed meeting which is widely expected to bring about a tapering of asset purchases. The markets appear to have seen some degree of consolidation within the past months in anticipation of this event and for that reason the expectation is that any taper between USD10-15 billion would likely be partially factored in. However, the inability of the stock markets to rally once more in the lead up to such an important and bearish event highlights a clearly bullish undercurrent going forward.

Overnight the RBA released the minutes from their last monetary policy meeting at which the board left the headline interest rate at 2.5%. The minutes brought no particularly new surprises, yet in some ways portrayed a more positive picture of the Australian economy, with the export growth of key commodities such as iron ore and coal picking up amid a strengthening Asia region. Regarding the cash rate, the RBA remained willing to make further reductions, however this was unlikely to occur within the next meetings given the need to allow the recent cuts to take effect. Much of this was expected given the RBA’s propensity to provide each rate cut with a number of months to impact the markets and thus while there was a bearish response in the value of the AUD, it remained somewhat subdued.

Taking a look ahead, the UK CPI figure is expected to be the main event of the European session, with the link between CPI and forward guidance under the BoE expected to come into play. Mark Carney’s largely ridiculed measure of long term interest rate outlook was always going to have some form of inflation element, given the mandate provided to the BoE from the chancellor. Thus in order to validate the guidance of low inflation up until 7% unemployment, the markets will be awaiting a reduction in the level of CPI inflation. Expectation is for a reduction from 2.8% to 2.7%, representing the second consecutive reduction in this figure. It is also worth following whether the 18-24 month outlook is also provided by the ONS in the accompanying report.

Finally, the eurozone comes back into focus with the release of ZEW economic sentiment figures for both the German and single currency regions. Both of these are expected to provide a continuation to the recent strength in the region this morning. Looking further ahead, the US CPI release provides the prominent data point for the afternoon.

European markets are expected to open lower, with the FTSE100 -14, CAC -8 and DAX -14 points.
 
UK Opening Call from Alpari UK on 17 September 2013

Mixed markets as European data provides pre FOMC boost

Today’s US opening call provides an update on:

* Eurozone ZEW releases further strengthen recovery story
* UK CPI falls to 2.7%
* FOMC meeting begins ahead of tapering decision

The European markets have received a notable boost this morning, with the release of two positive ZEW sentiment figures to go alongside a notable fall in the headline UK inflation rate. Despite this, there majority of European and US futures remain down as they rebound from yesterday’s buoyant mood sparked by the increased likeliness of a dove in the Fed.

The German ZEW figure soared past expectations this morning, rising to the highest level in 40 months. The importance of this figure should not be overlooked given its ability to provide market sentiment as opposed to the typical surveys which are either purchase manager or consumer focused. The boost in the 6 month outlook for the German economy from institutional investor and analysts allows us to understand a more direct association with economic health and the market expectations. Given the strength within the likes of the CAC and DAX throughout 2013, the perception that investors are increasingly bullish about the German economy is a notable coup for the industrial powerhouse.

The ZEW figure is compiled by German statisticians, with German respondents and thus the rise in the eurozone figure can be seen as a real boost for Angela Merkel. Given the upcoming elections, Merkel has continued to emphasise the strengths and benefits of the single currency given the costs borne by the German public ion propping up some of the more beleaguered nations. Thus today’s rise to the highest level since Q4 2009 provides an increasing feeling that Germans see this crisis as having been overcome, which will be positive news for the German chancellor.

In the UK, the drop in the headline CPI measure of inflation has seen a mixed response in the FTSE100. Such a fall as the reduction to 2.7% seen today would ordinarily be widely perceived as bullish for the markets throughout the recent era of quantitative easing. The reduction in the CPI figure is something which provides a level of breathing space for the BoE in their monetary decision making.

In the past, a fall in this level towards the mandated 2% target would increase the likeliness that the MPC will introduce further asset purchases, yet given the recent forward guidance it has taken a new role, where a fall in this figure would allow for lower interest rates going forward. However, since the guidance under Mark Carney now stipulates an 18-24 month inflation outlook, the primary view of this figure has become confused, with the forward expectation of CPI not being widely available. This can account for the somewhat mixed response in the headline index which pulled back soon after, likely in association with the more confused role this figure plays going forward.

Today marks the commencement of the two day FOMC meeting where the members will seek to decide upon whether the Ben Bernanke coined ‘tapering’ will be introduced this month or delayed until later this year. The three remaining options for the markets are September, October and December given the three remaining meetings scheduled for 2013. However, the market sentiment appears to be overwhelmingly towards a September taper given the recent improvements of the jobs market which has seen unemployment fall to 7.3% and a non-farm payroll where the average from the previous four months is significantly above the pre-recession Q2 2007 rate.

One topic of note is whether the fall in participation rate which has been attributed to much of the fall in the headline unemployment rate is structural or cyclical and that is likely to be one of the main debates as to whether the economy can handle a reduction this month. Should they decide that the fall in participation rate is attributed to weaknesses in the economy as opposed to factors such as the retirement of the baby boom generation, then it would potentially provide grounds to ‘move the goalposts’ and lower the 7% target for an all-together halt to the asset purchase facility.

Markets will be expecting a cut in asset purchases tomorrow and should we see anything below USD10 billion sliced off the current monthly purchases, it is likely that the market will take this as a major boost and dovish stance. The decision regarding which types of assets to reduce current purchases of will also be highly notable, with the most likely to be the treasury element as opposed to the more critical MBS element. The housing market is crucial in providing security and confidence to the markets and for that reason, the likeliness is that they will want to leave it untouched until as late as possible.

US markets are expected to open largely mixed, with the S&P -1.25 and the DJIA +2 points.
 
UK Opening Call from Alpari UK on 18 September 2013

Futures creep higher ahead of FOMC announcement

Today’s UK opening call provides an update on:
• Markets brace for FOMC announcement
• Tapering widely expected, yet volatility still likely
• BoE minutes likely to bring few surprises

The countdown is almost over, with months of speculation and analysis widely expected to result in a historical move by the Federal Reserve in reducing the rate of monthly asset purchases under the current QE3 programme. However, despite the expectation of a reduction in the consistent adrenaline boost that has fed the markets to reach historical and all-time highs, the indices are currently pointing towards a positive open in both Europe and the US.

Today’s meeting has become increasingly viewed by many within the markets as the likely platform at which Ben Bernanke will announce the introduction of asset purchase ‘tapering’. The initiation of such a policy would be expected to come in a somewhat moderate form to start with owing to the somewhat unpredictable nature of the markets under such a scenario. Market expectations point towards such a move to be factored into the markets to some extent. However, with the close of yesterday’s US session seeing the S&P500 reach a six week high, signs are that if tapering is factored in then ordinarily markets would be pushing towards significantly higher than the 1700 levels currently seen. However, this is somewhat of a misnomer, given that the record highs seen have only existed owing to abnormal monetary circumstances and not ‘normal’ ones.

The market expectation is for a $10-15 billion asset purchase reduction to be introduced later, where anything less would likely introduce a potential relief rally within indices and tumble in the US dollar. The well know strategy of sell on the rumours and buy on the news could very well come into play upon occurrence, where expectation is so high that the actual event could in fact come as somewhat of a non-event. That being said, the occurrence of tapering is certainly no given since much of the reduction in the headline unemployment rate on its way to the current 7.3% is driven by a continued fall in the participation rate. The current participation rate is 63.2; the lowest since Q3 1978.

Looking to the European session, the BoE MPC minutes are the single tier one release, due out at 9.30 BST. The market expectation is rightly for no change in terms of votes regarding both asset purchases and interest rates which are likely to be unanimously agreed upon to remain constant. The provision of the forward guidance under Mark Carney was always likely to provide a somewhat restricted environment for further monetary policy changes, proof of which was given when his first MPC meeting brought about a 9-0 vote from the previous 6-3 under Sir Mervyn King.

Any change in voting would thus likely be seen as a rebellion against the current policy of forward guidance which was utilised as means to avoid consistent rises in asset purchases and interest rate cuts. However, some of the tones from David Miles and Paul Fischer have been notably dovish in nature, leading some to believe that they may be fed up of the seemingly insufficient oral stimulus from Carney which is “still no better than the previous trend” according to Fischer. The continued rise in interest rates prove that despite the continued rise of equities (which is an international phenomenon), this policy of forward guidance may not be sufficient to pull the economy back to good health.

European markets are expected to open higher, with the FTSE100 +4, CAC +9 and DAX +24 points.
 
Daily Market Update - 18 September 2013 - Alpari UK

0:10 Markets higher ahead of FOMC
0:26 BoE minutes rejects idea of further stimulus
1:37 FOMC meeting likely to dominate, with varied possibilities likely to cause volatility

 
US Opening Call from Alpari UK on 18 September 2013

BoE shuns monetary stimulus as Fed seeks to scale back

Today’s US opening call provides an update on:

  • BoE MPC minutes point to a lack in appetite for further easing
  • Markets gear up for potential start of Fed tapering
  • Building permits provide final notable data point prior to Fed decision

Global markets are today bracing themselves for the potential commencement of a reduction in the current rate of asset purchases. Despite the expectations of such a bearish event, European, Asian and US indices are pointing higher in a nod to the fact that not all will be as it seems in such a hard to read and complex market event.


In the European session, the major driver of volatility has come in the form of the Bank of England’s MPC minutes from 3-4 September. The minutes came in largely as expected, with votes of 9-0 against both additional asset purchases or reduced interest rates. This comes amid a particularly restrictive period for the MPC, where CPI is required to fall as a means to validate the forward guidance stance recently taken under Mark Carney. For this reason, any measure of monetary loosening would be counterproductive in enabling their newly established tool of choice by raising expectations of the direction inflation would be moving in the medium to long term.

The main event of the day comes in the form of the FOMC meeting later today where market expectations point towards a reduction in the pace of asset purchases. There are a number of factors to bear in mind for the event, many of which will make it unpredictable for even the best and most knowledgeable market participant. The view that the current $85 billion monthly asset purchase programme should be reduced was first proposed by Ben Bernanke in May, with the primary measure being in association with the strength of the jobs market. The ability of reach 7% was widely touted as the end goal at which point the value of asset purchases should be reduced to zero. However, the path to such a scenario was always likely to be a bumpy one, where the initial reduction would be the most unpredictable as far as the markets are concerned.

The pathway to today’s decision has been largely positive from an economic standpoint, where unemployment has fallen to 7.3% and the most recent unemployment claims figure fell below the levels seen prior to the 2007 crisis. However, this is only half of the picture, with a participation rate at the lowest ebb since 1978 which saw 312,000 people drop out of the labour force between July and August. Given the unemployment rate only counts those workers who are actively seeking work, the unemployment rate fell. For this very reason, the validity of recent improvements are called into account and provide a potential scenario whereby any taper could be accompanied by a revised unemployment rate target for the end of QE.

In terms of expectations, markets are varied, with the majority expecting a taper of between $10-15 billion. However, there are many who believe that the Fed remains notably dovish given the questions hanging over some of the jobs data and for that reason would favour a more moderate figure around $5 billion, where the target unemployment rate for the conclusion of asset purchases would be lowered from 7% to a figure closer to 6.8%. Should this occur, markets would likely rally given the longevity it would give to the continuation of QE where the last 0.5% reduction in QE took almost a year, thus pushing the date to the end of Q3 or early Q4 2014 as opposed to the ‘mid-2014′ timeline provided by Bernanke earlier this year.

Ultimately, the ability of markets to withstand the reduction in asset purchases to zero was always going to be called into question, given each previous episode of QE has typically preceded a tumble in the stock markets. Those very same markets that are driven to all-time highs directly from the boost provided by such monetary stimulus. What markets are seeking is a sense of direction, which given the current positivity surrounding global markets, could potentially remain northbound for the meanwhile. However, as tapering continues to take effect throughout 2013-2014, and markets return to a ‘good data is good for the markets’ scenario, the question remains as to whether the current dizzy heights of the indices remain viable.

Looking ahead, the building permits figure is likely to provide the only other notable release prior to the FOMC minutes. Expectation is for a stable 0.95 level, consistent with last month’s release. However, a significantly negative figure could point towards signs of weakening in the housing market, which could in turn impact the Fed’s willingness to cut the MBS element of the current asset purchase scheme.

US markets are expected to open higher, with the S&P500 +1.5 and the DJIA +11.5 points.
 
Last edited:
UK Opening Call from Alpari UK on 19 September 2013

FOMC confounds Mr. Market, deciding to delay tapering

Today’s UK opening call provides an update on:

• FOMC avoids tapering for now, sending markets higher
• Financial tightening and fiscal worries dominated the decision
• New Zealand GDP continues to fall
• UK Retail sales dominates European session

The FOMC last night decided to delay tapering asset purchases despite a notable degree of market pressure to finally do so. The expectation of the street was that we would see a reduction of somewhere between $10-15 billion dollars, which would mark the beginning of a process to return the nations monetary policy back to ‘normal’ by mid-to-late 2014. However, with the only exception of Esther George, the committee voted against such a move.

The relevant question was really whether the FOMC committee were willing to go against the grain should they perceive the US economy as being insufficiently stable in it’s recovery process. The perception was that a move to taper had largely been factored in and this would drive Fed members to taper as a means to reduce market volatility and uncertainty. Subsequently, for that very reason the notion of tapering appeared to become a self fulfilling prophecy. However, this was not the case and respect should be given for being independent minded to avoid the influence of the markets.

The underlying decision was seemingly based upon two major factors; price stability and unemployment. Unlike the BoE, the Fed has a dual mandate to keep inflation around 2% and maximum employment. With inflation currently below that long run target level, along with an unemployment that considering a lowered participation rate, is seemingly too high, it does not seem to be a satisfactory framework within which to begin tightening policy.

The statement provided somewhat mixed messages with a nod to ‘tightening financial conditions’ as a main driver behind yesterdays decision, bemusing many due to the perception that such tightening was consistent with the existence of a potential asset purchase taper. Elsewhere, in a nod to the upcoming sequester and debt ceiling negotiations, the committee stated that the extent of fiscal retrenchment, whilst having improved over the last 12 months, will require further evidence of sustained progress. This sends a clear message to those within congress and the White House that the owness is upon them to create a stable framework within which an event such as tapering could be possible.

Ultimately, the markets have taken this news in its stride, pushing indices higher and the dollar further to the downside. Unfortunately this also means we will have to do this again next month, with the October and December meetings representing the remaining options of 2014 for the Fed.

Overnight, the New Zealand Q2 GDP figure came in line with expectations at 0.2%, down from 0.3%. Accompanied by the Q1 figure of 0.3%,this represents the slowest rate of growth over a six month timeframe since late 2010 and will increase anxiety that the economy is failing to show improvements just when the rest of the developed world is deemed to be on a much more positive footing. Expect the RBNZ to note this fact and the tones will likely to continue to be highly dovish and ‘accomadative’ going forward.

This morning in the European session, much of the focus will be upon the UK retail sales, which represents the dominant tier one event in traders minds. The retail sales figure is typically seen as a critical barometer of the financial position and economic confidence of the population. The ability of consumers to purchase more dispensable, luxury items in particular can be perceived as a thumbs up to the perception that wages and employment will be increasingly reliable going forward. Market expectation points towards a slowdown in the figure to 0.4% from last month’s 1.1% figure. However, this would still means that retail sales continue to grow and would represent the first time we have seen four consecutive months of growth since mid 2010.

European markets are expected to open higher, with the FTSE100 +83, CAC +62 and DAX +116 points.
 
US Opening Call from Alpari UK on 19 September 2013

UK retail sales disappoint as taper worries subside

Today’s US opening call provides an update on:

* Fed decides not to taper, sending markets to new highs
* Focus likely to immediately turn to US sequester and debt ceiling worries
* UK retail sales disappoint

A boisterous day for the markets was always on the cards from the moment the FOMC announced that tapering was not imminent yesterday. The decision to delay the introduction of a reduction to the current asset purchase facility is a gutsy one, where market expectation was so high that for many it seemed counterproductive to introduce further volatility into the markets unless strictly necessary. However, the near unanimous vote (9-1 votes in favour of no taper) points to a clearly independent and strong Federal Reserve who are able to see through market noise to ascertain what is required for the economy. Ultimately, the two factors affecting the decision were the perceived tightening of financial conditions, along with notable fiscal threats and the effect they could have to price stability and employment; the dual mandate provided to the Fed.

Market perception of these two reasons are mixed, with a degree of confusion over the financial tightening element. Many market participants have recently noted a distinct element of anxiety within the markets, seen by the risk off sentiment driven by the threat of tapering from the Fed. This is evident through the shift out of emerging markets and towards widely perceived ‘safe-haven’ assets. However, this will always be the case preceding any monetary tightening of the scale of the impending taper. Thus we are always likely to see a degree of financial tightening during the period preceding a reduction in the asset purchase programme.

On the other hand, the FOMC announcement that fiscal retrenchment is an ongoing worry is less to do with the benefits of QE3 and more with the impending threats to the US economy posed by the likely brinkmanship within the Congress and White House regarding the sequester and debt ceiling that is looming large. The US has seemingly spent recent years bouncing from one worry to another and this appears to be the case yet again with the re-emergence of the requirement to agree upon a renewed budget prior to the new financial year (1 October) and an extension of the debt ceiling (due by mid-October).

There are two ways of thinking about this. Firstly, we have all been here before, with the fiscal cliff and sequester crunch talks around the beginning of 2013 providing a clear example that the US will likely call every event into the final hours before reaching a half-hearted solution that will ‘kick the can down the road’ for a longer term resolution at another time. On the other hand, the experience of previous negotiations have turned members of the congress and President into hardened and experienced negotiators in such circumstances. For this reason, some of the tones coming out of both the republicans within the House of Representatives along with the president are pointing to a more staunch and unwilling stance coming into the discussions.

The discussions will center around the medical policy entitled ‘Obamacare’, which is due to begin on 1 October. The policy, which provides state-based exchanges for insurance for uninsured individuals has been seen by many as a victory in the face of the deeply entrenched and overpriced medical system in the US where lobbyists rule the roost. The US issue is that there are a number of individuals whom through some degree of work, are unable to obtain Medicare or Medicaid, yet do not retain a position which has coverage from their employer. The contest from the Republican side is the same as usual, where the owness is typically placed upon reducing spending, reducing the role of the state in the faith that this would free up current tax expenses which would be put to better use individually. This is in line with the perception that the Republican party is typically protecting the rich, which includes the multi-billion healthcare industry, along with individuals that are wealthy enough to fund their own healthcare insurance policy. Irrespective of the core drivers behind each position, Obama believes that it is the role of the Congress to provide the funding for the very bills that have been previously passed through their very doors. However, the Republicans have taken to Obamacare as their key target and will seek to either delay or scrap the system in exchange for their consent to pass the spending bill and increase the debt ceiling. Either way it turns out, we are sent for a month of brinkmanship and hot debate from both parties over the forthcoming month.

In the European session, the UK retail sales disappointed markets who were firmly in a bullish mode following the FOMC announcement and recent strength of UK data. Both the month on month and year on year figures came in below estimates, however it was the monthly figure that fell the most. Expectations of a rise of 0.4% from 1.1% last time failed to come to fruition, with the volume of sales tumbling by -0.9% in the month of August. This is the worst figure in four months and points to a clear over-performance during what has been a notably sizzling summer in the UK, which has boosted the sales in recent months. However, the accompanying statement remained upbeat and despite the disappointment in the markets, it is clear that whilst volume fell temporarily, they are still at the highest level than pre-2008 in both value and volume. Meanwhile on an annual basis, the rise of 2.1% remain in line with an average figure seen since the 2008 crisis began.

US markets are expected to open higher, with the S&P500 +8 and DJIA +45 points.
 
Daily Market Update - 19 September 2013 - Alpari UK

James Hughes discusses the impact of the Fed's decision to leave QE in place and UK retail sales figures.

 
Top