Forex research

Weekly market preview – 30 September 2013

As ever, the first week of the month brings a raft of key economic releases, with all the major regions releasing numerous potential market moving figures. In the US, the resolution of budget talks will likely dominate the early part of the week, with markets focusing upon the key jobs data towards the second half of the week. In the UK, the three PMI figures due out in the early part of the week will take precedence for the markets. Meanwhile in the eurozone, the ECB interest rate decision on Wednesday dominates despite the release of PMI figures throughout the rest of the week.

In Asia, the release of three Chinese PMI figures will make for a lively week, where the September manufacturing figure on Tuesday is likely to be the highest volatility release. Over in Japan, the BoJ monetary policy decision on Friday represents the single event of note in an otherwise largely quiet week. Australian markets will be spurred on by a particularly busy week, where the release of the RBA cash rate and accompanying statement will likely play the prominent role when released on Tuesday.


US

A major week for the US economy on a number of fronts. The ongoing worries surrounding the US budget looks likely to continue as we come into the Monday deadline. The ability or inability to find a palatable resolution will no doubt dominate the beginning of the week for the markets. Meanwhile, the remainder of the week looks set to focus upon a plethora of jobs data releases, building towards the crucial non-farm payroll figure on Friday.

The first major release of the week comes on Tuesday, with the ISM manufacturing PMI figure for September. Of course, the manufacturing sector within the US is the lifeblood of the economy and accounts for the large part of exports. The performance of this figure has often provided significant responses in the markets and certainly has the potential to again on Tuesday. Expectation is for a reduction from 50.7 to 50.3 which would represent the first fall in five months. However, given we have seen an out-performance of market forecasts in the past two months, there is a possibility that this could happen again. Bear in mind that any figure below 50.0 would likely bring a significant response in the markets.

On Wednesday, the September ADP non-farm employment change figure represents the first of four major jobs releases, where market expectations point towards a marginally higher figure of around 177k. This follows a figure of 176k in August. This release is generally seen as a secondary NFP indicator, where Friday’s headline release dominates. However, given the unwillingness of the FOMC to introduce tapering at their last meeting, the questions remain as to when the measure will be introduced. The next meeting after October’s would be December and thus the inability of the FOMC to see strong enough performance would be a significant coup for the markets. For this reason, watch out for any rise above expectations to likely be dollar positive or negative should it dissapoint.

On Thursday, the weekly unemployment claims figure provides a more short term view of the employment conditions in the US. In recent weeks, this figure has provided a strong picture of the jobs market, with the last four releases coming in above market forecasts. For this reason, despite the market pointing towards a rise from 305k to 315k, there is a potential that we could get a better figure closer to 300k.

On Friday, the release of the September non-farm payroll and unemployment rate figure are likely bring about one of the most volatile days of the month. Given the aforementioned association between US jobs market conditions and the potential for an October taper, both of these two releases will provide the most eagerly anticipated event of the week.

On Friday, the non-farm payroll figure follows the ADP with estimates of an improved number. The release typically represents the most closely followed event of the month and this will be no different. The past two occasions have disappointed somewhat, with both coming in well below estimates. For this reason, the expectation for a rise from 169k to 179k this week seem somewhat overdone, making forecasts less likely to be reached.

The unemployment rate is also due out on Friday, with the clear association between tapering and this figure making it as important as it has ever been. There is no expectation for a rise in this figure, yet given the past two months have seen a fall, there is a potential for a drop to 7.2%. That being said, it is worth noting that most of these reductions have been driven by a reduction in the participation rate. Thus watch out for the participation rate in the jobs report too, as a rise in this could be equally important in facilitating a reduction in asset purchases from the FOMC.

UK

The UK is looking towards a week of PMI’s, with the manufacturing, construction and services figures set to be released from Tuesday to Thursday. These figures have performed very well over the recent months and markets will be expecting much of the same this week.

The first release is the manufacturing PMI figure, due out on Tuesday. The importance of the manufacturing sector is becoming increasingly clear, where the over-reliance upon the services sector means that diversification of exports and business within the UK is required for future stability of the economy. Market expectations point towards a rise from 57.2 to 57.5 and given the past five releases have come out above expectations, there is a distinct possibility we could have yet another strong figure. However, there are some who believe that this may be one step too far.

On Wednesday, the construction PMI figure is a similar story. Very pleasing readings over the past month or so provide for a positive outlook for the sector. Given the recent attention paid around the perceived ‘overheating’ of the housing market in the UK, it would be no surprise to see this figure continue to rise. Market forecasts point towards a rise from 59.1 to 60.1, which would represent the highest reading since September 2007.

Finally, the most important of the three is the services PMI release, due on Thursday. The services sector is the main driver of the UK economy and for that reason, the strength of services is paramount to a strong recovery. The current figure of 60.5 is clearly above the construction and manufacturing sectors and given it is at the higest level since the end of 2006, there is certainly a possibility that the readings will start to flat line somewhat. Market estimates point towards a marginal reduction to 60.4, however with the prior 8 readings coming in above estimate, I am expecting a marginal rise in the figure.

Eurozone

A busy week in the eurozone, with the ECB providing their latest monetary policy decision, along with a handful of PMI figures out of Spain and Italy.

On Wednesday, 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.

The recent election victory in Germany provided a boost for the eurozone region, yet also provided the likes of Mario Draghi a greater degree of freedom to discuss potential weaknesses to the single currency in detail. Thus there is a possibility the dovish tones are ramped up somewhat.

The rest of the week brings Spain and Italy into focus with the release of manufacturing (Tuesday) and services (Thursday) PMI figures. Given that these two countries represent a significant proportion of the potential risks to the single currency, the strength of them is arguably as important as the stronger economies in terms of stability. Both performed relatively well last month, with manufacturing in particular seeing the two economies well into expansionary territory. The Italian services PMI is the one area of weakness, posting a contractionary figure of 48.8. Expectations are for a rise in all four measures, which would provide a notable boost for the region. Given the current strengthening of the eurozone, I would not be surprised to see them all rise this week.

Asia & Oceania

A busy week in China, despite the existence of four public holidays from Tuesday onwards. The week will centre upon the release of three key PMI figures, starting on Monday with the final HSBC manufacturing PMI figure of August. This will be expected to provide the least volatility given that it is simply the final revision, where expectations are for the figure to remain at 51.2.

The dominant figure of the week is likely to be the September manufacturing PMI figure, due out on Tuesday. The importance of the Chinese manufacturing sector is difficult to overstate, with the global economy driven in one way or another by the continued trade brought about by the Chinese manufacturing sector. Market expectations point towards a continuation of the rise following four consecutive strong months, with forecasts looking for a rise to 51.6 from 51.0. Should we see such a move, this would no doubt provide many of the associated markets and economies with a much needed boost.

The third release is the non-manufacturing PMI figure, due out on Thursday. Of course, this comes secondary to the manufacturing figure given that the services sector is less well established and smaller in size. However, the markets will still be looking towards this figure for a note of how the economy is performing after a well publicised slow period. I expect to see this figure rise towards 54.2, despite a fall last month to 53.9.

Later in the week, the Japanese economy comes into focus, with the release of the monetary policy statement from the BoJ on Friday. 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 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% two months ago 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.
 
UK Opening Call from Alpari UK on 1 October 2013

Government shutdown begins as US Congress fails again

Today’s UK opening call provides an update on:

• Congress fails to avoid first government shutdown since 1996;
• Futures point to higher open, with investors either not bothered or not surprised by the outcome;
• Shinzo Abe to proceed with sales tax in April following strong third quarter Tankan survey;
• RBA more hawkish as it leaves interest rates unchanged at 2.5%.

It would appear that the markets either aren’t overly bothered by Congresses inability to avoid a government shutdown, or aren’t particularly surprised, based on the reaction in futures market overnight.

For weeks there has been fears that Congress would fail to come to an agreement on the budget for next year, which especially over the last week or so has resulted in increasing risk aversion in the financial markets. However, there were still very few that actually believed Congress would threaten the fragile recovery in the US and furlough up to a million workers without pay.

Clearly both the Democrats and Republicans are more concerned with gaining political points and pointing the finger than actually doing what they’re elected to do. We’ve seen on numerous occasions in the past that politics comes first with these people, but the majority of the time they at least strike a late deal. Clearly the sequester earlier this year was just a preview of how both parties of what’s to come. This doesn’t bode well for the debt ceiling negotiations over the next couple of weeks.

What comes next depends on how long it takes Congress to strike a deal on the budget. The longer this drags out, the more it will negatively impact the economy, both in terms of consumer and business confidence, and GDP. We’ve already seen US growth this year hit by the fiscal cliff and the sequester, it looks like this is just the latest thing to stall the recovery. It is believed that a three week shutdown, similar to the one seen 17 years ago, would knock around 0.5% off of GDP for the quarter.

In terms of market reaction, we’re actually seeing futures pointing to a slightly higher open in both Europe and the US today, although I’m not convinced at this stage that this will last. US Treasury yields could well benefit from this, not just because of their safe haven aspect, but also because a prolonged government shutdown vastly reduces the odds of tapering from the Federal Reserve this year, which is of course positive for the price of Treasuries. On that topic, a shutdown of non-essential government departments means there will be no jobs report released on Friday. Without these figures, it’s hard to see how the Fed could opt to taper this month.

One other thing to consider is the impact of this on the credit rating of the US. Back in 2011, S&P stripped the US of its AAA rating following a similar battle in Congress over the country’s finances. The US still maintains its AAA rating with Moody’s and Fitch, but this could now be under threat, especially with the country once again close to hitting the debt ceiling. If nothing can be agreed, the US will hit the debt ceiling in the middle of the month, which would be much worse for the country than the issue over the budget, and would almost certainly prompt downgrades from both agencies. For now though, recent comments suggest they may be safe.

Japanese Prime Minister, Shinzo Abe, is expected to confirm the sales tax hike, planned for April, on Tuesday, after the Tankan survey showed a significant improvement in confidence among companies in the third quarter. It is believed that Abe was waiting for this figure to provide confirmation that the economy is in a stronger position and the time is right to announce the sales tax hike, from 5% to 8%. The last hike in the sales tax in 1997, from 3% to 5%, pushed Japan into recession, so Abe needs to be certain that the economy can handle it. He is also expected to announce a $50 billion stimulus package alongside it in order to offset the negative impact of the tax on the economy.

It was also a busy night in Australia, where the central bank, Reserve Bank of Australia, kept interest rates on hold at 2.5%, as expected. The statement that accompanied the decision was slightly hawkish if anything. While the central bank acknowledged that growth is running below average, it is confident that it will pick up next year. It was also keen to stress that the Aussie dollar is 10 per cent below its level in April and inflation is consistent with its medium term target. Based on these comments, another rate cut this year no longer looks likely.

The focus for the rest of the is going to be predominantly on the US and whether we’re going to see a quick solution to this debacle. Given that Congress has had months to sort this out and has instead focused on playing the game, I’m not overly hopeful. We also have quite a full economic calendar, manufacturing PMIs being released from the eurozone, UK and US, as well as unemployment data from Germany.

Ahead of the open we expect to see the FTSE up 4 points, the CAC up 12 points and the DAX up 32 points.
 
US Opening Call from Alpari UK on 1 October 2013

Markets point higher as budget crisis reduces taper chances

Today’s US opening call provides an update on:

* US fail to agree new budget, thus forcing agencies into shutdown
* Markets fail to respond as decision seemed to be priced in
* Question marks over the release of crucial jobs data
* Chinese manufacturing PMI falls short of expectations
* UK manufacturing PMI also disappoints

The markets are mixed this morning despite the inability of the US congress to reach an agreement over the budget before the 1 October deadline. Today marks the beginning of the new financial year in the US and as such, a dozen ‘appropriations’ needed to be agreed upon and signed off to allow spending to resume within areas such as healthcare and defense. However, the US has yet again failed to show that economic health and integrity is more important than political gains to those within congress. As a result, the country is now pushed into a scenario whereby government funded entities will either shutdown, or else be kept open with unpaid ‘essential’ employees.

The markets have treated today’s news in a mixed manner, where the likes of the eurozone indices and US futures are higher, pointing to a sell on rumour, buy on fact scenario.Given the FOMC’s stipulation at their last meeting that one of the key factors behind deciding not to taper was associated with ‘fiscal retrenchment’, it is clear that the extension of this current crisis will be seen as conducive to maintenance of the current $85 billion of monthly asset purchases.

The lessons to be learnt from the 1995-96 crisis under Clinton which led to a 21 day blackout period of government services are clear. The economic impact during that period was actually minimal, attributing to an estimated $1.5 billion fall of GDP; minimal within such a sizable economy. The 1995 crisis was driven by the house speaker and as such seemed to have more credence. This crisis on the other hand seems to be driven in large part by right wing tea party factions of the Republican party, bringing the integrity and strength of House speaker John Boehner into question. Either way, this crisis will likely fall at the feet of the Republicans from the public standpoint and for that reason, it is more likely that the President will get his way. However, for any resolution to hold up to the markets, it would need to be longer term than the 2-3 month solution suggested in recent months.

One further thought for the markets and the impact this crisis could have upon the FOMC’s decision to taper on 30 October is associated with Friday’s job report. The non-farm payroll and unemployment rate releases are produced by the Bureau of Labour Statistics, a government funded entity. The inability of the department to produce the necessary figures for Friday will no doubt impair the ability of the FOMC members to accurately judge whether the economy is sufficiently strong to withstand a reduction in the rate of asset purchases. Subsequently the likeliness is that should this crisis not be resolved quickly, markets will see the scenario as non-conducive to tapering in October as the committee have shown that they tend to err on the side of caution. There are some rumours of a potential early jobs release today, yet there does not seem to be much behind this on first look.

Overnight, the Chinese economy suffered a blow with the release of a lower than expected manufacturing PMI figure, following on from yesterdays HSBC figure which showed a similar picture. Both figures continued to grow, yet at a minimal rate, rather than the more significant rise markets were hoping for. This is not necessarily a case of the Chinese economy going backwards, but rather it improving at perhaps a slower rate than some were expecting. As a result there is a hope that we will see the economy kick on in the coming months to provide a little more traction to the global recovery.

Finally, the UK also released a disappointing manufacturing PMI this morning, falling short of expectations following five months of out-performance in this figure. This is the first of three key PMI numbers, culminating in the services figure on Thursday and as sch, the likes of George Osborne will be hoping that this is not a sign of things to come from the remaining numbers. This also represents the first time in eight months that the manufacturing PMI has reduced on a month on month basis, bringing into question whether the positive UK data will follow the summer out the door, leading to a more difficult period for the economy.

US markets are expected to open higher, with the S&P500 +7 and the DJIA +43 points.
 
UK Opening Call from Alpari UK on 2 October 2013

US government shutdown continues, ECB in focus today

Today’s UK opening call provides an update on:

• Was the budget negotiations just a dress rehearsal for the debt ceiling talks?
• Fed unlikely to taper at a time when there’s so much uncertainty for the US;
• Spanish unemployment and UK construction figures released this morning;
• No rate change expected from ECB, press conference key as usual;
• Ben Bernanke scheduled to speak later.

With large parts of the government now shut down, more than 800,000 workers taking unpaid leave and Democrats and Republicans still no closer to agreeing a deal, I can’t help but think that there was never any hope of a deal all along. This was simply being viewed on Capitol Hill as the dress rehearsal for the debt ceiling talks over the next two weeks.

Many people agree that the worst outcome of this is only likely to be around a 0.3% drop in GDP and a loss of confidence in government from voters. The repercussions of a deal not being done on the debt ceiling would be much worse. With that in mind, and seeing that both sides still appear to be in no rush to broker a deal and instead appear more concerned with pointing the finger and playing politics, the next two weeks could be very tense and very negative for the markets.

I don’t see two separate deals being done on the budget and the debt ceiling. Both sides are likely to try and use the debt ceiling as leverage to get their budget passed and at the moment, you’d have to say that this slightly favours the Democrats. The last time the government was shut down, in 1996, a large portion of the blame went to the opposition party, which was once again the Republicans. If they truly want a chance at the next elections, they may have to rethink their tactics and play the longer game. This means forgetting about blocking Obamacare, potentially focusing more on other areas of spending that could be cut, then winning the next election and dealing with it then.

Given that neither side has been in a rush in the past to negotiate, this could mean two more weeks of uncertainty for the markets and therefore, more risk aversion from investors. That said, once a deal is done, it’s only a matter of time until we’re talking about indices being back at record highs. This debacle has left the Fed with little choice but to delay tapering again until December at the earliest, not only because of the negative impact on the economy, but also the lack of data now being released. This includes the jobs report on Friday, which is likely to be subject to a delay due to the shutdown of the Labour department.

With talks set to continue on Capitol Hill, the focus this morning will switch back to Europe, with a few pieces of data being released, followed by the ECB rate decision and press conference. First up we have the Spanish unemployment change, which is expected to rise by 12,300 in September, following five months of declines and one of stagnation. The unemployment situation in Spain remains dire, with more than 25% of people unemployed and even more concerning, more than 50% of young people still seeking work. Next up we have the construction PMI for the UK, which is expected to rise slightly to 59.2, remaining easily in growth territory.

Following this is the ECB rate decision, where we’re expecting no change, followed by the press conference with Mario Draghi, in which we can expect plenty of volatility in the markets as usual. Last month, Draghi was very careful with the message he was trying to put across and I expect more of the same time. He’ll be keen to point out the recent improvement in the eurozone, while highlighting the risks that lie ahead in order to allay any fears of a hike in interest rates. He may receive questions about the renewed political instability in Italy and protests in Greece, which he’s unlikely to give a view on, as well as how the situation in the US will impact the eurozone. Aside from that though, it’s likely to be very similar to previous press conferences.

Finally, we’ll hear from Fed Chairman, Ben Bernanke, later, which should provide insight into whether the shutdown of government will have any impact on the Fed’s decision to taper this month, or even in December. There is many who believe it won’t, but I personally find that hard to believe. If it affects the economy and the confidence of consumers and businesses, it must affect the Fed.

Ahead of the open we expect to see the FTSE down 8 points, the CAC down 3 points and the DAX up 4 points.
 
US Opening Call from Alpari UK on 2 October 2013

Potential for no jobs report on Friday puts focus on ADP

Today’s US opening call provides an update on:

* Congress likely to agree on joint budget and debt ceiling deal;
* Bernanke may shed some light on Fed’s view on government shutdown;
* ADP figure carries more weight today, with no jobs report expected Friday;
* Spike in volatility expected during ECB press conference.

European indices are trading marginally lower on Wednesday and US futures are pointing to a similar open, ahead of what is likely to be two weeks of political infighting over next year’s budget and the debt ceiling.

At this stage, it looks unlikely that the budget issue will be resolved before then, with both parties viewing the debt ceiling as leverage to get what they want. The Republicans will be well aware that Barack Obama doesn’t want to be the President that throws the economy unnecessarily back into recession and call into doubt their ability to pay their way in the world, while the Democrats know that the majority of the public would blame the Republicans if no deal was reached.

In fact, it wouldn’t surprise me if neither party was ever really interested in striking a deal over next year’s budget, instead seeing it as a dress rehearsal for the debt ceiling negotiations and an opportunity to rally the public against the opposition. We never saw any effort to negotiate from either party and neither has made much of an attempt since government shut down at midnight on Monday.

This is likely to weigh on risk appetite over the next couple of weeks, with stocks grinding lower until we get a resolution. I don’t expect any significant losses off the back of this though, for two reasons. Firstly, I have no doubt that a deal will be struck, even if it comes minutes before the deadline. Secondly, none of this is helping the case of those FOMC members that want to taper in October, or even December for that matter. Therefore, this is actually positive for stock markets, just as it has been for the majority of the year. The longer it takes the Fed to taper, the more stocks will rally.

We should get more information on this later when Fed Chairman, Ben Bernanke, speaks in St Louis. If Bernanke suggests that the government shutdown will not have an impact on the Fed’s decision to taper, as many people believe it won’t, we could see much bigger losses in equity markets this week.

The ADP non-farm employment change figure will be followed much more closely this month, given that the jobs report is unlikely to be released on Friday. Investors will be looking to get an idea about the strength of the jobs market ahead of the October Fed meeting and, without the official jobs report, this is their only insight.

Shortly before the US open though, the focus will be on the ECB rate decision and press conference. The latter in particular is likely to create some volatility in the markets, with investors firstly trying to determine whether we can expect any stimulus from the ECB, which would aid the recovery, and secondly find out when we can expect a rate hike from the central bank.

The ECBs attempt at forward guidance a few months ago was appalling, so investors are non-the-wiser. Mario Draghi did previously attempt to ease concerns, claiming the current bias is towards a rate cut, rather than a hike, but these comments carry far less weight than an actual commitment to lower rates. He also stressed the risks to the eurozone going forward at the last meeting, to prevent people getting carried away with the recovery and pricing in an earlier rate hike and we’ll probably see more of the same today.

Ahead of the open we expect to see the S&P down 10 points, the Dow down 68 points and the NASDAQ down 15 points.
 
UK Opening Call from Alpari UK on 3 October 2013

Today’s UK opening call provides an update on:

• Government shutdown enters day three as Congress fails again to agree on a budget;
• Debt ceiling remains the bigger concern, yet Obama refuses to negotiate;
• Chinese stocks boosted by improvement to services PMI;
• Economic data and Fed speeches key on Thursday.

European indices are expected to open slightly higher on Thursday, despite growing concerns that a deal to avoid hitting the debt ceiling in the US is far from guaranteed.

The US government shutdown entered a third day on Thursday after Congress once again failed to come to an agreement on the budget. The Republicans are continuing to push for a delay in the introduction of Obamacare, while Obama is refusing to negotiate on the matter. Neither party is easing up on their stance making a deal in the coming days unlikely. Realistically, a deal on the budget is likely to be included in the deal on the debt ceiling, which could yet take a couple more weeks and knock up to 1% of fourth quarter annualised GDP.

US President Barack Obama met with Congressional leaders on Wednesday before appearing on TV and confirming that he will not negotiate with the Republicans on the debt ceiling and that Wall Street “should be concerned”. Clearly markets took these comments with a pinch of salt, with them instead viewing them as scaremongering from the President in an attempt to pile the pressure on the opposition to raise the debt ceiling with no conditions attached.

The President is pulling out all the stops to ensure that in the unlikely scenario that no deal is agreed, the US public will lay the blame firmly at the Republicans door. So far the tactics appear to be working and it’s looking increasingly likely that the debt ceiling will be temporarily raised with nothing offered in exchange. The only problem here is that it’s only likely to be raised until the end of the year, so we’ll back here again in three months time.

Investors in Asia over night didn’t appear overly concerned by the prospect of the US hitting the debt ceiling, despite the fact that the negative impacts of it would be felt globally, not just in the US. This may be due to investors still believing that a deal will be struck, or the prospect of more stimulus from the Fed to counter the negative impacts of this debacle on the economy, or the improvement in the Chinese services PMI for September which was released over night. Realistically it was probably a combination of the three.

China’s services PMI jumped from 53.9 in August to 55.4 in August, to mark the fastest rate of growth in the sector since March. This is just another sign that the governments targeted stimulus efforts, which were announced a few months ago in order to combat the slowing growth in the economy and achieve its minimum 7% growth target, are having the desired effect on the economy. In fact, growth in 2013 is now likely to be in line with the country’s initial targets of 7.5%.

With no deal on the budget or the debt ceiling likely today, investors will turn their attention to a number of economic releases and Fed speeches which could have an impact on the markets. First up we have the services PMIs for the UK, eurozone and many of its member countries. These are all expected to improve again in September and most importantly, remain or move into growth territory. Services is hugely important to the UK, in fact it makes up about two thirds of the economy, so another figure above 60 would be very well received. Next up we have eurozone retail sales, which are expected to improve marginally compared to a month earlier, although this would still represent a drop of 1.5% from a year earlier.

Over in the US, despite numerous departments being closed, some data will still be released. The weekly jobless claims figure for example is not calculated by a government agency so will be released, as planned. This is expected to rise slightly to 313,000, although it could be more given the backlog of claims being processed in California, following the IT issues it suffered a few weeks ago. We also have a number of Fed members speaking on Thursday, which could shed some light on what impact the government shutdown has on monetary policy. Fed Chairman, Ben Bernanke, refused to comment on this last night so we could get a similar response from the officials due to speak today.

Ahead of the open we expect to see the FTSE up 15 points, the CAC up 2 points and the DAX down 6 points.
 
US Opening Call from Alpari UK on 3 October 2013

Fears over debt ceiling continue to weigh on risk appetite

Today’s US opening call provides an update on:

* Fears over the debt ceiling continue to weigh on risk appetite;
* Lack of large losses suggests investors aren’t buying Obama’s warning;
* Investors hoping Fed members shed light on the impact on monetary policy of shutdown;
* PMIs this morning mostly positive for China, UK and eurozone;
* Spike in jobless claims possible if California backlog is cleared following IT issues.

European indices are trading lower on Thursday, as fears over the lack of a resolution on the debt ceiling continue to grow.

The general consensus in the markets continues to be that a last minute deal between the Democrats and the Republicans will be struck before the debt ceiling deadline. No resolution would be devastating for the US economy and the markets, and would be felt throughout the world. No one benefits if a deal is not agreed, so one way or another, I’m convinced it will be done.

That said, investors are clearly concerned by how far away both parties are on a deal. US President Barack Obama is refusing to offer any concessions in relation to Obamacare, while the Republicans are insisting on it. With neither side budging, there is a chance that no deal will be agreed, and the closer we get to the deadline, the more negativity we’ll see in the markets. Once a deal is struck, which will likely include an agreement on next year’s budget, stocks will almost certainly turn more bullish.

As it stands, the markets just aren’t buying it, despite Obama’s warning yesterday that Wall Street “should be concerned”. We are seeing some risk aversion but losses aren’t even close to what they would be if investors were taking the threat seriously. Instead they just appear to be waiting for the signal to buy, which in this case will be an indication that a deal is close or done.

Yesterday we heard from Fed Chairman, Ben Bernanke, who refused to comment on the matter, despite investors hoping to find out how the government shutdown impacts the Fed’s monetary policy. Today we’ll hear from three more Fed members who may shed more light on the matter as well as their view on the debt ceiling negotiations. I think it’s safe to say at this stage that the Fed can’t taper at a time when the government is in partial shutdown, especially with a number of key pieces of data not being released.

There’s been a large number of economic releases so far on Thursday. Services PMIs for China, the UK, the eurozone and a number of its member countries were released this morning and once again, they were mostly positive. The majority of them beat analysts’ forecasts and last month’s readings, while only the Spanish PMI remained in contraction territory after returning to growth in August.

All things considered, this is very encouraging. The Chinese PMI improved significantly from August, rising to 55.4 from 53.9. Clearly the targeted stimulus efforts from the Chinese government are bearing fruit. At this rate, growth above the 7% minimum set by the government looks nailed on, and even growth above the initial 7.5% target now looks likely.

Things are looking good for the UK as well, where the recovery is going from strength to strength. Despite falling slightly from Augusts’ highs, the services PMI remained above 60 in September, well above the numbers in China and the eurozone and much higher than the figure expected out of the US this afternoon. Given that services make up around two thirds of the UK economy, this is a very encouraging figure heading into the fourth quarter.

There are a couple of pieces of data being released out of the US on Thursday, which have not been cancelled due to the shutdown in government. Initial jobless claims are expected to rise slightly to 313,000. It is worth noting that this could be significantly more, depending on how much of the backlog claims have been dealt with in California, where an IT issue meant a number of claims weren’t processed over the last couple of weeks.

Also being released is the ISM services PMI which is expected to fall slightly to 57.4, although again, this could be lower depending on whether fears over a government shutdown had an impact on consumers and businesses in September.

Ahead of the open we expect to see the S&P down 9 points, the Dow down 63 points and the NASDAQ down 13 points.
 
UK Opening Call from Alpari UK on 4 October 2013

Quiet day expected with US jobs report not being released

Today’s UK opening call provides an update on:

• Quiet day expected with US jobs report not being released;
• Bohner indicates a willingness to be flexible over the debt ceiling;
• Spike in short term US debt suggests investors becoming more nervous about debt ceiling;
• Octaper unlikely due to lack of data and threats to the recovery;
• BoJ leaves monetary policy unchanged, but willing to act if necessary.

It looks like being an unusually quiet end to the first week of the month today, after it was confirmed on Thursday that the US jobs report will not be released due to the government shutdown.

This announcement has been expected ever since the Democrats and Republicans failed to agree on a budget for the next fiscal year by Monday nights deadline. Now that it has been confirmed, there’s going to be very little else driving the markets on Friday, with no progress expected in negotiations on the budget and debt ceiling on Capitol Hill.

The Democrats and Republicans remain at loggerheads over next year’s funding bill, although in an important development may have been made in the debt ceiling negotiations, less than two weeks before the 17 October deadline. A spokesman for House Speaker, John Bohner, has indicated that he is willing to be more flexible in order for the US to avoid hitting the debt ceiling and defaulting on its debt, which would send the global economy and financial markets into turmoil.

This only sounds like a small move from the House Speaker, but it is the first time we’ve seen either side show an actual willingness to come to a mutually beneficial agreement. The only problem now is, unless the Republicans drop their demands relating to Obamacare altogether, I don’t see a deal being struck. President Barack Obama has made it perfectly clear so far that they will not negotiate on Obamacare, and with him showing no signs of easing up on that stance, the Republicans may be forced to seek other concessions, in order to save face.

The markets are becoming a little more nervous about the prospect of a US default. So far, investors have been relatively calm, with indices only grinding lower. If investors saw this as a genuine threat, losses would be much greater. What we’re seeing now is investors staying on the sideline, as opposed to selling aggressively, although that could be about to change. We saw the first sign that investors are preparing for default yesterday, when yields on the shortest term debt, due to mature shortly after the deadline, spiked to highs not seen since last November. If we do see chaos in the markets going forward, it’s likely to be a very gradual move, with investors still convinced that a deal will be struck, and eager to get back in.

The reason why investors are so reluctant to sell is because this whole debacle, including the government shutdown, is expected to prolong the Fed’s quantitative easing program in its current form. Many had originally expected the Fed to taper its asset purchases in September, which clearly never happened.

An “Octaper” now appears to also be off the table, due to the uncertainty surrounding whether the government will default on its debt and what impact the government shutdown will have on the economy. Many economists are expecting the shutdown to knock around a quarter of a percentage point off the fourth quarter annualised figure for every week the government remains shut. However, this doesn’t appear to take into consideration the impact on business and consumer confidence at such a fragile stage of the economic recovery. Given the number of uncertainty’s, the Fed can’t possibly taper now before December.

This isn’t helped by a number of key pieces of economic data not being released, the most important of which would have been today’s jobs report. The Fed pays close attention to the employment data and given that it opted against tapering last month, surely can’t back it now, without such a key release. That said, the next FOMC meeting doesn’t take place until the end of the month, which allows plenty of time for the shutdown to end and the report to be released.

The Bank of Japan meeting overnight prompted very little reaction in the markets. As expected, the central bank left monetary policy unchanged, while confirming that they are willing to act in the future if necessary. Governor Kuroda is clearly referring to the potentially negative impact on the economy and inflation of the sales tax hike which comes in next year. Last time the government increased the sale tax, Japan was plunged into recession.

Ahead of the open we expect to see the FTSE down 11 points, the CAC flat and the DAX down 3 points.
 
US Opening Call from Alpari UK on 4 October 2013

"Octaper" unlikely as release of US jobs report is delayed

Today’s US opening call provides an update on:

*Government shutdown delays the release of the US jobs report;
* "Octaper" surely off the table;
* Bohner to be more flexible to avoid hitting the debt ceiling;
* Fed members to be questioned on tapering chances later this month.

What was originally going to be the most important day of the week is in fact going to be relatively quiet now, given the delay in the release of the US jobs report due to the shutdown of non-essential government departments.

The jobs report is always the most eagerly anticipated economic release but recently it’s carried an added significance, owing to the Fed’s announcement earlier this year that it would begin scaling back its asset purchases later this year. They opted against tapering in September, to the surprise of many in the markets, as the data did suggested the recovery was still very fragile.

The jobs report is arguably the best indicator of economic health and I have no doubt that the previous report, which showed fewer jobs being added in August, along with downward revisions to previous figures, contributed greatly to the Fed’s decision to delay the taper. With this in mind, the fact that the jobs report will not be released until after the government reopens surely takes the “Octaper” off the table. That said, the October FOMC meeting doesn’t take place until the end of the month so the government still has plenty of time to pass a budget.

The only problem here is that any deal between the Democrats and Republicans is likely to include both the budget and the debt ceiling, with the latter not being hit until 17th October. Following this, it is believed that the government can only afford to fund itself until the end of the month. Given the history between the two parties when it comes to these negotiations, a deal is unlikely until before the deadline, which means, technically, the government could remain closed for a few more weeks yet. This would almost certainly mean no tapering until December.

On a more positive note, there were signs that negotiations could finally move forward last night when a spokesman for John Bohner suggested that the House Speaker is willing to be more flexible in order to avoid the debt ceiling. While this may be true, the only way things are going to really going to move forward is if Republicans take Obamacare off the table altogether and seek other concessions from the Democrats in order to save face.

Until we see progress here, the markets are likely to continue to grind lower, although the losses will pick up the closer we get to the deadline. For now, losses have been minimal, with investors reluctant to sell at a time when the Fed is continuing to pump $85 billion into the financial system every month. With an October taper now very unlikely, we’re likely to see heavy buying as soon as a deal on the debt ceiling is struck.

Once again today, we’ll hear from a few members of the Federal Reserve, two of which are currently voting members, William Dudley and Jeremy Stein, and one who will become a voting member next year, Narayana Kocherlakota. As always their comments will be extremely valuable, especially if they provide important insight into how the government shut down and debt ceiling negotiations impact the Fed’s decision later this month.

Ahead of the open we expect to see the S&P up 2 points, the Dow up 16 points and the NASDAQ up 6 points.
 
Weekly market preview – 7 October 2013

An unpredictable week ahead where the markets are driven in a large part by the US economy which continues to lack a resolution to the ongoing government shutdown. The postponement of the data from the Department of Labour last week means that a resolution of this shutdown could provide a raft of data points or else continue the dearth of economic releases. In the UK, the major point of note is the MPC monetary policy decision on Thursday. Meanwhile in the eurozone a quiet week is dominated by German data along with two speeches from Mario Draghi.

In Asia, a similarly quiet week means we are mainly looking towards the release of BoJ minutes in Japan for any indication of possible further monetary stimulus going forward. While in Australia the release of unemployment data on Friday makes for an interesting week for the region.


US

Last week marked the primary opportunity for markets to gauge how likely we are to see a October taper from the Fed, given the release of crucial jobs data. However, the inability of the US congress to reach a satisfactory compromise over the budget has meant that we are currently without a spending bill. As a result, the employees at the Department of Labour must take compulsory leave, meaning that until we have a resolution to this issue we will not receive any government calculated economic releases. The most notable of these were the nonfarm payroll and unemployment rate figures, which will be provided once the shutdown is over. This essentially means that the longer this standoff remains unresolved, the less likely we are to get any taper in October. Should the shutdown be resolved we could be in for a busy week while the market catch up. Otherwise, of the events that will certainly go ahead, the unemployment claims, FOMC minutes and UoM consumer sentiment figures will take the focus.

The lack of any DoL jobs data last week means that the focus upon the weekly unemployment claims figure will intensify as investors look for hints as to the tapering decision at the FOMC meeting later this month. The expectation is that for any taper to be feasible, we would have to see a significant deterioration of the unemployment levels, however the expectation is that we will only see a reduction by 1,000 from 308k to 307k. This would likely be insufficient to taper, especially without the headline figures being released. Thus I do not believe that this figure will necessarily be able to convince many that we will see a taper, but certainly has the ability to confirm a non taper.

On Wednesday, the FOMC minutes are released from their last meeting, and with it we will gain a greater understanding of why the committee decided to not taper in September. Of course, the tone of the minutes will be highly notable and will give us a greater insight into what conditions are now deemed as required. Given the impact of the current shutdown, I believe the sentiment is likely to swing further against a taper rather than towards it.

Finally, the University of Michigan consumer sentiment figure is due to be released on Friday. This is the preliminary release and thus has the propensity to move the markets more than the later revisions. Given the lack of data out recently, the markets will likely attribute a greater importance to this and thus we could see some volatility off the back of this release. The market expectations are for a marginal fall to 77.2 from 77.5. However, given the increased worries regarding the debt ceiling and budget throughout September, I believe this could fall further than that.

UK

A moderately quiet week in the UK, where the two events of note come in the form of the manufacturing production figure along with the monetary policy decision from the BoE. The MPC will decide on Thursday as to whether the current monetary policy will be altered from the current 0.50% interest rate and £375 asset purchase facility. Given the forward guidance provided by Mark Carney, there is no expectation for any change in either direction. However, should the accompanying statement provide anything new, this event has the possibility to really move the markets.

The second event of note in the UK is the manufacturing production figure, released on Wednesday. Given the disappointing manufacturing PMI figure last Tuesday, the markets will be looking to this figure for evidence that the industry is still going on strong. Market expectations point towards a marginal rise from 0.2% to 0.3%. On the whole, we only get a notable market response should the figure come in well above or below estimates and thus anything around this level would likely bring an unremarkable response. However, should this come in sharply away from estimates, there is a possibility of volatility.

Eurozone

A quiet week in the eurozone is dominated by the release of a raft of German data along with two speeches from ECB president Mario Draghi. The German economy is the main driver of growth and output for the region, which makes any change in sentiment very important. Therefore the release of the German trade balance, factory orders and industrial production figures in the first half of the week will therefore be a key barometer of how the economy is progressing. The expectation is that we will see a notable improvement on all fronts, where the trade balance moves further into surplus and both industrial production production and factory orders move back into growth. On the whole, these figures are unlikely to have a substantial impact individually unless we get a significantly wide figure. However, we are looking for an overall indicator from all three of these releases as to how the German economy is faring going forward.

On Wednesday and Thursday, we will hear from ECB president Mario Draghi where markets will be looking for further comments following his appearance at the ECB press conference last week. Much of the expectations and emphasis is currently geared towards the possible use of LTRO’s by the ECB, which was not ruled out. Any further comments to further elaborate upon that standpoint would likely move markets and thus look out for any discussion of the topic.

Asia & Oceania

A quiet week in Asia, where the only events of note come out of the BoJ in Japan. On Wednesday the minutes from last week are released, while on Thursday we will hear from BoJ Governor Kuroda in Washington. Essentially we are looking for the same from both events which is any indication that the BoJ has some form of willingness to increase their current rate of asset purchases or lower the interest rate. The application of a heightened sales tax is also key to bringing down debt, yet could be detrimental to the current recovery owing to lowered demand. Thus it is these two points which should be followed within both the minutes and Kuroda’s speech.

In Australia, the focus will be on Thursday, when the jobs data is released in a period where there seems to be signs of a gradual improvement in the region. The employment change figure is the most volatile and gives a good insight into the direction the employment situation is moving. Market expectations point towards a reversal of the disappointing August figure of -10.8, instead looking towards a rise 15.2k. On the other hand, the unemployment rate is the opposite, giving a less dynamic measure. That being said, this figure tends to grab more headlines at any shift the previous months figure. Expectations point towards the 7.8% figure remaining steady which seems highly possible given the mixed employment change data over past months. Should we see a strong showing from the jobs report, this could provide yet another boost at a time when things are starting to look a little more rosey in the garden for the Australian economy.
 
US Opening Call from Alpari UK on 7 October 2013

Stocks lower as US government shutdown drags on

Today’s US opening call provides an update on:

* Government shutdown continues after weekend of failed negotiations;
* Bohner appears to soften his stance on Obamacare;
* Earnings season kicks off with Alcoa tomorrow.

European indices are trading higher on Monday and US futures are heading in the same direction, as US leaders continue to stall on a deal to avoid hitting the debt ceiling and agree on a budget for the next fiscal year.

Very little, if any, progress has been made over the weekend in relation to these negotiations. President Barack Obama is still not interested in offering the Republicans anything in exchange for raising the debt ceiling and instead appears more focused on ensuring that voters blame the Republicans in the case that it happens.

House Speaker, John Bohner, on the other hand does appear to be softening his stance. Bohner may finally be realising what everyone else already knows, that nothing is going to convince Obama to back down on what is his flagship initiative from his time in office.

Comments from Bohner over the weekend suggest that in order for a bill to pass through the house, it will have to be aimed at trimming the deficit. So far, the Republicans have targeted Obamacare as a means of doing this, however these comments appear to suggest that they would settle for cuts elsewhere.

This is the only way I see a deal being done. So far Obama hasn’t been interested in negotiating at all, but there’s going to come to a point when he must. I’m convinced that sometime next week, a deal will be agreed along these line, allowing both parties to claim a win out of negotiations. Democrats will keep Obamacare and the Republicans make further cuts to spending. Why this hasn’t been agreed already is a farce and exactly why so many people feel let down by both parties.

Elsewhere today, there’s very little happening. The economic calendar is looking very thin, with the only noteworthy release being the Sentix investor confidence figure for the eurozone, which surprisingly fell to 6.1 in October.

One thing that could provide a distraction from negotiations on Capitol Hill this week is the start of corporate earnings season. As always, Alcoa get things underway tomorrow, while the first major bank reporting earnings will be JP Morgan on Friday.

With some pieces of US data not currently being released, due to the government shutdown, investors could turn to these figures to get a better idea of the strength of the economy. Also important here will be companies outlooks, which are likely to focus on the potential risks facing the economic recovery.

Ahead of the open we expect to see the S&P down 16 points, the Dow down 138 points and the NASDAQ down 30 points.
 
UK Opening Call from Alpari UK on 8 October 2013

Risk aversion continues as shutdown enters second week

Today’s UK opening call provides an update on:

• Deal no closer as government shutdown enters its second week;
• Investors to become more negative as the deadline approaches;
• Fed officials scheduled to speak this afternoon;
• UK and Chinese positive data overshadowed by concerns in the US.

European indices are expected to open lower again this morning, as concerns over the US debt ceiling continue to weigh on risk appetite.

The government shutdown has now entered its second week and still, a deal on the budget and the debt ceiling are no closer to being done. The longer this goes on, the more we’re going to see this uncertainty in the markets turn into negativity. So far, losses in indices and the dollar have been relatively small, under the circumstances. US Treasuries have actually risen in price over the last month, driving the yield lower, despite the increasing possibility of a default on the country’s debt.

The closer we get to the 17 October deadline, the more investors will begin to question whether the US will actually do the right thing in the end. I still believe that no one in their right mind would allow the US to hit the debt ceiling, causing havoc in financial markets and risking sending a number of countries, including the US itself, back into recession. A deal will surely be done in the end, which delays the debt ceiling being hit until the end of the year in exchange for some cuts to spending, although Obamacare will likely be spared.

As this drags on, investors are unlikely to pay too much attention to anything else, as it remains the greatest immediate threat to the global economy by some way. Economic data will take a back seat, although it’s still worth keeping an eye on the more important releases. For example today, we have trade balance and factory orders data out of Germany, both of which are expected to significantly improve for August.

The US session will be a little quieter when it comes to economic data. There are a couple of Fed officials due to speak this afternoon, and while neither are voting members, they should be able to provide some important insight into whether the Fed is concerned about the government shut down and debt ceiling, and if so, how they may react to both. The government shutdown is generally not viewed as a massive threat to the economy, although it may encourage the Fed to taper at a later date, while the consequences of the US hitting the debt ceiling could be catastrophic. It will be interesting to see if the Fed has a plan in place, should this unlikely scenario play out.

We’ve had some data out this morning, although it’s had minimal impact on the markets. UK house prices were on the rise again in September, with more than 50% of surveyors now reporting rising prices in their area, while retail sales also rose by 0.7%, falling slightly short of August’ rise of 1.8%.

In China, the HSBC services PMI remained comfortably in growth territory, with a reading of 52.4. This was slightly down from last month’s reading of 52.8, but still seen as a positive thing given that this survey covers more small and medium sized private firms that don’t benefit as much from the targeted government fiscal stimulus. The official reading, which covers more large state owned firms, rose to 55.4 in September, from 53.9 the month before.

Ahead of the open we expect to see the FTSE down 6 points, the CAC up 3 and the DAX up 1 point.
 
UK Opening Call from Alpari UK on 9 October 2013

UK in focus as IMF revises 2013 growth to 1.4%

Today’s UK opening call provides an update on:

• Fears over debt ceiling continue to weigh on risk assets;
• President Barack Obama to nominate Janet Yellen for Fed Chair;
• IMF downgrades global growth to 2.9%;
• UK data in focus this morning;
• FOMC minutes offer insight into tapering decision.

European indices are expected to open lower again on Wednesday, as investors become increasingly risk averse as the 17 October deadline for the debt ceiling approaches.

Once again no progress has been made in negotiations between the Democrats and the Republicans. Both sides appear to be doing a lot more talking in the media on the subject than with each other, which isn’t going to get us anywhere. Obama is still insisting on a clean increase of the debt limit, i.e. no conditionality attached, while Boehner insists that this is not how government works. In other words, both parties haven’t budged in weeks so there’s little hope of a deal being struck before the debt ceiling deadline on 17 October.

Providing a small distraction from budget and debt ceiling talks in the US was reports over night that Obama will nominate Janet Yellen , Vice Chairman of the Federal Reserve, for the position of Chair, replacing Ben Bernanke next year. This is generally seen as a positive appointment for financial markets as Yellen is widely regarded as even more dovish than Bernanke, which could help prolong the Fed’s asset purchases well into next year.

UK Chancellor, George Osborne, was handed a small win yesterday when the IMF gave its backing to his program of austerity and upgraded its growth forecast for the UK to 1.4% for this year, from 0.9% in July, the highest in Europe. The upgrade comes only six months after the IMF warned that Osborne was “playing with fire” by continuing to pursue austerity and urged him to change his course. Osborne opted to stick to his plan and for now, at least, it looks as though his decision was justified.

Elsewhere, the IMF revisions weren’t so positive. Global growth was revised significantly lower to 2.9%, down from 3.2% three months ago. Downward revisions to a number of countries contributed to this overall drop in growth, although the most notable revisions were to the emerging economies, including Brazil, China and India.

The UK will remain in focus this morning, with industrial and manufacturing production figures being released. An increase of 0.4% is expected in both in August, which is another encouraging sign for the UK that the country is recovering well and the recovery is sustainable. The UK’s trade deficit is also expected to narrow in August, falling to £9 billion from £9.853 billion in July. Also being released this afternoon is the NIESR GDP estimate for the last three months, which should show growth continuing to rise into September, as the UK looks to end the year on a high.

Minutes from the September’s FOMC meeting will be released this afternoon, which should attract plenty of interest. Many people were baffled when the FOMC decided to leave its asset purchases at $85 billion per month last month and will be looking at the minutes for an explanation. They will also want to know what conditions will need to be met going forward in order for the Fed to taper its asset purchases. We could see some volatility in the markets around the release of the minutes, especially if they hint at possible tapering in October, although that now looks very unlikely given the debacle over the budget and the debt ceiling.

Ahead of the open we expect to see the FTSE down 19 points, the CAC down 10 points and the DAX down 34 points.
 
US Opening Call from Alpari UK on 9 October 2013

Imminent nomination of Yellen sends US futures higher

Today’s US opening call provides an update on:

* Obama to nominate “dovish” Yellen for Fed Chair;
* Positivity likely short-lived with Congress miles from an agreement on the debt ceiling;
* FOMC minutes to shed light on decision not to taper;
* Bad morning for the UK, could improve when NIESR GDP estimate is released.

We could be in for a rare day of positivity in the markets, if US futures are anything to go by, as the imminent nomination of Janet Yellen for Chair of the Federal Reserve buoys investors.

Yellen, the current Vice Chairwoman of the Fed, is believed to be even more dovish than Ben Bernanke, who’s term ends on 31 January. It’s therefore no surprise to see investors respond positively to the news of President Barack Obama’s nomination, especially given that he was previously believed to be more in favour of a much more hawkish Lawrence Summers.

Whether Yellens appointment will have much of a bearing on when the Fed starts tapering is yet to be seen. There is a still a chance that the Fed will not taper before the end of Bernanke’s term, and even if they do, there’s no reason why the purchases cannot be increased again, or the pace of tapering slowed. Yellen will play a key role in the tapering process, if appointed, and this can only be of benefit to investors who have benefitted from the loose monetary policy over the last 12 months.

Investors have had little to cheer about over the last couple of weeks, with Congress firstly being unable to agree on a budget for the next fiscal year, leading to the shutdown of non-essential government departments, before facing exactly the same issues over the debt ceiling. The debt ceiling though is far more serious and has weighed on risk appetite much more. With negotiations, or a lack for that matter, expected to continue for a week or so yet, I don’t think it will be long before risk aversion returns and markets are once again grinding lower.

Minutes from the last FOMC meeting in September will be released on Wednesday. Investors will be keen to find out why the Fed did not taper in September, as many in the markets had expected. A reduction in asset purchases of $10-$15 billion had been almost entirely priced in to the markets, due to investors viewing the improvement in the economic data and hawkish rhetoric from certain Fed members, including Chairman Ben Bernanke, as a sign that tapering was warranted.

This didn’t materialise leaving investors confused and looking for an explanation as to why they didn’t taper and what conditions need to be met in the future for it to begin. The release of these minutes could therefore prompt significant volatility in the markets, although any gains would be limited due debt ceiling talks being a far more important issue at the moment.

It hasn’t been the best start to the day for the UK, which is surely contributing to the FTSE being the only major European index not in positive territory. Industrial and manufacturing production figures posted a surprising drop in activity compared to a month earlier, despite expectations of an increase. The trade deficit, while shrinking compared to July’s figure, was also much bigger than was expected. Hopefully this afternoon’s NIESR GDP estimate will offer a little more positivity, given the improvement in the broader data over the last few months.

Ahead of the open we expect to see the S&P up 6 points, the Dow up 40 points and the NASDAQ up 12 points.
 
You must log in or register to reply here.

Similar threads

B
best place to research.
Replies
0
Views
2K
boyes51
B
J
DailyFX.com Releases Top Forex Trading Ideas for 2011
Replies
0
Views
3K
jsales
J
M
research participants?
Replies
7
Views
2K
mikaelsegerberg
M
R
Re: RvdMarkets best trading terms for currency trading
Replies
9
Views
3K
rep.rvd
R
M
Forex Prop Trading Firms and Operational Research
Replies
9
Views
7K
shahkhan
S
Top