Forex research

US Opening Call from Alpari UK - Wednesday 2nd April 2014

Markets await ADP payroll figure as jobs data returns

* Poor data response highlights contrast between US/UK and eurozone/China contral bank outlook
* UK construction PMI weakens yet will expand alongside housing prices
* ADP figure expected higher as winter frost thaws.

US equities are expected to open in the green today following a strong European open and Asian session. Future prices point towards S&P500 opening +3 points, Dow +26 points and Nasdaq +9 points.

The outperformance of indices across Asia, Europe and the US flies in the face of poor economic data which has dominated the week to date. Today appears to have held this trend with markets paying little regard to the economic releases in a week where fundamentals are usually king. However, the relationship between data and monetary policy is clearly split, with UK and US figures barely impacting central bank expectations yet eurozone and Chinese monetary policy has become increasingly cloudy. The stability of forward guidance is clearly having a positive impact upon the markets in the UK and US, where the greater central bank policy stability provides markets the security needed to push on. Add to this a period which could see Chinese, Japanese and eurozone monetary expansion and it is clear why the markets are moving to the upside.

The early part of the European session has seen the UK construction PMI figure disappointed, paving the way for tomorrows crucial services figure. The expansion of the construction sector has been front and center of UK policy given the sharp growth of the housing sector. With London prices in particular rising 18.2% annually, there are signs that we could be approaching bubble territory yet again. However, with construction coming as a result of demand outstripping supply rather than the creation of white elephants for sale to the foreign markets. That being said, the use of London property as a safe haven asset for foreign investors has pushed property prices higher, leading to a mixed market split between those areas that are being bought by domestic clients and those who buy as second homes or investment properties. Regardless of what is currently pushing prices higher, construction and development will likely continue apace as long as prices continue to rise.

The US session will be focused largely upon the release of the ADP non-farm payroll figure, which is released as a precursor to the official payrolls figure later in the week. The benefit of this privately calculated measure is that it provides us and the Fed with yet another wide reaching measure upon which to base decision making upon. Despite the similarities from a naming standpoint, this figure is unlikely to really provide too much of an indication of where Friday’s payroll figure will move, with previous experience showing that there is a weak correlation between the two. However, this is not to say that the figure will play no part in Fed decision-making or provide no volatility. It is typically the case that we will see markets shift in response to a notable figure, albeit to a lesser extent than some of the major releases. This week the market forecasts point towards a substantial rise back towards the 195k level, following a figure of 139k last time. This would push us closer to the kind of numbers we were seeing prior to the adverse weather conditions that took hold from December onwards and thus seems viable. However, we have seen the past two figures miss expectations, so I am watching to see if this trend continues or can finally be bucked.
 
UK Opening Call from Alpari UK - Thursday 3rd April 2014

Europe draws a breathe as Draghi leaves us guessing

  • China introduces stimulus to boost Asian markets;
  • European session dominated by the ECB;
  • UK sevices PMI provides an indication of GDP growth going forward

Indecision has finally crept into the market it seems, with European futures pointing to a mixed open despite yet another strong Asian session overnight driven by further stimulus measures from the government. As a result, we are expecting to open with the FTSE100 +5 points, CAC -2 points and the DAX +2 points.

The overnight Asian session saw the announcement of a government driven stimulus plan, which will see $24 billion of bonds sold to fund new railway networks and help for struggling small business. Whilst China’s move was not tantamount to monetary stimulus, it paved the way for such and showed that the government much like the PBOC is willing to help bring the economy out of the current downturn. This move is clearly a more moderate and measured step than those taken in the past, paling in comparison to the $650 billion package utilised back in 2008. That being said, this is clearly targetted, with the recent deterioration of the HSBC manufacturing PMI figure showing a weakness within the smaller to medium sized businesses, it is exactly those firms which will benefit the most from this package. Overall, whilst this may be more measured in scope, the markets are hoping this is not the end but just the beginning of stimulus in response to the current Chinese slowdown.

Today sees us reach the business end of the week, with all eyes focused upon the ECB and more specifically whether this Mario Draghi will take concrete steps to combat the serious disinflation seen within the eurozone. The markets have had a tough time of judging Draghi in recent months, with expectations not only being varied in terms of which type of stimulus the ECB will provide, but also whether they will provide any at all. The insistence of Draghi to remain steady in the face of growing calls for easing stands in stark contrast to the Draghi of old, whose 25 basis point cut back in November took the markets off guard with it’s swiftness following a disappointing CPI figure earlier that week. The question here is whether Draghi continues to believe that current inflation in of a cyclical nature and whether he believes that monetary policy would have much of an effect in any case.

The November rate cut showed one thing, and that was that interest rate cuts approaching zero have little effect upon the rate of price stability in current market conditions. This can be attributed to a number of factors, however the one factor worth noting is that the main drag on prices currently is energy prices, of which the current 0.5% rate would be closer to 0.8%. Monetary policy plays precious little role in determining energy prices and I am sure Mario Draghi is aware of this. That being said, the question remains as to whether Draghi will remain steadfast in the face of deteriorating price stability, with all that goes with it, including shrinking wage growth and falling investment incentives. The initial announcement will typically bring the answer in relation to interest rates, which will be key given the recent drive within the ECB to push potential negative rates. However, the press conference following will be a big market mover, with the question over whether we will see any alternative measures such as and end to bond sterilisation or all out QE coming to the fore. Personally I do not expect to see any change from the ECB today as I believe any change is unlikely to drive up short term disinflation which is largely driven by falling energy prices.

In the UK, the biggest release of the week is approaching in the form of the services PMI figure. The importance of the services sector is widely acknowledged, accounting for 0.6% of the 0.7% GDP growth seen in the last quarter. However, with deteriorating manufacturing and construction PMI figures, it is key to gauge whether this is a countrywide phenomenon or whether the world class services sector in the UK can push forward and drive growth in the Q1. Given the association between both growth and the services PMI figure, today’s release is used by many as one of the most important barometers of where UK GDP growth is likely to move during the same period. Given the forward looking nature of the surveys, a strong number today can pave the way for an expansive first half of 2014. Market forecasters look to this figure for a similar number to the 58.2 seen last month.
 
US Opening Call from Alpari UK - Thursday 3rd April 2014

Traders on the sidelines ahead of ECB decision

* Traders on the sidelines ahead of ECB decision;
* Markets pointing to no action, but far from certain;
* Wiedmann hints at quantitative easing;
* Services PMI readings headline US session.

European indices are treading water so far this morning, a clear sign that traders are in no mood to try and predict the outcome of the ECB meeting having found it so difficult in recent months. US indices are heading for a similar open, with futures showing the S&P up 1 point, the Dow up 15 points and the Nasdaq up 3 point.

Under normal circumstances the rate decision would be an extremely easy one to predict with inflation having fallen again last month to 0.5% and the ECBs sole mandate being price stability, with inflation below but close to 2%. Unfortunately that’s what most people thought ahead of the last two meetings when inflation stood at 0.8% and 0.7%, but rather than act or even hint at potential loosening of monetary policy in the following months, Draghi instead justified the central bank’s decision and claimed inflation expectations were “well anchored”.

Given that the reason behind the ongoing disinflation hasn’t changed, and the hawkish stance of Draghi at previous meetings, it would take a brave person to bet on the ECB announcing a stimulus package today. Especially when you consider the fact that any serious attempt would require stepping into uncharted territory, with interest rates now at 0.25% and the ECB having never attempted quantitative easing, negative deposit rates or even ending the sterilisation on bond purchases.

The only thing that makes me think there could be a monetary stimulus package announced is the changing attitude of Bundesbank President Jens Weidmann, arguably the most hawkish member of the ECB. In the past, Weidmann has regularly been one of, if not the, only dissenter among the governing council on interest rate decisions. On the few occasions when Weidmann has shown an openness to loosening monetary policy, a rate cut tends to follow.

The fact that he has recently shown a willingness to try quantitative easing, something he hasn’t been open to in the past, could be a sly hint that the ECB is in discussions about how to respond, rather than when to. Of course that doesn’t guarantee that it will happen today but I am curious about the timing of these comments and I think this has contributed to the paralysis in the markets so far today.

The other focal point today will be the US data being released, most notably the two PMI readings and the weekly jobless claims. The services and ISM non-manufacturing PMI figures are seen as being very good indicators for future US growth, with the services sector contributing more than two thirds to GDP. If we see good figures for March, it would suggest the winter downturn was just a temporary decline driven largely by unusually poor weather.
 
UK Opening Call from Alpari UK - Friday 4th April 2014

Jobs report in focus as markets look to cap off positive week

* European markets expected higher despite mixed Asian session;
* US jobs report to bring volatility;
* Impact of report upon Fed decision-making increasingly questionable;
* Forward guidance bring increased focus upon alternate employment measures;
* German factory orders expected to remain positive.

European indices are expected to open higher this morning in a bid to cap off a largely positive week with a final flourish. However, the existence of the all important US jobs report will have alot to do with how today pans out and it is this which led the overnight Asian session into the most pensive and subdued session of the week. Thus despite futures pointing towards a positive open, the close is quite another matter. The FTSE100 is expected to open +22 points, CAC +10 and DAX +25.

The dominant event of note today represents the crescendo to a busy week which saw disappointment all-round with almost every data point coming in short of expectations. However, with global markets unperturbed, we have continued to see indices push higher, much of which has been driven by the expectations or announcement of additional stimulus measures. This is true despite the announcement yesterday that the ECB will yet again stand on the sideline, choosing the utilised rhetoric and talk instead of action; something we have become far too accostomed to.

Yet the ability of the week to close out on a positive tone will be largely dictated by the US markets and more importantly the jobs market. The non-farm payroll and unemployment rate announcement, due for 1.30GMT represents not only the most important determinant of Federal reserve policy going forward, but also the most reliably volatile economic announcement available. The impact these figures can have upon the Fed is clear. Having watched the unemployment rate tumble throughout 2013, the market expectations of when tapering was due to occur have been managed and staged. Yet now that we are set upon this path of $10 billion reductions per month, the previously all-important jobs report has now become somewhat under-appreciated, with continuation likely to carry in irrespective of today’s figure. This is not to say that there is no scope for the actions of the Fed to be dictated or influenced by today’s announcement, however for a FOMC which was once finding any excuse not to taper, we are now seeing any excuse to taper being the status quo.

That being said, the jobs data is always treated with the respect it deserves, with last month representing one of the most volatile reactions seen in recent months. Irrespective of the questionable impact it will likely have to policy, barring any disasters, the markets are unlikely to shift their emphasis away from this announcement. This comes in part due to the expectations of volatility which have become somewhat of a self-fulfilling prophecy, bringing spreads higher, shifting long term positions in anticipation and bringing a more specific and tailored method of trading to the table which is typically shaped to take advantage of the very volatility that their actions help create.

This week, the expectations are that there will be a normalisation of employment data, with figures returning to the levels seen prior to the adverse weather conditions that struck the nation back in late 2013, early 2014. This has become somewhat of a go to excuse for any poor figure around that time and it will be a welcome event to see the back of that period. The forecasters are pushing for a payrolls figure of 200k, following the 175k seen last month. This still falls short of the number we saw back in November, upon which the Fed made the decision to taper. However, such a figure would be in the same ballpark, replicating the October announcement. Meanwhile, the unemployment rate is expected to return lower to 6.6%, having temporarily bucked the trend to rise marginally to 6.7% in February.

Despite the obvious importance of both the unemployment rate and payrolls figure, the importance of earnings, hours worked and the participation rate has never been so key. Given Janet Yellen’s recent amendment to forward guidance, we are not looking at a more wide-ranging basket of measures to note whether the slack, or ‘excess capacity’ within the economy is tightening. In essence, this denotes the method of squeezing more juice from the same lemon, with people returning to the workplace, working longer hours, switching from part-time to full-time employment and alike.

Within the European session, the announcement of the latest German factory orders is likely to steal the limelight on somewhat of a quiet day. This commonly unreliable measure is expected to remain within expansion despite a clear trend which sees periods of growth set against periods of contraction on a month-by-month basis. Thus despite the forecasts, it would not be surprising to see yet another fall in this figure to continue the trend.
 
US Opening Call from Alpari UK - Friday 4th April 2014

Traders optimistic ahead of US jobs report

* Traders optimistic ahead of US jobs report;
* Expectations in danger of being too high;
* What drives the unemployment rate more important than headline figure;
* Hours worked and hourly earnings an important barometer of recovery sustainability.

European indices are trading around a quarter of a percentage point higher on Friday ahead of the all important US jobs report and we’re expecting a similar open from the US in a few hours. As it stands, the S&P is seen opening 5 points higher, the Dow 34 points higher and the Nasdaq 10 points higher.

This kind of positivity ahead of the jobs report is unusual, with traders ordinarily being fairly risk averse. This clearly highlights the optimism in the markets ahead of the report following a few months of disappointing, albeit slightly improving figures. The number of jobs added in December, January and February appeared to be hit heavily by the unusually poor weather in the US and the expectations now is that the loss of job creation in those months will be carried over to the next few month, particularly March.

While official forecasts are predicting a figure of just below 200,000, market expectations are clearly higher based on the reaction in the markets and I think that’s fair. A number closer to 250,000, or even higher, would support claims that the weather had a detrimental effect on the labour market in the winter months and would, in turn, suggest that the recovery in the US is still gaining momentum. There have been concerns that the poor start to the year has made it very difficult for the country to hit its 3% growth target for 2014. Today’s report should go some way to either justifying or allaying these fears.

The March data seen so far this week has been fairly mixed which doesn’t necessarily fill me with hope. The services PMI, which is seen as a very important reading given the US dependency on the services sector rose from a month ago, which is encouraging. However, manufacturing slowed in the same month and the ADP employment change, which is seen as an estimate of today’s non-farm payrolls number, was below 200,000. This suggests market expectations may be a little high and that the recovery potentially has slowed in the first quarter of the year.

The problem we now face is that the high expectations mean even a number in line with expectations of around 200,000, or even slightly higher, could be met with disapproval by the markets and really call into question whether the US can actually recover as much as hoped this year.

The unemployment rate is also seen falling to 6.6% in March, down from 6.7% the month before, which unlike the previous months when falls were driven by a falling participation rate, should be driven by actual jobs growth. While this reading is always important, I get the feeling traders are going to pay less attention to the headline figure and more to the cause of the move. For example, if it doesn’t fall, or even if it rises, if this is due to a rising participation rate, it’s actually a very positive sign. If people are returning to the labour market, it demonstrates confidence in the economy which is crucial for the recovery this year.

Even some of the lesser followed aspects of the report are likely to be followed closely, such as average hourly earnings and hours worked. With the US economy being so driven by the consumer, a rise in the standard of living is extremely important and its improvements in these areas that provide confidence that the recovery is sustainable and not just a temporary improvement.
 
Underwhelming jobs report indicates business as usual

The US jobs market showed mixed signs of continued recovery today, as March added marginally less jobs than February at 192,000, whilst unemployment remained at 6.7%. There has been an relatively moderate impact in the markets, with the S&P500, EURUSD all failing to shift more than 60 pips in either direction. This can be attributed to a two factors; the impact upon monetary policy, and the newly introduced forward guidance policy. It has become increasingly clear that under the Yellen’s leadership, the Fed is hesitant to change the current course of tapering owing to the greater degree of uncertainty for what is a process which could make or break both developed and developing nations alike. Thus I believe we will see a lessened response in line with heightened stability in FOMC decision-making. Today’s figures, whilst unimpressive, do remain within the same region that has proved satisfactory for the Fed to taper in the past and subsequently we will more than likely see another reduction in asset purchases announced at the FOMC.


The introduction of a more wide-ranging forward guidance policy under Janet Yellen has raised the degree to which markets will be watching out for alternate employment statistics to gain an idea of whether the ‘spare capacity’ inherent within the economy is finally becoming addressed. With that in mind, the picture is somewhat varied, with a drop in the rate of hourly earnings growth (0.4% to 0%) being somewhat counteracted by a moderate rise in average hours worked per week (34.5 from 34.3). However, with the moderate improvement in participation rate from 63.0% to 63.2%, there are signs of improvement in the underlying jobs data, representing the highest rate of labour market participation since August 2013. It is the ability of the jobs market to do more with the same inputs which is becoming increasingly important and thus the ability to make workers return to the workplace, work longer hours and increase productivity is going to be key to when the interest rates rise according to Yellen.

Overall, many were expecting more from the US jobs market, with the excuses surrounding the adverse weather conditions seen through late 2014, early 2013 now finally out of sight. However, despite providing a somewhat underwhelming view of the jobs market, there is a common belief that it is enough to keep the Fed train moving on the same path for the foreseeable future.
 
Daily Market Update - 4 April 2014 - Alpari UK


Market Analyst Craig Erlam takes a closer look at today's US jobs report and explains why the markets have reacted as they have and what it means for the US economic recovery.
 
Weekly Market Preview – 7 April 2014

The week ahead is looking a little quieter following a very busy first week of the month. There will be particular focus on Asia this week with a lot of economic data being released, particularly in Australia and China, while the Bank of Japan meeting could create a few waves in the markets, should they announce an increase in its quantitative easing program, which wouldn’t be a total surprise.

The US, UK and eurozone is going to be fairly quiet with the biggest events here being the release of the FOMC minutes and the Bank of England meeting, but as discussed below, for different reasons, both of these are likely to be something of a non-event. This is not necessarily a bad thing though, the markets have had a lot to take in this week and sometimes it needs a week to absorb it properly so expect to still see plenty of volatility in the markets.


US

The week is looking much quieter for the US, with the key event coming Wednesday, with the release of the FOMC minutes from the meeting in March. Even this could turn out to be a bit of a non-event with the Fed making clear its intentions to continue the pace of tapering and the economic data neither justifying increasing or decreasing. The only controversy following the last meeting came in the press conference after, Janet Yellen’s first since becoming Chair.

In it, Yellen claimed that the Fed would look to raise interest rates for the first time about six months after the end of its quantitative easing program, which based on the current pace of reductions would suggest the end of the second quarter of 2015. This was slightly earlier than many had anticipated prompting the usual response from a more hawkish stance, dollar gains, rising yields on US debt and selling in equities.

Yellen was highly criticised for her first performance but quickly moved to ease market concerns when speaking last week at a conference on community investment. Yellen highlighted the importance of the easy monetary stance of the Fed and claimed the economy was far from being in a position to copy without it. She pointed to the amount of spare capacity in the economy, with large numbers of people in part time employment that wanted full time work. This was a clear attempt from the new Chair to make up for her blunder during the press conference and it worked a treat.

With Yellen having cleared this up pretty sharpish, there’s almost nothing to be gained from the minutes themselves. The one thing people may be looking at is which additional member saw the first rate hike coming in the middle of 2015 and who the additional three were that saw them rising to 1% by the end of the same year. That said, this information is barely useful and is unlikely to have much impact on the markets. This is one of the few meetings from the last few years where most of what we want to know from the meeting we already know. That said, you should never rest on your laurels when it comes to the Fed. That’s been a big lesson from recent years.

On the subject of the Fed, we’ll also hear from two officials on Monday, Narayana Kocherlakota and Charles Plosser. Both of these are voting members of the FOMC so their views are always worth listening to and can have an impact on the markets, usually more so than the non-voting members but maybe not as much as Yellen.

In terms of economic data, the week is looking very quiet, especially when we talk about the kind of releases that can significantly impact the markets. In fact, we’ll have to wait until Thursday for the first, the weekly jobless claims. Even this has less of a market mover in the last 12 months as it has been fairly consistently hovering around the 310,000 – 340,000 area. That said, it always has the potential to shock and should therefore be tracked. This week it’s expected at the lower end of that range, around 314,000.

Of the few pieces of data scheduled for this week, the most important in my opinion will be the UoM consumer sentiment reading for April. This is a preliminary reading and therefore tends to have a bigger impact on the markets. It’s debatable how good an indicator of future economic activity these readings are, not to mention how much they’ll impact the markets. Recent experience would suggest traders are tracking them closely and reacting accordingly, which makes sense when we’re talking about an economic recovery in a country that’s so dependent on the consumer. This month the number is seen rising to 81.2, in line with February’s number and wiping out the drop in March.

UK

It’s looking like an equally quiet week for the UK, with only a few pieces of economic data scheduled for release and the Bank of England decision on interest rates and asset purchases. I said earlier that the release of the FOMC minutes could be a bit of a non-event, well compared to this, that’s an absolute game changer. The UK hasn’t changed its policy stance, nor is it expected to, for a long time. The asset purchase facility and interest rates have remained at £375 billion and 0.5%, respectively, since July 2012. The only thing to change in that time has been the introduction of forward guidance and that did not last long. The central bank doesn’t even release a statement alongside the decision so a market impact is extremely unlikely.

Of the economic data being released this week, the only notable pieces are the manufacturing production, trade balance and NIESR GDP estimate. Manufacturing activity has picked up quite a bit in the last six months, with only one of these being a negative month. While this is not something to write home about, it is a sign of progress. This progress is expected to continue in February, with production rising by 0.3%.

The NIESR GDP estimate can provide fairly useful insight into the quarterly performance of the economy, especially at the end of each quarter with it being released shortly before the official first estimate. As long as this number falls roughly in line with the growth figures of the previous quarters of 0.7-0.8% I think people will be relatively happy with this.

Eurozone

As tends to be the case the week after the first of the month, it’s also looking quiet for the eurozone. In fact, there are only two pieces of data being released for the eurozone this week, the German trade balance and French industrial production. Both of these are only medium impact economic releases so are worth keeping tabs on but in all likeliness the impact on the market will be small.

They could provide useful insight into each economy though, with recent suggestions that Germany’s trade with Russia could be hurt as a result of the ongoing tensions over Crimea. Expectations are for a surplus of €18.8 billion in February, the highest since September. Of course this is a little early to show the negative impact on German trade but it will be interesting to see how much it falls off from here in the coming months.

Asia & Oceania

Without a doubt, the Asian session is going to be the most heavily impacted by economic data next week, with the calendar looked pretty packed with high and medium impact data. The most notable of the events next week is undoubtedly the Bank of Japan meeting, but this is more due to the kind of impact it could have as opposed to what is expected to happen.

Everyone appears to have accepted that the BoJ will expand its qualitative and quantitative easing program again this year to both support growth and inflation, which many don’t expect to hit the 2% target, based on its current course. The only thing people disagree on is when this will happen. There are some that think it could be as early as this week, with the BoJ preempting the downturn in the economy caused by the rise in the sales tax from 5% to 8%. You could understand if the BoJ did this given that last time the sales tax, the economy fell into recession. This would be disastrous for Abenomics as it would likely make the task of hitting the 2% inflation target even harder. Should we get an increase in the central banks asset purchases this week, it would certainly get a massive reaction in the markets.

The start of the week is going to be very quiet from a Chinese perspective, with the Monday being a bank holiday and the first piece of data not being released until Wednesday. That said, the few economic releases we have are very important, especially given the recent slowdown in the economy. The government has announced some small target fiscal stimulus measures which could provide a bit of a boost but these are very minor in comparison to past efforts so until we see the positive impact of these, the markets are likely to continue to focus on the data. The notable releases here will be the new loans and trade balance figures, both of which are expected to improve from a month earlier although the trade balance reading is expected to show a small deficit, which is a concern.

There’s plenty of data being released from Australia this week from unemployment figures, to new home sales and consumer sentiment. It is likely to be a volatile week for the Australian dollar as a result, which has performed very well recently and is showing no signs of changing. A large amount of this can be attributed to the hawkish stance of the central bank since the pickup in inflation but it could be continued this week if we get a batch of good figures.
 
UK Opening Call from Alpari UK on 7 April 2014

Friday’s sell-off on Wall Street weighs on European futures

• Friday's sell-off on Wall Street driving European futures lower;
• Earnings season setting up to be a disappointment;
• Economic calendar not offering much today;
• Investor sentiment towards eurozone seen hitting three year high.

Friday's late sell-off on Wall Street is driving losses in Asia and Europe at the start of the week. As it stands, the FTSE is seen opening 43 points lower, the CAC 26 points lower and the DAX 80 points lower.

The markets took some time to react to Friday's report, with stocks initially seen responding positively despite the number being far from impressive. While the number of jobs added in March was roughly in line with forecasts, the market had other ideas ahead of the release, with many suggesting that the lost hiring in the three months previous, due to poor weather, should feed through into the March reading. For whatever reason, that could not be seen in Friday's number and with corporate earnings season getting underway this week, traders were in no mood to hang around and bank on strong first quarter earnings, not with the amount of profit warnings we've already had.

The next few weeks are shaping up to be fairly gloomy, with earnings season reminding investors that not only is the Fed taking a step back from its ultra-supportive stance, but corporate America is not yet ready to fill the void. In past earnings seasons, companies have managed to paper over the cracks with growth to the bottom line being helped significantly by cost cutting rather than stronger revenues, which is what we need to see in the long run.

Investors have allowed companies to get away with that to this point simply because the Fed's quantitative easing program made it worthwhile, but with them now injecting less and less into the markets, investors may not be so willing to accept what is essentially fake growth. Cost cutting may be a necessary part of business and it may be a good way to drive growth in the short term, but there's only so much any company can cut back before it needs to turn to higher revenues to drive earnings growth.

The other tactic used by many companies in recent earnings seasons has been lowering the bar before the release of its results in the hope that when the numbers come out, investors are actually quite relieved and don't punish the stock too much. Again, this has worked for a number of quarters now but I just don't think investors are going to be as tolerant this year. If corporate America doesn't start to deliver, I don't see investors giving it an easy ride any more.

Another reason why this earnings season is so important is because the numbers coming from the economic data have been far from impressive. The improvement in March, the first month that it has not been possible to blame the weather, has been marginal, especially when compared to what we expected.

The coming months could pick up but for now, all we can do is follow the earnings season and hope it gives us something to be more positive about. The economic calendar isn't offering much to go on this week, especially compared the one just gone, with today looking particularly quiet. In fact, the sentix investor confidence reading for the eurozone is the only noteworthy release today. The improvement in investor sentiment towards the eurozone has been incredible in the last 12 months and April is expected to be no different, with the number rising to 14.2, the highest reading since April 2011.
 
UK Opening Call from Alpari UK on 8 April 2014

European futures flat ahead of UK data

• Fears of broader sell-off making traders increasingly risk-averse;
• Lack of data this week unlikely to help matters;
• Focus on UK data today, particularly Q1 GDP;
• Earnings season kicks off with Alcoa after the closing bell.

European indices are expected to open relatively flat on Tuesday, as concerns over the recent sell-off, predominantly in high growth tech and internet stocks, that started on Friday afternoon in the US, prompt increasing risk aversion in the wider market. As it stands, the FTSE is seen opening 12 points lower, the CAC unchanged and the DAX 5 point higher.

One of the problems we have right now is the lack of any positive catalysts to override the fears that this sell-off is just the beginning of a broader correction. Had we seen a jobs report more in line with market expectations on Friday, with closer to 250,000 jobs added, then I don’t think we’d now be seeing markets behaving as they are. Instead traders would probably be more focused on the growth prospects of the US this year, rather than the overvaluation of high growth stocks.

That’s how fragile investor sentiment still is. It can still take a single report to either convince investors that the recovery is gathering momentum and it’s all up from here, or the economy is struggling to get going and the market looks overvalued. Of course, this isn’t being helped by the fact that the Fed is becoming less accommodative which gives investors less reason to back the rally regardless.

The lack of data being released this week isn’t likely to help matters. Of course there was a lot of data last week for the market to absorb so it’s only natural that this week is a little quieter. The bulk of the noteworthy data being released today, comes from the UK, with manufacturing and industrial production figures being released for February. Both are expected to show a small uptick in activity on the month, which would represent quite an impressive year on year rise of 2.2% and 3.1% in industrial production and manufacturing production, respectively.

This will be followed in the afternoon by the first unofficial estimate of growth for the previous quarter. The numbers here have been fairly consistent over the last six months, showing growth of around 0.7-0.8%. Another figure in this region should be seen as a good reading for the UK and suggest that the country is on course for another year of impressive growth.

With the economic calendar offering very little this week, more attention will be paid to the start of earnings season which unofficially kicks off after the closing bell in the US today with Alcoa. With data not blowing anyone away in recent months and a large number of companies offering profit warnings, expectations are fairly low for this season, just as companies seem to like it. Lowering the bar makes it much easier for them to beat expectations, a trick that has been used repeatedly in recent years. While that may help, investors are likely to be more focused on the top line this time around, rather than just being obsessed with earnings growth regardless of what’s driven it. Of course earnings growth is important but we now need to see signs of sustainability in the recovery and that doesn’t come from just cutting costs to improve profits.
 
US Opening Call from Alpari UK on 8 April 2014

US futures lower as Alcoa gets earnings season underway

* Traders still lacking appetite for risk;
* Alcoa gets earnings season underway after the closing bell;
* UK first quarter GDP data up next;
* BoJ holds off on further stimulus as expected.

European indices are under pressure again on Tuesday, while US futures are currently treading water with the S&P down 2 points, the Dow down 13 points and the Nasdaq down 1 point.

There’s a clear lack of appetite for risk among traders at the moment and there’s plenty of things you could blame this on, whether it be the underwhelming data from the US, the Fed’s ongoing tapering, the flare up in Donetsk, the slowdown in China, the overvaluation of certain parts of the stock market or the low expectations as we head into another corporate earnings season. To be fair, any of these would be a legitimate reason for traders to be a little risk averse. The problem we have on top of this is that there’s very little to be positive about.

We had a whole host of economic data and announcements last week that could have given investors a reason to be more optimistic but there was nothing that blew us away. The US jobs report on Friday showed a good number of jobs created in March but coming off the back of three poor months, it needed to be much better. The European Central Bank could have been the catalyst that spurred the next push higher in stocks, but once again the central bank opted to hold off, despite inflation now running at 0.5%.

Instead, all we now have to look forward to is a mediocre earnings season and hopefully a gradual improvement in the economic outlook. Alcoa gets earnings season underway today, reporting its first quarter earnings after the opening bell. The aluminium giant, formerly a constituent of the Dow 30, may no longer be viewed as a bellwether for the stock market or the economy, it is the first major company that reports earnings and people still monitor this for an indication of how the earnings season is shaping up.

This week is looking pretty quiet from an economic data perspective, with today offering very little that would ordinarily have much impact on the markets. The only notable release left today is the UK NIESR GDP estimate for the previous three months, which on this occasion is the first quarter of the year. This is therefore the first estimate we’ll get of GDP growth in the quarter so can have a greater market impact. As long as the number is roughly in line with that of the last six months, 0.7-0.8%, I think traders will be fairly pleased. Anything above could lift expectations ahead of the first official release.

The data released already this morning has actually be quite positive, although you can only really see that reflected in the pound, with the FTSE currently down 0.7%. The pound on the other hand responded very positively to the manufacturing and industrial production figures, which were significantly better than expected on both a monthly and yearly basis. Given that this industry was previously viewed as a weak point for the UK, with the country overly reliant on its services industry, this is very encouraging.

The Bank of Japan meeting over night was something of a non-event, with the central bank holding off on announcing an increase to its quantitative easing program. There had been suggestions that the BoJ could act in anticipation of an economic slowdown in response to last week’s sales tax hike, but that never materialised. Instead the tone of the press conference after suggested that the central bank will wait until the third quarter before acting, which would give them a chance to see what impact the tax has on the data and whether there’s a risk of the country falling into recession, as it did the last time the tax was raised.
 
Daily Market Update - 8 April 2014 - Alpari UK


James Hughes talks about the major economic releases effecting the major markets and looks at the potential tech sell off and whether the bubble is bursting for tech stocks.
 
UK Opening Call from Alpari UK on 9 April 2014

Europe to open flat as investors proceed with caution

• Europe to open flat as investors proceed with caution;
• UK and German trade numbers in focus this morning;
• FOMC minutes headline quiet US session;
• Same old story with earnings as Alcoa tops earnings but falls short on revenue.

Europe is expected to open a little flat again on Wednesday, with the FTSE seen up 9 points at 6,599, the CAC down 2 points at 4,422 and the DAX down 4 points at 9,486.

I think it’s safe to say these marginal gains and losses seen in three of Europe’s major indices is quite reflective of the overall mood in the markets at the moment. Investors aren’t exactly feeling negative about the outlook for the global economy, or the markets for that matter, but they are being very cautious right now. There are a number of reasons to be cautious right now, whether that be corporate earnings season which people are fairly pessimistic about or the ongoing crisis in the Ukraine that has flared up again this week, to name only a couple. And this list seems to be growing every week. Unfortunately right now, there’s far less to be optimistic about so this may just have to accept this for now and hope that earnings provide that positivity.

The economic calendar certainly isn’t going to change the mood of investors too much this week, with it offering very little in terms of market moving data releases or events. Today for example, we have some trade balance data for both Germany and the UK being released. While this could have some impact on the markets, maybe currency markets more so, the impact is unlikely to be that significant. Even less so for the German data as traders are already looking ahead to the March and April data for signs that the flare up in tensions between Russia and the West has damaged trade between the two. Russia is a key trading partner for Germany so it is likely to have been hit harder than most.

The highlight of the US session later will be the release of the FOMC minutes from the last meeting in March, although even this may turn out to be something of a non-event. There’s not actually a huge amount we can learn from this meeting with the Fed having already made it perfectly clear that it doesn’t intend to slow the rate of tapering. While the numbers out of the US haven’t been as good as we hoped they would once the winter storms passed, they’ve been good enough to allow the Fed to continue along the path of tapering. People may be looking for more information on interest rates following Janet Yellen’s blunder in the press conference, but she moved quickly to clarify these comments so I don’t see much coming from this.

Alcoa got earnings season under way yesterday, topping earnings estimates while falling short on revenue, a familiar story for earnings season in recent years. Today is looking a little quiet for earnings but this will pick up later this week with JP Morgan and Wells Fargo kicking things off for the banks.
 
US Opening Call from Alpari UK on 9 April 2014

FOMC minutes likely to offer very little for traders

* US futures track European counterparts higher;
* Gains come as indices fall to significant technical support levels;
* Corporate earnings key to whether this support is broken;
* FOMC minutes likely to offer very little.

US futures are pointing to a moderately higher open on Wednesday, with the S&P seen unchanged at 1,851, the Dow 2 points higher at 16,276 and the Nasdaq 3 points higher at 3,541.

The gains come following a fairly positive start in Europe, where the major indices are trading around four tenths of a percentage point higher, with the FTSE leading the way, up 0.7%. It is clear that investors are still holding back quite a bit, with so many headwinds massively reducing their appetite for risk.

The problem we now face is that some of the major indices in the US are now trading near significant support levels. If this is in fact just a brief reprieve, as it would appear, then a break of this support could lead to a much bigger correction of the longer term uptrend, with the S&P breaking back below 1,800 for the first time since early February and the Dow breaking 16,000.

Whether this support is broken could well depend on how the first week of corporate earnings season goes, with JP Morgan and Wells Fargo kicking things off for the banks on Friday, with more major banks to follow next week. Until then there isn’t a huge amount for investors to actually focus on. The key event from now until then will undoubtedly be the release of the FOMC minutes today, but even this could offer very little.

The Fed has been very clear in its stance for many months now and even through the tough winter months refused to slow the rate at which is tapered its asset purchases. With Fed Chair Janet Yellen having already cleared up comments made in the press conference after, in relation to the first interest rate hike, there’s very little these minutes could tell us that would have a considerable market impact.
 
Daily Market Update - 9 April 2014 - Alpari UK


UK trade deficit shrinks due to oil effect - 01:10
German trade balance fell, yet import growth outstripping exports - 01:56
A look ahead to the FOMC announcement - 02:45
 
UK Opening Call from Alpari UK on 10 April 2014

European futures higher on dovish FOMC minutes

• Traders focus on FOMC minutes ahead of Chinese data;
• China posts trade surplus but imports and exports tumble;
• FOMC minutes viewed as more dovish but that’s debatable;
• BoE to be non-event, more focus on US jobless claims.

We’re seeing another fine example of investors paying far too much attention to the Fed this morning and potentially not enough to other things that are happening in the markets. European futures are pointing to a fairly strong open this despite some poor trade figures from China and a claim by Premier Li Keqiang that right now, there are no plans to announce another stimulus package in a bid to hit its 7.5% growth target. As it stands the FTSE is seen opening 27 points higher, the CAC 16 points higher and the DAX 41 points higher.

In the past, traders have tended to pay a lot of attention to Chinese data, and rightly so given that it’s the world’s second largest economy. Not too long ago, trade figures like the ones released over night, showing a significant drop in both imports and exports, would have sent waves through the markets. Especially when partnered with claims by the Chinese Premier that the government is willing to be more flexible on growth, which suggests nothing will be done at the moment despite fears rising that the country will easily miss its 7.5% growth target. Some have even claimed the country is at risk of a hard landing, which could be disastrous.

I guess there’s a couple of ways the latter could be taken, the first being that the country has no chance of meeting growth expectations which may prompt many to lower their forecasts. The alternative, and probably the more likely scenario, is that markets are overreacting to every little piece of data, as it has on many occasions, and Li is confident that even if the 7.5% growth target is missed, it will only fall marginally short and therefore there is nothing to be concerned about.

One thing that may be offsetting the disappointment surrounding the trade figures is Li’s announcement that the country will open up its capital markets on a further level. Any talk of China opening up is always going to be well received by the markets even if it is just referring to Shanghai and Hong Kong on this occasion.

Clearly though, traders are paying far more attention to the FOMC minutes that were released last night and provided a late boost to US equity markets. To be honest, this looks like yet another example of traders reading far too much into the minutes and only seeing what they want to see. It seems the lack of a hawkish tone is therefore dovish which is a dangerous stance to take. The minutes did show that the Fed is concerned about inflation, but that is not new information and once there is less slack in the economy, inflation should rise. Instead, traders took this to mean inflation will remain low for longer which I doubt was the meaning behind it. The only noteworthy point from the minutes was in relation to the dot plot, which did cause quite a stir after the announcement a few weeks ago when it showed more members forecasting rates to rise earlier than before. However, Yellen already said in the press conference that we should not pay attention to this and the minutes supported this view.

Today is looking quite busy on the economic calendar but most of this is taken up with low-tier economic data which, despite being of interest, is unlikely to have much baring on the markets. Even the Bank of England rate decision is unlikely to have any impact whatsoever, with the central bank expected to leave interest rates and asset purchases unchanged and no statement expected alongside it. This makes the key releases today those from the US, most notably the weekly jobless claims number which is seen falling to 320,000. Many see this falling below 300,000 very soon although for this to happen we’ll have to see a pick-up in hiring. We haven’t seen a sub-300,000 number since 2006.
 
US Opening Call from Alpari UK on 10 April 2014

Markets fall despite positive European announcements

• Chinese trade data slows sharp reduction in activity
• Greek bonds shock markets showing massive demand for peripheral debt
• FMC minutes seen as more dovish than expected
• BoE keep policies unchanged.

European markets have sold off sharply this morning, paring the gains seen in yesterday’s session. This is largely expected to feed into the US session, where the S&P500 is expected to open -6 points, Nasdaq -14 points and Dow -56 points.


This selling comes against a backdrop of actually pretty positive data today, where the Chinese trade swung back into surplus, Australian unemployment tumbled unexpectedly, Greek bonds sold above expectations and the Fed struck a somewhat dovish tone with yesterday’s minutes. Thus there are warning signs that show a possible bearish tone creeping back into the markets despite the strength seen within the past two trading days.

The major event of note overnight came out of China, where the latest trade balance brought a welcome return to surplus following a shockingly poor deficit of -$23 billion in February; the worst in 2 years. However, all was not too positive despite this headline figure, with much of it being driven by an -11.3% fall in imports. This offsets the sharp 6.6% reduction in exports, rounds off a worrying trade trend which points to tightening international ties. The ability of the Chinese economy to grow has been tied heavily with their ability to trade in the international market, with imports of raw materials and energy being utilised to generate much of their export growth. With an economy that is showing clear signs of tightening following disappointing manufacturing PMI trends, a recent corporate default and lowered GDP expectations, these figures have come as yet another blow to the Asian powerhouse.

Against this backdrop, Premier Li came out to announce that China will not adopt short term and strong stimulus policies in response to temporary fluctuations in the economy. This willingness to allow market forces to take more of a central role is becoming a growing trend, as highlighted by the default of solar firm Chaori last month. However, there is certainly an element of mistrust when it comes to hawkish Chinese announcements, given the willingness of both the PBOC and Chinese government to undertake strategic supportive measures behind the scenes when weakening has occurred. This also comes with last week’s announcement of stimulus by the government to support small firms and the Chinese rail network.

In Europe, the headlines have been stolen by the Greek bond auction; the first in four years. The 5 year auction went off in style, with investors lapping up the notes despite the lowered yield of 4.95%. Overall, the auction was oversubscribed by 8 times and pointed to a clear return to trust in the nation following a calamitous 2013. Of all the major nations involved within the Eurozone, it is the Greek situation which has proven to be possibly the greatest indicator of why we should all worry about it’s stability. And whilst today’s auction does not mean that the economy is out of the woods, it does provide greater stability in debt repayments and ratifies the current pathway to recovery. The impact seen across the Eurozone as a whole, where yields fell across the board, provides clear evidence of the increased confidence felt within the markets in response to today’s auction.

In the US markets, many are likely to continue to focus upon yesterday’s FOMC minutes release, which have been perceived by many as more dovish than expected. There was no mention of the ‘six month’ or ‘considerable period’ timeframe mentioned by Yellen following the meeting, pushing expectations of a rate hike further into 2015 for many. Part of this is associated with the clear confusion and disagreement surrounding what extent of ‘labour market slack’ exists within the economy. Clearly the forward guidance was utilised to muddy the waters of when we would see a rate rise, yet in doing so there now appears to be a problem in the Fed themselves agreeing on how such slack should be interpreted.

Finally, the BoE kept rates and asset purchases steady yet again this month, as was expected within the markets. The stability set by Mark Carney in setting his forward guidance policy has brought this meeting to somewhat of a standstill and created a somewhat non-event. There is clearly a significant strengthening seen within the UK economy, to the extent that the IMF predicted a 2014 growth rate of 2.7%; the biggest of G7 nations. However, there is also the feeling that the recovery remains fragile and susceptible to shocks in interest rates. Given the negative historical correlation between interest rates and equities, Carney is likely to want to raise rates too soon and too quickly, with the housing and stock market boom at risk.
 
UK Opening Call from Alpari UK on 11 April 2014

European futures lower following another sell-off in the US

  • US indices break key support opening themselves up to further losses in the coming weeks;
  • Low expectations ahead of earnings season, with JP Morgan and Wells Fargo reporting today;
  • US consumer survey key indicator of future economic activity.

It would appear the sell-off in high growth stocks is far from over following the sell off during the US on Thursday, which prompted a similar reaction in Asia overnight and is weighing on European futures on Friday. Ahead of the open, the FTSE is seen down 48 points, the CAC down 37 points and the DAX down 94 points.

What is potentially more concerning is the fact that both the S&P and, to a lesser extent, the Dow broke key support levels as a result of the sell-off which suggests the selling we’re seeing right now is far from over. In fact, it may just be beginning. It’s not surprising to see investors heading for the exits given the geopolitical concerns, the absence of central bank easing, the mediocre economic data and the low expectations for the forthcoming earnings season. To be honest, it’s probably about time that investors got realistic about the valuations of certain stocks. To some extent, current valuations had priced in either looser monetary policy from some major central banks than is being seen or a superior economic performance. There is no evidence of either of these. This doesn’t bode well for the next few weeks and I don’t see the corporate earnings season convincing investors otherwise.

Already we’ve seen a number of companies giving profit warnings, which is essentially a last ditch effort to lower the bar in the hope that investors will be relieved when results are not as bad as has now been priced in. I don’t see corporate America getting away with this as they have in recent years because without strong results, investors have nothing to fall back on. Last year they could look at results and not worry because the Fed was increasing its balance sheet by $85 billion per month. Not only is that no longer the case, but these purchases are now decreasing and likely to cease later this year. What reason is there for investors to accept such these results going forward.

While Alcoa unofficially kicked off earnings season on Wednesday, the former Dow component is not viewed as an important an indicator as it once was, and investors are therefore looking at today’s results from JP Morgan and Wells Fargo as the real start of earnings season. Banks results are normally better than most so these may not provide any real insight into the rest of the earnings in the coming weeks, but with many more banks reporting next week, it will certainly be useful. The details of the earnings as well could also provide insight into the overall economy, in particular lending to both businesses and consumers.

Earnings are likely to be key today in the absence of any notable economic data. There’s plenty of inflation data out today, especially in the eurozone, but this is mainly low level data and is therefore unlikely to have much impact on the markets. The key release today will be the UoM consumer confidence number, which is expected to rise to 81. This is a preliminary reading and is therefore likely to have a much bigger impact than the next revision. Consumers are extremely important to the US economy and with investors clearly no longer interested in backward-looking data, due to the weather impact, these surveys are becoming increasingly important.
 
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