Alpari UK
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UK Opening Call from Alpari UK on 6 March 2014
Asian markets shrugged off the ongoing crisis in Ukraine to climb to a six week high. Traders in Europe will hope that the positive feeling from the Asian session can be bought over as European markets face a busy couple of days on the economic calendar. Of course we can't forget about the crisis in Ukraine as tensions look set to rise after Russia batted back efforts by US secretary of state John Kerry to ease the tensions.
Many European countries are now considering sanctions against Russia after the latest talks between the US and Russia made no headway. EU leaders will discuss possible sanctions at an emergency meeting in Brussels later today. The EU will consider sanctions against Russia a day after an aid package of over $2billion was agreed to help the new government in Ukraine. The talks between John Kerry and Sergei Lavrov were set to continue but yesterday the Russian foreign minister refused John Kerry's request to meet with his Ukrainian counterpart. With discussion in the West now centering around possible sanctions on Russia we could see markets start to panic. The safe havens will likely be back in focus yet again today but with so much uncertainty, and Russia's refusal to discuss a possible resolution the nerves will start to return to a market that had just begun to shift its focus to the big economic releases of the next couple of days.
As mentioned there are some big slices of data released today, most notably the BOE and ECB rate decisions. We do not expect to hear anything from the BOE with rates and asset purchases expected to remain at the same level. The pressure was eased on the BOE yesterday after the services PMI reading came in better than expected. We also don't expected anything huge from the ECB, but with the accompanying statement likely to focus on the threat of deflation, then we could well see some movement for the Euro as Mario Drahgi continues to fight to progress the eurozone economic recovery. With tensions in the Crimean peninsula looking worse this morning and the prospect of tomorrows US jobs report on the horizon we could well see some of the volume drop over the next 24 hours, with investors looking to position themselves for what could be a busy weekend. Its not usually a surprise to see traders positioning themselves ahead of a payroll figure but with the risk of tensions increasing over the weekend traders will be reluctant to carry positions into a weekend that would give them no chance of reacting until markets reopened on Sunday evening /Monday morning.
Asian markets shrugged off the ongoing crisis in Ukraine to climb to a six week high. Traders in Europe will hope that the positive feeling from the Asian session can be bought over as European markets face a busy couple of days on the economic calendar. Of course we can't forget about the crisis in Ukraine as tensions look set to rise after Russia batted back efforts by US secretary of state John Kerry to ease the tensions.
Many European countries are now considering sanctions against Russia after the latest talks between the US and Russia made no headway. EU leaders will discuss possible sanctions at an emergency meeting in Brussels later today. The EU will consider sanctions against Russia a day after an aid package of over $2billion was agreed to help the new government in Ukraine. The talks between John Kerry and Sergei Lavrov were set to continue but yesterday the Russian foreign minister refused John Kerry's request to meet with his Ukrainian counterpart. With discussion in the West now centering around possible sanctions on Russia we could see markets start to panic. The safe havens will likely be back in focus yet again today but with so much uncertainty, and Russia's refusal to discuss a possible resolution the nerves will start to return to a market that had just begun to shift its focus to the big economic releases of the next couple of days.
As mentioned there are some big slices of data released today, most notably the BOE and ECB rate decisions. We do not expect to hear anything from the BOE with rates and asset purchases expected to remain at the same level. The pressure was eased on the BOE yesterday after the services PMI reading came in better than expected. We also don't expected anything huge from the ECB, but with the accompanying statement likely to focus on the threat of deflation, then we could well see some movement for the Euro as Mario Drahgi continues to fight to progress the eurozone economic recovery. With tensions in the Crimean peninsula looking worse this morning and the prospect of tomorrows US jobs report on the horizon we could well see some of the volume drop over the next 24 hours, with investors looking to position themselves for what could be a busy weekend. Its not usually a surprise to see traders positioning themselves ahead of a payroll figure but with the risk of tensions increasing over the weekend traders will be reluctant to carry positions into a weekend that would give them no chance of reacting until markets reopened on Sunday evening /Monday morning.
Alpari UK
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US Opening Call from Alpari UK on 6 March 2014
US futures higher ahead of ECB decision
* US futures track European indices higher;
* ECB unlikely to ease monetary policy;
* Ending bond sterilisation would effectively be QE-lite;
* US jobless claims expected to fall to 338,000.
US futures are pointing to a moderately higher open on Thursday, with the S&P seen up 2 points, the Dow up 29 points and the Nasdaq up 5 points. These gains come following a similarly positive start to the European session, where traders appeared to be pricing in some kind of stimulative action from the ECB.
We saw the same thing ahead of the meeting last month, when traders priced in a very dovish statement, at the very least, and probably a rate cut. That never came and indices quickly erased their earlier gains, while the euro appreciated rapidly. We could see a similar response today, with some form of easing from the ECB being far from a guarantee.
In fact, I’d say there’s less chance of easing today than there was last month. At the last meeting, the inflation rate was believed to be 0.7% and Draghi’s press conference was far from dovish. Unless the ECBs projections, which are also due today, do not show inflation returning to 2% in the long term, I don’t see them doing anything today.
If they do, then based on their actions in the past, I don’t envisage them opting for anything too risky, leaving the likely option being a pointless 15 basis point rate cut, to 0.1%. There’s been a lot of reports recently that they could consider stopping the sterilisation of bond purchases, which I don’t think is likely. That said, it would open the door to quantitative easing further down the road so could prompt the biggest reaction in the markets.
Ending the sterilisation of bond purchases would effectively be QE lite, although at this stage the ECB would not go as far as to admit that. The program would be much smaller, comparatively, to the QE programs of the US, UK and Japan but would be a good starting point. It would equate, essentially, to €175 billion of quantitative easing, which will hopefully open the door to a larger program further down the road.
If the ECB doesn’t act today, then the ECB press conference will be very interesting. As always, traders will be hanging on to every word that comes out of Draghi’s mouth, which tends to create some very volatile markets.
We’ll also get some data out of the US as the ECB press conference gets underway. Weekly jobless claims are expected to fall to 338,000 from 348,000 the week before. These figures have generally been less volatile than the non-farm payrolls, for example, so don’t tend to have a big impact on the markets. I guess this is a good thing as it shows employers are no longer letting staff go and focusing more on hiring, although not at as fast a rate as we would like to see.
US futures higher ahead of ECB decision
* US futures track European indices higher;
* ECB unlikely to ease monetary policy;
* Ending bond sterilisation would effectively be QE-lite;
* US jobless claims expected to fall to 338,000.
US futures are pointing to a moderately higher open on Thursday, with the S&P seen up 2 points, the Dow up 29 points and the Nasdaq up 5 points. These gains come following a similarly positive start to the European session, where traders appeared to be pricing in some kind of stimulative action from the ECB.
We saw the same thing ahead of the meeting last month, when traders priced in a very dovish statement, at the very least, and probably a rate cut. That never came and indices quickly erased their earlier gains, while the euro appreciated rapidly. We could see a similar response today, with some form of easing from the ECB being far from a guarantee.
In fact, I’d say there’s less chance of easing today than there was last month. At the last meeting, the inflation rate was believed to be 0.7% and Draghi’s press conference was far from dovish. Unless the ECBs projections, which are also due today, do not show inflation returning to 2% in the long term, I don’t see them doing anything today.
If they do, then based on their actions in the past, I don’t envisage them opting for anything too risky, leaving the likely option being a pointless 15 basis point rate cut, to 0.1%. There’s been a lot of reports recently that they could consider stopping the sterilisation of bond purchases, which I don’t think is likely. That said, it would open the door to quantitative easing further down the road so could prompt the biggest reaction in the markets.
Ending the sterilisation of bond purchases would effectively be QE lite, although at this stage the ECB would not go as far as to admit that. The program would be much smaller, comparatively, to the QE programs of the US, UK and Japan but would be a good starting point. It would equate, essentially, to €175 billion of quantitative easing, which will hopefully open the door to a larger program further down the road.
If the ECB doesn’t act today, then the ECB press conference will be very interesting. As always, traders will be hanging on to every word that comes out of Draghi’s mouth, which tends to create some very volatile markets.
We’ll also get some data out of the US as the ECB press conference gets underway. Weekly jobless claims are expected to fall to 338,000 from 348,000 the week before. These figures have generally been less volatile than the non-farm payrolls, for example, so don’t tend to have a big impact on the markets. I guess this is a good thing as it shows employers are no longer letting staff go and focusing more on hiring, although not at as fast a rate as we would like to see.
Alpari UK
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Reaction to ECB press conference
Hawkish Draghi fires euro to 2014 high
Mario Draghi delivered another hawkish press conference this afternoon that once again sent the euro through the roof and knocked European indices off their daily highs. With a new set of growth and inflation forecasts to hand, many had once again expected to ECB to, at the very least, hint at some form of stimulus in the coming months. Based on the positioning ahead of the meeting, plenty had already priced in stimulus today.
That was not to be and it looks like it won’t come any time soon. Draghi effectively dismissed the idea of de-sterilisation of bond purchases, claiming it would be too short term due to the length of the maturities on the bonds, being one to three years. Of the more conservative options remaining, that only leaves a small rate cut to 0.1% and I can the feeling, with little room to manoeuvre, that option may be kept for a rainy day.
The ECB has never been known for its radical policies so anything else at a time when inflation appears to have stabilised at 0.8% was always unlikely. Given last month’s performance, it should therefore have come as no surprise that Draghi instead went on the offensive and the markets were clearly satisfied with what they heard. Whether that will last or not is another question altogether. Traders have shown themselves to have a very short memory in the past so I imagine we’ll see another repeat of this next month.
One interesting point was Draghi’s attempts to highlight the impact of falling energy on inflation compared to the historical average. If the ECB truly believes that this is responsible for two thirds of the drag on inflation, as Draghi claimed, it may suggest that, given the volatility in energy prices, the ECB will be unwilling to stimulate just in case energy prices soar again.
The rally in the euro still hasn’t eased up and it is currently attempting to break above a massive resistance level. The break of this could lead to significant gains in the coming weeks, with a break of 1.40 against the dollar very likely. Given Draghi’s comments on the impact of a higher euro on inflation, or disinflation, this won’t make it any easier for the ECB to resist easing monetary policy shortly down the road.
Hawkish Draghi fires euro to 2014 high
Mario Draghi delivered another hawkish press conference this afternoon that once again sent the euro through the roof and knocked European indices off their daily highs. With a new set of growth and inflation forecasts to hand, many had once again expected to ECB to, at the very least, hint at some form of stimulus in the coming months. Based on the positioning ahead of the meeting, plenty had already priced in stimulus today.
That was not to be and it looks like it won’t come any time soon. Draghi effectively dismissed the idea of de-sterilisation of bond purchases, claiming it would be too short term due to the length of the maturities on the bonds, being one to three years. Of the more conservative options remaining, that only leaves a small rate cut to 0.1% and I can the feeling, with little room to manoeuvre, that option may be kept for a rainy day.
The ECB has never been known for its radical policies so anything else at a time when inflation appears to have stabilised at 0.8% was always unlikely. Given last month’s performance, it should therefore have come as no surprise that Draghi instead went on the offensive and the markets were clearly satisfied with what they heard. Whether that will last or not is another question altogether. Traders have shown themselves to have a very short memory in the past so I imagine we’ll see another repeat of this next month.
One interesting point was Draghi’s attempts to highlight the impact of falling energy on inflation compared to the historical average. If the ECB truly believes that this is responsible for two thirds of the drag on inflation, as Draghi claimed, it may suggest that, given the volatility in energy prices, the ECB will be unwilling to stimulate just in case energy prices soar again.
The rally in the euro still hasn’t eased up and it is currently attempting to break above a massive resistance level. The break of this could lead to significant gains in the coming weeks, with a break of 1.40 against the dollar very likely. Given Draghi’s comments on the impact of a higher euro on inflation, or disinflation, this won’t make it any easier for the ECB to resist easing monetary policy shortly down the road.
Alpari UK
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US Opening Call from Alpari UK on 7 March 2014
* Risk aversion ahead of the US jobs report;
* Low expectations for NFP figure;
* Previous revisions could ease growth concerns;
* Rising participation rate would be encouraging.
We’re seeing an element of risk aversion in the markets this morning ahead of another very important US jobs report. The S&P is currently seen opening up 2 points, the Dow up 17 points and the Nasdaq up 3 points.
It’s not unusual to see risk aversion ahead of the jobs report, with it always being viewed as one of, if not the most important economic release of the month. This month it comes with added importance due to the fact that the last two have been very poor and another repeat performance would be seen by many as evidence that 2014 will not be as good a year as previously thought.
Poor weather has been largely blamed for the disappointing jobs figures in December and January, even by the Fed who opted to continue on its course of tapering last month, regardless of the data. Whether people will accept this excuse for a third consecutive disappointing report, I’m not so sure. Already people are calling the weather factor into question, I think another weather related poor month for the labour market will be difficult for many to stomach. Even if February was in fact another bad month, weather-wise.
Expectations for February are for 149,000 jobs to have been added, well below the levels needed in order to see a real decline in the unemployment rate. These lower expectations are clearly being driven by the poor numbers in December and January, but I can’t help but feel that they’re actually too low.
Once the weather impact eases off, I expect to see figures well above 200,000 to make up for the lost job creation in December and January, and that could happen as early as February. If it does, that could be enough to ease concerns about the pace of US growth this year and make people a lot more optimistic. I expect this would be reflected in the markets, potentially sending the S&P and the Dow back to record highs, the first time we’d have seen a record high in the latter since the turn of the year.
Another interesting point here will be whether we see any revisions to the previous figures. Even if the February number falls slightly short of 200,000, as long as we see an upward revision to the December and January numbers, I expect we’ll see the S&P and Dow back in record territory.
As always there’ll be plenty of attention on the participation rate, which rose slightly last month but remains very close to 35-year lows. A rise in this will also be viewed positively as it would indicate that people are more optimistic about the job market, to the point that they are looking for work again.
In the same way that a falling participation rate has contributed greatly to the drop in the unemployment rate in the last year or so, a rise could lead to a rise going forward, or at least slow the decline.
* Risk aversion ahead of the US jobs report;
* Low expectations for NFP figure;
* Previous revisions could ease growth concerns;
* Rising participation rate would be encouraging.
We’re seeing an element of risk aversion in the markets this morning ahead of another very important US jobs report. The S&P is currently seen opening up 2 points, the Dow up 17 points and the Nasdaq up 3 points.
It’s not unusual to see risk aversion ahead of the jobs report, with it always being viewed as one of, if not the most important economic release of the month. This month it comes with added importance due to the fact that the last two have been very poor and another repeat performance would be seen by many as evidence that 2014 will not be as good a year as previously thought.
Poor weather has been largely blamed for the disappointing jobs figures in December and January, even by the Fed who opted to continue on its course of tapering last month, regardless of the data. Whether people will accept this excuse for a third consecutive disappointing report, I’m not so sure. Already people are calling the weather factor into question, I think another weather related poor month for the labour market will be difficult for many to stomach. Even if February was in fact another bad month, weather-wise.
Expectations for February are for 149,000 jobs to have been added, well below the levels needed in order to see a real decline in the unemployment rate. These lower expectations are clearly being driven by the poor numbers in December and January, but I can’t help but feel that they’re actually too low.
Once the weather impact eases off, I expect to see figures well above 200,000 to make up for the lost job creation in December and January, and that could happen as early as February. If it does, that could be enough to ease concerns about the pace of US growth this year and make people a lot more optimistic. I expect this would be reflected in the markets, potentially sending the S&P and the Dow back to record highs, the first time we’d have seen a record high in the latter since the turn of the year.
Another interesting point here will be whether we see any revisions to the previous figures. Even if the February number falls slightly short of 200,000, as long as we see an upward revision to the December and January numbers, I expect we’ll see the S&P and Dow back in record territory.
As always there’ll be plenty of attention on the participation rate, which rose slightly last month but remains very close to 35-year lows. A rise in this will also be viewed positively as it would indicate that people are more optimistic about the job market, to the point that they are looking for work again.
In the same way that a falling participation rate has contributed greatly to the drop in the unemployment rate in the last year or so, a rise could lead to a rise going forward, or at least slow the decline.
Alpari UK
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Reaction to US Jobs Report from Alpari UK on 7 February 2014
Stronger jobs report gets muted market response
The number of jobs added in the US in February was higher than expected but it didn’t really blow anyone away. That explains the unusually muted response in the markets following the release, with the euro falling less than half a cent against the dollar, before recovering, and sterling dropping a similar amount. Quite often the volatility that comes following the release can prompt move twice that size. Equity markets responded positively to the figures, with US indices now seen opening around half a percentage point higher, after pointing to a relatively flat open only an hour ago.
Looking beyond the obvious positives in the report, there was also an upward revision to the previous NFP number, from 113,000 to 129,000. The participation rate didn’t fall for a second consecutive month, which could be an encouraging sign that this trend is pretty much over and people are more optimistic about the jobs market. Hopefully we can start to see this rise going forward as the labour market improves.
One negative in the report was the rise in the unemployment rate to 6.7%, but all things considered I don’t think it’s going to concern people too much.
It was interesting to see that the BLS stated that the weather had more of an impact on hours worked that jobs. If this is the case then that would point to a more worrying downturn in the jobs market and suggest the US has a more difficult year ahead than was initially though. I remain sceptical and find it very hard to believe that the kind of weather seen in the US in recent months could have no impact on hiring. With the weather in March and April likely to be much better, we won’t have to wait long to find out which is true. A sharp rise in hiring in those months would suggest the weather is playing a greater part than the BLS is letting on.
Stronger jobs report gets muted market response
The number of jobs added in the US in February was higher than expected but it didn’t really blow anyone away. That explains the unusually muted response in the markets following the release, with the euro falling less than half a cent against the dollar, before recovering, and sterling dropping a similar amount. Quite often the volatility that comes following the release can prompt move twice that size. Equity markets responded positively to the figures, with US indices now seen opening around half a percentage point higher, after pointing to a relatively flat open only an hour ago.
Looking beyond the obvious positives in the report, there was also an upward revision to the previous NFP number, from 113,000 to 129,000. The participation rate didn’t fall for a second consecutive month, which could be an encouraging sign that this trend is pretty much over and people are more optimistic about the jobs market. Hopefully we can start to see this rise going forward as the labour market improves.
One negative in the report was the rise in the unemployment rate to 6.7%, but all things considered I don’t think it’s going to concern people too much.
It was interesting to see that the BLS stated that the weather had more of an impact on hours worked that jobs. If this is the case then that would point to a more worrying downturn in the jobs market and suggest the US has a more difficult year ahead than was initially though. I remain sceptical and find it very hard to believe that the kind of weather seen in the US in recent months could have no impact on hiring. With the weather in March and April likely to be much better, we won’t have to wait long to find out which is true. A sharp rise in hiring in those months would suggest the weather is playing a greater part than the BLS is letting on.
Alpari UK
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Daily Market Update - 7 March 2014 - Alpari UK
The US jobs report is widely seen as the most important economic release of the month and tends to create a significant amount of volatility in the markets, but today that wasn't the case. Market Analyst Craig Erlam takes a closer look at the report and gives his opinion on why the response in the market was so muted.
The US jobs report is widely seen as the most important economic release of the month and tends to create a significant amount of volatility in the markets, but today that wasn't the case. Market Analyst Craig Erlam takes a closer look at the report and gives his opinion on why the response in the market was so muted.
Alpari UK
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Weekly market preview – 10 March 2014
The second week of the month brings a somewhat more sparse economic calendar in comparison to the frantic week gone. Given that we have now received such key indicators, we are better prepared to understand where the markets are moving. For this week, the US will be looking towards the retail sales data as a key indicator of consumer activity. In the UK, the inflation report will dominate, providing an outlook from the BoE with regards to both inflation and growth. Meanwhile, in the eurozone, there is little in terms of announcements to look out for.
In Asia, the Chinese trade balance will be worth watching out for as a gauge of current trade conditions. Meanwhile over in Japan, the monetary policy statement and press conference from the BoJ will be key to understanding where the country seeks to position itself ahead of the sales tax hike. Finally, in Australia the jobs report released on Thursday will be crucial in determining the employment situation in an economy which has had questions over stability in recent periods.
All of these releases continue to be set against a backdrop of potential conflict and brinkmanship over Ukraine, where Crimea is essentially being forcefully pushed towards the Russian Federation while the EU and US threaten to impose sanctions as a means to stop such an event. The possible referendum on 16 March will likely bring a ‘yes’ vote for Russian integration given 59% of the region are Russian speaking. Yet the legitimacy question remains and will likely lead to a tug of war between the new government, backed by EU and US leadership, and Russia. Ultimately, we are set up for possible conflict and standoff which can have a substantial impact upon the markets, particularly those which are directly related to the region.
US
The US economy is typically the most consistent driver of market behavior and thus the outlook for this week will be key to determining how the the global FX markets, indices and alike are going to perform. This week comes off the back of a jobs report which provided little in terms of volatility, which tells us lots about the expectations of the market. The feeling is that we are likely to see a taper in the coming meeting and thus the biggest market moves are likely to come with any announcement that put this taper into doubt. The major events to look out for this week are the retail sales and UoM consumer sentiment figures, both of which provide an insight into retail strength.
The retail sales rate of growth figure is due to be announced on Thursday, where the strength of consumer purchases come to the fore. Bear in mind that approximately 70% of US GDP is driven by consumer spending. This indicates the impact this announcement can have upon future growth announcements and thus will always make retail sales key. The markets are expecting to see the figure move back into expansion, with a rate around 0.2% being touted following a contraction of -0.4% in January. This figure does tend to range into and out of growth and thus this would not be a surprise. However, significant volatility would only really likely come should we see either a particularly strong or weak figure.
Later in the week, the University of Michigan consumer sentiment figure is released, which provides a more qualitative understanding of the retail sector to add to the quantitative retail sales figure. As mentioned, this area is absolutely key to increased growth for the US economy and thus I will be looking out for this release closely. Market forecasts point towards a rise towards 81.9 from 81.2 last month.
UK
A quiet week ahead in the UK, coming off the back of a notable start to March which saw a mixed picture from the PMI figures and a steady hand from the BoE. There are very few market drivers to be looking out for and one of those few announcements will be the inflation report hearing, due out on Tuesday. This event provides an outlook with regards to inflation and growth from the BoE and MPC members in front of the treasure’s committee. Be on the look out for any changes to outlook for growth in particular, given that the CPI rate of inflation has had downward pressure in recent months.
Eurozone
A very quiet week sees no major events of note to watch out for.
Asia & Oceania
A relatively busy week in Asia, where the Chinese trade balance and Japanese central bank announcement will take precedence. The Chinese trade balance figure is due to be released on Saturday and is expected to bring about greater transparency over the international trade activity seen in February. What is significant about this months figure is that expectations point towards a possible fall to the lowest level since the balance fell into deficit back in February 2012. The default of solar cell maker Chaori last week, a first in China, shows that the Chinese economy is struggling in some sectors and highlights weaknesses which are beginning to show in the Asian powerhouse. This also comes off the back of weakening manufacturing PMI indicators and thus I am looking for possible further signs that the region is struggling in this figure. It is also well worth looking out for the specific changes in exports and imports to gauge exactly where this change is coming from. Expectations point towards a substantial fall to 6.85% in exports, from 10.6% in January. In contrast, imports are expected to come in lower at 8%, coming off a 10% rise previously. The trade balance itself is forecast to come in around $14.50 billion, down from the high of $31.86 billion seen last month.
In Japan, the latest monetary policy announcement from the BoJ is likely to be one of the biggest events of the week. The Japanese region is particularly interesting in recent times, given the drive towards 2% inflation under Shinzo Abe. I do not expect to see any significant change from the BoJ given that the important step will come upon seeing how the economy reacts to the sales tax hike, due for April. However, the BoJ press conference could provide an indication of where policy could go should the economy not fare as well following the imposition of that tax. There is also a possibility of a reduction to business taxes to counteract the effect of the sales tax rise, thus look out for mentions of this too.
Finally, in Australia the latest jobs report is released on Thursday, with the unemployment rate and employment change figures expecting to bring greater clarity on how the jobs market is faring. The weaknesses within China have had a significant effect upon these figures in recent times, with the unemployment rate rising from 4.9% to 6.0% in the just over 1 1/2 years. Thus it is imperative that the economy starts to turn around their fortunes and starts reducing this rate going forward. Given that the weaknesses in China have begun to rear their head once more, I cannot see it happening anytime soon. The unemployment rate is thus expected to remain at the current 6.0% yet I remain negative about it’s chances of falling quite yet. In contrast, the employment change expected to rise by 18,000 jobs, from a reduction of -3,700. Be aware that the recent strength seen in the Australian dollar is based upon increased confidence within the RBA that things are beginning to turn around. Thus should we see these figures continue to deteriorate, it could begin to change the minds of Glenn Stevens and co.
The second week of the month brings a somewhat more sparse economic calendar in comparison to the frantic week gone. Given that we have now received such key indicators, we are better prepared to understand where the markets are moving. For this week, the US will be looking towards the retail sales data as a key indicator of consumer activity. In the UK, the inflation report will dominate, providing an outlook from the BoE with regards to both inflation and growth. Meanwhile, in the eurozone, there is little in terms of announcements to look out for.
In Asia, the Chinese trade balance will be worth watching out for as a gauge of current trade conditions. Meanwhile over in Japan, the monetary policy statement and press conference from the BoJ will be key to understanding where the country seeks to position itself ahead of the sales tax hike. Finally, in Australia the jobs report released on Thursday will be crucial in determining the employment situation in an economy which has had questions over stability in recent periods.
All of these releases continue to be set against a backdrop of potential conflict and brinkmanship over Ukraine, where Crimea is essentially being forcefully pushed towards the Russian Federation while the EU and US threaten to impose sanctions as a means to stop such an event. The possible referendum on 16 March will likely bring a ‘yes’ vote for Russian integration given 59% of the region are Russian speaking. Yet the legitimacy question remains and will likely lead to a tug of war between the new government, backed by EU and US leadership, and Russia. Ultimately, we are set up for possible conflict and standoff which can have a substantial impact upon the markets, particularly those which are directly related to the region.
US
The US economy is typically the most consistent driver of market behavior and thus the outlook for this week will be key to determining how the the global FX markets, indices and alike are going to perform. This week comes off the back of a jobs report which provided little in terms of volatility, which tells us lots about the expectations of the market. The feeling is that we are likely to see a taper in the coming meeting and thus the biggest market moves are likely to come with any announcement that put this taper into doubt. The major events to look out for this week are the retail sales and UoM consumer sentiment figures, both of which provide an insight into retail strength.
The retail sales rate of growth figure is due to be announced on Thursday, where the strength of consumer purchases come to the fore. Bear in mind that approximately 70% of US GDP is driven by consumer spending. This indicates the impact this announcement can have upon future growth announcements and thus will always make retail sales key. The markets are expecting to see the figure move back into expansion, with a rate around 0.2% being touted following a contraction of -0.4% in January. This figure does tend to range into and out of growth and thus this would not be a surprise. However, significant volatility would only really likely come should we see either a particularly strong or weak figure.
Later in the week, the University of Michigan consumer sentiment figure is released, which provides a more qualitative understanding of the retail sector to add to the quantitative retail sales figure. As mentioned, this area is absolutely key to increased growth for the US economy and thus I will be looking out for this release closely. Market forecasts point towards a rise towards 81.9 from 81.2 last month.
UK
A quiet week ahead in the UK, coming off the back of a notable start to March which saw a mixed picture from the PMI figures and a steady hand from the BoE. There are very few market drivers to be looking out for and one of those few announcements will be the inflation report hearing, due out on Tuesday. This event provides an outlook with regards to inflation and growth from the BoE and MPC members in front of the treasure’s committee. Be on the look out for any changes to outlook for growth in particular, given that the CPI rate of inflation has had downward pressure in recent months.
Eurozone
A very quiet week sees no major events of note to watch out for.
Asia & Oceania
A relatively busy week in Asia, where the Chinese trade balance and Japanese central bank announcement will take precedence. The Chinese trade balance figure is due to be released on Saturday and is expected to bring about greater transparency over the international trade activity seen in February. What is significant about this months figure is that expectations point towards a possible fall to the lowest level since the balance fell into deficit back in February 2012. The default of solar cell maker Chaori last week, a first in China, shows that the Chinese economy is struggling in some sectors and highlights weaknesses which are beginning to show in the Asian powerhouse. This also comes off the back of weakening manufacturing PMI indicators and thus I am looking for possible further signs that the region is struggling in this figure. It is also well worth looking out for the specific changes in exports and imports to gauge exactly where this change is coming from. Expectations point towards a substantial fall to 6.85% in exports, from 10.6% in January. In contrast, imports are expected to come in lower at 8%, coming off a 10% rise previously. The trade balance itself is forecast to come in around $14.50 billion, down from the high of $31.86 billion seen last month.
In Japan, the latest monetary policy announcement from the BoJ is likely to be one of the biggest events of the week. The Japanese region is particularly interesting in recent times, given the drive towards 2% inflation under Shinzo Abe. I do not expect to see any significant change from the BoJ given that the important step will come upon seeing how the economy reacts to the sales tax hike, due for April. However, the BoJ press conference could provide an indication of where policy could go should the economy not fare as well following the imposition of that tax. There is also a possibility of a reduction to business taxes to counteract the effect of the sales tax rise, thus look out for mentions of this too.
Finally, in Australia the latest jobs report is released on Thursday, with the unemployment rate and employment change figures expecting to bring greater clarity on how the jobs market is faring. The weaknesses within China have had a significant effect upon these figures in recent times, with the unemployment rate rising from 4.9% to 6.0% in the just over 1 1/2 years. Thus it is imperative that the economy starts to turn around their fortunes and starts reducing this rate going forward. Given that the weaknesses in China have begun to rear their head once more, I cannot see it happening anytime soon. The unemployment rate is thus expected to remain at the current 6.0% yet I remain negative about it’s chances of falling quite yet. In contrast, the employment change expected to rise by 18,000 jobs, from a reduction of -3,700. Be aware that the recent strength seen in the Australian dollar is based upon increased confidence within the RBA that things are beginning to turn around. Thus should we see these figures continue to deteriorate, it could begin to change the minds of Glenn Stevens and co.
Alpari UK
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UK Opening Call from Alpari UK on 10 March 2014
Chinese exports plummet, leaving markets exposed
* Asian markets tumble overnight;
* What does Friday’s non-farm payrolls figure mean for tapering?;
* Chinese exports plummet, leaving the growth story exposed;
* Worries over potential Ukraine conflict persist.
Mixed emotions run through European markets this morning following a shocking Chinese trade balance to counteract the positivity surrounding the US non-farm payrolls figure from Friday. However, it has been the Chinese trade figures which have dominated the Asian markets and thus we are expecting to see the European indices follow suit this morning.
That being said, the importance of last week’s payrolls figure should not be understated for it is this unexpected outperformance that has allowed many to believe it is a near enough certainty that Janet Yellen will taper the US Federal asset purchase facility at this month’s meeting. One thing we know is that there is no such thing as a certainty in the markets. However, when accounting for the willingness of the FOMC to continue apace with their tapering timeline despite January’s awful payroll data (worst release in 18 months), it is evident that it will take a lot to sway Yellen and co from their $10 billion taper programme seen at each meeting so far. It is also very notable that given the ability of the US economy to drum up a highly respectable NFP figure during a continued period of poor weather, many will be taking this as a precursor for better US data for the forthcoming period.
In China, the trade balance data released over the weekend has caught the markets off-guard, posting deficit of -$23.0 billion, which marks a swing of -$54.1 billion dollars in comparison to the January figure of +$31.9 billion. Unfortunately, there appears to be very little in terms of a positive angle to look at this data, with the finer details also shedding further light on what has been the biggest trade balance miss on record. A closer look shows that exports fell -18. 1% compared with February 2013, which comes off the back of an expansion of 10.6% last month. However, it is also worth noting that when comparing February to January on a seasonally adjusted basis, this amounts to a 34% or 1/3 fall in exports. Whilst the Chinese attempted to explain this disappointing announcement by blaming it upon the ‘spring festival factor’ which caused the sharp fluctuations in the monthly growth rate and monthly deficit, the markets unfortunately chose to believe that this could be part of a wider spread weakening of the Chinese success story which appears to be grinding to a halt in many ways.
Firstly, the emergence of a contractionary manufacturing sector for smaller to medium sized businesses as reflected by the HSBC manufacturing PMI being below 50 has been ongoing for two months now. This appears to be followed by the larger firms, where the official manufacturing PMI is now only 0.2 away from that same 50.0 threshold which denotes contraction from expansion. The CPI figure released over the weekend also continued to tumble marking a slowdown in the price positive pressures of a booming economy (2.0%; the lowest level in 12 months). Meanwhile, there is a growing discourse in the markets which express the growing scepticism surrounding the sustainability of the Chinese growth story, w here booming levels of growth and unemployment has been driven by non-existent demand and government intervention. Given last week’s default of solar panel maker Chaori, the first Chinese firm to ever default on its onshore corporate bonds, it is clear that the Chinese authorities are finally willing to allow these unsustainable and uncompetitive firms to finally fully compete with the marketplace. This should reverberate throughout the Chinese business world and I believe could lead to an even more negative outlook for those businesses who has typically relied on the Government to help them out in their time of need. Should the government continue to reduce this ‘overcapacity’ in the economy, we could see many more defaults just like this, along with more pressure on the jobs market in a country of some 1.3 billion people.
The Ukraine story is likely to continue as a main driver going forward, as the EU and US push forward in attempting to legitimise the new pre-European government that was instilled only two weeks ago. The decision by Barack Obama to allow the newly installed Prime Minister Arseny Yatseniuk to visit the White House on Wednesday attempts to do exactly just this and will no doubt spur Vladimir Putin on to pursue the adoption of Crimea into Russian ownership even further. With the vote within Crimea regarding the potential breakaway of the region now just 6 days away, we face a potential standoff where the Ukrainian power in Kiev would brand any such decision as illegitimate whilst the Russian and Crimean authorities would likely see such a move as a legitimate precursor to initiating the steps required to alter the ownership of the region. From a market standpoint, the impact has largely been muted, with short term spikes in Brent Crude, Natural gas and safe haven asset all reversing in the middle of last week. Should we see any use form of military conflict then this would likely bring such spikes back to the table, at least for the short term. However, with UK energy secretary Davey discussing the possible increased use of Norwegian natural gas and how prices might be affected, it is clear that many within the western world see sanctions as a distinct possibility which would lead to a sharp deterioration in the supply/demand trade-off given that a third of all EU imports of gas, oil and coal comes from the Russian Federation.
European markets are expected to open lower, following a sharp decline in the Asian indices. The FTSE100 is expected to open -4 points, with the DAX -7.5.
Chinese exports plummet, leaving markets exposed
* Asian markets tumble overnight;
* What does Friday’s non-farm payrolls figure mean for tapering?;
* Chinese exports plummet, leaving the growth story exposed;
* Worries over potential Ukraine conflict persist.
Mixed emotions run through European markets this morning following a shocking Chinese trade balance to counteract the positivity surrounding the US non-farm payrolls figure from Friday. However, it has been the Chinese trade figures which have dominated the Asian markets and thus we are expecting to see the European indices follow suit this morning.
That being said, the importance of last week’s payrolls figure should not be understated for it is this unexpected outperformance that has allowed many to believe it is a near enough certainty that Janet Yellen will taper the US Federal asset purchase facility at this month’s meeting. One thing we know is that there is no such thing as a certainty in the markets. However, when accounting for the willingness of the FOMC to continue apace with their tapering timeline despite January’s awful payroll data (worst release in 18 months), it is evident that it will take a lot to sway Yellen and co from their $10 billion taper programme seen at each meeting so far. It is also very notable that given the ability of the US economy to drum up a highly respectable NFP figure during a continued period of poor weather, many will be taking this as a precursor for better US data for the forthcoming period.
In China, the trade balance data released over the weekend has caught the markets off-guard, posting deficit of -$23.0 billion, which marks a swing of -$54.1 billion dollars in comparison to the January figure of +$31.9 billion. Unfortunately, there appears to be very little in terms of a positive angle to look at this data, with the finer details also shedding further light on what has been the biggest trade balance miss on record. A closer look shows that exports fell -18. 1% compared with February 2013, which comes off the back of an expansion of 10.6% last month. However, it is also worth noting that when comparing February to January on a seasonally adjusted basis, this amounts to a 34% or 1/3 fall in exports. Whilst the Chinese attempted to explain this disappointing announcement by blaming it upon the ‘spring festival factor’ which caused the sharp fluctuations in the monthly growth rate and monthly deficit, the markets unfortunately chose to believe that this could be part of a wider spread weakening of the Chinese success story which appears to be grinding to a halt in many ways.
Firstly, the emergence of a contractionary manufacturing sector for smaller to medium sized businesses as reflected by the HSBC manufacturing PMI being below 50 has been ongoing for two months now. This appears to be followed by the larger firms, where the official manufacturing PMI is now only 0.2 away from that same 50.0 threshold which denotes contraction from expansion. The CPI figure released over the weekend also continued to tumble marking a slowdown in the price positive pressures of a booming economy (2.0%; the lowest level in 12 months). Meanwhile, there is a growing discourse in the markets which express the growing scepticism surrounding the sustainability of the Chinese growth story, w here booming levels of growth and unemployment has been driven by non-existent demand and government intervention. Given last week’s default of solar panel maker Chaori, the first Chinese firm to ever default on its onshore corporate bonds, it is clear that the Chinese authorities are finally willing to allow these unsustainable and uncompetitive firms to finally fully compete with the marketplace. This should reverberate throughout the Chinese business world and I believe could lead to an even more negative outlook for those businesses who has typically relied on the Government to help them out in their time of need. Should the government continue to reduce this ‘overcapacity’ in the economy, we could see many more defaults just like this, along with more pressure on the jobs market in a country of some 1.3 billion people.
The Ukraine story is likely to continue as a main driver going forward, as the EU and US push forward in attempting to legitimise the new pre-European government that was instilled only two weeks ago. The decision by Barack Obama to allow the newly installed Prime Minister Arseny Yatseniuk to visit the White House on Wednesday attempts to do exactly just this and will no doubt spur Vladimir Putin on to pursue the adoption of Crimea into Russian ownership even further. With the vote within Crimea regarding the potential breakaway of the region now just 6 days away, we face a potential standoff where the Ukrainian power in Kiev would brand any such decision as illegitimate whilst the Russian and Crimean authorities would likely see such a move as a legitimate precursor to initiating the steps required to alter the ownership of the region. From a market standpoint, the impact has largely been muted, with short term spikes in Brent Crude, Natural gas and safe haven asset all reversing in the middle of last week. Should we see any use form of military conflict then this would likely bring such spikes back to the table, at least for the short term. However, with UK energy secretary Davey discussing the possible increased use of Norwegian natural gas and how prices might be affected, it is clear that many within the western world see sanctions as a distinct possibility which would lead to a sharp deterioration in the supply/demand trade-off given that a third of all EU imports of gas, oil and coal comes from the Russian Federation.
European markets are expected to open lower, following a sharp decline in the Asian indices. The FTSE100 is expected to open -4 points, with the DAX -7.5.
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Alpari UK
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US Opening Call from Alpari UK on 10 March 2014
US futures shrug off poor Asian data
* Chinese and Japanese data weighs heavily on sentiment in Asia;
* Chinese export data delivers a beating to commodities, particularly Copper;
* Japanese GDP figure may prompt pre-emptive action from BoJ;
* Fed speech the highlight of US session on Monday.
US futures are pointing to a relatively flat open on Monday, with the S&P seen 1 point lower, the Dow 18 points lower and the Nasdaq 1 point lower.
This comes following a negative start to the week for Asia, where data released over the last couple of days weighed very heavily on sentiment over night, and a positive start to the European session, where investors were clearly more concerned with what’s happening in the US and Europe.
It is a little surprising to see the Chinese and Japanese data not weighing more heavily on markets this morning, given how investors have reacted in the past. We’re seeing this have a much bigger impact in commodity markets, particularly in copper, which is currently trading almost 4% lower.
The sell-off in copper is the clearest sign that traders are concerned about Chinese growth this year, with February trade balance being only the latest in a list of poor data releases. The manufacturing PMIs have been no better for months so we shouldn’t be hugely surprised. This poor figure is also going to have been exaggerated by last year’s export numbers which were heavily distorted by capital inflows being disguised as exports.
All things considered, I think the reaction is over the top. We had similar concerns in the first half of last year and the government responded with a targeted stimulus program that resulted in the country comfortably achieving its growth targets. If we see similar struggles this year I have no doubt the government will step in once again.
The Japanese fourth quarter GDP figure is more concerning in my opinion. The sales tax hike is due to come into effect next month which is likely to have a significant impact on consumer sentiment, and therefore growth, going forward. If the country is already struggling to achieve 1% annualised growth before the tax hike comes into play, even an increase in the Bank of Japan’s asset purchase program may not be enough to stop the country falling into recession, as it did last time a sales tax hike was implemented.
The sell-off in the Japanese yen prompted by the GDP release potentially reflects another round of monetary stimulus starting to be priced in. I doubt the BoJ will go for this tomorrow, but I wouldn’t write it off next month. With the economy already struggling to achieve any meaningful growth and inflation, policy makers may want to act before they are forced to.
As with the rest of the week, the day ahead is looking fairly quiet. The only notable event today will be a speech from Fed member Charles Plosser. Plosser is a voting member of the FOMC so his views will be followed very closely. That said, Fed Chair Janet Yellen has made it very clear that barring a significant downturn in the economy, the Fed will continue on its current course of tapering. With that in mind, any comments made by Plosser are likely to have a minimal impact on the markets.
US futures shrug off poor Asian data
* Chinese and Japanese data weighs heavily on sentiment in Asia;
* Chinese export data delivers a beating to commodities, particularly Copper;
* Japanese GDP figure may prompt pre-emptive action from BoJ;
* Fed speech the highlight of US session on Monday.
US futures are pointing to a relatively flat open on Monday, with the S&P seen 1 point lower, the Dow 18 points lower and the Nasdaq 1 point lower.
This comes following a negative start to the week for Asia, where data released over the last couple of days weighed very heavily on sentiment over night, and a positive start to the European session, where investors were clearly more concerned with what’s happening in the US and Europe.
It is a little surprising to see the Chinese and Japanese data not weighing more heavily on markets this morning, given how investors have reacted in the past. We’re seeing this have a much bigger impact in commodity markets, particularly in copper, which is currently trading almost 4% lower.
The sell-off in copper is the clearest sign that traders are concerned about Chinese growth this year, with February trade balance being only the latest in a list of poor data releases. The manufacturing PMIs have been no better for months so we shouldn’t be hugely surprised. This poor figure is also going to have been exaggerated by last year’s export numbers which were heavily distorted by capital inflows being disguised as exports.
All things considered, I think the reaction is over the top. We had similar concerns in the first half of last year and the government responded with a targeted stimulus program that resulted in the country comfortably achieving its growth targets. If we see similar struggles this year I have no doubt the government will step in once again.
The Japanese fourth quarter GDP figure is more concerning in my opinion. The sales tax hike is due to come into effect next month which is likely to have a significant impact on consumer sentiment, and therefore growth, going forward. If the country is already struggling to achieve 1% annualised growth before the tax hike comes into play, even an increase in the Bank of Japan’s asset purchase program may not be enough to stop the country falling into recession, as it did last time a sales tax hike was implemented.
The sell-off in the Japanese yen prompted by the GDP release potentially reflects another round of monetary stimulus starting to be priced in. I doubt the BoJ will go for this tomorrow, but I wouldn’t write it off next month. With the economy already struggling to achieve any meaningful growth and inflation, policy makers may want to act before they are forced to.
As with the rest of the week, the day ahead is looking fairly quiet. The only notable event today will be a speech from Fed member Charles Plosser. Plosser is a voting member of the FOMC so his views will be followed very closely. That said, Fed Chair Janet Yellen has made it very clear that barring a significant downturn in the economy, the Fed will continue on its current course of tapering. With that in mind, any comments made by Plosser are likely to have a minimal impact on the markets.
Alpari UK
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UK Opening Call from Alpari UK on 11 March 2014
Markets settle ahead of the BoE hearings
* BoE inflation report expected to put Carney and co under pressure;
* FOMC tapering expected to remain steady throughout 2014;
* BoJ keep policy steady ahead of sales tax;
* Ukraine fears ease, yet Europe continues to press.
The European markets are expected to open higher, following on from a stabilising Asian session which saw the Nikkei and Hang Seng post moderate gains whilst the Shanghai composite ended up marginally lower.
Yesterday’s mixed bag which saw a strong sell-off in Asia, followed by a surprisingly strong European session shows that the two have been largely focusing upon regional issues and seeking direction from events closer to home. The disappointing Chinese exports data seen yesterday was so significant that it could have sparked a more protracted sell-off, in particular within the emerging markets. Yet the more moderate losses seen today within the likes of the Indian Nifty and Shanghai composite show a potential easing in such selling pressures following a notable pullback yesterday.
Today’s London session is expected to focus upon proceedings within Parliament where the Treasury Committee will be questioning members of the Bank of England, including Governor Mark Carney. These quarterly inflation reports hearings can be varied in terms of impact, depending largely upon the content in question at the time. Mark Carney’s third inflation report hearing will be absolutely key given that the February’s report provided an amendment to the previously withstanding forward guidance policy, which was undone just six months after its implementation through tumbling unemployment. The Treasury Committee are notoriously hard nailed and aggressive with their questioning, as has been evident through the sessions seen across crises such as the Libor scandal. Whilst today’s session will be unlikely to draw such pressing questioning, there are two key aspects which are likely to be addressed within the sessions. The implementation of a forward guidance 2.0 represents a failure by Mark Carney in his first serious policy since taking charge of the top BoE position and the committee are sure to express this. The original intention of forward guidance was to provide businesses and individuals with a predictable interest rate framework, yet the fact that unemployment came 0.1% away from the 7.1% threshold that it in fact brought forward the possibility of a rise for many.
The other key debate to watch out for today is the challenge to whether Mark Carney will alter the governance currently in place within the bank, following the recent foreign exchange scandal which saw BoE staff possibly ignore manipulation in the rates of FX traders. This could have longer lasting implications, yet I do not see anything substantial coming out of this in the short term given that Carney will likely refrain from making any firm pledges on the topic.
The key issue of tapering came back to the fore yesterday, when Fed’s Plosser spoke of the potential that continued strong jobs data could spark an acceleration of the rate asset purchase reduction. The current $10 billion rate we have seen trimmed off in the past two meetings would necessitate a further 7 meetings to finally put the QE program to bed. This coincides perfectly with the amount of FOMC meetings left in the year and thus I would expect the Fed to see a steady and predictable pathway to be preferable over any spike in tapering. That being said, should we see any decision come to hold off on tapering for a single meeting this year, it would mean the Fed either increases the amount cut at a future meeting, or else miss out on the end of 2014 target that many are expecting for an end to QE. Thus this could explain why the Fed has been adamant to taper in tough months such as January when the data was poor from adverse weather conditions; they have a schedule to keep to and it will likely take something hugely significant to take them off track.
The BoJ chose to keep monetary policy steady overnight in the final meeting ahead of the imposition of the widely discussed sales tax on 1 April. This came as no surprise as the response from an economic standpoint to this measure of fiscal tightening in unknown and comes at a time when the Japanese economy is somewhat losing traction at a time when it needs it the most. Yesterday’s announcement that Q4 2013 GDP growth had been revised down to 0.7% was a perfect example of just how fragile the economy remains and thus looser fiscal and monetary policies are probably more suitable right now. However, with a debt to GDP ratio well over 200%, Japan has little choice in the matter and by comparison, the sales tax in Japan is a fraction of the consumption taxes seen in most other developing countries. Thus whilst Abe should be commended for getting the economy to a place where it is strong enough to finally implement a change that should have happened a long time ago, it could perhaps be a little too soon in this fragile recovery to have a tightening of fiscal policy. In terms of monetary policy, I do expect asset purchases to be increased later this year, yet this will be largely dependent upon how the economy reacts to the sales tax hike. Thus markets will be increasingly sensitive to Japanese data going forward as this will provide critical clues as to whether we will see additional stimulus come into play to counteract this tax.
Ukrainian worries persist as the 16 March deadline moves a day closer for the referendum regarding whether the Crimean peninsula should become part of the Russian Federation. While the urgency of matters appears to have tailed off somewhat in the eyes of the markets, European and Western powers are attempting to move Vladimir Putin to delay or cancel the vote. This vote is clearly designed for one purpose and that is to legitimise the takeover of the region by Russia, especially given that the ballot paper is rumoured to have no option to remain part of Ukraine. However, European efforts appear to be falling on deaf ears as the threat of sanctions and closer Ukraine-EU ties are spurring Putin on to push forward with the vote. Yesterday saw the EU cut all levies on Ukrainian products going into the European region, which sought to bring the regions closer together; something Russia is fighting hard to avoid. Thus as it currently stands Ukraine is at the centre of a tug of war, with Russia grabbing what it feels is rightfully theirs and Europe trying to use economic incentives as a means to closer ties. This will likely continue up until 16 March, which could act as a spark in moving Russia forward in their plans and thus Western powers will have to exert what few options they have without the use of military force.
Looking ahead, the European session has trade data out of Germany along with the manufacturing production figure from the UK to look forward to. However, I do expect the inflation report hearings to be the biggest potential market mover. Also keep a look out for the NIESR GDP estimate due out a little later.
European markets are expected to open higher, with the FTSE100 +19 points and DAX +35 points.
Markets settle ahead of the BoE hearings
* BoE inflation report expected to put Carney and co under pressure;
* FOMC tapering expected to remain steady throughout 2014;
* BoJ keep policy steady ahead of sales tax;
* Ukraine fears ease, yet Europe continues to press.
The European markets are expected to open higher, following on from a stabilising Asian session which saw the Nikkei and Hang Seng post moderate gains whilst the Shanghai composite ended up marginally lower.
Yesterday’s mixed bag which saw a strong sell-off in Asia, followed by a surprisingly strong European session shows that the two have been largely focusing upon regional issues and seeking direction from events closer to home. The disappointing Chinese exports data seen yesterday was so significant that it could have sparked a more protracted sell-off, in particular within the emerging markets. Yet the more moderate losses seen today within the likes of the Indian Nifty and Shanghai composite show a potential easing in such selling pressures following a notable pullback yesterday.
Today’s London session is expected to focus upon proceedings within Parliament where the Treasury Committee will be questioning members of the Bank of England, including Governor Mark Carney. These quarterly inflation reports hearings can be varied in terms of impact, depending largely upon the content in question at the time. Mark Carney’s third inflation report hearing will be absolutely key given that the February’s report provided an amendment to the previously withstanding forward guidance policy, which was undone just six months after its implementation through tumbling unemployment. The Treasury Committee are notoriously hard nailed and aggressive with their questioning, as has been evident through the sessions seen across crises such as the Libor scandal. Whilst today’s session will be unlikely to draw such pressing questioning, there are two key aspects which are likely to be addressed within the sessions. The implementation of a forward guidance 2.0 represents a failure by Mark Carney in his first serious policy since taking charge of the top BoE position and the committee are sure to express this. The original intention of forward guidance was to provide businesses and individuals with a predictable interest rate framework, yet the fact that unemployment came 0.1% away from the 7.1% threshold that it in fact brought forward the possibility of a rise for many.
The other key debate to watch out for today is the challenge to whether Mark Carney will alter the governance currently in place within the bank, following the recent foreign exchange scandal which saw BoE staff possibly ignore manipulation in the rates of FX traders. This could have longer lasting implications, yet I do not see anything substantial coming out of this in the short term given that Carney will likely refrain from making any firm pledges on the topic.
The key issue of tapering came back to the fore yesterday, when Fed’s Plosser spoke of the potential that continued strong jobs data could spark an acceleration of the rate asset purchase reduction. The current $10 billion rate we have seen trimmed off in the past two meetings would necessitate a further 7 meetings to finally put the QE program to bed. This coincides perfectly with the amount of FOMC meetings left in the year and thus I would expect the Fed to see a steady and predictable pathway to be preferable over any spike in tapering. That being said, should we see any decision come to hold off on tapering for a single meeting this year, it would mean the Fed either increases the amount cut at a future meeting, or else miss out on the end of 2014 target that many are expecting for an end to QE. Thus this could explain why the Fed has been adamant to taper in tough months such as January when the data was poor from adverse weather conditions; they have a schedule to keep to and it will likely take something hugely significant to take them off track.
The BoJ chose to keep monetary policy steady overnight in the final meeting ahead of the imposition of the widely discussed sales tax on 1 April. This came as no surprise as the response from an economic standpoint to this measure of fiscal tightening in unknown and comes at a time when the Japanese economy is somewhat losing traction at a time when it needs it the most. Yesterday’s announcement that Q4 2013 GDP growth had been revised down to 0.7% was a perfect example of just how fragile the economy remains and thus looser fiscal and monetary policies are probably more suitable right now. However, with a debt to GDP ratio well over 200%, Japan has little choice in the matter and by comparison, the sales tax in Japan is a fraction of the consumption taxes seen in most other developing countries. Thus whilst Abe should be commended for getting the economy to a place where it is strong enough to finally implement a change that should have happened a long time ago, it could perhaps be a little too soon in this fragile recovery to have a tightening of fiscal policy. In terms of monetary policy, I do expect asset purchases to be increased later this year, yet this will be largely dependent upon how the economy reacts to the sales tax hike. Thus markets will be increasingly sensitive to Japanese data going forward as this will provide critical clues as to whether we will see additional stimulus come into play to counteract this tax.
Ukrainian worries persist as the 16 March deadline moves a day closer for the referendum regarding whether the Crimean peninsula should become part of the Russian Federation. While the urgency of matters appears to have tailed off somewhat in the eyes of the markets, European and Western powers are attempting to move Vladimir Putin to delay or cancel the vote. This vote is clearly designed for one purpose and that is to legitimise the takeover of the region by Russia, especially given that the ballot paper is rumoured to have no option to remain part of Ukraine. However, European efforts appear to be falling on deaf ears as the threat of sanctions and closer Ukraine-EU ties are spurring Putin on to push forward with the vote. Yesterday saw the EU cut all levies on Ukrainian products going into the European region, which sought to bring the regions closer together; something Russia is fighting hard to avoid. Thus as it currently stands Ukraine is at the centre of a tug of war, with Russia grabbing what it feels is rightfully theirs and Europe trying to use economic incentives as a means to closer ties. This will likely continue up until 16 March, which could act as a spark in moving Russia forward in their plans and thus Western powers will have to exert what few options they have without the use of military force.
Looking ahead, the European session has trade data out of Germany along with the manufacturing production figure from the UK to look forward to. However, I do expect the inflation report hearings to be the biggest potential market mover. Also keep a look out for the NIESR GDP estimate due out a little later.
European markets are expected to open higher, with the FTSE100 +19 points and DAX +35 points.
Alpari UK
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UK Opening Call from Alpari UK on 12 March 2014
Crimea vote brings Ukraine tensions back to the fore
* Ukraine government sets deadline for vote cancellation
* EU have limited options without the use of force
* RBNZ to announce their latest policy statement
European markets are expected to move lower at the open today following increased fears over the Ukraine conflict which could come to a head today. The FTSE100 is expected to open -45 points and DAX -16. This comes off the back of a poor Asian session which saw the Nikkei, Hang Send and Shanghai composite all move lower.
The Ukrainian conflict appears to be rearing its head once more today following yesterday’s announcement from Kiev that they have set a deadline for the cancellation of Sunday’s referendum vote in Crimea. Whilst this will be highly unlikely to affect whether the vote goes ahead, it does provide a crossroads ahead of Sunday’s vote, at which point international actors can pressurise Russia through sanctions or political measures. The feeling is that should the vote go ahead on Sunday, then Russia will effectively see the appropriation of the Crimea region as legitimate in the eyes of the international community. However, yesterday also saw the Crimean parliament declare that they have already voted to become independent on a national level and thus the deadline set from Kiev will be unlikely to hold much value.
Ultimately, today could be the begin the re-emergence of heightened tensions in the region which originally brought about higher commodity and safe haven asset prices last Monday. The existence of Russian troops throughout the Crimea indicate to me that the region will likely be taken by next week, upon which it will be very difficult for it to be taken back without the use of force. This subsequently brings about questions with regards to how serious the Western powers are about this issue and the imposition of sanctions could be brought about very quickly amid other measures. The creation of sanctions against key export markets such as energy could impact Europe just as much as Russia, with a third of all EU coal, gas and oil imports coming from the Russian Federation.
Looking ahead, today looks like a quiet one from an economic standpoint. However, we will have to wait for the real substantial release of the day when the RBNZ announces the latest monetary policy decision for the New Zealand economy. The tones coming out of the RBNZ in recent months are notably more hawkish, with the likeliness of a rate hike taking over the likeliness of a cut. However, with the insistence from governor Graeme Wheeler back in 2013 that the NZDUSD rate has been overvalued, the recent upside breakout will no doubt play into the possibility of a rate hike. The necessity of the hike appears to be relatively less pressing than that of the cuts back in the midst of the crisis and thus I do not see any change to policy just yet. Watch out for the accompanying statement for any mention of the NZD rate.
Crimea vote brings Ukraine tensions back to the fore
* Ukraine government sets deadline for vote cancellation
* EU have limited options without the use of force
* RBNZ to announce their latest policy statement
European markets are expected to move lower at the open today following increased fears over the Ukraine conflict which could come to a head today. The FTSE100 is expected to open -45 points and DAX -16. This comes off the back of a poor Asian session which saw the Nikkei, Hang Send and Shanghai composite all move lower.
The Ukrainian conflict appears to be rearing its head once more today following yesterday’s announcement from Kiev that they have set a deadline for the cancellation of Sunday’s referendum vote in Crimea. Whilst this will be highly unlikely to affect whether the vote goes ahead, it does provide a crossroads ahead of Sunday’s vote, at which point international actors can pressurise Russia through sanctions or political measures. The feeling is that should the vote go ahead on Sunday, then Russia will effectively see the appropriation of the Crimea region as legitimate in the eyes of the international community. However, yesterday also saw the Crimean parliament declare that they have already voted to become independent on a national level and thus the deadline set from Kiev will be unlikely to hold much value.
Ultimately, today could be the begin the re-emergence of heightened tensions in the region which originally brought about higher commodity and safe haven asset prices last Monday. The existence of Russian troops throughout the Crimea indicate to me that the region will likely be taken by next week, upon which it will be very difficult for it to be taken back without the use of force. This subsequently brings about questions with regards to how serious the Western powers are about this issue and the imposition of sanctions could be brought about very quickly amid other measures. The creation of sanctions against key export markets such as energy could impact Europe just as much as Russia, with a third of all EU coal, gas and oil imports coming from the Russian Federation.
Looking ahead, today looks like a quiet one from an economic standpoint. However, we will have to wait for the real substantial release of the day when the RBNZ announces the latest monetary policy decision for the New Zealand economy. The tones coming out of the RBNZ in recent months are notably more hawkish, with the likeliness of a rate hike taking over the likeliness of a cut. However, with the insistence from governor Graeme Wheeler back in 2013 that the NZDUSD rate has been overvalued, the recent upside breakout will no doubt play into the possibility of a rate hike. The necessity of the hike appears to be relatively less pressing than that of the cuts back in the midst of the crisis and thus I do not see any change to policy just yet. Watch out for the accompanying statement for any mention of the NZD rate.
Alpari UK
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US Opening Call from Alpari UK on 12 March 2014
G7 statement could prompt further risk aversion
* Ukraine conflict and Chinese slowdown continues to weigh on sentiment;
* Another slow day for economic data;
* G7 statement could prompt further risk aversion.
US indices are expected to track their European counterparts lower on Wednesday, as a severe lack of news or data leaves investors still focusing on the apparent slowdown in China and the ongoing crisis in the Ukraine. As it stands, the S&P is expected to open 9 points lower, the Dow 54 points lower and the Nasdaq 13 points lower.
That’s not to say that neither the conflict in Ukraine or the apparent slowdown in China are important, they clearly are, but both had been priced into the markets earlier in the week. What we’re seeing now is markets on the whole being driven by investor sentiment and as long as we don’t see anything positive to act as a distraction from Ukraine and China, sentiment is likely to remain low, as we’re seeing again today.
.
Looking at the economic calendar for the week, this is unlikely to change. The European has so far been dominated by low tier economic releases which rarely have much of an impact on the markets, while the US session doesn’t even have this to offer. Aside from the EIA crude oil stocks number for last week, which only tends to impact oil prices, there’s very little scheduled.
On the bright side, the end of the week should be a little better, particularly the Asian session tonight when we’ll get Japanese investment data, the latest Australian employment figures, UK housing data and Chinese industrial production, retail sales and investment figures. All of these are likely to be key in driving both the European and US sessions tomorrow, assuming of course that there are no developments in the Ukraine.
Any positive developments look a million miles away at this stage, and this could get worse still this afternoon. The G7 is believed to be releasing a statement at 1pm, GMT, which is unlikely to be viewed as a positive step towards ending the crisis. The details of the statement haven’t been released, but I doubt it will contain anything too extreme, such as major sanctions on Russia.
That said, if the statement goes further than simply condemning Russia for its apparent attempts to occupy the Crimean peninsula, it could prompt a retaliation from Russian President Vladimir Putin. This could be anything from kicking Russia out of the G8 to imposing further sanctions on individuals or potentially, Russia as a whole.
Any escalation of this dispute between Russia and the West would undoubtedly hurt Russia more. However, Russia does have the capability to cause a lot of pain for the West, for example by cutting off its oil exports to Europe. Not only would this cause oil shortages while the countries look for an alternative, the price of oil would rise significantly which would be devastating for the economy. Especially an economy that is already extremely fragile.
As a result, anything seen as overly aggressive by the G7 that could prompt a retaliation from the Kremlin may weigh even more heavily on sentiment and therefore risk appetite. Safe havens such as Gold, US Treasuries and the yen would be the normal beneficiaries of this.
G7 statement could prompt further risk aversion
* Ukraine conflict and Chinese slowdown continues to weigh on sentiment;
* Another slow day for economic data;
* G7 statement could prompt further risk aversion.
US indices are expected to track their European counterparts lower on Wednesday, as a severe lack of news or data leaves investors still focusing on the apparent slowdown in China and the ongoing crisis in the Ukraine. As it stands, the S&P is expected to open 9 points lower, the Dow 54 points lower and the Nasdaq 13 points lower.
That’s not to say that neither the conflict in Ukraine or the apparent slowdown in China are important, they clearly are, but both had been priced into the markets earlier in the week. What we’re seeing now is markets on the whole being driven by investor sentiment and as long as we don’t see anything positive to act as a distraction from Ukraine and China, sentiment is likely to remain low, as we’re seeing again today.
.
Looking at the economic calendar for the week, this is unlikely to change. The European has so far been dominated by low tier economic releases which rarely have much of an impact on the markets, while the US session doesn’t even have this to offer. Aside from the EIA crude oil stocks number for last week, which only tends to impact oil prices, there’s very little scheduled.
On the bright side, the end of the week should be a little better, particularly the Asian session tonight when we’ll get Japanese investment data, the latest Australian employment figures, UK housing data and Chinese industrial production, retail sales and investment figures. All of these are likely to be key in driving both the European and US sessions tomorrow, assuming of course that there are no developments in the Ukraine.
Any positive developments look a million miles away at this stage, and this could get worse still this afternoon. The G7 is believed to be releasing a statement at 1pm, GMT, which is unlikely to be viewed as a positive step towards ending the crisis. The details of the statement haven’t been released, but I doubt it will contain anything too extreme, such as major sanctions on Russia.
That said, if the statement goes further than simply condemning Russia for its apparent attempts to occupy the Crimean peninsula, it could prompt a retaliation from Russian President Vladimir Putin. This could be anything from kicking Russia out of the G8 to imposing further sanctions on individuals or potentially, Russia as a whole.
Any escalation of this dispute between Russia and the West would undoubtedly hurt Russia more. However, Russia does have the capability to cause a lot of pain for the West, for example by cutting off its oil exports to Europe. Not only would this cause oil shortages while the countries look for an alternative, the price of oil would rise significantly which would be devastating for the economy. Especially an economy that is already extremely fragile.
As a result, anything seen as overly aggressive by the G7 that could prompt a retaliation from the Kremlin may weigh even more heavily on sentiment and therefore risk appetite. Safe havens such as Gold, US Treasuries and the yen would be the normal beneficiaries of this.
Alpari UK
Experienced member
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UK Opening Call from Alpari UK on 13 March 2014
NZ rate hike marks the start of monetary tightening
* RBNZ raises rates, marking the start of monetary tightening;
* Strong Australian jobs data comes despite Chinese slowdown;
* Chinese Premier seeks to focus more upon jobs than growth
The European markets are seeking to buck the trend set by the Asia, following a poor finish to the overnight session that saw the likes of the Hang Seng, Nikkei and Copper falling lower. This came following the announcement of worse than expected industrial production in China. The European indices are thus expected to open higher, with the FTSE100 +2, CAC +9 and DAX +15 points.
The New Zealand central bank raised interest rates overnight, sparking further NZD strength and more importantly marking the beginning of a new chapter for the recovery in the global economy. This represents the first move by the central bank of a developed nation to raise their interest rates since 2011 and more is on its way according to Governor Graeme Wheeler. The reasoning behind this move has been a notable rise in both growth and employment rates, coupled with a booming export market. However, I expect such further moves to raise the value of the NZDUSD further, despite Wheeler’s insistence that it will not. However, any further appreciation in the currency should not impede the rate hiking process given the fact that the RBNZ are linking the currency appreciation with the terms of trade rise. Thus in this context the appreciation seen in the NZDUSD of late has and will continue to be justified. That being said, should we see a notable deterioration in trade, then this could impact the tightening of monetary policy going forward.
Overnight, the jobs market provided a much needed boost to the Australian economy, with the number of newly employed people rising to the highest level in 10 months. The revision of January’s figure to also account for a further 20,000+ jobs means that overall this report indicated a further rise in employment of almost 70,000 people over a two month period. This is a massive boost in an economy which has and will continue to struggle against a backdrop of a weakening China and thus a need to realign their business interests to a more broad and diversified customer base. The reliance upon commodity exports will no doubt continue to persist, yet the falling rates of copper, iron ore and alike following the slowdown in China show the sensitivity of the economy upon factors it cannot control. The ability of the Australian economy to continue to grow in both jobs and output regardless of a weakening China is perhaps the hardest and most challenging job for the new Prime Minister Tony Abbott. However, with figures like these, it appears that the battle is being won against the odds.
Chinese Premier Li has begun lowering expectations overnight, expressing that the 7.5% growth target is flexible and the real focus should be centered upon employment. This is a step back from the growth mad Chinese hierarchy, yet a sensible one given the challenged that lay ahead for the world’s second largest economy. Much has been made of the growth that that taken place in the past decade throughout China. The creation of non-existent demand in the form of subsidies and incentives have begun to show through in an economy which has overheated and whose growth may have been high, but is of a poorer quality than would be desired. Going forward there is likely to be a clear focus upon developing a more high quality growth, which is self sustainable and does not rely upon government incentives and alike to remain strong. The centralised creation of growth served to justify the one-party political structure to many in the country, yet should we see any deterioration in the jobs market, there could be increased resistance going forward. That is why the Chinese have finally realised that what is important may not be by what rate the output grows, but instead the one factor that their constituents can feel the most; employment.
The weakening of manufacturing PMI figures has shown a deterioration in the most important sector for job creation, thus driving Premier Li to express a further willingness to intervene to support small to medium sized businesses. However, this is a return to the old ways, where companies cannot stand on their own two feet, held aloft by a government that is worried of the consequences of failure. The default of solar panel maker Chaori was seen as a defining moment, showing that the government is allowing failure to occur for the first time. Boom and bust in a necessity for any healthy economy and drives both innovation and efficiencies. Thus in some way the extent to which the Chinese government are allowing their economy to normalise and compete in the global marketplace will be measured by the amount of companies that fail going forward.
A relatively quiet day in the markets today are expected to be dominated by the US the retail sales data as we attempt to gauge consumer habits in a strengthening economy. Also look out for the unemployment claims figure which will provide further information regarding employment ahead of the FOMC meeting later this month.
NZ rate hike marks the start of monetary tightening
* RBNZ raises rates, marking the start of monetary tightening;
* Strong Australian jobs data comes despite Chinese slowdown;
* Chinese Premier seeks to focus more upon jobs than growth
The European markets are seeking to buck the trend set by the Asia, following a poor finish to the overnight session that saw the likes of the Hang Seng, Nikkei and Copper falling lower. This came following the announcement of worse than expected industrial production in China. The European indices are thus expected to open higher, with the FTSE100 +2, CAC +9 and DAX +15 points.
The New Zealand central bank raised interest rates overnight, sparking further NZD strength and more importantly marking the beginning of a new chapter for the recovery in the global economy. This represents the first move by the central bank of a developed nation to raise their interest rates since 2011 and more is on its way according to Governor Graeme Wheeler. The reasoning behind this move has been a notable rise in both growth and employment rates, coupled with a booming export market. However, I expect such further moves to raise the value of the NZDUSD further, despite Wheeler’s insistence that it will not. However, any further appreciation in the currency should not impede the rate hiking process given the fact that the RBNZ are linking the currency appreciation with the terms of trade rise. Thus in this context the appreciation seen in the NZDUSD of late has and will continue to be justified. That being said, should we see a notable deterioration in trade, then this could impact the tightening of monetary policy going forward.
Overnight, the jobs market provided a much needed boost to the Australian economy, with the number of newly employed people rising to the highest level in 10 months. The revision of January’s figure to also account for a further 20,000+ jobs means that overall this report indicated a further rise in employment of almost 70,000 people over a two month period. This is a massive boost in an economy which has and will continue to struggle against a backdrop of a weakening China and thus a need to realign their business interests to a more broad and diversified customer base. The reliance upon commodity exports will no doubt continue to persist, yet the falling rates of copper, iron ore and alike following the slowdown in China show the sensitivity of the economy upon factors it cannot control. The ability of the Australian economy to continue to grow in both jobs and output regardless of a weakening China is perhaps the hardest and most challenging job for the new Prime Minister Tony Abbott. However, with figures like these, it appears that the battle is being won against the odds.
Chinese Premier Li has begun lowering expectations overnight, expressing that the 7.5% growth target is flexible and the real focus should be centered upon employment. This is a step back from the growth mad Chinese hierarchy, yet a sensible one given the challenged that lay ahead for the world’s second largest economy. Much has been made of the growth that that taken place in the past decade throughout China. The creation of non-existent demand in the form of subsidies and incentives have begun to show through in an economy which has overheated and whose growth may have been high, but is of a poorer quality than would be desired. Going forward there is likely to be a clear focus upon developing a more high quality growth, which is self sustainable and does not rely upon government incentives and alike to remain strong. The centralised creation of growth served to justify the one-party political structure to many in the country, yet should we see any deterioration in the jobs market, there could be increased resistance going forward. That is why the Chinese have finally realised that what is important may not be by what rate the output grows, but instead the one factor that their constituents can feel the most; employment.
The weakening of manufacturing PMI figures has shown a deterioration in the most important sector for job creation, thus driving Premier Li to express a further willingness to intervene to support small to medium sized businesses. However, this is a return to the old ways, where companies cannot stand on their own two feet, held aloft by a government that is worried of the consequences of failure. The default of solar panel maker Chaori was seen as a defining moment, showing that the government is allowing failure to occur for the first time. Boom and bust in a necessity for any healthy economy and drives both innovation and efficiencies. Thus in some way the extent to which the Chinese government are allowing their economy to normalise and compete in the global marketplace will be measured by the amount of companies that fail going forward.
A relatively quiet day in the markets today are expected to be dominated by the US the retail sales data as we attempt to gauge consumer habits in a strengthening economy. Also look out for the unemployment claims figure which will provide further information regarding employment ahead of the FOMC meeting later this month.
Alpari UK
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US Opening Call from Alpari UK on 13 March 2014
US futures higher after positive consumer and jobs data
• US futures higher following mixed sessions in Asia and Europe;
• Traders may view positive days as shorting opportunity;
• US data provides a boost ahead of the opening bell on Wall Street.
US futures are pointing to a slightly higher open on Thursday, following mixed sessions so far in Asia and Europe. The S&P is currently seen opening 5 points higher at 1,873, the Dow 34 points higher at 16,374 and the Nasdaq 11 points higher at 4,334.
There’s been a lot of negativity in the markets so far this week and that could have easily carried into today, following the release of another batch of poor Chinese figures. Industrial production, retail sales and fixed asset investment figures for January all fell short of expectations and dropped significantly from December, something that earlier this week may have had a much more negative impact on the markets.
However, today’s reaction to the figures suggest that a lot of negativity surrounding Chinese growth has already been priced in and this morning’s poor data was, to an extent, expected. What we’re seeing in the markets this morning is probably a case of stocks paring recent losses which may be viewed by traders as another opportunity to short.
The problem right now is that there’s plenty of negative stories for traders to latch onto, and therefore plenty of reasons to go short. However, I don’t expect any of these to last and still believe it’s going to be another good year for the markets, although not as good as 2013.
We had similar concerns about China this time last year and the government responded accordingly to ensure the country hit its growth targets. We may have seen the first corporate debt default in more than 17 years but I think this is simply a case of the government warning that things are about to change. Not a red flag for a Lehman type moment that some fear mongers are suggesting.
US futures and the dollar received a boost ahead of the opening bell from a number of good US economic figures. Retail sales were not great in January, which was largely blamed on the weather, and this was expected to have some impact again. However, the impact was not as great as we expected, as sales rose by 0.3%, which should provide some optimism as we head into the summer months. The January figure was revised lower to -0.6%, but given that it was heavily distorted by the poor weather I don’t think we can read much into it. I think the growth in February, despite the weather not being great again, tells us much more about US consumer sentiment.
Weekly jobless claims were also better than expected, which helped provide a boost for sentiment. This number hasn’t had that much impact on the market in recent months as people are more concerned about job creation now that the recovery has begun, rather than layoff’s. That said, big swings in the figure away from the average is generally going to have some impact and right now, the markets need something positive to latch onto.
US futures higher after positive consumer and jobs data
• US futures higher following mixed sessions in Asia and Europe;
• Traders may view positive days as shorting opportunity;
• US data provides a boost ahead of the opening bell on Wall Street.
US futures are pointing to a slightly higher open on Thursday, following mixed sessions so far in Asia and Europe. The S&P is currently seen opening 5 points higher at 1,873, the Dow 34 points higher at 16,374 and the Nasdaq 11 points higher at 4,334.
There’s been a lot of negativity in the markets so far this week and that could have easily carried into today, following the release of another batch of poor Chinese figures. Industrial production, retail sales and fixed asset investment figures for January all fell short of expectations and dropped significantly from December, something that earlier this week may have had a much more negative impact on the markets.
However, today’s reaction to the figures suggest that a lot of negativity surrounding Chinese growth has already been priced in and this morning’s poor data was, to an extent, expected. What we’re seeing in the markets this morning is probably a case of stocks paring recent losses which may be viewed by traders as another opportunity to short.
The problem right now is that there’s plenty of negative stories for traders to latch onto, and therefore plenty of reasons to go short. However, I don’t expect any of these to last and still believe it’s going to be another good year for the markets, although not as good as 2013.
We had similar concerns about China this time last year and the government responded accordingly to ensure the country hit its growth targets. We may have seen the first corporate debt default in more than 17 years but I think this is simply a case of the government warning that things are about to change. Not a red flag for a Lehman type moment that some fear mongers are suggesting.
US futures and the dollar received a boost ahead of the opening bell from a number of good US economic figures. Retail sales were not great in January, which was largely blamed on the weather, and this was expected to have some impact again. However, the impact was not as great as we expected, as sales rose by 0.3%, which should provide some optimism as we head into the summer months. The January figure was revised lower to -0.6%, but given that it was heavily distorted by the poor weather I don’t think we can read much into it. I think the growth in February, despite the weather not being great again, tells us much more about US consumer sentiment.
Weekly jobless claims were also better than expected, which helped provide a boost for sentiment. This number hasn’t had that much impact on the market in recent months as people are more concerned about job creation now that the recovery has begun, rather than layoff’s. That said, big swings in the figure away from the average is generally going to have some impact and right now, the markets need something positive to latch onto.
Alpari UK
Experienced member
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UK Opening Call from Alpari UK on 14 March 2014
China and Russia fears dominate as market tumble
Another day, yet very similar themes running through the markets, with Chinese growth fears negatively affecting the Asian markets overnight, coupled with increased fears in relation to potential conflict in Ukraine. The overnight sell-off saw key Asian markets tumble, with the Japanese Nikkei index falling 3.2% over the week and the Hong Kong H-share index officially entering bear market territory in falling 20% since the 2 December high. Despite the ongoing weaknesses in Asia, the European markets have not necessarily taken the lead at all times this week, often opening higher only to fall lower in the latter part of the London session. However, this does not seem to be the case today, where key Euro indices are expected to open significantly lower, with the FTSE100 -23, CAC -27 and DAX -76 points.
Much of the fears in relation to global growth have been emanating from China, following a disappointing period that has seen a notable slowdown in the manufacturing sector, coupled with an over $50 billion trade balance reversal and compounded by the release of the worst industrial production rate since May 2009. As a result of this Chinese slowdown, traders are opting to take some of their riskier positions off the table, with the emerging markets along with commodities such as oil and copper being sold in favour of safe haven assets such as gold and the Japanese yen. This is reflected in the fact that gold has now reached a 6 month high, whilst the USDJPY broke below key resistance levels yesterday to bring a more bearish outlook.
The Chinese growth story has been unfolding this week from an economic standpoint, yet the ongoing announcements from Premier Li have allowed for greater transparency than is usually provided. Li’s comments regarding a need to refocus away from growth and towards employment seemed indicative of the low growth environment that could become common place within China following well over a decade of booming growth. Ultimately, the Communist Party of China are out for their own interests as much as any, and that means both managing expectations and targeting what is important to preventing civil unrest. The provision of growth has typically been seen as that holy grail as high growth largely means high job creation. However, with waning growth it is clear that what is actually important is whether people are in employment. Thus we are entering a period where contracting industry, shrinking trade and slowing growth have to be controlled to ensure jobs continue to be created whilst increasing the quality of growth going forward.
Quite how the emerging and Asian markets are going to settle under a more moderate Chinese growth model is yet to be seen. The booming expansion of China has fed growth in both developing and developed countries alike since the 2007 crash. However, with US tapering pulling the carpet from under many fragile economies, the slowing of China could act as a key catalyst which sparks a more protracted sell-off in riskier assets, in favour of the so called ‘havens’.
The worries surrounding Ukraine are gradually heightening, with the Crimean referendum now only three days away. Despite continued attempts from the West to avert the vote, it has become increasingly clear that Russia is unwilling to back down over the region, which will likely be part of the Russian Federation. Sunday’s vote, which reportedly has no option to remain part of the Ukraine is a foregone conclusion in any case, with 59% of Crimean residents being ethnic Russians and the ballots being conducted by pro-Russian forces in the presence of Kremlin militia. Ultimately, Sunday’s vote is likely to be the spark that ignites this whole issue, with both the EU and US being forced into taking action at the risk of looking blunt and ineffective, given the amount of rhetoric surrounding potential consequences for Russia should Crimea be taken from Ukraine. Military conflict is almost certainly ruled out, given both the size of the Russian forces and the lack of appetite for cold war style conflict within Europe. Thus the imposition of sanctions and political exclusion are likely to make the bulk of action within the early stages.
Ultimately, the possibility of a Russian takeover of Eastern Ukraine seems a distinct possibility, given the existence of pro-Russian residents and economic interests. The absolute absence of any Western military on the ground means that as long as Russia is willing to suffer the sanctions and alike, they will be free and able to take over other areas in much the same way that they have within Crimea. The economic importance of Ukraine for Russia as a gateway for exports means that the anti-Russian movements in certain parts of the country worried the Kremlin and thus appropriation of Ukrainian land is the simplest way to ensure that Russian influence remains within their key neighbour. Given the boost to Putin’s ratings within Russia, it is clear that Russia is likely to back down anytime soon.
A somewhat quiet day ahead from the European perspective, where UK trade balance data makes up the most important of few economic announcements. In the US session, the PPI and UoM consumer sentiment data will provide a somewhat more interesting session in terms of possible market moving releases.
China and Russia fears dominate as market tumble
- Chinese slowdown fears continue to negatively affect Asian markets
- How will the markets handle the Chinese shift away from growth and towards employment?
- Ukraine referendum likely to go ahead, Western response key
- Will Russia takeover Eastern Ukraine?
Another day, yet very similar themes running through the markets, with Chinese growth fears negatively affecting the Asian markets overnight, coupled with increased fears in relation to potential conflict in Ukraine. The overnight sell-off saw key Asian markets tumble, with the Japanese Nikkei index falling 3.2% over the week and the Hong Kong H-share index officially entering bear market territory in falling 20% since the 2 December high. Despite the ongoing weaknesses in Asia, the European markets have not necessarily taken the lead at all times this week, often opening higher only to fall lower in the latter part of the London session. However, this does not seem to be the case today, where key Euro indices are expected to open significantly lower, with the FTSE100 -23, CAC -27 and DAX -76 points.
Much of the fears in relation to global growth have been emanating from China, following a disappointing period that has seen a notable slowdown in the manufacturing sector, coupled with an over $50 billion trade balance reversal and compounded by the release of the worst industrial production rate since May 2009. As a result of this Chinese slowdown, traders are opting to take some of their riskier positions off the table, with the emerging markets along with commodities such as oil and copper being sold in favour of safe haven assets such as gold and the Japanese yen. This is reflected in the fact that gold has now reached a 6 month high, whilst the USDJPY broke below key resistance levels yesterday to bring a more bearish outlook.
The Chinese growth story has been unfolding this week from an economic standpoint, yet the ongoing announcements from Premier Li have allowed for greater transparency than is usually provided. Li’s comments regarding a need to refocus away from growth and towards employment seemed indicative of the low growth environment that could become common place within China following well over a decade of booming growth. Ultimately, the Communist Party of China are out for their own interests as much as any, and that means both managing expectations and targeting what is important to preventing civil unrest. The provision of growth has typically been seen as that holy grail as high growth largely means high job creation. However, with waning growth it is clear that what is actually important is whether people are in employment. Thus we are entering a period where contracting industry, shrinking trade and slowing growth have to be controlled to ensure jobs continue to be created whilst increasing the quality of growth going forward.
Quite how the emerging and Asian markets are going to settle under a more moderate Chinese growth model is yet to be seen. The booming expansion of China has fed growth in both developing and developed countries alike since the 2007 crash. However, with US tapering pulling the carpet from under many fragile economies, the slowing of China could act as a key catalyst which sparks a more protracted sell-off in riskier assets, in favour of the so called ‘havens’.
The worries surrounding Ukraine are gradually heightening, with the Crimean referendum now only three days away. Despite continued attempts from the West to avert the vote, it has become increasingly clear that Russia is unwilling to back down over the region, which will likely be part of the Russian Federation. Sunday’s vote, which reportedly has no option to remain part of the Ukraine is a foregone conclusion in any case, with 59% of Crimean residents being ethnic Russians and the ballots being conducted by pro-Russian forces in the presence of Kremlin militia. Ultimately, Sunday’s vote is likely to be the spark that ignites this whole issue, with both the EU and US being forced into taking action at the risk of looking blunt and ineffective, given the amount of rhetoric surrounding potential consequences for Russia should Crimea be taken from Ukraine. Military conflict is almost certainly ruled out, given both the size of the Russian forces and the lack of appetite for cold war style conflict within Europe. Thus the imposition of sanctions and political exclusion are likely to make the bulk of action within the early stages.
Ultimately, the possibility of a Russian takeover of Eastern Ukraine seems a distinct possibility, given the existence of pro-Russian residents and economic interests. The absolute absence of any Western military on the ground means that as long as Russia is willing to suffer the sanctions and alike, they will be free and able to take over other areas in much the same way that they have within Crimea. The economic importance of Ukraine for Russia as a gateway for exports means that the anti-Russian movements in certain parts of the country worried the Kremlin and thus appropriation of Ukrainian land is the simplest way to ensure that Russian influence remains within their key neighbour. Given the boost to Putin’s ratings within Russia, it is clear that Russia is likely to back down anytime soon.
A somewhat quiet day ahead from the European perspective, where UK trade balance data makes up the most important of few economic announcements. In the US session, the PPI and UoM consumer sentiment data will provide a somewhat more interesting session in terms of possible market moving releases.