Forex research

UK Opening Call from Alpari UK on 1 July 2014

European stocks under pressure ahead of data

• Proshenko declares an end to cease-fire in Ukraine;
• Japanese stocks rally on increased monetary easing hopes;
• Chinese manufacturing activity picks up in June;
• Eurozone manufacturing PMIs and unemployment reports in focus.

A mixed session in Asia overnight combined with a busy day ahead in Europe and the end of the cease fire in the Ukraine is weighing on investor sentiment a little on Tuesday.

The situation in the Ukraine is unlikely to weigh too heavily on the markets at this stage as it merely signifies a return to a situation that the markets had already accepted, to an extent. The restart of fighting is clearly far from ideal but it did seem inevitable given that in recent days there have been protests in Kiev about the pro-Russian rebels refusal to fully respect the cease fire, with claims being made that they were taking advantage of the opportunity and attacking Ukrainian troops and making further gains. In response, President Petro Poroshenko has declared an end to the cease-fire, against the wishes of Russian, German and French leaders who had been trying to negotiate an extension to it.

Following the release of a number of key data points in Asia overnight, the markets are on course to end the day fairly mixed. Japanese stocks appear to be benefitting from the weaker yen which suffered some selling following the release of the second quarter Tankan surveys. The headline figures don’t make for great reading and suggest the economy was hit harder in the second quarter than was previously expected, but there are some encouraging points to take away, most notably the fact that larger firms are planning to increase their spending by 7.4% this financial year, which is more than previously thought.

However, I don’t think this is behind the rally in Japanese stocks overnight. The fact that companies appear to have been hit harder by the sales tax hike than the Japanese government was hoping, despite attempts made to offset any downturn with a boost in fiscal stimulus, may be enough to pursued the Bank of Japan to provide additional monetary stimulus which would further weaken the yen and provide support to Japanese exporters.

In China, the manufacturing sector appears to be benefiting from a round of targeted fiscal stimulus aimed at providing a small boost to an economy that was showing signs of slowing earlier this year. The People’s Bank of China has also played its part, with its own targeted monetary easing, and the efforts appear to be bearing fruit. The HSBC manufacturing PMI, despite being revised marginally lower, rose to 50.7 in June, it first growth reading (above 50) this year. At the same time, the official manufacturing PMI rose to 51 from 50.8. It would appear things are looking up in China.

As mentioned earlier, we have a very busy day ahead when it comes to economic data, which may explain the cautious approach from traders this morning. The manufacturing PMIs and Eurozone unemployment reports stand out as the key releases among them all, although this accounts for most of this morning’s releases so doesn’t exactly narrow it down. With the reports being scattered throughout the morning, we may see quite an uptick in volatility today, especially when compared with Monday. It doesn’t end there, later on we have more data coming from the US this time, with two manufacturing PMI readings being accompanied by the economic optimism survey and car sales.

Ahead of the open, the FTSE is expected to be 1 point lower, the CAC 9 points lower and the DAX 13 points lower.
 
US Opening Call from Alpari UK on 1 July 2014

US futures higher on stronger Chinese data

There’s been a lot of data released over the last 24 hours leaving investors with a lot of information to digest. Looking at the markets though, it would appear that they largely approve, with European indices trading comfortably in the green and US futures pointing to a similar open in a few hours. As it stands, the S&P is expected to open 4 points higher, the S&P 37 points higher and the Nasdaq 10 points higher.

The Chinese manufacturing numbers appear to be providing quite a significant boost this morning, particularly in the FTSE which has a large exposure to its manufacturing sector. Basic resources are leading the way, sending the FTSE up almost 0.5% on the day. Given that China has been one of the stories acting as a drag on markets at times this year, evidence that the targeted stimulus programs, both fiscal and monetary, are working is very welcome. This doesn’t just apply to the relevant stocks, sentiment as a whole is boosted when China performs well as it benefits the global economy. This explains why risk assets, like stocks, are performing well across the board.

In Europe this morning, the manufacturing PMIs were a little mixed, while the unemployment rate for the eurozone fell to 11.6%, continuing its gradual decline following the five year ascent to record highs of 12.1%. The UK manufacturing PMI rose to 57.5, ahead of market expectations and the highest level since November. This helped drive sterling above 1.71 against the US dollar to trade at highs not seen since October 2008.

Economic data will remain the focal point as we head into the US session, where two more manufacturing PMI figures will be released, the official and the ISM. The preliminary reading of the official PMI was unchanged in June and we’re expecting this to remain the case, while the ISM is expected to rise to 55.8 from 55.4.
 
UK Opening Call from Alpari UK on 2 July 2014

More numbers eyed as investors enjoy nice cocktail of data

• US investors enjoying perfect mix of economic data;
• Decline in Australian exports sees trade deficit rise;
• Economic data remains the focus on Wednesday.

Overnight in the US, the S&P and Dow rallied to once again reach new record highs, with the latter coming within touching distance of the psychologically important 17,000 level. While this level has no real significance, as the index has never traded at this level before and therefore no actual resistance should be apparent, traders regularly view these major round numbers with an element of caution. For many, as price approaches this level, it just makes sense to lock in a little profit. That said, once we do see this level broken, the buying can be quite aggressive and the move exaggerated as a result.

Current conditions are very favourable for US equity investors right now, which probably goes a long way to explaining why we’re repeatedly seeing record highs being made in the major indices. US economic data is in a real sweet spot right now in that it gives investors plenty of encouragement that the recovery is both strong and sustainable, but it isn’t so good that the Fed will be convinced to tighten any time soon. This is perfect conditions for investors right now. That said, we’re already hearing murmurings at the Fed, most notably last week from James Bullard, that an earlier hike may be on the cards, although this would still probably come early next year so this can continue for a little while yet.

Trade figures from Australia hit the Australian dollar pretty hard overnight, as data showed exports falling by 5% in May, while imports fell 1%, increasing the trade deficit to A$1.91 billion. This comes a day after the encouraging Chinese manufacturing PMI readings, which the aussie rallied off the back of. While today’s reaction is understandable, I don’t expect any significant sell-off in the aussie as the Chinese data is forward looking and may suggest that we’ll see an improvement in Australian exports in the coming months.

While at first glance it may appear that today is not looking as busy as Monday or Tuesday, that is certainly not the case. The economic calendar may look a little lighter but that is simply because there is less noise, by which I mean fewer economic events that tend to have no, or minimal, market impact. There is, however, still a few important things to keep an eye on today.

The Eurozone first quarter GDP reading will be released shortly after the European open and is expected to be unchanged at 0.2%, quarter on quarter, and 0.9%, year on year. While these are far from the growth levels most people would like to see, compared to what we’ve become accustomed to in recent years, I guess we should be grateful. That said, the benefits of all this austerity needs to start bearing some fruit soon or we may start to see more unrest in the countries that have been hit hardest by it.

The UK construction PMI could give the pound a further boost in the currency markets this morning, after the manufacturing PMI rose to new highs for the year which sent sterling soaring through 1.71. Another good reading today would provide further support for the sterling rally ahead of the all-important services PMI reading tomorrow.

Also this morning we have the Spanish unemployment reading, while later on we’ll get the ADP non-farm employment and factory orders data, along with a speech from Fed Chairwoman Janet Yellen, who’s scheduled to speak at the International Monetary Fund in Washington DC.

Ahead of the open, the FTSE is expected to be 2 point lower, the CAC 3 points higher and the DAX 25 points higher.
 
US Opening Call from Alpari UK on 2 July 2014

Attention turns to ADP ahead of Yellen speech

• UK on course for hatrick of PMI beats;
• Spanish unemployment falls for fifth month;
• ADP eyed for warning of extreme change in NFP;
• Yellen speech in front of IMF may contain rate hints.

This morning’s positivity in Europe is starting to filter through to the US, where indices are expected to open a little higher. Ahead of the opening bell, the S&P is seen 1 point higher, the Dow 15 points higher and the Nasdaq 3 points higher.

Once again, a lot of the positivity this morning has been generated off the back of another strong UK economic report, this time in the construction sector. The construction PMI jumped to 62.6 in June, easily beating market expectations for a small decline to 59.5. This is the second PMI report this week that has pointed to a continuation of the strong recovery that is already being seen in the UK, with the manufacturing PMI yesterday rising to the highest level since November despite expectations here also being for a small decline. This bodes well ahead of the services PMI report tomorrow and many will now be expecting a hatrick of PMI beats.

Eurozone first quarter GDP was confirmed at 0.2% on the quarter and 0.9% on the year, unchanged from the previous estimate. Meanwhile in Spain, unemployment fell by more than expected, the fifth consecutive month that there has been a decline here which would suggest the country is really turning a corner. Of course, it’s going to be a long time before this improvement is felt in the country and we begin to see sustainable strong growth, but these early signs are encouraging.

There’s likely to be an equal focus on the economic data during the US session, starting with ADP employment change, which is intended to be an estimate of tomorrow’s official non-farm payrolls figure. In theory this sounds great, in reality though even referring to it as a rough estimate would be pushing it. Traders generally look to this number for an early warning of extreme moves in the official figure, so anything even close to the expected 200,000 reading is unlikely to have much of an impact. Aside from this, we also have the May factory orders number being released, as well as mortgage applications for the week ending 27 June and EIA crude oil stocks for the same week.

The only other notable economic event today will be Fed Chairwoman Janet Yellens speech in front of the International Monetary Fund. The Fed’s continued accommodative policy has been a major factor behind US indices repeatedly setting new records and despite her recent assurances to the contrary, expectations are growing that the Fed will be forced to raise interest rates early than it would like. With the warning likely to come sooner rather than later, an event such as this could be the one that Yellen chooses to drop the initial hint.
 
Daily Market Update - 2 July 2014 - Alpari UK


Australian trade balance suffers due to iron ore prices - 00:20
UK construction PMI shows major boost to sector jobs - 01:35
ADP non-farm payrolls expected to bring welcome boost - 03:56
 
Daily Market Update - 3 July 2014 Preview - Alpari UK


European markets higher despite mixed services PMI readings - 00:40
ECB rate decision and press conference preview - 02:09
US jobs report preview - 04:16
Other economic data to watch out for today - 06:00
 
US Opening Call from Alpari UK on 3 July 2014

Traders optimistic ahead of jobs report and ECB

• ADP raises expectations ahead of NFP release;
• Strong jobs report may be bad for equities and Treasuries but good for the dollar;
• ECB unlikely to announce more stimulus measures but Draghi may talk down the euro more;
• Plenty of US economic data also being released today.

A mixed start to the session from an economic data stand point has not taken the shine off risk appetite on Thursday. In Europe, indices are trading as much as six tenths of a percentage point higher, while in the US indices are expected to open around a tenth of a percentage point higher. Ahead of the opening bell, the S&P is expected to open 1 point higher, the Dow 21 points higher and the Nasdaq 4 points higher.

A lot of this may be attributed to yesterday’s ADP figure, which smashed expectations with a 281,000 increase in June. Of course, this is only viewed as an estimate of the official job creation figure, and a pretty poor one at that, but a beat of that magnitude will always raise expectations ahead of the non-farm payrolls release.

As a result, today’s strong start is not necessarily an ongoing reaction to the ADP figure but higher expectations ahead of the jobs report. With that in mind, a reading in line with analysts’ forecasts of around 212,000 is no longer likely to be good enough for traders. We need to see something around 250,000 or more in order to fall in line with what is now being priced in.

The next question is how the markets will react to the data. Of course, a strong jobs report is good for the economy but that is not necessarily good for risk appetite. When the rally in equity markets is being supported by lower interest rates, the threat of an earlier rate hike as a result of an economy that’s recovering at a faster rate is not going to be conducive with a continuation of that rally. With that in mind, a figure in line with yesterday’s ADP number is likely to weigh on equity markets today, while US Treasury yields could rise and the US Dollar strengthen.

Other aspects of the jobs report are also likely to be of interest, such as the unemployment rate, the participation rate and the average hours worked, due to the Fed’s commitment to base monetary policy decisions on a basket of indicators. However, based on what we’ve seen in the past, the non-farm payrolls figure, along with revisions to previous releases, still carries the most weight.

Another major event today is the ECB rate decision and press conference. This is not because we’re expecting any further stimulus from the ECB because we’re not. ECB President Mario Draghi has a tendency to create major swings in the market and always delivers plenty of volatility.

We may see a more dovish Draghi at the press conference today as I imagine the ECB will not be pleased with the strength still being seen in the euro despite all of the stimulus measures announced last month. It’s no secret that a strong euro is not ideal for the eurozone and Draghi has used to tactic of talking down the currency in the past. With it still trading above 1.36 against the dollar, we may see this tactic used again in an attempt to force it through 1.35.

Aside from these two events , there’s also plenty of big economic releases coming from the US today including weekly jobless claims, services PMI, non-manufacturing PMI and trade balance. Each of these has the potential to move the markets and as a result I expect to see a huge boost in volatility today.
 
Reaction to US Jobs Report

The US labour market gave a boost to growth prospects for H2 as payrolls and the unemployment rate both portrayed a picture of a fast improving economy. Coming off the back of various positive alternate indicators such as ADP payrolls and the Philly fed index this should not come as a surprise. Furthermore, the CB consumer confidence figure last week alluded to the perception of an optimistic outlook for the jobs market.

Today’s announcement saw the headline unemployment rate fall to 6.1%; representing the lowest level since October 2008. Meanwhile the payrolls figure smashed expectations, rising to 288k which represents the same figure announced for April; seen by many as an outlier. In fact, it seems that we have seen a shift in what the new norm is, with figures closer to 300k than 200k expected to increase in frequency. Add to this a positive revision to last month’s figure by 7,000 people and there is no doubt that the economy is reaching a critical stage where employers feel comfortable enough with the strength of the recovery to be able to take on more workers on a regular basis.

One thorn in the foot of this release came with the announcement that average earnings on a year-on-year basis fell to 2% from the 2.1% seen last month. Meanwhile the participation rate remained steady at 62.8. It is these figures along with elements such as part time employment which is viewed as ‘slack’ within the economy and Janet Yellen will be watching closely. That being said, Yellen will be well aware of the linkages between employment and economic growth, where newly empowered employees are able to consume far, pay more taxes and reduce the amount of support they need from the government. Which can only be a good thing.
 
Reaction to ECB decision and press conference

No change from ECB but Draghi talks down euro

This may not be the most dovish press conference than Mario Draghi has given but it certainly had dovish undertones, with the ECB President stressing again that rates will remain low for an extended period of time, while warning that they are monitoring a number of things, including the euro exchange rate. This is clearly a reference to the high exchange rate that we’re still seeing despite the package of stimulus measures announced by the ECB last month. The euro not be trading at the level it was a couple of months ago but above 1.36 against the dollar is still considered to be near the upper range that the ECB and most eurozone member states would like to see.

Unfortunately for Draghi, the press conference was almost entirely overshadowed by the US jobs report which was responsible for many of big moves in the markets. That said, Draghi’s dovish message was loud and clear and the euro didn’t just slide against the dollar, which benefited greatly from the jobs report, we also saw weakness against the pound and the yen, the latter coming following an initial spike.

Probably the most interesting point from the press conference was the announcement that the ECB meetings will change to a six week cycle as of January 2014 and will start to release minutes. The latter will provide the additional insight into the decisions that have been craved for years, but the ECB has until now refused to give. Transparency has been increasingly sought after throughout the financial crisis and the ECB has been very slow to do something that both the Fed and the Bank of England have done for years.

The most interesting thing that could come from the minutes in the short term is the policy makers view on quantitative easing and how close they actually are to trying it. Until now, we’ve had to put up with Draghi making reference to the use of it without ever providing real insight into the likelihood that it will actually be used. The minutes will hopefully not keep this information from us. That is, of course, assuming that the ECB doesn’t try quantitative easing before the end of the year, which I highly doubt.
 
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UK Opening Call from Alpari UK on 4 July 2014

US bank holiday brings lively week to a quieter close

It’s been an extremely lively week so far in the financial markets, capped off yesterday with a fantastic jobs report from the US that completely overshadowed Mario Draghi’s ECB press conference. Unfortunately, the busy schedule this week is unlikely to extend to today, as a bank holiday in the US combined with a lack of economic data or events elsewhere is going to result in lower trading volumes and a lack of catalysts for the markets.

One of the most interesting things yesterday was the response to the jobs report. It goes without saying that this was pretty great all round, from job creation and previous revisions to unemployment and participation. Not to mention that this is the first time in more than a decade that we’ve seen five consecutive months of job creation above 200,000.

But it was the fact that traders responded so positively to the number, despite the fact that it surely acts as evidence that the US recovery is much stronger than previously thought which may tempt the Fed into an earlier rate hike. Maybe investors are just not ready to accept that yet and until Janet Yellen herself acknowledges it, we’ll continue to see equities rally on good news and US Treasury yields barely change. Given the recent data though, Yellen may not be far away from ruining the party at which point the hangover may finally start to kick in.

That positivity does not appear to be carrying over into today’s European session, with indices currently seen opening a little flat. As mentioned earlier, there is a real lack of catalysts today, with the only notable economic release being the German factory orders before the open. These numbers can be a little volatile and we’re expecting this to continue today with a 0.8% decline seen for May, following an impressive 3.1% rise in April.

Ahead of the open, the FSTE is seen higher by 1 point, the CAC lower by 7 points and the DAX lower by 2 points.
 
Daily Market Update - 4 July 2014 - Alpari UK


Market Analyst Craig Erlam talks about why markets are looking a little quiet on Friday and highlights a few key events next week.
 
Weekly market preview from Alpari UK – 7 July 2014

A comedown from the first week of the month ahead, where the frequency of major economic announcements becomes a little thin on the ground. Nevertheless, the hope is that there should be enough to keep the markets bubbling along nicely. The major event of note from the US region is certainly going to be the release of the Fed’s minutes from the June FOMC meeting. Meanwhile, the BoE monetary policy announcement on Thursday is set to dominate proceedings in the UK. Also on Thursday, the ECB releases it’s monthly bulletin which will most likely form the only major event to watch out for in the Eurozone region.

In Asia, the one figure I will be paying particularly close attention to will be the Chinese trade balance figure to note how export and import growth is advancing as the economy moves out of the recent slowdown. And finally, the outlook for Australian employment comes back into focus on Thursday when the jobs report is released.


US

A quiet week ahead in the US, where the release of the minutes from June’s FOMC meeting marks the real event of note to watch out for. Given the evident improvements within the US economy in recent months, there is a growing emphasis upon whether we will see the likes of asset purchases or ultra low interest rates brought to a halt earlier than expected. The meeting back in June poured cold water on this somewhat with the announcement that under a broader assessment of indicators, the Fed believes an underutilisation in the labour market is still prominent. Given the less impressive jobs report released in June compared to the one released this month, it is unlikely that the Fed will get too carried away. Ultimately the issue on everyones mind is going to be the interest rate decision, with the asset purchase pathway seemingly set to come to an end later this year. Thus look out for any indications of a shift in emphasis with regards to the interest rate hike. However, with a slowdown in the May payrolls along with continued sub 2% inflation, I believe we are less likely to see it happen on this occasion.

UK

A similarly thin week ahead for the UK, where Tuesday’s release of the manufacturing production figure and the BoE monetary policy announcement represent two of very few events. On Tuesday, the manufacturing production figure is hoping to follow the lead of the recent manufacturing PMI figure, which saw a surge in demand leading the indicator to a 7 month high. The production figure is the end product of surveys such as the PMI and ultimately allow us to know whether the goods are actually being produced. The strength seen in the manufacturing sector has been portrayed well through this figure, where monthly swings between growth and contraction has now given way for 5 consistent months of growth. This trend is expected to continue yet again this week. Forecasts point towards a moderate rise from 0.4% to 0.5% which would reverse the slowdown in the rate of growth seen in the past two months. Thus anything above 0.4% would be very positive and could point to yet another boost in the sector.

On Thursday, the latest monetary policy decision from the BoE is expected to bring few surprises despite our previous experience of this being one of the biggest events of the month for the UK economy. As things stand, we do not expect to see rates rise anytime soon, despite rumours of the timeline being brought forward to within 2014. Mark Carney is very unlikely to use this forthcoming meeting to change the interest rates or asset purchase facility which means it will most likely be somewhat of a non-event. Realistically we are awaiting further hints that the interest rate hike could come earlier than expected, yet typically that would happen either with the release of the minutes or discussions from the Carney himself. Thus whilst this event is always worth looking out for, I do not expect any fireworks.

Eurozone

Yet again, not too much to move the markets in the Eurozone, where the ECB monthly bulletin is the major event of note. Due out on Thursday, this release typically addresses issues such as the threat of deflation and how the monetary policy stance of the ECB is likely to impact their targets going forward. Given the plethora of policies implemented by the ECB last month, it is likely that we will see a more upbeat bulletin with expectations of a gradual increase in CPI over the remainder of the year.

Asia & Oceania

China is the focus for the Asian region, where the release of trade balance data on Thursday is going to be the mainstay of attention for the markets. Given the reliance of the Chinese economy upon exports for growth, the ability to import raw materials and export finished products is the basis for a prosperous economy. With the PMI figures picking up, the signs are there for more positive trade figures going forward. The official manufacturing PMI index saw new orders at the joint highest level in more than two years. This gives me confidence that we will start to see those figures reflected within the exports and imports in the near future, paving the way for a pickup in growth prospects.

In Australia, the jobs report brings insight into how their economy is faring in a period which saw a drastically lowered trade balance and retail sales figures. The Australian economy on the whole has actually fared better than many expected given the weaknesses evident within China over the past 6 months. This has been reflected in the Australian dollar which has been rising accordingly. However, with some questioning whether the poor trade balance will signal a break lower in employment. This is unlikely to be the case, where this figure has been skewed massively by the falling price of iron ore. This has come despite increasing volumes which to me means the likeliness of higher employment yet potentially lower wage growth. In line with this, the expectations point towards a rise in employment by 12.3k from the -4.8k last month. However, this is offset by a forecasted rise in the unemployment rate to 5.9%. In the past when we have seen such contrary moves, it reflects a possible rise in the participation rate which in itself is a good thing. However, it is yet to be seen and typically when the market moves significantly from such a release, it will be driven by both measures moving positively or negatively. In this case I expect to see the unemployment rate remain steady whilst the change post an above zero figure.
 
UK Opening Call from Alpari UK on 7 July 2014

European markets look set to start the day in negative territory for Monday’s session as traders brace themselves for the a return of the US markets after Friday’s Independence Day holidays. It will likely be the whole host of important data that was released on Thursday that takes centre stage as we are try to digest the non farm payroll and ECB press conference that was released. In truth the payrolls are the bigger story as this week we will get the FOMC minutes. After a positive number on Friday and the overall unemployment rate falling to 6.1% there is yet more pressure on Janet Yellen and the Fed to take a more hawkish approach over monetary policy. It is widely thought that a drop below 6% unemployment will be a trigger for the Fed to not only act on the rate of tapering but also take steps to raise interest rates. Wednesday should give us a closer look at exactly what the Fed are thinking as we get the meeting minutes, with any slight shift in the voting likely to cause big moves in currency and equity markets.


Overnight Asian stocks fell back somewhat as profit takers jumped in after equity markets hit 6 year highs last week. With the US returning today the question will be asked yet again as to when this bubble in equity markets is going to end. Major indices around the world have been relentlessly pushing higher, however the moves have been on the back of hardly any volume and even less volatility. This is always a worrying sign as it shows the gains are bit on very week foundations, and that any slight pull back could well be greatly exaggerated. It won’t take much to spook investors and forced those riding big profits to start closing out. With geo political tensions in Iraq and Ukraine and a number central banks looking to pull stimulus, being prepared for the inevitable pull back is something a lot of traders should be ready for.

As this week moves on the economic calendar remains fairly quiet with the FOMC meeting minutes and BoE rate decision the key announcements to look out for. However don’t take this as us having a quiet week. With traders returning from the long weekend across the pond and the FOMC lining up their minutes we could well see volume and volatility pick up. However there is no doubt that Wednesday’s meeting minutes are the major focus, and with many of us looking at just what will be the catalyst for this sharp correction on the horizon, taking an eye off Janet Yellen and the Fed would be a very foolish thing to do as stranger things have happened than a sudden increase in tapering or even stronger hints of a rate hike.

Ahead of the open we expect to see the FTSE lower by 4 points with the German DAX higher by 2 points.
 
US Opening Call from Alpari UK on 7 July 2014

Markets primed for correction following strong week

• Markets primed for correction following strong week;
• FOMC minutes may hint at earlier rate hike;
• German industrial production numbers disappoint again;
• Quiet US session expected following chaotic week.

The week has got off to a slightly negative start following the long weekend in the US. In truth, the weakness being seen this morning is probably more a case of profit taking than anything else, despite the numbers from Germany this morning being far from encouraging.

We saw plenty to be optimistic about from the US last week, particularly from the jobs report on Thursday which showed 288,000 jobs being added and the unemployment rate falling to 6.1% in June. This was the first time since 2001 that we’ve had five consecutive months of more than 200,000 jobs being added and the lowest the unemployment rate has been since October 2008.

That is unlikely to be enough to convince the Fed to hike interest rates any earlier than the middle of next year, or that appears to be what the markets believe given that these numbers were not met with a response typically associated with hike fears. The Fed minutes, which will be released on Wednesday, could shed more light on the current stance on rates, although it is worth noting that this meeting took place almost two weeks before Thursday’s jobs report. That said, should more members highlight the improvement in the data recently and even hint at an earlier rate hike, it could weigh quite heavily on sentiment.

Following such a manic week in the markets, this week is expected to start a little slower, with the number of economic data releases being significantly reduced. The only notable release this morning has been the German industrial production number, which showed a 1.8% decline in May, while the April figure was revised lower to -0.3%, marking a third consecutive decline. While this is concerning, especially as the decline this month was driven by falling orders both domestically and externally, I do expect things to pick up in the coming months and clearly so do other investors as the DAX is still trading near all-time highs.

The US session is looking very quiet from an economic data perspective, with no numbers scheduled for release. This isn’t necessarily a bad thing, given the amount of data we saw last week. We saw a good reaction to much of the data last week and this period of calm may allow for a necessary correction.

Ahead of the opening bell, the S&P is seen 3 points lower, the Dow 28 points lower and the Nasdaq 3 points lower.
 
UK Opening Call from Alpari UK on 8 July 2014

Good Morning Folks!

Markets across the globe took a hit during yesterday’s session as the world came back from the long weekend holiday to a raft of negativity after US markets finally broke through all time high levels on Thursday on the back of a strong non-farm payroll figure. However the losses could have been worse, especially in the US where we saw the Dow Jones recover from its lows to finish the session back above the 17,000 level. This may well be seen as a strong signal for traders, but there is a worrying aspect to all of the gains we are seeing across equities. The gains have been relentless but have come at a time of low volume and volatility. This makes me believe that should the markets suffer a shock, the gains are built on such weak foundations that we could well see them unravel very quickly. That shock could come from anywhere and could come as soon as Wednesday in the form of the FOMC meeting minutes. Any hint that there is a more hawkish tone from the Fed would quickly escalate, it must now be a matter of time before a hawkish tone is seen out of the Fed. Continuously good jobs figures coupled with improving inflation readings and strong growth point to the pressure building on Janet Yellen to act.

This morning sees yet more economic data come out of Germany, and after the poor figures we have seen over the last few weeks investors, and especially the ECB will be hoping for a much stronger performance when it comes to this morning’s readings on imports and exports. Yesterday saw the industrial production number fall heavily coming in at -1.8% vs estimates of 0.3%. This follows poor readings on inflation and GDP over the last few weeks. The German economy is a worrying point for Europe. To put it bluntly, without a strong Germany there is no Eurozone. Over the last few weeks Mario Draghi has thrown everything but the kitchen sink at trying to improve the economy, but TLTRO’s and negative deposit rates do nothing if Germany cannot support the bread butter of Eurozone. Today’s numbers will be extremely closely watched and if weaker still there will be some tough questions for Angela Merkel and Mario Draghi come there next meeting, and it could be that the weaker German economy forces the ECB’s hand into the quantitative easing they have so far been trying to avoid.

Elsewhere today we see industrial and manufacturing production numbers out of the UK. There is a growing feeling, much like the US, that continuous positive numbers are likely to push Market Carney and the MPC members at the BOE into a hawkish act, with many even starting believe we could see a rate hike in the UK as early as next month. We may not necessarily get a clear answer on this at this week’s meeting but we will surely be looking for any hints a shift in monetary policy. Personally I remain in the camp that any rate hike before next summer’s general election is hugely unlikely, as this would certainly hit David Cameron’s opinion rating. US markets are set for a quiet day on the economic calendar today, however this week does see the start of earnings season, of course kicked off by Alcoa. It will be an interesting earnings season as investors will want to see that the growth and strength in the major equity indices is backed up by strong sales, revenue and profit numbers out of the companies they are made up of. One thing that would leave investors disappointed would be if we saw strong numbers that remain strong due to cost cutting measures and not organic growth. If we saw this it would be yet another signal that the rally we have seen is built on the most unstable of foundations.

Ahead of the open we expect to see the FTSE 100 higher by 7 points at 6,830 and the German DAX higher by 11 points at 9,917.
 
US Opening Call from Alpari UK on 8 July 2014

US futures lower ahead of Fed speeches

• UK data disappoints but no fears of slowdown yet;
• Slowdown continues in Germany;
• Fed speeches key on Tuesday.

It’s been another tough start to the European session on Tuesday, with data from both the UK and Germany disappointing to weigh further on risk appetite.

It’s not that big a deal for the UK, which has experienced enviable levels of growth over the last year. Manufacturing and industrial production figures released earlier in the European session showed a decline in May of 1.3% and 0.7%, respectively. This is the first decline in both readings since November last year and, at this stage, is probably more a sign of slowing growth rates than a downturn.

The same can’t be said for Germany, which has seen a notable decline in a whole host of indicators recently. Even if we just take the last week, we’ve seen German data fall short of expectations in everything from PMI and IFO surveys to retail sales and unemployment reports. On many of these occasions, these figures have also shown a decline from the previous month. To make matters worse, these are not the first disappointing readings we’ve had from Germany which suggests this slowdown may not be temporary. Given that this is the engine of growth in the eurozone, it doesn’t bode well for the region as a whole if the strongest member is struggling to perform.

US futures are pointing to a similarly difficult start, which isn’t that surprising given the strength of the rally seen last week. In the absence of further positive catalysts, it’s only natural for stocks to pare some of these gains. There isn’t much in the way of major economic releases today that is likely to have a significant impact on the markets, but there are speeches from Fed members Jeffrey Lacker and Narayana Kocherlakota which have the potential to shake things up.

One of the main reasons we’re still seeing record highs being made in US indices right now is the commitment to easy monetary policy from the Fed, with rates currently seen remaining at current levels until at least the middle of next year. If we start to get a more hawkish tone from Fed members, or even direct hints at earlier rate hikes, I imagine these new records may become much more rare. Until then, its onwards and upwards.

Ahead of the opening bell, the S&P is seen 2 points lower, the Dow 18 points lower and the Nasdaq 1 point lower.
 
UK Opening Call from Alpari UK on 9 July 2014

Good Morning all,

European markets are set for fairly quiet day on the economic calendar today as it seems the data takes a break for the majority of the day on Wednesday. However the data that does come out is big, as this evening at 7pm we get the release of the FOMC minutes. Yesterday also saw the start of earnings season in the US and with Alcoa kicking things off in style there is now going to be added pressure on companies to perform and back up the recent equity gains with strong corporate performances.


There is no doubt that the US will dominate proceedings during today’s session but we will have to wait until 7pm for the markets to get into full swing. Pressure is mounting on Janet Yellen and the Fed to act on the positive readings we have seen coming out of the US economy over the last 12 months. Last Thursday saw the first time the non farm payrolls had shown 5 plus 200K consecutive readings since 2001, we also saw the unemployment rate tick to 6.1%. Many believe that despite a low participation rate that a drop below the 6% level is the catalyst the Fed is looking for to act and it could well be as early as next month that we see an increase in tapering or even a potential rate hike. This could well spell danger for those investors who have invested heavily in this equity market rally. This rally is built on severely low volatility and even lower volume leading me to believe that if a change in monetary policy would to happen earlier than people expected, it would cause the gains to unravel at lightning speed.

We have already had some data out of China overnight as CPI fell to 2.3% from 2.5% in the previous month. This will not be seen as a huge issue in China, but is still well below the central banks annual target of 3.5% CPI inflation that was set back in March. Delving a little deeper into the figures it showed that yet again food prices were still the main driver of inflation as fruit prices were up19.8% in June on the previous year. As we have mentioned the economic data does look fairly quiet however the corporate earnings continue to be released as earnings season enters its second day. Today’s sees the beginning of the major bank releases in the US and with many expecting positive things out of a lot of the major financial institutions the pressure is really on today’s releases of Wells Fargo and JP Morgan to do deliver big. However when it comes to the earnings this quarter it will have to be real organic growth that we see from the banks and not numbers adjusted positively due to cost cutting. Inventors will want to see that this equity market rally is built of solid corporate performances and not a house of cards with job cuts at the heart of the good readings. Alcoa has so far started things off on the right foot, but the banks are a different story.

Ahead of the open we expect to see the FTSE 100 open lower by 4 points with the German Dax higher by 22 points.
 
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