Alpari UK
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UK Opening Call from Alpari UK on 8 November 2013
US jobs report wraps up busy end to the week
Today’s UK opening call provides an update on:
• Chinese trade surplus rises in October;
• RBA considers rate cut in response to strong Aussie dollar;
• S&P cuts France’s credit rating to AA from AA+;
• US jobs report heavily distorted this month.
European indices are expected to open lower this morning, despite some positive data from China and a dovish monetary policy statement from the Reserve Bank of Australia.
China’s trade balance surplus improved significantly in October, rising to $31.1 billion, up from $15.2 billion last month. The improvement was largely due to a pickup in exports, which rose by 5.6% following last month’s surprise drop. Imports were also up from last month, but still fell slightly shy of expectations.
In Australia, the RBA monthly statement once again highlighted the banks concerns over the strong Aussie dollar, which could provide an incentive for another rate cut in the coming months. Central banks are not allowed to loosen monetary policy in order to weaken their currencies, which is why the RBA also added that they wouldn’t rule out another rate cut if it’s necessary to reach the inflation target. In other words, they’re attempting to talk down to currency with a threat of a rate cut if the markets don’t respond. The problem is, the markets have become almost numb to this kind of verbal intervention, as seen by relatively muted response. In fact, the currency is now higher than it was when the statement was released.
S&P surprised the markets this morning by cutting France’s credit rating from AA+ to AA, a move that appears to have come about six months too late. It’s not unusual for ratings agencies to be late to the party but this is confusing to say the least. France climbed out of recession in the second quarter and since then, the data has been improving. The country’s outlook was also changed from negative to stable.
Today’s US jobs report will wrap up an extremely busy end to the week. Yesterday was one of the busiest days in a long time, with the Bank of England releasing its rate and asset purchases decision, the ECB cutting interest rates, the US releasing some very important pieces of data just as the ECBs press conference got underway and finally, Twitter making its debut on the NYSE. Twitters shares eventually closed more than 70% higher on its first day of trading, at $44.90, after the company settled on an opening price of $26 the day before.
Today won’t be quite as manic as yesterday, but we’re still likely to see plenty of volatility in the markets, especially around the release of the jobs report, which is going to be even harder to predict than normal. The reason for this is that the impact of last month’s government shutdown is very difficult to calculate.
Even if you factor in the impact of the furloughed workers on the unemployment rate (this will have no impact on the non-farm payrolls figure as they’re not technically unemployed by that measure), as well as those who rely on government contracts which were put on hold, it’s very difficult to accurately predict how the shutdown impacted the hiring decisions of companies. Not to mention the impact of the debt ceiling battle which almost forced the US to default on its debt. Businesses will have taken this seriously and could have therefore opted against hiring until it was fully resolved, which is still hasn’t been.
With this in mind, today’s non-farm payrolls figure and unemployment rate are going to be a bit of a lottery. In all likeliness, the number of jobs added in October will probably have plummeted, even from last week’s measly 148,000 figure. As it stands, we’re expecting a figure around 125,000, but I wouldn’t be surprised to see it fall well below this. As for the unemployment rate, this is expected to spike higher to reflect the number of people who were unable to work during the shutdown, although again, I think forecasts of a small rise to 7.3% is a little optimistic.
Regardless, I’m not sure a big miss on either is going to have much of a lasting impact on the markets, as most people are wise to the fact that these numbers are a one-off. We’ll have to wait a couple of months for some data that offers a true reflection of how the US economy has coped with the shutdown, and whether there is any longer term impact.
While many don’t see this jobs report impacting the Fed’s decision to taper in December, due to its one-off nature, it will be interesting to see how the different officials react to the numbers. Shortly after the report, we’ll hear from a few members of the Fed, including non-voting member Dennis Lockhart, who’s views are generally seen as being in line with the consensus at the Fed, John Williams, previously an advisor to the likely incoming Chairwoman Janet Yellen, and most importantly, the current Chairman Ben Bernanke. It will be interesting to see their views on these figures and whether they believe the numbers will have any impact on next months decision.
Following the jobs report we have the preliminary reading of the UoM consumer sentiment figure for November. This figure is likely to provide some insight into how consumers have responded to the turmoil on capitol hill. Consumer spending is very important to the US economy, so any further falls in this figure may point to further negativity in other data in the coming months. This isn’t expected though, with the figure seen rising slightly to 74.5, from 73.2 in October.
Ahead of the open we expect to see the FTSE down 31 points, the CAC down 24 points and the DAX down 48 points.
US jobs report wraps up busy end to the week
Today’s UK opening call provides an update on:
• Chinese trade surplus rises in October;
• RBA considers rate cut in response to strong Aussie dollar;
• S&P cuts France’s credit rating to AA from AA+;
• US jobs report heavily distorted this month.
European indices are expected to open lower this morning, despite some positive data from China and a dovish monetary policy statement from the Reserve Bank of Australia.
China’s trade balance surplus improved significantly in October, rising to $31.1 billion, up from $15.2 billion last month. The improvement was largely due to a pickup in exports, which rose by 5.6% following last month’s surprise drop. Imports were also up from last month, but still fell slightly shy of expectations.
In Australia, the RBA monthly statement once again highlighted the banks concerns over the strong Aussie dollar, which could provide an incentive for another rate cut in the coming months. Central banks are not allowed to loosen monetary policy in order to weaken their currencies, which is why the RBA also added that they wouldn’t rule out another rate cut if it’s necessary to reach the inflation target. In other words, they’re attempting to talk down to currency with a threat of a rate cut if the markets don’t respond. The problem is, the markets have become almost numb to this kind of verbal intervention, as seen by relatively muted response. In fact, the currency is now higher than it was when the statement was released.
S&P surprised the markets this morning by cutting France’s credit rating from AA+ to AA, a move that appears to have come about six months too late. It’s not unusual for ratings agencies to be late to the party but this is confusing to say the least. France climbed out of recession in the second quarter and since then, the data has been improving. The country’s outlook was also changed from negative to stable.
Today’s US jobs report will wrap up an extremely busy end to the week. Yesterday was one of the busiest days in a long time, with the Bank of England releasing its rate and asset purchases decision, the ECB cutting interest rates, the US releasing some very important pieces of data just as the ECBs press conference got underway and finally, Twitter making its debut on the NYSE. Twitters shares eventually closed more than 70% higher on its first day of trading, at $44.90, after the company settled on an opening price of $26 the day before.
Today won’t be quite as manic as yesterday, but we’re still likely to see plenty of volatility in the markets, especially around the release of the jobs report, which is going to be even harder to predict than normal. The reason for this is that the impact of last month’s government shutdown is very difficult to calculate.
Even if you factor in the impact of the furloughed workers on the unemployment rate (this will have no impact on the non-farm payrolls figure as they’re not technically unemployed by that measure), as well as those who rely on government contracts which were put on hold, it’s very difficult to accurately predict how the shutdown impacted the hiring decisions of companies. Not to mention the impact of the debt ceiling battle which almost forced the US to default on its debt. Businesses will have taken this seriously and could have therefore opted against hiring until it was fully resolved, which is still hasn’t been.
With this in mind, today’s non-farm payrolls figure and unemployment rate are going to be a bit of a lottery. In all likeliness, the number of jobs added in October will probably have plummeted, even from last week’s measly 148,000 figure. As it stands, we’re expecting a figure around 125,000, but I wouldn’t be surprised to see it fall well below this. As for the unemployment rate, this is expected to spike higher to reflect the number of people who were unable to work during the shutdown, although again, I think forecasts of a small rise to 7.3% is a little optimistic.
Regardless, I’m not sure a big miss on either is going to have much of a lasting impact on the markets, as most people are wise to the fact that these numbers are a one-off. We’ll have to wait a couple of months for some data that offers a true reflection of how the US economy has coped with the shutdown, and whether there is any longer term impact.
While many don’t see this jobs report impacting the Fed’s decision to taper in December, due to its one-off nature, it will be interesting to see how the different officials react to the numbers. Shortly after the report, we’ll hear from a few members of the Fed, including non-voting member Dennis Lockhart, who’s views are generally seen as being in line with the consensus at the Fed, John Williams, previously an advisor to the likely incoming Chairwoman Janet Yellen, and most importantly, the current Chairman Ben Bernanke. It will be interesting to see their views on these figures and whether they believe the numbers will have any impact on next months decision.
Following the jobs report we have the preliminary reading of the UoM consumer sentiment figure for November. This figure is likely to provide some insight into how consumers have responded to the turmoil on capitol hill. Consumer spending is very important to the US economy, so any further falls in this figure may point to further negativity in other data in the coming months. This isn’t expected though, with the figure seen rising slightly to 74.5, from 73.2 in October.
Ahead of the open we expect to see the FTSE down 31 points, the CAC down 24 points and the DAX down 48 points.
Alpari UK
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US Opening Call from Alpari UK on 8 November 2013
US jobs report to end the week on a bang
Today’s US opening call provides an update on:
* Markets calmer following manic Thursday;
* Jobs report should end the week on a bang;
* Predicting October jobs figures like trying to hit the bullseye with a blindfold on;
* Fed speeches bring the week to a close.
The markets are looking a lot more calm on Friday, following a manic few hours yesterday, which included two central bank rate decision, US growth and jobless figures and Twitter’s debut on the NYSE.
That said, the mayhem isn’t over yet, with the US jobs report being released shortly before the opening bell on Wall Street. These figures always bring with them plenty of volatility, although this month may be a little different. The figures will be very distorted by the government shutdown that lasted for most of the month.
It will be difficult to tell how big an impact the shutdown actually had on the data, which to an extent makes it a little useless. It’s going to be a couple of months until it shrugs off the immediate impact of the shutdown, and near-default of the US, and we see if there has been more of a long lasting impact, with the biggest concern being consumer and business confidence.
This month’s figure is going to be a bit of a lottery. While everyone seems to be expecting a big drop in the number of jobs added and a rise in the unemployment rate, the range of predictions is much larger than normal. Trying to accurately predict the jobs report is difficult enough at the best of times, this month it’s like trying to hit the bullseye with a blindfold on.
With that in mind, you’d think therefore that the reaction to the figures should be relatively muted, given that there are no real expectations. While this makes sense, you can never underestimate the power of the jobs report, not to mention investors ability to react to something they don’t necessarily understand. In other words, while today’s number in all reality means nothing, I still expect a big reaction to it.
Aside from the jobs report, there’s one other piece of economic data being released on Friday, the UoM consumer sentiment figure. This is a preliminary release so tends to create the biggest moves as it is the first indication of consumer spending in November. The number is expected to rise slightly to 74.5 from 73.2 in October, when it plummeted as a result of the shutdown.
To wrap things up this week, we’ll hear from three members of the Federal Reserve, the most notable being Chairman Ben Bernanke. This will provide our first Fed reaction to the October figures, which in all reality are unlikely to have any impact come the December meeting. That said, these views are important and could provide some important insight.
Ahead of the open we expect to see the S&P up 5 points, the Dow up 24 points and the NASDAQ up 13 points.
US jobs report to end the week on a bang
Today’s US opening call provides an update on:
* Markets calmer following manic Thursday;
* Jobs report should end the week on a bang;
* Predicting October jobs figures like trying to hit the bullseye with a blindfold on;
* Fed speeches bring the week to a close.
The markets are looking a lot more calm on Friday, following a manic few hours yesterday, which included two central bank rate decision, US growth and jobless figures and Twitter’s debut on the NYSE.
That said, the mayhem isn’t over yet, with the US jobs report being released shortly before the opening bell on Wall Street. These figures always bring with them plenty of volatility, although this month may be a little different. The figures will be very distorted by the government shutdown that lasted for most of the month.
It will be difficult to tell how big an impact the shutdown actually had on the data, which to an extent makes it a little useless. It’s going to be a couple of months until it shrugs off the immediate impact of the shutdown, and near-default of the US, and we see if there has been more of a long lasting impact, with the biggest concern being consumer and business confidence.
This month’s figure is going to be a bit of a lottery. While everyone seems to be expecting a big drop in the number of jobs added and a rise in the unemployment rate, the range of predictions is much larger than normal. Trying to accurately predict the jobs report is difficult enough at the best of times, this month it’s like trying to hit the bullseye with a blindfold on.
With that in mind, you’d think therefore that the reaction to the figures should be relatively muted, given that there are no real expectations. While this makes sense, you can never underestimate the power of the jobs report, not to mention investors ability to react to something they don’t necessarily understand. In other words, while today’s number in all reality means nothing, I still expect a big reaction to it.
Aside from the jobs report, there’s one other piece of economic data being released on Friday, the UoM consumer sentiment figure. This is a preliminary release so tends to create the biggest moves as it is the first indication of consumer spending in November. The number is expected to rise slightly to 74.5 from 73.2 in October, when it plummeted as a result of the shutdown.
To wrap things up this week, we’ll hear from three members of the Federal Reserve, the most notable being Chairman Ben Bernanke. This will provide our first Fed reaction to the October figures, which in all reality are unlikely to have any impact come the December meeting. That said, these views are important and could provide some important insight.
Ahead of the open we expect to see the S&P up 5 points, the Dow up 24 points and the NASDAQ up 13 points.
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Alpari UK
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Reaction to US jobs report
Investors were once again caught off guard this afternoon, when the US jobs report showed that job creation was unaffected by the October government shutdown. This came as a big surprise to investors, many of whom had expected to see a big drop in the number compared to last month, with businesses delaying hiring decisions until the uncertainty had subsided. Clearly US businesses were far more confident that a resolution would be found than we were.
The number of jobs created in October rose to 204,000, the largest increase since February, while September’s figure was revised up to 163,000 from 148,000 previously.
It is worth noting that this figure was unaffected by the furloughed workers in the US, which would have had a big impact on the number. The unemployment figure though did take these into consideration, which contributed to the 0.1% increase here to 7.3%. This will probably fall again next month so had little impact on the markets.
One concern this month was yet another drop in the participation rate, from 63.2% to 62.8%, which probably prevented the unemployment rate rising further. This falling participation rate must be a major concern to the Fed because when it starts to rise again, the unemployment rate will rise with it. It essentially makes the unemployment rate a poor measure of US economic health.
The market impact to the number was quite interesting. We saw a rally in the dollar and a pull back in Gold shortly after the release, although it wasn’t quite as aggressive as we have seen in previous month’s. Clearly investors view today’s jobs report as taper positive, although they’re not yet convinced it will come in December.
Investors were once again caught off guard this afternoon, when the US jobs report showed that job creation was unaffected by the October government shutdown. This came as a big surprise to investors, many of whom had expected to see a big drop in the number compared to last month, with businesses delaying hiring decisions until the uncertainty had subsided. Clearly US businesses were far more confident that a resolution would be found than we were.
The number of jobs created in October rose to 204,000, the largest increase since February, while September’s figure was revised up to 163,000 from 148,000 previously.
It is worth noting that this figure was unaffected by the furloughed workers in the US, which would have had a big impact on the number. The unemployment figure though did take these into consideration, which contributed to the 0.1% increase here to 7.3%. This will probably fall again next month so had little impact on the markets.
One concern this month was yet another drop in the participation rate, from 63.2% to 62.8%, which probably prevented the unemployment rate rising further. This falling participation rate must be a major concern to the Fed because when it starts to rise again, the unemployment rate will rise with it. It essentially makes the unemployment rate a poor measure of US economic health.
The market impact to the number was quite interesting. We saw a rally in the dollar and a pull back in Gold shortly after the release, although it wasn’t quite as aggressive as we have seen in previous month’s. Clearly investors view today’s jobs report as taper positive, although they’re not yet convinced it will come in December.
Alpari UK
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Daily Market Update - 8 November 2013 - Alpari UK
00:11 - Markets quieter after chaotic day on Thursday
00:55 - RBA statement hints at rate cut
02:07 - Chinese trade surplus more than doubles in October
03:00 - Jobs report shows hiring not affected by shutdown
06:27 - Big weekend ahead for China
00:11 - Markets quieter after chaotic day on Thursday
00:55 - RBA statement hints at rate cut
02:07 - Chinese trade surplus more than doubles in October
03:00 - Jobs report shows hiring not affected by shutdown
06:27 - Big weekend ahead for China
Alpari UK
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UK Opening Call from Alpari UK on 11 November 2013
Europe to open higher after Dow closes at record highs
Today’s UK opening call provides an update on:
• Markets quiet on Monday due to bank holidays in US, Canada and France;
• Dow closes at record high on Friday following positive October jobs report;
• Investors more concerned about December taper, despite rally in equities;
• No economic releases on Monday but we will hear from Bundesbank Head.
European indices are expected to open slightly higher on Monday, in what is expected to be a very quiet day in the markets, especially when compared with last week.
The end of last week was particularly chaotic, with the ECB cutting interest rates to the surprise of many in the markets, US third quarter GDP figure exceeding expectations and October’s jobs report showing much better jobs growth than was expected. In response to these improvements in the US economic data and loosening of monetary policy from the ECB, the Dow closed at record highs on Friday, while the S&P 500 came within touching distance of doing the same.
What’s interesting is that the response we saw in other markets was different than what we had in equities. Bond and currency markets highlighted concerns that the improvement in the growth and labour market figures may prompt the Fed to taper its asset purchases at the next meeting in December. US Treasury yields closed around 15 basis points higher on Friday at 2.75%, while the dollar rallied against many of the other major currencies. Could this mean that we’re finally seeing the end of the “good news is bad news” scenario? At least for now, this appears to be the case.
The dollar rally was particularly strong against the yen on Friday, which has helped Japanese exporters record solid gains in the Asian session over night. We could see more of the same going forward, after the pair broke above an important resistance level, which could prompt further significant gains in the coming weeks.
Bank holiday’s in the US, Canada and France are expected to significantly reduce trading volumes on Monday. All markets will still be open for trading, although many traders will not be at their desks. These lower volumes can lead to increased volatility though, so it’s not necessarily a bad thing for those trading on Monday.
One thing that we will see as a result of these bank holidays is a lack of data releases on Monday. Not only do we have no economic releases from the US, Canada and France, there’s also no major releases scheduled from any other country on Monday, which could lead to even lower trading volumes.
We will here from Bundesbank Head, Jens Weidmann , this evening, which many will take an interest in. The German central banker is usually very hawkish, so many will be looking for his view on Thursday’s rate cut, in particular, whether he voted in favour or against it. I think the latter is most likely. He may also be questioned on his thoughts about the threat of deflation in the eurozone, what other tools the ECB has to offset this risk in the future and what they’d most likely use now that their ability to cut rates further has been reduced by them now being at record lows of 0.25%.
Ahead of the open we expect to see the FTSE up 30 points, the CAC up 10 points and the DAX up 14 points.
Europe to open higher after Dow closes at record highs
Today’s UK opening call provides an update on:
• Markets quiet on Monday due to bank holidays in US, Canada and France;
• Dow closes at record high on Friday following positive October jobs report;
• Investors more concerned about December taper, despite rally in equities;
• No economic releases on Monday but we will hear from Bundesbank Head.
European indices are expected to open slightly higher on Monday, in what is expected to be a very quiet day in the markets, especially when compared with last week.
The end of last week was particularly chaotic, with the ECB cutting interest rates to the surprise of many in the markets, US third quarter GDP figure exceeding expectations and October’s jobs report showing much better jobs growth than was expected. In response to these improvements in the US economic data and loosening of monetary policy from the ECB, the Dow closed at record highs on Friday, while the S&P 500 came within touching distance of doing the same.
What’s interesting is that the response we saw in other markets was different than what we had in equities. Bond and currency markets highlighted concerns that the improvement in the growth and labour market figures may prompt the Fed to taper its asset purchases at the next meeting in December. US Treasury yields closed around 15 basis points higher on Friday at 2.75%, while the dollar rallied against many of the other major currencies. Could this mean that we’re finally seeing the end of the “good news is bad news” scenario? At least for now, this appears to be the case.
The dollar rally was particularly strong against the yen on Friday, which has helped Japanese exporters record solid gains in the Asian session over night. We could see more of the same going forward, after the pair broke above an important resistance level, which could prompt further significant gains in the coming weeks.
Bank holiday’s in the US, Canada and France are expected to significantly reduce trading volumes on Monday. All markets will still be open for trading, although many traders will not be at their desks. These lower volumes can lead to increased volatility though, so it’s not necessarily a bad thing for those trading on Monday.
One thing that we will see as a result of these bank holidays is a lack of data releases on Monday. Not only do we have no economic releases from the US, Canada and France, there’s also no major releases scheduled from any other country on Monday, which could lead to even lower trading volumes.
We will here from Bundesbank Head, Jens Weidmann , this evening, which many will take an interest in. The German central banker is usually very hawkish, so many will be looking for his view on Thursday’s rate cut, in particular, whether he voted in favour or against it. I think the latter is most likely. He may also be questioned on his thoughts about the threat of deflation in the eurozone, what other tools the ECB has to offset this risk in the future and what they’d most likely use now that their ability to cut rates further has been reduced by them now being at record lows of 0.25%.
Ahead of the open we expect to see the FTSE up 30 points, the CAC up 10 points and the DAX up 14 points.
Alpari UK
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Weekly market preview on 11 November 2013 - Alpari UK
A mixed week ahead in terms of economic events, following on from a volatile and busy week just gone. The most notable events seem to be coming from the UK and eurozone, while many of the other regions look light on possible market moving releases. In the US, a four day week sees Janet Yellen take to the stand for the first time as the Chairperson designate. The UK provides a number of key releases, with Wednesday’s jobs data likely to provide most volatility. Meanwhile, eurozone attention will focus upon the preliminary GDP figures throughout the Italian, French and German economies, along with the region as a whole.
In Asia, the Chinese CPI figure represents the major event of note given its impact upon possible easing measures going forward. In Japan, the preliminary GDP reading for Q3 will no doubt provide significant interest.
US
A relatively quiet week for the US, where the main events to look out for come in the form of the unemployment claims data, along with the Fed testimony from future chair Janet Yellen.
Following on from Friday’s strong non-farm payroll data, the question over whether the FOMC will seek to initiate the first reduction to the current rate of monthly asset purchases has been brought back to the table. The next FOMC meeting will take place in late December, by which point the November jobs data will have been released. However, the rest of the employment data will take the form of the weekly unemployment claims figures. The figure has been on a clear downward trajectory up until the government shutdown brought about a spike in early October. Market projections point towards a further continuation of the downtrend when the figure is released on Wednesday, with a reduction of 5k claims expected to take last week’s figure of 336k closer to 331k. What is worth noting is that the FOMC will likely require significant signs of improvement in employment data to prove that there is enough resilience for a taper to occur. Overall we are looking for a strong miss for the markets to really think that the figure will have an impact upon the final decision at the Fed.
Also on Thursday, the future Fed chair Janet Yellen will provide testimony to the Federal Reserve for the first time as the official designate for the role. The testimony will come in the form of a pre-prepared statement followed by a Q&A session, both geared towards her take on monetary policy. Given that this is the first opportunity of the future chair to outline how monetary policy will be shaped under leadership, markets will be waiting with baited breathe. Since this event is likely to impact how tapering will look going forward, it is worth noting that volatility is likely for the duration of the testimony.
UK
A very busy week for the UK economy ahead, where the release of the CPI inflation rate, along with the jobs data will provide a clear update to where the economy stands in relation to Mark Carney’s forward guidance. Along side this, the BoE inflation report and retails sales figure complete a notable week ahead for the UK economy.
On Tuesday, the CPI measure of inflation is released in the morning with the association to forward guidance likely to dominate. The stipulation of forward guidance as provided by Mark Carney outlined that interest rates would remain at lows until the unemployment reached 7.0% or lower. However, this is only valid as long as 18-24 month expectations of CPI remain at or below 2.5%. Now we are not provided with the forward expectation of this figure on Thursday, but a reduction of the current rate will reduce future expectations. Market predictions point towards a fall in the figure to 2.5% from 2.7% in September. Should this occur, we would be moving towards a ‘safe’ territory where interest rates are unlikely to be raised in response to high inflation. Thus should we see the CPI figure come in at or below 2.5% it would likely be viewed as positive for a continuation of loose monetary policies going forward.
On Wednesday, jobs report brings forward guidance back to the fore. The two main figures to watch for are the unemployment rate and the claimant count. The unemployment rate is tied closely to forward guidance given that the 7% threshold is the level whereby the discussion over whether interest rates should be increased is brought back to the fore. Given that association, the more that employment data improves, the closer we get to a tighter monetary policy framework in the UK. Market forecasts point towards the figure remaining at 7.7% and thus we will keep an eye out for any change as a means of volatility going forward.
The claimant count figure provides a more accurate and precise reading of the employment situation. On the whole, this measure has been kind to the markets, with 13 of the last 15 releases coming in better than expectations. For that reason I am bullish about this reading, where the expectations of -30.2k claimants could be a little moderate. Last month’s reading was substantially higher at -41.7k and thus there is plenty of room for this figure to continue the positive trend seen over the last year or so.
Later on Wednesday, the BoE are due to release their latest quarterly inflation report. There is alot expected from this release, with many speculating that the BoE is likely to be bullish about the trajectory of the UK economy. Watch out for possible revisions to forecasts, in particular a possible upward revision to grown and downward revision to unemployment. Given the association between the unemployment rate and interests rates under forward guidance, there could also be a revised timeline for when they expect to see the 7.0% threshold reached. Currently the BoE expectations point towards the economy reaching the 7.0% threshold in 2016. Overall, all of these possible announcements could bring significant volatility going forward and thus be aware that this is one of the most important events of the week globally.
Finally, the retail sales figure is due out on Thursday, providing the last source of volatility in the UK. The retail sales figure is always important owing to the association between consumer spending patterns and their economic outlook, both current and future. Markets point towards a fall in the month on month growth rate from 0.6% to 0.2%. That being said, anything that remains in growth territory will be a decent result and show that the economy is still moving in the right direction. We are moving into the holiday season, so this figure will soon pick up markedly. A big miss in this figure will often provide substantial volatility so this is well worth watching out for.
Eurozone
The eurozone region has a number of releases this week, yet there are two which are especially worth looking out for. The GDP releases on Wednesday are well worth noting given their comprehensive outlook of how some of the largest economies are faring. Also, the release of the final CPI figure on Friday is important given the impact the flash figure had a fortnight ago.
The most important of these releases are no doubt the preliminary GDP figures being released for the Germany, France, Italy and eurozone economies. The way I will be viewing it is in terms of how all these figures move together given that we are looking for an overall effect to the market from a number of releases in quick succession. On this occasion, the estimates point towards a clear bias of lowered growth for Q3. The most notable of these come in the form of the German GDP figure, which is expected to fall from 0.7% to 0.3%. Another clear example of this downwards bias is the French figure, which estimated to tumble from 0.5% in Q2 to 0.1% in Q3. Fortunately the eurozone figure is somewhat less harsh, pointing towards a fall from 0.3% to 0.2%, which shows that the peripheral countries are unlikely to have suffered as much as those two nations. Two ways of looking at this really. The forecasts are pretty harsh and do leave plenty room for a more moderate fall in the figures. However, the French figure in particular has been estimated to come very close to the key 0% mark and thus should any of these economies fall back into negative growth, it would be a big headline event. Overall, this release is going to be very notable and well worth watching out for.
Later in the week the final CPI figure is due out for the eurozone. The importance of this has been reduced somewhat given that the ECB decided to take steps to combat inflation by lowering the interest rate. However, it will be key to understand whether the figure was actually as bad as we thought. The figure is expected to confirm that 0.7% level, yet there is a possibility the number was in fact higher, thus making the ECB seem a little impulsive.
Asia & Oceania
The Asian area is somewhat quiet this week, with the Chinese and Japanese economies both looking towards a single major event for market movement. In China the CPI figure released on Saturday is estimated to point towards a continued rise in inflation from 3.3% to 3.1% on a year on year basis. The Chinese economy has been faring well in H2 of this year, following a notable slowdown in the usually vibrant Asian powerhouse. The PBOC has always shown a willingness to act when there are weaknesses within the economy, however whilst the inflation rate continues to rise, it reduces the central bank’s options.
In Japan, the preliminary GDP figure is expected on Wednesday, where we will get the latest view of how the implementation of Abenomics is effecting the economy going forward. Much like the eurozone, the expectation is that we will see a slowdown in the third quarter. The BoJ has previously been very bullish about Japanese growth and this has allowed them to set the April 2014 timeline upon the imposition of a higher sales tax in the country. However, the forecasts point towards a fall to 0.4% growth in Q3, from 0.9% in Q2. Should this occur it would be a blow to the prospects of the economic strength under a higher tax bracket.
A mixed week ahead in terms of economic events, following on from a volatile and busy week just gone. The most notable events seem to be coming from the UK and eurozone, while many of the other regions look light on possible market moving releases. In the US, a four day week sees Janet Yellen take to the stand for the first time as the Chairperson designate. The UK provides a number of key releases, with Wednesday’s jobs data likely to provide most volatility. Meanwhile, eurozone attention will focus upon the preliminary GDP figures throughout the Italian, French and German economies, along with the region as a whole.
In Asia, the Chinese CPI figure represents the major event of note given its impact upon possible easing measures going forward. In Japan, the preliminary GDP reading for Q3 will no doubt provide significant interest.
US
A relatively quiet week for the US, where the main events to look out for come in the form of the unemployment claims data, along with the Fed testimony from future chair Janet Yellen.
Following on from Friday’s strong non-farm payroll data, the question over whether the FOMC will seek to initiate the first reduction to the current rate of monthly asset purchases has been brought back to the table. The next FOMC meeting will take place in late December, by which point the November jobs data will have been released. However, the rest of the employment data will take the form of the weekly unemployment claims figures. The figure has been on a clear downward trajectory up until the government shutdown brought about a spike in early October. Market projections point towards a further continuation of the downtrend when the figure is released on Wednesday, with a reduction of 5k claims expected to take last week’s figure of 336k closer to 331k. What is worth noting is that the FOMC will likely require significant signs of improvement in employment data to prove that there is enough resilience for a taper to occur. Overall we are looking for a strong miss for the markets to really think that the figure will have an impact upon the final decision at the Fed.
Also on Thursday, the future Fed chair Janet Yellen will provide testimony to the Federal Reserve for the first time as the official designate for the role. The testimony will come in the form of a pre-prepared statement followed by a Q&A session, both geared towards her take on monetary policy. Given that this is the first opportunity of the future chair to outline how monetary policy will be shaped under leadership, markets will be waiting with baited breathe. Since this event is likely to impact how tapering will look going forward, it is worth noting that volatility is likely for the duration of the testimony.
UK
A very busy week for the UK economy ahead, where the release of the CPI inflation rate, along with the jobs data will provide a clear update to where the economy stands in relation to Mark Carney’s forward guidance. Along side this, the BoE inflation report and retails sales figure complete a notable week ahead for the UK economy.
On Tuesday, the CPI measure of inflation is released in the morning with the association to forward guidance likely to dominate. The stipulation of forward guidance as provided by Mark Carney outlined that interest rates would remain at lows until the unemployment reached 7.0% or lower. However, this is only valid as long as 18-24 month expectations of CPI remain at or below 2.5%. Now we are not provided with the forward expectation of this figure on Thursday, but a reduction of the current rate will reduce future expectations. Market predictions point towards a fall in the figure to 2.5% from 2.7% in September. Should this occur, we would be moving towards a ‘safe’ territory where interest rates are unlikely to be raised in response to high inflation. Thus should we see the CPI figure come in at or below 2.5% it would likely be viewed as positive for a continuation of loose monetary policies going forward.
On Wednesday, jobs report brings forward guidance back to the fore. The two main figures to watch for are the unemployment rate and the claimant count. The unemployment rate is tied closely to forward guidance given that the 7% threshold is the level whereby the discussion over whether interest rates should be increased is brought back to the fore. Given that association, the more that employment data improves, the closer we get to a tighter monetary policy framework in the UK. Market forecasts point towards the figure remaining at 7.7% and thus we will keep an eye out for any change as a means of volatility going forward.
The claimant count figure provides a more accurate and precise reading of the employment situation. On the whole, this measure has been kind to the markets, with 13 of the last 15 releases coming in better than expectations. For that reason I am bullish about this reading, where the expectations of -30.2k claimants could be a little moderate. Last month’s reading was substantially higher at -41.7k and thus there is plenty of room for this figure to continue the positive trend seen over the last year or so.
Later on Wednesday, the BoE are due to release their latest quarterly inflation report. There is alot expected from this release, with many speculating that the BoE is likely to be bullish about the trajectory of the UK economy. Watch out for possible revisions to forecasts, in particular a possible upward revision to grown and downward revision to unemployment. Given the association between the unemployment rate and interests rates under forward guidance, there could also be a revised timeline for when they expect to see the 7.0% threshold reached. Currently the BoE expectations point towards the economy reaching the 7.0% threshold in 2016. Overall, all of these possible announcements could bring significant volatility going forward and thus be aware that this is one of the most important events of the week globally.
Finally, the retail sales figure is due out on Thursday, providing the last source of volatility in the UK. The retail sales figure is always important owing to the association between consumer spending patterns and their economic outlook, both current and future. Markets point towards a fall in the month on month growth rate from 0.6% to 0.2%. That being said, anything that remains in growth territory will be a decent result and show that the economy is still moving in the right direction. We are moving into the holiday season, so this figure will soon pick up markedly. A big miss in this figure will often provide substantial volatility so this is well worth watching out for.
Eurozone
The eurozone region has a number of releases this week, yet there are two which are especially worth looking out for. The GDP releases on Wednesday are well worth noting given their comprehensive outlook of how some of the largest economies are faring. Also, the release of the final CPI figure on Friday is important given the impact the flash figure had a fortnight ago.
The most important of these releases are no doubt the preliminary GDP figures being released for the Germany, France, Italy and eurozone economies. The way I will be viewing it is in terms of how all these figures move together given that we are looking for an overall effect to the market from a number of releases in quick succession. On this occasion, the estimates point towards a clear bias of lowered growth for Q3. The most notable of these come in the form of the German GDP figure, which is expected to fall from 0.7% to 0.3%. Another clear example of this downwards bias is the French figure, which estimated to tumble from 0.5% in Q2 to 0.1% in Q3. Fortunately the eurozone figure is somewhat less harsh, pointing towards a fall from 0.3% to 0.2%, which shows that the peripheral countries are unlikely to have suffered as much as those two nations. Two ways of looking at this really. The forecasts are pretty harsh and do leave plenty room for a more moderate fall in the figures. However, the French figure in particular has been estimated to come very close to the key 0% mark and thus should any of these economies fall back into negative growth, it would be a big headline event. Overall, this release is going to be very notable and well worth watching out for.
Later in the week the final CPI figure is due out for the eurozone. The importance of this has been reduced somewhat given that the ECB decided to take steps to combat inflation by lowering the interest rate. However, it will be key to understand whether the figure was actually as bad as we thought. The figure is expected to confirm that 0.7% level, yet there is a possibility the number was in fact higher, thus making the ECB seem a little impulsive.
Asia & Oceania
The Asian area is somewhat quiet this week, with the Chinese and Japanese economies both looking towards a single major event for market movement. In China the CPI figure released on Saturday is estimated to point towards a continued rise in inflation from 3.3% to 3.1% on a year on year basis. The Chinese economy has been faring well in H2 of this year, following a notable slowdown in the usually vibrant Asian powerhouse. The PBOC has always shown a willingness to act when there are weaknesses within the economy, however whilst the inflation rate continues to rise, it reduces the central bank’s options.
In Japan, the preliminary GDP figure is expected on Wednesday, where we will get the latest view of how the implementation of Abenomics is effecting the economy going forward. Much like the eurozone, the expectation is that we will see a slowdown in the third quarter. The BoJ has previously been very bullish about Japanese growth and this has allowed them to set the April 2014 timeline upon the imposition of a higher sales tax in the country. However, the forecasts point towards a fall to 0.4% growth in Q3, from 0.9% in Q2. Should this occur it would be a blow to the prospects of the economic strength under a higher tax bracket.
Read the full report at Alpari News Room
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US Opening Call from Alpari UK on 11 November 2013
Indices higher despite December taper expectations
Today’s US opening call provides an update on:
* Investors buoyed by Friday’s jobs report;
* Traders beginning to price in December taper;
* Quiet day expected due to bank holiday’s in US, Canada and France.
Friday’s better than expected jobs report from the US is continuing to buoy investors this morning, despite growing concerns that it could prompt the Fed to taper in December.
Until recently, investors had come to accept the fact that the Fed would taper this year. In fact, the “Septaper” was almost entirely priced in and investors were ready to move on and focus more on the fundamentals. An apparent change of heart from the Fed in September, followed by a government shutdown in October changed everything though, prompting analysts to change their forecasts for tapering with many of them looking to the first quarter of 2014 for the first taper.
These revised forecasts were clearly based on the assumption that the government shutdown had, at the very least, a short term impact on the data. The October jobs report suggests otherwise, with the number of jobs added easily exceeding expectations to rise to 204,000, while the unemployment rate only rose to 7.3%.
Add to that the upward revisions to the August and September figures and it’s no surprise that investors are looking at a December taper again. That said, I still think we need to see a couple more months of data to be sure that it hasn’t had an impact in the longer term, particularly to consumer confidence, with surveys showing a drop in this in recent months. Therefore, I think January would be a better time to do it, as long as the data remains strong.
Supporting this would be the fact that if the shutdown had no negative repercussions for hiring, and little impact on consumer spending, there’s no reason to wait until after the budget and debt ceiling battles in January and February to taper. Clearly businesses never viewed the shutdown or the possibility of a US default as a threat. If that’s the case, they won’t again in January.
What is interesting is that investors are pricing in an earlier than expected taper in both the bond and currency markets, with US 10-year Treasury yields rising 15 basis points and the dollar rallying against the other major currencies on Friday. However, equities are not selling off as they have previously. Maybe the “good news is bad news” scenario is finally becoming a thing of the past.
As for today, things are likely to be a lot quieter. We have bank holidays in the US, Canada and France, which will have a big impact on trading volumes. Although this can bring with it increased volatility, which is positive for traders. Economic data is also very thin as a result of the bank holidays, with none of the above countries releasing any figures today.
Ahead of the open we expect to see the S&P flat, the Dow flat and the NASDAQ down 4 points.
Indices higher despite December taper expectations
Today’s US opening call provides an update on:
* Investors buoyed by Friday’s jobs report;
* Traders beginning to price in December taper;
* Quiet day expected due to bank holiday’s in US, Canada and France.
Friday’s better than expected jobs report from the US is continuing to buoy investors this morning, despite growing concerns that it could prompt the Fed to taper in December.
Until recently, investors had come to accept the fact that the Fed would taper this year. In fact, the “Septaper” was almost entirely priced in and investors were ready to move on and focus more on the fundamentals. An apparent change of heart from the Fed in September, followed by a government shutdown in October changed everything though, prompting analysts to change their forecasts for tapering with many of them looking to the first quarter of 2014 for the first taper.
These revised forecasts were clearly based on the assumption that the government shutdown had, at the very least, a short term impact on the data. The October jobs report suggests otherwise, with the number of jobs added easily exceeding expectations to rise to 204,000, while the unemployment rate only rose to 7.3%.
Add to that the upward revisions to the August and September figures and it’s no surprise that investors are looking at a December taper again. That said, I still think we need to see a couple more months of data to be sure that it hasn’t had an impact in the longer term, particularly to consumer confidence, with surveys showing a drop in this in recent months. Therefore, I think January would be a better time to do it, as long as the data remains strong.
Supporting this would be the fact that if the shutdown had no negative repercussions for hiring, and little impact on consumer spending, there’s no reason to wait until after the budget and debt ceiling battles in January and February to taper. Clearly businesses never viewed the shutdown or the possibility of a US default as a threat. If that’s the case, they won’t again in January.
What is interesting is that investors are pricing in an earlier than expected taper in both the bond and currency markets, with US 10-year Treasury yields rising 15 basis points and the dollar rallying against the other major currencies on Friday. However, equities are not selling off as they have previously. Maybe the “good news is bad news” scenario is finally becoming a thing of the past.
As for today, things are likely to be a lot quieter. We have bank holidays in the US, Canada and France, which will have a big impact on trading volumes. Although this can bring with it increased volatility, which is positive for traders. Economic data is also very thin as a result of the bank holidays, with none of the above countries releasing any figures today.
Ahead of the open we expect to see the S&P flat, the Dow flat and the NASDAQ down 4 points.
Alpari UK
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UK Opening Call from Alpari UK on 12 November 2013
Today’s UK opening call provides an update on:
• UK CPI expected to fall, providing main volatility trigger;
• BoE inflation report due tomorrow could shake up markets;
• Australian business confidence disappoints;
• Japanese stocks rally after yen shows further weakness.
Today looks likely to be another day of thin trading within the markets following the a somewhat uninspiring day yesterday. The day following a US jobs report is typically seen to have very little volume and yesterday was no exception. However, it will be interesting to see whether the return of many from remembrance and veterans day holidays will manage to drive any decent form of volume and volatility in a day which provides only one significant economic event of note. Futures point towards a positive open across European indices, no doubt still reeling from the ECB decision to lower rates last week. However, with the BoE inflation report and job data due tomorrow it is clear that volatility will likely pick up as the week goes on.
This morning the CPI measure of inflation is released with markets seeking to associate any changes with a strengthening or weakening of the forward guidance provided by the BoE. Under forward guidance, Mark Carney outlined that interest rates would remain at lows until the unemployment reached 7.0% or lower. However, this is only valid as long as 18-24 month expectations of CPI remain at or below 2.5%. The CPI figure will not provide the forward forecast from the ONS, yet a reduction of the current rate will reduce future inflation expectations. Markets are looking for a reduction to that key 2.5% level, from 2.7% in September. This would move us closer towards a ‘safe’ inflation environment where interest rates are unlikely to be raised as a result of high inflation. Thus should we see the CPI figure come in at or below 2.5% it would likely be viewed as positive for a continuation of loose monetary policies going forward.
The CPI is just one of three events this week which brings the forward guidance policy into question, with the most important coming tomorrow in the form of the inflation report. The rumours of multiple forecast upgrades lead us to believe we will likely see significant volatility tomorrow and will give us an insight into the current mentality within the markets. The trend seen within the post-2008 period has been one of central bank associated analysis of economic releases. Everyone loves to see a strong economy, but if the release of positive data comes to the detriment of monetary easing, it will be largely viewed in a more pessimistic manner within the markets. Thus should we see the likely upward revision to growth and downward revision to unemployment tomorrow, markets will be likely to take it as stocks negative and GBP positive. This is because the expectation of lower unemployment would also reduce the timeframe within which interest rates are expected to remain at the current lows. In all likeliness, this would be responded to by lowering the threshold to provide a greater degree of certainty, yet this may occur at next month’s BoE meeting which may leave the markets to their own devices for some time.
Overnight the Australian business confidence survey painted a less than rosy picture, falling back to pre-election levels following a notable surge in September. The study also pointed towards weakening conditions going forward, with capacity utilisation falling to a four year low, while capex and forwards orders also tumble. That being said, the Australian economy has been showing signs of resurgence and whilst this measure brought the AUD lower in early trading, markets remain somewhat forgiving in this time of adjustment for the Australian economy.
In Japan, the Nikkei225 looks set to post the biggest rise in over a month following notable yen weakness, which saw the currency fall to a seven week low. The breakout of the USDJPY from a 4-6 month triangle formation points to further upside, which brings about the opportunity for a continuation of the trend seen throughout late 2012 to mid 2013 following the imposition of 'Abenomics'.
European markets are expected to open higher, with the FTSE100 +5, CAC +4 and DAX +11 points.
Today’s UK opening call provides an update on:
• UK CPI expected to fall, providing main volatility trigger;
• BoE inflation report due tomorrow could shake up markets;
• Australian business confidence disappoints;
• Japanese stocks rally after yen shows further weakness.
Today looks likely to be another day of thin trading within the markets following the a somewhat uninspiring day yesterday. The day following a US jobs report is typically seen to have very little volume and yesterday was no exception. However, it will be interesting to see whether the return of many from remembrance and veterans day holidays will manage to drive any decent form of volume and volatility in a day which provides only one significant economic event of note. Futures point towards a positive open across European indices, no doubt still reeling from the ECB decision to lower rates last week. However, with the BoE inflation report and job data due tomorrow it is clear that volatility will likely pick up as the week goes on.
This morning the CPI measure of inflation is released with markets seeking to associate any changes with a strengthening or weakening of the forward guidance provided by the BoE. Under forward guidance, Mark Carney outlined that interest rates would remain at lows until the unemployment reached 7.0% or lower. However, this is only valid as long as 18-24 month expectations of CPI remain at or below 2.5%. The CPI figure will not provide the forward forecast from the ONS, yet a reduction of the current rate will reduce future inflation expectations. Markets are looking for a reduction to that key 2.5% level, from 2.7% in September. This would move us closer towards a ‘safe’ inflation environment where interest rates are unlikely to be raised as a result of high inflation. Thus should we see the CPI figure come in at or below 2.5% it would likely be viewed as positive for a continuation of loose monetary policies going forward.
The CPI is just one of three events this week which brings the forward guidance policy into question, with the most important coming tomorrow in the form of the inflation report. The rumours of multiple forecast upgrades lead us to believe we will likely see significant volatility tomorrow and will give us an insight into the current mentality within the markets. The trend seen within the post-2008 period has been one of central bank associated analysis of economic releases. Everyone loves to see a strong economy, but if the release of positive data comes to the detriment of monetary easing, it will be largely viewed in a more pessimistic manner within the markets. Thus should we see the likely upward revision to growth and downward revision to unemployment tomorrow, markets will be likely to take it as stocks negative and GBP positive. This is because the expectation of lower unemployment would also reduce the timeframe within which interest rates are expected to remain at the current lows. In all likeliness, this would be responded to by lowering the threshold to provide a greater degree of certainty, yet this may occur at next month’s BoE meeting which may leave the markets to their own devices for some time.
Overnight the Australian business confidence survey painted a less than rosy picture, falling back to pre-election levels following a notable surge in September. The study also pointed towards weakening conditions going forward, with capacity utilisation falling to a four year low, while capex and forwards orders also tumble. That being said, the Australian economy has been showing signs of resurgence and whilst this measure brought the AUD lower in early trading, markets remain somewhat forgiving in this time of adjustment for the Australian economy.
In Japan, the Nikkei225 looks set to post the biggest rise in over a month following notable yen weakness, which saw the currency fall to a seven week low. The breakout of the USDJPY from a 4-6 month triangle formation points to further upside, which brings about the opportunity for a continuation of the trend seen throughout late 2012 to mid 2013 following the imposition of 'Abenomics'.
European markets are expected to open higher, with the FTSE100 +5, CAC +4 and DAX +11 points.
Alpari UK
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Attention turns to BoE inflation report after CPI drop
Today’s US opening call provides an update on:
* UK inflation plummets in October;
* Inflation drops eases one concern with forward guidance;
* BoE inflation report tomorrow very important;
* Quiet afternoon expected, two Fed members due to speak.
European indices are all trading in the red this morning, although we have seen them pare losses following the release of the UK inflation figure.
Inflation had been one of the major sticking points for investors, when considering how reliable the Bank of England’s forward guidance is. When the central bank offered its forward guidance earlier this year, one of the thresholds that had to be met in order for it to remain valid was inflation expectations for 18-24 months down the line had to be at, or below, 2.5%.
At the time, inflation was 2.8%, which didn’t provide investors with much comfort. Surely only a small increase would invalidate the forward guidance altogether, which explains why we saw no sell-off in the pound at the time. There were also other reasons as well for this including unemployment expectations, but inflation was certainly one concern.
That explains why we saw such a big reaction to CPI release this morning, which fell much further than expected, from 2.7% in September, to 2.2% in October. Not only is this close to the BoEs 2% target, it’s also significantly below the 2.5% threshold set by the BoE when it offered its guidance, providing investors with that comfort that was previously lacking.
This could now be a big week for the BoE, with the unemployment rate for the third quarter due tomorrow, followed by the inflation report. If we see another drop in the rate, which many expect we will, it will be very difficult for the BoE to convince anyone that it will still be 2016 before it hits 7%. Even if we don’t, people still believe it will fall faster than current forecasts.
This could therefore open the door to an amendment of the BoEs forward guidance following the next meeting in December, which I think is increasingly likely. Especially after we get the revised forecasts tomorrow which will undoubtedly be improved following another strong quarter for the UK.
Another reason why this drop in inflation is so important is because it closes the gap between the rise in people’s incomes and the rise in the cost of living. The difference in these figures has not helped the recovery so far as people’s real incomes have been squeezed leaving them to either spend less or become more indebted. The former isn’t good for the economy, while the latter is meant to be what we’re trying to get away from. The more we see this gap close, the better it will be for the economy, so this is a good start.
Aside from this, it’s been a relatively quiet day so far in the markets. We’ve had some companies reporting third quarter earnings, which have been relatively mixed. The period of calm is expected to continue into the US session, with no major economic releases scheduled.
We will hear from a couple of Fed members today, with Dennis Lockhart and Narayana Kocherlakota scheduled to speak. Neither of these are voting members of the FOMC, but that doesn’t mean they can’t provide insight into how the voting members are expected to vote at the next meeting in December. More and more people are coming round to the idea that tapering will begin at this meeting, so their insights could be very useful.
Ahead of the open we expect to see the S&P down 2 points, the Dow down 16 points and the NASDAQ down 7 points.
Today’s US opening call provides an update on:
* UK inflation plummets in October;
* Inflation drops eases one concern with forward guidance;
* BoE inflation report tomorrow very important;
* Quiet afternoon expected, two Fed members due to speak.
European indices are all trading in the red this morning, although we have seen them pare losses following the release of the UK inflation figure.
Inflation had been one of the major sticking points for investors, when considering how reliable the Bank of England’s forward guidance is. When the central bank offered its forward guidance earlier this year, one of the thresholds that had to be met in order for it to remain valid was inflation expectations for 18-24 months down the line had to be at, or below, 2.5%.
At the time, inflation was 2.8%, which didn’t provide investors with much comfort. Surely only a small increase would invalidate the forward guidance altogether, which explains why we saw no sell-off in the pound at the time. There were also other reasons as well for this including unemployment expectations, but inflation was certainly one concern.
That explains why we saw such a big reaction to CPI release this morning, which fell much further than expected, from 2.7% in September, to 2.2% in October. Not only is this close to the BoEs 2% target, it’s also significantly below the 2.5% threshold set by the BoE when it offered its guidance, providing investors with that comfort that was previously lacking.
This could now be a big week for the BoE, with the unemployment rate for the third quarter due tomorrow, followed by the inflation report. If we see another drop in the rate, which many expect we will, it will be very difficult for the BoE to convince anyone that it will still be 2016 before it hits 7%. Even if we don’t, people still believe it will fall faster than current forecasts.
This could therefore open the door to an amendment of the BoEs forward guidance following the next meeting in December, which I think is increasingly likely. Especially after we get the revised forecasts tomorrow which will undoubtedly be improved following another strong quarter for the UK.
Another reason why this drop in inflation is so important is because it closes the gap between the rise in people’s incomes and the rise in the cost of living. The difference in these figures has not helped the recovery so far as people’s real incomes have been squeezed leaving them to either spend less or become more indebted. The former isn’t good for the economy, while the latter is meant to be what we’re trying to get away from. The more we see this gap close, the better it will be for the economy, so this is a good start.
Aside from this, it’s been a relatively quiet day so far in the markets. We’ve had some companies reporting third quarter earnings, which have been relatively mixed. The period of calm is expected to continue into the US session, with no major economic releases scheduled.
We will hear from a couple of Fed members today, with Dennis Lockhart and Narayana Kocherlakota scheduled to speak. Neither of these are voting members of the FOMC, but that doesn’t mean they can’t provide insight into how the voting members are expected to vote at the next meeting in December. More and more people are coming round to the idea that tapering will begin at this meeting, so their insights could be very useful.
Ahead of the open we expect to see the S&P down 2 points, the Dow down 16 points and the NASDAQ down 7 points.
Alpari UK
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UK Opening Call from Alpari UK on 13 November 2013
BoE forward guidance comes into question on Wednesday
Today’s UK opening call provides an update on:
• Europe tracks US and Asia lower;
• Focus on UK unemployment and BoE inflation report;
• What does the report mean for forward guidance?
European indices are expected to open lower on Wednesday, following on from negative sessions in both the US and Asia over night.
In the US, the S&P and Dow are continuing to flirt with record highs on a daily basis but appear to have lost a little bit of their spark since Friday’s jobs report. The initial response to the report was very positive, but since then investors appear to have become a little uncertain about where to go from here.
The jobs data clearly suggests that things aren’t as bad in the US as many were fearing. That said, I still think December is too early for the Fed to consider withdrawing its support, something investors appear to agree with. On the other hand, the lack of drive in the US could be due to Janet Yellen’s appearance before the Senate Banking Committee on Thursday, which could provide clear insight into when tapering may begin and come to an end, with the previous timeline now seen as unlikely to achieved. As it stands, all we’re getting is contrasting views from other Fed officials, so Yellen may provide the only reliable insight.
The focus is going to be back on the UK today, with unemployment figures for the third quarter being released, followed by the Bank of England inflation report. Together with the October inflation figure, released yesterday, these should provide much better insight into whether the BoEs forward guidance, provided earlier this year, is in fact credible, or whether the markets were right to dismiss it.
The data that we've seen over the last six months suggests the latter. The biggest concern with the forward guidance was the BoEs unemployment expectations, with the central bank forecasting that it would take three years for the rate to fall to 7%, from 7.8% at the time. This would be the point at which the MPC would first consider raising interest rates again, thereby guaranteeing low rates for businesses and households for at least three years.
Unfortunately, people did not buy into this forward guidance as they expected the unemployment rate to fall faster as the recovery gathered pace. Without people buying into it, the guidance was useless. Today we'll find out, when the BoE releases its latest forecasts on inflation, growth and unemployment, whether people were right to doubt it. If the new forecasts show unemployment falling faster, the BoE will be forced to either shorten the time frame of guaranteed low rates, or lower the unemployment threshold. Which they choose will probably be announced following the next meeting in December.
The other concern when the forward guidance was announced was the inflation threshold that had to be met in order for the guidance to remain valid. This threshold was 2.5% in 18-24 months time. Considering that inflation was 2.8% when this was announced, it wasn't surprising, again, that people didn't take to it. Since then though, due to a number of reasons including falling petrol prices and the higher tuition fees having less of an impact on the figure, inflation has fallen much fast than expected, reaching 2.2% last month. Within touching distance of the BoEs 2% target.
As we saw when the inflation figure was released, this did help to ease investor concerns over whether a small rise in inflation expectations would invalidate the forward guidance. Sterling fell sharply against the other currencies, as we would have normally expected when the central bank initially provided the guidance. The only problem now is that energy bills are due to rise in the coming months, which could once again create a spike in inflation. The new inflation forecast should provide insight into how much the BoE expects it to impact inflation and whether it alters its 18-24 month expectations
In terms of market reaction to both the unemployment data and the BoE quarterly inflation report, it could be quite significant. I expect to see plenty of volatility in the sterling currency pairs, while both equities and bonds could benefit from a long term commitment to low interest rates, as long as investors believe the guidance is realistic. Unfortunately, with any amendments to the guidance not likely to come tomorrow, any reaction will be in anticipation of any amendments to the guidance, or changes to forecasts that justify the current guidance.
Aside from the UK, it's going to be a pretty quiet day. The only other notable economic release this morning is the eurozone industrial production figure for September, which is expected to show a 0.3% decline from a month earlier.
Ahead of the open we expect to see the FTSE down 38 points, the CAC down 8 points and the DAX down 32 points.
BoE forward guidance comes into question on Wednesday
Today’s UK opening call provides an update on:
• Europe tracks US and Asia lower;
• Focus on UK unemployment and BoE inflation report;
• What does the report mean for forward guidance?
European indices are expected to open lower on Wednesday, following on from negative sessions in both the US and Asia over night.
In the US, the S&P and Dow are continuing to flirt with record highs on a daily basis but appear to have lost a little bit of their spark since Friday’s jobs report. The initial response to the report was very positive, but since then investors appear to have become a little uncertain about where to go from here.
The jobs data clearly suggests that things aren’t as bad in the US as many were fearing. That said, I still think December is too early for the Fed to consider withdrawing its support, something investors appear to agree with. On the other hand, the lack of drive in the US could be due to Janet Yellen’s appearance before the Senate Banking Committee on Thursday, which could provide clear insight into when tapering may begin and come to an end, with the previous timeline now seen as unlikely to achieved. As it stands, all we’re getting is contrasting views from other Fed officials, so Yellen may provide the only reliable insight.
The focus is going to be back on the UK today, with unemployment figures for the third quarter being released, followed by the Bank of England inflation report. Together with the October inflation figure, released yesterday, these should provide much better insight into whether the BoEs forward guidance, provided earlier this year, is in fact credible, or whether the markets were right to dismiss it.
The data that we've seen over the last six months suggests the latter. The biggest concern with the forward guidance was the BoEs unemployment expectations, with the central bank forecasting that it would take three years for the rate to fall to 7%, from 7.8% at the time. This would be the point at which the MPC would first consider raising interest rates again, thereby guaranteeing low rates for businesses and households for at least three years.
Unfortunately, people did not buy into this forward guidance as they expected the unemployment rate to fall faster as the recovery gathered pace. Without people buying into it, the guidance was useless. Today we'll find out, when the BoE releases its latest forecasts on inflation, growth and unemployment, whether people were right to doubt it. If the new forecasts show unemployment falling faster, the BoE will be forced to either shorten the time frame of guaranteed low rates, or lower the unemployment threshold. Which they choose will probably be announced following the next meeting in December.
The other concern when the forward guidance was announced was the inflation threshold that had to be met in order for the guidance to remain valid. This threshold was 2.5% in 18-24 months time. Considering that inflation was 2.8% when this was announced, it wasn't surprising, again, that people didn't take to it. Since then though, due to a number of reasons including falling petrol prices and the higher tuition fees having less of an impact on the figure, inflation has fallen much fast than expected, reaching 2.2% last month. Within touching distance of the BoEs 2% target.
As we saw when the inflation figure was released, this did help to ease investor concerns over whether a small rise in inflation expectations would invalidate the forward guidance. Sterling fell sharply against the other currencies, as we would have normally expected when the central bank initially provided the guidance. The only problem now is that energy bills are due to rise in the coming months, which could once again create a spike in inflation. The new inflation forecast should provide insight into how much the BoE expects it to impact inflation and whether it alters its 18-24 month expectations
In terms of market reaction to both the unemployment data and the BoE quarterly inflation report, it could be quite significant. I expect to see plenty of volatility in the sterling currency pairs, while both equities and bonds could benefit from a long term commitment to low interest rates, as long as investors believe the guidance is realistic. Unfortunately, with any amendments to the guidance not likely to come tomorrow, any reaction will be in anticipation of any amendments to the guidance, or changes to forecasts that justify the current guidance.
Aside from the UK, it's going to be a pretty quiet day. The only other notable economic release this morning is the eurozone industrial production figure for September, which is expected to show a 0.3% decline from a month earlier.
Ahead of the open we expect to see the FTSE down 38 points, the CAC down 8 points and the DAX down 32 points.
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Reaction to BoE inflation report
The Bank of England today responded to the faster than expected drop in inflation and unemployment by revising its forecasts for growth, unemployment and inflation for the coming years. The most notable revision was in unemployment, which is now sees falling to 7% in the third quarter of 2014, one year earlier than precious forecasts.
The first question on everyone’s lips at this point was, what does it mean for the BoEs forward guidance. As it turns out, absolutely nothing. The BoE will stick with its original guidance which means that interest rates will now be discussed a year earlier than originally planned.
You get the sense under Mark Carney that the BoE is working hard to regain the credibility that many think it has lost over the last five years, firstly with its handling of interest rates in the lead up to the crisis, and then by its handling of the crisis after it hit. The latter being the idea that if they throw more money into the financial system, the problems will abate, and if it doesn’t continue to more of the same. Another thing that has dented their credibility has been their wildly inaccurate forecasts.
Mark Carney made it clear today that forecasts aren’t always going to be correct but changes to these will not alter their position on interest rates. Regardless of how much the recovery gathers pace, interest rates will still be discussed at 7% - although a hike is not guaranteed - but that is not necessarily a bad thing, it’s simply because the economy is improving.
Carney made something perfectly clear today that many seem to have not understood previously. Guidance is not meant to guarantee rates for a set period of time, it’s meant to guarantee low rates until the recovery is sustainable, and that is the important thing because at that point, businesses and households will be able to take it.
Unemployment at 7% would suggest that this is the case and at that point, they will therefore begin discussing rates again. The MPC did stress though that productivity, along with inflation, is the biggest concern of the MPC. The first step was to improve demand, which should bring with it improved productivity and finally rises in incomes. The latter has been a big concern over the last five years, with it being far below the rate of inflation. Therefore, guidance was never created to be linked to growth, but to the elimination of the slack in the economy.
Ahead of the US open we expect to see the S&P up 3 points, the Dow up 25 points and the NASDAQ up 4 points.
The Bank of England today responded to the faster than expected drop in inflation and unemployment by revising its forecasts for growth, unemployment and inflation for the coming years. The most notable revision was in unemployment, which is now sees falling to 7% in the third quarter of 2014, one year earlier than precious forecasts.
The first question on everyone’s lips at this point was, what does it mean for the BoEs forward guidance. As it turns out, absolutely nothing. The BoE will stick with its original guidance which means that interest rates will now be discussed a year earlier than originally planned.
You get the sense under Mark Carney that the BoE is working hard to regain the credibility that many think it has lost over the last five years, firstly with its handling of interest rates in the lead up to the crisis, and then by its handling of the crisis after it hit. The latter being the idea that if they throw more money into the financial system, the problems will abate, and if it doesn’t continue to more of the same. Another thing that has dented their credibility has been their wildly inaccurate forecasts.
Mark Carney made it clear today that forecasts aren’t always going to be correct but changes to these will not alter their position on interest rates. Regardless of how much the recovery gathers pace, interest rates will still be discussed at 7% - although a hike is not guaranteed - but that is not necessarily a bad thing, it’s simply because the economy is improving.
Carney made something perfectly clear today that many seem to have not understood previously. Guidance is not meant to guarantee rates for a set period of time, it’s meant to guarantee low rates until the recovery is sustainable, and that is the important thing because at that point, businesses and households will be able to take it.
Unemployment at 7% would suggest that this is the case and at that point, they will therefore begin discussing rates again. The MPC did stress though that productivity, along with inflation, is the biggest concern of the MPC. The first step was to improve demand, which should bring with it improved productivity and finally rises in incomes. The latter has been a big concern over the last five years, with it being far below the rate of inflation. Therefore, guidance was never created to be linked to growth, but to the elimination of the slack in the economy.
Ahead of the US open we expect to see the S&P up 3 points, the Dow up 25 points and the NASDAQ up 4 points.
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Daily Market Update - 13 November 2013 - Alpari UK
00:21 - UK unemployment falls to 7.6%
00:45 - Inflation report sees GDP forecasts revised marginally higher
01:09 - Unemployment now expected to reach 7% by Q3 2015
01:41 - Carney keeps 7% threshold in tax
http://www.youtube.com/watch?v=5dvGGkPGR-0
00:21 - UK unemployment falls to 7.6%
00:45 - Inflation report sees GDP forecasts revised marginally higher
01:09 - Unemployment now expected to reach 7% by Q3 2015
01:41 - Carney keeps 7% threshold in tax
http://www.youtube.com/watch?v=5dvGGkPGR-0
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US Opening Call from Alpari UK on 14 November 2013
Stocks higher on dovish Yellen remarks
Today’s US opening call provides an update on:
* Stocks higher on dovish Yellen remarks;
* Investors seek new timeline for tapering;
* US jobless claims and non-farm productivity also in focus.
European indices are trading higher on Thursday, following the early release of Janet Yellen’s dovish text, which will be read out in front of the Senate Banking Committee.
Janet Yellen, who is expected to be confirmed as Ben Bernanke’s successor as Fed Chair in the coming weeks, will speak before the Senate Banking Committee on Thursday. Based on the text of her prepared remarks, Yellen is likely to be very supportive of the Fed’s accommodative policy, which isn’t surprising given the notable improvement in the labour and housing market over the last year.
What people will really want to know though is how much longer the Fed plans to remain accommodative for. Earlier this year, Bernanke stated that asset purchases would start to be scaled back towards the end of 2013 and end completely in the middle of 2014. However, the Fed opted against “tapering” in September and October and many believe they will do the same in December, with the full impact of the government shutdown yet to be seen in the data.
With that in mind, the Senate Banking Committee is likely to pressure Yellen into providing an up-to-date timeline for ending the asset purchases, as they did with Bernanke earlier this year. The text from her remarks suggests Yellen remains quite dovish , which suggests she could hint at tapering in the first quarter of 2014, with purchases then coming to an end in Q3. It is the anticipation of this dovish text from Yellen that helped stocks end on a high in the US on Wednesday and is continuing to push them higher in the futures market today.
This could potentially be another mistake from investors. We saw a similarly dovish statement from Bernanke earlier this year when he testified, before he then went on to lay out the timetable for tapering this year, prompting a significant sell-off in stocks. Given the comments we’ve had from some Fed members this week, I wouldn’t be surprised to see a similar outcome again.
Aside from Yellen’s testimony, we also have some economic data being released shortly before the US open. Weekly jobless claims are expected to fall again to 330,000, from 336,000 last week, while non-farm productivity in the third quarter is expected to have improved by 2.2%, down slightly from 2.3% in the second quarter.
Ahead of the open we expect to see the S&P up 3 points, the Dow up 13 points and the NASDAQ down 11 points.
Stocks higher on dovish Yellen remarks
Today’s US opening call provides an update on:
* Stocks higher on dovish Yellen remarks;
* Investors seek new timeline for tapering;
* US jobless claims and non-farm productivity also in focus.
European indices are trading higher on Thursday, following the early release of Janet Yellen’s dovish text, which will be read out in front of the Senate Banking Committee.
Janet Yellen, who is expected to be confirmed as Ben Bernanke’s successor as Fed Chair in the coming weeks, will speak before the Senate Banking Committee on Thursday. Based on the text of her prepared remarks, Yellen is likely to be very supportive of the Fed’s accommodative policy, which isn’t surprising given the notable improvement in the labour and housing market over the last year.
What people will really want to know though is how much longer the Fed plans to remain accommodative for. Earlier this year, Bernanke stated that asset purchases would start to be scaled back towards the end of 2013 and end completely in the middle of 2014. However, the Fed opted against “tapering” in September and October and many believe they will do the same in December, with the full impact of the government shutdown yet to be seen in the data.
With that in mind, the Senate Banking Committee is likely to pressure Yellen into providing an up-to-date timeline for ending the asset purchases, as they did with Bernanke earlier this year. The text from her remarks suggests Yellen remains quite dovish , which suggests she could hint at tapering in the first quarter of 2014, with purchases then coming to an end in Q3. It is the anticipation of this dovish text from Yellen that helped stocks end on a high in the US on Wednesday and is continuing to push them higher in the futures market today.
This could potentially be another mistake from investors. We saw a similarly dovish statement from Bernanke earlier this year when he testified, before he then went on to lay out the timetable for tapering this year, prompting a significant sell-off in stocks. Given the comments we’ve had from some Fed members this week, I wouldn’t be surprised to see a similar outcome again.
Aside from Yellen’s testimony, we also have some economic data being released shortly before the US open. Weekly jobless claims are expected to fall again to 330,000, from 336,000 last week, while non-farm productivity in the third quarter is expected to have improved by 2.2%, down slightly from 2.3% in the second quarter.
Ahead of the open we expect to see the S&P up 3 points, the Dow up 13 points and the NASDAQ down 11 points.
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Daily Market Update - 14 October 2013 - Alpari UK
00:22 - Indices rally on dovish Yellen statement
02:18 - Nikkei up 2% on weaker yen and strong GDP figure
03:57 - Mixed morning for Europe
06:02 - Yellen speech and US jobless claims this afternoon
00:22 - Indices rally on dovish Yellen statement
02:18 - Nikkei up 2% on weaker yen and strong GDP figure
03:57 - Mixed morning for Europe
06:02 - Yellen speech and US jobless claims this afternoon
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UK Opening Call from Alpari UK on 15 November 2013
Today’s UK opening call provides an update on:
• Dovish Yellen sends indices higher for a second day;
• December taper unlikely;
• Eurozone revised October CPI due this morning;
• US manufacturing data released this afternoon.
European indices are expected to open higher on Friday, following another positive session in both the US and Asia over night.
The overnight rally in the US and Asia was largely driven by Janet Yellen’s testimony in front of the Senate Banking Committee. Yellen is currently the vice Chairperson at the Federal Reserve, but is expected to be confirmed as Chairman Ben Bernanke’s successor in the coming weeks. Bernanke term will come to an end on 31 January, leaving Yellen to take the hot seat on 1 February.
The initial rally came following the release of Yellen’s opening statement, which was seen by most in the markets as quite dovish. While Yellen didn’t go into any detail on when asset purchases would start to be reduced, in both her prepared statement and during the Q&A session despite the best efforts of the Senators, her overall tone certainly came across quite dovish.
Her comments suggest that a taper in September is unlikely, which means the first quarter of 2014 now looks most likely again. Investors had started to price in a December taper following the release of the October jobs report, which blew investors away with it’s very strong job growth during the government shutdown month, as well as upward revisions to both the August and September figures. Clearly in Yellen’s book, this one report doesn’t constitute the sustainable recovery that the Fed is after, something the markets are finding it very difficult to grasp at the moment.
Despite the positive start expected in today’s session, it is likely to be much quieter than the last couple of days. The economic calendar is looking very thin, with the only notable economic release this morning being the revised eurozone CPI figure for October. And you could argue that even this will be of little interest to investors considering we’ve already had the initial shock to the figure, when the preliminary reading was released last week, and the ECB has responded with a cut in interest rates.
The US session this afternoon is also likely to be a quiet affair, with only a couple of medium impact economic releases expected. First up we have the empire state manufacturing index, which is expected to rise to 5 in November, from 1.5 in October. Following this we have the industrial production figure for October, which is expected to show a 0.2% increase in October, from a month earlier.
Ahead of the open we expect to see the FTSE up 9 points, the CAC up 3 points and the DAX up 4 points.
Today’s UK opening call provides an update on:
• Dovish Yellen sends indices higher for a second day;
• December taper unlikely;
• Eurozone revised October CPI due this morning;
• US manufacturing data released this afternoon.
European indices are expected to open higher on Friday, following another positive session in both the US and Asia over night.
The overnight rally in the US and Asia was largely driven by Janet Yellen’s testimony in front of the Senate Banking Committee. Yellen is currently the vice Chairperson at the Federal Reserve, but is expected to be confirmed as Chairman Ben Bernanke’s successor in the coming weeks. Bernanke term will come to an end on 31 January, leaving Yellen to take the hot seat on 1 February.
The initial rally came following the release of Yellen’s opening statement, which was seen by most in the markets as quite dovish. While Yellen didn’t go into any detail on when asset purchases would start to be reduced, in both her prepared statement and during the Q&A session despite the best efforts of the Senators, her overall tone certainly came across quite dovish.
Her comments suggest that a taper in September is unlikely, which means the first quarter of 2014 now looks most likely again. Investors had started to price in a December taper following the release of the October jobs report, which blew investors away with it’s very strong job growth during the government shutdown month, as well as upward revisions to both the August and September figures. Clearly in Yellen’s book, this one report doesn’t constitute the sustainable recovery that the Fed is after, something the markets are finding it very difficult to grasp at the moment.
Despite the positive start expected in today’s session, it is likely to be much quieter than the last couple of days. The economic calendar is looking very thin, with the only notable economic release this morning being the revised eurozone CPI figure for October. And you could argue that even this will be of little interest to investors considering we’ve already had the initial shock to the figure, when the preliminary reading was released last week, and the ECB has responded with a cut in interest rates.
The US session this afternoon is also likely to be a quiet affair, with only a couple of medium impact economic releases expected. First up we have the empire state manufacturing index, which is expected to rise to 5 in November, from 1.5 in October. Following this we have the industrial production figure for October, which is expected to show a 0.2% increase in October, from a month earlier.
Ahead of the open we expect to see the FTSE up 9 points, the CAC up 3 points and the DAX up 4 points.
Read the full report at Alpari News Room
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US Opening Call from Alpari UK on 15 November 2013
Europe to open higher ahead of revised CPI data
Today’s UK opening call provides an update on:
* Dovish Yellen sends indices higher for a second day;
* December taper unlikely;
* Eurozone revised October CPI due this morning;
* US manufacturing data released this afternoon.
European indices are expected to open higher on Friday, following another positive session in both the US and Asia over night.
The overnight rally in the US and Asia was largely driven by Janet Yellen’s testimony in front of the Senate Banking Committee. Yellen is currently the vice Chairperson at the Federal Reserve, but is expected to be confirmed as Chairman Ben Bernanke’s successor in the coming weeks. Bernanke term will come to an end on 31 January, leaving Yellen to take the hot seat on 1 February.
The initial rally came following the release of Yellen’s opening statement, which was seen by most in the markets as quite dovish . While Yellen didn’t go into any detail on when asset purchases would start to be reduced, in both her prepared statement and during the Q&A session despite the best efforts of the Senators, her overall tone certainly came across quite dovish .
Her comments suggest that a taper in September is unlikely, which means the first quarter of 2014 now looks most likely again. Investors had started to price in a December taper following the release of the October jobs report, which blew investors away with it’s very strong job growth during the government shutdown month, as well as upward revisions to both the August and September figures. Clearly in Yellen’s book, this one report doesn’t constitute the sustainable recovery that the Fed is after, something the markets are finding it very difficult to grasp at the moment.
Despite the positive start expected in today’s session, it is likely to be much quieter than the last couple of days. The economic calendar is looking very thin, with the only notable economic release this morning being the revised eurozone CPI figure for October. And you could argue that even this will be of little interest to investors considering we’ve already had the initial shock to the figure, when the preliminary reading was released last week, and the ECB has responded with a cut in interest rates.
The US session this afternoon is also likely to be a quiet affair, with only a couple of medium impact economic releases expected. First up we have the empire state manufacturing index, which is expected to rise to 5 in November, from 1.5 in October. Following this we have the industrial production figure for October, which is expected to show a 0.2% increase in October, from a month earlier.
Ahead of the open we expect to see the FTSE up 9 points, the CAC up 3 points and the DAX up 4 points.
Europe to open higher ahead of revised CPI data
Today’s UK opening call provides an update on:
* Dovish Yellen sends indices higher for a second day;
* December taper unlikely;
* Eurozone revised October CPI due this morning;
* US manufacturing data released this afternoon.
European indices are expected to open higher on Friday, following another positive session in both the US and Asia over night.
The overnight rally in the US and Asia was largely driven by Janet Yellen’s testimony in front of the Senate Banking Committee. Yellen is currently the vice Chairperson at the Federal Reserve, but is expected to be confirmed as Chairman Ben Bernanke’s successor in the coming weeks. Bernanke term will come to an end on 31 January, leaving Yellen to take the hot seat on 1 February.
The initial rally came following the release of Yellen’s opening statement, which was seen by most in the markets as quite dovish . While Yellen didn’t go into any detail on when asset purchases would start to be reduced, in both her prepared statement and during the Q&A session despite the best efforts of the Senators, her overall tone certainly came across quite dovish .
Her comments suggest that a taper in September is unlikely, which means the first quarter of 2014 now looks most likely again. Investors had started to price in a December taper following the release of the October jobs report, which blew investors away with it’s very strong job growth during the government shutdown month, as well as upward revisions to both the August and September figures. Clearly in Yellen’s book, this one report doesn’t constitute the sustainable recovery that the Fed is after, something the markets are finding it very difficult to grasp at the moment.
Despite the positive start expected in today’s session, it is likely to be much quieter than the last couple of days. The economic calendar is looking very thin, with the only notable economic release this morning being the revised eurozone CPI figure for October. And you could argue that even this will be of little interest to investors considering we’ve already had the initial shock to the figure, when the preliminary reading was released last week, and the ECB has responded with a cut in interest rates.
The US session this afternoon is also likely to be a quiet affair, with only a couple of medium impact economic releases expected. First up we have the empire state manufacturing index, which is expected to rise to 5 in November, from 1.5 in October. Following this we have the industrial production figure for October, which is expected to show a 0.2% increase in October, from a month earlier.
Ahead of the open we expect to see the FTSE up 9 points, the CAC up 3 points and the DAX up 4 points.
Last edited:
Alpari UK
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US Opening Call from Alpari UK on 15 November 2013
Today’s US opening call provides an update on:
* Quiet end to the week expected;
* No reaction as eurozone inflation remains unchanged from preliminary reading;
* US manufacturing and industrial production data still to come;
* Investors remain buoyed by Yellen’s dovish tone.
It’s looking like being a pretty quiet end to the week, with very little economic data being released in both Europe and the US. The only notable release in Europe this morning was the revised eurozone CPI figure, which was unchanged at 0.7%.
Given that the ECB has already cut interest rates in response to this, there was never going to be a reaction to it in the markets. That is unless it fell significantly further, potentially forcing the ECB into another tough decision next month.
In the US, there are a couple of pieces of data being released, but neither are likely to have a massive impact on the markets. The empire state manufacturing index is expected to show an improvement in activity in November, with the figure rising to 5 from 1.5 last month.
Also being released is the industrial production figure for October, which is expected to show a small pickup in October, of 0.2%. This is down from 0.6% last month, but this could be partly due to the government shutdown, which lasted almost three weeks of the month. A lot of the data from October is likely to be distorted in some way so should, to an extent, just be disregarded.
There’s very little else driving the markets today. US futures are higher, which suggests that investors are still quite bullish on risk assets following Janet Yellen’s testimony in front of the Senate Banking Committee. This, along with the early release of the text of her opening remarks, has been largely responsible for the positivity in the markets over the last couple of days.
Yellen didn’t actually say anything in either of these that committed the Fed to looser monetary policy for any longer than the markets previously though. However, there was certainly a very dovish tone to her comments and she did not shy away from talking about how effective the Fed’s policy has been so far. Given that she is a well known dove, the message was clear, even if she didn’t actually explicitly say it. There will be no tapering in December, the recovery is fragile and still needs the full support of the Fed.
Ahead of the open we expect to see the S&P up 3 points, the Dow up 26 points and the NASDAQ up 7 points.
Today’s US opening call provides an update on:
* Quiet end to the week expected;
* No reaction as eurozone inflation remains unchanged from preliminary reading;
* US manufacturing and industrial production data still to come;
* Investors remain buoyed by Yellen’s dovish tone.
It’s looking like being a pretty quiet end to the week, with very little economic data being released in both Europe and the US. The only notable release in Europe this morning was the revised eurozone CPI figure, which was unchanged at 0.7%.
Given that the ECB has already cut interest rates in response to this, there was never going to be a reaction to it in the markets. That is unless it fell significantly further, potentially forcing the ECB into another tough decision next month.
In the US, there are a couple of pieces of data being released, but neither are likely to have a massive impact on the markets. The empire state manufacturing index is expected to show an improvement in activity in November, with the figure rising to 5 from 1.5 last month.
Also being released is the industrial production figure for October, which is expected to show a small pickup in October, of 0.2%. This is down from 0.6% last month, but this could be partly due to the government shutdown, which lasted almost three weeks of the month. A lot of the data from October is likely to be distorted in some way so should, to an extent, just be disregarded.
There’s very little else driving the markets today. US futures are higher, which suggests that investors are still quite bullish on risk assets following Janet Yellen’s testimony in front of the Senate Banking Committee. This, along with the early release of the text of her opening remarks, has been largely responsible for the positivity in the markets over the last couple of days.
Yellen didn’t actually say anything in either of these that committed the Fed to looser monetary policy for any longer than the markets previously though. However, there was certainly a very dovish tone to her comments and she did not shy away from talking about how effective the Fed’s policy has been so far. Given that she is a well known dove, the message was clear, even if she didn’t actually explicitly say it. There will be no tapering in December, the recovery is fragile and still needs the full support of the Fed.
Ahead of the open we expect to see the S&P up 3 points, the Dow up 26 points and the NASDAQ up 7 points.