Forex research

[Alpari UK]

US Opening Call from Alpari UK on 5 February 2014

ADP unlikely to provide insight into January US job creation

Today’s US opening call provides an update on:

* ADP report unlikely to provide much insight into US job creation in January;
* Services PMIs likely to overlook temporary weather impacts to give better view on the economy;
* Eurozone services PMIs mixed this morning, while retail sales disappoint;
* Sterling sells off in response to third consecutive decline in the UK services PMI

There’s a few important pieces of economic data being released on Wednesday, one of which in particular could provide important insight into how the US labour market performed in January ahead of Friday’s jobs report.

That figure is the ADP non-farm employment change, a measure of employment growth in the private sector, which has been designed to act as an estimate of Friday’s non-farm payrolls figure. In theory, this should remove a lot of the uncertainty in the markets this week, which has been partly driven by a very disappointing jobs report for December. However, I’m not convinced that it will.

Last month’s ADP release, in particular, highlighted just how inaccurate this figure can be as an estimate of job creation in the US as a whole. Especially the first reading, which tends to prompt the biggest reaction in the markets. While the ADP release today may still get a small reaction, traders are likely to take it with a pinch of salt. Therefore, the uncertainty that has led to so much risk aversion in the markets is likely to continue until at least Friday.

There are other figures being released that may prompt more of a reaction from traders, such as the two services PMIs, the official and the ISM readings. The services sector is hugely important for the US economy, accounting for more than two thirds of output. Both of these figures are expected to show an improvement in sentiment in the services sector, with the final reading of the official PMI rising to 56.6 and the ISM rising to 53.7.

This would be very encouraging for the US, given that a lot of the data for December and January has been hit by the poor weather conditions during those months. Figures in line with these forecasts would suggest that this is not impacting sentiment and that the rest of the data should improve as the weather improves in the coming months. Whether this will be enough to encouraging investors to be less risk averse remains to be seen, but it would certainly be encouraging.

We will also get another look at how the housing market is doing when the MBA mortgage applications figure is released for the final week of the month. The housing market was seen as a key driver behind the recovery in the US last year but, unsurprisingly, the numbers haven’t been that great in recent months as rates rose in anticipation of Fed tapering. What we need now is for the market to stabilise, as potential buyers become used to the higher rates, before continuing to support the recovery. This has been difficult in December and January due to the poor weather in the US, but hopefully this will improve in the coming weeks and months.

European markets this morning are trading higher despite data being relatively mixed. Services PMIs in Spain, Italy and France were all better than expected, although the two latter remained below the key 50 level that separates growth from contraction. However, the drop in the German services PMI clearly weighed on the overall eurozone figure, leaving it below analyst expectations and but still higher than in December.

While overall this seems mostly positive, what wasn’t so good was the retail sales figures for December. These fell by 1.6% from November’s surprisingly strong reading, which was also revised lower, resulting in a yearly drop of 1%. This could be due to people in the euro area getting ready for the holiday season earlier than normal in order to spread the cost during such tight financial times.

The reaction to the UK services PMI also wasn’t great despite the number remaining at very high levels of 58.3. This was below expectations and represented the third consecutive monthly decline in the number, raising fears over whether the pace of the UK recovery is sustainable, or whether it is likely to slow in the coming quarters. Sterling sold off aggressively in response to the number following an initial spike.

Ahead of the open we expect to see the S&P down 8 points, Dow down 58 points and the NASDAQ down 17 points.

 

[Alpari UK]

Daily Market Update - 5 February 2014 - Alpari UK

Markets mixed following notable sell-off - 00:11

European services PMI figures allow struggling nations to play catch up - 00:35

UK services PMI falls for third consecutive month - 01:27

A look ahead to the ADP non-farm payrolls figure - 02:27

US Non manufacturing PMI preview - 03:27

Research analyst Joshua Mahony discusses the mixed markets seen today off the back of the wider sell-off this week. He discusses the services PMI figures out of the Eurozone and the UK, along with their importance to the markets. Finally Joshua previews both the ADP nonfarm payroll figure and non-manufacturing PMI figures due to be released later today

 

[Alpari UK]

UK Opening Call from Alpari UK on 6 February 2014

Pressure on ECB to ease deflationary pressure

Today’s UK opening call provides an update on:

• No change expected from BoE on interest rates or asset purchases;
• Potential for BoE statement alongside decision with new forward guidance thresholds;
• Investors split on whether ECB will respond to recent decline in inflation;
• Increased market volatility expected, as always, during ECB press conference.

The busy end to the week continues today with interest rate decisions from the European Central Bank and the Bank of England, with the former then holding a press conference 45 minutes after, at 12.30 (GMT), which should be eventful to say the least.

As always, the BoE will be the first to announce its decision on interest rates and asset purchases, following the monthly meeting of its policy makers. With the UK well on its way to recovery and the latest inflation readings falling perfectly in line with the central bank’s target, the BoE is very unlikely to tinker with either tool this month, or at any meeting in the near future for that matter, unless of course something drastically changes.

The only thing policy makers may be tempted to tinker with is the banks forward guidance, which was announced shortly after Governor Mark Carney’s arrival last year and has achieved very little, due in part to the BoE’s hugely pessimistic outlook for unemployment and the market’s unwillingness to accept its projections.

People have been calling for the guidance to be updated to take into consideration the rapid decline in unemployment, but policy makers don’t appear willing to do this. This is despite unemployment currently being only 0.1% above the 7% threshold, more than a year ahead of when the BoE expected it to reach this level. As a result, traders will still follow the BoE announcement closely, in case it is accompanied by a statement outlining the new threshold(s) for its forward guidance.

What is guaranteed to be eventful is the ECB rate decision and press conference, with investors currently split on how the central bank will respond to another drop in the inflation rate to 0.7%. The numbers appear to be relatively even between those that expect the ECB to do nothing this month and those who expect them to respond, with most of these predicting another cut in interest rates, despite the main refi rate currently being at 0.25%.

What is interesting is that of those who expect the ECB to respond, few expect it to be more bold in its attempts to fight disinflation, with most expecting a measly 0.15% cut in the refi rate, which will do very little to ease deflation fears. Even the most optimistic of people are predicting a small refi rate cut along with a small deposit rate cut, which would push it into negative territory and effectively charge banks to park their money at the ECB overnight.

I’m not even convinced this would be enough to slow the rapid decline in inflation. If recent responses, in both the markets and inflation readings, to the refi rate cuts have told us anything, it’s that the ECB is going to need to do something drastic soon, otherwise they could find themselves caught in a deflationary trap, similar to the one that Japan has spent almost 20 years trying to get out of.

If the ECB doesn’t respond today, then President Mario Draghi is likely to be heavily grilled in the press conference after about why the central bank is choosing to ignore the threat of deflation. Even if they do cut rates, this press conference should be eventful, with reporters wanting to know what the ECB will do next if inflation continues to plummet. As always, we can expect a surge in market volatility during this press conference.

 

[Alpari UK]

US Opening Call from Alpari UK on 6 February 2014

Investors expect very dovish statement, at least, from ECB

Today’s US opening call provides an update on:

* Investors expect very dovish statement, at least, from ECB today;
* ECB unlikely to move into uncharted territory of negative rates and QE today;
* BoE likely to be a non-event, changes to forward guidance more likely next week;
* US data in focus later on with jobless claims and trade balance figures being released..
* US futures are pointing to a positive open on Thursday, tracking their European counterparts higher ahead of some key central bank decisions in Europe.

A lot of the gains can probably be attributed to stocks simply paring some of the significant losses that have been made this year. However, given the timing of these gains before two central bank announcements when we would normally see an element of risk aversion, I think this also reflects the dovish expectations ahead of the European Central Bank rate decision.

Inflation in the eurozone fell back to 0.7% again in January, well below the ECBs target of below but close to 2%, and the level at which the central bank cut interest rates to record lows of 0.25% in November. This has prompted speculation that the ECB will be forced to loosen monetary policy again, the only problem being that with interest rates being so close to zero, there’s very little they can do here.

Most people expect the central bank to take the easy option and either cut interest rates by 0.15%, which would have little impact on both inflation and the euro, or release a very dovish statement, highlighting its willingness to act in the coming months. The other option would be for the bank to move into uncharted territory and adopt some form of unconventional easing, such as negative deposit rates or even more unlikely, quantitative easing.

Despite the former being discussed at numerous meetings in the past, I don’t think this is likely yet. Before we see this, I expect the ECB to cut interest rates to 0.1% and try its hand again at forward guidance, something they have failed miserably at in the past. For them to pull this off they would have to be bold, setting thresholds, and ambitious ones at that. The Bank of England learned last year that if the thresholds aren’t ambitious, people won’t buy into it.

As for the BoE, no change in interest rates or asset purchases is expected today, which is likely to make it a non-event. That said, people are going to keep a close eye on the release in case it is accompanied by an amendment to the bank’s forward guidance, which as I mentioned above, has been very unsuccessful so far. This is unlikely though, with any changes here likely to be delivered with next week’s inflation report.

Over in the US later, focus will switch to economic data with jobless claims and trade balance being released. New jobless claims are expected to fall for last week to 335,000 from 348,000 the week before, while the trade balance figure is expected to show a slightly higher deficit than in November of $36 billion.

Ahead of the open we expect to see the S&P up 5 points, Dow up 62 points and the NASDAQ up 12 points.

 

[Alpari UK]

Reaction to ECB rate decision and statement

As seems to be a common theme in recent months, the markets completely failed to anticipate how a major central bank will respond to recent economic events, with ECB President Mario Draghi being the latest central banker to catch everyone off-guard. It wasn’t the ECBs decision to leave interest rates unchanged that caught people off guard, although there were many that predicted a small cut in interest rates, which explains why there was some volatility around the announcement followed by some euro selling in the lead up to the press conference.

The surprising thing today was just how hawkish Draghi’s press conference was, given that inflation has fallen back to 0.7%, raising fears of deflation going forward. At the very least it was expected that Draghi would deliver a very dovish statement in an attempt to ease deflation fears. Instead, he launched a staunch defence of the ECBs stance, claiming among other things that the focus is on inflation expectations, not current levels, there is currently no deflation, the recovery is showing more encouraging signs and that the deflationary pressure is coming from the periphery and this is not real deflation.

While he may have a point with all of these statements, this doesn’t help the fact that the rate of inflation has been falling rapidly in the eurozone in recent months. It also doesn’t explain why the ECB cut rates in November in response to the drop to 0.7% but decided not to on this occasion. Is this more a case of the ECB not wanting to use unconventional tools, like QE, than them believing inflation expectations are well anchored? I find it hard to believe that there wouldn’t have been a rate cut, had the main refi rate not already been at 0.25%. They could have cut it to 0.1% but I think the ECB knows that this would have stunk of desperation and would have had almost no impact on inflation or the markets.

Draghi was keen to stress that this is not similar to what happened in Japan in the 90’s. However, I’m not sure who he was trying to convince, the markets or himself. Regardless, he did claim that they were waiting for the new forecasts in March so maybe we’ll have to wait until then for the ECB to do something they’re clearly uncomfortable with.

 

[Alpari UK]

UK Opening Call from Alpari UK on 7 February 2014

Europe to open higher ahead of some key data releases

Today’s UK opening call provides an update on:

• Europe to open higher after indices in the US and Asia pare recent losses overnight;
• Germany’s trade surplus seen shrinking along with France’s deficit;
• Improvement in UK manufacturing and industrial production very important to UK recovery;
• US jobs report not as important as is being made out.

European indices are seen opening around a fifth of a percentage point higher this morning, with the FTSE up 16 points, the CAC up 8 points and the DAX up 21 points. The gains are largely driven by improved investor sentiment carried over from the US and Asian sessions overnight, where we saw the Dow and S&P record their best gains in seven weeks, both up 1.2% as we near the release of the all important US jobs report.

It’s difficult to pinpoint what’s driven this improvement in sentiment over the last 24 hours, with economic data and earnings being relatively mixed. In reality, the gains, while being the best since 18 December, are still relatively small compared with some of the losses recorded since the turn of the year. The Dow for example has made triple digit losses on seven occasions since the start of the year. With this in mind, what we’re looking at here is probably more of a minor correction than a change in sentiment.

That will certainly be put to the test on Friday with some key figures being released, none more important than the US jobs report this afternoon. First though, in Europe, we have trade balance figures for Germany and France, with the former expected to post a slightly smaller trade surplus and the latter a slightly smaller trade deficit.

This will undoubtedly please those criticising Germany for running a large trade surplus when the countries in the periphery are struggling to bring down their deficits. It goes without saying that criticising Germany for being too good at exporting, rather than encouraging other countries to aspire to it, is ridiculous. That said, hopefully measures being taken in Germany, such as raising the minimum wage, will help encourage more spending on goods from other eurozone countries which, in effect, will have a similar outcome.

Over in the UK, we have manufacturing and industrial production figures being released, both of which are expected to show a 0.6% increase in December from a month earlier. Compared to a year ago, this would represent an increase of 2.3% in both cases which clearly highlights how far the UK has come in the last 12 months. To put it into perspective, this time last year the UK recorded its 12th consecutive decline in manufacturing production and its 21st in industrial production. This would instead mark a fourth consecutive positive month for a sector that has really struggled throughout the crisis and despite making up a small part of the economy, is very important to the recovery.

In keeping with the positivity around the UK, the December trade deficit is expected to fall for the fourth consecutive month to £9.3 billion. This is still clearly far too high and an area that the UK needs to address in the coming months and years. That said, it is an improvement and should only add to the optimism surrounding the UK recovery.

Finally, it’s over to the US for the January jobs report. This has been hugely built up over the last month, far too much in my opinion, as being a key indicator of whether the US recovery has stalled or if the poor figures in December were just weather related. The only problem with this idea is that the weather in January was worse than it was in December, and has already been reflected in a number of figures that have already been released.

I don’t buy into the importance of this non-farm payrolls figure. If we see another number below 100,000, it won’t be ideal, but it won’t be the end of the world. In reality, it will probably be offset by an upward revision in December’s figure and a very strong number once the weather settles down a little. That won’t stop people overreacting if we see it and panicking about the recovery.

We’ve seen plenty of signs already that the recovery is gathering momentum, such as the fourth quarter GDP figure which was 3.2% and driven largely by the consumer, the housing market and business investment, while being slightly lower than it would have been due to a significant drop in government spending. That says far more than a couple of months of bad jobs reports during periods of unusually cold weather.

 

[Alpari UK]

US Opening Call from Alpari UK on 7 February 2014

US futures higher ahead of jobs report

Today’s US opening call provides an update on:

* US futures higher ahead of key US jobs report;
* Expectations for NFP too high;
* Poor weather in January could lead to another disappointing NFP reading;
* Another drop in unemployment could force Yellen to change the threshold in March

US futures are pointing slightly higher this morning, with the S&P 500 seen opening 3 points higher, the Dow 14 points higher and the Nasdaq 11 points higher. This follows the positive sentiment seen in the European markets this morning, which is a little unusual ahead of such an important US jobs report, with investors ordinarily being a little more risk averse.

The jobs report is always seen as the most important economic release of the month, but this month it comes with additional importance and not necessarily for the same reason as we had throughout last year. Last year people were looking at the jobs report for signs of weakness, as this was viewed as supporting the Fed’s need to continue with its $85 billion of asset purchases every month.

This month is very different. Yes, another poor number could encourage the Fed to take a more cautious approach and leave asset purchases unchanged in March, instead waiting for more evidence that the recovery is on a firm footing. But that is not what people are focused on. The markets have accepted that QE3 will come to an end this year and that the program will be scaled back by $10 billion at most, if not all, future meetings.

The concern now is that the recovery will stall as a result, which will encourage businesses to invest less and result in lower levels of growth. Without the Fed’s asset purchases to support the markets, this is far from good news. This has contributed largely to the correction since the start of the year.

That said, I think people are overreacting to economic data from a couple of months that don’t necessarily represent the strength of the US recovery. We’ve heard over and over again that poor weather was behind the disappointing figures for December, the most notable being the non-farm payrolls – the net number of jobs added.

With the weather not improving in January, even worsening in parts of the country, and some data already showing it having detrimental effects, expectations for the non-farm payrolls figure today seem far too high. There are two problems with this. Firstly, if we do get a number in line with expectations of around 185,000, the response won’t necessarily reflect how impressive this is.

On the same note, if we get another poor number due to the weather, we’re likely to see a huge overreaction, with many claiming that the US recovery isn’t as strong as the Fed thought back in December when it announced its first taper. I don’t agree with this analysis. Clearly, in the lead up to the bad weather, the data was very good, in particular the fourth quarter GDP figure which showed high levels of growth, driven largely by spending, housing and business investment and with the government making significant cut backs in spending. This is very impressive and far more reflective of the state of the economy than a couple of jobs reports.

Should the data continue to disappoint in February and March then I will accept that the recovery may have stalled, but not based on December and January figures. With expectations so high, the markets are leaving themselves wide open to further declines in the coming weeks, which isn’t necessary, although some would argue, potentially in its best interest following the massive rally in 2013.

The other number which people will pay attention to is the unemployment rate, although there is a fair argument that this is having a diminishing impact on the markets, due to the drop being at least partly driven by a falling participation rate in the labour market. Until the Fed removes it as a threshold for an interest rate hike, people will continue to pay attention to it. This could come at the first meeting in March, Janet Yellen’s first in charge of the Fed, if we get another drop in unemployment today to that 6.5% threshold.

 

[Alpari UK]

Reaction to US Jobs Report

Looking at the markets, the jobs report was an absolute disaster. However, I see it as yet another example of people failing victim to their unrealistically high expectations. The report claimed the drop wasn’t driven by poor weather as it was compiled in the warmest week of the month but I don’t think the economy goes back to normal that quickly after such bad conditions. The revision higher was lower than I was expecting which is disappointing but I don’t think it was necessarily as bad a report as is being made out.

The unemployment rate fell to 6.6% which is a plus, and that was even though the participation rate increased. All in all, I don’t see the Fed paying much attention to this report. The February one is far more important as it won’t be distorted by poor weather. I expect this to be a far better report, in terms of jobs added, with it probably picking up a lot of the slack from December and January. A number above 250,000 next month is probably not unrealistic.

As you can see below, the volatility in the markets following the release was huge, which is not abnormal around the release of the jobs report. Most have now returned close to pre-NFP levels and in the case of equity indices, are trading above, which suggests we’re already seeing a no-taper decision from the Fed in March being priced in. When will traders ever learn that the Fed is not as sensitive to individual releases as they are?

EURUSD

GBPUSD

USDJPY

Gold

S&P 500

 

[Alpari UK]

Daily Market Update - 7 February 2014 - Alpari UK

http://www.youtube.com/watch?v=O4D8lRoAUCs&feature=c4-overview-vl&list=PL9AE6BFC876359986

 

[Alpari UK]

Weekly market preview – 10 February 2014

With the busiest week of the month now behind us, it’s time for the markets to try and absorb all of the information from the last seven days, make sense of it all and decide how they now position themselves going forward. Fortunately, this week should be no where near as manic as the last, but there’s still plenty to keep an eye on with US retail sales, Chinese trade balance and inflation, and Australian employment figures all being released.

On top of this we have Janet Yellen’s first testimony in front of the Financial Services Committee and Mark Carney delivering the quarterly inflation report. European Central Bank President Mario Draghi will also have his say when he speaks at the European Monetary Institute’s on Wednesday, which if Thursday’s press conference was anything to go by will surely create some waves.

US

Last week was all about piecing together all the parts of the puzzle that make up the US economic recovery, and if the markets told us anything it’s that investors can’t work out right now what’s going on. Is the US recovery on track? Will we see strong growth as we had in the second half of last year? Will the Fed taper and risk derailing what little recovery we’re seeing? Fortunately this week, at least some of those questions should be answered.

The highlight of the week will come on Tuesday, when new Fed Chairwoman Janet Yellen will testify on the semiannual monetary policy report in front of the House Financial Services Committee in Washington. In this 90 minute testimony, Yellen will first read a prepared statement, which in itself can sometimes contain hints about the future direction of the Fed, especially a Fed that’s under new leadership.
If that doesn’t do it then the I’m sure the Q&A that follows will. If you remember correctly, it was during the same testimony last July that Yellen’s predecessor Chairman Ben Bernanke first suggested that tapering could begin later in 2013, ending in the middle of 2014. At the time, markets reacted very strongly to this and it actually prompted the first run on the emerging markets, which eventually settled, before the same thing happened last month.

While we may not get such a big announcement on Tuesday, we will get the first reaction of the new Fed Chair to two months of poor job created. This could provide significant hints about the pace of tapering going forward, starting at the next meeting on 18-19 March.
On the economic data side, it’s looking like a relatively quiet week for the US, although this is hardly surprising given how manic the previous week was. Once again we’ll have to wait until the end of the week for the major economic releases, including the January retail sales and core retail sales figures, both of which are expected to show growth of 0.3%. December’s figure surprised to the upside, despite the poor weather so I’m not anticipating a big disappointment here.

Some view the retail sales figures as the best barometer for how the economy is performing because it people are spending more it shows they feel more safe in their job and are confident in the health of the economy. When you look at a country like the US, which relies so heavily on the consumer, this is an even better barometer of current and future economic performance. In simple terms, if people are spending more, companies hire in order to deal with the increasing demand, which in turn leads to more spending. We’ve saw how this can be a vicious cycle in 2008, it looks like we’re starting to see the benefits of it when it goes in the other direction.

Supporting this should be the UoM consumer sentiment figure, which is released on Friday. In January this fell slightly to 81.2, following a sharp spike higher the month before. I expect this to stabilise this month with improvements then coming over the next few as we approach summer.

UK

If we thought it was looking like a quiet economic data week for the US, that’s nothing compared to the UK. In the UK, there is only one notable piece of data being released and that is the BRC retail sales monitor for January. This measures the change in the same store sales for UK retailers. We’ve seen some pretty encouraging figures here over the last year and I see no reason to expect otherwise when it is released on Tueday. Looking back, there is absolutely nothing to suggest that January is normally a good or bad month, so I expect something roughly in line with December’s 0.4% increase.
The key event in the UK this week will be the quarterly inflation report when BoE Governor Mark Carney will give the central bank’s projections for inflation and economic growth. This is unlikely to have much impact on the markets for two reasons. Firstly the BoE’s projections have not been very good in recent years and are therefore not overly reliable. Secondly, we already know that the UK economy is performing well and that inflation is in line with the BoE’s target.
What we don’t yet know is whether Carney plans to change the BoE’s forward guidance, with unemployment having fallen much quicker that in initially anticipated. The rate currently stands at 7.1%, 0.1% above the threshold for when they will start considering an interest rate hike. Clearly this doesn’t provide the comfort for households and businesses that it was originally intended to.

Carney could use this opportunity to either reduce the unemployment threshold, to say 6.5%, or change the threshold altogether with unemployment clearly not being a very good option. Alternatively he could scrap it altogether. Whatever the BoE chooses, if they announce it on Wednesday, it is likely to have a significant impact on the markets. A premature interest rate hike remains one of the biggest threats to the recovery and people will be seeking more assurance from Carney on this.

Eurozone

It’s going to be a relatively quiet week in the eurozone, on the economic data front, although there are still a few releases which we should certainly watch out for. Th biggest of these comes on Friday, with the preliminary release of the fourth quarter GDP figures for Germany, France, Italy and the eurozone. The French figure will be the most keenly watched here, with the country flirting with another recession after contracting by 0.1% in the third quarter. The data in the fourth quarter wasn’t overly encouraging so there’s a very real chance that the country could be confirmed as being in recession on Friday.

The eurozone is expected to have grown by 0.2% in the fourth quarter. This is in line with the growth expectations for the region in the next couple of years, as the periphery continues with its austerity efforts and reforms and attempts to regain competitiveness. Germany, the engine for growth in the eurozone, is expected to have grown by 0.3% in the quarter.

There are a few other releases throughout the week but the only other event that has the potential to significantly move markets is ECB President Mario Draghi’s speech at the European Monetary Institute’s “Progress through Crisis” conference. The ECB refrained from cutting interest rates on Thursday, in an attempt to slow the rapid decline in inflation.

While Draghi gave a staunch defence of this decision in the press conference after, he may provide more insight into the kinds of tools they could use in the future, should inflation fall further and the threat of deflation become very real. He may also provide insight into when this could happen and what the most likely course of action would be. He wasn’t very clear on this during the press conference, which isn’t unusual

Asia & Oceania

As in the other areas of the world it’s going to be a relatively quiet week in Asia. The key economic releases will come from China, starting with the trade balance figure on Wednesday. People pay very close attention to this, especially the exports side given that, despite the efforts being made to evolve into a more consumer driven economy, the country is still very dependent on its export market. The figure has been quite strong in recent months, especially when compared to the rest of 2013. We’re expecting another decent figure for January of $24.2 billion.

The other key Chinese release will be the CPI inflation figure, released on Friday. Much has been made over the last 12 of the People’s Bank of China’s efforts to tighten monetary policy in order to reign in the shadow banking sector. Throughout this time though, inflation has remained in check, which has allowed the PBOC to be a little more flexible as it sees fit.

Should the inflation rate rise above, or even approach, its 3.5% inflation target, the PBOC could be forced to tighten conditions more than it would otherwise want, which could be extremely painful for the Chinese economy. This isn’t expected to have happened in January, although we could see a spike due to increased spending linked to Chinese New year.

The other notable release this week comes from Australia. The Reserve Bank of Australia was forced to issue a hawkish statement last week due to inflation pressures, which means they have little room to manoeuvre if we see another downturn in the economy. The latest labour report, released on Thursday should give us more insight into how the labour market is performing. Unemployment has been creeping higher since October, which is a concern, but another increase is not expected in January, with the rate remaining at 5.8%. At the same time, 15,000 jobs are expected to have been added following the shock drop of 22,600 in December.

 

[Alpari UK]

UK Opening Call from Alpari UK on 10 February 2014

European futures point to a positive start to the week

Today’s UK opening call provides an update on:

• European futures point to a positive start to the week;
• Investors claim the market correction is over;
• Focus on central bankers this week with Yellen, Carney and Draghi making an appearance;
• Slow data week, focus on eurozone investor confidence this morning.

European indices are expected to open around a half a percentage point higher on Monday, with the FTSE seen opening 25 points higher, the CAC 20 points higher and the DAX 43 points higher. The gains come after US indices record only their second positive week of the year, despite another disappointing jobs report on Friday, which then prompted a strong session in Asia overnight.

These minor gains have led many to suggest that the correction seen since the start of the year is over, which is something I’m not fully convinced of yet. Only last week, in the lead up to the release of the jobs report, everyone seemed to be saying that if we had another poor non-farm payrolls figure, it would be very bad news for the US economy.

Well, the number was very poor and the December figure was only revised up by 1,000, so either one of the above statements is wrong or we’re about to see a continuation of the bullish move in stocks at a time when people are worried about a slowdown in the US and the Fed is scaling back its support, in the form of quantitative easing.

As far as I’m concerned, it’s the second statement that’s incorrect and up until now, the poor December and January figures have simply been one excuse for a long overdue correction that has been healthy for the market. While I may need to see a little more evidence that it is over, there are a number of things that would suggest this is the case, including the fact that we rarely see a full 10% correction, with it usually being between 5-8%.

This week should be a lot quieter in terms of major economic releases, with the key focus being on the central banks, as new Fed Chair Janet Yellen testifies on the semiannual monetary policy report in front of the House Financial Services Committee, BoE Governor Mark Carney delivers the quarterly inflation report and ECB President Mario Draghi speaks in Brussels.

As for today’s it’s going to be a very quiet start to the week, which isn’t necessarily a bad thing as it allows investors to fully absorb all of the events from the previous seven days. There are a few low market impact pieces of data being released this morning, including the French and Italian industrial production figures, but I think the only noteworthy release is the eurozone Sentix investor confidence figure.

This is expected to fall back to 11, from 11.9 in January, which is still a very good number, under the circumstances, and highlights the improving confidence in the euro area. It’s also reflective of the fact that with money now being withdrawn from the emerging markets, the eurozone, in particular the periphery, is seen as an attractive option that is no longer seen as risky but offers an attractive yield.

 

[Alpari UK]

Daily Market Update - 10 February 2014 - Alpari UK

Chief Market Analyst James Hughes looks at this week's testimony from Fed Chief Janet Yellen testimony and sees how markets are reacting to a weaker than expected jobs report on Friday.

 

[Alpari UK]

UK Opening Call from Alpari UK on 11 February 2014

European futures point to a positive start to the week

Today’s UK opening call provides an update on:

• Indices seen opening higher ahead of quiet morning in Europe;
• UK retail sales rise 3.9% in January according to BRC;
• Business confidence and house prices on the rise in Australia;
• Yellen’s testimony takes centre stage this afternoon.

European futures are pointing to a moderately higher open again on Tuesday, with the FTSE seen opening 24 points higher, the CAC 8 points higher and the DAX 22 points higher. With little driving the recent improvement in investor sentiment, it’s looking more and more likely that the correction which started at the beginning of the year may well be over.

That said, to say it’s all up from here would be getting way too ahead of ourselves. This year is not going to be like 2013, when stock markets were making new highs every week regardless of whether economic data was strong or weak, or whether earnings season was good or expectations were just low. We’re likely to see a more considered approach this year, with investors no longer being able to rely on the Fed to give a reason to buy every dip.

We could be in for a very quiet start to the European session on Tuesday, with no economic data being released until this afternoon. There’s been a few releases over night, most notably the BRC retail sales number from the UK, which showed a significant pickup in consumer spending in January. The 3.9% increase in same store sales seen last month is the biggest rise since April 2011. With the consumer being so important to the UK economy, this is a very encouraging sign for the first quarter of the year.

There was also some good news for Australia, where NAB business confidence rose to 8 in January, up from 6 in December. At the same time, the house price index showed a higher than expected quarterly increase of 3.4%, which on the one hand is positive as it reflects confidence in the housing market. On the other hand, there have been fears of a property bubble in Australia so the Reserve Bank of Australia may not be too happy about this. Least of all because it further restricts their ability to loosen monetary policy in order to stimulate the economy and weaken the currency, which is now testing 90 cents against the greenback following these releases.

The key event today will be new Fed Chair Janet Yellen’s first testimony on the semiannual monetary policy report in front of the House Financial Services Committee. In the last two months the Fed has decided to reduce its asset purchases by $10 billion at each meeting, while the jobs report has given us very little to be happy about. This will be our first insight into the Yellen’s take on this which should help us understand whether it will encourage the Fed to slow the rate of tapering at the next meeting in March.

One thing is for sure, the House will Financial Services Committee will not go east on Yellen, just as they didn’t with her predecessor Ben Bernanke, so we could get some valuable insight about how the Fed plans to approach tapering and interest rates over the next couple of years. We should also get Yellen’s view on some other hot topics including the run on emerging markets which many blame on the pace of Fed tapering.

 

[Alpari UK]

US Opening Call from Alpari UK on 11 February 2014

Yellen testimony takes centre stage on Tuesday

Today’s US opening call provides an update on:

* US futures point to a fifth day of gains as the correction comes to an end;
* Yellen’s testimony takes centre stage today;
* Investors want to know what the recent poor data means for tapering.

US futures are pointing to a higher open on Tuesday, with the S&P seen opening up 8 points, the Dow up 66 points and the Nasdaq up 16 points, or around four tenths of one percent. This comes following four consecutive days of gains and another positive session in Europe and Asia, which suggests the correction may have finally run its course.

The correction since the start of the year saw 7.5% wiped off the Dow, more than 6% of the S&P and more than $3 trillion off global indices, before they started to recover late last week. It’s quite rare that we see a technical correction, which is a 10% pull back, so it’s looking more and more likely than stocks can now once again push on from here.

That said, this is unlikely to carry on as it did before, with investors buying the dips regardless of whether the news was good, bad or mediocre. With the Fed slowing the rate of asset purchases every meeting, investors will have to be much more calculated when it comes to which dips to buy and what constitutes good news. This should make for a much slower rally in equities than we saw last year, which is in no way a bad thing.

New Fed Chair Janet Yellen will have the opportunity to update everyone on the Fed’s monetary policy stance when she delivers the semiannual monetary policy report in front of the House Financial Services Committee today. The stance of the Fed is unlikely to have changed in recent months, despite the fact that the data has been largely disappointing, particularly job creation.

That said, people will be looking for any indication that the Fed could slow the rate of tapering at the next meeting in order to allow the economy to pick up again, before continuing with its plan of ending quantitative easing this year. The Fed has stated previously that tapering is not on a set path and it could be slowed if the data deteriorates. Yellen’s comments should tell us whether the recent data is bad enough to constitute pause in tapering.

As it stands, I don’t think investors expect it will, especially as the Fed announced a second taper in January, despite the December numbers being far from satisfactory. With that in mind, it will be interesting to see what kind of an impact it would have on the markets if Yellen hinted at a slowing of tapering. Would investors take the short-term view and celebrate more asset purchases, or have they moved on from that and would therefore respond negatively to the Fed’s concern that the poor data could continue. One thing we could deduce from Friday’s response is that investors aren’t too sure what to celebrate at the moment.

Aside from this, there’s very little to focus on today, with the economic calendar looking very thin and corporate earnings season playing less of a role.

 

[Alpari UK]

Daily Market Update - 11 February 2014 - Alpari UK

Markets higher as correction appears to be over - 00:09
Strong Australian releases push the AUD higher - 00:25
Janet Yellen testimony due to highlight monetary policy approach as Fed chair - 00:46

Research analyst Joshua Mahony discusses the ongoing strength seen in global markets. He mentions the overnight release of positive Australian data which has fed further into the AUD strength. However, it is the testimony from Janet Yellen which dominates today and Joshua discusses what he is looking out for in the session.

 

[Alpari UK]

UK Opening Call from Alpari UK on 12 February 2014

Carney in the spotlight as investors seek interest rate guidance

Today’s UK opening call provides an update on:

• Investors encouraged by Yellen’s view on the economy;
• Australian consumer confidence falls faster than expected;
• Doubts raised over Chinese trade balance figures again;
• BoE inflation report in focus as investors look for better guidance on interest rates.

European indices are expected to open in positive territory on Wednesday, with the FTSE seen opening up 12 points, the CAC up 11 points and the DAX up 29 points. The gains came following another positive session in the US and Asia overnight, where traders were encouraged by Fed Chair Janet Yellen’s testimony in front of the House Financial Services Committee.

Yellen confirmed that the Fed intends to continue to taper its asset purchases every month with the aim of ending them altogether later this year and was confident that the poor data seen in December and January didn’t truly reflect the strength of the recovery in US. She also suggested that the weather likely skewed the figures, despite one aspect of the jobs report on Friday suggesting otherwise, which in turn would suggest that the market is reading far too much into the recent figures.

This confidence from Yellen clearly fed back into the markets, where investors didn’t really need much of a boost given that US stocks were already headed for a fourth consecutive winning day, while indices in Europe were closing in on a fifth. It seems that investors are now convinced that the correction is over and are once again happy to buy the dips, although maybe not quite as aggressively as they were at times last year.

The data overnight did little to impact sentiment, positively or negatively, with the drop in Australian consumer confidence not coming as a huge surprise, although it did initially weigh on the Aussie currency, which is now trading back at one month highs.

More surprising was the Chinese trade balance figures, which appear to have been shrugged off altogether despite being significantly better than was expected. Given the history surrounding these figures, with the exports figure in particular being distorted by companies falsely recording capital inflows as exports, it shouldn’t be too surprising that this has been overlooked.

The figures were far better than expected, especially the exports figure which people expected to be much lower due to the over inflated figures last year which came before the crackdown on these kinds of practices. The much better than expected data has called the reliability of the data into question again, forcing most to simply ignore the data, as if it had not been released.

Once again today we have very few pieces of economic data being released. The key event will be Bank of England Governor Mark Carney delivering the UK quarterly inflation report, in which he will give the central bank’s forecasts for growth and inflation. While this is clearly important, with growth expectations likely to fall largely in line with current forecasts and inflation likely to remain close to the BoE’s target, this is not what people are going to be tuning in for.

Instead, people will be hoping that Carney addresses the BoE’s forward guidance, which was introduced during his first quarterly inflation report last year. Unemployment has fallen much faster than expected and is currently only 0.1% above the threshold that the central bank gave for when it will start to consider an interest rate hike. Given that they only expected this to happen next year, it has completely negated what the guidance was meant to achieve.

During today’s press conference, Carney may use this opportunity to either scrap the guidance altogether, instead insisting that the economy is improving and there’s no need for such guidance any more, while claiming that a interest rate hike is not likely any time soon. Alternatively, he may amend the guidance, either by lowering the unemployment threshold or changing it to something else altogether. Whatever he does, we can only hope it does more to assure the markets than his last attempt did.

 

[Alpari UK]

Daily Market Update - 12 February 2014 - Alpari UK

James Hughes Chief Market Analyst takes a look today's inflation report, what it means for the UK economy and looks at how the currency and equity markets have reacted to Mark Carneys statement.

 

[Alpari UK]

UK Opening Call from Alpari UK on 13 February 2014

European indices set to pare recent gains

Today’s UK opening call provides an update on:

• European indices set to pare recent gains;
• Focus on German inflation and Greek unemployment this morning;
• Yellen’s testimony postponed due to winter storm warning.

European futures are pointing to a slightly lower open on Thursday, with the FTSE currently seen opening down 15 points, the CAC down 6 points and the DAX down 13 points. This comes after a very good February so far for European stocks, so a fifth of a percentage point drop in pre-market trading is nothing really, just a small correction on the path back to highs we were trading around in the middle of January.

Indices have now erased most of the losses made in the wake of the emerging market turmoil, which was essentially just an excuse for a long overdue correction. This is a completely healthy part of the bull market and most were happy to see it. With that now behind us though, we need to see new 2014 highs being made or we could see a little unease creep back into the markets as investors question whether it was indeed a small correction or the start of something much bigger.

Thursday is shaping up to be relatively quiet, particularly the morning part of the European session with a severe lack of economic data being released. There are a few figures being released but these have proven to have minimal impact on the markets in the past, such as the final German CPI figure and the Greek unemployment rate.

Low inflation is a known problem in the eurozone, one that the ECB appears to be very reluctant to tackle. The German figure, expected to fall to 1.3%, highlights the concern that these low levels of inflation are not just occurring in the periphery, where countries are undergoing painful austerity programs in order to regain competitiveness, which effectively leads to intentional deflation. If we’re also seeing low inflation in Germany, then this is a problem in the whole region and the ECB is effectively ignoring its mandate in doing nothing about it. This does raise questions over the ECBs independence as its decisions are clearly being influenced by the desire to not ease up on those countries undergoing tough reforms and austerity programs.

The ECB monthly report will also be released this morning, although this generally has very little, if any, impact on the financial markets. If we were unsure as to why the ECB aren’t cutting rates, this could prove useful, but we know it’s because inflation expectations are in line with its mandate of below, but close to, 2%.

There are a few more notable pieces of data being released later on in the US session, although one thing we’ll have to do without is Fed Chair Janet Yellen’s testimony in front of the Senate Banking Committee after it was postponed due to weather warnings. Tuesday’s testimony in front of the House Financial Services Committee didn’t offer much that we hadn’t already assumed so it’s probably no big miss.

 

[Alpari UK]

Daily Market Update - 13 February 2014 - Alpari UK

* Low inflation not just a concern in eurozone periphery
* Greek unemployment rises to all time high
* US retail sales and jobless claims key this afternoon

 

[Alpari UK]

UK Opening Call from Alpari UK on 14 February 2014

Europe flat ahead of eurozone GDP readings

Today’s UK opening call provides an update on:

* European indices expected to open relatively flat;
* Investors surprisingly upbeat despite more poor US data yesterday;
* France avoids recession with marginal growth in Q4 and upward revision to Q3 figure;
* Italy expected to announce quarterly growth for the first time since Q2 2011 as Prime Minister Letta resigns.

European index futures are looking pretty flat ahead of the open on Friday, with the FTSE seen opening 7 points lower, the CAC 2 points higher and the DAX 21 points higher. Only the DAX move represents more than a tenth of a percentage point move in either direction from yesterday’s closing price so therefore point to a relatively unchanged open.

I guess we should be quite encouraged by this considering the US data yesterday afternoon wasn’t exactly encouraging. Not only were retail sales for January lower than expected, December’s number was revised lower and the weekly jobless claims were higher, raising further fears about the strength of the labour market.

Still, investors remained quite positive, focusing instead of the earnings results along with reports of increased M&A activity. I guess Fed Chair Janet Yellen’s assurances about the economy on Tuesday didn’t do any harm either, as she highlighted the temporary distortions in the data due to adverse weather conditions. I think this was pretty clear all along but when markets are a little overstretched, as they were at the end of the year, investors will use anything as an excuse to sell, or lock in profits.

Investor sentiment at the end of the week could be determined by this morning’s fourth quarter GDP figures for a number of eurozone countries and the region as a whole. Things have got off to a very good start, with France managing to avoid another recession, with growth of 0.3%. As it turns out, a recession was never really on the cards, as the previous quarters reading was revised out of negative territory, to 0%. While this is good news, it does represent yet another quarter of marginal growth in France, with forward looking data, such as PMI readings, showing no sign of improvement.

Still to come we have GDP readings for Germany, Italy, Greece, Portugal and the eurozone as a whole. The Italian release could mark a turning point for the country, with it having not recording positive quarterly growth now since the second quarter of 2011, resulting in the longest recession on record. Expectations today are for 0.1% growth, which isn’t much but hopefully it’s a sign that, slowly but surely, things are starting to improve. Although, given the fresh political crisis, with Prime Minister Enrico Letta being forced to hand in his resignation, it may be a little early to celebrate.