Forex research

UK Opening Call from Alpari UK on 30 October 2013

Record highs for US indices ahead of FOMC statement

Today’s UK opening call provides an update on:

* S&P and Dow close at all time highs ahead of the FOMC statement;
* FOMC statement may not provide clues on tapering after last time;
* Spanish GDP, German unemployment and confidence surveys released this morning;
* US inflation and ADP released this afternoon.

European indices are expected to open higher on Wednesday, following positive sessions in the US and Asia, that saw the S&P and Dow close at record highs.

These gains come ahead of the final day of the FOMC meeting when traders are usually quite risk averse. That is clearly not the case this month, which shows that investors are not expecting any action from the Fed on interest rates or asset purchases. This is hardly surprising when you consider that in the last month we’ve seen less dovish minutes from the September meeting, more poor data, a government shutdown and a debt ceiling battle that almost led to a US default.

Now it’s only a question of when will the Fed begin trimming its asset purchases from the current level of $85 billion per month. The consensus now appears to be for “tapering” to begin in the first quarter of 2014, maybe as late as March. However, it’s this uncertainty that people are looking for the Fed to clear up in the statement that it releases following today’s meeting.

The only problem is, last time the Fed tried to be more transparent, the market took the comments far too literally and totally ignored the caveat that came with it. The Fed repeatedly claimed in recent months that tapering would begin later this year as long as the economy improved in line with projections. Unfortunately, all investors heard was, tapering will begin later this year” and began guessing which month it would be.

This sent financial markets crazy for a while, and then again after the September meeting when the Fed left purchases unchanged. US Treasury yields rose significantly, pushing up things like mortgage rates, which appears to have contributed to the slowdown in the second half of the year. The Fed literally shot itself in the foot and is partially to blame for the fact that it is now in a situation when it can’t taper. Why would they do that to themselves again? I don’t think they will. I expect the statement to be vague and emphasis to be on the economic data.

Before the statement is released, a lot of economic data will be released which could make for some volatile markets today. In Europe, we’ll get the first estimate of third quarter GDP for Spain, which is expected to show that the country has finally climbed out of recession. Following this we have unemployment data from Germany, which should show no change from last month with the rate remaining very low at 6.9%. Finally in the euro area, we have a number of confidence surveys being released, all of which are focused on consumer and business sentiment.

Moving into this afternoon, we have inflation data out of the US. The CPI figure for September is expected to fall significantly to 1.2%, while the core figure, which excludes volatile food and energy prices, is expected to remain at 1.8%. It is worth noting that the preferred measure of inflation for the Fed is the personal consumption expenditure index, which is currently at 1.2%, so any move in today’s CPI isn’t likely to cause much of a stir in the markets.

Finally, we have the ADP non-farm employment change, an estimate of the non-farm payrolls figure for October. This is expected to show that the number of jobs added this month fell to 150,000. Usually, unless we see a big shift in this figure, it’s largely overlooked due to its past inaccuracy. However, given that the NFP won’t be released until more than a week later, we could see investors respond more to the figure on this occasion.

The busy day continues with third quarter earnings from Europe and the US, with big names including Barclays Volkswagen, Visa, Facebook and General Motors all reporting.

Ahead of the open we expect to see the FTSE up 19 points, the CAC up 7 points and the DAX up 25 points.
 
US Opening Call from Alpari UK on 30 October 2013

Investors look to FOMC statement for taper clues

Today’s US opening call provides an update on:

* Investors look to FOMC statement for taper clues;
* Will the Fed be transparent after failed experiment this year?
* ADP figure and CPI inflation in focus.

As we near the release of the FOMC statement from this month’s meeting, US futures are pointing to a higher open on Wall Street.

This comes a day after the S&P and Dow both set new record closing highs. The statement from the Fed will majorly impact whether we see more record highs between now and the end of the year, or an abrupt end to the rally.

If the timeline from the Fed still includes tapering this year, so December, then I don’t see indices going much higher. I would also expect the initial reaction to be very negative as the markets appear to be in the process of pricing in Q1 2014 tapering already. Alternatively, confirmation that the timeline has now been pushed back would be good for equities, and US Treasuries for that matter. That said, I would never rule out an immediate pull back even in the event of a dovish statement as this appears to have been priced in.

At this stage it’s worth pointing out that the possibility of the Fed tapering at this meeting is very slim. The government shut down and debt ceiling battle has left a lot of uncertainties hanging over the economy. At the same time, the data before the October shutdown wasn’t very strong, as pointed out by the Fed at the September meeting. This is unlikely to have changed over the last month.

What will be most interesting about this statement is how transparent the Fed decides to be. It’s safe to say that previous attempts this year to lay out a timeline were not successful. Most investors completely ignored the Fed’s claim that tapering is dependent on the data performing in line with its forecasts. Instead, it just became a guessing game of whether tapering would begin in September or December.

This had a really negative impact on both the equity and bond markets. We saw a significant pull back in US indices, while long term Treasury yields soared. This sent things like mortgage rates soaring with them, which many could argue was largely responsible for the slowdown in the housing market, thereby contributing to the slowdown in the economy.

Let’s not forget that the recovery in the housing market played a huge part in the recovery of the economy. In a way, the Fed, by being more transparent, is partly responsible for being in a position where it can no longer taper this year. Will it be willing to take that risk again? Or will they put all the emphasis on the data and take away the timeline altogether?

There’s also going to be a lot of attention on earnings and economic data this afternoon. We’ve already had some positive data out of the eurozone this morning, with Spain climbing out of recession and confidence surveys rising more than expected.

In the US, we have a large number of major companies reporting third quarter earnings, including Facebook, Visa and General Motors. At the same time, we have CPI inflation figures being released, along with the ADP non-farm employment change figure, which is essentially seen as an estimate of the official non-farm payrolls figure, which will be released next week.

This has historically been quite an inaccurate estimate of the actual NFP figure. However, investors usually pay more attention when we see a big swing in the figure as it suggests we may see something similar when the NFP is released. The number is expected to show that 150,000 jobs were added last month, which is far below the number we need to see if the unemployment situation is going to improve on a sustainable basis.

A large driver of the drop in the unemployment over the last year has been a falling participation rate, which is not a positive thing, as the headline figure would suggest. This figure will rise again, as people rejoin the labour force, so the only way to sustainably reduce the unemployment rate is with companies hiring, and clearly that is not happening at the moment.

Ahead of the open we expect to see the S&P up 4 points, the Dow up 40 points and the NASDAQ up 15 points.
 
UK Opening Call from Alpari UK on 31 October 2013

Europe lower as investors spooked by FOMC statement

Today’s UK opening call provides an update on:

• Investors spooked by FOMC statement;
• Should we be surprised that the Fed didn’t give timetable?
• Bad news is still good news;
• BoJ leaves rates and asset purchases unchanged but revises growth forecasts;

European indices are expected to open lower on Thursday, following losses made in the US and Asia after the Federal Reserve appeared to hint that tapering could still begin this year.

Investors were spooked by what they believed to be a hint from the Fed in this month’s statement, that asset purchases could be reduced at the December meeting. It would appear that investors have become too eager to get ahead of the game and predict what the Fed is going to do. This is the second time in as many months that the Fed has taken the markets by surprise, on this occasion, coming across more hawkish than had been priced in.

If I’m honest, I just think that yet again the markets have overreacted. Investors were looking for an updated timetable on when the Fed would like to begin tapering and when it would aim to bring the asset purchases to an end altogether. This was always unlikely to be included, for two reasons.

Firstly, the Fed has (hopefully) learned its mistake from earlier this year. They offered a timetable for how they’d like to phase out asset purchases, but emphasized on numerous occasions that the implementation of this was dependent on the economic data performing in line with their forecasts. Investors simply ignored the latter and focused their efforts on predicting which month the taper would come in. The impact on the markets was massive. Treasury yields spiked causing a similar spike in mortgage rates, which has been largely responsible for the slowdown in the housing market. With this in mind, it was only sensible that the Fed didn’t offer a new timetable for tapering and I’ll be surprised if they do in the future.

The second reason why I believe a new timetable was never going to be offered is simply because Janet Yellen, current vice Chairwoman at the Fed, is expected to take over from Chairman Ben Bernanke at the start of next year. If the Fed does decide to show its hand, it’s only logical that they wait until Yellen’s first meeting in charge to do so.

I still believe it will be March before tapering begins and I don’t think the statement suggests otherwise. The statement showed that the Fed sees an improvement in the economy since it announced the QE3 program last year, but it also claims they want evidence that it is sustainable. Not only have we not had evidence of this, it’s not expected to come this year. The Fed may not have warned about the impact of the government shutdown, but that’s probably due to the lack of data available, rather than a belief that there has been no impact. One thing the Fed did do is lay the blame firmly at the door of the government for the sluggish recovery, blaming fiscal policy rather than monetary policy for a weak economy. A claim that few could argue with.

With the meeting out of the way until December and the fiscal battles on Capitol Hill now moved to January, investors can now focus entirely on the fundamentals. Although it is worth noting that we are likely to remain in this bizarre situation where good news is bad news, and vice versa.

Today there’s plenty of economic data being released, both in Europe and the US. Focus will initially be on Germany with the release of the Gfk consumer confidence and retail sales figures. We’ll then get the eurozone CPI inflation figure for October, which is expected to remain at 1.1%, and the unemployment rate, which is expected to remain at 12%. It’s then over to the US for the weekly jobless claims and the Chicago PMI.

It’s even busier on the corporate earnings front. There are a number of big firms reporting third quarter earnings including BG Group, BT Group and Royal Dutch Shell in Europe and Exxon Mobil, Mastercard and AIG in the US.

Finally, overnight the Bank of Japan left interest rates and asset purchases unchanged following its monthly meeting. This came as no surprise to investors, who were more concerned with the central bank’s new growth projections, which were raised for 2014 from 1.3% to 1.5%. Its growth forecast for 2015 remained at 1.9%. The biggest test for this is going to be the new consumption tax which is expected to be introduced early next year. This could impact growth and force the BoJ to increase its massive asset purchase program in an attempt to cushion the blow.

Ahead of the open we expect to see the FTSE down 18 points, the CAC down 16 points and the DAX down 36 points.
 
US Opening Call from Alpari UK on 31 October 2013

Europe lower as Bernanke comes back to haunt investors

Today’s US opening call provides an update on:

* Traders turn risk averse following FOMC statement;
* Despite concerns, December taper still unlikely;
* German data disappoints;
* Massive drop in eurozone inflation opens the door to LTRO3;
* Weekly jobless claims in focus this afternoon.

Last night’s FOMC statement brought an abrupt end to the stock market rally, for now, with indices in the US, Asia and Europe all edging lower.

The statement wasn’t actually overly different from the one released in September. However, investors were clearly not overly impressed with it, with many now concerned that the Fed will “taper” in December, rather than the first quarter of next year, which many had started to believe.

I think this is just another case of investors worrying over nothing and I’m sure that it will die down by the start of next week and once again we’ll be talking about the S&P and Dow reaching all time highs again. The simple fact of the matter is, the US economy isn’t performing very well at all, unemployment is falling as a result of people dropping out of the labour force, job creation is low, the housing recovery has stalled and we still don’t know what impact the government shutdown had.

The Fed may not have referenced the latter in the meeting but that’s probably due to the lack of data at their disposal, rather than them believing it had no impact. Things will be a lot clearer at the next meeting in December but even if the data improves between now and then, it’s unlikely to be enough to point to a sustainable recovery.

With monetary and fiscal issues in the US temporarily put to one side, investors will once again focus on fundamentals, with a number of big companies reporting third quarter earnings, including Exxon Mobil, Mastercard and AIG, and some economic data being released.

Earnings season has been somewhat overshadowed again this quarter, by the government shutdown and debt ceiling battle in the US and then the Fed meeting this week. While we’re more than half way through now, there’s still plenty more companies reporting in the coming weeks.

It’s looking a little light on the economic data front now, following a number of economic releases in the eurozone this morning. Disappointing retail sales and consumer confidence figures from Germany earlier on got things off to a bad start, with both falling from last month, despite expectations of small improvements.

Eurozone unemployment was much higher than expected in September, although that was entirely due to the figure in August being revised higher by 0.2%. The increase in August marked the first increase in unemployment since March, which given that it had been on a steady ascent before then, is still pretty good. The interesting thing will be to see whether the climb continues again in the coming months or if this is just a blip on the road to a very slow and long recovery.

Inflation in the euro area fell dramatically in October, from 1.1% to 0.7%, leaving the door wide open for the ECB to act in the coming months. Many people are expecting the ECB to cut interest rates again but I’m not convinced. At least a few policy makers didn’t even want to discuss interest rates at the last meeting. A LTRO with a twist could be seen as a preferential alternative.

It would help to provide temporary capital to banks that are found to be undercapitalised after the asset quality review is completed, and if combined with something like the UK’s funding for lending scheme, could provide an incentive to lend in the periphery. Although, governments would also have to play their part in all of this in order to stimulate demand.

Still to come today we have the weekly jobless claims figure from the US. The last few weeks has seen the figure spike higher due to the government shutdown and the backlog of claims in California, which came as a result of an IT issue. The figure has been falling week by week though and the same is expected again today, to 339,000.

Ahead of the open we expect to see the S&P flat, the Dow down 20 points and the NASDAQ flat.
 
UK Opening Call from Alpari UK on 4 November 2013

Chinese data provides an early boost for investors

Today’s UK opening call provides an update on:

• Investors receive a boost from the Chinese services PMI;
• Australian retail sales pick up in September;
• Eurozone manufacturing and UK construction data released this morning;
• US factory orders this afternoon.

European indices are expected to open around half a percentage point higher on Monday, following the release of China’s services PMI on Sunday, which rose to a 14-month high.

Given the efforts of the Chinese government to steer the economy away from the export-led model to one focused more on services, this data is increasingly important, and very encouraging. Especially at a time when the government is attempting to reign in its fiscal stimulus efforts, while the central bank is looking much more hawkish than it has in previous years. If the services sector can pick up more and more of the slack here, it will go a long way to preventing a hard landing, which many fear could happen, while allowing the government to address its growing debt. How it plans to do this could become more clear later this week, when it unveils its massive reform program.

Also providing a boost to investor sentiment over night was the Australian retail sales figure, which showed consumer activity picking up 0.8% in September. This was much higher than expectations of a 0.4% increase, while Augusts’ figure was also revised higher to 0.5%, from 0.4% previously.

With activity clearly picking up in Australia, it’s going to be very difficult for the central bank to cut interest rates tomorrow, despite more dovish comments from the RBA Governor Glenn Stevens last week. That said, I still wouldn’t be surprised to see a rate cut before in the next few months, especially is we see further signs in the data that the economy is slowing.

There’s going to be a lot of emphasis on the economic data today, and for the rest of the week for that matter. Aside from the three major central bank meetings this week, we also have a number of very important economic releases including Friday’s US jobs report. Although, many are taking this with a pinch of salt, given that it’s not really known how big an impact the shutdown will have had on the figures. The data is going to be distorted as a result of the government shutdown and its going to be a couple of months until we see a more accurate picture of the health of the US economy.

This morning, the focus will be on the manufacturing PMIs for the eurozone. That said, these are revised figures, so any impact is likely to be small, unless we see significant revisions, which is not expected. Following this, we have the release of the sentix investor confidence figure, which is expected to rise to 6.5 for October, up from 6.1 the month before.

The UK construction PMI isn’t expected to change much from last month’s figure, at 58.8. While we’re not seeing the improvement in the UK data that we saw in the second and third quarters, the fact that we’re not seeing a deterioration either is encouraging as it suggests the improvement is sustainable. The construction PMI for example, remains comfortably in growth territory, which bodes well for the economy going forward as it would suggest confidence is high and staying that way.

This afternoon, we’ll get factory orders data from the US, for both August and September. The release of the August figure was delayed due to the government shutdown. Both are expected to show improvements, with August posting a 0.2% increase and September a 1.8% increase. With both of these coming before October’s shutdown, I’m not convinced at this stage that either will have much of a bearing on the market as they don’t provide any real insight into how the economy is now performing or how it’s expected to in the coming months.

Ahead of the open we expect to see the FTSE up 31 points, the CAC up 16 points and the DAX up 38 points.

Read the full report at Alpari News Room​
 
Weekly market preview on 4 November 2013 - Alpari UK

A busy week for global markets, with Western and Eastern economies alike providing key data points which are likely to result in significant volatility from Monday to Friday. The US economy continues to play catch up this week, with the release of GDP and non-farm payroll data coming in later than expected owing to the government shutdown. In the UK, the services PMI figure on Tuesday is likely to provide the major data point whilst the MPC will decide upon monetary policy on Thursday. In the eurozone, the ECB meeting takes on extra importance following the shock fall in CPI seen in the last week.

In Asia, the Chinese trade balance provides the most prominent data point, where markets hope to see a further pickup in activity following a notable slowdown in trade for the Asian powerhouse. Finally, in Australia a busy week sees the release of jobs data on Thursday, along with the latest monetary policy announcement on Tuesday.


US

A major week ahead for the US economy, as the backlog created by the government shutdown continues to effect the release of major data points. On this occasion, the Q3 GDP and jobs data are in view, with both pushed back by approximately a week. Also later on we are look ahead to the University of Michigan consumer sentiment figure on Friday.

On Thursday, the initial estimate of the Q3 GDP figure is due to be released, with market expectations pointing to a noticeable weakening in the measure. What is evident within previous releases, and in particular the Q2 figure is that there is often a substantial difference between the first and last estimates. For that reason, this month’s estimated figure of 1.9% is actually somewhat less worrying when compared with the initial estimate of Q2, which was 1.7%. However, it is somewhat more troublesome when comparing with the final revision of 2.5%.

What we are looking out for with this figure is an indicator that the economy is progressing significantly. Unfortunately this figure will not include any major element of the government shutdown, which is likely to be the major event which we need to quantify the impact of. However, markets will be watching this figure for signs that the economy is picking up in what has been a somewhat mixed period. Given the focus upon the mindset of the FOMC, we will need the economy to pick up somewhat to improve the sentiment going forward.

On Friday, the job report is released, typically providing one of the most volatile days of the month. The non-farm payroll figure is likely to garner the most attention given the tendency to come in somewhat wide of market estimates. The median estimate for the payroll figure is around 130k, following the September figure of 148k. One thing to bear in mind is that we saw the ADP figure come in precisely at that 130k level, from a revised figure of 145k and thus there seems to be some form of correlation this month. That being said, the ADP figure focuses solely upon the private sector and thus fails to reflect any changes in employment owing to the government shutdown. For that reason, I expect a figure below 130k, which would almost certainly rule out tapering within 2013. It is worth understanding that a poor figure could easily serve to rule out a 2013 taper, yet a favourable figure would not necessarily lead to the notion that we would get to see tapering this year.

The unemployment rate will also be closely followed on Friday, where estimates point towards the first rise in around five months. This would be a real kick in the teeth should it occur and in fact, given the participation rate finally stopped falling in September, we could get a reverse of recent trends where an improvement of the participation rate drives the unemployment rate to rise.

On Friday, the UoM consumer sentiment figure provides a comprehensive reading of how the US population have responded in the period following the government shutdown and debt ceiling standoff. Bear in mind that this figure has fallen short of estimates on the last 5 occasions, which could very well happen again given markets expect a rise from 73.2 to 74.3.

UK

A big week for the UK economy, where the release of the remaining two PMI figures are followed closely by the release of the latest monetary policy decision from the BoE on Thursday. Last week saw the release of the manufacturing PMI figure, which failed to live up to expectations. Thus we are looking forward to the release of the construction and services PMI figures in the early part of the week to gauge whether that fall was a one off or representative of a more all-round slowdown in the UK economy.

The construction PMI figure on Monday represents the first major data point of note, and with the recent housing price boom firmly in the mind for many, you would be forgiven for expoecting an improvement. However, the market expectation is that we could see a moderate fall in the measure to 58.8 from 58.9. However, given the imposition of government measures to aid property purchases for those without substantial deposits, I believe we could see a continuation of the recent uptrend as the sector seeks to raise supply to account for the increased demand.

On Tuesday, the most important data release of the week comes in the form of the services PMI figure. The reliance of the UK upon the services sector is well publicised and for this reason a continually improving sector is crucial to the development of the economy. Fortunately forecasters are somewhat more positive for this release, with estimates pointing towards a marginal increase from 60.3 to 60.4. The measure has not fallen below estimates within the last 9 occasions and thus should we see a fall it would be highly significant. However, given we saw a minimal fall last month, I believe this could be the occasion that the figure disappoints. Should that occur, it could bring a negative tone to the the days proceedings.

Later in the week, the Bank of England’s MPC will conclude their latest monthly meeting and subsequently announce their latest decision with regards to monetary policy. Given the provision of forward guidance since Mark Carney took office, this monthly meeting has become somewhat of a non event and this month is no difference. No one expects to see any change to the current £375 billion asset purchase facility or 0.5% interest rate and thus we are largely looking to see if any accompanying statement is provided to give market volatility.

Eurozone

A largely quiet week for the eurozone has turned into a more interesting one than expected after the eurozone inflation figure fell significantly last week, from 1.1% to 0.7%. Thus when the ECB meet again this week, the decision as to whether the interest rates should be cut will be less obvious. The current headline interest rate of 0.5% has been in place for over 6 months since the rate was cut from 0.75% in April 2013. However, the significant fall of inflation to the lowest level since the 2008-2009 financial crash has been perceived as a massive threat to some of the peripheral economies. The fall is widely attributed to the standoff approach from the ECB and thus the pressure is on for a possible move in response. As a result, all eyes will be on the ECB this week to see how they will react.

Also look out for the release of Spanish and Italian PMI data, along with eurozone retail sales figures.

Asia & Oceania

A fairly quiet week in Asia, where Chinese interests largely lie within the trade balance release on Friday. The focus upon how the Chinese economy is recovering from the recent slowdown relates to not only Asian interests, but the global economy as a whole. For that reason, the trade balance is a key indicator in understanding how the volume of trade is developing. Market expectation is for the total trade balance surplus to increase to 23.5 billion from 15.2 billion. However, I will be keeping a keen lookout for the specific exports and imports as a gauge of whether net exporters such as Australia will be benefiting from the Chinese recovery.

In Australia this week, there are many notable events to keep an eye out for with the release of employment and retail sales figures, along with the latest RBA monetary policy announcement. The markets do not expect any form of rate cut from the RBA despite a clear appreciation of the Australian dollar over the past months. Clearly the pickup in the Chinese economy has had strong knock-on effects to the Australian region and as such there is less anxiety about a deterioration of the export market. The housing market has also picked up markedly, with house prices rising 6.4% in September on a month on month basis, meaning any further reduction could fuel a possible housing price bubble.

Meanwhile, on Thursday, the jobs report is expected to show somewhat different picture, with both the unemployment rate and employment change figures largely suspected to deteriorate somewhat in comparison to last month’s data. The unemployment rate currently lies at 5.6%, having tumbled by 0.2% last month. However, forecasters are expecting some of that to be given back this month, with a rise to 5.7%. Meanwhile the employment change figure is also expected to come in somewhat worse than last month, despite still moving in a positive direction. Estimates point towards a rise of 7,500 employed people, which denotes a slowdown in comparison to the 9,100 number last month. Either way, I believe people are becoming significantly more bullish about the Australian region and thus they will be unlikely to judge the economy too harshly should we see poor figures. The worst appears to be over and for that reason I am looking at such figures in a more favourable light going forward.
 
Daily Market Update - 4 November 2013 - Alpari UK

Chief Market Analyst James Hughes looks at the plethora of economic readings due for release this week starting with a positive number out of the UK with construction PMI.

 
UK Opening Call from Alpari UK on 5 November 2013

RBA maintains rate yet cites ‘uncomfortably high’ aussie dollar

Today’s UK opening call provides an update on:
• European markets expected to extend higher on ECB stimulus potential
• RBA keep rates unchanged yet note 'uncomfortably high' AUD
• UK services PMI expected to fall for second consecutive month
• US non-manufacturing PMI in view

European markets are expected to open higher this morning, following on from a five week winning streak in the likes of the DAX and FTSE100 markets. Sentiment in Europe continues to be driven by increased speculation that the ECB will soon be forced into taking steps to re inflate the eurozone region following the shock fall in inflation last week. Meanwhile in the US, markets continue to climb as the doubt surrounding employment and growth conditions mean that the Fed decision with regards to monetary policy become more evidently one sided against tapering.

In a week of central bank meetings, the expectations upon BoE, ECB and RBA easing were minimal given relative strength in recent months. However, the decision of whether to shift interest rates has returned to the fore for the ECB in particular given the slowdown of inflation last week. Thursday’s decision from Mario Draghi as to whether rates should be cut will be hotly anticipated and the rise we have seen in the markets since the inflation figure was released can be partly attributed to a factoring in of this possible move. Note the term ‘possible’, as I believe we are unlikely to see such a swift move from Draghi given the one-off nature of this figure.

In the US, the scenario seems alot more clear cut, where the unknown impact of the extended government shutdown, coupled with disappointing jobs data will likely provide a continuation of the current $85 billion asset purchase scheme into 2014. The impact of the shutdown will almost certainly affect Friday’s non-farm payroll figure in a negative way, which in turn would make a December taper even more unlikely. Unfortunately, the state of the markets over the past years has been that negative data is cheered, whilst strong figures hurt the markets as the fear of lessened QE creeps back in. Thus as things stand, this bull market appears to be only heading in one direction for the time being.

This morning saw the RBA keep Australian headline interest rates at 2.5%, in line with market expectations. That being said, Governor Glenn Stevens took the opportunity to personally attack the aussie dollar in the process, noting that the currency remained ‘uncomfortably high’. Whilst this type of aural intervention is not entirely unexpected, what it does show is that there currently appears to be little room for a further rate cut to add to the 2.25 basis points reduction seen in the past two years. Recent data has shown that the impact of such low rates has been that an already expensive housing market by global standards has been bubbling over, rising 6.4% between August and September only. Thus as we go on, expect the RBA to utilise more dovish rhetoric as a means to control the AUD. However, given the somewhat moderate response seen in early trading, there are signs that the markets are beginning to not listen. Thus the RBA will be tasked with trying to find a way of bringing down their currency without raising the risk of asset bubbles in the economy.

Looking ahead to the European session, the most dominant event of note comes in the form of the UK services PMI figure, due at 9.30am GMT. The services sector PMI figure provides one of the best leading indicators of economic health for the UK economy owing to its dominance over the construction, production and agriculture sectors. Last month saw 57% of the Q3 GDP growth provided by the services sector which is fact represents around 78% of UK output. As a result, the markets will be watching today’s figures closely for a barometer of how the economy is likely to fare going forward.

The market forecasts are somewhat negative about the release, predicting a fall to 59.8 from the September figure of 60.3. We often take note of the movement within both the manufacturing and construction PMIs which precede the services figure as a clue as to how other purchase managers view current conditions. However, with the manufacturing coming in below estimates, yet construction PMI beating market forecasts it shows that this month is less convincing than those summer months where every figure beat estimates convincingly.

Looking into the US session, the emphasis will be upon the release of the non-manufacturing PMI figure. The US services sector, whilst important, accounts for a lesser influence over the whole output of the economy than the UK and for that reason we typically see less interest relative to the UK figure earlier in the day. The figure will be watched closely nonetheless, with the impact of the government shutdown worth looking out for. Market expectations point towards a fall from 54.4 to 54.0 which would represent the first consecutive fall in the figure for six months.

European markets are expected to open higher, with the FTSE100 +19, CAC +9 and the DAX +22 points.
 
US Opening Call from Alpari UK on 05 November 2013

Traders cautious ahead of ECB meeting

Today’s US opening call provides an update on:

* Traders cautious ahead of ECB meeting;
* Rate cut priced in, is this another taper-esque mistake?
* UK services sector improves in October;
* EC significantly raises UK growth forecasts;
* US services in focus as traders look ahead to Friday’s jobs report.

Investors are trading with an element of caution on Tuesday ahead of Thursday’s ECB meeting, when the central bank is expected to cut interest rates in response to last week’s inflation figure.

The response to the figure has been very positive so far, helping a number of European indices record a fifth consecutive winning week. It would appear that the rate cut has now been priced in though, with indices today edging lower, as traders lock in profits ahead of Thursday’s meeting.

I think investors have jumped the gun on this one and have not learned their lesson from September, when Fed was seen as certain to taper. Given the ECBs careful approach previously when it comes to interest rates, I don’t see them acting impulsively on this occasion just because inflation plummeted on one occasion. I think they’ll wait until the asset quality review before they decide what the appropriate response will be.

Not even some strong figures this morning could tempt investors back into the rally. The UK services PMI rose to 62.5 in October against expectations of a drop to 59.8. Given how important the services industry is to the UK, this is an extremely encouraging figure.

Things just got better for the UK, when the European Commission more than doubled its growth forecast for 2013, while also raising its 2014 forecast to 2.2% from 1.7% in May. It would appear that people are not concerned at this stage about the sustainability of the UK recovery, and just see the country going from strength to strength.

Meanwhile, the EC offered some support to Bank of England Governor Mark Carney, in its forecast for unemployment, which is believes will fall to 7.3% in 2015. This is consistent with the BoEs view that unemployment won’t fall to 7% for three years, something the market didn’t buy into when it was announced earlier this year. The early reaction to this suggests they’re no more convinced.

US futures are also pointing to a slightly lower open on Tuesday, which suggests we’re also seeing the calm before the storm here as well. Friday’s jobs report may not be the most informative, given how distorted the figures will be as a result of the government shutdown, but you can always be sure that there will be a major reaction in the markets.

Of note in the US today, we have the ISM services PMI for October being released. This is expected to fall to 54 from 54.4 last month, although I wouldn’t be surprised to see a greater drop, given the short term impact on the consumer of the shutdown and the uncertainty the debt ceiling battle brought as well.

Ahead of the open we expect to see the S&P down 5 points, the Dow down 45 points and the NASDAQ down 10 points.
 
Daily Market Update - 5 November 2013 - Alpari UK

0:09 Traders cautious ahead of ECB and US jobs report
1:12 UK services sector grows at fastest pace in six years
1:41 European commission revises UK growth forecast higher

 
UK Opening Call from Alpari UK on 6 November 2013

ECB uncertainty continues to weigh on risk appetite

Today’s UK opening call provides an update on:

• Indices edge higher, investors remain cautious;
• Eurozone services PMIs could impact ECB decision tomorrow;
• More positive data expected for the UK.

European indices are expected to open slightly higher on Wednesday, with investors continuing to act with caution ahead of tomorrow’s ECB meeting and Friday’s US jobs report.

It’s not unusual for investors to play it safe in the days leading up to such important events as the ECB meeting and the US jobs report. This is especially true when expectations of a rate cut from the central bank are high. On top of that, trying to accurately predict what numbers we’ll get when the US jobs report is released is going to be far from easy. The government shutdown and debt ceiling battle last month is likely to have heavily distorted these figures for a couple of months at least.

There’s plenty of economic data being released on Tuesday in both Europe and the US, which could create some volatility in the markets throughout the day. First up we have the eurozone services PMIs being released early on in the European session. It’s worth noting that these are revised figures so unless we see any significant revisions, they’re unlikely to have too big an impact on the markets.

That said, it will be interesting to see what kind of response we get if any of the figures have been revised significantly lower. Traders have mostly priced in a rate cut from the ECB on Thursday, following the release of the CPI inflation figure last week, which fell to 0.7%. With a little over 24 hours to go until the meeting, we could see another scenario in which bad data is viewed positively in the markets as it only piles more pressure on the ECB to cut interest rates. We know from previous meetings that the central bank pays attention to the figures so they could have an impact come Thursday.

That said, regardless of the numbers this morning, I don’t expect the ECB to cut interest rates tomorrow. In the past, the board has been very careful when it comes to cutting rates and have not reacted to an individual release. This could easily be a one-off figure and I’m sure that’s what they’ll say on Thursday. I also think they will wait until after they have completed the asset quality review to make a decision on the right course of action, which may suggest they favour some form of LTRO over an interest rate cut.

Retail sales in the eurozone are expected to have fallen by 0.4% in September, following a 0.7% increase last month. This inability to record consistent growth in retail sales supports the view that growth in the euro area is still a couple of years away. For now it looks like we’ll have to settle with stagnation, which when you consider that early this year, many expected the eurozone to remain in recession until at least early next year, is still positive.

In the UK, we have manufacturing and industrial production figures being released this morning. Both are expected to rise again, with the former rising 1.1% and the latter 0.5%. This afternoon, we’ll get our first idea about how the UK economy has performed in this quarter, when the NIESR GDP estimate for the three months to the end of October is released. Given the rest of the data we’ve seen in the UK this month, I expect a figure in line with last months, around 0.8%.

With corporate earnings season beginning to draw to a close, there’s not many major companies reporting third quarter earnings today. Of note, we have ING Group reporting in Europe and QUALCOMM in the US.

Ahead of the open we expect to see the FTSE up 21 points, the CAC up 11 points and the DAX up 27 points.
 
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US Opening Call from Alpari UK on 6 November 2013

Investors cautiously optimistic on ECB rate cut

Today’s US opening call provides an update on:

* Investors cautiously optimistic on ECB rate cut;
* Eurozone data helps push indices higher;
* UK manufacturing posts only second yearly increase in almost two years;
* Quiet session expected in US on Wednesday.

With the ECB rate decision now only 24 hours away, investors are looking cautiously optimistic that the ECB will cut interest rates for the second time in six months at tomorrow’s meeting.

A rate cut has already been heavily priced in, which is surprising given that no ECB officials have suggested that such an outcome is likely. In fact, at the last meeting, some members of the board didn’t even want to discuss interest rates. Regardless, investors are confident that we will see a rate cut, which could mean that we’re setting ourselves up for disappointment tomorrow.

As far as today is concerned, there is still an element of uncertainty among investors. Maybe the whole tapering debacle in September is still fresh in people’s minds, which is forcing them to approach this with at least a little caution.

Helping to push European indices, and US futures, higher this morning is the good figures from both the eurozone and the UK. Of the five PMIs that were released, being the eurozone and the four largest economies in it, only the Italian services PMI was revised lower for August, while all of the others were revised higher. Also, only the Spanish services PMI is below 50, the level that separates from contraction. This is really encouraging for the euro area, as it suggests that the small recovery we’re seeing may well be sustainable.

The significant improvement in German factory orders in September only added to the positive data coming out of the region. The only downside came in the form of the retail sales, which fell more than expected in September. That said, they are still up 0.3% from a year ago, which is only the second time we have seen this since April 2011.

The manufacturing and industrial production figures from the UK were also very good, which is particularly encouraging given that both of these have really struggled over the past few years. In fact, this is only the second month since the start of 2012 that we’ve had a year on year increase. If this can continue until the end of the year, it would be a very good sign going forward for the UK.

The US session today could be a little quieter, with investors now focused on the ECB meeting tomorrow and the jobs report on Friday. On top of that, there’s not much data being released during the session, apart from the UK NIESR GDP estimate for the three months to the end of October and the change in EIA crude oil stocks.

Corporate earnings season is now drawing to a close so this is also likely to have less of an impact. The only major company reporting third quarter earnings on Wednesday is QUALCOMM, but this is unlikely to have an impact on the wider markets.

Ahead of the open we expect to see the S&P up 7 points, the Dow up 61 points and the NASDAQ up 8 points.
 
Daily Market Update - 6 November 2013 - Alpari UK

00:10 - Markets trading higher, paring yesterdays losses
00:33 - Australian trade deficit narrows as recovery continues
01:14 - Strong Eurozone figures, yet two tier system persists
02:49 - UK Industrial and manufacturing production boost after poor PMI figure

 
UK Opening Call from Alpari UK on 7 November 2013

Deflation risk piles pressure on ECB to respond

Today’s UK opening call provides an update on:

• ECB rate cut expected this afternoon;
• Will the ECB wait until December instead?
• No change expected from BoE;
• US GDP, jobless claims and inflation this afternoon.

It's been exactly one week since the release of the eurozone inflation figure sent the financial markets into a frenzy. This afternoon, we'll find out whether investors once again overreacted to a single piece of data, or whether they in fact had grounds for abandoning the single currency and pricing in an ECB rate cut.

While I agree that there's certainly grounds for a rate cut today, with unemployment currently at record highs and inflation falling so low that deflation is becoming a very real threat, I don't believe the ECB will act today. Up until this month, unemployment was stabilising so this spike may have just been a one-off. The same could be said for the inflation figure, which surprisingly fell from 1.1% to 0.7% in October.

The problem I see here is that some members of the ECB were not even interested in cutting interest rates at the meeting last month and the central bank is not known for making rash decisions in response to one-off releases. It's therefore very difficult to imagine them do exactly the opposite today. What's more likely is that ECB President Mario Draghi will talk about the one-off nature of the figures and give the central bank time to complete the asset quality review and revise their growth forecasts for the euro area, which will be released next month.

This will allow them to make a more informed decision on the best course of action for the eurozone. For example, the results of the AQR may suggest that another LTRO would be much more effective. They could be more creative with this and offer something that resembles a cross between an LTRO and the Funding for Lending scheme in order to reduce borrowing costs for banks and businesses in peripheral countries. Although this would take a joint effort from the ECB and the governments to encourage businesses to actual start borrowing and investing again.

Whatever the ECB opts for, the press conference following the decision should be interesting and I'm sure Draghi will have to face some very tough questions. Especially if the ECB decides not to act, as this will invite questions on why inflation has been allowed to fall so much when the central banks primary mandate is price stability. I expect to see a lot of market volatility during today's press conference, especially in euro currency pairs and bond yields on euro area states.

The Bank of England will also meet today to discuss interest rates and its quantitative easing program, although this is likely to be very dull in comparison. The central bank has not released a statement alongside the decision since Mark Carney's first meeting in July and unlike the Fed and the ECB, the BoE does not hold a press conference following the decision. With no change expected again today, we can expect very little reaction to this in the markets.

While a lot of attention will be on the ECB rate decision and press conference today, we also have some key pieces of data being released from the US, including the advanced reading of third quarter GDP, weekly jobless claims and inflation figures. The GDP figure is expected to show the US growing at an annualised rate of only 2% in the third quarter, down from 2.5% in the second. It's worth noting here that this figure has not been directly impacted by the government shutdown, which only began in October. This will be reflected in the Q4 figure.

Initial jobless claims are expected to fall again, to 335,000 last week. These figures have been distorted over the last month or so by both the government shutdown and the IT issue in California, which initially made the number appear much lower, before prompting a spike higher as the backlog of claims were processed.

Finally we have the core personal consumption expenditure for the third quarter, the Fed's preferred measure of inflation. This is expected to spike much higher in Q3 to 1.5%, still below the Fed's target rate of inflation but well above that of 0.6% in the second quarter.

Ahead of the open we expect to see the FTSE down 6 points, the CAC down 2 points and the DAX down 7 points.
 
ECB, BoE, US GDP and Twitter Debut on Thursday

Today’s US opening call provides an update on:

* All eyes on ECB rate decision and press conference;
* BoE expected to leave rates and purchases unchanged;
* Plenty of US data released today including Q3 GDP;
* Twitter debut finally arrives, price expected at $26.

European indices are trading marginally lower on Thursday, as investors opt to sit on the sidelines ahead of the ECB rate decision and press conference.

We’re seeing a similar situation in US futures, with indices there also seen opening slightly lower. This is largely due to the uncertainty surrounding the ECB rate decision, due at 12.45 GMT, and the press conference that will follow 45 minutes later.

To an extent, a 25 basis point rate cut was priced in, in the 48 hours following the release of the October inflation figure, which fell to 0.7% from 1.1% in September. Since then, doubts have been raised about whether the ECB will in fact rush into this, or take its time and see whether the figure was a one-off.

Given how the central bank has acted in the past, I will be very surprised if they cut rates today. Not only would this be a knee-jerk reaction, which would be uncharacteristic of the ECB, it would come before the completion of the asset quality review and its revised growth forecasts, due in December. It seems pointless to act before these as they will give the ECB more clarity on what the real problems are and how they’re best resolved.

For example, after this it may be decided that some form of LTRO would best suit the current situation. Or even a combination of the LTRO and the UK’s Funding for Lending scheme, which could provide short term capital for banks, while they shore up their balance sheets, while incentivising lending in order to get the countries in the periphery growing again.

The Bank of England meeting will provide far fewer talking points than the ECB today, with rates and asset purchases expected to remain at 0.5% and £375 billion, respectively, and no statement or press conference to follow. It was though that following Mark Carney’s first meeting as Governor back in July, when a statement was released, that this would become the norm in order to provide more transparency, but alas, this is not the case. Clearly the MPC are still of the belief that less is more.

Aside from the central bank meetings, there’s also a lot of economic data scheduled for release, with particular focus on the US. First up we have the advanced reading of the US third quarter GDP, which isn’t exactly going to fill us with hope going into the final quarter of the year.

Remember, this quarter does not include the month of the government shutdown, so is unlikely to have too much of an impact. That’s not to say the prospect of a shutdown didn’t impact companies hiring and investing decisions, just that the biggest impact will be felt when this quarters GDP is released. Either way, the number is expected to be quite poor by US standards, falling to 2%, from 2.5% in the second quarter.

At the same time, weekly jobless claims will be released, which are expected to fall again, to 335,000 from 340,000 last week. The figures have spiked in recent weeks due to the government shutdown and the IT issue in California that caused a backlog of claims to build up. The impact on this week’s figure should be minimal, bringing the figure back towards the range it was in a couple of months ago.

Finally, we have the core personal consumption expenditure index being released at the same time. This is the Fed’s preferred measure of inflation and is expected to rise, quite significantly, to 1.5%. This is still comfortably below the Fed’s 2% target so is unlikely to prompt too much of a reaction yet. If it comes out higher though, it could bring forward the tapering date, which would be significant.

One last thing to note today is Twitter’s debut on the New York Stock Exchange. After months of creating headlines about what the opening share price will be and whether it will be another disaster, like Facebook last year, Twitter will finally make its debut. The opening price is expected to be $26, valuing the company at $14 billion, more than Google when it made its debut almost 10 years ago. Based on ratings and opinions all over the internet, investors still view this as a good price to buy, so stripping out early volatility in the stock, we could see some early gains here.

Whether these are sustainable depends on its plan to drive advertising revenues going forward and when it expects to finally turn a profit. Facebook faced similar issues and took a long time to convince investors that it can successfully monetise the business.

Ahead of the open we expect to see the S&P down 3 points, the Dow down 22 points and the NASDAQ down 11 points.
 
Reaction to ECB rate cut

The ECB sent financial markets into a frenzy on Thursday, cutting the main refi rate to record lows of 0.25%. The marginal lending rate was also cut by 25 basis points to 0.75%.

To an extent, the markets had priced in a rate cut from the ECB, with the euro falling more than 2 cents against the dollar following the release of the October inflation figure last week. What clearly wasn’t priced in was when that rate cut would come. Most people were looking towards next month at the earliest, but it would appear that the majority have once again got it wrong.

Clearly the ECB see deflation as a very real threat and October’s drop as not being a one-off figure. The central bank has been very reluctant in the past to cut interest rates, so this reaction now begs the question, did they leave it too long to cut rates on this occasion? And, is deflation a real threat for the eurozone?

The euro is currently 130 pips lower against the dollar and 70 pips lower against the pound, and is likely to fall further in the coming months. I think it’s now safe to say that the bull run in the euro has officially ended. It’s surely downhill from here.

Next up we have the ECB meeting when President Mario Draghi will attempt to justify the knee-jerk reaction from the ECB, which is very uncharacteristic of them.
 
Reaction to ECB press conference

The ECB may have cut interest rates, but the statement which followed was broadly similar to that of previous months. There were a few differences, but the message was very much the same.

The ECB reaffirmed its “forward guidance” that it issued a few month ago, when it claimed that rates would stay at or below the current levels for an extended period of time. Once again this is very vague and, in effect, not forward guidance at all. Many people have questioned whether a rate cut today would have any notable impact in the euro area, unless combined with more clarity on its forward guidance, similar to that of the Fed and the BoE. The ECB may have missed a trick here in taking the easy option and just cutting rates again.

The threat of deflation was clearly a concern of the ECB today, despite Draghi’s claim that the central bank is not concerned about such a scenario and instead sees a prolonged period of low inflation, followed by a gradual rise back towards 2%. It’s very rare that we see this kind of knee-jerk reaction from the ECB, so the threat of deflation is clearly very real.

In terms of future responses to disinflation, or the threat of deflation, Draghi was keen to stress that this is not something that the ECB foresees. That said, he did claim that they are ready to consider all available instruments, while at the same time sidestepping the question on whether quantitative easing was one of these tools.

While Draghi won’t want to say it, this is clearly one option that is off the table, at least for now. He also made it clear that another LTRO was not discussed in any significant way, which suggests that going forward, the only tools that the ECB are considering using are rate cuts, be they refi or deposit.

One way that the eurozone will benefit from the rate cut is in the exchange rate, something Draghi claimed was not an ECB policy target. I think it’s safe to say that, whether they want to admit it or not, this played into the decision to cut rates this month. And what a job it did. The euro fell around 2 cents against the dollar following the rate decision this afternoon, bringing the total drop to 4 cents since the inflation figure was released last week, and 5 cents from 25 October highs.
 
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