Forex research

[Alpari UK]

US Opening Call – Tuesday 13th May 2014

Retail sales to provide confirmation of recovery in April

* Disappointing Chinese and eurozone numbers partially factored in;
* European indices and euro slip on dreadful ZEW readings;
* M&A chatter continues to buoy investors;
* US retail sales could provide a boost following disappointing morning.

US futures are pointing to a slightly higher open again on Tuesday, as investors continue to look beyond the ongoing crisis in eastern Ukraine and instead focus on the improving economic data and reports of more M&A activity. The Dow and S&P are expected to open at new record highs again today, with futures showing the indices opening 35 points higher at 16,730 and 3 points higher at 1,899, respectively, while the Nasdaq is expected to open 4 points higher.

From an economic data standpoint, it’s actually been a fairly disappointing start to the day with misses being seen in both the Chinese and eurozone releases. That said, at this stage you have to wonder how much of this disappointment has already been factored into people’s calculations. China has been slowing for months now so another deterioration in industrial production and fixed asset investment is hardly a surprise. Perhaps the retail sales number could have been a little better but clearly investors have already priced in a disappointment here.

The same can be said of the ZEW surveys for Germany and the eurozone this morning, with the economic sentiment segments of both falling well short of expectations. The difference here is that while a small miss may have been anticipated, the numbers were well short of both the April and forecast numbers which is why we have seen sentiment take a hit towards the end of the morning of the European session. The crisis in Ukraine and potential for further sanctions on Russia has the potential to negatively impact the eurozone more so than the US, so this negative impact on sentiment is likely to continue until we either see evidence suggesting otherwise, or tensions ease. This looks unlikely at this stage though.

All of the M&A chatter in the market is really helping to lift sentiment right now and provide a welcome distraction from all of the negativity that weighed on markets earlier this year. AT&T has become the latest company to look at takeover options, with Direct TV the target being discussed today, while reports of acquisitions continues to buoy the healthcare sector as Pfizer prepares a second bid for AstraZeneca.

Attention will turn to the US following the opening bell on Wall Street, with plenty of data being released. The most important of these will be the retail sales number which is expected to show growth of 0.4% in April, which isn’t as bad as it looks given that it follows a 1.1% spike the month before. The surge in March can largely be attributed to sales falling in the preceding few months due to the unusually poor weather. The question now is whether any of the drop in spending in those months also carried over to April which could give another strong reading. The fact that auto sales fell in April despite heavy discounting would suggest not but I wouldn’t count it out. The other data for April has been pretty good, particularly in the labour market, and this could have inspired consumers to hit the shops.

 

[Alpari UK]

Daily Market Update - 13 May 2014 - Alpari UK

Markets push higher as the S&P500 reaches 1900 - 00:09
Poor Chinese data continues slowdown story - 00:39
ZEW figures show weak forward expectations - 01:32
US retail sales gives a mixed picture - 02:59

 

[Alpari UK]

UK Opening Call from Alpari UK - Wednesday 14th May 2014

European stocks pause following ECB driven boost

* PBOC boosts housing market, yet worries remain
* Potential ECB action continues to drive markets
* Defunct EU sanctions imposed yet impending election threatens to increase tensions.

The European markets are looking at a somewhat more tame start to the day today, following yet another strong Tuesday which saw the S&P500 reach 1900 for the first time. This has come off the back of a somewhat mixed Asian session where the likes of the Nifty and Nikkei pulled back a little, yet the Chinese stocks rose following the news that the PBOC has asked major lenders to hasten the process of providing mortgages in the face of a slowing housing market. The European markets are expected to open relatively flat, with the FTSE100 -2, CAC +1 and DAX +6 points.

The overnight news that the PBOC has requested lenders both reduce the amount of time a mortgage loan is processed, and lend more has been welcomed across the Chinese markets. However, there are worrying signs here in the face of already weakening indicators in the region. Yesterday's triple-miss of fixed asset investment, retail sales and industrial production showed exactly this trend, with the region underperforming in many of the key measures. Thus the existence of the housing market as yet another possible driver of lowered growth is something to be worried about, not cheered. Amounting for around 10% of GDP in 2013, the real estate market has been a core driver of both national and individual wealth. Yet with much of these properties unused shells representing the fact that housing is often viewed as simply an investment rather than somewhere to live in, that was always likely to come to an end at some point. Whilst the PBOC's action may stem the issue for the time being, this is a clear sign that an already worrying housing market has just got a little less stable.

The European markets continue to benefit from the boost provided by Mario Draghi last week when he ramped up the usual dovish rhetoric and instead put a potential date upon ECB action. With usual caveats attached relating to the bank's decision being data dependant of course. On this occasion it is the forecasts due out early June upon which Draghi is basing his decision upon for us to possibly see the headline interest rate cut once more. Either way, it seems the ECB has seen low inflation and a rising euro for long enough and are now willing to act. However, it is the previous ineffectiveness of interest rate cuts to spur inflation which interests me as this is likely to be the case yet again. Therefore should we see disinflationary conditions continue despite either flat or negative interest rates, I believe it will force the hand of Draghi and could lead to the ultimate form of stimulus, in the form of asset purchases. This is still some way away and could yet not happen, yet the possibility of such a radical step for the ECB is enough to push the euro lower yet.

Finally, the Ukraine crisis took on another stage yesterday, with the EU adding a further 13 people added to the sanctions list, while two Crimean firms were hit with asset freezes. Unfortunately this represents yet another failure to take any particularly hardline in the issue, which is understandable given the unwillingness of EU countries to hurt their own domestic economies should Russia take any major retaliatory steps. However, with the Ukraine general election approaching, it seems as if the EU's credibility could come to the fore should Russia actively interfere or seek to influence the process. The feeling is that the votes, much like the recent regional votes conducted by anti-Ukrainian seperatists, could be a major source of conflict and as we get closer to that May 25 deadline, the tensions in the region are likely to increase accordingly.

 

[Alpari UK]

US Opening Call from Alpari UK - Wednesday 14th May 2014

US futures treading water after reaching record levels

* US futures treading water after reaching new highs on Tuesday;
* BoE inflation report headlines busy morning session in Europe;
* Cautious wording from Carney highlights desire to avoid unnecessary market volatility;
* US session quieter with five companies reporting and little data being released.

Markets look set to take a breather on Wednesday, a day after the S&P breached 1,900 for the first time and the Dow also edged to new record highs. Ahead of the opening bell on Wall Street, the S&P is seen opening 1 point lower at 1,896, the Dow 13 points lower at 16,702 and the Nasdaq 5 points lower at 3,606.

The first half of the European session has been fairly busy so far, with key economic data being released for both the UK and the eurozone and the Bank of England inflation report being released. While the report itself caused a bit of a stir in the markets, particularly in sterling pairs and UK bonds, the press conference that follows is always equally important.

At the time of writing, Mark Carney has succeeded in preventing any unnecessary surges in volatility in the markets. This was clearly an intention of his, and the MPC as a whole, given central banks’ tendency in recent years to send the wrong message and create temporary panic. The wording in the statement and following press conference has clearly been carefully chosen and was very cautious from the MPC. I expect this will become a habit for most central banks going forward, making these events less eventful, as they attempt to return to normal monetary policy.

The data from the UK this morning has provided further evidence that the BoE will be one of the first major central banks to return to normal monetary policy and begin hiking rates next year. Unemployment in the UK fell to 6.8 in March, in line with expectations, while the claimant count continued to fall, albeit slightly slower than expected. The only concern came from average earnings, which did not increase at all compared to last month, despite expectations of quite a significant jump. I don’t see this as a major concern right now but this is one area that we’ll need to see improvement if this recovery is going to be sustainable.

The rest of the day may be a little quieter, with no major economic data being released and earnings season coming to an end. Five S&P 500 companies are scheduled to report earnings today, including Macy’s and Cisco, while on the economic data side, MBA mortgage applications and PPI inflation figures will be released before the open on Wall Street.

 

[Alpari UK]

Daily Market Update - 14 May 2014 - Alpari UK

Chinese worries persist, with housing market coming to the fore - 00:24
UK jobs report paints mixed picture of employment - 02:02
BoE inflation report tries to keep speculation under wraps - 03:42

 

[Alpari UK]

UK Opening Call from Alpari UK - Thursday 15th May 2014

Markets tread water ahead of key eurozone GDP and CPI

* Japan grows at highest rate in 2 years
* BoE strikes dovish tone, yet fails to address north/south divide
* Eurozone GDP and CPI in focus for the European session.

The European markets are expected to suffer another round of profit taking today, as the dust finally settles following Mario Draghi’s press conference last week. This comes following a leak yesterday that the ECB is preparing a package of policy options ahead of the June meeting which include cuts across it’s interest rates and measures to drive investment in small to medium sized businesses. In much the same manner, the Asian session also failed to spark much excitement, despite the announcement that Japan’s economy grew at the fastest rate in over two years during Q1 2014.

The news out of Japan has understandably caused a somewhat mixed reaction within the markets, with the yen rallying and a subsequent pullback in the Nikkei. Today’s announcement that Japan posted growth of 1.5% in Q1 represents the joint highest rate since the crisis began in 2007 and brings significant doubts as to whether the BoJ will necessarily need to implement any second round of monetary stimulus, as has been widely expected. However, this figure has been somewhat distorted by the implementation of the sales tax in April and thus where we are seeing strength for Q1, it is likely that we will see subsequent weakness in Q2. That being said, strong economic releases have the tendency to bring about this kind of negative reaction in the Nikkei due to the anxiety that the BoJ may not need to act to such an extent as has previously been expected.

Despite this, I believe the most important indicator we should be watching to gauge whether or not there will be further asset purchases is the inflation rate which has stood at 1.3% for four consecutive months now. Thus should we see inflation fail to take the next leg higher towards the 2% target, I believe we are still likely to see further action from the BoJ. Furthermore, today’s figure is positive, yet the test was always going to be how strong growth and investment is following the sales tax hike, not before it. Thus going forward, the economic indicators are likely to become increasingly influential to monetary policy.

Yesterday saw the BoE strike somewhat of a dovish tone, pushing back expectations of a rate hike, whilst raising growth forecasts. The interesting part of this problem is that much of this rate argument seems to be centered around the impact it has been having to the housing market in possibly creating yet another asset bubble. However, with much of the London housing demand being driven by foreign ‘safe haven’ flows, it could be said that the London boom would be significantly lessened should we only see domestic investment in the manner that northern cities in the UK generally have. Mark Carney touched on the fact that the BoE treat both north and south as a single entity, avoiding policy decisions for separate regions of the UK. However, with prices still recovering to pre-recession levels, there is the threat that those in the north of the country will become disenfranchised by London centric policy—making, in much the same way that some have in Scotland.

Today’s theme is going to continue to be the release of GDP figures this morning, with Eurozone countries releasing their growth rates for Q1 throughout the morning. The backdrop of impending stimulus measures from the ECB add another dimension to this today, with GDP rates likely to be strengthened by any monetary stimulus going forward. I would not expect any adverse reaction should these figures come in above estimates, owing to the fact that largely the ECB decision-making is driven by low inflation and a strong euro, rather than any current growth fears for the region. However, with the inflation figure also due out this morning, we could certainly see markets draw conclusions as to whether we will see any further action from the ECB in June. The March announcement of 0.7% is expected to be matched this month, yet given disinflationary pressures, we could see it tumble further to the downside, putting further pressure upon Draghi to act. The March figure was largely expected to be higher given that Easter typically sees firms in the services sector increase their prices, thus with this out of the way, I believe there will likely be downward pressure upon this release.

 

[Alpari UK]

US Opening Call from Alpari UK - Thursday 15th May 2014

US futures mixed following tough start in Europe

* US futures mixed following tough start in Europe;
* Further evidence of two-tier eurozone as Germany again leads the way;
* Get out of jail free card for ECB as core CPI reading rises to 1%;
* Attention turns to US data with inflation, labour market and manufacturing data being released.

US futures are mixed ahead of the opening bell on Thursday, with the S&P seen down 1 point and the Dow and Nasdaq up 2 and 8 points, respectively. This comes following a difficult morning in Europe with data largely disappointing and traders looking to lock in more profits.

The day started in negative territory in Europe as traders looked to lock in further profits following a couple of strong weeks and wait for a catalyst for the next leg higher. That catalyst did not come this morning though as GDP figures largely disappointed, with only the German release providing any upside to the data. That’s pretty much in line with what we’ve become accustomed to, a two tier eurozone with Germany the engine behind any growth.

It was hoped we were finally moving away from this scenario, with other countries at least showing signs of catching up, but clearly that is not the case. The GDP figures for Portugal and the Netherlands were particularly poor and miles away from expectations, while France and Italy, the second and third largest countries in the euro area, failed to grow, with the latter actually falling back into contraction territory. This is very disappointing just as we thought the area was heading in the right direction, instead we’re seeing another setback. The eurozone as a whole grew by 0.2%, slightly short of expectations, but this can largely be attributed to the 0.8% growth in Germany.

The key release this morning was the final CPI reading for the eurozone for April as this was likely to influence the ECBs monetary policy decision at its next meeting in June. We’ve already had comments from President Mario Draghi, among others, that would suggest they’re leaning towards easing monetary policy at the meeting as inflation remains stubbornly low. This reading could have been the straw the broke the camel’s back but as it turns out, it may have bought the ECB a little more time.

While the main reading was in line with expectations of 0.7%, which the central bank may be comfortable with anyway, the core reading could be its get out of jail free card. It’s been clear in recent months that the board would rather not use any unconventional tools to fight the falling inflation, which is all they have available now that interest rates are at record lows. With the core reading rising to 1% from 0.7% in March, they may be able to delay the inevitable a little longer, which would suit them but further frustrate others who are demanding the ECB do more to fight the threat of deflation.

An eventful morning on the economic calendar is likely to be followed with an equally eventful US session, with inflation, labour market and manufacturing data being released. For a long time now the inflation figures in the US have been overlooked as the rate has remained around 1% which isn’t low enough to be concerned about deflation or high enough to worry about excessive inflation. However, the number is expected to rise to 2% today, in line with the Fed’s target, with the core reading hitting 1.7%. Should we see this, there may be more pressure on the Fed to taper at a faster pace and even raise rates earlier than currently planned. Especially if it continues to pick up in the coming months.

Jobless claims will also be released ahead of the opening bell and will be watched closely for further signs that the labour market is improving. We’ve seen a spike in the numbers over the last few weeks, with the weeks before that showing the number of new claims threatening to breach 300,000. Last weeks 319,000 is probably more in line with the kind of number we need to see on a regular basis if we’re going to see a sustainable recovery and that is what we’re expecting today, with the number seen rising slightly to 320,000.

 

[Alpari UK]

Daily Market Update - 15 May 2014 - Alpari UK

GDP readings provide further evidence of two-tier eurozone - 00:09
ECB receives get out of jail free card from April CPI reading - 03:09
Attention turns to US inflation, labour market and manufacturing data - 06:21

 

[Alpari UK]

UK Opening Call from Alpari UK - Friday 16th May 2014

Quiet end of the week expected as markets start to falter

* Markets stall following multiyear highs
* European markets underperforming US counterparts despite monetary stance
* Light economic calendar means focus will be on US session.

A somewhat quiet end to the week is expected today, as the European markets take a breather following yesterday’s GDP and CPI fuelled rollercoaster. Overnight, the Asian session saw yet another mixed picture, with the majority of indices falling off the back of global growth fears. However, the Indian Sensex rose by the highest amount since 2009 owing to the feel-good factor surrounding the likely election of the opposition BJP party. In the future markets, the European markets are trading higher, with the FTSE100 expected to open +3 points, CAC +12 points and the DAX +17 points.

Coming off the back of a particularly strong period for global markets, there appears to be some form of hesitation following the break of multiyear and even alltime highs in some of the key developing indices. This is something that we should be used to by now, given that the likes of the FTSE100 and S&P500 appear rangebound throughout 2014 to date; temporarily breaching previous highs, only to catch out the overly optimistic investors by returning back to the downside for another round of selling. Taking a look at the recent bullish price action, it makes little sense from a monetary standpoint, with the US stocks their largely outperforming European counterparts. This comes despite the expectations of a potential next round of stimulus from the ECB, whereas tapering means that Fed action is drawing to a close. However, from a purely fundamental point of view, yesterday highlighted the differences between the US and European recoveries where shockingly poor GDP figures from many of the peripheral Eurozone nations gave way to the lowest US jobless claims figure in 7 years and yet another strong manufacturing index release.

Thus today will be interesting for two reasons; firstly, today represents the ability for the markets to take stock and determine whether there is the appetite to once again attempt to challenge those multiyear highs. Furthermore, given the losses seen towards the back end of the week, another day of losses today could put to the bed the idea that we are in breakout territory and consign the markets to rangebound price action for weeks or even months to come. The hesitancy seen within markets could lead many to believe we are seeing a top and thus will be looking at more bearish set-ups. However, with previous experience showing us that market tops generally last for very little time, whereas bottoms form over a longer period of time. As the saying goes, markets take a long time to build up, but no time to come crashing down.

In terms of economic releases today, the European session has none to get too excited about with the eurozone trade balance figure likely to represent the most notable event. However, looking into the US session, there is the possibility of an element of volatility surrounding the consumer sentiment index along with the housing data due out later today. The importance of the Michigan consumer sentiment figure is driven by the fact that the US economy is largely reliant upon consumer spending to generate GDP growth; around 70% of it in fact. Thus with expectations pointing towards the highest reading since late 2012, there is a possibility that the US is due for yet another boost to their signs of economic recovery. Meanwhile, the release of building permits and housing starts provides markets with a feel for the state of the construction sector; a major area of employment and economic bellwheather. Should we see weaknesses in the housing market, this could be indicative of tightening credit conditions as lenders begin to raise fixed interest rates in anticipation of Fed action. However, given the role of housing in the 2007/08 crash, any increased confidence and expansion provides us with clues that more and more everyday Americans are confident enough to take up large investment decision off the back of a more secure economic environment.

 

[Alpari UK]

US Opening Call from Alpari UK - Friday 16th May 2014

US consumer data eyed ahead of important summer

* US indices seen opening lower again on Friday;
* Investors again questioning record levels;
* Yesterday’s inflation reading casting doubts over ECB stimulus;
* Indian Sensex rallies on business friendly election results;
* US consumer confidence and housing data key today.

We’re not seeing the rebound in US futures that could have been expected following yesterday’s sell-off in the S&P and the Dow, with both shedding around 1% on the day. Ahead of the opening bell, the S&P is lower by 4 points, the Dow lower by 31 points and the Nasdaq lower by 8 points.

With US indices having hit new record highs again this week, investors appear to be once again questioning whether the current levels are justified or whether everyone is potentially getting ahead of themselves. At the same time there is an increasing appetite for bonds again, with the ECBs apparent willingness to ease monetary policy, giving investors an incentive to buy bonds again, which is something they haven’t had since the Fed began tapering. While the biggest beneficiaries of any stimulus program will undoubtedly be eurozone bonds, particularly peripheral debt, yields across the board have been falling, pushing US Treasuries back below 2.5% for the first time since October. This

The caution being seen today, with European indices also trading slightly lower, may also be a response to yesterday’s eurozone core inflation number which has cast doubt over whether the ECB will announce a monetary stimulus program at the next meeting. The governing council may view the surprise increase in the core number from 0.7% to 1% as a get out of jail free card that allows them to delay the decision by a few more months. They’re clearly reluctant to test the water with unconventional monetary policy and appear to be more than willing to delay the inevitable given the opportunity. This being up in the air is not in itself a reason to sell, but it is going to make people more reluctant to buy until they’re more confident that stimulus is on its way.

Asian stocks fared no better than their US counterparts over night with the Nikkei shedding 1.41%, the Australian S&P ASX 200 falling 0.58% and the Chinese Hang Seng ending marginally lower. The Indian Sensex on the other hand ended the session 0.9% higher after early results showed the opposition BJP led by Narendra Modi easing to a majority which is seen as a victory for both business and the economy. Modi was largely expected to win the election and the results have already been mostly priced in. What we’re seeing right now is an element of relief that the results are in line with expectations.

The US session today is looking fairly quiet, which isn’t unusual given that it’s the end of the week and not much data is scheduled for release. Of the data being released, the preliminary UoM consumer sentiment reading stands out as quite an important reading. The consumer is extremely important for the US economy so any indication that confidence is on the rise as we head into the summer is likely to be cheered by traders. Building permits and housing starts will also be tracked closely given how important the housing sector has been in the recovery last year. Recent data has shown a slowing in the recovery in the sector which is being attributed to rising mortgage rates. Given that rates are going to rise significantly in the next couple of years we need to see a change in this trend or the recovery may not be quite as strong as many are currently expecting.

 

[Alpari UK]

Daily Market Update - 16 May 2014 - Alpari UK

Indian Sensex rallies as Modi closes in on election victory - 01:16
Eurozone posts better surplus than expected - 02:31
US housing data offsets disappointing consumer sentiment number 03:42

 

[Alpari UK]

Weekly market preview from Alpari UK – 19 May 2014

This week is looking a little light on the data front, leaving investors to instead focus on the central banks as minutes are released from the Fed, BoE and RBA, while the BoJ will decide whether the time has come to increase its quantitative easing program. While the ECB is the only major central bank not meeting or releasing minutes, it’s certainly not going to fall off the radar. Its most hawkish member, Bundesbank Head Jens Weidmann is scheduled to speak on Monday and could provide crucial insight into when the ECB will announce a new stimulus package and what that package will consist of.

In terms of economic data this week, there isn’t a huge amount being released but there are some key points that shouldn’t be overlooked. These include the Chinese HSBC flash manufacturing PMI, UK retail sales and the eurozone PMI readings. The only question this week is whether strong readings will be enough to tempt investors away from government bonds, with them having flocked towards them recently as they anticipate a new round of monetary stimulus from the ECB.

US

The week ahead is looking fairly quiet on the data front in the US with the only notable economic data being released later in the week. Among the few releases is the weekly jobless claims which is becoming an increasingly followed economic indicator again as the labour market begins to significantly improved. Last year the number fell to around 330,000 on a regular basis showing that employers were no longer cutting back on staff as aggressively and focusing their efforts on other ways of improving the bottom line. Recently though the number has fallen to the low 300,000′s, indicating that not only are companies not cutting staff as much, hiring has also picked up to a point that people appear to be leaving one role and finding easier to find another, negating the need to claim jobless benefits. The number breached 300,000 last week, a repeat of this could be viewed as a sign that the start of the year was merely a blip in an otherwise encouraging recovery. Optimism will grow if numbers below 300,000 become a regular feature.

Housing data has, to an extent, fallen off people’s radar since the Fed began tapering, pushing up rates and deterring prospective house buyers. The numbers haven’t been terrible by any means but they have pulled back noticeably. Investors are willing to accept this as a consequence of the Fed looking to move towards a less accommodative policy as the economy recovers. However, they may only accept that for so long and will soon begin to demand more from the numbers. I don’t expect that to happen too soon, but plenty will still be looking towards the release of the existing home sales on Thursday and new home sales on Friday for evidence that the housing market can continue to recover even when rates are rising. While it may be a while until we see pre-financial crisis levels, an improvement here would give a strong indication that the economy is on the right track, confidence is improving and the recovery is, in fact, sustainable.

With the week being so light on economic data, the focus in the US this week is likely to be back on the Federal Reserve, especially with the minutes from 29-30 April meeting being released. The minutes themselves may not offer anything new that will change the current views of investors, if the statement is anything to go by, although you can never become complacent when it comes to the Fed. This is especially true given the number of Fed officials that are scheduled to speak before the release of the minutes, with Charles Plosser, William Dudley, Narayana Kocherlakota and Chair Janet Yellen scheduled to speak. These views may have changed over the last couple of weeks, given the amount of data that’s been released since, making the minutes themselves somewhat outdated.

UK

The week is looking even quieter in the UK, with less high impact data being released and the minutes, that will come alongside the voting figures for the last meeting, being even more of a non-event than the Fed. The Bank of England decisions have become extremely predictable since Mark Carney became Governor, which isn’t a bad thing as the reason behind it is that the economy has been recovering at a strong and steady pace. In another six months when the BoE may have to start seriously considering rate hikes the meetings and minutes will become a far more interesting event, but for now it’s fairly safe to assume that the vote on interest rates and asset purchases will be unanimous and the minutes will not be too dissimilar to the last meeting or offer any surprises.

The three key economic releases next week will be the inflation readings on Tuesday, the April retail sales number on Wednesday and the second estimate of first quarter GDP on Thursday. Inflation, or disinflation, is far from being a concern right now with it still being well above the level seen in the eurozone and, until last month, the US. However, it does seem to be gradually dropping and has fallen to 1.6%, below the BoE target of 2%. This could make life difficult when the time comes to raise interest rates, although I’m confident that as the economy continues to improve, in particular wages, inflation will pick up again. We are expecting a small improvement in April, with the rate rising to 1.7%.

Retail sales numbers are widely viewed as one of the best indicators of economic health, especially in economies such as the UK, where the consumer contributes so much to overall output. The numbers over the last few months have been quite volatile with the weather heavily distorting the winter figures. This is expected to normalise somewhat in April, with 0.4% growth expected compared to the month before. The second estimate of the UK’s first quarter GDP is expected to remain unchanged at 0.8%, a growth rate the UK has consistently produced now for the last year, which suggests we’re seeing both consistent and sustainable growth.

Eurozone

The flash readings of eurozone manufacturing and services PMIs stand out as the key releases this week, especially following the poor GDP figures seen last Thursday. The benefit of these readings is that they are forward looking and based on confidence in these sectors in the outlook for the relevant economies. While this may not translate into improving data, we have seen a general improvement in the euro area since these numbers started picking up. With this in mind, the GDP readings last week may be a set back, but as long as we continue to see an improvement in confidence, there is a good chance that economic activity should pick up. We can never underestimate the importance of confidence in the economic outlook from both businesses and consumers.

With that in mind, most of these readings from Germany, France and the eurozone as a whole are expected to fall marginally, while still remaining comfortably above 50, the level that separates optimism from pessimism. One concern that has reemerged relates to a two-tier eurozone after Germany grew more than expected in the first quarter while France, Italy, the Netherlands and Portugal all disappointed. Should these confidence figures also begin to display increasing signs of this, it would be a major concern going forward and suggest the austerity and reforms are not working as well as hoped.

The German Ifo business climate number will also be a key release as always. This is especially true following those GDP figures, as mentioned above, with Germany still being the powerhouse in the eurozone and the area so reliant on it to record what small growth it can actually manage. Any downturn in the country could have negative repercussions for the entire region so these surveys can provide important insight into the next six months or so. One thing to consider here is the impact that the crisis in Ukraine will have on business confidence, given the sanctions being imposed on Russia, and vice versa, and the amount of trade that takes place between the two. So far we’ve seen no impact on the Ifo number but that doesn’t mean we won’t and it could provide early insight into negative economic impacts further down the road.

What may have more impact on the markets than any data release this week is the speech from Bundesbank President Jens Weidmann on Monday. It is no secret that Weidmann is the most hawkish member of the ECB governing council and it’s taken some time for him to become convinced that a more aggressive approach is needed by the central bank to combat the disinflation in the euro area that is very close to turning into deflation. However, that time appears to have finally come. This is one of the main reasons why it is expected that at the next meeting in June, the ECB will announce a new round of stimulus measures that is has now experimented with before. The speech on Monday, along with the Q&A session that follows, may contain important hints as to what form that stimulus will come in, be it quantitative easing, the end of sterilisation of bond purchases, negative deposit rates or something else.

Asia & Oceania

The Bank of Japan is widely expected to ease monetary policy further this year in response to the sales tax hike that came into force at the start of April. However, the decision not to provide this additional monetary stimulus at the meeting at the end of March and preempt the slowdown that is expected to come as a result of the hike suggests the central bank wants evidence before it acts. With that in mind, and considering that it will take months to collect enough data to confirm whether or not the economy slowed as a result of the hike, it seems unlikely that the BoJ will act on Wednesday. That’s not to say it will necessarily be uneventful, the statement and press conference accompanying the decision is likely to provide insight into when the next round of stimulus will come or at least what the BoJ needs to see in order to loosen monetary policy.

Sticking to the topic of central banks, the minutes from the last Reserve Bank of Australia meeting will be released on Tuesday. Like the BoE, the RBA meetings and minutes have become something of a non-event. With inflation currently in line with the RBAs target and unemployment heading in the right direction, there is neither a need to raise or cut rates. The RBA is also making a real effort to remain very neutral and is expected to keep interest rates at 2.5% at least for the rest of the year. With that in mind, the minutes are unlikely to have much of an impact on markets unless something significantly changes.

It’s looking like a particularly quiet week for China, with only one piece of economic data scheduled to be released. The HSBC flash manufacturing PMI is widely regarded as a key indicator of economic activity in China, with the manufacturing sector being so important to the economy. The HSBC reading, unlike the official figure, focuses primarily on small and medium sized private manufacturers and is therefore seen as a more reliable indicator of economic activity and its sustainability as its not be propped up by the government. The number has been in contraction territory for four months now and is this is not expected to change which doesn’t bode well for Chinese growth this year, that is unless the government or central bank steps in and provides a fiscal or monetary stimulus package, respectively.

 

[Alpari UK]

UK Opening Call from Alpari UK on 19 May 2014

Investors turn to Weidmann speech for stimulus clues

• Weidmann speech headlines quiet start to the week;
• Investors seek further details on potential stimulus package;
• Slow data day with eurozone construction output the only release.

European indices are expected to open slightly higher on Monday, with the FTSE seen up 3 points, the CAC up 9 points and the DAX up 15 points.

With little data scheduled for release, this week there’s going to be additional focus on the central banks as the Bank of Japan makes its latest monetary policy decision, the Federal Reserve, Bank of England and Reserve Bank of Australia release minutes from the most recent meetings and we hear from a number of central bankers who may provide important insight into their respective directions in the near future.

The first of those to speak will be Jens Weidmann, Bundesbank President and an influential member of the European Central Bank governing council. Weidmann is scheduled to speak at a symposium in Frankfurt this morning and will more than likely be quizzed on his expectations for the June meeting, following comments from ECB President Mario Draghi recently that suggested the central bank is about to loosen monetary policy for the first time this year.

The decision to do so would mean the ECB either having to cut rates to new record lows, which would be pointless given that they are already at record lows of 0.25%, or delve into uncharted territory which the ECB has thus far been extremely reluctant to do. The views of Weidmann, who is viewed as the most hawkish member of the governing council, could prove to be the difference between the ECB easing at the next meeting and not, so it’s no surprise that his remarks today will be analysed closely and could therefore have a significant impact on the markets.

It’s not just a question of whether the central bank will ease policy, investors also want to know how they’ll do it and how aggressive they’ll be. Recent reports have suggested they will combine a package of rate cuts with a scheme to improve lending to small and medium sized businesses. Weidmann may provide further details on whether these reports are accurate and if so, how they plan to achieve the latter.

Aside from Weidmann’s speech, the first day of the week is looking very quiet. The only data release scheduled for today is the construction output reading for the eurozone and even this is a low level piece of data meaning the market reaction is likely to be minimal or non-existent.

 

[Alpari UK]

Daily Market Update - 19 May 2014 - Alpari UK

Markets pullback following recent strength - 00:19
Jens Weidmann comments strengthen Euro - 01:22
A look ahead to central bank events - 02:59

 

[Alpari UK]

UK Opening Call from Alpari UK on 20 May 2014

UK CPI expected to rise towards BoE 2% target

• Asian indices gain despite martial law being imposed in Thailand overnight;
• RBA minutes point towards rate remaining for some time;
• UK CPI expected to move closer towards 2% target.

European markets are looking at a somewhat mixed open as it currently stands following a largely positive overnight Asian session. The shock imposition of martial law within Thailand did indeed bring about a more negative session within the Thai SET benchmark, however across the rest of the region, we saw business as usual and some strong gains. In particular, the Japanese Nikkei 225 finally managed to post a day in the green at the fifth time of asking. Meanwhile in China, the tech stock led the benchmark higher despite the losses seen across the property sector following the largest fall in second home purchase prices in Beijing in two years. Looking ahead, the European markets are expected to open in a mixed fashion, with the FTSE100 +2 points, DAX -1 points and CAC -8 points.

The imposition of martial law in Thailand has certainly become the major event overnight, with many voicing anxiety over a potential coup. This remains a worry despite the assurances from Army chief Prayuth Chan-ocha who seeks to bring stability back to a country which has seen months of rioting, protests and the disposition of prime minister Yingluck Shinawatra. Previous experience shows us that such issues do not typically translate into significant losses, with the sell-off in response to the ousting of Yingluck’s brother back in 2006 being remarkably uneventful. Ultimately, the determination of how it will be treated by the markets will be dependent upon the outlook in the medium term and there is the feeling that this step could be a necessary to calm down the protests, thus allowing people to finally get back to the polls and appoint the next prime minister.

Overnight, the RBA released their latest monetary policy minutes from the meeting that took place on 6 May. The underlying message within these minutes was that stimulus in its current form is likely to remain steady for ‘some time yet’. Thus, unlike their neighbours in New Zealand, it is highly unlikely that we will see any increase in the cash rate for the time being. This is a clear change in tact from the constant dovish rhetoric from Glenn Stevens throughout 2013 who sought to bring about further expectations of loose monetary policy, and thus a weaker Australian dollar. With the cash rate currently standing at a record low 2.5%, the process is now moving towards preparing for a higher interest rate environment following a pickup in business activity and a somewhat overheated real estate sector.

Looking ahead to the European session, the major event of note is going to be coming from the UK in the form of the UK inflation data. Of course, the most important of these measures remains the CPI, given that this forms the single most important measure of price stability utilised by the Bank of England. The recent downward trajectory in inflation has certainly been welcome to some extent, given that much of the past four years have seen inflation at near or above the 3% level. However, unfortunately for those at the MPC, it is only now once the need for further monetary stimulus has receded that we are seeing a rate of price growth that would be highly accommodative for such measures. Thus given the core mandate of price stability at the BoE, it has been somewhat of a thorn in the side of the MPC in attempting to bring back a strong recovery through monetary means given the association between loose monetary policy and high inflation. Today looks to potentially bring the rate back to the 1.7% level, which would no doubt be a positive for the BoE given the low inflation environment being seen across the Eurozone in particular. With the optimal 2% target within arm’s length, Mark Carney will hope that the rate remains close to this to allow for possible downside following any rate hikes in 2015 onwards.

 

[Alpari UK]

US Opening Call from Alpari UK on 20 May 2014

US futures lower ahead of Fed speeches

US futures are pointing to a marginally lower open on Tuesday, with the S&P down 1 point, the Dow down 11 points and the Nasdaq down 2 points.

These moves follow a fairly quiet start to the week, which has left the markets lacking any real direction. We’re seeing a little more direction in Europe, where traders are more risk averse ahead of the European parliament elections this weekend, as the popularity of Eurosceptic continues to grow.

The only major release so far today has been the UK inflation reading and even this, despite exceeding expectations, doesn’t change much. The overall reading rose to 1.8% in April which is just short of the Bank of England’s target rate. This doesn’t really change too much from the central bank’s perspective, they remain under no pressure to tighten monetary policy any sooner than they believe the economy can take and unlike the eurozone, there is no apparent threat of persistently low inflation. This is just a further sign that the UK economy is recovering and prices are picking up at the desired rate. All we need now is wage rises to surpass, or at least hit, this level and the future will look very bright for the UK.

In terms of important economic data, that’s pretty much it for the day. However, we will hear from Fed members Charles Plosser and William Dudley ahead of the release of the minutes tomorrow. If anything, the views of these Fed officials, along with those of Esther George, Narayana Kocherlakota and Chairwoman Janet Yellen tomorrow, are more relevant as they take into consideration the latest data including the jobs report earlier this month which showed 288,000 jobs being created in April. I can’t imagine the Fed changing the pace of tapering because of this data, so if anything we may get further insight into their views on interest rates and when they expect the first hike.

 

[Alpari UK]

Daily Market Update - 20 May 2014 - Alpari UK

Strong Asian session defies Thai and Chinese worries - 00:24
RBA promise to keep rates constant for some time - 01:01
UK CPI rises to 1.8% - 02:12
A look ahead to the overnight BoJ announcement - 03:24

 

[Alpari UK]

US Opening Call from Alpari UK on 21 May 2014

Fed minutes and speeches take centre stage today

* Strong UK retail sales report slightly offsets hawkish tone in MPC minutes;
* Split in MPC voting points to earlier hike than initially thought;
* FOMC minutes unlikely to have major impact this month;
* Three Fed speeches could have bigger impact than minutes.

A strong UK retail sales report and a slight hawkish tone to the BoE minutes has prompted a spike in sterling this morning, while the FTSE responded less positively and is currently the only major European index to be trading in the red. While the members of the MPC voted unanimously in favour of leaving interest rates and asset purchases unchanged, at 0.5% and £375 billion, respectively, the minutes showed that there is less agreement on the course for future interest rates, with some appearing to favour raising rates earlier and then more gradually after.

Until now, the first rate hike was expected until the second quarter of next year, or late in the first quarter at the earliest. This has cast serious doubt over whether the MPC will wait that long, especially following yesterday’s inflation reading which showed the rate rising to 1.8%, while the core number was in line with the central bank’s target of 2%. While this doesn’t add pressure to the MPC to hike rates quite yet, as the economy improves and wages rise, so will inflation. A lower rate, which is appeared to be where they we were headed, would have bought the MPC more time.

Offsetting the downbeat note from the BoE minutes was the retail sales number which smashed expectations of a 0.5% rise, hitting 1.3% in April. This came alongside an upward revision to the March reading, making the beat all the more impressive. The core retail sales numbers were equally impressive, particularly the year on year figure, which showed a rise of 7.7%. What a difference a year can make. A year ago we’d just avoided a triple dip recession, now unemployment has fallen significantly, consumers are spending more and the central bank is talking about rate hikes rather than more quantitative easing.

Central banks will remain the focus as we move into the US session, with the minutes from the last FOMC meeting being released and three Fed officials scheduled to speak, including Chairwoman Janet Yellen. The minutes can arguably be viewed as the less important of these today as a lot of data has been released since the meeting, including the all important April jobs report which showed 288,000 jobs being added and unemployment falling to 6.3%. Of course, we should never make too many assumptions when it comes to FOMC minutes as they always have the potential to surprise, and have many times in the past, but given the statement that was released and expectations for monetary policy in the foreseeable future, I don’t expect much from the minutes.

The speeches on the other hand can offer the latest views of the officials and we can get much more insight into some of the issues facing the Fed. A great example of this was Charles Plossers comments on Tuesday, when he spoke of the potential banana skin facing the US recovery with the Fed potentially being forced to raise rates earlier than it would want to in order to stop inflation getting too high. While these particular comments didn’t have too big an impact on the markets due to Plossers known hawkish stance, should something similar come from a more dovish official, including Yellen herself, it could cause more of a stir in the markets.

Ahead of the opening bell on Wall Street, the S&P is expected to be 3 points higher, the Dow 24 points higher and the Nasdaq 5 points higher.

 

[Alpari UK]

Daily Market Update - 21 May 2014 - Alpari UK

 

[Alpari UK]

UK Opening Call from Alpari UK on 22 May 2014

European futures boosted by Fed minutes and Chinese data

• FOMC discusses exit strategy but warns rate hike not in the pipeline;
• Chinese manufacturing PMI improves but remains below 50;
• Eurozone PMIs and UK GDP headline busy morning;
• Plenty of US data to follow this afternoon.

A surprise improvement in the Chinese manufacturing data and last night’s dovish FOMC minutes are both supporting the rally in European futures this morning, with the FTSE up 19 points ahead of the open, the CAC up 15 points and the DAX up 41 points.

We’ve also seen strong gains in both the US and Asia over night, with traders initially responding positively to the FOMC minutes which were released on Wednesday evening. The minutes showed the Fed discussing its exit strategy from the ultra loose monetary policy that has been employed for so many years.

This could well have been viewed as a sign that the FOMC is considering hiking rates sooner than is currently priced in. However, the absence of even a rough date in the minutes, along with the statement that the discussion shouldn’t suggest that any rate action is in the pipeline was not only enough to ease any concerns, it gave investors confidence that a rate hike is still a long way off.

Traders were given a further boost overnight by the preliminary release of the Chinese HSBC manufacturing PMI, which rose unexpectedly to 49.7. The optimist in me looks at this figure as a sign that we could be seeing a turnaround in the sector and that the mini stimulus programs are working, following a difficult start to the year.

The pessimist on the other hand sees a fifth contraction figure on the bounce and wonders how the country can possibly hit its 7.5% growth target when such a key sector has been contracting all year. The government and central bank appear very reluctant to intervene on a large scale again, which is understandable, but that doesn’t bode well for the country’s chances of reaching the kind of growth levels it has become accustomed to.

Today is looking quite busy, which isn’t that difficult when compared to the week we’ve seen so far. There’s an abundance of important economic releases which means we could see some quite volatile markets throughout the day. The first of these come from eurozone, where we’ll get preliminary reading of the manufacturing and services PMIs for Germany, France and the eurozone. Most of these are expected to pull back very slightly from April, but remain comfortably in growth territory, which is the most important thing.

Following this is the second estimate of UK GDP for the first quarter. This is expected to remain unchanged at 0.8%, further confirming the UK recovery as being both strong and sustainable. While it would be good to see the economy going from strength to strength, in today’s economic environment, it’s probably more of a blessing to see good steady growth than large fluctuations.

Moving into the US session there’s plenty more data being released, including weekly jobless claims, the CB leading indicator, the manufacturing PMI, existing home sales and the Kansas Fed manufacturing index. Needless to say, it’s going to be quite a busy day, which as mentioned earlier is a blessing given the slow start to the week that we’ve had.