Forex research

US Opening Call from Alpari UK on 10 October 2013

US futures higher on hopes of short-term debt ceiling deal

Today’s US opening call provides an update on:

* US futures higher on hopes of short-term debt ceiling increase;
* Fed minutes hinting at tapering this year;
* BoE to leave policy unchanged, no statement expected;
* US jobless claims and Fed speeches on Thursday.

US futures are higher on Thursday, following reports that the House Republicans may be open to a short-term increase in the debt ceiling that would allow the US to avoid default.

All this essentially means is that negotiations will be delayed by a couple of months, at best, and we’ll be back in the same situation again come Christmas. Unfortunately though, under the circumstances that is a positive thing, not just for the financial markets but the global economy, which would suffer hugely if the US was forced to default on its debt.

While most people in the markets still believe a deal will be struck, all you have to do is look at the yield curve on US Treasuries to see that traders are beginning to prepare for the worst case scenario. Yields on very short term debt have risen recently creating a small spike in the early part of the yield curve, a clear sign that investors are becoming nervous.

Had it not been for these developments, markets could have been much lower on Thursday, after minutes from the September FOMC meeting showed that most of the members still saw tapering beginning this year. Since the meeting in September, people have started to come round to the idea that we may have to wait until early 2014 for the first taper, something the minutes suggest is now unlikely.

That said, a lot has happened since that meeting, including the US government shutdown and the ongoing squabbles over the debt ceiling. If the decision on the debt ceiling is pushed back to December, I can’t see how the Fed could justify reducing its support when such a big threat hangs over the economy. It also may not be clear at that stage exactly how big an impact the shutdown has had on the economy, and more importantly, consumer and business confidence.

The Bank of England decision on interest rates and asset purchases today is likely to be a bit of a non-event. No change is expected from the MPC, with the economy improving and members continuing to stand by the forward guidance that was given following Governor Mark Carney’s first meeting in charge. We’re not expecting a statement to accompany the decision either so I don’t expect the markets to react at all.

Of more interest will be the US jobless claims and speeches from a couple of Fed members. Jobless claims are expected to rise slightly to 310,000, up from last week’s 308,000. I’ll be very surprised if we see a significant spike here. It’s generally believed that most companies have cut staff as far as they can while continuing to operate to an acceptable standard. A much bigger concern now in the US is the lack of job creation.

Speeches from James Bullard, Daniel Tarullo and John Williams, the first two of which are voting members on the FOMC, this afternoon will attract some attention following the release of the minutes. Investors will be keen to know whether views on tapering have changed in light of the budget and debt ceiling difficulties, and whether they still see the Fed scaling back its asset purchases later this year.

Ahead of the open we expect to see the S&P up 13 points, the Dow up 105 points and the NASDAQ up 23 points.
 
UK Opening Call from Alpari UK on 11 October 2013

Europe to open higher as debt ceiling talks get underway

Today’s UK opening call provides an update on:

• Europe to open higher on hopes over a deal on the debt ceiling;
• JP Morgan and Wells Fargo get earnings season underway for the banks;
• Government shutdown delays retail sales report, UoM consumer confidence still due to be release.

Risk appetite is finally returning to the financial markets, with investors more optimistic over a deal on the debt ceiling now that both sides are finally showing a willingness to seriously negotiate.

While most people have believed all along that lawmakers from both sides would finally start taking these negotiations seriously, I think what we saw in the US and Asia overnight is a collective sigh of relief. Relief that we may not have to wait for an eleventh hour deal on this one, which would create a certain amount of chaos in financial markets, or even worse that the deadline will be hit and no deal will have been struck. The only question now is, how far will they kick the can down the road this time?

Unfortunately, it doesn’t look like they’re going to kick it very far. In fact, the House Republicans have proposed an increase in the debt ceiling that would give the US six weeks until its back in exactly the same situation again. It would appear that US lawmakers are not a huge fan of national holidays. Last year they effectively cancelled Christmas in order to avoid going over the fiscal cliff, now it looks as though Thanks Giving will be the next casualty as the extension would push the deadline back to the end of November.

With a deal on the debt ceiling and the budget looking close, investors can now turn their attention to corporate earnings season. Alcoa kicked things off on Tuesday, with surprisingly strong earnings for the third quarter. Today, it’s over to JP Morgan and Wells Fargo to get things underway for the major banks.

There are growing concerns that this earnings season won’t necessarily be as positive as they have been in recent quarters. One of the major things that has contributed to earnings growth recently has been efficiency savings, such as staff layoff’s, and as we’ve mentioned previously, this can only go on for so long. We’ve seen in the jobless claims figures as the year has gone on that companies are laying people off at a much slower rate, which could have an impact on earnings growth in the third quarter.

Revenues haven’t been particularly strong in previous quarters, but this has been masked by cost cutting throughout the business. It will be interesting to see in the coming weeks whether we’re actually seeing signs that the economy is in fact recovering, and where businesses see earnings being driven from in the quarters ahead. The US economy is hardly taking off and consumer and business confidence is constantly being hit by the battles in Congress. At times it feels like a case of two steps forward and one step back in the US and unfortunately, the most recent debacle over the budget and the debt ceiling suggests that’s unlikely to change.

There’s very little in terms of economic releases to look out for today. Ordinarily we’d have US retail sales as well as a number of other releases today, but as with the jobs report last week, the government shutdown means the release date had to be pushed back. The only noteworthy release comes from the US, where the preliminary reading of the UoM consumer sentiment figure will be released. We’re currently expecting a figure around 76, down from 77.5 last month, however given everything that’s going on, I wouldn’t be surprised to see this much lower.

Ahead of the open we expect to see the FTSE up 25 points, the CAC up 8 points and the DAX up 29 points.
 
US Opening Call from Alpari UK on 11 October 2013

US futures flat despite progress in debt ceiling talks

Today’s US opening call provides an update on:

* Small amounts of progress being made in debt ceiling talks;
* Shutdown to continue with budget still far from being agreed;
* No US retail sales today due to government shutdown;
* JP Morgan and Wells Fargo gets earnings season underway for the banks.

European indices are being driven higher on Friday by reports that the Republicans are pursuing a short-term increase of the debt ceiling in a bid to avoid a catastrophic US default.

The increase, which would give government six more weeks to come to a longer term agreement on the debt ceiling, is far from an ideal resolution, however any deal to avoid hitting it for now will always be well received in the markets. It’s still not clear whether the Republicans will want anything in return, which could scupper a deal being done, but at least it’s progress, which is something that hasn’t been seen until now.

The proposal put forward by the Republicans has put people’s minds at ease somewhat, with fears rising until now that both parties would continue to dig in their heels right up to the deadline, in six days time. It is hopefully the first step towards a longer term deal that can remove all of the uncertainty, not just from the financial markets, but that’s been hanging over the economy for months now. Businesses and consumers need to be confident that another horrendous recession isn’t waiting around the corner, and hitting the debt ceiling would undoubtedly bring about such a scenario.

The only downside to this is that the deal doesn’t appear to include an agreement on the budget which would end the government shutdown. While the impact of the shutdown is nowhere near as severe as hitting the debt ceiling would be, the longer it goes on, the more it will weigh on growth in the fourth quarter and therefore damage the recovery.

We can only hope that a deal on the budget would quickly follow, although without the debt ceiling to use as leverage for each side, I get the feeling the debate over the budget could continue. That is unless the Republicans give up their war on Obamacare, and the Democrats offer them an alternative.

As far as today is concerned, aside from ongoing debt ceiling negotiations, it’s looking pretty quiet. The economic calendar only has one notable release, being the UoM consumer sentiment figure, which is expected to fall slightly to 76 from 77.5 last month. It wouldn’t surprise me if the fall was a little bigger given the failure from government to avert a shutdown.

Ordinarily there would be a lot more data out of the US, such as retail sales and PPI. However, the shutdown has meant that these figures, like the jobs report last week, will not be released at a later date. When that is depends on how long it takes government to agree on a new budget.

Corporate earnings season got underway this week, which should give investors something new to focus on. JP Morgan and Wells Fargo get things underway for the banks today and their results will be followed very closely. JP Morgan’s, in particular, are seen as a good indicator of how the industry as a whole will perform.

Ahead of the open we expect to see the S&P flat, the Dow up 2 points and the NASDAQ down 3 points.
 
Daily Market Update - 11 October 2013 - Alpari UK

0:09 Update on debt ceiling negotiations in the US
1:30 Most US economic releases delayed due to shutdown
2:21 JP Morgan and Wells Fargo report earnings
2:43 Royal Mail up 40% on first day of trading

 
UK Opening Call from Alpari UK on 14 October 2013

Debt ceiling and earnings in focus this week

Today’s UK opening call provides an update on:

• Negotiations continue as Democrats reject short-term deal;
• Investors focus more on earnings in the absence of US data;
• Plenty of UK, eurozone, Chinese and Japanese data being released this week;
• Chinese data mixed over the weekend.

The US is now three days from hitting its debt ceiling and entering its third week of the government shutdown, forcing investors to the consider the possibility that a deal will not be struck by the 17 October deadline and the US could default on its debt.

It’s quite incredible that the uncertainty surrounding the debt ceiling hasn’t transformed more into negativity, given that we’re now so close to the deadline. We are seeing small amounts of negativity, for example European and US futures are both lower this morning, while many Asian indices are trading lower as well. However, these losses are tiny compared with the kind we would see if the US actually hit the debt ceiling.

This suggests that investors remain unconvinced that the debt ceiling will be hit, despite negotiations be unsuccessful so far. It does seem as though Democrats and Republicans are getting closer to a deal, despite the former rejecting a short-term solution over the weekend. It’s just a question now of whether any deal on the debt ceiling will include one on the budget that would allow the government to reopen and limit any damage to the economy. Many have argued that the impact will be small, but it’s hard to calculate the impact on confidence, especially among consumers, who are so important to the US economy.

With a deal now probably not far away, investors will be able to turn their attention to what they should be focused on, corporate earnings season. Alcoa got things underway last Tuesday, while JP Morgan and Wells Fargo were the first of the major banks to report second quarter earnings on Friday. This week a number of other major banks will report earnings, as well as companies focused more on consumer behaviour, which given the lack of US data recently, will provide the best indication of consumer sentiment heading into the final quarter of the year.

The economic calendar is looking a little more full this week, with a number of key economic releases expected from the UK, eurozone, China and Japan. Releases from the US are few and far between, with many still being delayed due to the government shutdown, which is just about to enter its third week. Monday will be a little quiet again, with eurozone industrial production the only notable release, but this will pick up starting tomorrow with RBA minutes, UK inflation and eurozone sentiment figures.

We’ve already had some data out of China over the weekend and over night, which has been relatively mixed. Trade balance figures over the weekend showed an unexpected dip in exports, which weighed on Australian stocks and the Aussie dollar over night. On a more positive note, imports rose 7.4% in September, which suggests domestic demand remains on the rise, something that is crucial for the country to successfully transform away from an export-led model to one more focused on consumer spending.

Inflation data released this morning was higher than expected, at 3.1%, which is still comfortably below the 3.5% target rate. The reading was a positive sign as it suggests that consumer demand is getting stronger in China, which then drives prices higher. This may become concerning once inflation rises above the target as it may prompt a tightening of monetary policy.

Ahead of the open we expect to see the FTSE down 17 points, the CAC down 6 points and the DAX down 29 points.
 
Weekly market preview – 14 October 2013

An interesting week for the global economy where the lack of notable data releases is somewhat overshadowed by the possibility of a US default on Friday. The ongoing crisis within the US means that we are provided with no data out of the Department of Labour (DoL) for the time being, thus unless a deal is reached on the budget, the primary economic release will come in the form of the unemployment claims figure on Thursday. In the UK, the busiest of all the major western economies, the main event of note comes in the form of the jobs data release on Wednesday. However, the eurozone has a more quiet week, where the German ZEW economic sentiment figure dominates.

A particularly lively week in the Asian region and for China in particular. The Asian powerhouse releases a raft of key data points throughout the week, with the most notable being the quarterly GDP figure due out on Friday. On the other hand, in Japan the focus will be upon two speeches from BoJ Governor Haruhiko Kuroda. Meanwhile in Oceania the Australian monetary policy minutes from the latest RBA meeting are likely to draw significant attention.


US

Another week passed and the US continues to operate with only ‘essential’ government employees due to the continued shutdown brought about by the failure of congress to agree on a new 2014 budget. This continues to affect the release of key data owing to the freeze on DoL data processing, which means we are currently relying on the data from private firms to gauge how the worlds biggest economy is coping. The jobs data is the most notable victim of this and given the reliance upon both the unemployment and non-farm payroll data by the FOMC to decide upon tapering in October, this would likely be the first data which would be addressed should we find a resolution. There is a high likeliness that this ongoing standoff could be resolved given that the debt ceiling deadline is on Thursday and both issues could be tied together. Thus should we see a resolution which would allow the DoL staff back to work, be aware that we could receive some of the data within 2-3 days after resolution.

Of the few economic releases that are due this week, the most notable is likely to be Thursday’s weekly unemployment claims figure. This has taken on a more prominent role with the reliance of the Fed on employment data to judge when tapering should occur. Whilst Octaper seems unlikely with the recent standoff, this is still very notable and has the potential to move markets. Last week saw a significant spike in the figure due to the effects of the government shutdown and the clearing of a claims backlog in California. Thus expectation is for a reduction to around 357k from 374k last time, where the interest will lie in to what extent the continued shutdown is effecting the wider jobs market.

Elsewhere in the week, it is worth being aware of the numerous speeches from FOMC members William Dudley, Charles Evans and Esther George. The markets have no doubt near enough factored in the notion that it is now very unlikely that the FOMC will taper in October. However, remember that we are always looking out for signs of how the Fed gauge the current environment and how accommodative they need to continue to be going forward.

UK

A busy week for the UK economy, where three key data releases come out in the form of the inflation data, jobs data and retail sales figure. The first of these is the UK inflation figures, where the CPI is the most commonly followed measure. The CPI is utilised by the BoE to gauge price stability, which is their primary target as mandated by the chancellor of the exchequer. However, this figure has taken on increased importance owing to the inclusion of inflation within the forward guidance provided by Mark Carney.

Market forecasts point towards a fall from 2.7% to 2.6%, which would be the third consecutive month that this measure has reduced. This is highly significant as we push towards the target 2%. Also, given that Mark Carney’s forward guidance stipulates inflation should be below 2.5% in 18-24 months, the markets are looking to see the figure fall to enable confidence of long term low interest rates.

On Wednesday the jobs data is released, where the unemployment rate and claimant count have the ability to move markets significantly. Again, it is the link to forward guidance which dominates thinking on the jobs data nowadays, where the question of whether to bring interest rates higher will come into play once 7% unemployment is reached. Thus the unemployment rate will be vital for markets. The expectation is for the figure to remain at 7.7% following last month’s reduction from 7.8%. That was the first reduction in four months and thus I do not expect this figure to fall again this time.

The claimant count change figure is also key to understanding exactly how the employment conditions are changing with a little more accuracy. Expectations point towards the first time in seven months that this measure moves in a negative direction, with the forecasts pointing to a reduction of -24.3k after a fall of -32.6k last time. That being said, the past six figures have beat expectations and thus I continue to hold a positive bias when considering which way this data will go.

Finally, on Thursday the retail sales figure is due to provide an insight into consumer confidence and spending habits as the summer draws to a close. The release is typically pretty volatile, and given the importance of it we often see some significant price action off the back of missed forecasts. The market expectation is for retail sales to have moved back into positive growth this month, with 0.5% expected after -0.9% last time. Behind GDP, retail sales is one of the most significant barometers of economic health since spending patterns cover both current sentiment and forward expectations.

Eurozone

A quiet week in the eurozone, where the dominant event is likely to be the German and eurozone ZEW economic sentiment releases. Of those two, the German figure is typically the most important given that it is compiled by a German company and surveys 275 German institutional investors and analysts. What is notable is that forecasts are pointing to a divergence of the two figures, where the German number is expected to deteriorate somewhat, whilst the eurozone figure pushes higher. Given this portrays a mixed picture, it will likely have less of an effect upon the markets, and thus we are looking to see if both can move in the same direction. The expected reduction in the German number is minimal, with forecasts pointing towards a reduction from 49.6 to 49.2. However, given that this figure has outperformed on the past two occasions there is a possibility that we could see this move higher.

Asia & Oceania

A particularly important week for China ahead, where the trade balance, CPI and GDP releases provide a strong focus upon the second biggest economy in the world. The trade balance figure on Saturday is always key given the importance of the Chinese imports and exports for international growth. The much publicised slowdown in the Chinese economy seems to be all but over with last months figure coming in stronger on both fronts. The overall trade balance surplus is expected to fall from 28.5 billion to 25.2 billion, yet it is the finer details of exports and imports which really matter. On this occasion exports are expected to fall from 7.2% to 6.0%, while imports remain at 7%. Make sure to be aware of those two figures as they have the ability to provide a greater indication of how the Chinese trade story is changing.

On Monday, the Chinese CPI figure is expected to show a signficant rise from 2.6% to 2.8% following a 0.1% reduction last month. The Chinese economy, much like most the other major economies, will base their ability to stimulate the economy upon whether prices remain stable. Thus should the inflation rate continue to rise, this would limit the ability of the Chinese to further aid the economy as it has been doing in the past.

On Friday, the all important GDP reading is released for Q3. Much of the talk earlier in the year mentioned a possible reduction to 7% and below for the region given the weaknesses evident at the time. However, we are expecting to see the rate rise markedly for Q3, with estimates pointing to an increase from 7.5% to 7.8%. Should this occur, it would be a major coup for the trade partners of China along with the country itself. On this occasion I feel we may miss the estimates somewhat, given that the past two occasions have fallen short.

Also look out for the important industrial production and retail sales figures out of China.

In Japan, a fairly quiet week will focus predominantly upon the two speeches from BoJ governor Haruhiko Kuroda who is due to speak on Saturday and Friday. Much of the same really to look out for in terms of a market reaction. The focus continues to remain upon whether the likes of Abe and Kuroda see the current economic development as sufficient and whether there is any appetite for further easing measures. Also look out for mentions of the sales tax and whether he believes it will impair growth going forward.

In Australia the main event of the week is the release of minutes from the last monetary policy meeting back on 1 October. The accompanying statement pointed to increasing ease at the current state of the economy, however people will be looking to the minutes for any indication of continued willingness to ease going forward.
 
US Opening Call from Alpari UK on 14 October 2013

Indices resilient as debt ceiling deadline looms

Today’s US opening call provides an update on:

* Indices surprisingly resilient as we close in on the debt ceiling deadline;
* Chinese exports fall well below expectations;
* Economic calendar looking quite empty on Monday;
* Earnings season to get into full flow as the week goes on.

European indices are trading lower on Monday, as the battle in Congress over the debt ceiling continues and Chinese trade figures disappoint.

Surprisingly, the losses being seen in Europe so far this morning are not too bad. In fact, the FTSE is now trading relatively flat, while the CAC and DAX are only down by one fifth of a percentage point. Clearly, despite being unsuccessful so far, the negotiations on Capitol Hill are providing some comfort for traders, who remain reluctant to heavily sell their positions.

That may be working for now, but with only three days to go until the deadline, it can only last for so long. If we go another 48 hours without a deal to avoid the debt ceiling being agreed, we could see the rate of selling pickup, and that comfort replaced with panic.

Assuming we get a deal on the debt ceiling, which I still believe we will, the next question is whether a deal on the budget will be included. The government shutdown has been more of an inconvenience than a disaster, which is certainly what hitting the debt ceiling would be.

That said, the longer this shutdown lasts, the greater the impact I see it having on both consumer and business confidence, especially if the debt ceiling resolution is only a short-term one. That is the bigger issue right now which is why Congress needs to get this right at the first of asking. Otherwise the fragile recovery may come under threat.

The Chinese trade balance figure is also weighing on sentiment this morning. While imports actually picked up more than expected in September, exports were very disappointing, falling by 0.3% against expectations of a 6% increase. I don’t expect this to lead to more problems down the line, it could just be a case of the figures becoming more reliable now that the government has cracked down on companies disguising capital inflows as exports.

The economic calendar is looking very light on Monday, although the number of releases should pick up as the week goes on. There are no more notable releases scheduled for today, with the only one so far being the eurozone industrial production figure, which showed a 1% increase in activity in August.

The corporate earnings calendar is also looking a little thin on Monday, although again, this will also pick up as the week goes on. JP Morgan and Wells Fargo were the first of the big banks to report earnings on Friday. They will be followed this week by a number of other banks including Goldman Sachs, as well as some companies focused more on the consumer, which will be followed closely in the absence of US economic data.

Ahead of the open we expect to see the S&P down 9 points, the Dow down 79 points and the NASDAQ down 14 points.
 
Daily Market Update - 14 October 2013 - Alpari UK

0:10 US negotiations continue to drive markets ahead of Thursday debt ceiling deadline
1:34 Chinese exports fell 0.3% despite expectations of higher demand
2:39 Imports remain strong boosting Australian growth hopes
3:08 China CPI rises to 3.1% from 2.8%

 
UK Opening Call from Alpari UK on 15 October 2013

Europe higher on hopes of debt ceiling deal

Today's UK opening call provides an update on:
• Senate leaders confident of a deal to avoid hitting the debt ceiling;
• Aussie boosted by less dovish RBA minutes;
• UK inflation expected to fall to 2.6%;
• Earnings to provide crucial insight into consumer activity.

European indices are expected to open higher on Tuesday, on increased optimism that a deal will be struck on Capitol Hill to increase the debt ceiling and reopen government.

Investors have remained relatively confident throughout this process that a deal would eventually being done, although that hasn't stopped them taking precautions as the deadline approaches. The most notable of these has been the selling of very short-term US debt, which has risen significantly over the last month.

While we have seen risk aversion among investors over the last few weeks, resulting in consistent small daily losses, we haven't seen the kind of selling that would reflect an opinion among investors that a default is likely. This morning, we're actually seeing quite the opposite, with European index futures trading around half a percentage point higher, tracking those gains made in the US and Asia over night.

The renewed optimism came after comments from Senate Majority Leader Harry Reid, who claimed he was "very optimistic" that a deal would be agreed, and the minority leader Mitch McConnell, who was confident that a deal would be struck that would be "acceptable to both sides". This is the first clear sign we've had that a deal may be close.

That said, based on the size of the gains seen in the stock market, what we're actually seeing is a case of cautious optimism. Investors are clearly still concerned that negotiations can collapse which, would be disastrous so close to the deadline. This lack of faith highlights the trust that has been lost in the government, not just among the public but also in the financial markets.

The Australian dollar is trading higher against its US counterpart this morning, after minutes from the Reserve Bank of Australia meeting earlier this month suggested that the central bank is becoming less dovish as the economy shows signs of recovery. There are early indications that the record low interest rates are helping to re-balance the economy away from its over-reliance on the mining industry. At the same time, the recent recovery in China will also be providing a boost to the Australian economy. A combination of the two make another rate cut in the near term unlikely.

Data released this morning is expected to show inflation in the UK falling in September to 2.6%, marking the third consecutive reduction in the CPI figure in as many months. This reduction in the inflation rate is encouraging for two reasons. Firstly it closes the gap between the rise in the cost of living and the rise in people's incomes, which has been very low in recent years. Secondly, it could help ease fears that the Bank of England's low interest rates will be jeopardized by high inflation.

One of the reasons why Governor Mark Carney has struggled to convince consumers and businesses on the central bank's commitment to low rates is because they're dependent on inflation expectations remaining below 2.5%. When inflation is currently significantly higher than this, it's difficult to gain comfort from this commitment. Those fears should now subside somewhat, especially if inflation continues in the same direction.

Economic sentiment is expected to rise slightly in the eurozone in October, while in Germany its expected to remain unchanged below 50, the area that separates optimism from pessimism. The ZEW survey has seen substantial improvements over the last few months which only adds to the increased optimism surrounding the eurozone. The eurozone figure is expected to rise to 59.4, while the German figure is expected to remain at 49.6.

US corporate earnings season continues today, with Citigroup, Coca Cola, Domino's and Yahoo among the companies reporting. While Citigroup and Yahoo earnings will be followed closely, investors may be more interested in the earnings of Coca Cola and Domino's on this occasion. The figures should provide crucial insight into the spending appetite of consumers at a time when economic figures aren't being released due to the government shutdown.

Ahead of the open we expect to see the FTSE up 33 points, the CAC up 14 points and the DAX up 29 points.
 
US Opening Call from Alpari UK on 15 October 2013

Investors cautiously optimistic as deal edges closer

Today’s US opening call provides an update on:

* Debt ceiling deal looks close;
* Reaction suggests investors only cautiously optimistic;
* Corporate earnings season likely to take centre stage;
* Consumers continue to suffer as UK inflation remains stubbornly high;

Most major European indices are more than half a percentage point higher on Wednesday, on rising expectations that a deal on the debt ceiling will be struck before Thursday’s deadline.

The comments coming from Capitol Hill are very encouraging, especially when you consider how far away we were only a week ago. I’d say there’s very little chance that a deal won’t be agreed now, not that I thought it was a realistic possibility previously. Even US lawmakers, the same people that pushed through the sequester despite neither side wanting it, wouldn’t be stupid enough to allow the US to hit the debt ceiling and default on its debt.

What’s interesting is that, while the markets have responded positively to the comments made by Senate Majority Leader Harry Reid and minority leader Mitch McConnell, the reaction has been relatively small. Clearly, what we’re seeing here is more cautious optimism from investors, as opposed to confidence in Congress to avoid such a catastrophe.

With a deal now looking likely, we should see more attention on the corporate earnings season. So far the first week or so had been somewhat overshadowed by the negotiations in Congress. Going forward though, I expect it to take centre stage. Not only does earnings season carry its usual importance, it’s also the only real indicator of economic health available to investors during the government shutdown.

Today we have plenty of major companies reporting earnings, including Citigroup and Yahoo. The ones that may attract the most attention though are those linked to the consumer, such as Coca Cola and Dominos. These should give insight into consumer spending habits in the third quarter and expectations going forward. The consumer is extremely important to the US economy so a lot of interest will be paid to how these companies see consumers responding to the recent events, along with what could be tough conditions in the final quarter of the year.

The inflation data out of the UK wasn’t so great this morning, especially from a consumer perspective. The CPI figure remained at 2.7% in September, against expectations of a drop to 2.6%. At a time when wages are rising at a measly 1.1%, these high inflation figures are very unwelcome.

The Bank of England could also do with a drop in the figure, given that one of the reasons why no one trusts its forward guidance is because the 2.5% threshold for inflation expectations is still 0.2% below the current level of inflation. With energy prices due to rise later this year, we’ll be lucky to see inflation fall below 2.5% any time soon.

Ahead of the open we expect to see the S&P up 2 points, the Dow up 25 points and the NASDAQ up 6 points.
 
UK Opening Call from Alpari UK on 16 October 2013

Fitch places US on rating watch negative as talks continue

Today’s UK opening call provides an update on:

• Financial markets appear convinced about debt ceiling deal;
• US at risk of losing another of its AAA ratings;
• Role of US dollar as world’s reserve currency under threat;
• UK employment data in focus this morning.

The financial markets continue to buy into claims on Capitol Hill that a deal on the debt ceiling will be done before tomorrow’s deadline, despite both sides appearing to be no closer to an agreement.

Yesterday’s vote on the House plan to avoid hitting the debt ceiling and reopen government was cancelled late on Tuesday, in a clear sign that the Republican party still remains split on what they will accept in order to sign the bill. Certain sections of the Republican party still believe they can force the opposition to at least delay the implementation of Obamacare, something that looks extremely unlikely at this stage and that the rest of the party appears to have accepted defeat on.

The decision to abandon the vote in the House suggests that at least some of these votes are needed to support the bill in order for it to pass in the House. If this is the case, the markets should be more concerned because these sections appear unwilling to back down on the issue, regardless of the consequences.

As it stands though, investors remain convinced that a deal will be done before tomorrow’s deadline. This can be seen in the futures market where most European and US indices are trading in the green this morning. That said, ultra short-term Treasury yields suggest otherwise, having risen again yesterday to 0.3397%, up from 0.0203% less than two weeks ago.

The US inability to resolve its debt issues in a timely manner could once again cost it its AAA credit rating, after Fitch placed it on rating watch negative. The US was stripped of its AAA credit rating by S&P back in 2011 when Congress again could agree on a deal to raise the debt ceiling and ended up coming to an 11th hour deal. The same looks likely again and it seems the ratings agencies are just as disapproving on this occasion as they were in 2011.

Another downgrade could have a very negative impact on US Treasury yields given that certain institutions are only able to buy AAA rated assets. US Treasuries have previously been seen as the safest kind of investment leading many institutions to hold large quantities of them. If they are forced to sell, yields would inevitably rise, unless the Fed responds by buying more. Regardless, this is an extremely undesirable outcome for all concerned.

The role of the US dollar as the world’s reserve currency could also be in doubt going forward, thanks to the second debt ceiling debacle in three years. Certain officials in China, the US largest creditor, have accepted that for now there is little alternative to holding US debt due to the sheer size of their reserves. However, they have said in the future, Eurobonds could be an alternative, if and when they are introduced. The damage being done in Congress right now may not be instantly felt, but may be irreversible further down the line.

This morning, the focus will briefly switch back to Europe, with some economic data being released. First up, we have employment figures out of the UK, including the change in earnings in August compared to a year ago. The unemployment rate is expected to remain at 7.7% in August, after falling unexpectedly last month, while the number of jobless claims are expected to fall by 25,000.

The bigger concern is wages, which are expected to have risen 1% compared to the same month a year ago, well below current inflation levels of 2.7%. This gap could grow further later on this year with energy bills expected to rise for a large number of households. Also being released is the CPI figure for the eurozone for September, which is expected to be confirmed at 1.1%, in line with the preliminary figure that was released on 30 September.

Ahead of the open we expect to see the FTSE down 3 points, the CAC down 4 points and the DAX up 8 points.
 
US Opening Call from Alpari UK on 16 October 2013

US futures higher as debt ceiling deadline approaches

Today’s US opening call provides an update on:

  • US futures suggest investors are unfazed by debt ceiling deadline;
  • S&P 31 points off all time highs, 24 hours before the deadline;
  • Attention to turn to corporate earnings with focus on the consumer.

The deadline on the debt ceiling is fast approaching, the Republicans failed on two occasions to get the House to vote on an alternative bill, the US AAA rating with Fitch is under threat as they put them on negative watch and yet, investors are confident that a deal will be reached in time.

Well, you’d certainly be forgiven for having that impression when you see US index futures trading slightly higher across the board. We are still seeing signs that investors are acting with an element of caution, with yields on 1-month Treasuries continuing to edge higher, but that same caution isn’t being seen in equity markets.

The S&P ended yesterday’s session only 31 points off the all time highs of 1,729, set on 19 September after the Fed surprised investors by leaving its asset purchase program unchanged. That is pretty staggering when you consider that the US could default on its debt in a few weeks time.

Clearly investors are not taking that threat seriously right now, which they could pay the price for further down the road. I’d say contributing to this false sense of security is the Fed’s bond buying program, with investors confident that once a deal is done, equity markets will continue their liquidity fuelled move higher.

While this is likely to continue to dictate things on Wednesday, there are some other things to focus on, in particular, corporate earnings season. This has been somewhat overshadowed so far, but once a deal is done on Capitol Hill, it’s likely to come back to the forefront of trader’s minds, especially in the absence of US economic data.

There are a number of companies reporting third quarter earnings on Wednesday, including PepsiCo, eBay and American Express, with companies including BNY Mellon and Bank of America having already reported today. Once again, focus is likely to be on earnings linked to the consumer, due to the lack of data out of the US, including the all important retail sales figures.

Ahead of the open we expect to see the S&P up 7 points, the Dow up 68 points and the NASDAQ up 11 points.
 
UK Opening Call from Alpari UK on 17 October 2013

European futures lower as US default is averted

Today’s UK opening call provides an update on:

• US default averted, investors not surprised;
• Moderate to modest growth seen in the US, according to the Fed’s Beige Book;
• UK retail sales and US jobless claims being released today;
• Corporate earnings back in focus now that crisis has been averted.

A catastrophic US default has been averted, a short-term budget has been agreed which will send furloughed workers back to work and yet, European indices are trading marginally lower on Thursday.

The reaction to the deal in Congress has been relatively small, when you consider how close the US came to bringing global financial markets and the global economy to its knees. Although, you could argue that investors never truly bought into the idea that the US would default in the first place, which would explain why these gains, like the losses over the last couple of weeks, have been minimal.

You could also argue that the reason investors aren’t getting too carried away is that this “resolution” isn’t really a resolution at all. Once again, Congress has simply put off dealing with these massive issues until a later date, or kicked the can down the road. The deal only funds the government until 15 January, while the debt ceiling will be reached again on 7 February. This means the first few weeks of 2014 will once again be dominated by more political infighting, bringing another possible shutdown and more concerns over whether the US will default on its debt. On the bright side, at least this time, lawmakers have given themselves Christmas off.

In terms of who won this battle, I think it’s pretty safe to say that the victory belongs to the Democrats. They may have failed to reverse the sequester spending cuts that came in earlier this year, but aside from one or two minor changes, Obamacare was left untouched, to the despair of the Republicans, who wanted it repealed.

While there hasn’t been a huge response to the deal in the equity or FX markets, we have seen it reflected in US bonds, in particular 1-month Treasuries which were seen as most at risk of default, had a deal not been struck. Yields on 1-month Treasuries rose significantly in the weeks leading up to the deadline, but have dropped considerably since. They’re not quite back to the levels seen a few weeks ago, but I’m sure they will in the coming days.

With a deal now done, investors can focus more on what matters, earnings and economic data, although the Fed is also likely to play its part. The Beige Book, released last night, claimed growth remained at moderate to modest levels and that so far, the impact of the shutdown on the economy has been small. Although, that’s not to say we won’t see it have more of an impact in the months ahead.

The economic calendar is looking a little thin today, with UK retail sales the only major release this morning, followed by US jobless claims and the Philly Fed manufacturing index this afternoon. Next week is likely to be very important, in terms of economic releases. All of those pieces of data that couldn’t be released as a result of the government shutdown, including the jobs report and the retail sales figure, should now be released next week.

Corporate earnings season is now getting into full swing and with the focus no longer on Capitol Hill, it should draw more attention from investors. Among those reporting on Thursday, we have Goldman Sachs, Verizon and Google, all of which are likely to attract a lot of attention.

Later on we’ll also hear from a few members of the Fed, who could provide more insight into how the shutdown and debt ceiling debacle has likely impacted the economy and how this impact the Fed’s bond buying program.

Ahead of the open we expect to see the FTSE down 13 points, the CAC down 3 points and the DAX down 11 points.
 
US Opening Call from Alpari UK on 17 October 2013

US futures lower on downgrade rumours

Today’s US opening call provides an update on:

  • US ratings downgrades start with Chinese agency Dagong;
  • Traders buy the rumour and sell the news;
  • Goldman Sachs, Verizon and Google report earnings;
  • Jobless claims to remain elevated for a couple more weeks.

US futures are pointing to a lower open on Thursday, while the US dollar is coming under pressure, as rumours circulate that the US may be on the verge of another downgrade.

Chinese ratings agency Dagong beat the others to the punch over night, downgrading the US from A to A-, citing the political infighting over the debt ceiling and the lack of a long term solution as the reason for the downgrade. The downgrade doesn’t necessarily come as too much of a surprise, given that we already had a warning from Fitch earlier this week that the US had been put on negative watch.

That said, if rumours in the markets this morning are anything to go by, it may not be the last downgrade the US receives. That’s one reason why we’re seeing US futures trade in negative territory this morning and the US dollar under pressure against the other major currencies.

The other reason is simply a case of investors buying the rumour and selling the news. Despite all of the political brinkmanship and infighting, investors remained convinced up until the final day that a deal would eventually be done. On top of that, rumours circulated throughout yesterday that a deal would be done on Wednesday, a day before the deadline. The result of this was that it was almost entirely priced into the markets, prompting investors to lock in gains today and wait for another opportunity to jump back in.

Once the uncertainty surrounding a US downgrade passes, some form of normality can return to the markets and investors can focus on what they should be concerned with, earnings and economic data. Although, the Fed is going to continue to play its part for a little while yet, with the recent government shutdown likely to delay tapering until December at the earliest.

Investors are now free to pay more attention to the US and European earnings seasons, with some big companies having already reported and plenty more still to come. In the US, we’ll get earnings from Goldman Sachs, Verizon and Google, among others today, while in Europe BSkyB are scheduled to report.

We should get a flurry of economic releases from the US over the next week or so, as the backlog of data that was not collected due to the shutdown, is compiled and released. That includes important figures such as the non-farm payrolls, unemployment rate and retail sales, all of which are expected to be released next week. Today though, the focus will be on US jobless claims, which are expected to fall to 335,000. This figure should take into account any remaining backlog in California following the IT issue as well as any spike relating to the government shutdown. Even if we do see another spike today, it’s not a cause for concern as it’s only likely to be temporary. I expect the figures to settle back down in the coming weeks to near 300,000.

Ahead of the open we expect to see the S&P down 4 points, the Dow down 83 points and the NASDAQ down 9 points.
 
Weekly market preview – 21 October 2013

A key week ahead for the global economy where the resolution of the US shutdown means we will begin to see a greater degree of focus upon the economy over politics. The pick of the week will of course be the September jobs report which has been rescheduled to Tuesday. In the UK, a similarly busy week sees the major focus turn to Friday’s preliminary GDP figure for Q3. Meanwhile in the eurozone, the dominant day of the week will be Thursday, when the French, German and eurozone PMI figures are released. Finally, in Asia a pretty quiet week sees the Japanese trade balance and Chinese HSBC flash manufacturing PMI figure represent the only two events of note.


US

The US can begin to fully function again this week, with the government funding shutdown finally resolved. As a result, the Bureau of Labour Statistics (BLS) have the task of catching up with almost three weeks worth of data releases. The result of this is that the BLS have had to prioritise which figures to release when and shift next month’s data releases back somewhat. The most notable events of the week come in the form of the jobs report on Tuesday, along with the home sales figures out on Monday and Thursday.

Of course, the jobs data is the most important, with the non-farm payroll and unemployment rate likely to bring the usual degree of market volatility and speculation. In recent months the strength of the jobs market has been tied closely with the decision by the FOMC as to whether the current $85 billion asset purchase scheme should be cut back. However, with the full economic impact of the two week government shutdown still unknown, the decision to keep asset purchases at the current level seems almost a foregone conclusion. The next opportunity for a taper would come at the December meeting, and thus we have a three jobs reports until that decision.

The non farm payroll figure released on Tuesday is expected to show a rise in September in comparison to August, with market forecasts pointing to a rise towards the 180k mark. This would represent a rise of 11,000 jobs from the August figure of 169,000. Bear in mind that the past two figures have disappointed somewhat, with both falling short of market expectations. Despite the fact that this will have somewhat of a lessened impact upon tapering chances, this event always brings great volatility and for many it is an event to steer well clear of at the time of release.

The unemployment rate is also released on Tuesday, where markets are expecting little change in the August 7.3% figure following two months of consecutive reductions in this measure. The jobs market does seem to be picking up somewhat and confidence appears to be creeping back into the US. Until this month that is. However, studying the weekly unemployment claims, it does seem as though there was a moderate slowdown in claims compared with August, which supports a continued reduction in unemployment going forward. Thus there is a possibility that this rate could fall to 7.2%, which would represent the third consecutive beat should it occur.

Finally, the existing and new home sales figures are notable releases to watch out for throughout the rest of the week. The obvious importance of the US housing sector is driven by the fact that the 2008 crisis was caused in large part by the weaknesses of this sector. The resurgence of the housing market reflects very positively upon current economic prosperity along with future expectations and thus while we often do not get the biggest market response from these releases, they are key.

The existing home sales figure is released on Monday, where market expectations point towards a reduced figure of 5.31 million for September. This would be a reduction of -1.6% over the August number. However, we have been pleasantly surprised over the past two months and given continued focus within the US to stimulate the economy through low rates and asset purchases, there is a high likeliness that this provides a more positive picture than expected.

The new home sales figure is a similar story, except the markets are somewhat more positive about this figure. Forecasts point towards a rise to 425,000, from 421,000 in August. As with both of these figure, we are looking for a significant miss for the markets to pay serious attention and this could occur with a miss of 10,000 or more.

UK

A notable week for the UK economy, in a large part due to the first release of the Q3 GDP figure. Alongside this we will be looking towards the BoE for the release of the minutes and votes from the last MPC meeting.

The Q3 GDP figure is of course the dominant release of the week, with many seeing this as the true and all encompassing measure of economic strength to note. The expectation is that we will see a continuation of the positive movement of the UK economy, with a rise in the GDP figure to 0.8% from 0.7% in Q2. Whilst this may not be the big headline rise we are seeking, it would be a stable grounding and given that this figure is often revised higher at a later date, it could end up at 0.9% or 1.0%. That being said, there has been notable strength within Q3, with PMI data pointing towards evident strengths across the board and thus there is a possibility of a better than expected figure. That being said, the unofficial NIESR GDP estimate provided earlier this month points towards a number of 0.8% and thus expectations could be on point.

Elsewhere, the release of minutes from the latest MPC meeting will attract attention on Wednesday. The votes are somewhat of a foregone conclusion, with the existence of forward guidance meaning that the focus is away from any traditional monetary policy changes for the time being. However, the markets always watch for anything which could provide any weaknesses to this forward guidance strategy.

Eurozone

The eurozone region has had a particularly strong Q2 and Q3 in 2013, following a long due period of relative stability for the region. This week we will be looking towards the PMI releases for further indications of strength in the two largest economies, along with the region as a whole.

The German PMI figures of course dominate as usual, with the manufacturing figure of particular note. The signs point towards continued confidence of purchase managers, with the manufacturing PMI expected to rise to 51.6 from 51.1 in September while services are forecast to rise to 54.0 from 53.7.

A similar story for the French economy, where markets expect a rise in both figures. The manufacturing PMI is the most notable of these, with it representing a major part of the French economy. And on this occasion we are looking to see if it can finally break back above 50.0, which represents an industry in expansion. Forecasts point towards a figure of exactly 50.0, however we will be closely watching to see if this can push above or if it is set to remain in contraction for another month.

In the eurozone as a whole, the story is somewhat mixed. The manufacturing and services figures are both expected to rise above last month’s figures where both are well into expansion. However, it is the composite figure which is a worry, where it is expected to fall to 51.5 from 52.2 last time.

On the whole, given that there are so many figures released, often it is the general direction of the releases which determine the market movement and thus make sure you take into account the importance and direction each of these figures move for a greater picture.

Asia & Oceania

A quiet week in Asia, where the two events of note come in the form of the Japanese trade balance figure, alongside the Chinese HSBC manufacturing PMI figure. The Japanese trade balance is always highly notable given that it reflects whether the exports show significant strength given the relative weakness of the yen in 2013. The imposition of a sales tax has been hotly discussed over recent months and thus increased signs of international competitiveness would provide extra leeway for such a tax. Market expectations point towards a rise of both exports and imports on a year on year basis, however it is the imports which are expected to rise 20% while exports are predicted to rise by only 15.6%. Thus should we see a continued divergence of these two in such a manner, it could bring about heightened need to devalue the yen further to reduce the trade balance deficit that exists.

In China, the HSBC manufacturing PMI figure on Thursday is the event of the week, where expectations point towards a continued strengthening after a notably weak period for the Asian powerhouse. The forecasts point towards a rise to 50.5 in October, compared with the 50.2 number in September. Bear in mind that this figure typically is viewed as highly important given that it is entirely independent and thus provides a reliable barometer of the economy. It is also more focused upon smaller and mid-sized firms, which explains why the number is typically below the official figure which is dominated by larger, government funded firms. Given the resurgence of the Chinese economy, this figure will be heavily watched for signs that the economy is coming back into strength across both large and small firms alike.
 
UK Opening Call from Alpari UK on 21 October 2013

US data and corporate earnings take centre stage this week

Today’s UK opening call provides an update on:

• Investors buoyed by last week’s resolution and the prospect of prolonged Fed easing;
• Japanese trade deficit narrows in September, but falls short of market expectations;
• Earnings season takes centre stage with more companies reporting than any other week;

With the S&P 500 and DAX 30 closing at all time highs on Friday, and the Australian S&P/ASX 200 hitting new five year highs over night, I think it’s pretty safe to say that investors are feeling much more optimistic as we approach the end of the year.

And you can understand why they are in a more positive mood. The government shutdown has finally come to an end after more than two weeks of political brinkmanship on Capitol Hill, a US default has been averted, and the disruption caused by the both of these events has almost certainly ensured that the Fed won’t taper until at least December, but probably towards the end of the first quarter of 2014.

This is hardly ideal for the long term health of the markets as it simply means that the bubble, created as a result of the Fed’s ultra-loose monetary policy, is going to continue to inflate for a few more months. If the Fed doesn’t handle the job of deflating this bubble carefully, as part of its exit strategy from its asset purchase program, we could see a small crash in the stock market next year that would be devastating to confidence at a time when the global economy is still in recovery mode.

Japanese exporters are continuing to benefit from the weakness in the yen, that has been created over the last 12 months following the introduction of the Bank of Japan’s quantitative easing program, with exports rising 11.5% in September, compared to the same month last year. However, exports didn’t rise quite as much as we though they would, while imports rose more due to higher fuel costs, leading to a larger trade deficit than we had expected for September.

The economic calendar for the rest of the day is looking a little thin. The only other notable release will come from the US later on in the day, in the form of the existing home sales for September, which are expected to fall slightly to 5.37 million. The rest of the week would ordinarily been relatively quiet, in terms of economic data, however with many releases having been delayed in recent weeks due to the government shutdown, there is more than normal to keep an eye out for.

For example, we have the US jobs report, which was originally scheduled for release on 4 October, being released tomorrow, while the retail sales figure will probably be released later this week, although this hasn’t been confirmed yet.

With investors no longer distracted by the prospect of a US default and a government shutdown, corporate earnings season should start to have more of a bearing on the markets. So far, it has been relatively overshadowed, which is probably a good thing given that results haven’t necessarily been that great.

Revenues are still not growing at a fantastic pace and even earnings growth, which hasn’t been too bad over the last year or so, is struggling a little, with companies no longer able to cover up their disappointing sales with efficiency savings and mass lay-offs.

Ahead of the open we expect to see the FTSE up 28 points, the CAC up 6 points and the DAX up 13 points.
 
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