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Reaction to ECB rate decision and statement
Once again the markets have overreacted to the statement from the ECB, which came following the decision to leave interest rates at 0.25% despite inflation falling to 0.8% in December.
The euro fell more than 0.5 cents against the dollar following Mario Draghi’s speech this afternoon and many are pointing to the strengthening stance on forward guidance to explain this. I’m not convinced. I believe there’s one of two things going on here.
Either this text is being used as an excuse to temporarily short the euro, in which case I’d expect it to return to pre-press conference levels, around 1.36, by the end of the day. Or alternatively, traders were looking for any opportunity to short the euro, and the “strengthening stance on forward guidance” is simply an excuse to go short.
The key difference here is the markets view on the euro currency going forward. If this was merely a response to the text, the sell-off in the euro should pause for now. If this is just a case of the market looking for any catalyst, I’d expect the euro to make further losses as the day continues.
The main reason for the scepticism is that I don’t believe that this “strengthening stance” actually tells us anything new about the ECBs view on the economy and their response to the ongoing crisis. We’re fully aware of the low inflation levels in the euro area as this has been raised at numerous meetings and press conferences previously.
Draghi has also been clear at recent press conferences that the central bank expects inflation to remain low for some time to come and return to its target in the medium to long term. He has also made it clear that rates will remain low for an extended period of time, without setting a definitive time period or setting any thresholds. With this in mind, the text offers nothing new.
Once again the markets have overreacted to the statement from the ECB, which came following the decision to leave interest rates at 0.25% despite inflation falling to 0.8% in December.
The euro fell more than 0.5 cents against the dollar following Mario Draghi’s speech this afternoon and many are pointing to the strengthening stance on forward guidance to explain this. I’m not convinced. I believe there’s one of two things going on here.
Either this text is being used as an excuse to temporarily short the euro, in which case I’d expect it to return to pre-press conference levels, around 1.36, by the end of the day. Or alternatively, traders were looking for any opportunity to short the euro, and the “strengthening stance on forward guidance” is simply an excuse to go short.
The key difference here is the markets view on the euro currency going forward. If this was merely a response to the text, the sell-off in the euro should pause for now. If this is just a case of the market looking for any catalyst, I’d expect the euro to make further losses as the day continues.
The main reason for the scepticism is that I don’t believe that this “strengthening stance” actually tells us anything new about the ECBs view on the economy and their response to the ongoing crisis. We’re fully aware of the low inflation levels in the euro area as this has been raised at numerous meetings and press conferences previously.
Draghi has also been clear at recent press conferences that the central bank expects inflation to remain low for some time to come and return to its target in the medium to long term. He has also made it clear that rates will remain low for an extended period of time, without setting a definitive time period or setting any thresholds. With this in mind, the text offers nothing new.
Alpari UK
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UK Opening Call from Alpari UK on 10 January 2014
Europe to open higher ahead of key data releases
Today's UK opening call provides an update on:
• Busy week wrapped up with data from the UK, eurozone and the US;
• UK manufacturing and industrial production growth expected to accelerate in November;
• Eurozone third quarter growth expected to be confirmed at 0.1%.
• US jobs report expected to support another round of Fed tapering in January.
It's been a busy first week back in the financial markets, following the festive period, but it's not over yet. There's still plenty to look forward to on Friday including UK manufacturing data, eurozone growth figures and the all important US jobs report.
First up today we have the release of the UK manufacturing and industrial production data for November, which is expected to show 3.3% and 3.1% year on year growth, respectively. This is very encouraging for the UK as we head into 2014. It's very important that the momentum that was built up over the last 12 months is carried over into the new year and that the recovery continues to gather pace.
The recovery is still fragile and is being largely driven by rising house prices which are in turn boosting consumer spending as people feel better off. For the recovery to become sustainable, we need to see more business investment which we're not seeing enough of. Until we do, the recovery will remain fragile and any signs that the recovery is slowing will cause concerns in the markets.
The UK NIESR GDP estimate, for the three quarters to December, which is due to be released later on today should confirm that the economy continued to perform well in the final quarter. This is expected to show that the UK grew by 0.8% in the fourth quarter. Of course, this is essentially only an estimate of the official GDP figure, which is due to be released in a few weeks time.
Next up this morning is the final revision to the eurozone third quarter GDP figure. This is expected to remain unchanged at 0.1%, ensuring that the region won't fall back into recession in the fourth quarter, unlike some of its member states. This is only marginal growth, which highlights just how mild the recovery is. However, this is likely to become the norm over the next 18 months or so, with the region pretty much stagnating while certain countries get back on their feet. Compared to this time last year, it's actually quite an achievement and should be viewed as such.
Finally today we have the all important US jobs report. As always, this is probably the most important economic release of the month. This is particularly true at a time when the Fed's monetary policy is such an important driver in the markets as the central bank follows and analyses this release very closely. The Fed is currently in the process of winding down its asset purchase program, known as QE3, and this data is going to be key in determining the pace of tapering.
Today we're expected the non-farm payrolls figure to show 196,000 jobs being created in December, which is roughly in line with the average over the last few months. The unemployment rate is expected to remain at 7% following the huge drop from 7.3% in November. This should be enough to convince the Fed that another $10-15 billion reduction in warranted at the next meeting at the end of January.
Ahead of the open we expect to see the FTSE up 24 points, the CAC up 21 points and the DAX up 48 points.
Europe to open higher ahead of key data releases
Today's UK opening call provides an update on:
• Busy week wrapped up with data from the UK, eurozone and the US;
• UK manufacturing and industrial production growth expected to accelerate in November;
• Eurozone third quarter growth expected to be confirmed at 0.1%.
• US jobs report expected to support another round of Fed tapering in January.
It's been a busy first week back in the financial markets, following the festive period, but it's not over yet. There's still plenty to look forward to on Friday including UK manufacturing data, eurozone growth figures and the all important US jobs report.
First up today we have the release of the UK manufacturing and industrial production data for November, which is expected to show 3.3% and 3.1% year on year growth, respectively. This is very encouraging for the UK as we head into 2014. It's very important that the momentum that was built up over the last 12 months is carried over into the new year and that the recovery continues to gather pace.
The recovery is still fragile and is being largely driven by rising house prices which are in turn boosting consumer spending as people feel better off. For the recovery to become sustainable, we need to see more business investment which we're not seeing enough of. Until we do, the recovery will remain fragile and any signs that the recovery is slowing will cause concerns in the markets.
The UK NIESR GDP estimate, for the three quarters to December, which is due to be released later on today should confirm that the economy continued to perform well in the final quarter. This is expected to show that the UK grew by 0.8% in the fourth quarter. Of course, this is essentially only an estimate of the official GDP figure, which is due to be released in a few weeks time.
Next up this morning is the final revision to the eurozone third quarter GDP figure. This is expected to remain unchanged at 0.1%, ensuring that the region won't fall back into recession in the fourth quarter, unlike some of its member states. This is only marginal growth, which highlights just how mild the recovery is. However, this is likely to become the norm over the next 18 months or so, with the region pretty much stagnating while certain countries get back on their feet. Compared to this time last year, it's actually quite an achievement and should be viewed as such.
Finally today we have the all important US jobs report. As always, this is probably the most important economic release of the month. This is particularly true at a time when the Fed's monetary policy is such an important driver in the markets as the central bank follows and analyses this release very closely. The Fed is currently in the process of winding down its asset purchase program, known as QE3, and this data is going to be key in determining the pace of tapering.
Today we're expected the non-farm payrolls figure to show 196,000 jobs being created in December, which is roughly in line with the average over the last few months. The unemployment rate is expected to remain at 7% following the huge drop from 7.3% in November. This should be enough to convince the Fed that another $10-15 billion reduction in warranted at the next meeting at the end of January.
Ahead of the open we expect to see the FTSE up 24 points, the CAC up 21 points and the DAX up 48 points.
Alpari UK
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US Opening Call from Alpari UK on 10 January 2014
Markets prepare for key jobs report release
Today’s US opening call provides an update on:
• Markets prepare for US jobs data release
• UK manufacturing production stagnates in December
• Chinese becomes world’s biggest trader of goods.
The European indices are leading the way this morning, pushing higher ahead of the release of crucial jobs data out of the US. The backdrop of such a significant announcement is typically one of lowered volume and increased indecision in investment decisions. So far volumes remain somewhat normalised, yet the likeliness is that we will see a significant degree of caution creep into the markets as we approach the announcement. This month’s announcement represents the first since we found out the decision from the FOMC to taper the rate of asset purchases from $85 billion to $75 billion per month.
The market reaction to this first step has been notably positive, with indices deciding to carry on the party after last orders have been called. This clear resilience is going to be ever more important as we move into a stage where it becomes ever more apparent that there we will be within an environment devoid of any asset purchases within the not so distant future. Much of that process of normalising people to the idea of repeated asset purchase reductions will occur at the next occasion of tapering for the Fed and the ability of the markets to withstand that second taper will now be key in understanding whether markets can stomach the notion of anything more than a one off haircut.
Today’s job report will provide much of the impetus to markets in terms of whether we will see a continuation of the asset purchase scale-back in the January meeting. Previous assurances over whether we will see a further pullback in QE in the near term have centred upon the notion that they will be ‘data dependant’. However, none of the data seen out of the US means more to the fate of the asset purchase programme than the jobs report. For this reason, the ability to maintain continued strength in the employment recovery will be key and markets are expecting exactly that. Estimates are pointing towards a moderate cooling of payroll growth, to around 196k from 203k in November. However, this 200k region is key to gauge where we stand in the mind of the FOMC members, given that two consecutive figures in that region prompted them to taper last month.
In addition to this, we will be watching very closely to the unemployment rate, which is the headline indicator for the FOMC in their decision making process. Whilst there is no change expected in this figure from the 7.0% seen last month, this comes off the back of a significant period of reduced unemployment, falling by 0.3% between October and November. Thus even the ability to maintain unemployment at the current level is a positive, especially should we see a continuation of the reversal seen last month in the participation rate. The ability of people to return into the markets is crucial to the recovery, as the Fed aims to bring the US further away from the lowest participation rate on record of 62.8% seen back in October.
Earlier today, the UK saw both manufacturing and broader industrial production stagnate at 0%, with construction pulling back markedly. The manufacturing sector had hoped for a continuation of the relatively strong growth in output seen last month. However, the measure failed to show any expansion, with the previous figure also revised lower, cutting the October growth in half to 0.2%. This inability of the key construction and manufacturing sectors to grow in a month where we saw PMI figures for both pull back somewhat is a worrying sign that perhaps the strength seen in 2013 is cooling somewhat. That being said, on a year on year basis a 2.8% rise means that we have seen the highest rise since May 2011. Thus this figure should be taken with a pinch of salt given the strength we have seen throughout the past 12 months.
Finally, China overtook the US as the world’s biggest trader, trading $4.16 trillion of exports and imports for 2013. This month’s release is notable for the fact that we saw imports rise at their highest rate in five months. The emphasis has largely been upon ensure there is a strong export market in China and for some the import market is secondary. However, this rise of 8.3% on inbound shipments shows that the Chinese domestic demand is growing amid a policy shift which targets becoming substantially more self-sufficient for growth in the near term. The ability of Chinese demand to drive the continued growth is one of the major effects felt from the policy reforms resulting from President Xi Jinping in 1990. Thus should we see this figure continue to rise it will be both positive for Chinese and global demand where the trae relationship becomes more equally balanced going forward.
The US markets are expected to open higher, with the S&P500 +6, and DJIA +50 points.
Markets prepare for key jobs report release
Today’s US opening call provides an update on:
• Markets prepare for US jobs data release
• UK manufacturing production stagnates in December
• Chinese becomes world’s biggest trader of goods.
The European indices are leading the way this morning, pushing higher ahead of the release of crucial jobs data out of the US. The backdrop of such a significant announcement is typically one of lowered volume and increased indecision in investment decisions. So far volumes remain somewhat normalised, yet the likeliness is that we will see a significant degree of caution creep into the markets as we approach the announcement. This month’s announcement represents the first since we found out the decision from the FOMC to taper the rate of asset purchases from $85 billion to $75 billion per month.
The market reaction to this first step has been notably positive, with indices deciding to carry on the party after last orders have been called. This clear resilience is going to be ever more important as we move into a stage where it becomes ever more apparent that there we will be within an environment devoid of any asset purchases within the not so distant future. Much of that process of normalising people to the idea of repeated asset purchase reductions will occur at the next occasion of tapering for the Fed and the ability of the markets to withstand that second taper will now be key in understanding whether markets can stomach the notion of anything more than a one off haircut.
Today’s job report will provide much of the impetus to markets in terms of whether we will see a continuation of the asset purchase scale-back in the January meeting. Previous assurances over whether we will see a further pullback in QE in the near term have centred upon the notion that they will be ‘data dependant’. However, none of the data seen out of the US means more to the fate of the asset purchase programme than the jobs report. For this reason, the ability to maintain continued strength in the employment recovery will be key and markets are expecting exactly that. Estimates are pointing towards a moderate cooling of payroll growth, to around 196k from 203k in November. However, this 200k region is key to gauge where we stand in the mind of the FOMC members, given that two consecutive figures in that region prompted them to taper last month.
In addition to this, we will be watching very closely to the unemployment rate, which is the headline indicator for the FOMC in their decision making process. Whilst there is no change expected in this figure from the 7.0% seen last month, this comes off the back of a significant period of reduced unemployment, falling by 0.3% between October and November. Thus even the ability to maintain unemployment at the current level is a positive, especially should we see a continuation of the reversal seen last month in the participation rate. The ability of people to return into the markets is crucial to the recovery, as the Fed aims to bring the US further away from the lowest participation rate on record of 62.8% seen back in October.
Earlier today, the UK saw both manufacturing and broader industrial production stagnate at 0%, with construction pulling back markedly. The manufacturing sector had hoped for a continuation of the relatively strong growth in output seen last month. However, the measure failed to show any expansion, with the previous figure also revised lower, cutting the October growth in half to 0.2%. This inability of the key construction and manufacturing sectors to grow in a month where we saw PMI figures for both pull back somewhat is a worrying sign that perhaps the strength seen in 2013 is cooling somewhat. That being said, on a year on year basis a 2.8% rise means that we have seen the highest rise since May 2011. Thus this figure should be taken with a pinch of salt given the strength we have seen throughout the past 12 months.
Finally, China overtook the US as the world’s biggest trader, trading $4.16 trillion of exports and imports for 2013. This month’s release is notable for the fact that we saw imports rise at their highest rate in five months. The emphasis has largely been upon ensure there is a strong export market in China and for some the import market is secondary. However, this rise of 8.3% on inbound shipments shows that the Chinese domestic demand is growing amid a policy shift which targets becoming substantially more self-sufficient for growth in the near term. The ability of Chinese demand to drive the continued growth is one of the major effects felt from the policy reforms resulting from President Xi Jinping in 1990. Thus should we see this figure continue to rise it will be both positive for Chinese and global demand where the trae relationship becomes more equally balanced going forward.
The US markets are expected to open higher, with the S&P500 +6, and DJIA +50 points.
Alpari UK
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Daily Market Update - 10 January 2014 - Alpari UK
The US jobs report was released today and the numbers were far worse than the markets had expected. Market Analyst Craig Erlam talks about why these numbers were so poor and what that means for Fed tapering in January.
The US jobs report was released today and the numbers were far worse than the markets had expected. Market Analyst Craig Erlam talks about why these numbers were so poor and what that means for Fed tapering in January.
Alpari UK
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Weekly market preview – 13 January 2014
A somewhat quieter week following the usual jobs and central bank releases in the week gone. This week sees the focus largely placed upon the US economy, where the major event comes in the form of the retail sales data on Tuesday. In the UK, a similar story where the retail sales figure is likely to provide the biggest event of note at the end of the week. Meanwhile, the eurozone is largely going to be focused upon the German constitutional hearing that has been shifted back from last week.
In Asia, there are no major events of note, whereas the Australian jobs data on Thursday is going to be key for the Oceania region.
US
The US economy can look ahead to what is a relatively busy week in comparison to some of the other major economies, with the top tier items coming in the form of the retail sales data along with two key surveys.
The US retail sales figure is due on Tuesday, bringing a closer look at consumer behavior for December. Following the November release which saw the highest sales growth rate in five months, this month analysts are pointing towards a somewhat more subdued level of growth at 0.4%. The impact of the festive season often means we see a positive figure, with the last December fall occurring back in 2009. However, the behaviour of consumers around the festive period has been a good indicator of what state confidence is in within the economy. This is particularly evident when noting that the pre-recession average of 0.8% gave way to a 4 year average around -0.7% for the four years following the crash. Recently we have seen a moderate pickup, with the past three months averaging 0.4% growth each December. This happens to be the estimate for this week’s reading and thus there is a clarity that an out-performance would be better than the recent average, whereas any figure below 0.4% would mean there is a clear stagnation or deterioration in spending over the Christmas period.
On Thursday, the Philly Fed manufacturing index figure is released, painting a picture of how manufacturers perceive the current economic condition to be. Bear in mind that this survey is typically something which generally only has a significant effect if it falls markedly short or higher than market expectations. This is in contrast to some of the more notable releases which seemingly bring volatility irrespective of the announcement. On this occasion, the expectation is for a rise to 10, coming off the back of two disappointing months in this figure.
The next survey in question comes on Friday, with the highly regarding University of Michigan consumer sentiment index. This measure is a leading indicator as it gives the first idea of how the January month appears to be playing out from a consumer standpoint. Coming in the same week as the retail sales figure, the two provide us with both a quantitative and qualitative idea of how the all important consumer market is coping in a time where confidence appears to be picking up. The expectations point towards a further improvement that would take this preliminary reading to 82.5, the highest level since last July. Given that this is a preliminary reading, there is likely to be a degree of inaccuracy to this in relation to where we stand at the end of the month. However, it also means that the markets pay more attention to it as a potential volatility driver given that it provides us with the most up to date information.
UK
A relatively quiet week for the UK economy, where the major events of note come on Tuesday and Friday with the release of CPI and retail sales data. The CPI measure of inflation is always key to the UK economy, given that it reflects the primary mandate for the BoE as provided by the chancellor. However, as we progress out of the recent environment of high inflation and closer towards the target level of 2.0%, the worries are subsiding as to whether the current accommodative monetary environment cannot last.
Mark Carney’s policy of forward guidance, promising long term low rates until unemployment reaches 7.0%, was initially slated for it’s prerequisite that medium term expectations of inflation are at or below 2.5%. However, now that this expectation seems more realistic, the unemployment rate has tumbled to bring further questions regarding whether the policy really provides the safety businesses and individuals seek. That being said, now that the markets have focused upon the unemployment rate, the expectation is that inflation will remain subdued and thus should we see a significant rise, the markets are likely to react adversely. Expectations point towards the rate remaining at 2.1% this month following a fall of 0.6% over the past two months.
On Friday, the UK retail sales figure is due to be announced with much anticipation as we attempt to gauge how successful this festive season has been for the retailers. As one would expect, the monthly figure is largely expected to rise, with 0.5% being touted following a 0.3% the month prior. However, it is the year on year figure which is of most interest with the ability to understand where this Christmas stands in relation to previously. BRC calculations point towards a rise of around 1.8%, which would be less than the November to November reading, yet certainly respectable.
Eurozone
A very quiet week for the eurozone, with the German constitutional court hearing representing the only major release of note. This was originally scheduled for the last week, however it is provisionally now expected on Friday.
The hearing originally took place in June 2013, when the then ECB member Jörg Asmussen and Bundesbank president Jens Weidmann argued over the validity of the ECB’s controversial Outright Monetary Transactions (OMT) programme. The OMT policy is widely perceived as a key central confidence backstops for the weaker and troubled eurozone 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.
Whilst the OMT programme is increasingly unlikely to be used within this crisis, a move by the Germans to threaten it’s existence could throw some of the more fragile economies back into crisis. If the German courts decide that the OMT programme is unconstitutional, this could be a really major event which could catch many off guard.
Asia & Oceania
There are no major events of note this week.
In Australia on the other hand, there is the release of the jobs data to look out for. The Australian economy has been through a tough 2013, with the reallocation of resources within China focusing upon driving increased domestic consumption in response to the erosion of global demand. In much the same way as any chain relationship, the strength of one section is entirely reliant upon the other related chinks. For China, the lack of global demand drove a realisation that overcapacity needed to be adressed, in turn lowering their imports of commodities from the likes of Australia. Add to this the appreciation of the Australian dollar and overall the demand for the once booming mining industry became a severe issue going forward. However, with the recent rise in growth within China coupled with a depreciation of the Australian dollar, things are beginning to look a little more rosy for 2014.
From an employment standpoint, the picture has been disappointing and we are looking for signs of improvement this month. Last month we saw the first substantial rise and estimate beat for five months in the employment change measure. Similarly, the unemployment rate has failed to break below 5.7% for the past six months, currently at and expected to remain at 5.8%. Unfortunately, market expectations point towards the employment change falling back to around 10,300 levels following a jump higher by 21,000 in November. However, both these figures are well worth looking out for as the signs are there that the Australian economy is turning a corner and this measure is key to understanding whether that is happening.
A somewhat quieter week following the usual jobs and central bank releases in the week gone. This week sees the focus largely placed upon the US economy, where the major event comes in the form of the retail sales data on Tuesday. In the UK, a similar story where the retail sales figure is likely to provide the biggest event of note at the end of the week. Meanwhile, the eurozone is largely going to be focused upon the German constitutional hearing that has been shifted back from last week.
In Asia, there are no major events of note, whereas the Australian jobs data on Thursday is going to be key for the Oceania region.
US
The US economy can look ahead to what is a relatively busy week in comparison to some of the other major economies, with the top tier items coming in the form of the retail sales data along with two key surveys.
The US retail sales figure is due on Tuesday, bringing a closer look at consumer behavior for December. Following the November release which saw the highest sales growth rate in five months, this month analysts are pointing towards a somewhat more subdued level of growth at 0.4%. The impact of the festive season often means we see a positive figure, with the last December fall occurring back in 2009. However, the behaviour of consumers around the festive period has been a good indicator of what state confidence is in within the economy. This is particularly evident when noting that the pre-recession average of 0.8% gave way to a 4 year average around -0.7% for the four years following the crash. Recently we have seen a moderate pickup, with the past three months averaging 0.4% growth each December. This happens to be the estimate for this week’s reading and thus there is a clarity that an out-performance would be better than the recent average, whereas any figure below 0.4% would mean there is a clear stagnation or deterioration in spending over the Christmas period.
On Thursday, the Philly Fed manufacturing index figure is released, painting a picture of how manufacturers perceive the current economic condition to be. Bear in mind that this survey is typically something which generally only has a significant effect if it falls markedly short or higher than market expectations. This is in contrast to some of the more notable releases which seemingly bring volatility irrespective of the announcement. On this occasion, the expectation is for a rise to 10, coming off the back of two disappointing months in this figure.
The next survey in question comes on Friday, with the highly regarding University of Michigan consumer sentiment index. This measure is a leading indicator as it gives the first idea of how the January month appears to be playing out from a consumer standpoint. Coming in the same week as the retail sales figure, the two provide us with both a quantitative and qualitative idea of how the all important consumer market is coping in a time where confidence appears to be picking up. The expectations point towards a further improvement that would take this preliminary reading to 82.5, the highest level since last July. Given that this is a preliminary reading, there is likely to be a degree of inaccuracy to this in relation to where we stand at the end of the month. However, it also means that the markets pay more attention to it as a potential volatility driver given that it provides us with the most up to date information.
UK
A relatively quiet week for the UK economy, where the major events of note come on Tuesday and Friday with the release of CPI and retail sales data. The CPI measure of inflation is always key to the UK economy, given that it reflects the primary mandate for the BoE as provided by the chancellor. However, as we progress out of the recent environment of high inflation and closer towards the target level of 2.0%, the worries are subsiding as to whether the current accommodative monetary environment cannot last.
Mark Carney’s policy of forward guidance, promising long term low rates until unemployment reaches 7.0%, was initially slated for it’s prerequisite that medium term expectations of inflation are at or below 2.5%. However, now that this expectation seems more realistic, the unemployment rate has tumbled to bring further questions regarding whether the policy really provides the safety businesses and individuals seek. That being said, now that the markets have focused upon the unemployment rate, the expectation is that inflation will remain subdued and thus should we see a significant rise, the markets are likely to react adversely. Expectations point towards the rate remaining at 2.1% this month following a fall of 0.6% over the past two months.
On Friday, the UK retail sales figure is due to be announced with much anticipation as we attempt to gauge how successful this festive season has been for the retailers. As one would expect, the monthly figure is largely expected to rise, with 0.5% being touted following a 0.3% the month prior. However, it is the year on year figure which is of most interest with the ability to understand where this Christmas stands in relation to previously. BRC calculations point towards a rise of around 1.8%, which would be less than the November to November reading, yet certainly respectable.
Eurozone
A very quiet week for the eurozone, with the German constitutional court hearing representing the only major release of note. This was originally scheduled for the last week, however it is provisionally now expected on Friday.
The hearing originally took place in June 2013, when the then ECB member Jörg Asmussen and Bundesbank president Jens Weidmann argued over the validity of the ECB’s controversial Outright Monetary Transactions (OMT) programme. The OMT policy is widely perceived as a key central confidence backstops for the weaker and troubled eurozone 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.
Whilst the OMT programme is increasingly unlikely to be used within this crisis, a move by the Germans to threaten it’s existence could throw some of the more fragile economies back into crisis. If the German courts decide that the OMT programme is unconstitutional, this could be a really major event which could catch many off guard.
Asia & Oceania
There are no major events of note this week.
In Australia on the other hand, there is the release of the jobs data to look out for. The Australian economy has been through a tough 2013, with the reallocation of resources within China focusing upon driving increased domestic consumption in response to the erosion of global demand. In much the same way as any chain relationship, the strength of one section is entirely reliant upon the other related chinks. For China, the lack of global demand drove a realisation that overcapacity needed to be adressed, in turn lowering their imports of commodities from the likes of Australia. Add to this the appreciation of the Australian dollar and overall the demand for the once booming mining industry became a severe issue going forward. However, with the recent rise in growth within China coupled with a depreciation of the Australian dollar, things are beginning to look a little more rosy for 2014.
From an employment standpoint, the picture has been disappointing and we are looking for signs of improvement this month. Last month we saw the first substantial rise and estimate beat for five months in the employment change measure. Similarly, the unemployment rate has failed to break below 5.7% for the past six months, currently at and expected to remain at 5.8%. Unfortunately, market expectations point towards the employment change falling back to around 10,300 levels following a jump higher by 21,000 in November. However, both these figures are well worth looking out for as the signs are there that the Australian economy is turning a corner and this measure is key to understanding whether that is happening.
Alpari UK
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UK Opening Call from Alpari UK on 13 January 2014
Today’s UK opening call provides an update on:
• Attention turns to corporate earnings season;
• Earnings growth still expected to be driven by cost-cutting;
• Economic calendar looking a little thin this week;
• Investors still digesting Friday’s US jobs report.
Friday’s disappointing US jobs report hasn’t done much to knock investor confidence, with futures currently pointing to a higher open in Europe following a positive end to last week.
This suggests that we’re still stuck in a very unusual environment in which investors can’t decide what is actually more beneficial for the stock markets, positive fundamentals or more quantitative easing. Given that they appear to be rallying off either, I guess at this stage they’re not overly bothered. As long as they have an excuse to buy on the dips and continue to benefit from rising share prices, that’s all they’re concerned about.
That may change in the coming weeks though as companies begin reporting fourth quarter earnings. These are going to become increasingly important to investors in 2014 as they will no longer have the distraction of ultra-loose monetary policy from the Fed. Instead the central bank is making efforts to reduce its bond buying program with the intention of ending it later this year. If investors want to see the equity market rally continue, company fundamentals will have to improve.
Based on what we’ve seen and heard so far, we’re unlikely to see this from fourth quarter results. In fact, we’re likely to see exactly what we’ve seen for many quarters now, companies reporting earnings growth driven by cost cutting measures rather than revenue growth. This just shows that companies are still unwilling to part with the significant cash piles that they’re currently sitting on as they clearly don’t have confidence in the economic recovery. This needs to change as earnings growth driven by cost cutting cannot paper over the cracks for much longer.
The focus this week, with respect to earnings, will be on the financial sector. As we saw in the previous quarter, this is expected to be the best performing sector in this earnings season, which should mean earnings season getting off to a very positive start. As mentioned earlier though, large amounts of earnings growth is still being driven by cost-cutting, with low levels of lending and smaller margins, among other things, weighing on profits.
The economic calendar is looking a little thin this week, particularly on Monday. In fact, there are no notable economic releases scheduled for Europe today, which may make for a very quiet start to the week. This should give investors time to digest to huge amount of releases and central bank decisions from last week and decide what they all actually mean for the markets going forward.
The key one here will be Friday’s US jobs report, which showed only 74,000 jobs being added in December. This was well below estimates of close to 200,000 and seriously called into question whether the Fed could continue scaling back its asset purchases later this month. This wasn’t helped by a 0.3% drop in the unemployment rate which was largely driven by another drop in the participation rate that saw it hit a more-than 30 year low.
Investors were not overly discouraged by the woeful data though, despite the initial sell-off. Stocks rallied towards the end of the day in the US, with the S&P 500 ending higher, while European futures are also higher this morning. This either suggests that investors aren’t concerned about the rate of asset purchases any more, or that they don’t think these numbers change anything, in respect to future tapering.
Ahead of the open we expect to see the FTSE up 9 points, the CAC up 10 points and the DAX up 18 points.
Today’s UK opening call provides an update on:
• Attention turns to corporate earnings season;
• Earnings growth still expected to be driven by cost-cutting;
• Economic calendar looking a little thin this week;
• Investors still digesting Friday’s US jobs report.
Friday’s disappointing US jobs report hasn’t done much to knock investor confidence, with futures currently pointing to a higher open in Europe following a positive end to last week.
This suggests that we’re still stuck in a very unusual environment in which investors can’t decide what is actually more beneficial for the stock markets, positive fundamentals or more quantitative easing. Given that they appear to be rallying off either, I guess at this stage they’re not overly bothered. As long as they have an excuse to buy on the dips and continue to benefit from rising share prices, that’s all they’re concerned about.
That may change in the coming weeks though as companies begin reporting fourth quarter earnings. These are going to become increasingly important to investors in 2014 as they will no longer have the distraction of ultra-loose monetary policy from the Fed. Instead the central bank is making efforts to reduce its bond buying program with the intention of ending it later this year. If investors want to see the equity market rally continue, company fundamentals will have to improve.
Based on what we’ve seen and heard so far, we’re unlikely to see this from fourth quarter results. In fact, we’re likely to see exactly what we’ve seen for many quarters now, companies reporting earnings growth driven by cost cutting measures rather than revenue growth. This just shows that companies are still unwilling to part with the significant cash piles that they’re currently sitting on as they clearly don’t have confidence in the economic recovery. This needs to change as earnings growth driven by cost cutting cannot paper over the cracks for much longer.
The focus this week, with respect to earnings, will be on the financial sector. As we saw in the previous quarter, this is expected to be the best performing sector in this earnings season, which should mean earnings season getting off to a very positive start. As mentioned earlier though, large amounts of earnings growth is still being driven by cost-cutting, with low levels of lending and smaller margins, among other things, weighing on profits.
The economic calendar is looking a little thin this week, particularly on Monday. In fact, there are no notable economic releases scheduled for Europe today, which may make for a very quiet start to the week. This should give investors time to digest to huge amount of releases and central bank decisions from last week and decide what they all actually mean for the markets going forward.
The key one here will be Friday’s US jobs report, which showed only 74,000 jobs being added in December. This was well below estimates of close to 200,000 and seriously called into question whether the Fed could continue scaling back its asset purchases later this month. This wasn’t helped by a 0.3% drop in the unemployment rate which was largely driven by another drop in the participation rate that saw it hit a more-than 30 year low.
Investors were not overly discouraged by the woeful data though, despite the initial sell-off. Stocks rallied towards the end of the day in the US, with the S&P 500 ending higher, while European futures are also higher this morning. This either suggests that investors aren’t concerned about the rate of asset purchases any more, or that they don’t think these numbers change anything, in respect to future tapering.
Ahead of the open we expect to see the FTSE up 9 points, the CAC up 10 points and the DAX up 18 points.
Alpari UK
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US Opening Call from Alpari UK on 13 January 2014
Economic calendar looks thin as focus switches to earnings
Today’s US opening call provides an update on:
* Focus on corporate earnings season this week;
* Earnings from financial institutions key this week;
* Economic calendar looking a little thin.
Corporate earnings are likely to be a key driver in the financial markets this week, as investors turn their attention away from central banks and focus on what really matters, fundamentals.
Once again, investors were distracted by central banks, in particular whether the BoE would change its forward guidance, whether the ECB would act to ease deflation fears and whether the US jobs report would impact the Fed’s tapering plans. The latter was clearly the most important of these, with the Fed’s ultra-loose monetary policy last year being predominantly behind the rally in equity markets.
That said, the poor non-farm payroll figure did little to dampen investor sentiment, with the S&P 500 still managing to end the day slightly in the green. It seems at the moment nothing will stop equities continuing their push higher, with good data being seen as a sign that the economy is improving and poor data that QE will continue. Maybe a disappointing earnings season will give investors the reality check they need.
Once again we’re expecting companies to paper over the cracks when they report fourth quarter earnings. Just less than 90% of companies have offered negative earnings outlooks ahead of the reporting season, which doesn’t even come as too much of a shock.
Previous earnings seasons have shown that earnings growth is being repeatedly driven by cost-cutting efforts, while revenue growth has been disappointing. Companies have been reluctant to invest, despite having the resources to do so, which clearly highlights a lack of confidence in the sustainability of the recovery. There’s surely only so long this can continue before the cracks start to appear.
This week the focus will be on financial companies, with a number of banks reporting fourth quarter earnings. This was the best performing sector in the third quarter, despite margins continuing to be squeezed and lending remaining at low levels. The same is expected for the fourth quarter, which should mean earnings season at least getting off to a positive start.
The economic calendar is looking a lot thinner this week, which should put even more emphasis on earnings. There are a couple of notable releases, although none of these are scheduled for today. These include US retail sales on Tuesday, Fed’s Beige Book on Wednesday and the UoM consumer sentiment figure on Friday. There’s also a number of Fed officials scheduled to speak which could move financial markets.
Economic calendar looks thin as focus switches to earnings
Today’s US opening call provides an update on:
* Focus on corporate earnings season this week;
* Earnings from financial institutions key this week;
* Economic calendar looking a little thin.
Corporate earnings are likely to be a key driver in the financial markets this week, as investors turn their attention away from central banks and focus on what really matters, fundamentals.
Once again, investors were distracted by central banks, in particular whether the BoE would change its forward guidance, whether the ECB would act to ease deflation fears and whether the US jobs report would impact the Fed’s tapering plans. The latter was clearly the most important of these, with the Fed’s ultra-loose monetary policy last year being predominantly behind the rally in equity markets.
That said, the poor non-farm payroll figure did little to dampen investor sentiment, with the S&P 500 still managing to end the day slightly in the green. It seems at the moment nothing will stop equities continuing their push higher, with good data being seen as a sign that the economy is improving and poor data that QE will continue. Maybe a disappointing earnings season will give investors the reality check they need.
Once again we’re expecting companies to paper over the cracks when they report fourth quarter earnings. Just less than 90% of companies have offered negative earnings outlooks ahead of the reporting season, which doesn’t even come as too much of a shock.
Previous earnings seasons have shown that earnings growth is being repeatedly driven by cost-cutting efforts, while revenue growth has been disappointing. Companies have been reluctant to invest, despite having the resources to do so, which clearly highlights a lack of confidence in the sustainability of the recovery. There’s surely only so long this can continue before the cracks start to appear.
This week the focus will be on financial companies, with a number of banks reporting fourth quarter earnings. This was the best performing sector in the third quarter, despite margins continuing to be squeezed and lending remaining at low levels. The same is expected for the fourth quarter, which should mean earnings season at least getting off to a positive start.
The economic calendar is looking a lot thinner this week, which should put even more emphasis on earnings. There are a couple of notable releases, although none of these are scheduled for today. These include US retail sales on Tuesday, Fed’s Beige Book on Wednesday and the UoM consumer sentiment figure on Friday. There’s also a number of Fed officials scheduled to speak which could move financial markets.
Alpari UK
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UK Opening Call from Alpari UK on 14 January 2014
UK inflation data key as fears of BoE tightening grow
Today’s UK opening call provides an update on:
• UK inflation data in focus at a time when fears of BoE tightening are growing;
• Eurozone industrial production data also being released;
• Attention turns to US data and earnings after the opening bell on Wall Street.
The focus this morning will be on one of the few notable economic releases we have this week, the UK inflation data. There are a number of different inflation readings being released this morning, including consumer price index, retail price index and producer price index. Of course all of these readings are important, but the one people really pay attention to, including the Bank of England, is the consumer price index, or CPI figure.
Inflation in the UK has been a major issue throughout the financial crisis and even managed to surpass 5% for a short period of time towards the end of 2011. The timing of these high rates of inflation couldn’t have been worse, coming when wage growth is hovering around the 1% level, with many seeing no growth at all. That all appears to be changing though with inflation now very close to the BoE’s 2% target, although wage growth hasn’t yet picked up. However, with the recovery well and truly underway, it’s only a matter of time until we see wage growth overtake inflation.
For that to happen though, inflation will need to remain at these lower levels. The December reading is expected to do just that, remaining unchanged from November at 2.1%. This is great news for the BoE and the UK at a time when investors are concerned about the potential for an interest rate hike in the near future. These low levels of inflation takes some of the pressure off Governor Mark Carney and the other policy makers to do just that, which is a relief as this could potentially choke off the recovery.
We have a very quiet week ahead when it comes to economic data from the eurozone. The only release this morning is the November industrial production figure, which is only a low to medium impact figure. This is expected to show year on year growth of 1.4%, which is encouraging at a time of stagnation in the eurozone. That said, these figures are very volatile so there’s only so much we can read into the individual readings.
After this, attention switches to the US where we have some important data being released, while corporate earnings season gets into full swing with JP Morgan and Wells Fargo reporting. The US retail sales figure will be very closely watched for signs that consumer sentiment is improving in line with the economic outlook. Consumer spending is hugely important to the economy and given that we’ve just seen a very disappointing jobs report, investors could do with a bit of a boost. A poor figure here would only add to calls for the Fed not to taper in January, after getting the ball rolling last month.
Financial stocks will be closely following this week, with a number of them reporting fourth quarter results. This was the best performing sector in the third quarter and the same is expected again. On the upside, this should get earnings season off to a flyer. On the flipside of that, if results disappoint, it doesn’t bode well for the coming weeks.
Ahead of the open we expect to see the FTSE down 38 points, the CAC down 24 points and the DAX down 56 points.
UK inflation data key as fears of BoE tightening grow
Today’s UK opening call provides an update on:
• UK inflation data in focus at a time when fears of BoE tightening are growing;
• Eurozone industrial production data also being released;
• Attention turns to US data and earnings after the opening bell on Wall Street.
The focus this morning will be on one of the few notable economic releases we have this week, the UK inflation data. There are a number of different inflation readings being released this morning, including consumer price index, retail price index and producer price index. Of course all of these readings are important, but the one people really pay attention to, including the Bank of England, is the consumer price index, or CPI figure.
Inflation in the UK has been a major issue throughout the financial crisis and even managed to surpass 5% for a short period of time towards the end of 2011. The timing of these high rates of inflation couldn’t have been worse, coming when wage growth is hovering around the 1% level, with many seeing no growth at all. That all appears to be changing though with inflation now very close to the BoE’s 2% target, although wage growth hasn’t yet picked up. However, with the recovery well and truly underway, it’s only a matter of time until we see wage growth overtake inflation.
For that to happen though, inflation will need to remain at these lower levels. The December reading is expected to do just that, remaining unchanged from November at 2.1%. This is great news for the BoE and the UK at a time when investors are concerned about the potential for an interest rate hike in the near future. These low levels of inflation takes some of the pressure off Governor Mark Carney and the other policy makers to do just that, which is a relief as this could potentially choke off the recovery.
We have a very quiet week ahead when it comes to economic data from the eurozone. The only release this morning is the November industrial production figure, which is only a low to medium impact figure. This is expected to show year on year growth of 1.4%, which is encouraging at a time of stagnation in the eurozone. That said, these figures are very volatile so there’s only so much we can read into the individual readings.
After this, attention switches to the US where we have some important data being released, while corporate earnings season gets into full swing with JP Morgan and Wells Fargo reporting. The US retail sales figure will be very closely watched for signs that consumer sentiment is improving in line with the economic outlook. Consumer spending is hugely important to the economy and given that we’ve just seen a very disappointing jobs report, investors could do with a bit of a boost. A poor figure here would only add to calls for the Fed not to taper in January, after getting the ball rolling last month.
Financial stocks will be closely following this week, with a number of them reporting fourth quarter results. This was the best performing sector in the third quarter and the same is expected again. On the upside, this should get earnings season off to a flyer. On the flipside of that, if results disappoint, it doesn’t bode well for the coming weeks.
Ahead of the open we expect to see the FTSE down 38 points, the CAC down 24 points and the DAX down 56 points.
Alpari UK
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US Opening Call from Alpari UK on 14 January 2014
US futures higher ahead of key data and earnings releases
Today’s US opening call provides an update on:
* Strong US retail sales may convince the Fed that Friday’s poor jobs report was just an anomaly;
* Disappointing festive trading figures suggest the retail sales figure may fall short of expectations;
* JP Morgan and Wells Fargo get earnings season underway for the banks.
There’s plenty for investors to focus on in the lead up to the opening bell on Wall Street today, with US retail sales data being released for December, and JP Morgan and Wells Fargo reporting fourth quarter earnings. Both of these will be followed very closely by investors, with the former potential providing clues about the pace of Fed tapering and the latter telling us whether the economy can stand on its own two legs.
Many view retail sales as the best indicator for economic activity, particularly in a country like the US which relies heavily on consumer spending for growth. With this is mind, a good number today could ease some of the concerns which arose following the poor jobs report on Friday and convince investors that the recovery is still on track.
As far as the Fed is concerned, this could convince them that the December jobs figure was an anomaly driven primarily by poor weather, and that another round of tapering in January is the correct option. At the end of the day, if consumers are spending, then confidence is growing and economic activity will almost inevitably pick up.
That said, we’ve already seen some disappointing festive trading numbers from a number of companies. This could mean that expectations of 0.4% monthly growth are too high and anything below will only add to calls for the Fed to hold off on further tapering until March.
Regardless of what the number is, it will be interesting to see what the reaction is in the markets. Will investors cheer good numbers and therefore improving fundamentals, or poor numbers and more quantitative easing. Or, will they cheer either, as has been the pattern at times recently.
Another focus today will be fourth quarter earnings, with JP Morgan and Wells Fargo both reporting. With the Fed intending to end its quantitative easing later this year, fundamentals will become increasingly important to investors. Without improving fundamentals, the stock market rally is on borrowed time.
In recent earnings seasons, companies have relied on cost-cutting measures for earnings growth, something that is expected again this time around. That can only go on for so long though and in the coming quarters, investors are going to be looking for signs of longer term growth. This is going to require companies to invest some of their large cash piles in order to generate growth, something they may be more willing to do now that the economy is showing signs of sustainable growth.
Ahead of the open we expect to see the S&P up 4 points, Dow up 28 points and the NASDAQ up 5 points.
US futures higher ahead of key data and earnings releases
Today’s US opening call provides an update on:
* Strong US retail sales may convince the Fed that Friday’s poor jobs report was just an anomaly;
* Disappointing festive trading figures suggest the retail sales figure may fall short of expectations;
* JP Morgan and Wells Fargo get earnings season underway for the banks.
There’s plenty for investors to focus on in the lead up to the opening bell on Wall Street today, with US retail sales data being released for December, and JP Morgan and Wells Fargo reporting fourth quarter earnings. Both of these will be followed very closely by investors, with the former potential providing clues about the pace of Fed tapering and the latter telling us whether the economy can stand on its own two legs.
Many view retail sales as the best indicator for economic activity, particularly in a country like the US which relies heavily on consumer spending for growth. With this is mind, a good number today could ease some of the concerns which arose following the poor jobs report on Friday and convince investors that the recovery is still on track.
As far as the Fed is concerned, this could convince them that the December jobs figure was an anomaly driven primarily by poor weather, and that another round of tapering in January is the correct option. At the end of the day, if consumers are spending, then confidence is growing and economic activity will almost inevitably pick up.
That said, we’ve already seen some disappointing festive trading numbers from a number of companies. This could mean that expectations of 0.4% monthly growth are too high and anything below will only add to calls for the Fed to hold off on further tapering until March.
Regardless of what the number is, it will be interesting to see what the reaction is in the markets. Will investors cheer good numbers and therefore improving fundamentals, or poor numbers and more quantitative easing. Or, will they cheer either, as has been the pattern at times recently.
Another focus today will be fourth quarter earnings, with JP Morgan and Wells Fargo both reporting. With the Fed intending to end its quantitative easing later this year, fundamentals will become increasingly important to investors. Without improving fundamentals, the stock market rally is on borrowed time.
In recent earnings seasons, companies have relied on cost-cutting measures for earnings growth, something that is expected again this time around. That can only go on for so long though and in the coming quarters, investors are going to be looking for signs of longer term growth. This is going to require companies to invest some of their large cash piles in order to generate growth, something they may be more willing to do now that the economy is showing signs of sustainable growth.
Ahead of the open we expect to see the S&P up 4 points, Dow up 28 points and the NASDAQ up 5 points.
Alpari UK
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Daily Market Update - 14 January 2014 - Alpari UK
Markets marginally higher, following big sell-off yesterday - 00:09
New Zealand business confidence highest in 20 years - 00:17
UK CPI falls to 2% - 01:29
Eurozone industrial production at highest since 2007 - 03:02
Research analyst Joshua Mahony discusses the continued fall in the markets today. He also talks about the rise in business confidence seen in New Zealand overnight, along with the UK CPI move back down to the 2% inflation target. Finally, Joshua discusses the Eurozone industrial production rise which was the highest since the 2007 crisis
Markets marginally higher, following big sell-off yesterday - 00:09
New Zealand business confidence highest in 20 years - 00:17
UK CPI falls to 2% - 01:29
Eurozone industrial production at highest since 2007 - 03:02
Research analyst Joshua Mahony discusses the continued fall in the markets today. He also talks about the rise in business confidence seen in New Zealand overnight, along with the UK CPI move back down to the 2% inflation target. Finally, Joshua discusses the Eurozone industrial production rise which was the highest since the 2007 crisis
Alpari UK
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UK Opening Call from Alpari UK on 15 January 2014
Europe to open higher following strong finish on Wall Street
Today’s UK opening call provides an update on:
• Best day of the year so far for US indices following strong retail sales figures;
• European session quiet on Wednesday, with focus turning more to earnings;
• US earnings, data and Fed Beige Book due this afternoon.
European indices are expected to open higher on Monday, after US indices had their best day of the year so far, following some encouraging economic releases.
The most important of these was the December retail sales figure, which beat expectations despite a number of companies reporting a difficult festive trading period a few weeks ago. A number of stores were forced to slash prices more aggressively than they normally would at this time of year in order to avoid a disastrous holiday period.
There was a fear that this could have meant higher sales figures but less spending, although this does not appear to have been the case. Clearly this shows that consumer confidence is still on the rise in the US and the recovery is gathering momentum. This could help convince the Fed that the December jobs report was nothing more than a one-off and therefore tapering should continue in January.
Investors appear to be comfortable with this at the moment, as long as this doesn’t mean interest rates rising earlier than expected, with current Fed forecasts pointing to the middle of next year. This is why indices had their best day of the year so far, although that isn’t a difficult achievement given the weak start to 2014.
The positive sentiment carried over into Asia overnight and appears to be filtering through to European futures this morning as well. Whether this can be maintained depends heavily on the economic data, which has been largely disappointing so far this month. I don’t think this is anything to be concerned about, but it could be an early warning sign that the recovery may not be quite as strong as we currently expect.
There’s very little economic data being released today that could help us out here. In fact, the European session could be very quiet indeed, with attention potentially turning to the earnings season which is now underway. There are a few European companies reporting earnings today, although the focus will be primarily on the UK, with Burberry and Taylor Wimpey reporting.
Then it’s over to the US later, where the week of bank earnings continues with Bank of America. JP Morgan and Wells Fargo got things moving yesterday, with the former beating earnings expectations and the latter falling in line. There were a couple of concerning points for both of these companies, with the mortgage market continuing to be a problem, while JP reported a difficult quarter from a fixed income and investment banking perspective. I think this could be a common theme throughout this week.
There are a few pieces of US data being released later, including the PPI inflation reading and the empire state manufacturing index. The Beige Book will also be released which should provide further insight into how the Fed view the economic recovery and what this means for tapering going forward. Also providing more colour here will be speeches from a couple of Fed members, Charles Evans (FOMC voter) and Dennis Lockhard (non-voter).
Ahead of the open we expect to see the FTSE up 22 points, the CAC up 17 points and the DAX up 39 points.
Europe to open higher following strong finish on Wall Street
Today’s UK opening call provides an update on:
• Best day of the year so far for US indices following strong retail sales figures;
• European session quiet on Wednesday, with focus turning more to earnings;
• US earnings, data and Fed Beige Book due this afternoon.
European indices are expected to open higher on Monday, after US indices had their best day of the year so far, following some encouraging economic releases.
The most important of these was the December retail sales figure, which beat expectations despite a number of companies reporting a difficult festive trading period a few weeks ago. A number of stores were forced to slash prices more aggressively than they normally would at this time of year in order to avoid a disastrous holiday period.
There was a fear that this could have meant higher sales figures but less spending, although this does not appear to have been the case. Clearly this shows that consumer confidence is still on the rise in the US and the recovery is gathering momentum. This could help convince the Fed that the December jobs report was nothing more than a one-off and therefore tapering should continue in January.
Investors appear to be comfortable with this at the moment, as long as this doesn’t mean interest rates rising earlier than expected, with current Fed forecasts pointing to the middle of next year. This is why indices had their best day of the year so far, although that isn’t a difficult achievement given the weak start to 2014.
The positive sentiment carried over into Asia overnight and appears to be filtering through to European futures this morning as well. Whether this can be maintained depends heavily on the economic data, which has been largely disappointing so far this month. I don’t think this is anything to be concerned about, but it could be an early warning sign that the recovery may not be quite as strong as we currently expect.
There’s very little economic data being released today that could help us out here. In fact, the European session could be very quiet indeed, with attention potentially turning to the earnings season which is now underway. There are a few European companies reporting earnings today, although the focus will be primarily on the UK, with Burberry and Taylor Wimpey reporting.
Then it’s over to the US later, where the week of bank earnings continues with Bank of America. JP Morgan and Wells Fargo got things moving yesterday, with the former beating earnings expectations and the latter falling in line. There were a couple of concerning points for both of these companies, with the mortgage market continuing to be a problem, while JP reported a difficult quarter from a fixed income and investment banking perspective. I think this could be a common theme throughout this week.
There are a few pieces of US data being released later, including the PPI inflation reading and the empire state manufacturing index. The Beige Book will also be released which should provide further insight into how the Fed view the economic recovery and what this means for tapering going forward. Also providing more colour here will be speeches from a couple of Fed members, Charles Evans (FOMC voter) and Dennis Lockhard (non-voter).
Ahead of the open we expect to see the FTSE up 22 points, the CAC up 17 points and the DAX up 39 points.
Alpari UK
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US Opening Call from Alpari UK on 15 January 2014
US futures pointing to a higher open on Wall Street
Today’s US opening call provides an update on:
* US futures pointing to a higher open on Wall Street;
* Bank of America the latest bank to report earnings;
* Economic data back in focus on Wednesday.
Investors look set to carry on where they left off on Wednesday, with US futures in the green across the board ahead of the opening bell on Wall Street.
The mood was much more positive yesterday following the release of the hugely important retail sales figure for December. There had been concerns in the lead up to the release that spending in December would disappoint, after a number of companies were forced to slash prices more aggressively in order to draw in shoppers.
Another concern has been the weather, which was largely responsible for the significant drop in job creation last month, with only 74,000 being added. Following such a disappointing jobs report on Friday, it was important for investor sentiment that we saw a strong retail sales reading yesterday, and it didn’t disappoint.
Clearly investors are not concerned about what this means for quantitative easing – with the Fed now more likely to reduce it by another $10 billion later this month – which is a positive thing going forward. It means that some normality is returning to the markets and investors are focused on the fundamental picture rather than how much money the Fed is pumping into the financial system.
With that in the mind, the focus will be on the fundamentals again on Wednesday with a couple of pieces of economic data being released, while corporate earnings season continuing with Bank of America reporting before the opening bell.
Earnings from banks so far have been relatively well received by the markets, despite clearly highlighting some areas of weakness, particularly surrounding mortgages. The same is expected when Bank of America report earnings today, although extra attention will be paid to the size of provisions being made by the bank for litigation costs.
This week there’s not much in terms high impact economic data, those releases that tend to have a significant impact on the markets, such as the jobs report, GDP figures and retail sales. That doesn’t mean that the releases don’t matter though, as they will all give us a better idea of how the US economy is doing and how sustainable the recovery is.
For example, the empire state manufacturing index, which is due to be released before the opening bell, is seen as a very good indicator of manufacturing activity in the US. This includes manufacturing for domestic use and exports, which can provide crucial insight into the overall health of the economy. This figure is expected to rise to 3.75 this month, which further supports the idea that the recovery is gaining momentum.
The PPI figure, while not being the Fed’s preferred measure of inflation, can be used to predict changes to consumer inflation readings in the months ahead. This is simply because any changes in the PPI will likely be reflected in the price of the finished product, especially increases. The core PPI readings are expected to be the same as in November, which suggests little change to consumer inflation readings in the coming months.
Ahead of the open we expect to see the S&P up 3 points, Dow up 28 points and the NASDAQ up 13 points.
US futures pointing to a higher open on Wall Street
Today’s US opening call provides an update on:
* US futures pointing to a higher open on Wall Street;
* Bank of America the latest bank to report earnings;
* Economic data back in focus on Wednesday.
Investors look set to carry on where they left off on Wednesday, with US futures in the green across the board ahead of the opening bell on Wall Street.
The mood was much more positive yesterday following the release of the hugely important retail sales figure for December. There had been concerns in the lead up to the release that spending in December would disappoint, after a number of companies were forced to slash prices more aggressively in order to draw in shoppers.
Another concern has been the weather, which was largely responsible for the significant drop in job creation last month, with only 74,000 being added. Following such a disappointing jobs report on Friday, it was important for investor sentiment that we saw a strong retail sales reading yesterday, and it didn’t disappoint.
Clearly investors are not concerned about what this means for quantitative easing – with the Fed now more likely to reduce it by another $10 billion later this month – which is a positive thing going forward. It means that some normality is returning to the markets and investors are focused on the fundamental picture rather than how much money the Fed is pumping into the financial system.
With that in the mind, the focus will be on the fundamentals again on Wednesday with a couple of pieces of economic data being released, while corporate earnings season continuing with Bank of America reporting before the opening bell.
Earnings from banks so far have been relatively well received by the markets, despite clearly highlighting some areas of weakness, particularly surrounding mortgages. The same is expected when Bank of America report earnings today, although extra attention will be paid to the size of provisions being made by the bank for litigation costs.
This week there’s not much in terms high impact economic data, those releases that tend to have a significant impact on the markets, such as the jobs report, GDP figures and retail sales. That doesn’t mean that the releases don’t matter though, as they will all give us a better idea of how the US economy is doing and how sustainable the recovery is.
For example, the empire state manufacturing index, which is due to be released before the opening bell, is seen as a very good indicator of manufacturing activity in the US. This includes manufacturing for domestic use and exports, which can provide crucial insight into the overall health of the economy. This figure is expected to rise to 3.75 this month, which further supports the idea that the recovery is gaining momentum.
The PPI figure, while not being the Fed’s preferred measure of inflation, can be used to predict changes to consumer inflation readings in the months ahead. This is simply because any changes in the PPI will likely be reflected in the price of the finished product, especially increases. The core PPI readings are expected to be the same as in November, which suggests little change to consumer inflation readings in the coming months.
Ahead of the open we expect to see the S&P up 3 points, Dow up 28 points and the NASDAQ up 13 points.
Alpari UK
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UK Opening Call from Alpari UK on 16 January 2014
Focus on eurozone CPI as ECB considers further stimulus
Today’s UK opening call provides an update on:
• Focus on eurozone inflation as ECB considers further stimulus measures;
• Plenty of important US data due out this afternoon;
• European and US earnings also important today;
• RBA rate cut a possibility as Australian employment situation deteriorates further.
It's going to be another quiet start to the European session on Thursday, with very few pieces of economic data being released.
Of the figures that are being released, none are likely to have a significant impact on the markets. The two most important releases are the German and eurozone CPI figures for December, but even these are revised figures, which should significantly reduce the market impact. On top of that, we haven't seen a revision to either of these in a long time, with the last revision to the eurozone figure coming in September 2012.
Of these, the one that has the most potential to move the markets is the eurozone inflation figure. This has fallen quite significantly in recent months, so much so that the European Central Bank cut the main refi rate to all time lows of 0.25% in November, in a rare knee-jerk reaction to the figure falling from 1.1% to 0.7% a month earlier. With inflation currently at 0.8%, the ECB may be forced to act again, especially if the figure is revised lower today.
The only problem now is that with the main refi rate at 0.25%, the ECB may be forced to be more creative with its monetary policy strategy, opting for something more unconventional than another refi rate cut. This could as simple as stricter forward guidance, with the current effort being so vague it's practically useless, or something more risky like negative deposit rates or another round of long term refinancing operations (LTROs). One option that appears to be off the table for now is quantitative easing, but that may change if the threat of deflation continues to rise.
The ECB monthly report, released this morning, could provide additional insight into just how close the central bank was to loosening monetary policy further last week. ECB President Mario Draghi appeared very relaxed on this during the press conference that followed the decision last week, claiming the fall to 0.8% was largely driven by one-off factors in Germany. If the report supports this then we may have to wait a few more months before the ECB is once again forced to act.
After this it's over to the US, where we have a few key pieces of economic data being released. The most important of these is the weekly jobless claims figure, which is expected to fall to 328,000 from 330,000 last week. Also being released is the Philly Fed manufacturing index, which is expected to rise to 8.6 from 7 in November. Yesterday's jump in the empire state manufacturing index to 20 month highs was encouraging and may suggest that expectations today are too low. Finally we have the US core CPI reading, which is expected to remain at 1.7% in December.
Also today, there are a number of companies scheduled to report fourth quarter earnings, which could have an impact on the markets. These include Associated British Foods, Ocado, Dixons and Halfords in Europe, and Citigroup, Goldman Sachs and American Express in the US.
This is a big weeks for the financial stocks, with so many reporting earnings. So far the results have been alright, with most reporting better than expected earnings. However, there has been a few common themes that we'll probably see again today, with the mortgage and fixed income businesses really struggling in the fourth quarter due to Fed tapering and higher interest rates.
Over night the only notable move during the Asian session over night came in Australia where the Aussie dollar plummeted against the greenback following the release of the latest unemployment figures. While the headline rate remained at 5.8%, the number of those employed fell by 22,600, well below expectations of a 7,500 rise, while November’s figure was also revised higher. This included the biggest drop in full-time employment since June 2012, which will only further encourage the Reserve Bank of Australia to cut interest rates in the coming months. Especially as the aussie is still more than three cents higher against the greenback than what the RBA considers fair.
Ahead of the open we expect to see the FTSE up 13 points, the CAC up 12 points and the DAX up 35 points.
Focus on eurozone CPI as ECB considers further stimulus
Today’s UK opening call provides an update on:
• Focus on eurozone inflation as ECB considers further stimulus measures;
• Plenty of important US data due out this afternoon;
• European and US earnings also important today;
• RBA rate cut a possibility as Australian employment situation deteriorates further.
It's going to be another quiet start to the European session on Thursday, with very few pieces of economic data being released.
Of the figures that are being released, none are likely to have a significant impact on the markets. The two most important releases are the German and eurozone CPI figures for December, but even these are revised figures, which should significantly reduce the market impact. On top of that, we haven't seen a revision to either of these in a long time, with the last revision to the eurozone figure coming in September 2012.
Of these, the one that has the most potential to move the markets is the eurozone inflation figure. This has fallen quite significantly in recent months, so much so that the European Central Bank cut the main refi rate to all time lows of 0.25% in November, in a rare knee-jerk reaction to the figure falling from 1.1% to 0.7% a month earlier. With inflation currently at 0.8%, the ECB may be forced to act again, especially if the figure is revised lower today.
The only problem now is that with the main refi rate at 0.25%, the ECB may be forced to be more creative with its monetary policy strategy, opting for something more unconventional than another refi rate cut. This could as simple as stricter forward guidance, with the current effort being so vague it's practically useless, or something more risky like negative deposit rates or another round of long term refinancing operations (LTROs). One option that appears to be off the table for now is quantitative easing, but that may change if the threat of deflation continues to rise.
The ECB monthly report, released this morning, could provide additional insight into just how close the central bank was to loosening monetary policy further last week. ECB President Mario Draghi appeared very relaxed on this during the press conference that followed the decision last week, claiming the fall to 0.8% was largely driven by one-off factors in Germany. If the report supports this then we may have to wait a few more months before the ECB is once again forced to act.
After this it's over to the US, where we have a few key pieces of economic data being released. The most important of these is the weekly jobless claims figure, which is expected to fall to 328,000 from 330,000 last week. Also being released is the Philly Fed manufacturing index, which is expected to rise to 8.6 from 7 in November. Yesterday's jump in the empire state manufacturing index to 20 month highs was encouraging and may suggest that expectations today are too low. Finally we have the US core CPI reading, which is expected to remain at 1.7% in December.
Also today, there are a number of companies scheduled to report fourth quarter earnings, which could have an impact on the markets. These include Associated British Foods, Ocado, Dixons and Halfords in Europe, and Citigroup, Goldman Sachs and American Express in the US.
This is a big weeks for the financial stocks, with so many reporting earnings. So far the results have been alright, with most reporting better than expected earnings. However, there has been a few common themes that we'll probably see again today, with the mortgage and fixed income businesses really struggling in the fourth quarter due to Fed tapering and higher interest rates.
Over night the only notable move during the Asian session over night came in Australia where the Aussie dollar plummeted against the greenback following the release of the latest unemployment figures. While the headline rate remained at 5.8%, the number of those employed fell by 22,600, well below expectations of a 7,500 rise, while November’s figure was also revised higher. This included the biggest drop in full-time employment since June 2012, which will only further encourage the Reserve Bank of Australia to cut interest rates in the coming months. Especially as the aussie is still more than three cents higher against the greenback than what the RBA considers fair.
Ahead of the open we expect to see the FTSE up 13 points, the CAC up 12 points and the DAX up 35 points.
Alpari UK
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US Opening Call from Alpari UK on 16 January 2014
US data and earnings in focus on Thursday
Today’s US opening call provides an update on:
* Eurozone disinflation continues as CPI figure is confirmed at 0.8%;
* US data in focus with jobless claims, manufacturing and inflation data being released;
* US earnings season continues with Goldman Sachs, Citigroup and American Express reporting.
It’s been another relatively slow start to the European session on Thursday, but things should pick up as the day goes on as another US bank reports earnings and more economic data is released.
Economic releases have been few and far between this week, as far as Europe is concerned, and those releases we have had haven’t historically been high impact events for the markets. This morning we’ve had inflation data from both Germany and the eurozone as a whole, which is of course important at a time when investors are concerned about the potential for deflation. However, both of these were not the preliminary readings and are very rarely revised. As a result, the impact on the markets tends to be minimal, if we see any at all.
The economic calendar, while still be relatively thin, has offered more from the US, with retail sales and manufacturing figures this week having a clear impact on investor sentiment. We could see a similar response today, with jobless claims, manufacturing and inflation figures all being released.
The weekly jobless claims figure has been fairly consistent over the last few months, coming in at around 330,000 – 340,000, barring the odd spike in the data. The same is expected again today, with analysts expecting 328,000 new claims for the previous week. Anything roughly in line with this should have little impact on the markets.
The figure investors will be most interested in this afternoon will probably be the Philly Fed manufacturing index as many see this industry as giving the clearest indication that the recovery is gathering momentum this year. A pick up in domestic spending and exports should benefit the manufacturing industry greatly and we’re already seeing evidence of this.
The empire state manufacturing index yesterday rose to its highest level since May 2012 in a sign that the industry is finally benefitting from a number of factors. These include the removal of uncertainty surrounding the US budget that led to the government shutdown in October, lower interest rates from the Fed’s ultra-loose monetary policy and a pick-up in demand both domestically and abroad.
Also being released is the December CPI reading, which is expected to show core inflation staying at 1.7%, compared to a year earlier. It’s worth noting that, while we should pay attention to this figure, it’s not the Fed’s preferred inflation measure and therefore shouldn’t have has big an impact on the markets as the core personal consumption expenditure index.
Finally today, earnings season continues with the number of companies reporting beginning to pick up. Once again, the focus will be on the financial stocks, with particular attention being paid to Citigroup and Goldman Sachs before the opening bell on Wall Street, followed by American Express after the close.
Ahead of the open we expect to see the S&P down 3 points, Dow down 17 points and the NASDAQ down 1 point.
US data and earnings in focus on Thursday
Today’s US opening call provides an update on:
* Eurozone disinflation continues as CPI figure is confirmed at 0.8%;
* US data in focus with jobless claims, manufacturing and inflation data being released;
* US earnings season continues with Goldman Sachs, Citigroup and American Express reporting.
It’s been another relatively slow start to the European session on Thursday, but things should pick up as the day goes on as another US bank reports earnings and more economic data is released.
Economic releases have been few and far between this week, as far as Europe is concerned, and those releases we have had haven’t historically been high impact events for the markets. This morning we’ve had inflation data from both Germany and the eurozone as a whole, which is of course important at a time when investors are concerned about the potential for deflation. However, both of these were not the preliminary readings and are very rarely revised. As a result, the impact on the markets tends to be minimal, if we see any at all.
The economic calendar, while still be relatively thin, has offered more from the US, with retail sales and manufacturing figures this week having a clear impact on investor sentiment. We could see a similar response today, with jobless claims, manufacturing and inflation figures all being released.
The weekly jobless claims figure has been fairly consistent over the last few months, coming in at around 330,000 – 340,000, barring the odd spike in the data. The same is expected again today, with analysts expecting 328,000 new claims for the previous week. Anything roughly in line with this should have little impact on the markets.
The figure investors will be most interested in this afternoon will probably be the Philly Fed manufacturing index as many see this industry as giving the clearest indication that the recovery is gathering momentum this year. A pick up in domestic spending and exports should benefit the manufacturing industry greatly and we’re already seeing evidence of this.
The empire state manufacturing index yesterday rose to its highest level since May 2012 in a sign that the industry is finally benefitting from a number of factors. These include the removal of uncertainty surrounding the US budget that led to the government shutdown in October, lower interest rates from the Fed’s ultra-loose monetary policy and a pick-up in demand both domestically and abroad.
Also being released is the December CPI reading, which is expected to show core inflation staying at 1.7%, compared to a year earlier. It’s worth noting that, while we should pay attention to this figure, it’s not the Fed’s preferred inflation measure and therefore shouldn’t have has big an impact on the markets as the core personal consumption expenditure index.
Finally today, earnings season continues with the number of companies reporting beginning to pick up. Once again, the focus will be on the financial stocks, with particular attention being paid to Citigroup and Goldman Sachs before the opening bell on Wall Street, followed by American Express after the close.
Ahead of the open we expect to see the S&P down 3 points, Dow down 17 points and the NASDAQ down 1 point.
Alpari UK
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- 1,502
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Daily Market Update - 16 January 2014 - Alpari UK
Aussie takes a hit following employment data - 0:20
Eurozone inflation confirmed at 0.8% - 2:33
US earnings and data in focus today - 3:28
Market Analyst Craig Erlam talks about why the Australian employment data over night prompted an aussie sell-off, what's been moving European markets this morning and what we should look out for as we approach the opening bell on Wall Street.
Aussie takes a hit following employment data - 0:20
Eurozone inflation confirmed at 0.8% - 2:33
US earnings and data in focus today - 3:28
Market Analyst Craig Erlam talks about why the Australian employment data over night prompted an aussie sell-off, what's been moving European markets this morning and what we should look out for as we approach the opening bell on Wall Street.