Forex research

[Alpari UK]

US Opening Call from Alpari UK on 14 February 2014

US futures flat ahead of key consumer reading

Today’s US opening call provides an update on:

* Eurozone grows faster than expected in Q4;
* Letta’s resignation overshadows first quarterly growth figure since Q2 2011;
* Focus turns to US consumer as the week draws to a close

Indices are expected to open relatively flat on Friday, following a very good week for US equities, with the S&P seen opening unchanged, the Dow 9 points higher and the Nasdaq 4 points higher.

It’s been a positive start to the day in Europe with GDP figures exceeding expectations pretty much across the board in the eurozone. It all got off to a great start as we learned that not only did France avoid falling into recession in the fourth quarter, with 0.3% growth, it was never at risk of recession in the first place as it never contracted in the previous quarter. The initial -0.1% reading was revised to 0%.

Clearly this tiny amount of growth still isn’t good enough for a country like France, but avoiding another recession and recording some growth is a good platform for improvement. Just look at the UK last year to see what a difference it can make. It may be difficult to quantify, but I fully believe that headlines highlighting higher levels of growth rather than recessions have an impact on consumer sentiment and therefore growth in the quarters ahead.

The figures were also better than expected for other countries, with Germany once again leading the way with 0.4% growth. The eurozone as a whole also performed better than expected, with 0.5% in the final quarter of the year, up from 0.1% in the third.

It’s been a mixed day for Italy, as news of the first quarterly growth figure since the second quarter of 2011 was completely overshadowed by reports that Prime Minister Enrico Letta will resign after the Democratic party called for a change of government. Political instability in Italy is unfortunately not that uncommon but it was hoped that the coalition government that was formed last year could drag Italy out of the rut it is in. Clearly the Democratic Party believe not enough has been achieved on the reform and growth side and have decided it’s time for a change.

This doesn’t appear to be weighing on sentiment this morning, although this may be due to the fact that reports yesterday had all but confirmed this would happen. Investors are instead choosing to focus on the positives around the better levels of growth in the region.

The end of the week in the US should be relatively quiet, although there are a couple of important pieces of data being released that could impact the markets. Industrial production in January is expected to have grown by 0.3%, the same as in December, which given the difficult months, on the weather front, isn’t too bad at all.

Finally we have the preliminary UoM consumer sentiment reading which is going to have additional importance following yesterday’s disappointing retail sales figures. This figure should tell us whether the data in December and January was just weather related or whether it is the start of a longer, and troubling, trend.

 

[Alpari UK]

Daily Market Update - 14 February 2014 - Alpari UK

More Italian political turmoil as Prime Minister Letta resigns - 00:09
Italy records its first quarterly growth since 2011 - 03:55
France avoids falling into another recession - 05:05
US consumer confidence remains higher despite tough couple of months - 07:15

 

[Alpari UK]

Weekly market preview – 17 February 2014

A somewhat busy week ahead for the markets, as traders seek to gauge whether recent strength is ill-founded or likely to continue apace. US markets will be dominated by the release of the minutes from the last FOMC meeting which saw the second taper in as many months. In the UK, the release of jobs data on Wednesday is sure to garner substantial attention given the tumble in unemployment seen recently. Meanwhile in the eurozone, the release of key PMI data will dominate as the leading indicator provides clues to what is forthcoming for the single currency region.

In Asia, the Chinese HSBC manufacturing PMI will shed light on a region which has been showing clear signs of another slowdown given recent announcements. Meanwhile in Japan, the GDP figure will provide greater transparency as to how the economy is growing amid ongoing easing and an impending rise in consumption tax.


US

The US markets have been receiving somewhat mixed signals of late, with disappointing data being supported only by Janet Yellen’s insistence that the Fed will continue to accommodate and support the economy going forward. It is with these factors in mind that we are looking towards the week ahead, with the FOMC minutes and CPI inflation figure taking the limelight.

First of these is Wednesday’s release of the latest minutes taken from the January FOMC meeting which resulted in a second taper in asset purchases. Given that this taper came off the back of a substantially lowered payrolls figure, the signs are pointing towards substantial emphasis behind the Fed plan to end all asset purchases by the end of 2014. However, it is worth noting that this previous payrolls figure was deemed a one off, affected by the adverse weather seen across the US. However, with the second consecutive poor payrolls figure coming soon after this meeting, it will be interesting to see if there are any indications of what would constitute worthy of halting the regular reductions in the size of the asset purchase policy.

On Thursday, the release of the CPI inflation measure is likely to draw significant attention, with the tightening of monetary policy in the limelight. The target of price stability is something which dominates all central banks in the western world, and the US is certainly no different. Thus as the Fed retract their stimulus, it is key to watch for signs of whether the economy is moving towards a deflationary scenario. Should the inflation rate threaten to move even lower, it could see the monetary policy adjusted to stave off such a threat. Estimates point towards the year on year CPI figure remaining at 1.5%, with the monthly figure falling to 0.1% from 0.3%.

UK

A notable week in the UK, where the release of the CPI inflation figure, jobs data and retail sales figures are likely to bring a significant degree of volatility. The first of these is the CPI figure, due on Tuesday morning. Much like the US CPI release, this figure is worth watching out for given that the primary mandate of the BoE is to provide price stability. Fortunately, the current 2.0% rate of inflation is the target for the BoE and thus barring any significant jumps we are unlikely to see any major volatility.

On Wednesday, we are expecting the most volatility, where the release of the jobs data will highlight whether the improvements seen over the past four months are set to continue apace. The unemployment rate, currently standing at 7.1% is the lowest seen since early 2009 at which point the rate was rapidly on the rise. Thus the fact that the UK unemployment is so rapidly falling is a testament to the positive transition the economy is currently within. Mark Carney’s previous stipulation that upon reaching 7.0%, the BoE would consider raising interest rates appears to now be out the window, after issuing ‘forward guidance 2.0′. Thus whilst the reduction of this measure may be somewhat less critically linked with monetary policy, there is certainly going to be some aspect of interconnectedness between the health of the jobs market and monetary policy going forward.

Finally, the release of retail sales data on Friday is expected to pull back somewhat following the highest rate of month on month growth seen since 2008. Retail sales are a key barometer of economic health from the viewpoint of the everyday person. Given that retail sales are influenced by both current and future conditions, this figure is both current and forward thinking. This predictive element is due to the fact that many large purchases are made against a backdrop of future expectations of employment, earnings and future inflation. The market expectations are for a -0.9% pullback compared to December, yet given the strong reading from the BRC earlier this month, I am hoping for a somewhat better figure to be released.

Eurozone

This week is likely to be dominated by the release of the ZEW economic sentiment figures for both Germany and the eurozone, followed by Thursday’s raft of PMI figures. Firstly, Tuesday’s German and eurozone ZEW economic sentiment releases provide a valuable insight into the outlook of German institutional investors and analysts as to the direction and health of both the country and single currency region. Of the two, the German figure is typically the most important given that it is compiled within the country. What is notable is that forecasts are pointing to a divergence of the two figures, where the German number is expected to remain static, whilst the eurozone figure pushes higher. However, given that the German figure is coming off the highest levels seen since well before the 2007 crisis, this is not something to worry about. The positives are really there to be taken from the eurozone figure though, which has continued to push higher, reflecting significant improvements within perceptions of the recovery. Market estimates point towards a rise from 73.3 to 73.9, where the German figure is estimated to remain at 61.7.

Later in the week, the release of a whole host of manufacturing and services PMI figures are likely to make for an interesting Thursday morning. The French and German PMI figures are always important given that they represent the two largest countries within the single currency and thus are key to driving forward growth within the region. In the past, PMI figures have been seen as crucial predictive barometers for bigger headline events such as the GDP and alike. Thus it is worth watching out for any significant moves towards or away from the 50.0 mark which constitutes expansion from contraction. Of the releases, it is the French PMI figures which are the most worrying, given that we have seen contraction for such an extended period of time. The French manufacturing PMI has been contracting since mid 2011 and this has been slow to improve, with 5 of the last 6 figures coming in worse than expected. Estimates point towards a rise to 49.8 from 49.3, which is very close to that crucial 50.0 mark. Thus I am looking out for a potential push back into expansion to spark markets into life and grab the headlines.

The German and eurozone figures are somewhat safer, with figures well away from that crucial 50.0 mark. However, look out for the German manufacturing PMI in particular, which is expected to rise significantly this month. Given that the German manufacturing sector adds more to the eurozone than any other industry in any country in the single currency region, such a rise would be highly bullish for the region. Estimates are pointing towards a jump to 56.5 from 54.3, which would be the highest level since mid 2011.

Asia & Oceania

China comes back into focus this week, as the weaknesses seen particularly in the manufacturing sector may be highlighted yet again. The sell-off seen in the emerging markets over the past few weeks was initiated in large part by the tumbling HSBC manufacturing PMI figure seen last month which fell back into contraction. Unfortunately February is not looking any better, with the preliminary figure expected to fall further into decline, from 49.5 to 49.4. The HSBC reading is key given that it is impartial as opposed to the official readings. It is also more focused upon the smaller and medium sized businesses rather than the larger ones and it is those whom tend to feel tightening credit conditions and demand issues first. Be sure to watch out for this figure as a potential market mover given what happened last month.

Finally, in Japan the preliminary GDP reading will dominate the headlines, given that the economy is showing signs of strength in response to the the monetary easing measures undertaken by the BoJ. Questions have been asked as to whether the Japanese economy can handle the proposed rise in sales tax which is due to be introduced in April. Thus it is imperative that we see continued improvements in the likes of the GDP and consumption figures. Estimates point towards a rise to 0.7% in Q4 2013, from 0.5% in Q3.

 

[Alpari UK]

UK Opening Call from Alpari UK on 17 February 2014

Europe looks higher as markets question whether correction is over

Today’s UK opening call provides an update on:

* Indices to open relatively flat as traders question whether correction is over
* New Zealand data disappoints following strong recent gains
* Japanese GDP slows despite high expectations
* Chinese lending points to ongoing accomodative environment

European index futures are looking somewhat slow today, as a relatively quiet start to the week means that there are few real market drivers. The correction seen throughout the early part of this year appears to be over, yet similarities between the past year in the DJIA and the lead up to the 1929 crash have investors worried. That almost mirror between the two points towards a possible sharp sell-off in the forthcoming weeks and thus there is a degree of scepticism in the markets until we manage to create a new high. Currently, the European markets are expected to open marginally higher, with the FTSE100 +1, CAC +20 and DAX +40 points.

The New Zealand economy came back into focus over the weekend, as the release of retail sales data saw the first disappointing figure of 2014. The Island nation seems to have been a shining beacon over recent months, with falling unemployment and central bank which is likely to be the first to buck the trend by actually raising rates rather than promising to keep them low for an extended time. This highlights the ‘carry trade’ prospects of the kiwi dollar, which is turn has risen to a February high in Friday. However, having initially rejected a key resistance level at 0.838, questions are being asked as to whether we are likely to transition into a medium term uptrend or push lower once again.

Subsequently, the release of poor retail sales data thus comes at an opportune moment, given that this is the first disappointing tier one release of 2014. However, the muted response seen in the NZDUSD market so far likely reflects the fact that the release portrays a retail sector which is still growing, albeit at a somewhat lesser pace than expected. The retail sales figure is always hugely important given that it act as a barometer of both current and future expectations with regards to employment, earnings and inflation. However, with the rate of retail sales typically fluctuating around parity on a regular basis, it remains to be seen whether this is enough to begin another phase of selling in the kiwi.

Asian markets ended the session higher, despite disappointing GDP data out of Japan. Much of this was driven by credit conditions in China, which saw stronger than expected lending from creditors of 1.32 trillion yuan ($218 billion) worth of new loans last month. Given that this comes amid markets worrying whether the PBOC will be tightening conditions, there is now increased confidence that the environment remains relatively accomodative.

On a more negative tone, the Japanese saw their GDP figures fall short, with Q4 seeing a rise of only 0.3% despite expectations closer towards 0.7%. On an annualised basis, this is only a 1% rise and clearly in not enough for an economy which needs to be thriving ahead of a proposed consumption tax in Q2. I had expected to see growth really pick up ahead of the tax rise, where people make their significant purchases ahead of time to ensure they receive a better price. However, this does not appear to be the case and thus there are worries as to whether we will see a dramatic drop in consumption once the tax is imposed.

Markets are expected to be relatively quiet today, where the release of few data points coincides with a public holiday in the US owing to Presidents day.

 

[Alpari UK]

Daily Market Update - 17 February 2014 - Alpari UK

Chief Market Analyst James Hughes looks at the situation in Italy and runs through todays movements on currency and equity markets as US markets are closed for Presidents Day.

 

[Alpari UK]

UK Opening Call from Alpari UK on 18 February 2014

Big UK data week starts with today’s inflation readings

Today's UK opening call provides an update on:

• Nikkei flies, yen tumbles on BoJ cheap loans extension;
• Big week of data for the UK, starting with today's inflation readings;
• Eurozone economic sentiment expected to improve again in February;
• US traders return to their desks following long bank holiday weekend.

European futures are pointing to a slightly higher open on Tuesday, with the FTSE currently seen 11 points higher, the CAC 1 point higher and the DAX 10 points higher.

These gains follow positive session in Asia overnight, particularly Japan, where the Nikkei was boosted by the news that the Bank of Japan will extend two programs that offer cheap loans to banks by a year. This is good news for the economy but I think the reaction was a little over the top, with the Nikkei rallying more than 3% and the Japanese Yen sliding against the dollar.

There's a lot of important economic data being released today, with a particular focus on the UK. Ever since Bank of England Governor Mark Carney announced the changes to forward guidance to remove the focus from just the unemployment rate, the other pieces of tier one economic data have become even more important. This week there is plenty of these scheduled for release, starting today with a batch of inflation figures.

The most important of these inflation readings is the consumer price index, as this is the one the BoE pays most attention to. In December, inflation fell back to 2%, in line with the BoE's target for the first time since November 2009. This is where it is expected to have remained again in January, which is supportive for the recovery for two reasons.

Firstly, and most importantly, it means the BoE is under no pressure to hike interest rates and risk choking off what little recovery we're seeing. Secondly, it means that the gap between wage growth and inflation is narrowing, which is good because it eases the pressure on families who are struggling due to the rising cost of living. This allows the consumer driven recovery to continue as people can buy more with their money. Of course, this is still not sustainable in the long term if spending is being funded by debt, but it should aid the transition to the next stage of the recovery which involves businesses investing more in an improving economy.

Other inflation readings may also be taken into consideration by the BoE, especially the PPI reading which can be a useful indicator of future price hikes for the consumer. Recent readings have been relatively low which suggests inflation is going to remain within the central banks target in the near future.
There is also a couple of important pieces of data for the euro area, with ZEW releasing its economic sentiment survey's for Germany and the eurozone. The former is expected to remain in line with January's release, at 61.7, which being well above 0, the level that separates optimism from pessimism, is very encouraging. Even more encouraging is the fact that the eurozone figure is expected to rise to 73.9 from 73.3. This figure has risen rapidly over the last 12 months, as the eurozone and a number of its member states have climbed out of recession.

Over in the US, traders will return following their long weekend after celebrating Presidents Day on Monday. While this will provide a boost to trading volumes which were typically lower as a result of their absence on Monday, the session itself should be a little quiet with the lack of data providing little in the way of catalysts. The only notable release here will be the Empire State manufacturing index which is expected to fall to 10 from 12.51 in January.

 

[Alpari UK]

Daily Market Update - 18 February 2014 - Alpari UK

BoJ doubles incentives to spur bank lending - 00:22
UK CPI falls to 1.9% from 2.0% - 02:09
ZEW survey points to medium term worries from EM and US - 03:26

Research analyst Joshua Mahony discusses the spike in Japanese equities overnight following a BoJ announcement. He also discusses the UK CPI fall, which has hit 1.9%. Finally Joshua mentions the mixed ZEW survey and what it means for economic outlook in both the Eurozone and Germany.

 

[Alpari UK]

US Opening Call from Alpari UK on 18 February 2014

US futures flat after a quiet start to the week in Europe

Today’s US opening call provides an update on:

* US markets reopen after quiet start to the week in Europe;
* UK inflation falls below 2%, weighing on sterling and boosting the FTSE;
* Economic sentiment takes a hit in the eurozone in February;
* Manufacturing the highlight of the US session

Indices are expected to open relatively unchanged on Tuesday following the long weekend in the US, with the S&P seen 3 points lower at 1,835, the Dow 7 points lower at 16,147 and the Nasdaq 8 points lower at 3,655.

The markets were relatively quiet on Monday which isn’t uncommon during a US bank holiday. The lower trading volumes were not helped by a severe lack of catalysts, with the Asian and European sessions offering very little direction for the markets, either with economic data or earnings.

There’s been more to speak about on the economic data front this morning though, with UK inflation data bringing about some weakness in sterling. The CPI figure for January fell to 1.9%, from 2% in December, which is a positive thing for now as it is comfortably within the Bank of England’s target of around 2%.

However, we did see some selling in sterling as falling inflation makes it less likely that the BoE will hike interest rates later this year, something that some analysts have been predicting will happen and that had driven the pound higher. While this is negative for sterling, it is very good for the UK economy as it means there’s less chance of the recovery being choked off by a premature rate hike and it continues to close the gap between wage growth and the cost of living.

The ZEW economic sentiment figures for Germany and the eurozone were not so good, with both falling well below expectations and the German figure recording its second monthly decline. This has weighed on investor sentiment this morning, pushing European indices lower, with the Euro STOXX 600 and the CAC down around 0.5% and the DAX lower by 0.2%. The FTSE isn’t holding up too bad, trading 0.02% lower, boosted slightly by that inflation reading.

The first day of the week for the US is likely to be a quiet one, with very little economic data being released and little direction coming from Europe. The only notable release today is the Empire State manufacturing index which is expected to fall to 9 in February, from 12.51 the month before.

 

[Alpari UK]

US Opening Call from Alpari UK on 19 February 2014

US futures lower ahead of the opening bell on Wall Street

Today’s US opening call provides an update on:

* US futures lower ahead of the opening bell on Wall Street;
* FOMC minutes, housing data and Fed speeches in focus on Wednesday;
* UK unemployment rises despite larger than expected drop in jobless claims

US futures are pointing lower ahead of the opening bell on Wednesday following a mixed start to the week. As it stands, the S&P is seen opening 6 points lower at 1,834, the Dow 50 points lower at 16,080 and the Nasdaq 10 points lower at 3,669.

It’s not surprising to see last week’s bullish sentiment cooling a little, considering that US markets have just had their best week of the year so far. There’s also been a lack of positive catalysts so far this week which could be used as an incentive for traders to buy. This is a result of both the bank holiday on Monday and the light economic calendar when traders returned to their desks yesterday.

Things should hopefully pick up though, with plenty of economic data, FOMC minutes and speeches from Fed officials all scheduled for today. The data seen so far for December and January has not been great, largely due to the unusually bad weather for these months, and I expect the same to true of the January housing data being released today.

Building permits and housing starts are both expected to be slightly lower than in December, dropping 6,000 to 0.98 million and 49,000 to 0.95 million, respectively. While some have looked at these disappointing figures as a indication that the housing market is slowing due to higher mortgage rates, I’m not yet convinced. Numbers are still high, even compared to earlier last year, and I’m sure they’ll continue to rise as the weather improves.

The FOMC minutes will be the highlight of today’s schedule, as investors look for further evidence that the Fed will not be driven off the current course of tapering by the disappointing figures seen in the last couple of months. I think it’s quite clear at this stage that tapering will continue in March, and probably in the months following, based on the comments from Fed Chair Janet Yellen and other FOMC members. However, traders are always looking for additional confirmation, or even hints that everyone at the Fed is not on board with the current roadmap.

Also providing clarity will be Fed members Dennis Lockhart and James Bullard, with both scheduled to speak later on in the US session. I don’t expect the tone of these to be much different with Bullard a known hawk – also a non-voting member this year – and Lockhart recently stating that he does not expect the rate of tapering to change unless there’s a serious deterioration in the economic outlook, which the recent figures don’t support.

The European session has been fairly negative so far on Wednesday, sending the major indices in the region down by around half a percentage point. The major focus this morning has been on the rise in the UK unemployment rate which rose to 7.2% despite a higher than expected 27,600 drop in jobless claims and an improved revision to December’s number.

 

[Alpari UK]

Daily Market Update - 19 February 2014 - Alpari UK

European markets fall - 00:09
UK employment data paints mixed picture - 00:22
Real wages trend improves after earnings grow above estimates - 02:17
Looking ahead for FOMC minutes - 02:58

Research analyst Joshua Mahony discusses the UK unemployment figures which have painted a mixed picture somewhat. He also discusses the impact the rise in average earnings could have upon the economy. Looking ahead Joshua discusses the FOMC minutes which are due to be released later today.

 

[Alpari UK]

UK Opening Call from Alpari UK on 20 February 2014

Today's UK opening call provides an update on:

• FOMC minutes spark fears of premature rate hike;
• Chinese manufacturing contraction gathers pace in February;
• Eurozone PMI readings in focus this morning;
• Plenty of US data being released later.

It could be a rough day for the markets on Thursday as a double whammy of hawkish Fed minutes and another woeful manufacturing PMI from China crush investor sentiment overnight. The FTSE is currently seen opening 45 points (0.67%) lower, the CAC 34 points (0.78%) lower and the DAX 91 points (0.95%) lower.

The FOMC minutes, released yesterday evening, were largely as we expected. They showed officials supporting the continuation of tapering, despite the recent blip in the economic data which they agree has probably been distorted by abnormally bad weather. What wasn’t expected was for some members to call for a rise in the short term interest rates as early as the middle of this year.

It’s worth stressing at this stage that this outcome is extremely unlikely as the Fed, as a whole, would not want to risk choking off what recovery we have seen so far unless they absolutely have to. With inflation currently well below the Fed’s target, I see no obvious reason why this would even be considered. Therefore the reaction in the market is once again just overdone and will probably correct itself in the coming days.

However, fears of a hard landing in China are not likely to go away very quickly, especially when key surveys like the HSBC manufacturing PMI, show a hugely important sector for the economy contracting at a faster rate than expected. The February number fell to 48.3, following its surprise move into contraction territory only last month. In January, this was the straw that broke the camel’s back and prompted huge capital outflows from emerging markets as investors panicked about an emerging market crisis this year due to Fed tapering.

This has since calmed down and today’s figure is unlikely to spark a similar reaction, but as we’ve seen, it will weigh on investors sentiment somewhat, at least for now. This wasn’t helped by reports over night that the People’s Bank of China sucked another 60 billion yuan out of the money markets. In all likeliness, this has probably just offset the cash it injected into the markets just before the Lunar New Year, but the timing was unfortunately not great.

The distortions in the economic data around the Lunar New Year could potentially be responsible for the sudden drop in the manufacturing figures, but we won’t know this until the next figures are released in March. For now, we may just see a little more caution from investors, who have seen how quickly one poor number can escalate into significant risk aversion.

Flash manufacturing and services PMIs for Germany, France and the eurozone will be the key focus this morning, with most of the releases expected to point to a slight improvement, or in the case of the eurozone manufacturing PMI, remain unchanged but comfortably in growth territory.

The French figures could surprise to the upside after GDP data last week showed that not only did country grow faster than expected in the fourth quarter of last year, it never contracted in the third quarter as we previously believed, meaning the threat of another recession was never really there. Positive news like this, despite technically being very small, can have a significant impact on confidence, as we saw in the UK last year when it just averted a triple dip recession and the double dip was revised away.

There’s also plenty of data being released in the US later, including a couple of its own manufacturing surveys, weekly jobless claims and the CPI inflation data. In and amongst all that, we do have one more eurozone figure being released, the CB consumer confidence figure, which is expected to improve slightly to -11.25 from -11.7, showing that people are slowly becoming less pessimistic about the outlook.

 

[Alpari UK]

US Opening Call from Alpari UK on 20 February 2014

US futures lower as PMIs further weigh on sentiment

Today’s US opening call provides an update on:

* Chinese manufacturing PMI further weighs on sentiment;
* Eurozone PMIs fail to lift investors;
* US inflation data, jobless claims and manufacturing PMIs in focus today

US futures are seen opening lower on Thursday, after Chinese and eurozone PMIs added to the negativity in the market, which was initiated by the release of the FOMC minutes yesterday. The S&P is currently seen opening down 2 points, the Dow down 14 points and the Nasdaq down 6 points.

The Chinese HSBC manufacturing PMI caused quite a stir in the Asian session over night and has continued to weigh on sentiment during the early part of the European session. It was move into contraction territory, below 50, of this figure in January that was the catalyst for the major sell-off in emerging market currencies, which sparked significant risk aversion in the markets.

The figure fell even deeper into contraction territory in February, reaching seven month lows of 48.3, and bringing back fears of a hard landing in China. I don’t think these will materialise as we had the same fears last year and the targeted stimulus effort from the government, along with an improving economy in other areas of the world, proved enough to keep growth above the minimum 7% target. That’s not to say I don’t expect growth to slow in the years ahead, but I think talk of a hard landing is premature.

The negativity was compounded this morning by a batch of disappointing PMIs from the eurozone, where only the German services PMI managed to exceed expectations. The French services PMI on the other hand slipped back to nine month lows of 46.9, which will undoubtedly raise concerns about whether the country can actually record consistent growth this year, having just avoided another recession at the end of 2013.

There plenty more data scheduled for release today, with CPI inflation data, weekly jobless claims and the manufacturing PMI all being released before the opening bell on Wall Street. The CPI inflation figure is unlikely to have much impact on the markets, with the core personal consumption expenditure index being the Fed’s preferred measure of inflation. Although that doesn’t mean the Fed, and the markets, won’t sit up and take notice if we do get a spike in the figure.

The start of tapering has brought the labour market even more into focus, with traders looking for signs that the recovery is slowing which could prompt the Fed to slow the rate of tapering. So far, poor weather has been blamed for the disappointing December and January jobs reports, while jobless claims have also been inflated at times. The numbers over the last couple of weeks have been a little better and we’re expecting this week’s to be similar at 335,000.

There’s also a couple of manufacturing figures being released today, the preliminary reading of the official manufacturing PMI and the Philly Fed manufacturing PMI. Both of these are expected to fall slightly, with the official reading dropping to 53.0 and the Philly Fed reading dropping to 8.0.

 

[Alpari UK]

Daily Market Update - 20 February 2014 - Alpari UK

FOMC minutes spooks investors - 00:09
Chinese manufacturing contracts again in February - 02:12
US data in focus this afternoon - 05:40

We're seeing plenty of risk aversion in the markets on Thursday, following some disappointing economic releases and concerning FOMC minutes. Market Analyst Craig Erlam talks about why investors have responded so badly to today's data and what about the minutes prompted the initial risk aversion.

 

[Alpari UK]

UK Opening Call from Alpari UK on 21 February 2014

UK data dominates a quiet end to the week

Today’s UK opening call provides an update on:

• European futures take positive lead from US counterparts;
• Big UK data week continues with January retail sales;
• UK borrowing expected to decline last month;
• More US housing data being released later.

European futures are pointing to a higher open on Friday, with the FTSE up 38 points, the CAC up 14 points and the DAX up 50 points, or around half a percentage point. This strong start comes following surprisingly positive sessions in the US and Asia overnight.

The US session got off to a bad start, opening lower following some disappointing PMI readings from the eurozone and, in particular, China. However, it didn’t take much to turn these losses into moderate gains, with a better than expected US manufacturing PMI reading acting as the catalyst. I think this clearly highlights the fact that the market is still generally bullish and is once again looking for any excuse to buy. The difference between this year and last though is that negative data can no longer be used as an excuse to buy as the Fed has made it very clear that tapering will continue, unless we see a significant deterioration in the data, which is unlikely.

It’s been a fairly big week for the UK, with some very important pieces of economic data being released along with the minutes from the Bank of England meeting earlier this month. While the latter turned out to be somewhat of a non-event, the data as a whole has been quite encouraging for the UK recovery. While the unemployment rate did rise to 7.2%, the number of those claiming jobless benefits fell by more than expected, with the jobless rate falling to 3.6%.

At the same time inflation fell below the Bank of England’s 2% target for the first time in 51 months, leaving them under no pressure to raise interest rates and risk choking off the recovery. Today, we have more UK data being released which could cap off what has been a pretty good week so far. UK retail sales are expected to have declined by 1% in January, which is not as bad as it sounds when you consider the huge rise in December that easily exceeded expectations. This would still be a 5% improvement on last year which clearly shows how far the UK has come in the last 12 months.

We’ll also find out how much the UK government borrowed in January, a month when borrowing usually drops slightly compared to December. This is expected to be the case again, with the number expected at around £9 billion. This number is much smaller than what we saw in the last couple of years which again highlights the fact that the economy is improving. As economic activity picks up, so do tax receipts, which means the government doesn’t need to borrow as much.

The US session later is expected to be even quieter, with the only notable economic release being existing home sales for January. Housing data in January has been heavily distorted by the poor weather and I expect this to be no different, with current forecasts pointing to a 4.3% decline in the month.

 

[Alpari UK]

US Opening Call from Alpari UK on 21 February 2014

Markets rise despite disappointing UK retail sales data

Today’s US opening call provides an update on:

* US future point to positive end to the week
* BoJ minutes point to a potential increase in stimulus in the future
* UK retail sales disappoints following increased attention
* 2 of 3 tenets of ‘forward guidance 2.0’ failed to impress this week.

US stock futures are pointing higher today in what would be the second consecutive day in the green following on from a strong Asian session. This comes against the backdrop of a particularly bullish day for European markets, with the CAC currently testing a 5 year high at 4365 and the FTSE100 breaking to the highest level since May 2013. US futures are indicating the S&P500 will open +1, DJIA +13 points, and NASDAQ +2 points. It is the DJIA move which takes much of the headlines as markets try to put the conspiracy theorists ideas of a parallel between 1928/29 and 2013/14 to bed. Such a parallel would place us at the beginning of a more protracted bear trend. This notion will possibly only be fully allayed with the creation of a new swing high above 16200 which would also take out a key level of resistance.

Overnight, the Bank of Japan released the minutes from their last monetary policy meeting. Markets had low expectations regarding this release given the somewhat stable nature of their recent rise back into growth and positive inflation. However, the minutes showed that there were concerns regarding the pace of the current recovery seen in the region, a view which resonates with many who fail to see how Abe and Kuroda can achieve their targeted 2% inflation within the two years originally speculated. To some this meant a possible requirement to hike up the rate of asset purchases as a means to drive both growth and inflation, especially ahead of the sales tax hike in April. That being said, the minutes showed members had few worries regarding the ability of the Japanese economy to cope with the new sales tax rate given that consumption appears to be ‘front loaded’ ahead of such a rise.

The main focus of the European session has been driven by the UK, where the release of the retail sales figure drew increased attention following the updated ‘forward guidance 2.0’. Retail sales has always been key as a determinant of where the economy is going given that it reflects both current and future expectations for the everyday person from an employment, wage growth and inflation standpoint. For this reason, retail sales can be seen as both quantitative (how much are people buying) and qualitative (what are expectations of future conditions). However, it was the inclusion of consumption within Mark Carney’s newly enhanced forward guidance policy which has brought this measure to a head, providing markets with a new range of indicators to look out in addition to the CPI and unemployment rates. However, with unemployment and inflation closer to target, there will now be increased focus upon the likes of earnings growth and consumption as a driver of market volatility.

The retail sales release was ultimately somewhat disappointing, falling -1.5% from December to January. On an annualised basis, sales did rise by 4.3% compared to last year, yet this too fell short of market expectations. Given that potential interest rate increases are now in part reliant upon consumption, the rise in the likes of the FTSE100 shows that possibly the association between central bank behaviour and markets is not weakening as seemed to be the case. The shift back towards a scenario where markets take data on face value could perhaps take a little longer.

With the rise of unemployment seen this week, poor retail sales growth and a inflation/wage growth differential that means real earnings continue to fall, it is easy to see that an interest rate hike could still be some way off. That being said, signs are pointing towards a positive trend for all these measures on the whole and with the inflation rate not finally below 2%, the BoE is likely to be in no rush to begin tightening monetary policy anytime soon.

 

[Alpari UK]

Daily Market Update - 21 February 2014 - Alpari UK

01:04 - Markets boosted by Thursday's US manufacturing PMI
02:53 - UK retail sales fall more than expected following strong December
04:45 - US housing market back in focus this afternoon

Market Analyst Craig Erlam talks about what's moving financial markets on Friday, including some encouraging US manufacturing data and weaker than expected UK retail sales for January.

 

[Alpari UK]

Weekly market preview – 24 February 2014

A somewhat mixed week ahead for the global economy, following on from a largely disappointing one gone with the likes of the UK, US and eurozone all seeing a notable deterioration in their economic data. Despite this, the major indices have continued to rise, highlighting a bullish momentum that is clearly inherent in the current markets. This week the focus will be largely dominated by somewhat lesser economic releases. In the US, the main event is likely to be the preliminary Q4 GDP growth figure for 2013, which markets expect to change significantly from the advance release. In the UK, the second GDP estimate is also likely to dominate. Meanwhile in the eurozone, Friday’s CPI figure could be a major market mover should we see any change.

In Asian markets, there are very few economic releases to get into with China having no major announcements. Thus the focus will be upon Japan where the release of retail sales will be key on Thursday.


US

A bit of a slower week for the US region ahead, where the major releases come in the form of the consumer confidence index and the second GDP estimate for Q4 of 2013. The first of these to come around is the consumer confidence index which surveys 5000 people with regards to their assessment of both current and future economic conditions. The importance of consumer perception should not be understated given such opinions drive future decision-making of household investment. It has often been said that consumer spending makes up 70% of US GDP. Thus the strength of the consumer confidence will be key to determining where growth will be for 2014. Market estimates point towards a pullback to 80.1 from last month’s figure of 80.7. Should this occur, it would be somewhat of a disappointment given that the measure has been steadily improving and showed signs of moving towards the previous 5 year high of 81.8. That being said, given that the past two figures have majorly overshot expectations, I am hoping for another improved figure this month.

On Friday, the second estimate of the 2013 Q4 GDP figure is due to be released. Ordinarily revisions hold very little interest for the markets given that they tend to move very little from the first figure. However, on this occasion market forecasters are pointing towards a heavily discounted GDP rate of 2.7% from an initial estimate of 3.2%. Should this occur, it would mean that growth within 2013 is substantially lower than previously thought and thus could contribute to a sizable shift in the markets. Much of this is likely to be attributed to lowered retail sales, which fell by -0.4% in January on a seasonally adjusted basis. As mentioned, consumer spending accounts for around 70% of GDP in the US and thus the announcement of the joint lowest retail sales growth in 18 months surely will have an impact.

UK

Another quiet week ahead for the UK, where the only major release comes in the form of the second estimate of Q4 GDP growth in 2013. Unfortunately, unlike the US, there is less of a shock expected on this occasion, with the revision expected to come in at 0.7%. This would be the same level of growth as that seen in the first estimate provided last month. Of course it is always worth watching out for this release as GDP growth is typically seen as the strongest all encompassing measure of economic health and prosperity out there. However, given the typically static nature of the second and final revisions of the UK GDP figure, I am not holding out for too much movement.

Eurozone

A relatively busy week for the eurozone ahead, where the German Ifo business climate survey, CPI figure and unemployment rate will ensure there should be a handful of events to look out for. The first of these is the German Ifo business climate survey, which acts as a leading measure of both eurozone and German economic health. The figure interestingly has a high degree of correlation with German GDP and thus it is worth watching out for as a leading indicator. Often a significant shift in this figure has preceded a substantial move in the GDP QoQ figure. This was highlighted most notably when the October 2012 business climate figure marked the start of the recovery for the region, which was confirmed by the GDP release seen in February 2013. On this occasion, we are expecting no change from last months 110.6 figure.

On Friday the flash CPI figure for February is due to be released, which is certain to keep Mario Draghi on his seat. Looking back over recent announcements from Draghi and the ECB, almost everything seems to be centered upon how the current low inflation scenario is perceived. Draghi recently speculated that the inflation rate will remain low for some time, yet that there is little change of deflation anytime soon. That may be the case, yet any further reductions in this figure would certainly pile further pressure upon the ECB to act. Be that in the form of negative interest rates, an LTRO, asset purchases or alike. Either way, should the CPI measure of inflation fall any further, this would push us closer to further monetary loosening despite what has been said.

Finally, the eurozone unemployment rate is also due to be released on Friday. The unemployment rate is key in the eurozone owing to the widespread employment issues seen within some of the peripheral and beleaguered nations. As such, many have seen unemployment as the final hurdle for any recovery. Despite recent reductions, the rate has failed to break 12.0% for 11 months now and few expect it to happen this month. Estimates point towards the rate remaining at 12.0% following last month’s 0.1% reduction.

Asia & Oceania

A very quiet week within Asia, where the only data comes from the Japanese region. The two major releases to look out for are the Tokyo CPI figure, along with the retail sales figure. Firstly, the Tokyo CPI measure of inflation is commonly seen as a reliable proxy for nationwide inflation. Given that the Japanese government came into power under an aggressive policy standpoint which was aimed at raising the country out of deflation, any measure of inflation is going to be notable. The target for the country is 2%, which remains some distance from current levels and thus it is imperative that the rate remains in ascendancy. This measure is expected to rise from 0.7% to 0.8% on this occasion, which would be in line with the need for higher inflation. However, be aware that any spike in this figure could have implications upon the outlook for inflation within the wider economy.

Finally, the retail sales figure is due to be released on Friday. This is important for any major economy to ensure that consumer spending is growing and thriving. However, this release takes on additional importance with the imposition of the sales tax increase due to take place in April. Now unlike most of the major economies, Japan’s sales tax is notably low (5%), which pales in comparison to the likes of the UK, where the rate is 20%. Thus a shift from 5% to 8% should not necessarily be too much of a burden for many. However, the feeling is that the Japanese region is only just waking up from it’s economic stagnation, where growth was at a minimum and deflation was common place.

Thus the worry is that the sales tax will stifle an already fragile recovery just as it begins to gain traction. For this reason it is important to note how the consumers are preparing for the tax hike, with the BoJ recently indicating they believe consumers will approach it ‘front loaded’, making big purchases ahead of time. For this reason, markets are expecting a strong rise in this figure, from 2.5% to 3.9%.

Read the full report at Alpari News Room​

 

[Alpari UK]

UK Opening Call from Alpari UK on 24 February 2014

Eurozone CPI reading brings the ECB back into focus

Today’s UK opening call provides an update on:

• Chinese housing data weighs on sentiment overnight;
• Eurozone CPI reading may pile the pressure on the ECB to act next week;
• Dovish tone from Draghi and Weidmann over the weekend suggests the ECB will act;
• German Ifo business climate survey expected to remain unchanged in February.

European indices are expected to start the week on a slightly negative note, with the FTSE seen opening 25 points lower, the CAC 10 points lower and the DAX 40 points lower.

This comes ahead of what is likely to be a relatively slow week in the markets, on the whole. There are some key pieces of data being released this week, along with other important events such as the UK inflation report hearing, but these are pretty much scattered throughout the week which means we don’t have any very busy days. That isn’t unusual for the final week of the month and I’m sure next week will more than make up for it.

The slight risk averse tone in the markets this morning has largely come from Asia overnight, where some Chinese house price data weighed on investor sentiment. There is a very real fear that the People’s Bank of China will be forced to tighten lending related to property in a bid to slow down the rise in property prices. The 9.6% annual rise in January hasn’t helped ease these fears, despite it being slightly lower than the 9.9% figure in December.

One economic release this morning that may prompt less risk aversion is the eurozone CPI inflation reading. The preliminary release showed inflation falling to 0.7% in January, well below the European Central Bank’s 2% target. Despite ECB President Mario Draghi’s best efforts to convince the markets that inflation expectations in the long term are for the rate to return to 2%, the markets are not convinced and are growing increasingly concerned about the rapid rate of disinflation. Should we see another drop in the figure today, the ECB may have no choice but to act next week.

That said, based on comments over the weekend from Draghi, as well as other board members such as Bundesbank Head Jens Weidmann, who is typically very hawkish, some form of monetary stimulus already appears likely. Draghi claimed that at the meeting next week they will have a lot more information available in order to make a decision, which appears to simply be an attempt to justify the decision not to ease last month. Weidmann confirmed that he would not rule out pausing sterilisation on purchases, which now appears most likely next week.

Right now it doesn’t appear to be a question of whether they’ll act next week, it’s just about how aggressive they’ll be. Weidmann was keen to highlight that options such as negative deposit rates are uncharted territory that could bring with them more pronounced side-effects that previous interest rates cuts. Given the language here, it appears that regardless of today’s figure, the ECB will play it safe when they meet next week.

The other notable release this morning is the German Ifo business climate figure, which is expected to remain at 110.6 in February. This has continued to gradually improve over the last 12 months or so and suggests the eurozone’s largest economy is going to continue to drive the recovery in the early part of the year.

 

[Alpari UK]

Daily Market Update - 24 February 2014 - Alpari UK

Chief market analyst James Hughes looks at a busy week for the Eurozone as inflation takes centre stage. He also looks at GDP numbers for the US and UK and how the market is reacting to Friday's important retail sales figures from the UK.

 

[Alpari UK]

UK Opening Call from Alpari UK on 25 February 2014

Eurozone growth forecasts and US consumer in focus today

Today's UK opening call provides an update on:

• European futures a little flat ahead of the open;
• German Q4 GDP expected unchanged at 0.4%;
• EC to release economic growth forecasts for the eurozone;
• US data in focus later.

European futures are looking a little flat this morning, with the FTSE seen 10 points lower, the CAC 2 points lower and the DAX 5 points higher.

It was a fairly quiet start to the week yesterday, although that didn’t stop us getting some nice moves in the markets. Gold extended its move higher on the back of further weakness in the greenback, the S&P 500 created new all time highs before ending the day just below its record closing level and the offshore Chinese Yuan weakened for another day prompting suggestions that the People’s Bank of China is intentionally devaluing its currency in order to discourage the carry trade.

Today could be another interesting day in the markets, with the Yuan already weakening further overnight and the dollar making every effort to break out of the consolidation and bring an end to the correction seen so far this year. The difference today is there’s more potential catalysts for the markets which could spark these kinds of moves.

First up this morning we have the first revision of Germany’s fourth quarter GDP reading, which is expected to remain unchanged at 0.4%. It is worth noting that in the last couple of years, these figures have rarely been revised, in fact only one of the last eight have been revised so there’s no reason to assume this morning’s will be any difference. On the same note though, that means that any revision could prompt a reaction in the markets, especially with the country currently being the engine for growth in the eurozone at the moment.

The European Commission will this morning release its economic growth forecasts for the eurozone over the next couple of years. Ordinarily this doesn’t really attract too much attention or have a significant impact on the markets, but today, this may be different. Over the weekend, ECB President Mario Draghi hinted that the central bank may ease monetary policy at the March meeting, next week, claiming that they will have access to a lot more data, including its own economic forecasts.

The forecasts released today could give us some insight into what the ECBs own forecasts will be, which will only assist us in predicting exactly what the ECB will do. At this stage, I don’t see the ECB doing anything rash and I can’t imagine these forecasts changing that, but as with all central banks in recent years, the ECB can be unpredictable so it shouldn’t be written off.

Later on in the US we have a few pieces of data being released, the most important of which is the February consumer confidence reading, which is expected to fall slightly to 80 from 80.7. Also being released is the Richmond Fed manufacturing index and the S&P Case-Shiller home price index.