Alpari UK
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Alpari UK
Experienced member
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UK Opening Call from Alpari UK on 02 january 2014
Chinese manufacturing data gets 2014 off to a bad start
Today’s UK opening call provides an update on:
* Trading volumes to pick up on Thursday as traders return following the festive break;
* Economic calendar offers more catalysts for the markets;
* Manufacturing PMIs key today;
* Asian markets lower as manufacturing growth in China slows.
It’s been a very quiet couple of weeks in the financial markets, but things should start to pick up on Thursday as traders start to return to their desks following the festive break.
Things won’t return to normal entirely until Monday, with a large number of traders likely to extend their holidays until the end of this week rather than return for a couple of days before the weekend. That said, we should see a substantial increase in trading volumes compared to what we’ve seen so far this week and last.
This will be helped by a significant increase in the number of economic releases on Thursday, with the calendar so far this week offering little direction for the markets. Things get underway this morning with the release of the December manufacturing PMIs for many of the eurozone countries, as well as the regions as a whole.
For Germany, France and the eurozone, this is a revised reading which will affect just how big an impact it will have on the markets. If the numbers are in line with the preliminary readings, the reaction will most likely be muted. However, any significant revision should prompt a response in the markets.
The readings from the other countries, such as Spain and Italy, have historically been low impact events but I still think they’re worth keeping an eye on. These economies are still very fragile and any downturns could drag other countries down too, pulling the eurozone as a whole back into recession. Early indications of this should come from these PMIs.
The UK manufacturing PMI figure is expected to remain at the recent high levels, higher than the US and any country in the eurozone, in December. It is expected to fall slightly to 58, from 58.4 in November, but this is still comfortably in growth territory and suggests the impressive recovery seen in 2013 will carry on into 2014.
Over in the US later we also have a couple of important pieces of economic data being released. First up we have the initial jobless claims figure, which is expected to be roughly in line with last week’s reading at 334,000. This will be followed by two manufacturing PMI readings, the Markit and the ISM, which are expected at 54.4 and 57, respectively. The Markit figure is a revised reading so any response in the markets should only come if we see a significant revision.
Asian stocks suffered slightly over night after the release of the two Chinese manufacturing PMIs showed activity slowing in the world’s second largest economy. The official PMI, released on Wednesday, and the HSBC PMI fell to 51 and 50.5, respectively, in December. Both of these figures are still above 50, indicating growth, but if we continue to see declines here, people are going to start to worry about whether China can maintain such high growth rates in 2014. Last year, only a targeted stimulus program from the government prevented growth falling below 7%, these figures suggest similar efforts may be needed in 2014.
Chinese manufacturing data gets 2014 off to a bad start
Today’s UK opening call provides an update on:
* Trading volumes to pick up on Thursday as traders return following the festive break;
* Economic calendar offers more catalysts for the markets;
* Manufacturing PMIs key today;
* Asian markets lower as manufacturing growth in China slows.
It’s been a very quiet couple of weeks in the financial markets, but things should start to pick up on Thursday as traders start to return to their desks following the festive break.
Things won’t return to normal entirely until Monday, with a large number of traders likely to extend their holidays until the end of this week rather than return for a couple of days before the weekend. That said, we should see a substantial increase in trading volumes compared to what we’ve seen so far this week and last.
This will be helped by a significant increase in the number of economic releases on Thursday, with the calendar so far this week offering little direction for the markets. Things get underway this morning with the release of the December manufacturing PMIs for many of the eurozone countries, as well as the regions as a whole.
For Germany, France and the eurozone, this is a revised reading which will affect just how big an impact it will have on the markets. If the numbers are in line with the preliminary readings, the reaction will most likely be muted. However, any significant revision should prompt a response in the markets.
The readings from the other countries, such as Spain and Italy, have historically been low impact events but I still think they’re worth keeping an eye on. These economies are still very fragile and any downturns could drag other countries down too, pulling the eurozone as a whole back into recession. Early indications of this should come from these PMIs.
The UK manufacturing PMI figure is expected to remain at the recent high levels, higher than the US and any country in the eurozone, in December. It is expected to fall slightly to 58, from 58.4 in November, but this is still comfortably in growth territory and suggests the impressive recovery seen in 2013 will carry on into 2014.
Over in the US later we also have a couple of important pieces of economic data being released. First up we have the initial jobless claims figure, which is expected to be roughly in line with last week’s reading at 334,000. This will be followed by two manufacturing PMI readings, the Markit and the ISM, which are expected at 54.4 and 57, respectively. The Markit figure is a revised reading so any response in the markets should only come if we see a significant revision.
Asian stocks suffered slightly over night after the release of the two Chinese manufacturing PMIs showed activity slowing in the world’s second largest economy. The official PMI, released on Wednesday, and the HSBC PMI fell to 51 and 50.5, respectively, in December. Both of these figures are still above 50, indicating growth, but if we continue to see declines here, people are going to start to worry about whether China can maintain such high growth rates in 2014. Last year, only a targeted stimulus program from the government prevented growth falling below 7%, these figures suggest similar efforts may be needed in 2014.
Alpari UK
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US Opening Call from Alpari UK on 02 January 2014
Attention turns to US jobless claims and manufacturing PMIs
Today’s US opening call provides an update on:
• Chinese manufacturing data gets 2014 off to a bad start;
• European manufacturing PMIs mixed;
• Focus now turns to US jobless claims and manufacturing data.
With the festive period now behind us, it’s time to pick up where we left off a couple of weeks ago, focusing on the fundamentals now that the Fed has made its tapering intentions perfectly clear.
Corporate earnings season doesn’t start for another week, leaving us with only the economic data to drive market sentiment, and so far that has been relatively mixed. Things got off to a fairly bad start yesterday, with the release of the official Chinese manufacturing PMI, which fell to 51 in December, from 51.4 the month before.
This slowdown in manufacturing growth was confirmed during the Asian session over night, when the HSBC manufacturing PMI fell to 50.5 from 50.8 in November. This is the more concerning figure as it focuses more on the small to medium sized privately owned manufacturing firms and therefore provides a more accurate overview of activity in the country.
Both figures are still above 50, the level that separates growth from contraction, so there’s nothing to panic about at this stage. However, it does highlight the fact that China faces an uphill task in maintaining these very high levels of growth in the coming years.
The figures in Europe weren’t much better, with Germany, Italy and Spain all exceeding expectations, while France and the UK both fell short. The French figure is the most concerning of these, having fallen to 47 from 48.4 in November, now deep in contraction territory and showing no signs of reversing the trend.
European indices are trading lower this morning, following the release of all this data, although I don’t think this is necessarily driven by the data itself. This obviously hasn’t helped, but I think the losses being seen this morning are more likely due to traders locking in profits following a strong festive period, with the move being exaggerated by the increase in trading volumes.
We could see a similar scenario following the opening bell on Wall Street on Thursday. There is a little more data for investors to take on board, but I don’t expect it to have a huge impact on the markets. First up we have the initial jobless claims figure, which is expected to fall slightly to 334,000 from 338,000 last week.
Then the focus will turn to the two pieces of manufacturing data, the Markit PMI and ISM PMI, with only the latter being an initial reading. Many see the manufacturing sector as being key to the continuation of the US recovery in 2014, so these figures will be monitored very closely.
Attention turns to US jobless claims and manufacturing PMIs
Today’s US opening call provides an update on:
• Chinese manufacturing data gets 2014 off to a bad start;
• European manufacturing PMIs mixed;
• Focus now turns to US jobless claims and manufacturing data.
With the festive period now behind us, it’s time to pick up where we left off a couple of weeks ago, focusing on the fundamentals now that the Fed has made its tapering intentions perfectly clear.
Corporate earnings season doesn’t start for another week, leaving us with only the economic data to drive market sentiment, and so far that has been relatively mixed. Things got off to a fairly bad start yesterday, with the release of the official Chinese manufacturing PMI, which fell to 51 in December, from 51.4 the month before.
This slowdown in manufacturing growth was confirmed during the Asian session over night, when the HSBC manufacturing PMI fell to 50.5 from 50.8 in November. This is the more concerning figure as it focuses more on the small to medium sized privately owned manufacturing firms and therefore provides a more accurate overview of activity in the country.
Both figures are still above 50, the level that separates growth from contraction, so there’s nothing to panic about at this stage. However, it does highlight the fact that China faces an uphill task in maintaining these very high levels of growth in the coming years.
The figures in Europe weren’t much better, with Germany, Italy and Spain all exceeding expectations, while France and the UK both fell short. The French figure is the most concerning of these, having fallen to 47 from 48.4 in November, now deep in contraction territory and showing no signs of reversing the trend.
European indices are trading lower this morning, following the release of all this data, although I don’t think this is necessarily driven by the data itself. This obviously hasn’t helped, but I think the losses being seen this morning are more likely due to traders locking in profits following a strong festive period, with the move being exaggerated by the increase in trading volumes.
We could see a similar scenario following the opening bell on Wall Street on Thursday. There is a little more data for investors to take on board, but I don’t expect it to have a huge impact on the markets. First up we have the initial jobless claims figure, which is expected to fall slightly to 334,000 from 338,000 last week.
Then the focus will turn to the two pieces of manufacturing data, the Markit PMI and ISM PMI, with only the latter being an initial reading. Many see the manufacturing sector as being key to the continuation of the US recovery in 2014, so these figures will be monitored very closely.
Alpari UK
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Daily Market Update - 2 January 2014 - Alpari UK
Markets lower following 'Santa rally' 00:23
Chinese manufacturing PMI comes in lower 00:47
Spanish manufacturing pushes back into expansion unexpectedly 01:15
UK manufacturing expansion slows, yet remains strong 02:33
http://www.youtube.com/watch?v=jKb_oV8XHY4
Markets lower following 'Santa rally' 00:23
Chinese manufacturing PMI comes in lower 00:47
Spanish manufacturing pushes back into expansion unexpectedly 01:15
UK manufacturing expansion slows, yet remains strong 02:33
http://www.youtube.com/watch?v=jKb_oV8XHY4
Alpari UK
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UK Opening Call from Alpari UK on 03 January 2014
European futures track US and Asia lower
Today’s UK opening call provides an update on:
* European futures track US and Asia lower;
* Disappointing data prompts first negative start to the year since 2008;
* UK construction PMI eyed for signs that the recovery will continue into 2014;
* Fed speeches key later on today.
The negative start to the year looks set to continue on Friday, with index futures pointing to a lower open across the board in Europe after losses were recorded in both the US and Asia over night.
I don’t think these losses are anything to be concerned about, despite it being the first time since 2008 that we’ve seen a negative first trading day of the year. This just appears to be a little bit of profit taking after indices in the US ended 2013 at record highs. I still believe January is going to be another good month for the markets, we’ve just had a bit of a rocky start.
We’ve seen the Santa rally play out nicely in the final week of 2013, despite the Fed tapering against market expectations. I’d be surprised if the January effect didn’t prompt further gains this month.
The economic data over the last couple of days hasn’t exactly helped matters, with PMI readings in China, in particular, being a slight cause for concern. Both the official and the HSBC manufacturing PMIs fell in December, and the trend continued over night with the non-manufacturing PMI slipping to 54.6 from 56 in November.
This is probably nothing to be too concerned about right now as all the figures are still above the 50 level, that separates growth from contraction. That said, it’s not going to prompt a positive response in the markets either, with investors looking at this as a possible warning sign that the country is facing another tough year when it comes to maintaining the high growth rates.
There’s very little economic data being released on Friday that will have any significant impact on the markets. We may get a response to the release of the UK construction PMI, as this should provide early insight into whether the impressive recovery in the country in the second half of 2013 can continue into this year.
The PMI readings have been very encouraging for a number of months now and many view construction as one of the most important areas, as it was the one that was hit particularly hard following the downturn in 2008. If we can get another reading around the level seen last month, it will be viewed as a sign that the recovery is still gathering pace. The fear is that these figures start to drop off, as I’m not convinced that the recovery is strong enough at the stage to take even a temporary drop in confidence. It is hugely important that the UK recovery continues to gather momentum because at the moment, the recovery is being driven by consumers. If confidence takes a hit, we could find ourselves back at square one.
Later on the focus will be back on the Federal Reserve, with no notable pieces of data being released. We have a few Fed members scheduled to speak today, including outgoing Chairman Ben Bernanke. Given that the Fed only announced its first taper a couple of weeks ago, I’m not expecting anything out of the ordinary here, just confirmation that they will continue to monitor the data and reduce the pace of purchases as the economy improves.
Ahead of the open we expect to see the FTSE down 19 points, the CAC down 15 points and the DAX down 48 points.
European futures track US and Asia lower
Today’s UK opening call provides an update on:
* European futures track US and Asia lower;
* Disappointing data prompts first negative start to the year since 2008;
* UK construction PMI eyed for signs that the recovery will continue into 2014;
* Fed speeches key later on today.
The negative start to the year looks set to continue on Friday, with index futures pointing to a lower open across the board in Europe after losses were recorded in both the US and Asia over night.
I don’t think these losses are anything to be concerned about, despite it being the first time since 2008 that we’ve seen a negative first trading day of the year. This just appears to be a little bit of profit taking after indices in the US ended 2013 at record highs. I still believe January is going to be another good month for the markets, we’ve just had a bit of a rocky start.
We’ve seen the Santa rally play out nicely in the final week of 2013, despite the Fed tapering against market expectations. I’d be surprised if the January effect didn’t prompt further gains this month.
The economic data over the last couple of days hasn’t exactly helped matters, with PMI readings in China, in particular, being a slight cause for concern. Both the official and the HSBC manufacturing PMIs fell in December, and the trend continued over night with the non-manufacturing PMI slipping to 54.6 from 56 in November.
This is probably nothing to be too concerned about right now as all the figures are still above the 50 level, that separates growth from contraction. That said, it’s not going to prompt a positive response in the markets either, with investors looking at this as a possible warning sign that the country is facing another tough year when it comes to maintaining the high growth rates.
There’s very little economic data being released on Friday that will have any significant impact on the markets. We may get a response to the release of the UK construction PMI, as this should provide early insight into whether the impressive recovery in the country in the second half of 2013 can continue into this year.
The PMI readings have been very encouraging for a number of months now and many view construction as one of the most important areas, as it was the one that was hit particularly hard following the downturn in 2008. If we can get another reading around the level seen last month, it will be viewed as a sign that the recovery is still gathering pace. The fear is that these figures start to drop off, as I’m not convinced that the recovery is strong enough at the stage to take even a temporary drop in confidence. It is hugely important that the UK recovery continues to gather momentum because at the moment, the recovery is being driven by consumers. If confidence takes a hit, we could find ourselves back at square one.
Later on the focus will be back on the Federal Reserve, with no notable pieces of data being released. We have a few Fed members scheduled to speak today, including outgoing Chairman Ben Bernanke. Given that the Fed only announced its first taper a couple of weeks ago, I’m not expecting anything out of the ordinary here, just confirmation that they will continue to monitor the data and reduce the pace of purchases as the economy improves.
Ahead of the open we expect to see the FTSE down 19 points, the CAC down 15 points and the DAX down 48 points.
Alpari UK
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US Opening Call from Alpari UK on 3 January 2014
Market higher as pullback proves shortlived
Today’s US opening call provides an update on:
* Indices begin to pick up following new year sell-off
* UK construction growth begins to slow
* Quiet US session dominated by Fed speakers.
The global indices are beginning to move higher for the first time in 2014 today, following an signs within the futures markets that the European markets were likely to open lower after yesterdays somewhat damp squib. The fact that the return of significant volumes has coincided with an initial pullback is not surprising, coming off the back of such a strong festive period which saw the S&P500 reach an all-time high of 1842. However, it now appears that the positivity is returning to markets on the day that marks the 30th anniversary of the FTSE100. The clear willingness of the trading community to brush off the taper seen back in December to push yet higher gives us a clear indication that significant strength remains and this has led many to believe Q1 2014 could provide another bullish period following a strong H2 in 2013.
The first week of each month is typically the busiest, with the release of key PMI data, central bank meetings and a string of highly significant US employment figures. However, given the shortened week driven by new year bank holidays, the majority of these will have to wait until next week. Thus on a day within which many would expect to be bracing themselves for the latest US non-farm payrolls figure, we are actually expecting a largely quiet US session where speeches from a number of Fed members is likely to dominate.
Earlier this morning, the UK construction PMI provided indication that industry has been showing signs of slowing growth following yesterday’s disappointing manufacturing figure. Fortunately the construction figure was somewhat less of a shock, actually coming a little higher than expected at 62.1. This comes off the back of the a reading of 62.6, which was the highest level of construction growth since the financial crisis took hold back in August 2007.
This comes on the day that the Nationwide bank announced December as representing the highest monthly rise in UK house prices since Mid-2009. Amid talk of another housing bubble in the UK, the recent implementation of the government’s ‘help to buy’ scheme seems to provide a feeling of invincibility for house prices and will likely mean the current upward trend is likely to continue apace for some time yet. Thus as long as the banks are lending and the demand remains high, it is likely that the construction sector will enjoy a particularly strong 2014 in the UK.
Looking ahead to the US session, the most likely source of possible volatility comes in the form of three speeches at the American Economic Association from FOMC members Plosser, Stein and outgoing chair Ben Bernanke. Of the three, the comments from Stein and Bernanke are likely to carry most weight given that they are both voting members. Following on from the decision to taper asset purchases back in December, the FOMC will be due to decide whether to cut back further later this month. Thus markets will be looking for any signs as to whether the committee could take additional action at what is Ben Bernanke’s final meeting as chair.
US market are expected to open higher, with the S&P500 +2 and DJIA +18 points.
Market higher as pullback proves shortlived
Today’s US opening call provides an update on:
* Indices begin to pick up following new year sell-off
* UK construction growth begins to slow
* Quiet US session dominated by Fed speakers.
The global indices are beginning to move higher for the first time in 2014 today, following an signs within the futures markets that the European markets were likely to open lower after yesterdays somewhat damp squib. The fact that the return of significant volumes has coincided with an initial pullback is not surprising, coming off the back of such a strong festive period which saw the S&P500 reach an all-time high of 1842. However, it now appears that the positivity is returning to markets on the day that marks the 30th anniversary of the FTSE100. The clear willingness of the trading community to brush off the taper seen back in December to push yet higher gives us a clear indication that significant strength remains and this has led many to believe Q1 2014 could provide another bullish period following a strong H2 in 2013.
The first week of each month is typically the busiest, with the release of key PMI data, central bank meetings and a string of highly significant US employment figures. However, given the shortened week driven by new year bank holidays, the majority of these will have to wait until next week. Thus on a day within which many would expect to be bracing themselves for the latest US non-farm payrolls figure, we are actually expecting a largely quiet US session where speeches from a number of Fed members is likely to dominate.
Earlier this morning, the UK construction PMI provided indication that industry has been showing signs of slowing growth following yesterday’s disappointing manufacturing figure. Fortunately the construction figure was somewhat less of a shock, actually coming a little higher than expected at 62.1. This comes off the back of the a reading of 62.6, which was the highest level of construction growth since the financial crisis took hold back in August 2007.
This comes on the day that the Nationwide bank announced December as representing the highest monthly rise in UK house prices since Mid-2009. Amid talk of another housing bubble in the UK, the recent implementation of the government’s ‘help to buy’ scheme seems to provide a feeling of invincibility for house prices and will likely mean the current upward trend is likely to continue apace for some time yet. Thus as long as the banks are lending and the demand remains high, it is likely that the construction sector will enjoy a particularly strong 2014 in the UK.
Looking ahead to the US session, the most likely source of possible volatility comes in the form of three speeches at the American Economic Association from FOMC members Plosser, Stein and outgoing chair Ben Bernanke. Of the three, the comments from Stein and Bernanke are likely to carry most weight given that they are both voting members. Following on from the decision to taper asset purchases back in December, the FOMC will be due to decide whether to cut back further later this month. Thus markets will be looking for any signs as to whether the committee could take additional action at what is Ben Bernanke’s final meeting as chair.
US market are expected to open higher, with the S&P500 +2 and DJIA +18 points.
Alpari UK
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Daily Market Update - 3 January 2014 - Alpari UK
Indices higher after negative start to the year - 00:14
UK construction PMI exceeds expectations - 02:25
Good news keeps coming for Spain - 03:12
http://www.youtube.com/watch?v=VMXgQtyzgS4
Indices higher after negative start to the year - 00:14
UK construction PMI exceeds expectations - 02:25
Good news keeps coming for Spain - 03:12
http://www.youtube.com/watch?v=VMXgQtyzgS4
Alpari UK
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Weekly market preview – 6 January 2014
A notable week in the markets, with the release of a number of key central bank and economic releases ahead. In the US, the focus will largely be upon the job report, due on Friday. Meanwhile in the UK, the services PMI figure on Monday gives us an idea as to the condition of the crucial sector driving the UK economy. Over in the eurozone, the German court ruling with regards to the constitutionality of the ECB’s Outright Monetary Transactions policy is going to be key.
In Asia, the focus is again on China, with the inflation data providing one of the most notable releases on Thursday morning. Finally, in Oceania, the Australian trade balance data is going to be key in gauging how the shifting economic environment is affecting their key export market.
US
A particularly busy week ahead for the US, where the usual furore surrounding the latest jobs data is also accompanied by the Fed chairperson nomination vote and FOMC minutes from December.
US jobs data releases are always hugely significant for global markets and this is reflected by the volatility seen around the non-farm payrolls in particular. However, in recent years employment figures have taken on an even more dominant role for investors given the association derived between the health of the employment market and the degree of asset purchases in place. Following the taper seen in December, the focus will now be upon when the FOMC will further trim the QE programme, with the next meetings in January, March and April.
The first notable employment release of the week comes on Wednesday when the ADP non-farm payroll figure is released. This measure has widely been seen as a proxy for the official government release on Friday. However the lack of public sector jobs within the calculation, amongst other differences mean that often the reality is that both measures are very different. Thus whilst this figure may not accurately reflect what we are likely to see on Friday, this is still a key data point and thus well worth watching out for. Markets expect to see the December figure show a fall to around 199k from 215k seen back in November.
On Friday, the big ticket release of the week comes with the jobs report in the afternoon. The non-farm payroll figure has often been seen as the major instigator of volatility owing to the fact that it is more unpredictable and spiky than the headline unemployment rate. The past two releases came in above the 200k mark, and this threshold can be seen as a good indicator of whether the figures are maintaining the positive trajectory seen in the lead-up to the December taper or not. Market expectation is for a fall to 194k in December, down from 203k in November.
The unemployment rate has always been a key release as it is this which typically takes the major headlines. However, with the forward guidance element of Fed policy specifically taking it’s lead from this measure, markets are paying especially close attention to it’s movement. Previous stipulation from the Fed was that upon reaching 6.5%, they were likely to discuss raising interest rates. However, this timeline has been extended somewhat with Bernanke’s statement that rates will remain at current low levels until “well after” 6.5%. The markets are expecting to see little movement from the current 7% level on Friday, however, even if this is the case, it is worth also noting any change in the participation rate. The rate finally rose for the first time in five months in November and the ability to prove that this is not just a one off would be a very positive sign for the direction of the jobs market.
On Monday, we are due to hear from the Fed following the vote with regards to appointing the next chairperson. I say chairperson as this is in all likeliness going to be the first female appointment to the position in its 100 year history. This is not necessarily going to move markets should we see Janet Yellen be nominated, which seems somewhat of a foregone conclusion. However should the vote come back as a no for her nomination, it could throw a spanner into the works somewhat.
Finally, the minutes from the last FOMC meeting are released on Wednesday. This meeting was the platform for the first taper of the current asset purchase scheme and thus the outlook of the committee to further cut in the forthcoming meeting is now key. Watch out for signs of how receptive the members are to another taper this month and possible prerequisites for such happening.
UK
A somewhat mixed week for the UK economy, which typically has a very busy first week of the month. Given the fact that only some of those events have been shifted back by a week, there is somewhat of a lessened load ahead. The two most notable events of the week come in the form of the services PMI figure and the latest monetary policy decision from the BoE.
On Monday, the business surveyor Markit are due to release their services PMI survey for December, following the manufacturing and construction figures released the week gone. Despite the importance of those two industries, it is the services sector which drives the UK economy, with the reliance upon the likes of law, insurance and financial services in particular. On the whole, 2013 has been a particularly strong year for the UK services sector, with the PMI reading beating expectations on 9 of the 11 months whilst remaining in expansion throughout the whole of 2013. This positive trend is expected to have continued in December, with the forecasters expecting to see a further rise to 60.7, following a reading of 60.0 in November. This would still represent a particularly strong figure, coming off the back of the highest reading in 16 years seen in October. However, I would be careful, given the fact that we have seen a downturn in both the manufacturing and construction PMIs for December, this could disappoint somewhat if it followed the same pattern.
Later in the week, the BoE are due to announce their latest monetary policy decision on Thursday. There is little expectation that we are going to see any tangible change to the current stance, given that the forward guidance policy has been laid out and reiterated by Mark Carney. Thus it is likely to be the case that traders are looking for anything new out of the accompanying statement or Q&A to move the markets.
Eurozone
A somewhat busy week for the eurozone region, with two major events taking centre stage in the form of the German constitutional court hearing along with the ECB rate decision. The first of these is a somewhat less regular occurrence than the latter, with the German Federal Constitutional Court due to announce their final ruling with regards to the whether they see the ECB’s Outright Monetary Transactions policy (OMT) as constitutional under German law.
The OMT programme from the ECB has been widely perceived as one of the key confidence backstops for beleaguered nations, serving to reduce the yields of sovereign bonds. This in turn lowers the likeliness of further crises driven by reduced liquidity at reasonable rates for the peripheral and indebted eurozone nations. The issue is that for some, the OMT system of promising to buy ‘unlimited’ bonds from stricken economies serves to defeat the purpose of bond yields, which traditionally are seen as a gauge to the quality of the issuer. The ability to artificially instill confidence regardless of the risk profile attached to the underlying instrument allows for somewhat misguided belief that austerity measures such as those seen throughout numerous nations may not be necessary as long as cheap credit is freely available.
Ultimately, the OMT programme is unlikely to ever be used, especially given the recent resurgent strength seen in some of the peripheral nations as signified by the recent decision from the EU to remove the credit line for Spanish banks. However, should the German courts manage threaten it’s existence, this could serve to throw some of the more fragile economies back into crisis where investor confidence is shaken. If the German courts decide that the OMT programme is unconstitutional, this could be a somewhat unnecessary kick in the teeth for the eurozone recovery.
On Thursday, the ECB will announce their latest monetary policy statement, with a similar feeling to the BoE in that we are unlikely to see much in the way of actual policy amendments. Mario Draghi et al decided to shock the markets somewhat back in November when they decided to cut rates following a worrying fall in the eurozone inflation rate. Since then the worries of deflation have subsided considerably and thus we are likely to return to the status quo where Draghi uses these meetings to talk down the value of the euro with mentions of negative rates and alike. Thus be aware of possible volatility in the session following the immediate announcement regardless of whether there is a shift in rates or not.
Asia & Oceania
Much of the action out of Asia this week comes from China, where the inflation and trade balance releases are likely to be the only potential market moving events of note. The CPI measure of inflation is released on Thursday where markets are hoping to see a shift lower, from last month’s reading of 3% towards somewhere closer to 2.8%. Bear in mind that the Chinese central bank (PBOC) has been propping up the economy throughout somewhat tough times in 2013. Thus should the inflation rate move towards their target of 3.5% for the year, it would somewhat limit their capacity to engage in further stimulus in 2014. Therefore a cooling in the inflation rate seen within the region would likely mean we could see higher growth in the forthcoming period owing to flexible PBOC intervention when required.
On Wednesday, the trade balance figure will be watched closely to see how imports and exports have fared in December. The importance of their export growth should not be understated despite the planned shift towards domestic growth. Much of the growth seen throughout the final months of 2013 has been driven by a return of their export markets and thus we will be looking for a continuation of this trend.
In Australia, the trade balance is also likely to be key, with a similar story to China. The Australian story is largely intertwined with the Chinese, given the impact the perceived slowdown in China had upon the Australian economy in the middle of this year. In some ways this slowdown contributed to the election of a new Prime Minister in Tony Abbott. However, as the Chinese economy has picked up, so have Australian hopes of a return to health for their economy. Close attention will be paid to exports, given the Australian focus upon commodity exports as a means of growth. The past two releases have shown 0% growth in exports and thus there is a dire need to see this figure pick up in this month’s announcement to show that Australia is benefiting from improved Chinese growth and the reduced value of the Australian dollar.
A notable week in the markets, with the release of a number of key central bank and economic releases ahead. In the US, the focus will largely be upon the job report, due on Friday. Meanwhile in the UK, the services PMI figure on Monday gives us an idea as to the condition of the crucial sector driving the UK economy. Over in the eurozone, the German court ruling with regards to the constitutionality of the ECB’s Outright Monetary Transactions policy is going to be key.
In Asia, the focus is again on China, with the inflation data providing one of the most notable releases on Thursday morning. Finally, in Oceania, the Australian trade balance data is going to be key in gauging how the shifting economic environment is affecting their key export market.
US
A particularly busy week ahead for the US, where the usual furore surrounding the latest jobs data is also accompanied by the Fed chairperson nomination vote and FOMC minutes from December.
US jobs data releases are always hugely significant for global markets and this is reflected by the volatility seen around the non-farm payrolls in particular. However, in recent years employment figures have taken on an even more dominant role for investors given the association derived between the health of the employment market and the degree of asset purchases in place. Following the taper seen in December, the focus will now be upon when the FOMC will further trim the QE programme, with the next meetings in January, March and April.
The first notable employment release of the week comes on Wednesday when the ADP non-farm payroll figure is released. This measure has widely been seen as a proxy for the official government release on Friday. However the lack of public sector jobs within the calculation, amongst other differences mean that often the reality is that both measures are very different. Thus whilst this figure may not accurately reflect what we are likely to see on Friday, this is still a key data point and thus well worth watching out for. Markets expect to see the December figure show a fall to around 199k from 215k seen back in November.
On Friday, the big ticket release of the week comes with the jobs report in the afternoon. The non-farm payroll figure has often been seen as the major instigator of volatility owing to the fact that it is more unpredictable and spiky than the headline unemployment rate. The past two releases came in above the 200k mark, and this threshold can be seen as a good indicator of whether the figures are maintaining the positive trajectory seen in the lead-up to the December taper or not. Market expectation is for a fall to 194k in December, down from 203k in November.
The unemployment rate has always been a key release as it is this which typically takes the major headlines. However, with the forward guidance element of Fed policy specifically taking it’s lead from this measure, markets are paying especially close attention to it’s movement. Previous stipulation from the Fed was that upon reaching 6.5%, they were likely to discuss raising interest rates. However, this timeline has been extended somewhat with Bernanke’s statement that rates will remain at current low levels until “well after” 6.5%. The markets are expecting to see little movement from the current 7% level on Friday, however, even if this is the case, it is worth also noting any change in the participation rate. The rate finally rose for the first time in five months in November and the ability to prove that this is not just a one off would be a very positive sign for the direction of the jobs market.
On Monday, we are due to hear from the Fed following the vote with regards to appointing the next chairperson. I say chairperson as this is in all likeliness going to be the first female appointment to the position in its 100 year history. This is not necessarily going to move markets should we see Janet Yellen be nominated, which seems somewhat of a foregone conclusion. However should the vote come back as a no for her nomination, it could throw a spanner into the works somewhat.
Finally, the minutes from the last FOMC meeting are released on Wednesday. This meeting was the platform for the first taper of the current asset purchase scheme and thus the outlook of the committee to further cut in the forthcoming meeting is now key. Watch out for signs of how receptive the members are to another taper this month and possible prerequisites for such happening.
UK
A somewhat mixed week for the UK economy, which typically has a very busy first week of the month. Given the fact that only some of those events have been shifted back by a week, there is somewhat of a lessened load ahead. The two most notable events of the week come in the form of the services PMI figure and the latest monetary policy decision from the BoE.
On Monday, the business surveyor Markit are due to release their services PMI survey for December, following the manufacturing and construction figures released the week gone. Despite the importance of those two industries, it is the services sector which drives the UK economy, with the reliance upon the likes of law, insurance and financial services in particular. On the whole, 2013 has been a particularly strong year for the UK services sector, with the PMI reading beating expectations on 9 of the 11 months whilst remaining in expansion throughout the whole of 2013. This positive trend is expected to have continued in December, with the forecasters expecting to see a further rise to 60.7, following a reading of 60.0 in November. This would still represent a particularly strong figure, coming off the back of the highest reading in 16 years seen in October. However, I would be careful, given the fact that we have seen a downturn in both the manufacturing and construction PMIs for December, this could disappoint somewhat if it followed the same pattern.
Later in the week, the BoE are due to announce their latest monetary policy decision on Thursday. There is little expectation that we are going to see any tangible change to the current stance, given that the forward guidance policy has been laid out and reiterated by Mark Carney. Thus it is likely to be the case that traders are looking for anything new out of the accompanying statement or Q&A to move the markets.
Eurozone
A somewhat busy week for the eurozone region, with two major events taking centre stage in the form of the German constitutional court hearing along with the ECB rate decision. The first of these is a somewhat less regular occurrence than the latter, with the German Federal Constitutional Court due to announce their final ruling with regards to the whether they see the ECB’s Outright Monetary Transactions policy (OMT) as constitutional under German law.
The OMT programme from the ECB has been widely perceived as one of the key confidence backstops for beleaguered nations, serving to reduce the yields of sovereign bonds. This in turn lowers the likeliness of further crises driven by reduced liquidity at reasonable rates for the peripheral and indebted eurozone nations. The issue is that for some, the OMT system of promising to buy ‘unlimited’ bonds from stricken economies serves to defeat the purpose of bond yields, which traditionally are seen as a gauge to the quality of the issuer. The ability to artificially instill confidence regardless of the risk profile attached to the underlying instrument allows for somewhat misguided belief that austerity measures such as those seen throughout numerous nations may not be necessary as long as cheap credit is freely available.
Ultimately, the OMT programme is unlikely to ever be used, especially given the recent resurgent strength seen in some of the peripheral nations as signified by the recent decision from the EU to remove the credit line for Spanish banks. However, should the German courts manage threaten it’s existence, this could serve to throw some of the more fragile economies back into crisis where investor confidence is shaken. If the German courts decide that the OMT programme is unconstitutional, this could be a somewhat unnecessary kick in the teeth for the eurozone recovery.
On Thursday, the ECB will announce their latest monetary policy statement, with a similar feeling to the BoE in that we are unlikely to see much in the way of actual policy amendments. Mario Draghi et al decided to shock the markets somewhat back in November when they decided to cut rates following a worrying fall in the eurozone inflation rate. Since then the worries of deflation have subsided considerably and thus we are likely to return to the status quo where Draghi uses these meetings to talk down the value of the euro with mentions of negative rates and alike. Thus be aware of possible volatility in the session following the immediate announcement regardless of whether there is a shift in rates or not.
Asia & Oceania
Much of the action out of Asia this week comes from China, where the inflation and trade balance releases are likely to be the only potential market moving events of note. The CPI measure of inflation is released on Thursday where markets are hoping to see a shift lower, from last month’s reading of 3% towards somewhere closer to 2.8%. Bear in mind that the Chinese central bank (PBOC) has been propping up the economy throughout somewhat tough times in 2013. Thus should the inflation rate move towards their target of 3.5% for the year, it would somewhat limit their capacity to engage in further stimulus in 2014. Therefore a cooling in the inflation rate seen within the region would likely mean we could see higher growth in the forthcoming period owing to flexible PBOC intervention when required.
On Wednesday, the trade balance figure will be watched closely to see how imports and exports have fared in December. The importance of their export growth should not be understated despite the planned shift towards domestic growth. Much of the growth seen throughout the final months of 2013 has been driven by a return of their export markets and thus we will be looking for a continuation of this trend.
In Australia, the trade balance is also likely to be key, with a similar story to China. The Australian story is largely intertwined with the Chinese, given the impact the perceived slowdown in China had upon the Australian economy in the middle of this year. In some ways this slowdown contributed to the election of a new Prime Minister in Tony Abbott. However, as the Chinese economy has picked up, so have Australian hopes of a return to health for their economy. Close attention will be paid to exports, given the Australian focus upon commodity exports as a means of growth. The past two releases have shown 0% growth in exports and thus there is a dire need to see this figure pick up in this month’s announcement to show that Australia is benefiting from improved Chinese growth and the reduced value of the Australian dollar.
Alpari UK
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UK Opening Call from Alpari UK on 6 January 2014
Today’s UK opening call provides an update on:
• Very busy week ahead following quiet festive period;
• Chinese services PMI gets the week off to a bad start;
• European services PMIs in focus this morning;
After a very quiet couple of weeks in the financial markets, things should pick up dramatically this week as more traders return to their desks, economic releases increase significantly and Alcoa unofficially kicks off corporate earnings season.
It really is going to be quiet a chaotic week in the financial markets, particularly the latter half of the week, which will include the first batch of company earnings, the FOMC minutes from last month’s meeting, BoE and ECB rate decisions and the December US jobs report. There’s still plenty to focus on in the first half of the week though, especially compared to the last couple of weeks, which were severely lacking in data, earnings and trading volumes.
Things have already got off to quite a disappointing start, with the Chinese HSBC services PMI for December falling to 50.9 from 52.5 in November. This number still represents growth in the industry so it isn’t worth worrying about at this stage. However, it could be an early warning sign that, as in 2013, China is going to struggle to maintain these high levels of growth. The government may have to do more again to ensure growth remains above the minimum 7% threshold.
Focus will remain on the services sector this morning, as the December PMIs for a number of European countries are released, including for the eurozone as a whole. Some of these are revised figures, which may affect how big an impact they have on the financial markets.
The release attracting the most interest here will probably be the French PMI. Last week, the manufacturing PMI showed a significant amount of contraction in the sector in December, which acted as a reminder that the eurozone’s second largest economy is seriously struggling to get the economy moving again.
We’re expecting a similar result today, with the services PMI seen falling to 47.4 from 48 in November. This will be a cause for concern for investors, with France already at risk of falling into yet another recession in the fourth quarter, after recording a small contraction in the third. It’s no secret that France is approaching the whole austerity issue quite differently to other eurozone countries and early evidence suggests it isn’t working. There were fears last year that France could become the new problem child for the eurozone, although these fears eased early in the third quarter. Maybe 2014 is the year when France slips even further behind Germany and causes a few problems of its own.
The UK services PMI revision is also going to be monitored closely for signs that the recovery is losing momentum. The services sector is hugely important to the UK, in fact it makes up around two thirds of UK GDP, so this figure is seen as the best indication of how the economy is going to perform going forward.
Later on in the US we also have a couple of economic releases that will be of interest to investors. The first is the US services PMI, which is expected to rise to 54.6, a good sign given that like the UK, the US is very dependent on its services sector. Also being released is the November change in factory orders, which is expected to show a 1.8% increase.
Ahead of the open we expect to see the FTSE up 4 points, the CAC down 2 points and the DAX down 14 points.
Today’s UK opening call provides an update on:
• Very busy week ahead following quiet festive period;
• Chinese services PMI gets the week off to a bad start;
• European services PMIs in focus this morning;
After a very quiet couple of weeks in the financial markets, things should pick up dramatically this week as more traders return to their desks, economic releases increase significantly and Alcoa unofficially kicks off corporate earnings season.
It really is going to be quiet a chaotic week in the financial markets, particularly the latter half of the week, which will include the first batch of company earnings, the FOMC minutes from last month’s meeting, BoE and ECB rate decisions and the December US jobs report. There’s still plenty to focus on in the first half of the week though, especially compared to the last couple of weeks, which were severely lacking in data, earnings and trading volumes.
Things have already got off to quite a disappointing start, with the Chinese HSBC services PMI for December falling to 50.9 from 52.5 in November. This number still represents growth in the industry so it isn’t worth worrying about at this stage. However, it could be an early warning sign that, as in 2013, China is going to struggle to maintain these high levels of growth. The government may have to do more again to ensure growth remains above the minimum 7% threshold.
Focus will remain on the services sector this morning, as the December PMIs for a number of European countries are released, including for the eurozone as a whole. Some of these are revised figures, which may affect how big an impact they have on the financial markets.
The release attracting the most interest here will probably be the French PMI. Last week, the manufacturing PMI showed a significant amount of contraction in the sector in December, which acted as a reminder that the eurozone’s second largest economy is seriously struggling to get the economy moving again.
We’re expecting a similar result today, with the services PMI seen falling to 47.4 from 48 in November. This will be a cause for concern for investors, with France already at risk of falling into yet another recession in the fourth quarter, after recording a small contraction in the third. It’s no secret that France is approaching the whole austerity issue quite differently to other eurozone countries and early evidence suggests it isn’t working. There were fears last year that France could become the new problem child for the eurozone, although these fears eased early in the third quarter. Maybe 2014 is the year when France slips even further behind Germany and causes a few problems of its own.
The UK services PMI revision is also going to be monitored closely for signs that the recovery is losing momentum. The services sector is hugely important to the UK, in fact it makes up around two thirds of UK GDP, so this figure is seen as the best indication of how the economy is going to perform going forward.
Later on in the US we also have a couple of economic releases that will be of interest to investors. The first is the US services PMI, which is expected to rise to 54.6, a good sign given that like the UK, the US is very dependent on its services sector. Also being released is the November change in factory orders, which is expected to show a 1.8% increase.
Ahead of the open we expect to see the FTSE up 4 points, the CAC down 2 points and the DAX down 14 points.
Alpari UK
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US Opening Call from Alpari UK on 6 January 2014
Today's US opening call provides an update on:
US futures are pointing to a higher open on Wall Street on Monday, as things start to pick up in the financial markets following a quiet couple of weeks.
Trading volumes should pick up significantly this week, as traders return to their desks following the festive period and the number of potential catalysts also rises substantially. Volumes over the last couple of weeks have been very low, which is not unusual at this time of year, as traders opt to spend time with family instead of in front of their monitors.
The lower volumes were not helped by a lack of catalysts in the market, with the economic calendar looking very thin and companies not yet reporting fourth quarter earnings. This will all change this week though with central bank meetings taking place, FOMC minutes being released, companies starting to report earnings and the labour department releasing the US jobs report.
All of these actually take place later on in the week though, which means that while trading volumes will naturally pick up as traders return from holiday’s, they could still remain at below average levels as traders opt to wait on the sidelines and see how these events play out.
This week should go a long way to telling us whether the Fed made the right decision last month in deciding to reduce the pace of its asset purchases, or whether it should have waited for more proof that the recovery is in fact sustainable.
If the data is as good as it was in October and November, it would suggest that the Fed did make the correct decision in December. It would also suggest that another $10 billion taper will take place in January, in line with the commentary that came out of the Fed during the December press conference.
Monday is looking a little quiet in terms of economic releases, although there is still a couple worth paying attention to. The first is the services PMI for December. This is expected to rise to 54.6 from 53.9 in November, which would be in line with expectations that the economy is on the road to recovery.
The services sector is hugely important to the US economy, as it contributes more than two thirds of GDP, so a figure higher than what we saw in November would suggest that the economic recovery is gathering pace.
The other noteworthy release is the November factory orders figure, which is expected to show 1.8% growth in November, following a small drop the month before.
Ahead of the open we expect to see the S&P up 2 points, Dow up 22 points and the NASDAQ flat.
Today's US opening call provides an update on:
- Trading volumes to pick up this week;
- Big week ahead with central bank meetings, earnings and US jobs report;
- US data in focus on Monday.
US futures are pointing to a higher open on Wall Street on Monday, as things start to pick up in the financial markets following a quiet couple of weeks.
Trading volumes should pick up significantly this week, as traders return to their desks following the festive period and the number of potential catalysts also rises substantially. Volumes over the last couple of weeks have been very low, which is not unusual at this time of year, as traders opt to spend time with family instead of in front of their monitors.
The lower volumes were not helped by a lack of catalysts in the market, with the economic calendar looking very thin and companies not yet reporting fourth quarter earnings. This will all change this week though with central bank meetings taking place, FOMC minutes being released, companies starting to report earnings and the labour department releasing the US jobs report.
All of these actually take place later on in the week though, which means that while trading volumes will naturally pick up as traders return from holiday’s, they could still remain at below average levels as traders opt to wait on the sidelines and see how these events play out.
This week should go a long way to telling us whether the Fed made the right decision last month in deciding to reduce the pace of its asset purchases, or whether it should have waited for more proof that the recovery is in fact sustainable.
If the data is as good as it was in October and November, it would suggest that the Fed did make the correct decision in December. It would also suggest that another $10 billion taper will take place in January, in line with the commentary that came out of the Fed during the December press conference.
Monday is looking a little quiet in terms of economic releases, although there is still a couple worth paying attention to. The first is the services PMI for December. This is expected to rise to 54.6 from 53.9 in November, which would be in line with expectations that the economy is on the road to recovery.
The services sector is hugely important to the US economy, as it contributes more than two thirds of GDP, so a figure higher than what we saw in November would suggest that the economic recovery is gathering pace.
The other noteworthy release is the November factory orders figure, which is expected to show 1.8% growth in November, following a small drop the month before.
Ahead of the open we expect to see the S&P up 2 points, Dow up 22 points and the NASDAQ flat.
Alpari UK
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UK Opening Call from Alpari UK on 7 January 2014
Today’s UK opening call provides an update on:
• Poor data weighing on indices so far this year;
• Risk aversion also contributing ahead of a heavy end to the week;
• German unemployment and eurozone inflation in focus this morning.
European indices are expected to open higher on Tuesday, despite the mood in the US and Asia over night being far from positive following the release of some disappointing economic data.
Economic data on the whole has been a little disappointing over the last week or so, although not disastrously so. The UK and China has seen a pull back in both their manufacturing and services PMIs, while the former has also seen the construction PMI fall back from its six year highs. The eurozone data was largely mixed, with the only really disappointing figures coming out of France, while US stocks yesterday retreated in response to a surprising drop in the services PMI.
All things considered this is not a cause for concern. To start with, the majority of these figures still remained comfortably in growth territory, which is the most important thing. With regards to the negativity in the stock markets, this looks like nothing more than a bit of profit taking following an impressive end to 2013, which saw a number of indices closing at, or near, all time highs. This rally in the equity markets still looks far from over.
We also have to consider the fact that the end of the week is packed out with some pretty significant events, including two major central bank meetings, the release of the December FOMC minutes and the US jobs report. That is almost always going to make investors more risk averse as all of these events have the potentially to create significant waves in the markets. This is especially true when a large number of investors have only just returned following the festive break.
The risk aversion is likely to continue today, with only a few important economic releases scheduled and tomorrow being the start of the hectic end to the week. This morning the focus will be on Germany and the eurozone, with unemployment data being released for the former and inflation data for the latter.
German unemployment has remained remarkably low throughout both the initial financial crisis and then the debt crisis, both when compared to the likes of the US and the UK and, particularly, the rest of the eurozone. The unemployment rates has remained at the upper end of 6% for the majority of the last couple of years and this is not expected to have changed in December, with the rate remaining at 6.9% following no change in the number of unemployed.
Eurozone inflation, which became a big concern towards the end of 2013, prompting the European Central Bank to cut interest rates to record lows of 0.25%, is expected to remain unchanged at 0.9%. While this is significantly below the ECBs target rate of 2%, it is unlikely to prompt further action from the central bank at this stage as this is largely intentional. The efforts being made in a number of eurozone states to become more competitive is naturally going to act as a drag on inflation.
As long as the figure doesn’t fall below 0.5% and become dangerously close to deflation, which can be just as damaging as high inflation as Japan found, I expect the ECB to allow inflation to remain at these low levels. This has also not been helped by the strength in the euro in 2013, which many don’t see lasting in 2014.
Ahead of the open we expect to see the FTSE up 4 points, the CAC up 5 points and the DAX up 21 points.
Today’s UK opening call provides an update on:
• Poor data weighing on indices so far this year;
• Risk aversion also contributing ahead of a heavy end to the week;
• German unemployment and eurozone inflation in focus this morning.
European indices are expected to open higher on Tuesday, despite the mood in the US and Asia over night being far from positive following the release of some disappointing economic data.
Economic data on the whole has been a little disappointing over the last week or so, although not disastrously so. The UK and China has seen a pull back in both their manufacturing and services PMIs, while the former has also seen the construction PMI fall back from its six year highs. The eurozone data was largely mixed, with the only really disappointing figures coming out of France, while US stocks yesterday retreated in response to a surprising drop in the services PMI.
All things considered this is not a cause for concern. To start with, the majority of these figures still remained comfortably in growth territory, which is the most important thing. With regards to the negativity in the stock markets, this looks like nothing more than a bit of profit taking following an impressive end to 2013, which saw a number of indices closing at, or near, all time highs. This rally in the equity markets still looks far from over.
We also have to consider the fact that the end of the week is packed out with some pretty significant events, including two major central bank meetings, the release of the December FOMC minutes and the US jobs report. That is almost always going to make investors more risk averse as all of these events have the potentially to create significant waves in the markets. This is especially true when a large number of investors have only just returned following the festive break.
The risk aversion is likely to continue today, with only a few important economic releases scheduled and tomorrow being the start of the hectic end to the week. This morning the focus will be on Germany and the eurozone, with unemployment data being released for the former and inflation data for the latter.
German unemployment has remained remarkably low throughout both the initial financial crisis and then the debt crisis, both when compared to the likes of the US and the UK and, particularly, the rest of the eurozone. The unemployment rates has remained at the upper end of 6% for the majority of the last couple of years and this is not expected to have changed in December, with the rate remaining at 6.9% following no change in the number of unemployed.
Eurozone inflation, which became a big concern towards the end of 2013, prompting the European Central Bank to cut interest rates to record lows of 0.25%, is expected to remain unchanged at 0.9%. While this is significantly below the ECBs target rate of 2%, it is unlikely to prompt further action from the central bank at this stage as this is largely intentional. The efforts being made in a number of eurozone states to become more competitive is naturally going to act as a drag on inflation.
As long as the figure doesn’t fall below 0.5% and become dangerously close to deflation, which can be just as damaging as high inflation as Japan found, I expect the ECB to allow inflation to remain at these low levels. This has also not been helped by the strength in the euro in 2013, which many don’t see lasting in 2014.
Ahead of the open we expect to see the FTSE up 4 points, the CAC up 5 points and the DAX up 21 points.
Alpari UK
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US Opening Call from Alpari UK on 7 January 2014
Today’s US opening call provides an update on:
* US futures point to first positive day of the year;
* German unemployment unexpectedly falls;
* Eurozone disinflation becoming a concern again;
* Little to focus on during the US session..
US futures are pointing to a higher open on Wall Street, with the S&P, Dow and Nasdaq all seen opening almost half a percentage point higher.
The gains come following a disappointing start to the year, which has seen US indices on a three day losing streak. I don’t think we can read into this too much though, especially when you consider the fact that both the S&P and the Dow ended 2014 at record highs. What we’ve seen so far this year is most likely just a case of profit taking rather than anything else.
That said, it has been accompanied by a number of disappointing economic releases, not just in the US, but also in other major economies. The manufacturing and services PMIs in China have all fallen short of expectations, as have the manufacturing, services and construction PMIs in the UK. The eurozone has been mixed which is nothing new, but there have been a few concerns about the French PMIs, which has slipped deep into contraction territory.
The majority of these have remained comfortably in growth territory though, so I don’t think they’re anything to be concerned about. Instead, it appears that they’re just being used as an excuse to take profits on long positions, which is why we’re already seeing some buying on the dips in the futures market.
The European session has been relatively quiet so far on Tuesday, with only a couple of pieces of notable data being released. The German DAX was boosted earlier on in day after data showed 15,000 fewer people were unemployed in December, which was below expectations.
Inflation in the eurozone is becoming a growing concern again, having fallen to 0.8% in December. This should make Thursday’s ECB rate decision all the more interesting, given that it was the fall to 0.7% in October that prompted the 25 basis point rate cut a few days later. I don’t think we’ll see a repeat of this on Thursday though and based on the reaction, or lack of, in the market, neither does anyone else.
The US session is likely to also be relatively quiet, ahead of what is expected to be a very busy few days. There is a lack of economic data being released, with the only notable release being the November trade balance figure. And even this is unlikely to have much of an impact on the markets.
Ahead of the open we expect to see the S&P up 7 points, Dow up 69 points and the NASDAQ up 13 points.
Today’s US opening call provides an update on:
* US futures point to first positive day of the year;
* German unemployment unexpectedly falls;
* Eurozone disinflation becoming a concern again;
* Little to focus on during the US session..
US futures are pointing to a higher open on Wall Street, with the S&P, Dow and Nasdaq all seen opening almost half a percentage point higher.
The gains come following a disappointing start to the year, which has seen US indices on a three day losing streak. I don’t think we can read into this too much though, especially when you consider the fact that both the S&P and the Dow ended 2014 at record highs. What we’ve seen so far this year is most likely just a case of profit taking rather than anything else.
That said, it has been accompanied by a number of disappointing economic releases, not just in the US, but also in other major economies. The manufacturing and services PMIs in China have all fallen short of expectations, as have the manufacturing, services and construction PMIs in the UK. The eurozone has been mixed which is nothing new, but there have been a few concerns about the French PMIs, which has slipped deep into contraction territory.
The majority of these have remained comfortably in growth territory though, so I don’t think they’re anything to be concerned about. Instead, it appears that they’re just being used as an excuse to take profits on long positions, which is why we’re already seeing some buying on the dips in the futures market.
The European session has been relatively quiet so far on Tuesday, with only a couple of pieces of notable data being released. The German DAX was boosted earlier on in day after data showed 15,000 fewer people were unemployed in December, which was below expectations.
Inflation in the eurozone is becoming a growing concern again, having fallen to 0.8% in December. This should make Thursday’s ECB rate decision all the more interesting, given that it was the fall to 0.7% in October that prompted the 25 basis point rate cut a few days later. I don’t think we’ll see a repeat of this on Thursday though and based on the reaction, or lack of, in the market, neither does anyone else.
The US session is likely to also be relatively quiet, ahead of what is expected to be a very busy few days. There is a lack of economic data being released, with the only notable release being the November trade balance figure. And even this is unlikely to have much of an impact on the markets.
Ahead of the open we expect to see the S&P up 7 points, Dow up 69 points and the NASDAQ up 13 points.
Alpari UK
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Daily Market Update - 7 January 2014 - Alpari UK
Yellen voted for as next Fed chair - 00:17
Australian trade deficit shrinks - 00:54
Strong data out of Germany boosts markets - 1:54
Eurozone inflation falls to 0.8% - 3:08
Research analyst Joshua Mahony discusses the key topics in the markets today, including Janet Yellen being voted for as the new Fed chair. He also discusses the positive Australian trade balance seen overnight. For the European session he mentions the German data releases and the fall in Eurozone inflation.
Yellen voted for as next Fed chair - 00:17
Australian trade deficit shrinks - 00:54
Strong data out of Germany boosts markets - 1:54
Eurozone inflation falls to 0.8% - 3:08
Research analyst Joshua Mahony discusses the key topics in the markets today, including Janet Yellen being voted for as the new Fed chair. He also discusses the positive Australian trade balance seen overnight. For the European session he mentions the German data releases and the fall in Eurozone inflation.
Alpari UK
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UK Opening Call from Alpari UK on 8 January 2014
Today’s UK opening call provides an update on:
• Eurozone unemployment rate expected to remain below record high levels;
• Eurozone retail sales expected to improve for only the third month since April 2011;
• Focus on job creation and the Fed during the US session later.
European indices are expected to open higher on Wednesday, as the business end of the week gets underway with retail sales and unemployment data for the eurozone, followed later by employment data for the US and the December FOMC minutes.
We have seen a pickup in activity over the last couple of days, as traders return to their desks following the winter break, but trading volumes have still been a little lower than normal due to the large number of high volatility events scheduled for the end of the week. Well things should pick up more today, with a number of important pieces of economic data due to be released, followed this evening by the FOMC minutes.
This morning the focus will be on the eurozone, where we’ll get the latest update on the unemployment situation. Things have improved significantly in the eurozone in the last six months, with a number of countries, and the region as a whole climbing out of recession, confidence in the region growing as seen by the substantial improvement in the PMI readings, and two countries, Ireland and Spain, exiting their respective bailout programs. I wouldn’t say things are looking rosy for the currency block, by any stretch of the imagination, but compared to this time last year, they’re looking much better.
This has been reflected in the unemployment rate over the last year. This time last year we were still seeing the consistent monthly increases in the rate of unemployment which saw it climb to record highs almost every month. Over the last year though, the rate has stabilised and very slowly started to decline. As we’ve seen already, the decline in the unemployment rate is going to be much slower than the rise, but the fact we’re headed in the right direction must be viewed as a positive. Especially when we remember how bad things were looking a year ago. The rate is expected to remain at 12.1% in November but as long as we don’t see a return to record high levels, I think this will be viewed as a positive result.
We’ve also seen an improvement in eurozone retail sales in the last six months, with the rate of decline falling sharply to the point that we actually saw year on year growth in both May and September. Given that the last year on year growth in retail sales prior to this came in April 2011, we have to view this as a sign that conditions are improving.
What this means is that consumers across the region are more confident in the recovery and are spending more as a result. This could now start off the positive spiral of businesses performing better and therefore hiring more, which in turn leads to more consumer spending and so on and so forth. Retail sales data today is expected to show a third positive month of retail sales in November, at 0.3%, which again support the view that while the recovery is small, it is gathering momentum.
There’s plenty more to come later on in the US, where we’ll get the first indication of job creation in December. The ADP non-farm employment change figure is generally seen as an estimate, albeit not a very accurate one, of the non-farm payrolls figure which will be released on Friday. This should give us some insight into whether the improvement in the labour market seen in October and November continued into the end of the year, and whether the Fed was therefore right to reduce its bond buying program in December.
We should also get more details about that decision later on when the minutes from the December FOMC meeting are released. It will be interesting to see how the policy makers voted on asset purchases and how this may impact the rate of reductions further down the line.
Ahead of the open we expect to see the FTSE up 2 points, the CAC up 5 points and the DAX up 2 points.
Today’s UK opening call provides an update on:
• Eurozone unemployment rate expected to remain below record high levels;
• Eurozone retail sales expected to improve for only the third month since April 2011;
• Focus on job creation and the Fed during the US session later.
European indices are expected to open higher on Wednesday, as the business end of the week gets underway with retail sales and unemployment data for the eurozone, followed later by employment data for the US and the December FOMC minutes.
We have seen a pickup in activity over the last couple of days, as traders return to their desks following the winter break, but trading volumes have still been a little lower than normal due to the large number of high volatility events scheduled for the end of the week. Well things should pick up more today, with a number of important pieces of economic data due to be released, followed this evening by the FOMC minutes.
This morning the focus will be on the eurozone, where we’ll get the latest update on the unemployment situation. Things have improved significantly in the eurozone in the last six months, with a number of countries, and the region as a whole climbing out of recession, confidence in the region growing as seen by the substantial improvement in the PMI readings, and two countries, Ireland and Spain, exiting their respective bailout programs. I wouldn’t say things are looking rosy for the currency block, by any stretch of the imagination, but compared to this time last year, they’re looking much better.
This has been reflected in the unemployment rate over the last year. This time last year we were still seeing the consistent monthly increases in the rate of unemployment which saw it climb to record highs almost every month. Over the last year though, the rate has stabilised and very slowly started to decline. As we’ve seen already, the decline in the unemployment rate is going to be much slower than the rise, but the fact we’re headed in the right direction must be viewed as a positive. Especially when we remember how bad things were looking a year ago. The rate is expected to remain at 12.1% in November but as long as we don’t see a return to record high levels, I think this will be viewed as a positive result.
We’ve also seen an improvement in eurozone retail sales in the last six months, with the rate of decline falling sharply to the point that we actually saw year on year growth in both May and September. Given that the last year on year growth in retail sales prior to this came in April 2011, we have to view this as a sign that conditions are improving.
What this means is that consumers across the region are more confident in the recovery and are spending more as a result. This could now start off the positive spiral of businesses performing better and therefore hiring more, which in turn leads to more consumer spending and so on and so forth. Retail sales data today is expected to show a third positive month of retail sales in November, at 0.3%, which again support the view that while the recovery is small, it is gathering momentum.
There’s plenty more to come later on in the US, where we’ll get the first indication of job creation in December. The ADP non-farm employment change figure is generally seen as an estimate, albeit not a very accurate one, of the non-farm payrolls figure which will be released on Friday. This should give us some insight into whether the improvement in the labour market seen in October and November continued into the end of the year, and whether the Fed was therefore right to reduce its bond buying program in December.
We should also get more details about that decision later on when the minutes from the December FOMC meeting are released. It will be interesting to see how the policy makers voted on asset purchases and how this may impact the rate of reductions further down the line.
Ahead of the open we expect to see the FTSE up 2 points, the CAC up 5 points and the DAX up 2 points.
Alpari UK
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US Opening Call from Alpari UK on 8 January 2014
Today’s US opening call provides an update on:
* US futures lower ahead of some key releases on Wednesday;
* ADP figure to give insight into Friday’s NFP figure;
* FOMC minutes could contain roadmap for future asset purchase reductions.
US indices are expected to open lower on Wednesday, ahead of the release of some key economic data and the FOMC minutes from the December meeting.
What we may be seeing so far in the futures market is a little risk aversion ahead of some key releases today. While the ADP non-farm employment change isn’t really seen as an accurate estimate of the non-farm payrolls figure, which is due to be released on Friday, it can be a useful indicator of whether we’re going to see a good or bad number.
The Fed may have finally announced its first taper in December, but we’re still seeing $75 billion of asset purchases every month, making the jobs report, and therefore the ADP figure, extremely important. The markets may not have reacted to the first taper because it was relatively small but that doesn’t mean we won’t see a bigger reaction if the data supports a larger taper, say $20 billion.
I still think the Fed will be very cautious at the next meeting at the end of January, reducing the asset purchases by only $10 billion again as long as the data continues to suggest the recovery is gaining momentum. But that doesn’t mean that investors won’t panic should we see a number significantly above 200,000, for example. It wouldn’t be the first time.
The FOMC minutes will probably be of bigger interest to investors, as they should provide further insight into roadmap for future asset purchase reductions. Fed Chairman Ben Bernanke gave us some insight during the press conference in December, but the minutes should fill in some of the blanks.
It should also tell us which members were in favour of a reduction and which were against, and what that means for this year now that some members have been replaced.
Finally, we should get more information about what will be required from the economic data in order to maintain a constant $10 billion reduction going forward, as well as what we’d need to see in order to justify a larger/smaller reduction.
Ahead of the open we expect to see the S&P up 7 points, Dow up 69 points and the NASDAQ up 13 points.
Today’s US opening call provides an update on:
* US futures lower ahead of some key releases on Wednesday;
* ADP figure to give insight into Friday’s NFP figure;
* FOMC minutes could contain roadmap for future asset purchase reductions.
US indices are expected to open lower on Wednesday, ahead of the release of some key economic data and the FOMC minutes from the December meeting.
What we may be seeing so far in the futures market is a little risk aversion ahead of some key releases today. While the ADP non-farm employment change isn’t really seen as an accurate estimate of the non-farm payrolls figure, which is due to be released on Friday, it can be a useful indicator of whether we’re going to see a good or bad number.
The Fed may have finally announced its first taper in December, but we’re still seeing $75 billion of asset purchases every month, making the jobs report, and therefore the ADP figure, extremely important. The markets may not have reacted to the first taper because it was relatively small but that doesn’t mean we won’t see a bigger reaction if the data supports a larger taper, say $20 billion.
I still think the Fed will be very cautious at the next meeting at the end of January, reducing the asset purchases by only $10 billion again as long as the data continues to suggest the recovery is gaining momentum. But that doesn’t mean that investors won’t panic should we see a number significantly above 200,000, for example. It wouldn’t be the first time.
The FOMC minutes will probably be of bigger interest to investors, as they should provide further insight into roadmap for future asset purchase reductions. Fed Chairman Ben Bernanke gave us some insight during the press conference in December, but the minutes should fill in some of the blanks.
It should also tell us which members were in favour of a reduction and which were against, and what that means for this year now that some members have been replaced.
Finally, we should get more information about what will be required from the economic data in order to maintain a constant $10 billion reduction going forward, as well as what we’d need to see in order to justify a larger/smaller reduction.
Ahead of the open we expect to see the S&P up 7 points, Dow up 69 points and the NASDAQ up 13 points.
Alpari UK
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Daily Market Update - 8 January 2014 - Alpari UK
Markets lower. Paring yesterdays gains - 00:09
Eurozone retail sales pick up after December sales - 00:24
Eurozone unemployment remains at 12.1% - 01;40
German factory orders continue strong week for the European powerhouse - 02:10
Markets lower. Paring yesterdays gains - 00:09
Eurozone retail sales pick up after December sales - 00:24
Eurozone unemployment remains at 12.1% - 01;40
German factory orders continue strong week for the European powerhouse - 02:10
Alpari UK
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Reaction to FOMC minutes
The minutes from the December FOMC meeting offered the markets very little in terms of insight into future asset purchase reductions. This can clearly be seen by the reaction, or lack of, in the US dollar, which strengthened mildly against the other currencies before almost returning back to where it traded before the minutes were released.
One thing we did learn from the minutes is that policy makers in general were in favour of a reduction in purchases due, in pary, to the waning benefits from the monthly purchases. In fact, some members even favoured a larger reduction, although I think it’s safe to say they were in the majority, and that this would have been a mistake as it would have caused an unnecessary shock in the financial markets. The end of the Fed’s third round of quantitative easing program is near, there’s no need to rush it.
Going forward, while the Fed didn’t lay out a roadmap for the end of quantitative easing, the minutes did suggest that the reductions would be gradual and close attention would be paid to the inflation rate throughout the process. All things considered, these minutes have told us nothing we don’t already know. But that doesn’t really matter because we’re already very aware of the answers we were looking for.
The QE3 program will almost certainly come to an end this year, probably in the third quarter. The rate of tapering will depend on the economic data and the impact of the reductions on the inflation rate. What investors were looking for in the minutes was for the Fed to provide a definite timetable for the tapering and unfortunately, we should know by now that this is not going to happen. They’re not foolish enough to do this when they know that if the data suddenly takes a turn for the worse, they must respond in a way that doesn’t damage the recovery.
The minutes from the December FOMC meeting offered the markets very little in terms of insight into future asset purchase reductions. This can clearly be seen by the reaction, or lack of, in the US dollar, which strengthened mildly against the other currencies before almost returning back to where it traded before the minutes were released.
One thing we did learn from the minutes is that policy makers in general were in favour of a reduction in purchases due, in pary, to the waning benefits from the monthly purchases. In fact, some members even favoured a larger reduction, although I think it’s safe to say they were in the majority, and that this would have been a mistake as it would have caused an unnecessary shock in the financial markets. The end of the Fed’s third round of quantitative easing program is near, there’s no need to rush it.
Going forward, while the Fed didn’t lay out a roadmap for the end of quantitative easing, the minutes did suggest that the reductions would be gradual and close attention would be paid to the inflation rate throughout the process. All things considered, these minutes have told us nothing we don’t already know. But that doesn’t really matter because we’re already very aware of the answers we were looking for.
The QE3 program will almost certainly come to an end this year, probably in the third quarter. The rate of tapering will depend on the economic data and the impact of the reductions on the inflation rate. What investors were looking for in the minutes was for the Fed to provide a definite timetable for the tapering and unfortunately, we should know by now that this is not going to happen. They’re not foolish enough to do this when they know that if the data suddenly takes a turn for the worse, they must respond in a way that doesn’t damage the recovery.
Alpari UK
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UK Opening Call from Alpari UK on 9 January 2014
Today’s UK opening call provides an update on:
• BoE rate decision expected to be another non-event;
• ECB expected to leave policy unchanged, press conference should be interesting though;
• US indices continue poor start to 2014 despite strong ADP figure.
The Bank of England is expected to leave monetary policy unchanged this month, which will come as no surprise to anyone, given the recent comments from the central bank, the falling inflation rate and improving economy. The BoE monetary policy decision has been a bit of a non-event in recent months, having very little or no impact on the markets.
One thing investors will be looking out for is a potential revision to the central banks forward guidance. Unemployment has fallen much faster than the central bank expected and now lies only 0.4% above the threshold that they previously claimed would be the point when they start to consider an interest rate hike. It is worth noting at this stage that they have repeatedly stated that this is just the point at which they’ll consider it, it’s not a trigger.
That said, what it means is that the forward guidance doesn’t actually provide assurances about low interest rates to anyone, be they businesses or households. The only way to do this would be to lower the threshold to 6.5%, or lower. I don’t expect this to come today though, although that won’t stop people paying close attention to this announcement just in case it is accompanied by a statement that provides an update on the forward guidance.
The other key central bank decision today will come from the European Central Bank. As with the BoE, no change is expected from the ECB, although this is likely to be a far more interesting affair for two reasons. The first is that inflation fell again last month to 0.8%, only 0.1% above the level that prompted the ECB to cut interest rates to record lows of 0.25% back in November.
While I don’t expect a repeat of this today, this would suggest that some form of action from the ECB in the coming months is certainly not off the table. This brings me to the second reason, the press conference. Unlike the BoE, the ECB always follows the rate decision with a press conference, in which its President Mario Draghi reads out a statement before answering questions. Financial markets tend to be very responsive to Draghi’s comments throughout his press conference.
With interest rates at 0.25%, the ECBs hands are a little tied when it comes to further rate cuts, which means if they want to provide further stimulus to slow down the rate of disinflation, they will have to explore other options, such as additional forward guidance, negative deposit rates, LTRO’s or quantitative easing, although I think the last is very unlikely. It is likely to take them a little longer to agree on which of these to opt for which is why I don’t expect a decision today.
This is why today’s press conference could be so important as we could get some insight into what options are on the table for the upcoming meetings, and which of these options are favoured most by the board members. Based on previous meetings, I imagine the preferred route would be additional forward guidance. This is the easiest option for them as it doesn’t carry the risks that the other options do. At the same time, it could be much less effective. The previous attempt at forward guidance didn’t benefit them in the slightest, although that was due to the fact that it was so vague. If they are going to attempt this again, they are going to have to commit to much clearer thresholds.
US indices continued their negative start to the year, posting their fourth day of losses for the year, from the opening five trading sessions. This came despite a much higher than expected rise in ADP non-farm employment, which suggests Friday’s non-farm payrolls figure could be comfortably above 200,000. Given that investors have recently been responding positively to good economic data, this was a bit of a surprise.
The release of the FOMC minutes may have confused things a little. They showed an overwhelming majority voting in favour of a small taper in December, with a key reason behind the decision being the diminishing benefits of quantitative easing. This suggests that the improving economic outlook had less to do with it than initially thought. That said, it doesn’t really change the fact that the purchases are likely to be scaled back throughout 2014, with the program probably coming to an end in the third quarter.
Also, it’s worth pointing out that US indices ended 2013 at record highs. This negative start to 2014 isn’t necessarily a response to the data, as much as a little profit taking from investors before they start buying the dips again.
Ahead of the open we expect to see the FTSE up 11 points, the CAC up 13 points and the DAX up 18 points.
Today’s UK opening call provides an update on:
• BoE rate decision expected to be another non-event;
• ECB expected to leave policy unchanged, press conference should be interesting though;
• US indices continue poor start to 2014 despite strong ADP figure.
The Bank of England is expected to leave monetary policy unchanged this month, which will come as no surprise to anyone, given the recent comments from the central bank, the falling inflation rate and improving economy. The BoE monetary policy decision has been a bit of a non-event in recent months, having very little or no impact on the markets.
One thing investors will be looking out for is a potential revision to the central banks forward guidance. Unemployment has fallen much faster than the central bank expected and now lies only 0.4% above the threshold that they previously claimed would be the point when they start to consider an interest rate hike. It is worth noting at this stage that they have repeatedly stated that this is just the point at which they’ll consider it, it’s not a trigger.
That said, what it means is that the forward guidance doesn’t actually provide assurances about low interest rates to anyone, be they businesses or households. The only way to do this would be to lower the threshold to 6.5%, or lower. I don’t expect this to come today though, although that won’t stop people paying close attention to this announcement just in case it is accompanied by a statement that provides an update on the forward guidance.
The other key central bank decision today will come from the European Central Bank. As with the BoE, no change is expected from the ECB, although this is likely to be a far more interesting affair for two reasons. The first is that inflation fell again last month to 0.8%, only 0.1% above the level that prompted the ECB to cut interest rates to record lows of 0.25% back in November.
While I don’t expect a repeat of this today, this would suggest that some form of action from the ECB in the coming months is certainly not off the table. This brings me to the second reason, the press conference. Unlike the BoE, the ECB always follows the rate decision with a press conference, in which its President Mario Draghi reads out a statement before answering questions. Financial markets tend to be very responsive to Draghi’s comments throughout his press conference.
With interest rates at 0.25%, the ECBs hands are a little tied when it comes to further rate cuts, which means if they want to provide further stimulus to slow down the rate of disinflation, they will have to explore other options, such as additional forward guidance, negative deposit rates, LTRO’s or quantitative easing, although I think the last is very unlikely. It is likely to take them a little longer to agree on which of these to opt for which is why I don’t expect a decision today.
This is why today’s press conference could be so important as we could get some insight into what options are on the table for the upcoming meetings, and which of these options are favoured most by the board members. Based on previous meetings, I imagine the preferred route would be additional forward guidance. This is the easiest option for them as it doesn’t carry the risks that the other options do. At the same time, it could be much less effective. The previous attempt at forward guidance didn’t benefit them in the slightest, although that was due to the fact that it was so vague. If they are going to attempt this again, they are going to have to commit to much clearer thresholds.
US indices continued their negative start to the year, posting their fourth day of losses for the year, from the opening five trading sessions. This came despite a much higher than expected rise in ADP non-farm employment, which suggests Friday’s non-farm payrolls figure could be comfortably above 200,000. Given that investors have recently been responding positively to good economic data, this was a bit of a surprise.
The release of the FOMC minutes may have confused things a little. They showed an overwhelming majority voting in favour of a small taper in December, with a key reason behind the decision being the diminishing benefits of quantitative easing. This suggests that the improving economic outlook had less to do with it than initially thought. That said, it doesn’t really change the fact that the purchases are likely to be scaled back throughout 2014, with the program probably coming to an end in the third quarter.
Also, it’s worth pointing out that US indices ended 2013 at record highs. This negative start to 2014 isn’t necessarily a response to the data, as much as a little profit taking from investors before they start buying the dips again.
Ahead of the open we expect to see the FTSE up 11 points, the CAC up 13 points and the DAX up 18 points.
Alpari UK
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US Opening Call from Alpari UK on 9 January 2014
Today’s US opening call provides an update on:
* FOMC provides little impetus to the markets
* Chinese inflation falls to provide accommodative environment for PBOC
* BoE announcement brings forward guidance back to the fore
* ECB reconvene amid return of deflation talk.
The European indices and US futures are trading higher this morning, as the markets seek to erase much of the losses seen in yesterday’s session. Volume remains relatively low so far as traders deleverage moderately ahead of the ECB and BoE monetary policy decisions. Last night saw the release of the latest FOMC minutes from the key December meeting. Unfortunately, this provided few clues as to whether we are likely to see yet another taper in the January meeting, nor how policy with regards to tapering will be conducted going forward. One thing we did find out was that on the whole, committee members saw the use of quantitative easing as notably diminishing in effectiveness, something many within the city have been aware of for some time. That being said, whilst the effectiveness of the measure with regards to economic progress may be diminishing, the impact to the markets has certainly been a positive one. Thus the Fed are likely to be aware the biggest reaction to any taper would probably come from the markets.
On the whole, the minimal adverse reaction seen to the December taper can be attributed to a number of factors, from a well conveyed policy plan, to a well thought out reduction amount, or simply a focus upon strong economic performance. However, overall I believe the strong markets in the period following the decision to taper are a reflection of diligent expectation management on the half of Ben Bernanke and co.
Overnight, the Chinese inflation rate fell unexpectedly to 2.5% from 2.7%, bringing a degree of breathing room for the PBOC going forward. Now China, unlike most developed countries, is quite comfortable with a higher level of inflation understanding it is a side-effect of such high growth. The imposition of a top end target of 3.5% means that there is now a clear 1% difference between the current and top end levels. This must be music to the ears of Governor Zhou Xiaochuan as it allows for further varied stimulus which has been used liberally throughout 2013. The decision to prop up the economy sporadically throughout the weakening growth seen last year has allowed us to now see the GDP level pull back to 7.8% in Q3 from the 7.5% the quarter prior. Overall the fact that such measures can continue to be implemented is a good thing for the global economy as a strong China is positive for global trade and prosperity.
Today marks the release of both the ECB and BoE monetary policy decisions, the ground of substantial volatility throughout 2013. However, the importance of these meetings have faded somewhat with the implementation of forward guidance, for the UK in particular. The first of these two meetings comes from the Bank of England, where Mark Carney is expected to embark on a fairly run of the mill meeting. Carney’s decision to stand by a policy of forward guidance is arguable in effectiveness, however it certainly has calmed markets and reduced volatility given the more predictable nature of these monthly meetings. However, no sooner had the market anxiety regarding the impact of inflation upon forward guidance dissipated, that the impact of the rapidly diminishing unemployment rate come into play. The fact that the headline rate of unemployment has managed to fall 0.5% in the period following Carney’s imposition of the policy should be seen as positive to many. However, with the previous 5 month period showing a 0% shift, he would be forgiven for cursing the unpredictability of this move. Ultimately it has meant that at no point during the 5 month existence of this policy have people been able to fully believe in its validity owing to first inflation and now unemployment worries.
There is little expected from Mark Carney in terms of a change in tact at today’s meeting, having previously announced that the 7% threshold at which interest rate hikes will be considered will not be amended. That being said, as we come closer to that magic level, one begins to question whether he will in fact take further steps to provide a more tangible step to provide businesses and people alike with at least a moderate period of certainty as to the expectations of rates going forward. Granted, the rate has fallen sharply over the last 6 months, yet whether this trajectory will persist is questionable. Thus whether Carney sees fit to let people realise that themselves or whether he will provide greater clarity to the markets is something we are hoping to find out in the coming meetings. For today, there is little expected in terms of tangible policy amendments from the BoE, where all the focus will be upon any changes to the statement.
Later in the day, the ECB will release their latest monetary policy decision, with a similar story to last month’s meeting expected. One thing has changed, with the key inflation rate falling yet again, this time to 0.8%. It was the fall to 0.7% in late 2013 which pushed Mario Draghi into unexpectedly reducing the headline interest rate by 25 basis points. Some saw that measure as a jerk reaction, however the inflation rate has been on a near constant negative trajectory since the July announcement of 1.6%. Unfortunately, whilst the expectation was for the reduction in rates to have a more tangible effect upon the inflation rate in this month’s figure, the fall back to 0.8% announced on Tuesday shows that the impact monetary policy seems to have upon inflation in the Eurozone is somewhat minimal and thus alternate measures are more likely to be considered. Such measures such as quantitative easing, LTRO’s or forward guidance are an option. Or of course, there is the possibility of further reducing rates, with Draghi having mentioned the possibility of negative rates on a number of occasions. Either way, Tuesday’s inflation announcement has stepped up the importance of this meeting and thus markets will be watching closely to see how Draghi will intervene to avoid the risk of dreaded deflation.
US markets are expected to open higher, with the S&P500 +5 and DJIA +58 points.
Today’s US opening call provides an update on:
* FOMC provides little impetus to the markets
* Chinese inflation falls to provide accommodative environment for PBOC
* BoE announcement brings forward guidance back to the fore
* ECB reconvene amid return of deflation talk.
The European indices and US futures are trading higher this morning, as the markets seek to erase much of the losses seen in yesterday’s session. Volume remains relatively low so far as traders deleverage moderately ahead of the ECB and BoE monetary policy decisions. Last night saw the release of the latest FOMC minutes from the key December meeting. Unfortunately, this provided few clues as to whether we are likely to see yet another taper in the January meeting, nor how policy with regards to tapering will be conducted going forward. One thing we did find out was that on the whole, committee members saw the use of quantitative easing as notably diminishing in effectiveness, something many within the city have been aware of for some time. That being said, whilst the effectiveness of the measure with regards to economic progress may be diminishing, the impact to the markets has certainly been a positive one. Thus the Fed are likely to be aware the biggest reaction to any taper would probably come from the markets.
On the whole, the minimal adverse reaction seen to the December taper can be attributed to a number of factors, from a well conveyed policy plan, to a well thought out reduction amount, or simply a focus upon strong economic performance. However, overall I believe the strong markets in the period following the decision to taper are a reflection of diligent expectation management on the half of Ben Bernanke and co.
Overnight, the Chinese inflation rate fell unexpectedly to 2.5% from 2.7%, bringing a degree of breathing room for the PBOC going forward. Now China, unlike most developed countries, is quite comfortable with a higher level of inflation understanding it is a side-effect of such high growth. The imposition of a top end target of 3.5% means that there is now a clear 1% difference between the current and top end levels. This must be music to the ears of Governor Zhou Xiaochuan as it allows for further varied stimulus which has been used liberally throughout 2013. The decision to prop up the economy sporadically throughout the weakening growth seen last year has allowed us to now see the GDP level pull back to 7.8% in Q3 from the 7.5% the quarter prior. Overall the fact that such measures can continue to be implemented is a good thing for the global economy as a strong China is positive for global trade and prosperity.
Today marks the release of both the ECB and BoE monetary policy decisions, the ground of substantial volatility throughout 2013. However, the importance of these meetings have faded somewhat with the implementation of forward guidance, for the UK in particular. The first of these two meetings comes from the Bank of England, where Mark Carney is expected to embark on a fairly run of the mill meeting. Carney’s decision to stand by a policy of forward guidance is arguable in effectiveness, however it certainly has calmed markets and reduced volatility given the more predictable nature of these monthly meetings. However, no sooner had the market anxiety regarding the impact of inflation upon forward guidance dissipated, that the impact of the rapidly diminishing unemployment rate come into play. The fact that the headline rate of unemployment has managed to fall 0.5% in the period following Carney’s imposition of the policy should be seen as positive to many. However, with the previous 5 month period showing a 0% shift, he would be forgiven for cursing the unpredictability of this move. Ultimately it has meant that at no point during the 5 month existence of this policy have people been able to fully believe in its validity owing to first inflation and now unemployment worries.
There is little expected from Mark Carney in terms of a change in tact at today’s meeting, having previously announced that the 7% threshold at which interest rate hikes will be considered will not be amended. That being said, as we come closer to that magic level, one begins to question whether he will in fact take further steps to provide a more tangible step to provide businesses and people alike with at least a moderate period of certainty as to the expectations of rates going forward. Granted, the rate has fallen sharply over the last 6 months, yet whether this trajectory will persist is questionable. Thus whether Carney sees fit to let people realise that themselves or whether he will provide greater clarity to the markets is something we are hoping to find out in the coming meetings. For today, there is little expected in terms of tangible policy amendments from the BoE, where all the focus will be upon any changes to the statement.
Later in the day, the ECB will release their latest monetary policy decision, with a similar story to last month’s meeting expected. One thing has changed, with the key inflation rate falling yet again, this time to 0.8%. It was the fall to 0.7% in late 2013 which pushed Mario Draghi into unexpectedly reducing the headline interest rate by 25 basis points. Some saw that measure as a jerk reaction, however the inflation rate has been on a near constant negative trajectory since the July announcement of 1.6%. Unfortunately, whilst the expectation was for the reduction in rates to have a more tangible effect upon the inflation rate in this month’s figure, the fall back to 0.8% announced on Tuesday shows that the impact monetary policy seems to have upon inflation in the Eurozone is somewhat minimal and thus alternate measures are more likely to be considered. Such measures such as quantitative easing, LTRO’s or forward guidance are an option. Or of course, there is the possibility of further reducing rates, with Draghi having mentioned the possibility of negative rates on a number of occasions. Either way, Tuesday’s inflation announcement has stepped up the importance of this meeting and thus markets will be watching closely to see how Draghi will intervene to avoid the risk of dreaded deflation.
US markets are expected to open higher, with the S&P500 +5 and DJIA +58 points.