Forex research

UK Opening Call from Alpari UK on 22 October 2013

Investors cautious ahead of September jobs report

Today’s UK opening call provides an update on:

• Traders cautious ahead of September jobs report;
• Rally to last as long as the Fed provides liquidity;
• Are September figures actually important?
• Earnings season continues with ARM Holdings and United Technologies.

European indices are expected to open relatively flat on Tuesday, as investors continue to act with caution ahead of the release of September’s jobs report, which is scheduled to be released this afternoon.

The jobs report is usually released by the Labour Department on the first Friday of each month, but the government shutdown which started on the 1st of the month and only ended last Wednesday has so far prevented the data being released. Now that the data has been collected, we should get an idea of how the labour market performed in September, including how many jobs were added and whether there was any change in the unemployment rate.

These figures are monitored very closely every month and can create big moves in the markets, which is why we tend to see investors sitting on the sidelines in the days leading up to the release. This is even more the case at the moment. As well as providing insight into how the economy is performing, these figures can also be used to determine when the Fed will begin scaling back its asset purchases, from the current pace of $85 billion per month.

The latter is all investors are concerned about at the moment, as the Fed’s liquidity injections into the financial system are the main reason why the S&P, Dow and DAX are at all time highs. When the Fed pulls the plug, the rally is over. We know that these figures play a big part in the Fed’s decision making process every month, which is why people use these to predict the beginning of the end for the bull run.

Clearly, other things are also going to play a part in the Fed’s decision making process, such as consumer and business confidence, budget talks in December, the potential for another government shutdown in January, the debt ceiling, which will be hit again in February, not to mention the potential for talks to break down with Syria or Iran and things to escalate in the middle east. It’s because of these risks, particularly the budget and the debt ceiling, that I don’t see the Fed tapering this year, regardless of the data.

It will be interesting to see how much of an impact these figures have. Some investors will argue that the impact of the government shutdown and the debt ceiling fiasco makes these September figures far less useful. Clearly, the reaction of investors over the last 24 hours suggests that they’re still seen as important, but you can certainly understand why they’re not necessarily as important as October’s figure for example. While I still expect the release to have a significant impact on the market, I would also take them with a pinch of salt, as a lot has changed since then and the figures in the final quarter of the year will be much more important, in my opinion.

There is very little else due to be released on Tuesday, in terms of economic data. The UK public sector net borrowing figure will be released at 9.30 and is expected to fall to £10.4 billion, from £11.45 billion last month.

Corporate earnings season is well underway now and that is also going to attract a lot of attention. There’s more S&P 500 companies reporting earnings this week than any other so it’s certainly worth keeping an eye on how they’re performing as it could easily have an impact on investor sentiment. In the UK, we have earnings from ARM Holdings, while in the US, United Technologies are scheduled to report on the third quarter.

Ahead of the open we expect to see the FTSE flat, the CAC down 2 points and the DAX down 4 points.
 
US Opening Call from Alpari UK on 22 October 2013

Today’s US opening call provides an update on:

* Traders remain on the sidelines ahead of the US jobs report;
* Report unlikely to have major impact on Fed decision;
* Earnings season gets into full swing tomorrow;
* Currency and commodity markets also flat ahead of data.

European indices, like US index futures, are trading relatively flat on Tuesday, ahead of the late release of September’s US jobs report.

The jobs report itself is probably not going to have a huge impact on whether the Fed tapers or not at the meeting in October, or even December for that matter. However, investors are clearly treating it with an element of caution, as seen by the lack of movement in the markets so far this week.

The main reason why I believe it won’t have a major impact is because it doesn’t take into consideration how the economy was impacted by the government shutdown and the US almost hitting the debt ceiling. The direct impact of the latter, and to an extent, the former, may be minimal, but the impact on business and consumer confidence may take a couple of months to show. And this is important.

That said, the report is clearly important to investors, primarily because they want to see if the US economy was making progress in the lead up to the fiasco on Capitol Hill. The last jobs report, released at the start of September, was very disappointing, with the number of jobs added falling short of expectations and previous figures being revised lower.

On top of this, the unemployment rate fell to 7.3%, driven again by a drop in the participation rate, rather than real job growth. If we get a similarly disappointing report on this occasion, we can kiss goodbye to tapering in December, something I’m already convinced won’t happen anyway.

The jobs report really is driving markets today, with little else to focus on. Corporate earnings season is getting into full swing this week, with more companies from the S&P 500 reporting than any other week, although today is actually pretty quiet. Things will pick up here over the final few days of the week, but as far as today is concerned, investors are mostly focused on the jobs report.

Other markets are responding in much the same way to equities in the lead up to the release. The US dollar index is trading pretty much flat on the day, which is hardly a surprise, and has traded in a very small range. We’re not seeing much movement in any of the majors so far overnight. Even the crosses, such as EURGBP are trading in a tight range and close to its opening price. This will probably change once the jobs report is released though.

Gold is reacting in much the same way, as is oil. Both of these are priced in dollars, so any movement can impact the price. While no movement in the dollar can contribute to the lack of movement in these, it’s not entirely responsible.

Take Gold for example, a lot of this price action has been driven by the Federal Reserve. Gold is seen as a natural hedge against inflation, which is one of the risks associated with the Fed’s ultra-loose monetary policy. Therefore, any sign that the Fed is unlikely to taper this year should provide a boost to Gold. Hence why we’re seeing little movement in the price this morning.

Ahead of the open we expect to see the S&P down 1 point, the Dow down 4 points and the NASDAQ up 3 points.
 
Reaction to September’s US jobs report - Alpari UK

We’ve been made to wait for it, but the September US jobs report didn’t disappoint, with the headline non-farm payrolls figure falling well short of expectations at 148,000. We did see a small upward revision to the August figure, but based on the reaction in the markets, this was no compensation for the poor September figure.

If there was any question about whether the Fed would taper later this month, this has surely put an end to it. Most people had already accepted that it would not happen, but now the earliest date we can possibly be looking at is December. And even that is too early as far as I’m concerned.

One of the most concerning things in all of this is that companies were not confident enough in the economy to hire new staff before the government shutdown and the US almost hit the debt ceiling. Imagine what the figures will be like in October and even November in December, given that crisis was only just averted and the can kicked down the road by only a few months. This does not bode well for the US.

This explains why we saw so much selling of the dollar and buying of Gold immediately following the release. A lack of tapering, which to an extent had previously been priced in, leads to further dollar weakness, something that I expect to continue in the coming months.

Gold, which is seen as a hedge against inflation, also benefitted greatly from the release. The precious metal broke back above $1,300 last week and I see no reason why it can’t reach its previous highs, hit at the end of August, around $1,433 in coming months .

The only real surprise today came around the unemployment rate, which fell despite fewer jobs being added, than expected, and the participation rate remaining at the same level as last month. I expect this to rise in the coming months, with revisions to this month’s figure and companies taking on fewer people, taking its toll.
 
US Opening Call from Alpari UK on 23 October 2013

Fears over Chinese banks drive markets lower

Today’s US opening call provides an update on:

* Fears over Chinese banks drive markets lower;
* Corporate earnings in focus on Wednesday;
* Eurozone consumer confidence expected to improve again;
* BoE minutes show upward revision to growth forecasts.

European indices are trading lower on Wednesday, following reports over night that the number of bad loans being written off by China’s largest banks have tripled.

This has reignited fears over China’s shadow banking system and whether the People’s Bank of China will be forced to raise interest rates in order reign in it. Earlier this year we saw a significant spike in lending rates, which saw some shadow banks lending at more than 20%.

If we do see a tightening of monetary policy from the PBOC, it could choke off the recovery being seen in the world’s second largest economy, which in turn would impact growth globally. Given that the global recovery is still fragile, with the US repeatedly shooting itself in the foot and the eurozone constantly on the verge of another crisis, investors are very concerned about what kind of an impact this latest Chinese issue could have.

Over in the US we’re seeing index futures also trading lower this morning, paring yesterday’s gains which came following the release of the US jobs report. Further proof that the US economy isn’t performing as well as the Fed had hoped has helped propel markets higher over the last month, as this only reduces the probability that the Fed will taper later this year.

This afternoon, there’s very little economic data being released from the US, so attention is likely to remain on corporate earnings season. There are a number of major companies reporting earnings on Wednesday, which could provide key insight into how the economy performed in the third quarter, as well as how it is expected to perform in the current one. Among those reporting we have Caterpillar, Boeing and AT&T.

In the eurozone, it’s been relatively quiet so far. There’s a number of PMIs to look forward to tomorrow morning, but today all we have is the consumer confidence figure for October. We’re expecting a ninth consecutive improvement here, with the figure rising to -14.4. This is still in negative territory, which shows consumers remain pessimistic, but the fact that we’re seeing a consistent improvement must be a positive thing.

The minutes from the Bank of England didn’t provide us with any information we didn’t already know. The bank upgraded its growth forecasts for the UK this year, which is no surprise given the improvements across the board in the economic data. The improvement in the data and the unemployment rate, has prompted concerns about interest rates, with the BoE previously stating that rate hikes wouldn’t be discussed until unemployment falls to 7%.

The market has taken this to mean that rates will be hiked at this stage, making the BoEs three year guideline irrelevant. Policy makers have tried to ease concerns over this by claiming that rates will only be discussed at this level but it looks as though the forward guidance will have to be modified in the future if investors, consumers and businesses are going to accept it.

Ahead of the open we expect to see the S&P down 8 points, the Dow down 72 points and the NASDAQ down 21 points.
 
UK Opening Call from Alpari UK on 24 October 2013

Markets look higher on Chinese data and an unlikely 2013 taper

Today’s UK opening call provides an update on:

• Traders continue to take the lead from Tuesday's jobs data
• FOMC unlikely to taper until March 2014 at the earliest
• Spain pushes out of recession in Q3
• Chinese HSBC manufacturing PMI shows fastest expansion in seven months

European and US futures point towards a likely resumption of the positive sentiment seen throughout this week and in particular on Tuesday. Yesterday’s breather appears to be just that as a lowered likeliness of tapering is accompanied by a strong Chinese manufacturing PMI figure overnight.

The markets are clearly still within a bad is good scenario with regards to many of the economic releases, as seen by the buoyancy of the indices off the back of the largely disappointing jobs report out of the US. The sharp decline in the non-farm payroll to a six month low, was only counteracted somewhat by the reduction in the headline rate. However, with a participation rate remaining at a 35 year low, there is no wonder that many perceive the current employment picture as far from impressive. However, with the association between a weak jobs market and the inability of the FOMC to begin tapering, it is no wonder that we have seen the likes of the S&P500 reach an all-time high this week.

By now we know that we are almost certain to not see a taper next week when the FOMC reconvene to discuss when to begin trimming back on the current $85 billion monthly asset purchase scheme. The unknown economic impact of the 16 day government shutdown for many is likely to be reason enough for the ever cautious Fed to hold off on stimulus reduction. However, it is the ‘solution’ reached by those within congress which is most alarming and provides a clearer picture. The decision to push both the debt ceiling and budget talks back into two seperate deadlines in January and February 2014 make for almost certain deadlock and brinkmanship in just a few months. Thus given the unknown conclusion of these talks, we will be very unlikely to see the Fed taper prior to the notably dovish Janet Yellen takes up the chair position.

Add to this a jobs market where poor September employment figures are almost certain to be followed by a similarly disappointing October release and the picture becomes very clear. The imposition of the 16 day shutdown is likely to provide significant shifts in the market where many will have lost their jobs, albeit possibly temporary or part time. Thus there is unlikely to be a single decent figure until we get to the November report, due in December, which is the month of the last 2013 decision. The overall effect of all this is to feed into the continued feeling that tapering is still a long way off and thus the easy money scenario seems likely to play out for some time yet in the US.

Yesterday saw the Spanish central bank announce that the beleageured nation had finally pushed out of recession when the country posted 0.1% growth in Q3, in line with previous expectations. This has provided a boost to the markets, in a sign that the worst is truly over for the eurozone after a period of around three years of crisis. Representing the fourth largest economy within the eurozone, this is a notable coup and marks a turning point for many given the previous expectations that the country would need a bailout.

Overnight, the release of the Chinese HSBC manufacturing PMI figure made for easy reading as the notable recovery from the much publicised slowdown in the region appears to be gathering pace. The manufacturing sector represents the driving element behind the country’s success and thus the ability of this sector to perform and grow is key to both regional and global growth. The rise to 50.9 in this measure is significant owing to the focus upon those mid to small sized businesses which have often found conditions a little more challenging than the larger, state backed businesses that the official figure measures. However, whilst this does represent the fastest expansion in the sector for Seven months, it is clear that the really strong rebound hoped for by many remains somewhat elusive.

Looking ahead, the markets are awaiting the eurozone PMI data this morning, where the expectations point towards strong PMI growth in both Germany and France. However, the picture is a little less clear when taking into account the eurozone, which is expected to fall short on the manufacturing figure this month after a strong recent run. Keep an eye out for the French manufacturing PMI release, where there is a possibility it could push back into expansion for the first since January 2012.

European markets are expected to open higher, with the CAC +23, DAX +38 and the FTSE100 +29 points.
 
US Opening Call from Alpari UK on 24 October 2013

US data and earnings driving sentiment on Thursday

Today’s US opening call provides an update on:

* European indices boosted by Chinese manufacturing PMI;
* Eurozone PMIs also encouraging despite missing expectations;
* Spanish unemployment falls for second consecutive quarter in Q3;
* US economic data and earnings in focus.

European indices are trading higher on Thursday, boosted initially by the Chinese HSBC manufacturing PMI over night that exceeded expectations.

The HSBC PMI is widely viewed as a more reliable indicator of the manufacturing industry in China as the survey predominantly covers small and medium sized companies, which benefit least from the large stimulus programs initiated by the government. An improvement in this figure suggests the improvement is sustainable which is why the response in the market tends to be stronger.

Not only did the figure remain in positive territory for a third consecutive month, it easily beat market expectations of 50.5, rising to 50.9. This is a very encouraging sign and, if the rest of the data hadn’t already done this, all but guarantees that growth in China this year will exceed the minimum 7% threshold set by the government, and probably its own targets from the start of the year of 7.5%.

Anything that’s good for Chinese growth is viewed as positive for the global economy, which is why we’re seeing European indices on the rise again this morning, following the brief pull back yesterday.

The manufacturing and services PMIs out of the eurozone, while mostly missing expectations, were also still very encouraging. While some also fell slightly from last month’s levels, the fact that only the French manufacturing PMI remains in contraction territory must be seen as a positive thing.

No one expects the eurozone to take off now that it has moved out of recession, in fact most see a couple of years of stagnation ahead. However, if these PMIs can remain mostly in growth territory in the future, that confidence, which is hugely important, should start to filter through to the hard data. If this confidence slips, pushing the PMIs back below 50, this would be a concern.

Unemployment in Spain has been a massive issue throughout the eurozone crisis. The figure rose to 27.2% in the first quarter, which is outrageously high. However, we are now seeing small improvements here, which continued in the third quarter, when it fell to 25.98%. The fact that this is the second consecutive drop is the most encouraging thing here as it suggests the rate may have topped out in the first quarter of the year. Unemployment must be a massive priority for the eurozone and now that we’re seeing the numbers heading in the right direction, hopefully it will be more of a priority going forward.

For the rest of the day, the focus will be on the US, with a number of pieces of economic data being released, while some big companies are scheduled to report third quarter earnings.

In terms of economic data, we have the weekly jobless claims being released, which are expected to fall to 340,000. This number is likely to continue to be inflated as California continues to work through its backlog of claims. The government shutdown is unlikely to have much impact on last week’s figure, following the deal that was agreed to reopen last Wednesday.

Other than that, we have the preliminary reading of the October manufacturing PMI, which is expected to fall slightly to 52.5, new homes sales for September, which are also expected to fall marginally to 420,000 and the trade balance figure for August.

Corporate earnings season is playing a much bigger part in the markets this week, after the US avoided default last week and reopened government. Today we have a large number of companies reporting, including Microsoft and Amazon which could have a significant impact on equity markets.

Ahead of the open we expect to see the S&P up 8 points, the Dow up 78 points and the NASDAQ up 17 points.
 
UK Opening Call from Alpari UK on 25 October 2013

UK growth expected to pick up in the third quarter

Today’s UK opening call provides an update on:

* Economic data and corporate earnings in focus;
* UK GDP expected to rise to 0.8% in third quarter;
* US durable goods and consumer sentiment figures released this afternoon;
* More companies reporting earnings on Friday.

Economic data and corporate earnings are going to be the focus for investors again on Friday, as we wrap up a relatively quiet week, compared to what we’ve become accustomed to recently.

While there has been a large number of companies reporting third quarter earnings and some important economic data being released, the lack of noise in the background coming from the US government, the eurozone and the major central banks has been noticeable. For the first time in a while, investors have been left to focus on what matters, the performance of economies and companies.

Unfortunately, this hasn’t left us with a huge amount to be optimistic about, except probably the fact that the Fed will continue to pump money into the financial system. The third quarter earnings in both the US and Europe, while not being bad, haven’t been very good either.

At the same time, the economic data hasn’t been blowing us away either, in the same way that it did over the last six months. This shouldn’t be too much of a surprise though, the kind of improvements we’ve seen recently could only have continued for so long. Now it’s all about seeing whether it can remain at these improved levels, which so far it appears to be doing.

The UK GDP figure will be released this morning and is expected to show growth picking up again in the third quarter to 0.8%. The data out of the UK this year has caught many by surprise, especially when you consider that a large number predicted that the country would fall into a triple dip recession in the first quarter.

Two quarters on and things have changed dramatically, we’re now seeing growth in all sectors and the Bank of England is under no pressure to stimulate the economy any further. Now it’s just a case of whether the UK can keep the momentum. So far, we’re seeing nothing that would suggest otherwise, but as we’ve seen before, false starts can and do happen, so we shouldn’t get too carried away with it all.

Also being released this morning is the German Ifo business climate figure, which is expected to improve for the sixth consecutive month, rising to 108 in October. This afternoon, the focus will be back on the US, with durable goods orders for September being released. This was originally meant to be released earlier this month, but like the jobs report and retail sales, was delayed due to the government shutdown.

We’ll also have the revised UoM consumer sentiment figure for October, which is expected to drop further to 75. This is probably largely due to the government shutdown and the fact that the US came close to defaulting on its debt. The only question now is how much of an economic impact this will have going forward. Consumer confidence has been consistently hammered this year, firstly from the payroll tax, then the sequester and now this. Each time it has recovered relatively quickly, but surely that can only happen so many times. Eventually it’s surely going to have a longer term impact.

Finally, we have some companies reporting third quarter earnings today, although the number compared to the rest of the week is relatively small. There are still a couple of big names in there though, such as Procter and Gamble and BBVA so it’s still worth keeping an eye on.
 
US Opening Call from Alpari UK on 25 October 2013

Investors take a breather following strong rally

Today’s US opening call provide an update on:

  • Investors take a breather following strong rally;
  • German businesses less bullish than last month;
  • UK growth of 0.8% in Q3 in line with expectations;
  • US data and earnings in focus this afternoon.

European indices are taking a breather on Friday, following what has been a very good couple of weeks for equities.

We’re seeing red across the board so far this morning, with investors appearing to use this period of few economic releases and earnings reports to take profit on their long positions and potentially wait for another opportunity to go long.

Investors are clearly still bullish at the moment, which is hardly surprising given that most major central banks appear to have adopted a more dovish tone in recent months. With the Fed, for example, now unlikely to taper before the end of the first quarter of 2014, there’s no reason why this liquidity fuelled rally in equities can’t continue.

There’s been very little to drive markets higher so far this morning. The German Ifo business climate figure showed businesses are slightly less optimistic about current conditions than they were last month. The figure fell to 107.4 for October, the first time we’ve seen a drop in the figure since April.

This could be just a bad month, potentially driven by unease over the US shutdown and debt ceiling debacle filtering through into Europe. This would also explain the drop in the PMIs yesterday. Alternatively, it could just be a sign that the recovery in the eurozone isn’t going to be smooth and these setbacks are going to happen.

Things are going much more smoothly in the UK at the moment. In the third quarter, growth rose to 0.8%, up from 0.7% in the second. With the rest of the data continuing to improve, I see no reason at this stage why we can’t see this pick up again in the fourth quarter.

That said, the improvement in the UK did coincide with the recovery in both the US and the eurozone. If either of these suffer a significant setback in the coming quarters, while the recovery is so fragile, they would almost certainly take the UK with them.

The quiet end to the week is likely to extend into the US session. We’ve had a busy week in the US, with a large number of S&P 500 companies reporting third quarter earnings, while some economic releases that we’re originally scheduled for earlier this month were eventually released, including the jobs report.

The only noteworthy economic releases today are the durable goods orders, which are expected to rise by 2% in September, and the revised UoM consumer sentiment figure, which is expected to fall to 75 for October. This is hardly surprising given everything that occurred in October, with the government shutting down and the US coming close to defaulting on its debt.

Ahead of the open we expect to see the S&P up 2 points, the Dow up 11 points and the NASDAQ up 27 points.
 
UK Opening Call from Alpari UK on 28 October 2013

Today’s UK opening call provides an update on:

* FOMC meeting attracting less interest this week;
* Plenty of US economic data being released;
* Major companies scheduled to report Q3 earnings.

European indices are expected to open higher on Monday, ahead of a big week for the US, with economic data, earnings and a central bank meeting being the focus for investors.

Ordinarily it would be Wednesday that investors are most interested in, with the Fed completing its two day monthly meeting and announcing any changes to interest rates or asset purchases. The latter is what investors are most interested in, with interest rates not expected to rise until at least the middle of 2015.

The Fed’s $85 billion per month of asset purchases has contributed hugely to equity indices in the US reaching record highs. Therefore, it’s no surprise that since Bernanke’s warning back it May, that purchases will probably be scaled back later in 2013, investors have been paying very close attention to these meetings and any comments from Fed officials that come in the weeks in between.

This month though, despite purchases remaining at $85 billion, investors aren’t quite as interested. The main reason is that the vast majority no longer expected the Fed to “taper” until next year, due to some relatively poor data in recent months and a government shutdown that could do further damage going forward. There is also no press conference following the meeting, leaving only the statement for investors to pick apart for clues about when tapering will begin.

Of more interest to investors will be the large amount of economic data being released this week, including some figures that had been previously delayed due to the government shutdown, such as the September retail sales figure. On Monday, there is very little data being released in Europe, leaving investors to focus on US data, including industrial production and pending home sales for September, and the Dallas Fed manufacturing index for October.

Corporate earnings will also continue to be a key driver of investor sentiment this week, with some major companies reporting third quarter earnings, including Pfizer, General Motors and Exxon Mobil. There will be a particular focus on the Tech stocks this week, with Apple reporting on Monday, followed by Facebook and LinkedIn later in the week.

Ahead of the open we expect to see the FTSE up 18 points, the CAC up 8 points and the DAX up 35 points.
 
Weekly market preview on 28 October 2013 - Alpari UK

A mixed period in the markets right now, where a general lack of any substantial political and economic trends means people will be looking for economic events to provide guidance and direction. The US in particular allows for an interesting week ahead, where the backlog as created by the government funding shutdown continues to dominate proceedings. The main event in the US is certain to be the FOMC meeting where a decision upon tapering is yet again at the fore. In the UK, a quiet week sees the manufacturing PMI figure represent the only tier 1 release to note. Meanwhile, in the eurozone, a similar story sees the unemployment rate for September provide one of very few events that could make an impact.

In Asia, the Chinese manufacturing PMI figure due on Friday brings the main event of the week following a strong HSBC figure recently. We are also looking ahead to the BoJ monetary policy statement on Thursday for any indication of a change in tact for the central bank. This is also the case in New Zealand, where the RBNZ are due to make their monetary policy decision on Wednesday.


US

An important week for the US economy ahead, where the FOMC come back to the fore with the meeting due to take place throughout the middle of the week. Alongside that, we have a number of key releases which have been increased by the US shutdown earlier this month. The two other major releases we will be looking out for are the retail sales and ADP non-farm payroll figures.

On Wednesday, the FOMC releases their latest decision with regards to monetary policy to much fanfare. The typical decision with regards to whether the current pace of asset purchases should be increased or interest rates cut have been replaced somewhat with speculation as to whether the current $85 billion monthly asset purchases should be reduced, or ‘tapered’.

The decision not to taper in September seems to have been the correct one, with the government shutdown and disappointing jobs data in recent weeks bringing the US economic strength into focus. Given the unknown impact of the shutdown in economic terms, it is highly likely that the committee will decide to hold off yet again this month until we see a continued strengthening and stabilisation in the data.

It is also worth noting that the decision to push both the budget and debt ceiling discussions back to January and February 2014 might give some short term respite, yet also gives the Fed a significant dark cloud to watch out for going forward. Thus I could see the FOMC holding out on any monetary tightening until both are resolved, by which time the jobs data is most likely to have shown significant improvement. Thus I expect no chance in both asset purchases of interest rate this month.

On Tuesday, we are due to receive the latest retail sales figure, with the September number expected to show a lowered figure of 0.1% after a rise of 0.2% in August. The ability of the US to keep retail sales strong is absolutely critical to a economic health in a consumer driven economy such as the US. This figure is a strong indicator of both current and future confidence within the populace in relation to employment and economic conditions. Looking at the recent trajectory of this figure, it does seem likely that the figure could come in lower than last month. It is also worth noting that should it push into negative territory, we may see a notable market response.

The third major event of the week comes on Wednesday, with the ADP non-farm payroll figure. This is typically seen as a leading indicator of where the official payrolls data is likely to move, yet the correlation seems to have been lost somewhat. The disparity between the ADP and official non farm payrolls is likely to be bigger than ever this month, with the government shutdown largely ignored in the ADP figure owing to its focus upon private sector jobs. That being said, the ADP figure is still likely to provide a source of volatility given that the jobs market is so important as an economic indicator. This is also likely to be the case because this month’s jobs report has been pushed back a week, leaving the ADP figure as the most notable jobs figure of the week. Market expectations point towards a reduced figure of 150k, down from 166k last month, which would be the lowest in five months.

UK

A quiet week in the UK, with the one event of note coming in the form of the manufacturing PMI figure, due on Friday. Market expectations highlight the possibility of a fall in this figure, from 56.7 to 56.5. This would represent the second consecutive reduction in this measure following six months of rises, and subsequently a new trajectory for the indicator. Given we saw a fall of 0.4 last month, this months figure could come in lower than estimates, which may provide markets with a more bearish outlook going forward. That being said, whilst manufacturing is important, the response is likely to be less than the services sector PMI which is released the following week.

Eurozone

A similarly quiet week in the eurozone this week, where a range of data releases seemingly amount to very little in terms of significant markets movable events. One which could make the markets pay attention is the eurozone unemployment rate, due on Thursday. Recent strength in the region has been notable. This is particularly evident in Spain which finally moving out of recession (according to the Spanish central bank) in Q3. Subsequently, it appears to be that even the more troubled economies have begun to pick up some momentum. With Spain in particular, it has been very significant that the quarterly unemployment rate fell from 26.3% to 26.0% last week. Given that Spain accounts for the second highest rate of unemployment of any eurozone country, we can safely say it is a move in the right direction. With regards to the eurozone unemployment figure, we are expecting to see little in terms of movement from last month’s level of 12.0%. However, given strengthening of the employment conditions in countries like Spain, I am keeping an eye out for a possible reduction in this figure on Thursday.

Asia & Oceania

The Chinese manufacturing sector comes back into focus this week, following last week’s HSBC manufacturing PMI figure. On this occasion it is the official manufacturing PMI figure in question, due out in the early hours of Friday morning. The ability of the Chinese economy to maintain a strong manufacturing sector is of course vital for future and current growth both within the country itself and the global economy. Thus the recent spike in the HSBC measure to 50.9 was highly notable for many in the markets. One of the important factors regarding the HSBC figure is that it is more focused upon small to mid-sized businesses, whom tend to struggle more than the bigger firms given targetted stimulus measures. Thus where we see strong performance of those smaller companies, it typically follows that the bigger firms are also having a good time. For this week’s official release, the market forecasts point towards a marginal rise from 51.1 to 51.2. However, in the past, the forecasters have always expected a notably smaller move than actually takes place and thus be aware that this could move quite significantly, bringing with it the market attention and movement.

In Japan, the BoJ monetary policy decision on Thursday represents the major event of the week with markets speculating as to whether governor Kuroda is likely to make any alterations to the current rate of asset purchases. In all likeliness we will see no change to the quantitative easing and interest rate levels, with signs pointing to a gradual strengthening of the Japanese economy and rise of the inflation rate. The core target of the BoJ and Japanese government has been a 2% rate of inflation along with strong growth, both of which seem to be increasingly moving in the right direction. This is largely as a result of Kuroda’s gutsy monetary policies, where the total growth of the monetary base is expected to be as large as 10% of GDP this year. Whilst we do not expect any significant shift in the current stance, we will always look out for the accompanying BoJ statement for hints that the stance is changing towards a more dovish or hawkish stance.

In New Zealand, the RBNZ are also set to announce their latest monetary policy decision on Wednesday. A similar story to Japan, where the policies of the central back have been largely successful and thus there is no change expected at this month’s meeting. One difference is that the RBNZ has largely relied upon talking down the national currency as the primary means of increasing competitiveness. However, with the NZDUSD rising to a two month high recently, there is a possibility that we could see a return to the more dovish rhetoric this week. Given that we haven’t seen a rate cut in around 20 months, it is worth keeping an eye out for the accompanying statement for the real market mover.
 
US Opening Call from Alpari UK on 28 October 2013

US futures higher ahead of data and earnings

Today’s US opening call provides an update on:

* Traders unusually positive ahead of the FOMC decision;
* US data and earnings more important this week;
* Apple reporting third quarter earnings on Monday.

So far today, we’re not seeing the usual risk aversion that we tend to get ahead of the FOMC meeting. Usually, the prospect of Fed tapering is enough to move investors to the sidelines. However, on this occasion that has so far not been the case, which clearly highlights the fact that investors do not see this as a likely outcome on Wednesday.

A large majority of investors were convinced that the Fed would start scaling back its asset purchases in September, something the Fed opted against as the economic data did not support it. Since then, the US has narrowly avoided default, while its government shutdown for almost three weeks and the economic data hasn’t improved. In fact, it’s probably deteriorated slightly, so the FOMC can’t possibly consider tapering this month.

Investors are therefore likely to pay more attention to the variety of US economic releases this week, including retail sales, housing data, inflation figures and employment data. There’s likely to be limited attention paid to some releases, such as the delayed September retail sales, as these are no longer seen a true representation of the US economy. There’s a couple of reasons for this. Firstly, the data is now a couple of months old. Secondly, a lot has happened since that would impact the consumer, so only post shutdown figures are seen as relevant.

A better impression of what we can expect in the US and Europe should come instead from third quarter earnings reports, which will continue to be released this week. Just as important as third quarter results, if not more so, will be company outlooks for the current quarter. There’s been an increased number of companies lowering their outlook for the fourth quarter during this season, which undoubtedly has a lot to do with the shutdown.

Earnings in the lead up to last week had been quite disappointing but that completely changed, with many companies last week surprising to the upside. Revenues still remain an issue, which investors are becoming increasingly concerned about, but not quite as much as companies more pessimistic outlooks for the final quarter of the year.

Today, we have a few economic releases for investors to pay attention to, including US industrial production and pending homes sales figures for September. We also have some big companies reporting third quarter earnings, including Tech giant Apple. As far as Apples earnings are concerned, it’s too early to know what kind of impact the new devises, including the iPhone 5S and 5C will have, but investors will be interested in sales for the last quarter and what margins the company is now making. Margins have been slipping in recent quarters and has become a concern to investors.

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.
 
Daily Market Update - 28 October 2013 - Alpari UK

0:09 US Pending home sales fall for fourth consecutive month
0:24 US industrial production beats expectations
1:00 Looking ahead for the week, the FOMC meeting and retail sales set to dominate

 
UK Opening Call from Alpari UK on 29 October 2013

Traders cautious ahead of tomorrow’s FOMC statement

Today’s US opening call provides an update on:

• Traders cautious ahead of FOMC statement;
• Deteriorating US data weighing on risk appetite;
• RBA becomes latest central bank to turn more dovish;
• Earnings and data once again in focus today.

European indices are expected to follow those of the US and Asia, in trading relatively flat on Tuesday, as investors begin to move to the sidelines ahead of the FOMC statement tomorrow.

We haven’t seen nearly as much risk aversion in the lead up to this meeting as we have in other months. This is predominantly due to the consensus view that the Fed will not scale back its asset purchases at this month’s meeting, given the deterioration in the data in recent months, not to mention the unknown impact the government shutdown had on consumer and business confidence, and therefore the economy.

Investors are still acting very cautiously today though, which is most likely due to the uncertainty surrounding the statement that will be released after the meeting. Ever since the September meeting, investors have been left guessing when the Fed will first taper, with most guesses ranging from December to March. Unlike earlier this year, the Fed hasn’t given clear guidance about when this will now happen and may use tomorrow’s statement to provide it.

The lack of risk appetite in the markets isn’t being helped by the constant disappointment of the data out of the US, with the latest being yesterday’s pending home sales figure. A fall of 5.6% in September represented the biggest drop in sales in more than three years as buyers were put off by rising rates and sellers encouraged to wait by rising house prices. This has become a big concern for the Fed, as the stalling of the housing market is directly linked to the significant rise in mortgage rates, which have come as a result of the comments from Fed Chairman Ben Bernanke earlier this year, when he claimed the Fed would taper later this year.

A big concern here is that if the housing market stalls, it could knock the fragile recovery in the US. Many believe that the recovery in the housing market is mainly responsible for the improvement in the economy as it acts to boost consumer confidence. A bigger concern is that if we seeing a slowing down in the US, it could drag the UK and the eurozone with it. It’s surely no coincidence that the recovery in these has followed the improvement in the US.

The Reserve Bank of Australia’s less dovish tone in recent months may soon be about to change, after Governor Glenn Stevens last night claimed that the Australian dollar exchange rate is not currently a true reflection of economic conditions in the country. He went on to suggest that the currency should fall in the future in line with the “terms of trade”.

This sounds much more like the kind of comments we were hearing earlier this year from the central bank. Once attempts at talking down the currency failed, a rate cut would then follow soon after. While we have seen some weakening of the aussie in response to these comments, they haven’t necessarily come as too much of a surprise. Ever since it became clear that the Fed is unlikely to scale back its asset purchases until next year, a number of central banks have adopted a more dovish tone and it was only a matter of time until the RBA joined that list. Now it’s just a case of whether the rate cut will come this year or early next.

Corporate earnings and economic data will be key again today, with a number of large companies from Europe and the US due to report, and some key pieces of data scheduled to be released. Among those reporting third quarter earnings we have BP, Lloyds Banking Group, Standard Chartered, Deutsche Bank, Nokia and Pfizer.

On the data front, the September retail sales figure will finally be released, although many now doubt how useful it is. Not only is it two months old, making out of date to a certain extent. It also covers the month before the shutdown, which means consumer sentiment is likely to have changed since. Even a good figure today may be largely ignored, with investors more concerned with the consumer, post-shutdown.

Ahead of the open we expect to see the FTSE down 5 points, the CAC flat and the DAX down 10 points.
 
UK Opening Call from Alpari UK on 29 October 2013

US consumer and the Fed in focus on Tuesday

Today’s US opening call provides an update on:

* European indices boosted by earnings;
* Investors more focused on FOMC statement than decision;
* Traders pricing in March tapering;
* Focus on earnings and data, particularly consumer confidence.

European indices are trading higher on Tuesday, boosted by encouraging earnings reports from companies including oil giants BP.

Despite the positive start to the session, European indices are recording only marginal gains at this stage, and US futures are pointing to a similar open as well. Clearly, while investors are encouraged by the earnings reports, they’re far more focused on the FOMC meeting which begins today.

I don’t think investors are too concerned with the decision itself, given that the large majority are pricing in tapering in December at the very earliest. There’s a few reasons for this. The data has not been very good over the last few months, with the biggest disappointments coming from private sector hiring and housing.

The former clearly shows that businesses have not bought into the recovery as much as the Fed would have hoped, the fault for which lies firmly with the government. The latter is due to rising mortgage rates, which the Fed is responsible for, as these came from comments earlier this year from Fed Chairman Ben Bernanke, who claimed tapering would start this year and the program would be wrapped up in the middle of next, sending rates through the roof.

The second reason, unsurprisingly, is the government shutdown. We haven’t yet had any data which confirms what damage was caused by the shutdown and debt ceiling battle, both directly in the economic data, and indirectly with a shattered consumer and business confidence being left in the ruins. Until this can be quantified, the Fed can’t possible begin to withdraw its support.

Finally, this meeting was never seen as the likely time when the Fed would taper as no press conference is scheduled for after it. Usually the big decisions are left for the meetings that are followed by a press conference so that Bernanke can explain the reasoning behind the decision.

Of more interest to investors is the statement. This should provide clues as to when the Fed will eventually begin cutting back on its purchases. Many investors and economists now believe it’s going to be the first quarter of next year, even as late as March. All we need now is confirmation of this from the Fed themselves, although given the impact on the markets last time, they may be more reluctant to divulge so much information when the actual outcome could be very different, as we’ve seen on this occasion.

With the decision from the Fed not due until tomorrow, investors can instead continue to focus on the fundamentals, with more companies reporting earnings today and economic figures being released. Earnings took a turn for the better last week after a difficult start to the season. Investors are still concerned about revenue growth, but of more concern right now is the outlook and whether companies see things improving in 2014. It’s now been five years since the financial crisis began and, as far as investors are concerned, it’s about time we started to see things pick up again.

The economic calendar is very focused on the US again today, with inflation, retail sales, housing and consumer data all being released. There may be a little less emphasis on retail sales today, with investors now viewing the September as outdated and, to an extent, irrelevant. October’s consumer confidence figure will be of more interest as it will give a more accurate idea of consumer behaviour going forward, having taken into consideration the government shutdown earlier this month.

Ahead of the open we expect to see the S&P up 1 points, the Dow up 12 points and the NASDAQ up 4 points.
 
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