Forex research

[Alpari UK]

Daily Market Update - 11 September 2014 - Alpari UK

Market Analyst Craig Erlam talks about some of the key topics moving the markets on Thursday including Chinese inflation data, the Australian jobs report, US jobless claims data and the Scottish referendum.

 

[Alpari UK]

US Opening Call from Alpari UK on 12 September 2014

US futures flat as the consumer comes under the spotlight

It’s been a very quiet week in the financial markets and European indices are on course to end on a mixed note, while US futures are pointing to a slightly weaker open.

The FTSE and the pound are being well supported again today after the latest YouGov poll showed a u-turn in the voting on Scottish independence with 52% of people saying they would vote no. While this isn’t exactly a huge swing in the voting, with the previous poll showing 49% against independence, the mere fact that its moved in favour of staying a part of the United Kingdom has brought some calm back to the markets.

The worst part of all of this is the fact that no one really knows what will happen if Scotland votes for independence and it’s that uncertainty that is freaking people out. With the UK enjoying a strong recovery at the moment, especially compared to the US and the eurozone, this is the last thing it needs. Once this vote passes and the people of Scotland vote to remain a part of the UK, which I am sure they will, people can once again start to focus on the good news story that is the economic recovery.

The fresh batch of economic sanctions that the EU has imposed on Russia are likely weighing on sentiment today, which is probably largely responsible for the weaker end to the week. We have already seen that these sanctions don’t only harm Russia, there are consequences for the countries imposing them, and while they are necessary, the markets do not respond well to them.

The US session today is likely to be another quiet one although there are a couple of notable economic releases for traders to watch out for. The numbers give an overview of how the consumer has been spending of late and how they are likely to act going forward, so they are likely to be tracked very closely by traders and could have a significant impact on the markets. The consumer is extremely important to the US economy and any drop is spending or confidence will be concerning.

As it stands, we’re expecting a 0.6% increase in retail sales and a rise in consumer sentiment to 83.2 which is very encouraging. The US recovery has been very strong over the last six months and if it continues at this pace, the Fed will have to consider bringing forward its first rate hike. We’ve already seen this week that investors are starting to price this in after rumours surfaced that the Fed will not release such a dovish statement next week, withdrawing its commitment to keep rates low for a considerable amount of time after the end of asset purchases. If this does happen, we may well see further pricing in of an earlier rate hike.

The S&P is currently expected to open unchanged, the Dow down 3 points and the Nasdaq unchanged.

 

[Alpari UK]

Daily Market Update - 12 September 2014 - Alpari UK

 

[Alpari UK]

Weekly market preview from Alpari UK – 15 September 2014

The markets are expected to find significant traction in the week ahead, where the existence of the US FOMC announcement means that monetary policy comes back into the fore yet again. Furthermore, the culmination of the Scottish referendum looks set to draw massive volatility and indecision within the UK markets along with the potential impact this could have upon alternate regions with aspirations of independence. In the eurozone, the final CPI reading is likely to be the major event to watch out for in a somewhat quiet week. Finally, in Asia, the focus lies largely upon Japan, where the BoJ governor Kuroda is set to bring two major speeches for the markets to watch out for.


US

A somewhat mixed week ahead, where a raft of economic indicators does little to disguise the fact that there are very few that will move the markets. However, with the latest FOMC announcement on hand, there is likely to be a major focus upon the Fed for volatility. Apart from that the existence of inflation, housing and manufacturing data provides the padding for the week.

The FOMC monetary policy announcement on Thursday is no doubt the biggest event of note out of the US, with markets largely expecting to see the penultimate taper from Janet Yellen & co. However, with this pathway of asset purchase trimming clearly defined, the emphasis will largely be upon the timeline for interest rate hikes in 2015. Following Mark Carney’s willing offer of a more defined date for the BoE last week, there is going to be further pressure upon Janet Yellen to do the same. With the BoE citing Spring 2015 as a potential start to the process, I am not expecting to see the US move any earlier and thus we could see something from the Fed in Summer 2015. That being said, the US is clearly going to be moving towards more unpredictable times, with a drawn out campaign against the ‘Islamic State’ on the cards which could draw fiscal investment away from the economy and thus encourage a more accommodative stance from the Fed. Thus I do not expect to see anything for the time being to allow for some room going forward. However, with other members within the committee increasingly moving towards a hawkish stance, it is clear that soon enough Yellen will have to adjust her stance accordingly.

This meeting will also see the latest economic projections from the FOMC, with the markets looking out for any revisions to growth and interest rate forecasts from the members. This is an opportunity for the members to show a more bullish or bearish outlook for the forthcoming period and thus many will take their lead on such matters.



UK

A busy week ahead for the UK economy, where the MPC minutes are overshadowed by the massive vote within Scotland over a potential move towards independence on Thursday. The MPC monetary policy minutes are the first of these two major releases to watch out for, coming on Wednesday morning (GMT). Last month’s minutes brought about major volatility as an unexpected shift in votes saw two of the 9 committee members vote for an interest rate hike from the current 0.25% to 0.5%. However, despite Martin Weale and Ian McCafferty taking that first step towards tightening policy, I believe we are still some way from actually seeing such a move given the general alliance of the remaining 7 members who will likely see governor Mark Carney’s outlook for rate rises as the most sensible thing to do. Of course, the MPC doesn’t vote in complete harmony and thus as we move towards the implementation of a new policy, some will believe it to be necessary at a different time from others. However, this staggered approach to the actual rate rise itself provides markets and individuals with a buffer and warning sign that it is coming and thus it is actually useful to have such dissent within the committee. That being said, I do not expect to see any further changes to votes this month and thus it is likely to remain at 7-2 in favour of keeping rates constant. With Mark Carney having provided a timeline of Spring 2015 for a potential first rate hike, I think this could be the case for some time yet.

On Thursday, Scotland goes to the polls to decide whether or not they wish to disassociate themselves from the UK in a historic independence vote. Both sides of the argument have been put forward for over a year now following the agreement to hold the referendum back in June 2013. For those within the UK, this is a source of major economic uncertainty, no more so than within Scotland where membership of groups such as NATO and the EU would no longer be guaranteed. Furthermore, with the future of the Scottish healthcare system, pensions, currency, taxation, television service, defence, budget and alike all pretty much unknown, a ‘Yes’ vote could bring allsorts of questions. Should we see Scotland go it alone, this would no doubt weaken the hand of the UK given it’s diminished size and value, whilst the expected demand for sterling would take a substantial hit with attempts to quantify the possible effect upon the pound looking towards 10-20% losses in such an event. Ultimately, from a markets point of view, this event has brought about major uncertainty and volatility, which is likely to increase as we get closer to the event. Given the importance of the decision, the polls will be watched very closely with markets reacting to developments more so than any general election in recent history. Preliminary polls held by YouGov have shown very mixed swings in the vote, with a recent move towards independence being wiped out in a subsequent survey. Ultimately, any survey will only utilise a sample section of the population and thus we could see continued mixed messages as we get closer to the event. However, with UK interests at hand, I expect to see the likes of the FTSE100 and sterling really see some substantial moves as we approach the event. Finally, be aware that we could see shifts across European interests given the existence of numerous pro-independence regions such as Catalonia who could be buoyed in the event of any Yes vote from the Scottish people.


Eurozone

A quiet week in the eurozone, where the ZEW economic sentiment survey and CPI inflation reading are going to provide some interest on Tuesday and Wednesday. Tuesday’s ZEW economic survey provides an outlook on both German and eurozone economic health from a German standpoint. Given the expected weakness within the export market as a result of the sanctions imposed against Russia, we have seen a massive deterioration in both the eurozone and German figures throughout 2014 so far. However, with recent trade data out of Germany showing that the losses in the exports to Russia had been compensated by strengthening ties amongst the UK, US and eurozone, there is a possibility that this could be reflected on Tuesday. That being said, with Angela Merkel and other European leaders clearly showing that they are willing to push sanctions as far as they need to go, this could lead to yet further deteriorations in investment and thus the market forecasts of further losses may not be far from the truth.

On Wednesday, the release of the final CPI reading for August has the potential to raise some interest in the markets. Of course, the level of inflation has been a major driver of monetary policy throughout the last year and with the current rate at 0.3% year-on-year, this could become a massive issue should we see a negative rate down the line. However, with the majority of revisions coming in at the same level as the preliminary figure, I do not expect to see any change this time. That being said, any move higher could bring strength back into the euro, whilst a fall may weaken it further as some call for a full asset purchase policy to be implemented. That being said, with interest rates having just been lowered and the introduction of an ABS purchase plan, I think that in the event that there was a move lower, then sentiment could be stemmed by the knowledge that these figures haven’t been influenced by recent steps from the ECB.



Asia & Oceania

The Asian region is somewhat quiet this week, with Japan the only region to be seeing any major events of note. The most important of these are likely to be the two speeches from BoJ governor Kuroda, which are due to take place on Tuesday and Thursday. That being said, I do not foresee any changes to monetary policy in the near term, with mixed messages coming out of Japan regarding growth and inflation. The feeling is that the Japanese are happy enough with the level of the Yen and thus it is really the inflation rate which will dominate going forward. This has been increasing due to the sales tax hike, yet there is a feeling that the BoJ are waiting to see if we can see an underlying price rise for now. There is a possibility of another sales tax hike early in 2015 and thus there could be some sort of grounds for a rise in asset purchases down the line. Yet for now, markets will simply be looking out for any change in rhetoric to what is a pretty stable central bank policy currently.

 

[Alpari UK]

UK Opening Call from Alpari UK on 15 September 2014

Weak Chinese data pushes the markets lower

• Poor Chinese data leads to weak start to the week
• John Kerry continues to gain support for a coalition to take on ISIS
• The Scottish vote looms and uncertainties mean volatility should ensue

Global markets are facing up to a somewhat disappointing start to the week as growing uncertainties over geo-political factors provide the backdrop to some key economic releases. Worrying data out of China on Saturday has driven the Asian markets to a poor overnight session and this is likely to follow on into the European open.

Much talk of a Chinese slowdown has been allayed in recent months, with the likes of manufacturing and services PMI figures recovering from a notable downturn in H1. However, this weekend provided a stark reminder that the worst is not necessarily over as retail sales, industrial production and fixed asset investment all moved significantly lower. PMI data is obviously a strong indicator of future performance for the output and demand within the economy. However, they are no substitute for the final outcome and that is why these figures are absolutely key. The fixed asset investment figure is certainly one of the most worrying indicators, which at 16.5%, is far lower than at any point in the last decade. However, the industrial production figure also reminds us as the underperformance seen throughout 2014, where the growth rate currently stands at the lowest level since the immediate downturn that followed the start of this crisis back in 2009. Ultimately, China’s old model relies upon investment and production on a massive scale to maintain the 7.5% growth target that has been in place for some time now. However, with the new switch in emphasis towards a consumer based economy, the retail sales figure is absolutely key to determine that there is enough domestic consumption to drive demand. With retail sales at the lowest level since April, things are not exactly going to plan in China and that is why we are seeing markets open in such a negative fashion today.

A particularly light session from an economic point of view sees the focus remain well and truly upon the whole raft of geo-political events which continue to shape risk sentiment within the markets. The death of David Haines, a British aid worker was no doubt aimed at engaging David Cameron and co, which appears to have done exactly that. As John Kerry moves around the world trying to gather support for a coalition of forces, the UK rhetoric has moved to align with that of the US in what seems to be the pretext before an extended assault against the Islamic State. The US is certainly learning it’s lessons over the choice to essentially go it alone in Iraq without international approval and thus the development of a wide ranging group of countries who are all willing to fight the same cause means that the US and UK are emboldened with their military actions. However, there must be a concerted effort made to ensure that Sunni moderates are not marginalised where Western forces are seen to simply be supporting the Shiite and Kurdish in this battle. The war will be upon ISIS and not Sunni Muslims per se, but with previous examples of a strong social media and marketing strategy in place by ISIS, it is clear that they would likely try to change the context of the war to suit their recruiting needs. Should the war move into a stage where it is perceived as simply an attack upon Sunni’s, there would be no future in Iraq which returns to the coexistence of Kurds, Sunni and Shiite alike. This of course would mean that all Sunni moderates would end up fighting for ISIS given their persecution and treatment due to their creed.

The Scottish referendum is fast approaching and with polls too close to call, many within the markets are beginning to wake up to the distinct possibility that the pound and UK markets could see some significant volatility as the week goes on. For the most part, the markets appear to have factored in a vote for ‘No’, which appears to be the most likely event. However, the feeling is that as we approach the vote, the ‘Yes’ camp is making gains and bringing the tie closer together. Ultimately, the decision is Scotland’s to make and for the most part it appears to be that the ‘No’ vote is driven by the head, whilst a ‘Yes’ vote is driven by the heart. No doubt, a few reruns of Braveheart would push more towards the vote for independence. However, the worry remains as to the whole raft of unknowns associated with this move, where Alex Salmond has offered virtually no guarantees regarding some of the most crucial tenets of British life. Everything from the currency, to taxation and EU membership remain on a trust basis and with the ‘No’ camp unwilling to discuss such negotiations until the vote has been cast, it really is a shot in the dark for the Scottish people. For the markets this means that there is not only uncertainty in the vote, but also in the eventual outcome in the event of the vote going in favour of independence. The most central of these is no doubt the use of the Pound sterling, which despite being claimed as being ‘as much Scottish as English’, would be a massive bone of contention should Scotland not share the same central bank. Initial signs point towards Scotland dropping out of the use of the Pound which would massively devalue the currency due to weakened demand for the good and services of the UK. However, much like many other parts of this vote, this is a massive unknown and thus it is certainly a difficult decision for the Scots who must choose between the known and the unknown. Most risk averse would likely choose the known, yet increasingly there is a growing number willing to chance it in search of a greater degree of self-determination.

 

[Alpari UK]

US Opening Call from Alpari UK on 15 September 2014

Risk appetite low ahead of uncertain week


• Uncertainties surrounding Scottish referendum, Fed and BoE weigh on risk appetite;
• Lack of key guarantees could lead to comfortable win for better together campaign;
• Fed rumoured to remove key dovish language from this month’s statement;
• BoE minutes may reveal more hawkish tone.


With the week ahead offering so much uncertainty for the markets, it’s no surprise to see US futures pointing to a slightly lower open on Monday. As it stands, the S&P is seen opening 4 points lower, the Dow 22 points lower and the Nasdaq 6 points lower.

The biggest concern for the markets this week is going to be the Scottish referendum and not just because it could bring an end to the 307-year union it has had with the UK. This, of course, is a great concern simply because no one seems to know exactly what impact Scotland’s independence would have on the UK economy. What could be a greater concern though is whether even a close vote could set a precedence for regions in other countries to request a similar vote on independence. We’ve already seen support for the Scottish vote in Catalonia which has long sought independence from Spain and this would be a bigger problem due to how much tax the region generates which is then transferred to other regions.

Regardless of the fact that certain polls that have shown the vote being neck and neck, I don’t expect the final vote to be too close. There is still a huge amount of undecided voters and if Alex Salmond and the pro-independence campaign hasn’t managed to convince them to vote “yes” yet, I don’t think they will. Of course, some will vote in favour but I expect the majority to be put off by the lack of guarantees on key issues including currency, central bank and EU membership. These are huge issues and without guarantees, the risk is not worth taking.

Another concern must be Wednesday’s FOMC decision, with speculation growing that the Fed is going to drop a key sentence from its statement that, until now, has given the markets comfort that the Fed will remain dovish. The commitment to keep rates low for a considerable amount of time after the end of asset purchases is rumoured to be taken out of the statement which may bring forward people’s rate hike expectations.

The release of the Bank of England minutes, also on Wednesday doesn’t help matters, after two policy makers surprisingly voted in favour of a rate hike at the previous meeting. While the MPC did not raise rates at the meeting a couple of weeks ago, any additional votes in favour of a hike could spook the markets and lead some to start pricing in a hike this year.

With so little on the economic calendar today, these events are likely to make investors a little more risk averse. The only notable releases today are the Empire State manufacturing index and industrial production figures and even the reaction to these are likely to be a little muted. The former is seen rising to 16 in September while the latter is expected to show a 0.3% increase as the US continues its strong recovery in the second half of the year.

 

[Alpari UK]

Daily Market Update - 15 September 2014 - Alpari UK

 

[Alpari UK]

UK Opening Call from Alpari UK - 16 September 2014

There are a whole host of key risk events as we know dominating the agenda for the markets this week, with the Scottish independence vote as well as the FOMC. We may well be looking at a calm before the storm before the storm in terms of markets before we get to the big risk events but before that we do have a huge amount of numbers. Todays session will be dominated by data out of the US and UK as the markets wait for the key events on Wednesday Thursday and Friday this week.

However let’s begin with the Scottish vote and the recent developments. The leaders of the three main political parties have pledged to devolve more powers to Scotland if they vote to remain in the Union and reject independence. Part of this pledge states that Scotland will be given the final say on all funding discussions around the NHS, as well as telling Scots that a vote for NO was not a vote for less control. It is very clear that whichever way the vote goes on Thursday we are likely to see Scotland win in both eventualities. With the vote coming ever closer and the polls still too close to call it is becoming increasingly hard to call. Sterling is where this uncertainty is being felt the most and it is in fact the uncertainty of a potential YES vote which is doing the damage to GBPUSD. With so many unanswered questions over currency and membership to EU and NATO, promises previously given to the Scottish people by Alex Salmond, we are seeing increasing volatility and unrest in sterling based currency pairs. The old adage reads that the one thing the market hates more than anything is uncertainty, and uncertainty we currently have bucket loads of.

To today’s session and it looks like the CPI out of the UK will be the key piece of data early on. Expectations are for a the benchmark number to remain the same holding steady at 1.8%. This will be seen as a positive step. While we had seen CPI inflation at the 2% Bank of England target over the last couple of months, the decline in the previous months had shown a worrying decline. Fears of inflation starting a steady slide to the downside will however hopefully be alleviated should this figure hold steady. They take on more importance as tomorrows sessions sees the un employment readings as well as the BoE meeting minutes. Both of these will be key to Mark Carney and the MPC, the interesting point will come in the voting. Last month a 7-2 split occurred for the first time in a number of months, any signs of this split becoming closer in terms of numbers will be a big deal for an already under pressure pound. Mark Carney has told us that average earnings numbers must be moving in the right direction in order to a rate hike in the UK to be sustainable. Tomorrows numbers could well show average earnings increase and those calling for a hike in rates at the BOE get a bigger voice, pilling on the pressure for a rate hike in the new year if not beforehand.

Ahead of the open we expect to see the FTSE 100 open higher by 7 points with the German DAX higher by 9.

 

[Alpari UK]

US Opening Call from Alpari UK - 16 September 2014

Further risk aversion seen ahead of Fed and Scottish vote

• Scottish referendum polls remain neck and neck, uncertainty hits risk appetite;
• Tomorrow’s FOMC decision adds further uncertainty into the markets;
• UK inflation falls again in August, but it doesn’t appear to be worrying the BoE.

With so many risk events to come this week, investors are understandably risk averse again today, with European stocks tumbling and US futures pointing to a similar open.

As was the case yesterday, uncertainty surrounding the Scottish referendum and the Fed decision is really weighing on investor sentiment. While most people you ask will say that they believe the Scots will ultimately vote against independence, even if by a fine margin, people do not want to put their money where their mouth is.

The fact of the matter is that while there is still a lot of undecided voters – many of whom in my opinion are more likely to vote for the status quo – the polls are neck and neck and this cannot be ignored. As long as this is the case, there is still a realistic chance that the Scots could vote in favour of independence which as far as the markets are concerned would be a total disaster.

The other big risk event this week is the Fed meeting. It’s very difficult for people to argue that the Fed’s ultra-loose monetary policy stance has not been largely responsible for stocks rallying to their highest ever levels. Now that this is coming to an end, with asset purchases falling to zero next month and the first interest rate hike around the corner, people are getting nervous.

As long as rates remain at record lows, there is reason for US indices to be at these highs. That’s why people are concerned about the Fed’s stance on Wednesday, after rumours surfaced that the Fed is preparing to drop its commitment to keep rates low for a considerable amount of time after the end of asset purchases. If that happens, it may mark the end of record highs being made in indices for a while.

As for today, it’s going to be another light data session, with no major economic releases coming from the US. This morning we’ve had some inflation data from the UK which may change things as far as the first rate hike is concerned, given that the headline figure fell to 1.5% in August. We’ll get the minutes from the latest meeting on Wednesday which will show how the latest voting went. Should we see additional voting in favour of a hike, it may suggest that the MPC is prioritising other things over inflation, such as risks in the financial system that many people have raised concerns about in recent years. The fact that core inflation rose to 1.9% may ease fears of a falling headline number.

The S&P is currently seen opening 1 point lower, the Dow 24 points lower and the Nasdaq 3 points lower.

 

[Alpari UK]

Webinar - 16 September 2014 - Alpari UK

Weekly Market Webinar

Live every Tuesday afternoon our chief market analyst James Hughes, market analyst Craig Erlam and research analyst Joshua Mahony take a look at the major stories moving the markets. They will also look at some of the charts and discuss the big technical levels traders should be looking out for.

Click here to Register for our Webinar

 

[Alpari UK]

US Opening Call from Alpari UK - 17 September 2014

US indices edge higher ahead of FOMC decision

• FOMC statement and press conference key today;
• BoE rate hike vote fails to gather more support leaving only two in favour;
• UK jobs report shows further improvements in labour market as unemployment falls to 6.2%.

All week we’ve been talking about the big risk events for the markets and why they’re weighing on investor sentiment and now one of them has arrived.

The FOMC will announce its latest policy decision later on today and investors are desperate to know whether rumours that a commitment to keep rates low will be removed from the statement are true. In previous statements, the Fed has stated that rates will not rise for a “considerable amount of time” after the end of quantitative easing, which many took to mean the middle of next year or even later.

If the FOMC decides to remove this from its statement, people will be forced to revise their forecasts for the first rate hike which I expect would weigh heavily on equities and bonds, while we could see another bout of strength in the dollar, which has been the standout performer in the currency space recently.

This will set us up nicely for the press conference which follows 30 minutes later, in which Chairwoman Janet Yellen would be forced to justify the removal of the text from the statement and provide further clarity on when we can expect the first hike to come. Even if the text isn’t removed from the statement, Yellen is likely to be questioned on the rumours which could mean we get surges in market volatility during the press conference, which is not abnormal by any stretch of the imagination.

The Fed’s stance on interest rates are likely to be influences by the inflation readings for August that will be released earlier on in the day. While the CPI readings are not the Fed’s preferred measure of inflation, they do give a good idea of the kind of environment we find ourselves in. Inflation rising above 2% may force the Fed to reconsider its ultra-dovish stance while a falling inflation rate would give them more leeway when it comes to that first hike. Expectations are for a small drop to 1.9%, from 2% in July, while the core reading, which strips out volatile components such as food and energy prices, is seen remaining at 1.9%. This is just in line with the Fed’s target, which allows them to remain accommodative for now but as soon as these rise, the FOMC may have a big decision to make. Which part of their dual mandate do they prioritise, price stability or the labour market?

One of the smaller potential risk events this week was the release of the minutes from the Bank of England meeting this morning. The decision by Martin Weale and Ian McCafferty to vote for a rate hike at the meeting a month earlier has made things much more interesting as we now only need three more members to vote in favour before we get the first rate hike in more than seven years. As it turns out, the voting was unchanged, which suggests those two hawkish members are struggling to convince other members that the time has come to raise rates. With that in mind, I still believe that we’ll have to wait until the end of the first quarter of next year for the first rate hike, which could come just too late to have any impact on the elections.

The UK jobs report once again pointed to an improving economy in July, with the unemployment rate falling more than expected to 6.2%, while earnings rose slightly by 0.7%. While this appears to have lifted the pound, the gains are minimal with the Scottish referendum vote continuing to be the biggest driver of the currency. With the vote now only 24 hours away, I imagine the pound will remain heavy as traders wait for an indication of how the voting is going. The result isn’t expected until early Friday morning but by that time, I imagine most people will have a fairly good idea of what the result is.

The S&P is currently seen opening 1 point higher, the Dow 15 points higher and the Nasdaq unchanged.

 

[Alpari UK]

UK Opening Call from Alpari UK on 18 September 2014

Scots go to the poll as markets brace for volatility

• FOMC stays steady, yet timelines show sharp rate path
• Scottish referendum too close to call

The European markets seem somewhat undecided today, with US and Asian gains pushing minor gains in UK and Eurozone indices. Yesterday’s FOMC meeting provided and element for both bulls and bears to grab hold of and as such, the initial gains that saw the Dow reach a record high, soon gave way to a round of selling. That indecision along with the historic Scottish referendum hanging over the UK and Europe means that markets will no doubt be waiting for the result to gauge market direction. Futures point to a moderately positive open, with the FTSE100 +8, CAC +10 and DAX +16 points.

The FOMC chose to remain somewhat steady yesterday and in turn disappointed investors who had been looking out for a change in tone from Janet Yellen. The big question on the lips of the market was whether the Fed would remove the ‘considerable amount of time’ language from their statement and instead provide some sort of timeline for interest rate hikes, much like the BoE has recently. However, Janet Yellen was clearly in no such frame of mind to provide such clarity, instead choosing to remain consistent with previous meetings in stressing the importance of labour market improvements given that there still remains a degree of labour market slack that needs to be used up. This decision to retain a more dovish stance played into the bulls hands, leading many to believe that we will be waiting longer for rates to be affected despite the decision to end asset purchases in October as expected. However, the release of economic projections from the committee provided a somewhat shortened timeline for when we would see rate normalise, pointing towards near enough a 25 basis point rise in the Feds funds rate at each of the FOMC meetings between 2015 and 2017. Thus whilst the bulls cling on to the idea that rates will remain at 0.25% for a longer time, the bears will be highly conscious of the fact that once rates do start to rise, it will be a steep and notable climb to what will become the new normal rate.

The Scottish referendum will finally come to a close tonight, potentially bringing with it and end to the 307 year Union between Scotland and the rest of the UK. A clear tightening of votes between the two camps has clearly caught those within the ‘No’ camp off-guard whose complacency could yet provide one of the biggest shakeups in the history of these Islands. This is personified perfectly by the last ditch attempt at Westminster to devolve powers on spending and taxation up to Scotland in the event of a ‘No’ vote. In essence this is a sweetener which David Cameron has been forced to use to help avert the breakout of the UK. Yet it’s timing, coming within a week of the final vote despite a campaign lasting over two years, could not be more telling. The markets and bookmakers may tell us that it is going to be a convincing win for the No camp, yet the regional polls over this last week have portrayed a race that is neck and neck.

The implications of such a breakup would no doubt be detrimental to the economic and political power of both sides in this matter. The reduction in size and value of the UK economy would of course be reflected in the hand Westminster has to play on the global stage and thus from a purely political standpoint, this devolution will favour neither side in terms of global firepower on the biggest stage. However, such a breakup also has wider reaching implications for Europe who has further regions with aspirations of independence to deal with, in the form of Catalonia, who like Scotland are demanding a referendum of their own. Unfortunately, the decision for Scotland to leave the UK could also mark the beginning of the EU breakup, with Scotland joining the back of the queue for new entrants where Spain and other will be far from keen to allow easy entry for fear of promoting the ease of such a move towards independence. However, would also raise the likeliness of the UK leaving the EU, given the pro-European mindset within a largely Labour dominated Scotland. The future political landscape of the UK would be overwhelmingly conservative and thus without the influence of Scotland, the chance of a Yes vote of our own come the referendum promised by David Cameron would be massively raised.

From the Scottish outlook, this is no doubt a big opportunity to shake things up. It would be a move towards forming all the elements of a fully fledged country themselves rather than relying on London for the provision of core factors such as central banking. However, it would be an absolute shot in the dark for an economy whose biggest export has been predicted to near enough run out in 15 years. An economy built upon dwindling oil and gas reserves strikes me as a dangerous course of action at a time when the difficulty of growing in both jobs and output is perfectly highlighted across the water in Europe which has seen much larger countries struggle despite strong, diversified economies. In a world where there is always someone willing to do something cheaper, Scotland would need to diversify, and quick. The demand for whisky has seen a great rise in recent years and that provides some sort of security, yet to see a Yes campaign driven by pledges on healthcare, spending and taxation without any substance, it doesn’t take a genius to realise that an economy which requires the massive investment to set-up new institutions, coupled with a gradually decreasing resource base, is not necessarily compatible with lower tax and higher spending. The decision is Scotland’s to make and there is no doubt some merit in the idea of independence. However, at a time like this, with a campaign based on foundationless promises, the question remains over whether the Scottish people value stability and growth or self-governance with the possibility of both prosperity or poverty.

 

[Alpari UK]

US Opening Call from Alpari UK on 18 September 2014

Scotland heads to the polls while PBOC provides boost

US futures are pointing to a stronger open on Thursday as investors shrug off concerns over the Scottish referendum and instead turn their attention to the second dose of monetary stimulus this week from the People’s Bank of China.

As the day progresses and we near the referendum result, I’m sure we’ll see some profit taking creep into the markets, especially if we get reports suggest the voting is neck and neck as the polls suggest. The result itself isn’t due out until the early hours of tomorrow morning which should make the last hour of trading today very interesting.

As it stands, despite what the polls say, people seem very confident that the Scots will vote no when push comes to shove. The odds strongly favour a no vote and that probably says a lot more than any surveys would. While a lot of Scots may like the idea of independence, which is completely understandable, I think a lot won’t be able to get past the fact that Alex Salmond and the “yes” campaign were not able to give any guarantees on key issues such as currency, central bank and EU membership. The lack of a plan B has seriously damaged the chances of Scotland getting independence and the country may now have to wait a long time to get another chance.

The decision by the PBOC overnight to announce a cut to the short term borrowing rate has provided another boost to the markets this week. This week we’ve already had reports that the PBOC has injected large sums of cash into the country’s five largest banks, which in itself gave the markets a big boost. Today’s announcement is a massive statement of intent from the PBOC. Despite its desire to tighten credit conditions and reign in some of the reckless lending that has happened in recent years, it will not do so at the expense of the country’s growth.

Investors have been concerned about China again recently, with some of the numbers being far from great. But stimulus has worked in the past so there’s no reason to doubt that it will again. Well, that’s what the markets are betting on anyway.

We have plenty of US data being released today, although it may be somewhat overshadowed by the referendum. The housing data is likely to show a small decline in both building permits and housing starts which is a little concerning given that rates will rise in the next 12 months which could weigh further on the numbers. We’ll also get jobless claims figures for the last week as well as another speech from Fed Chair Janet Yellen so there’s plenty to focus on from a US perspective as well.

The S&P is currently seen opening 7 point higher, the Dow 54 points higher and the Nasdaq 15 points higher.

 

[Alpari UK]

UK Opening Call from Alpari UK on 19 September 2014

Scots vote for independence as focus turns to devolution

• Scotland votes to remain within the United Kingdom
• Europe boosted by idea that it will remain united
• Focus now moves towards the devolution of powers as promised by David Cameron

European markets are waking up to a historic decision by Scotland to reject independence, bringing with it a guarantee of a stable United Kingdom and a reduction in the likeliness that Europe will see a raft of breakaway states form. This boost has returned the certainty to the markets for what is expected to be the strongest growing western economy in 2014, and because of this we are seeing European futures point towards a buoyant open, with FTSE100 expected to open +98, CAC +16 and DAX +77 points.

Scotland has decided to reject independence following a hard fought two year campaign which saw a wide ‘No’ majority shrink to rumours of a potential ‘Yes’ vote in the last week. This vote has shaken the political spectrum within the UK and whilst a decision to remain within the Union has been made, there is no doubt that a drive towards change for regional powers which should shape politics for the foreseeable future. However, the important step ahead is clearly going to involve a discussion between both Yes and No campaigners to appease the inevitable feeling of unhappiness amongst the 1.5 million plus voters that chose to take the step and vote for independence.

The story does not end here, with plans for further devolution to be discussed as early as October, which is going to be followed by a white paper in November and finally, some new laws are expected to pass by January 2015. The issues at hand are wide ranging and dependent upon the degree to which power is devolved, will be likely to appease many within the Yes campaign. This includes the control of factors such as income tax, VAT, benefits, air passenger duty, inheritance tax, capital gains tax and benefits as a whole. The question now is whether this will act as a spark to drive increased calls from the likes of Wales and Northern Ireland to gain the same powers.

That being said, despite the loud campaign for independence gaining significant numbers over the recent weeks, it is clear that a strong majority are unwilling to leave a Union that provides Scotland with more revenue than they put in. The fact of the matter is that the Union is bigger than the sum of its parts and Westminster will be buoyed by the news that their influence will remain strong in the world whilst the Scottish can be happy knowing that they voted for stability and prosperity rather than uncertainty on several absolutely key issues. The news is also going to be welcomed by the Europeans, who have been fighting against the idea of breaking up ever since Mario Draghi’s “whatever it takes” speech. Given the feeling that an independent Scotland would lead to an inevitable fight for similar steps to be taken in breakaway regions such as Catalonia and Bavaria, today’s vote is a major boost for the European project as a whole.

Markets have been responding in a somewhat predictable manner in line with the somewhat smooth election process which at no point looked providing a win for the independence. Despite this, GBPUSD has been moving higher overnight, gaining over 1% today alone, which actually failed to match the gains seen yesterday, showing that markets have strongly backed a ‘No’ vote. In the future markets, the FTSE100 has move 1.6% higher which is being filtered throughout the European markets as a whole.

 

[Alpari UK]

US Opening Call from Alpari UK on 19 September 2014

Markets rally as Scots say no to independence

US futures are pointing to a positive open on Friday, with indices currently seen up around four tenths of one percent. The S&P is currently seen 7 points higher, the Dow 75 points higher and the Nasdaq 17 points higher.

Following weeks of uncertainty in the markets regarding Scotland’s position within the UK, the people have voted and decided to remain a part of the 307 year old union. Despite many polls in recent weeks suggesting the race was neck and neck, with one even claiming that the “yes” campaign was ahead, it was a fairly comfortably win in the end for the better together campaign, with 55% of people voting against independence.

What’s more, at no point during the counting process did the “yes” campaign ever look likely to win, so the volatility that we could have seen in the markets wasn’t really there. As the regions announced the results and it became apparent that Scotland would not get independence, investors did respond but not as strongly as some may have expected.

The pound, which appeared to anticipate the result in the 24 hours before the result was confirmed, rallied as the results were announced but it has reversed all of its gains since and now trades lower on the day. This is about as clear an example of buying the rumour and selling the news as you can hope to see. With the uncertainty of the referendum now behind us, it will be interesting to see whether the pound can make up the lost ground of the last couple of months or if the dollar can continue to run the show and drive the cable pair back towards 1.60.

The FTSE is trading higher on the day, with the result having a particularly positive impact on RBS and Lloyds, both of which have their head offices in Scotland and had threatened to move them to London should the Scots get independence. It’s not just UK companies that had a vested interest in the referendum, those in Spain were also keeping a close eye on the result as independence for Scotland may lead to further calls from Catalonia for the vote. The failure of the Scots to get independence has been judged to have weakened the Catalonians campaign, which has resulted in Spanish yields falling by 7 basis points and the IBEX trading 1% higher.

With the two major risk events of this week now out of the way, the other being the Fed decision, investors have very little to focus on, which is likely to make it a very quiet end to the week. There is no major economic data due out this afternoon and everything in the news is likely to continue to focus on the referendum result.

 

[Alpari UK]

Daily Market Update - 19 September 2014 - Alpari UK

 

[Alpari UK]

Weekly Market Preview from Alpari UK on 22 September 2014

With two major risk events now behind us – Fed decision and the Scottish referendum - attention is likely to shift back to the economic data and whether we’re seeing a strong enough numbers to justify an earlier rate hike in the US and UK, or weak enough numbers to justify further monetary stimulus in China, the eurozone or Japan.

The coming week may not be the busiest of the month but there’s still plenty of key figures being released that have the potential to create waves in the markets, such as the September PMI readings, not to mention a number of speeches from Fed officials a week after Richard Fisher joined Charles Plosser in calling for a hike and more members brought forward their rate hike forecasts to 2015.

US

It’s not going to be the biggest of data weeks for the US, but there is a steady flow of important releases coming through the week that are certainly worth monitoring. The week gets underway with some housing data on Monday and Wednesday and if last weeks housing numbers are anything to go by, they could be quite disappointing. The housing market is one of those areas that was key to the economic recovery in the US last year but has not really recovered to pre-financial crisis levels. Rising rates later this year may weigh on the housing numbers in the coming months, as we saw last year, although if this recovery is as strong as we hope, maybe people will be in a better position to take it and the numbers won’t be too negatively affected.

The biggest release this week in my view is the durable goods numbers, which can be overlooked by some but actually provide fantastic insight into the state of the economy and confidence in it going forward. People and businesses only tend to invest in goods that last more than three years when things are going well and they are confident that this isn’t going to change. As a result, this can be seen as both backward and forward looking which is quite unusual in a piece of data. The only problem with these is they can be quite volatile, especially the headline figure which is why is can be best to pay more attention to the core reading.

The second quarter GDP reading and UoM consumer sentiment readings on Friday may be something of a non-event given that they are both final revisions, although you can never get complacent when it comes to these figures as big revisions do happen and can move the markets.

The biggest event could well be the Fed speeches since Fisher became the second dissenter at last week’s meeting, while two more members brought forward their forecast for the first rate hike to next year. This may not seem a big deal as people had priced it in for the middle of 2015 anyway, but together they represent an increasingly hawkish Federal Reserve and that is not something the markets want to see.

UK

There are no major events in the UK this week.

Eurozone

This week we have one big day of data, with German, French and eurozone PMIs being released for the manufacturing and services sectors and a couple of German surveys later in the week, so as with everywhere else, it’s looking a little quiet. The PMI readings will be keenly watched for any indication that the eurozone is going to bounce back from the slump it has become entrenched in. We always knew that any recovery in the eurozone was going to be slower than anywhere else and it was going to run into a few problems but the fact that this one has also gripped Germany is a concern.

The PMI readings are expected to show another across the board decline in confidence in both sectors, which would suggest the slump will continue right up until the end of the year. The only bright side is that the expected declines are very small which may be a sign that the numbers are about to bottom out in the coming months. Or maybe I’m just clutching at straws, this is the eurozone after all!

The two German survey’s are Ifo business climate and Gfk consumer climate and both are seen as key readings for the economy, particularly the former given that the economy is less geared towards the consumer than that of the US and UK. We’ve seen four consecutive declines in the business climate number, if we get a fifth this week, we could well be looking at a recession in Germany given that the country contracted by 0.2% in the second quarter.

We’ll also hear from ECB President Mario Draghi on Monday as he testifies before the European Parliament’s Economic and Monetary Committee in Brussels. People are very focused on the ECB at the moment because for the first time, it seems very wiling to provide monetary stimulus for the eurozone economy and not wait until there is absolutely no other option available. Whether we will ever get quantitative easing is another question altogether and I remain very doubtful despite people’s expectations that it could even come this year. Draghi may provide some hints at this event so we should be prepared for some potential volatility.

Asia & Oceania

It’s going to be a very quiet week in Asia, which means we’re unlikely to get too much market direction ahead of the European session. There are a couple of data pieces to watch out for, in particular the HSBC flash manufacturing PMI on Tuesday. The September reading is expected to point to another drop in confidence in the sector, with the number seen falling to 50, the level that separates growth from contraction. I’m not convinced people will be too concerned though given that we learned last week that the People’s Bank of China has injected large sums of cash into its largest banks and cut the short term borrowing rate. This will take time to have an impact so as long as the PMI reading isn’t too woeful, I think investors will accept it.

Finally we’ll get the Tokyo core CPI reading on Friday. As Japan’s largest city, this is seen as one of the more important readings but the market impact doesn’t tend to be too great unless the release is wide of the mark. People are looking very closely at the inflation figures for Japan for signs that we could get more stimulus from the Bank of Japan so this is certainly worth following.

 

[Alpari UK]

UK Opening Call from Alpari UK on 22 September 2014

Focus returns to ECB policy as Draghi takes the stand

• Markets lower after buoyant Friday
• Europe returns to focus upon Eurozone monetary policy
• Mario Draghi set to address the European Parliaments

Global indices are looking to start the week on a somewhat softer tone, with the Asian markets leading the way lower overnight. Following the excitement of Friday’s Scottish referendum and Alibaba IPO, things have come down with a bump, especially in China and Japan where a fall in commodity prices hit valuations. Europe is subsequently looking for a negative open, with the FTSE100 -25, CAC -32 and DAX -67 points.

A somewhat quiet start to a quiet week in stall today, where the European markets have to realign their thought processes following a scare last week where polls started pointing towards the possibility of a move to independence for Scotland. With the existence of further regions (such as Catalonia and Bavaria) who just like Scotland were seeking to form breakaway states, it is believed that Friday’s result should go some way to putting to bed the idea for some of these other regions too. Thus the emphasis within the Eurozone is likely to shift back towards the norm, which is an ongoing picture of low inflation, low growth and ineffective monetary policy. The recent shock announcement that Mario Draghi’s much heralded TLTRO programme had only seen €82.6 billion in takeup from the major banks, despite a possible total allowance for the first two rounds of €400 billion. This has put pressure upon Draghi should we not see an increased interest at the December round.


Over the weekend, US Treasury Secretary Jack Lew called out Europe and Japan as two regions which were holding the world back and called upon them both to do more to spur on growth and help the global recovery. This highlights the importance of success for Mario Draghi and increasingly there appears to be less and less options but to implement a fully blown quantitative easing programme in the near future. The introduction of the ABS scheme at the last ECB meeting is essentially a halfway house to such a step, yet the importance of a QE scheme is as much in its name as anything else given the now commonly known implications for jobs, growth and asset prices. It is evident that until Draghi takes that step, there will always be indecision and mistrust of the direction of the Eurozone and that leads to weak investment and a lack of prospects.

The European focus for the day will be geared towards a speech from Mario Draghi in the afternoon. Draghi’s testimony in front of the European Parliament’s Economic and Monetary Committee should make for an interesting watch, with monetary policy set to take centre stage yet again. There is likely to be an interest in the inability of previous measures to spur on growth in jobs, output and inflation, which is sure to bring the question of what else can be done to do exactly that. Therefore markets will be well aware of the possibility for major volatility in during Draghi’s testimony as everyone awaits those two little letters, ‘QE’.

 

[Alpari UK]

US Opening Call from Alpari UK on 22 September 2014

FOMC’s Dudley hoping to give clarify on Fed outlook

• US markets expected to pull back following recent strength;
• G20 meeting bring questions on European and Japanese growth;
• FOMC back in focus as Dudley speaks in New York.

A weak open to the European markets has followed on from what is a pretty disappointing start to the week with the Japanese Nikkei, Hang Seng and Shanghai composite all posting significant falls to start the week. The US markets are expecting a very similar mood, where futures point towards the S&P500 opening -8 points lower, Nasdaq -21 points and DJIA -30 points.

Friday’s Alibaba driven excitement came off the back of a strong Scottish referendum result which provided a definitive conclusion to an event which provided significant degree of uncertainty within the markets. With new alltime highs recorded in the S&P500 last week, it comes as no surprise that we are seeing an element of profit taking come into the market, which has also been seen in the USDJPY currency pair following the strongest period of upside since January 2013.

This indecision within the markets today was always likely given the relatively quiet day ahead. Over the weekend, the G20 finance ministers meeting hosted in Cairns provided a reminder of where the global recovery currently stands, with the Eurozone and Japan being singled out as particularly dragging upon G20 growth. However, for the most part this has been highlighted as possibly being achieved through fiscal infrastructure investment as opposed to monetary policy per se.

In the US session, the focus will largely be geared towards the release of existing home sales data, due out soon after the markets open. This is accompanied by a speech from FOMC member William Dudley in New York. At a mixed FOMC meeting, the markets saw Janet Yellen somehow bring about both a more bullish and bearish outlook, thus pushing the emphasis of providing more clarity upon the other members of the Fed committee. With a tighter timeline for rate hikes, set against a continued hold-off on providing a start date for the first rate hike, it will be interesting to see if Dudley can provide any clarity on either points.

 

[Alpari UK]

Daily Market Update - 22 September 2014 - Alpari UK