Forex research

[Alpari UK]

UK Opening Call from Alpari UK on 2 October 2014

The economic data comes thick and fast for European markets this week as today sees more in the way of headline data. Mario Draghi takes centre stage as the market awaits the next instalment of his plan to turn around the failing Eurozone economy. Fears surrounding the Eurozone and the end of the bond buying program in the US have started to hit already jittery Asian markets. Overnight Asian stocks fell for a 5th consecutive session as pro-democracy demonstrators vowed to escalate their protests as a deadline put in place for Hong Kong Chief Executive Leung Chun-ying to resign quickly approaches.

US markets fell aggressively overnight with the Dow losing 1.4% due to markets finally realising that the QE stimulus package is about to end. This reading was despite a strong ADP payroll number that showed that hiring accelerated in the last month. The problem with the US economy at the moment is that the reading are too good,. Any positive news from the economy is being jumped on by the Hawks and is seen as heaping pressure on Janet Yellen to raise interest rates, or at least contemplate doing so in the near term rather than the drawn out plan already in place. This hysteria around rates will most definitely increase tomorrow as the full jobs report is released in the US. A stronger than expected non-farm payroll number is likely to get officials at the Fed asking the same questions, as it seems this global obsession with raising interest rates shows no sign of dying away.

The major story today is of course the ECB rate decision, and while we expect no movement in rates it is the potential start of a full blown QE program that has got grabbed the markets attention. Firstly I don’t expect to see a QE program announced at today’s meeting. Last time out we saw a QE lite plan that is more than likely going to be fleshed out by Mario Draghi today. However I do expect this to upset the markets , especially after the CPI readings earlier in the week. We have seen rate cuts, LTRO’s and TLTRO’s as well as many more initiatives over the last few months, all of which have made no difference to the ultra-low inflation figure that Mario Draghi and the ECB are desperately trying to drag higher. It is plain to see now that only a full blow round of government bond buying will appease the markets. The Euro has continued its slump against the strong dollar and European equity markets have rallied on anticipation of a plan each month. However this month it seems that equity markets are a little more subdued and cautious ahead of what is likely to be a day where Mario Draghi tries to flesh out a plan that most people see as second fiddle to the major plan waiting patiently in the wings.

 

[Alpari UK]

US Opening Call from Alpari UK on 2 October 2014

ECB set to dominate markets as Draghi takes centre stage

• Hong Kong fears heighten at latest threat
• ECB dominates as ABS takes centre stage
• UK construction strengthens ahead of tomorrow’s services PMI
• US awaits jobs report tomorrow.

US markets are expecting to open in a more positive manner, after losses within Asia yet again extended over to the European session. The mix of fear surrounding the fate of the Hong Kong riots, coupled with alarmingly poor Eurozone data yesterday pushed Europe lower today, yet this seemingly has not been followed through into the US session where futures are pointing towards a positive open ahead of tomorrow’s jobs report. The S&P500 is expected to open +3, DJIA +3 and Nasdaq +11 points.

Overnight, the protests in Hong Kong have persisted, bringing the city to a standstill in their plea for democracy. With both sides unwilling to back down, this issue is likely to become an increasingly hostile battle between the student led protesters and Beijing. The latest threat from the protestors is that they will start to occupy government buildings should the current HK chief executive not stand down by today. However, with the whole of the Chinese one-party system at risk, the Chinese government is unlikely to provide any concessions in response to the very real threat that the same type of uprising would begin on the mainland in response to the new-found democratic freedom seen on Hong Kong. Markets are watching this very closely, with Hong Kong representing one of the main financial centres of the world and Chinese stability at risk.

Today’s session is largely set to be dominated by the monthly Eurozone circus at the ECB, where Mario Draghi is put under yet more pressure to act in the face of non-existent growth, rampant disinflation and perennially high unemployment. Coming off the back of last month’s meeting, where the main refi rate was pushed a mere 0.05% away from zero, it is clear that Draghi is running out of options. With rates at all-time lows, a 10 basis point move in rates is unlikely to spur on economic activity, especially given that previous rate shifts from Draghi have had little to no effect on inflation and output. With that in mind, the imposition of TLTRO’s and ABS purchases are yet another attempt to do what rates haven’t managed. However, after last month’s pitiful uptake in the TLTRO scheme pushes significant pressure upon a positive ABS scheme implementation, which is likely to be the focus of today’s meeting.

I do not expect to see any change in policy this month, with Draghi likely to focus upon the finer details of his ABS scheme rather than implementing further policy changes before this one gets going. Thus there is likely to be significant interest regarding which securities will be purchased under the ABS scheme, with particular focus likely to go upon the riskiness of those assets. For the most part, there is likely to be an initial push towards the safest securities, known as senior tranches, where the riskier assets would have to be approved by Eurozone governments which is likely to be discussed in October when the finance ministers meet.

With this in mind, I am keen to see what Draghi has to say at the Q&A session, where the topic of a fully blown asset purchase scheme will no doubt be raised once more. Given that we have seen inflation fall to a five-year low of 0.3%, there is massive pressure on Draghi to act and while economic data remains poor, there is little willingness within the markets to accept anything other than a QE programme. It seems the time is running out for Draghi, who is backed into a corner with precious little left to throw at the Eurozone before QE gets unleashed.

Today saw the UK construction PMI rise to an 8 month high of 64.2, building on what has been an outstanding year for the sector. The implementation of the UK’s help to buy scheme has no doubt brought about a spark to the housing market, which in turn has led to new building projects in line with new valuations. With the BoE looking to limit the amount of high loan to value mortgages on the market, we are likely to see a cooling in the prices, as seen by the 0.2% drop in prices last month. However, with new buyers comes regeneration of areas and thus I believe we could still see significant activity in the industry long after house prices normalise. Tomorrow brings the services PMI, which is the really number everyone is looking out for. However, with strong data coming out of the UK I would not be surprised to see yet further upside in that release despite predictions otherwise in the markets.

A very quiet US session sees the release of the unemployment claims figure as the only event of note. Given that we have seen the ADP number yesterday and will see the full jobs report tomorrow, today’s number will likely be somewhat of a non-event. Thus it is likely that markets will instead focus upon the ECB meeting and wait for tomorrows all important jobs report.

 

[Alpari UK]

Reaction to ECB Press Conference

The ECB decided to keep rates and policy unchanged this month in a meeting which saw all the focus centre around the application and intricacies of the new ABS programme that will be implemented in Q4. The double whammy introduction of both lower rates and a new asset purchase scheme at last month’s meeting meant that today was always likely to be somewhat of a dampened meeting in comparison, with Draghi highly unlikely to ease further despite reductions in both core and headline CPI.

The usual tones from Draghi led the way at the meeting, with a focus upon structural reforms as a key component of any recovery, along with the monthly reiteration that the ECB stood ready to implement further ‘unconventional’ measures. However, whether we will ever see the introduction of the ultimate measure, QE, will be largely driven by the success of the ABS scheme that was the hot topic at today’s meeting.

The ABS scheme did surprise in its extent, with the ECB being willing to purchase securities on the riskier end of the spectrum. Thus, with the ECB willing to purchase the so called ‘Mezzanine’ tranches along with the ‘senior’ tranche that was expected. This willingness to take on greater risk was personified by the willingness of the ECB to purchase so called ‘junk bonds’, below BBB-, which means that the likes of Greece and Cyprus will be included in this scheme.

Ultimately, the success of this will be established in time and given that the two main policies of ABS (Q4) and TLTROs (2nd tranche in December) come later in the year, it is likely that we could see further deterioration in the meanwhile. The market clearly have a disdain for any policy’s effectiveness apart from a QE programme and thus today’s subsequent sell-off is not surprising. Until there are any signs that these programmes work, markets are unlikely to be overwhelmed by their implementation.

 

[Alpari UK]

Daily Market Update - 2 October 2014 - Alpari UK

Hong Kong protests raise risk off sentiment - 00:28
UK construction PMI rises to 8 month high - 03:16
ECB keeps rate constant to focus on ABS - 04:16

 

[Alpari UK]

US Opening Call from Alpari UK on 3 October 2014

US jobs report expected to spark volatility

• Mario Draghi disappoints as ABS takes centre stage
• Hong Kong fears ease
• UK services PMI pulls back
• US jobs report expected to bring volatility.

Global markets are looking in a more positive mindset coming into the crucial US jobs report today, as fears surrounding the Hong Kong protests have subsided somewhat. The release of a poor UK services PMI figure has done little to quell the positivity seen early in the session and instead we await the reaction to the monthly volatility driver that is the nonfarm payrolls. US markets are expected to beat a losing streak that has pretty much lasted the whole week, with the S&P500 expected to open +9, DJIA +70 and Nasdaq +16 points.

Yesterday saw Mario Draghi take the stand, bringing with it the usual anecdotes regarding slack and risks to the downside. However, it was his less than dovish outlook which took many offguard, insisting that the ECB had already done much to help the Eurozone. That being said, with the new ABS programme willing to take on more risky securities, there was some fire in the belly of the ECB and with the purchase of covered bonds set to start this month, at least there is something going into the system. That being said, with no growth, little inflation and poor jobs creation, the movement indication that any QE would be far away if ever didn’t come as a welcome message.

Overnight, the fears surrounding protests across Hong Kong seemed to have calmed down somewhat, with the news that the protestors would be willing to enter discussions with the current chief executive. Threats that the protestors would begin to take control over government buildings should he not leave the post seemed unsubstantiated, with Chinese warnings seemingly heeded. However, with both sides still far from any sort of resolution on a matter which has such clearly defined battle lines, it is difficult to know exactly how a compromise can be reached that will appease both the Chinese and Hong Kongers alike.

Today saw the UK services PMI fall back, erasing over two months of gains in the figure. The September figure of 58.7 came in well below market estimates and points towards a potential easing of this figure towards the back end of this year. 2013 saw significant growth in this survey in the final 5 months of the year and thus there was grounds to hope that this could provide a cyclical boost, however with this figure, it appears that there could be a more muted end to the year. The influence of the services PMI figure is undeniable, with the services sector making up 70% of GDP in the UK. Thus despite the fall today, significant growth remains and is likely to push the UK towards another strong showing for Q3. Ultimately, we have seen the UK services sector grow for 21 consecutive months and this is one main reason behind the strength of the UK economy. As long as we see figures well above the 50 market and closer to 60, there is little to worry about.

Today’s focus is certain to be upon the US jobs report due out later today. The disappointment of last month where a payrolls figure of 142k took everyone by surprise is now behind us and there is a feeling that the economy will return to the circa 200k figure seen in the 4 months preceding last month’s number. The payrolls figure has a tendency to revise higher and this is expected the same, so markets will be on the lookout for both September and August figures. In the past, September has somewhat disappointed, typically posting a figure lower than the year’s average. For this reason I think that a number below 210k is likely. Given Janet Yellen’s insistence that there is slack remaining within the economy, the focus of the release will also be upon factors such as the participation rate, hours worked and average hourly earnings growth.

 

[Alpari UK]

Daily Market Update - 3 October 2014 - Alpari UK

 

[Alpari UK]

Reaction to US jobs report

The US economy added 248,000 jobs in September, as the markets are coming to grips with a jobs report which was hugely positive in quantity yet somewhat underwhelming in quality. Following the disappointing release last month, where a meagre 142,000 jobs were created, the focus was upon whether we would see both a recovery in September and a subsequent revision to the August number. In fact we saw both, with the third highest job creation in 2014 seen in September (248,000), set against the biggest upward revision of 2014 so far (180,000 up from 142,000). However, it was the often uninspiring unemployment rate which took the markets by surprise, with a tumble down to 5.9% from the 6.1% seen in August.

However, with a strong showing in headline employment numbers, came continued weakness in the actual quality of the labour market, with the participation rate falling to the lowest since February 1978 and average earnings pulling back to 0% growth month on month. This provides somewhat of a beneficial environment for Yellen to operate within and a difficult one for investors to gauge. In part this is due to the fact that whilst part time work remains rampant, earnings growth near enough non-existent and participation in the jobs market continues to wane, the so called ‘slack’ that has been referred to by Janet Yellen is well and truly still a problem. Janet Yellen has resisted calls to establish a specific date for interest rates to rise and today gave her the opportunity to continue doing so. However, as is seen within the UK, it comes to a point where such slack is regarded as a long term trend and thus the FOMC will need to bite the bullet sooner or later.

 

[Alpari UK]

Weekly market preview from Alpari UK on 6 October 2014

Markets are expected to calm down somewhat this week as economic data points ease somewhat. However, there are still a handful of substantial events to note, with central banks likely to be the mainstay of market attention. In the US, there is a noticeable lack of events, where the main focus likely to be upon the FOMC minutes due on Wednesday. Meanwhile, the dominant release of the week in the UK is likely to be on Thursday, when the BoE release their latest monetary policy decision. On the other hand, a very quiet week in the Eurozone means that Mario Draghi’s speech on Thursday will take precedence amid a general lack of major announcements.

In Asia, the BoJ monetary policy release provides markets with a significant event to watch out for, as weakening inflation puts pressure on Kuroda to act. Finally, the Australians have probably the busiest week, where jobs data is preceded by the monetary policy decision at the RBA.

US

The second week of the month is always somewhat of a comedown, as the dust settles following Friday’s jobs report. This is understandable, given that we go from a very busy schedule to one where each region has on average just one main event of note. In the US, that comes in the form of the FOMC minutes, which are due out on Wednesday. Last month’s FOMC meeting brought about a certain air of predictability, where Janet Yellen chose to stay the course despite calls for her to provide a more specific timeline on interest rate hikes. However, Yellen instead stuck with her ‘considerable time’ outlook to rates causing the markets to push back timelines for when exactly they expect to see the first move. However, given that we did see a change in the expectations of the pace of rate hikes, with the Fed ‘dots’ implying that rates would raise at a faster rate than previously expected, there was something for both bulls and bears. The FOMC minutes are useful as a medium to gain greater clarity with regards to the differing views within the committee and for the most part that seems to mean people looking out for any increase in dovish or hawkish sentiment. The implementation of new policies within the Fed are almost always preceded by increased tones from within the committee members and thus by studying speeches and minutes alike, the markets are able to better understand where the Yellen is likely to move in the coming months. For this same reason, the speeches by Kocherlakota (Tuesday), Dudley (Tuesday) and Plosser (Friday) will also be crucial this week.

UK

A similar story in the UK, where the week is somewhat quiet apart from a single major event from the central bank with the BoE monetary policy decision on Thursday. Also like the Fed, the focus at the BoE is firmly centred around when the interest rates are set to rise. Unlike the Fed, Mark Carney has provided an idea of when this is likely to happen, with Spring 2015 looking like the time that we will see the first hike. This takes a lot of the indecision out of the markets and provides a somewhat more informed and predictable framework within which markets can operate. Thus I am not expecting to see too many major surprises at Thursday’s announcement. The bank rate is highly unlikely to move from the current 0.5% and asset purchases are not even a topic right now, so for the most part, we will be looking for any change of tone from the accompanying statement until later in the month when we see the votes and minutes.

Eurozone

Once again, the story within the Eurozone is one of a largely quiet week, with a single central bank event taking the headlines. On this occasion it is a speech from Mario Draghi on Thursday, when he is due to speak at the Brookings Institute in Washington DC. The recent ECB meeting saw a focus upon the new ABS system, which is due to be implemented in Q4. For the most part, this programme is relatively unknown, with many in the markets expecting it to represent a sort of QE-lite. Following the disclosure of many elements of this programme, it will be interesting to see whether Draghi can provide any further background to the scheme and shed light on how it is expected to impact the Eurozone economy. Much has been made of the possibility of a fully blown QE programme in the future and for this reason, markets will be on the lookout for any indication that it either is or isn’t likely going forward. The opposition from Bundesbank President Jens Weidmann to the ABS scheme makes me believe that a QE programme is unlikely and thus it will be interesting to see Draghi’s outlook on such a policy given recent criticism.

Earlier in the week, the German factory orders are released on Monday, with expectations pointing towards yet further downside in data for the industrial powerhouse. The progress of the German economy in recent months has been far from ideal, with negative growth coupled with disappointing manufacturing readings. Thus Monday’s figure is expected to be yet another reminder of the weaknesses in the German economy. That being said, the recent trade balance data pointed towards Eurozone demand holding up in face of weakened demand from the likes of Russia, and as a result it will be interesting to see if this figure reflects that Eurozone and UK demand or else continues the downward trajectory of recent German data.

Asia & Oceania

A quiet week in China means that the focus will largely be upon Japan for major economic data. Much like the US, UK and Eurozone, that focus is upon the central bank, where the BoJ is due to announce their latest monetary policy decision. The expectations within the Japanese region has been fairly constant for the most part of 2014, where the strong response to the April tax hike has meant that there has been less pressure on the BoJ to ease policy further. However, with a recent reduction in CPI it is clear that there is little chance of the BoJ hitting that 2% target in the near future unless something drastic happens. It seems that markets have picked up on this, with the USDJPY pair rallying over recent weeks in anticipation of further weakness. I do not expect to see any change in actual policy on Tuesday, yet the tone from the BoJ is going to be key and should we see any dovish tones emerge it would be likely that the yen would weaken further. With a potential second sales tax hike due for early 2015, the BoJ will need to sustain the economy somehow…

The ongoing protests in Hong Kong are sure to impact markets again this week, with both sides unlikely to back down in the near term. The rejection from protestors of a meeting with the current chief executive of Hong Kong point towards heightened tension and this means we could see yet further downside in the likes of the Hang Seng. Previous weakness has been matched by falls across western indices and thus it will be key to note whether the Asian markets move lower should the protests continue despite a likely recovery in Western markets next week.

Finally, the Australian economy has possibly the most active week ahead, with the release of the latest RBA monetary policy decision and jobs report. The RBA has been stuck in a limbo over recent months, where the weaknesses in the economy means that there is likely to be an element of RBA decision-making that would point towards an willingness to remain accommodative. However, with the Australian housing market threatening stability in much the same as has been seen in London, there is a feeling that the sensible thing is to refrain from lowering rates any further and start moving towards raising rates. Thus for the time being, I do not see any move from the RBA, until either data improves markedly or the housing market cools significantly.

Thursday brings the release of such data, with the jobs report anticipated to bring about yet further bad news where employment is expected to fall whilst the unemployment is forecast to rise. The unemployment rate has been on a long term upwards trajectory, rising from sub 5% levels in 2012 to the 6.1% seen last month. However, this is expected to continue with a rise to 6.2% predicted. Similarly, the employment change figure is forecast to reverse the strong August report, with a fall of -30,000 expected off the back of a strong 121,000 number last month. Ultimately, this feeds into the notion that the RBA is unlikely to move rates anytime soon and thus a poor report would provide any AUD bears with grounds to expect further downside.

 

[Alpari UK]

US Opening Call from Alpari UK on 6 October 2014

US futures higher following two week sell-off

US futures are pointing higher on Monday, tracking the gains made early in the European session, as stocks look to pare some of the losses made over the last couple of weeks.

There’s very little actually driving the markets at the start of the week and in fact, the entire week is looking a little quiet. Given the correction seen over the last couple of weeks, with the S&P falling almost 5% at one stage, this could provide a good opportunity for stocks to erase some of these losses with investors potentially seeing this as a good opportunity to buy the dip.

That is if people do view this as just a correction in the still ongoing uptrend, rather than a the start of the correction in the much longer term uptrend. The closer we get to the first rate hikes from the Fed, the higher the chances are that the start of the correction will happen. Ordinarily, a central bank the size of the ECB could offset this if they were easing at the same time but I’m not sure that they are willing to do the kind of stimulus that the markets would accept, by which I mean quantitative easing.

From a technical standpoint, the selling over the last couple of weeks looks like a temporary correction more so than anything else, but trading this week could confirm whether this is in fact the case. A break back above 2,000 would initially support this view, with a break beyond the 2,019 highs providing confirmation.

As already mentioned, the day ahead is looking very quiet. There is no economic data scheduled to be release or any announcements, leaving people looking forward to the two central bank announcements overnight, from the Bank of Japan and the Reserve Bank of Australia. No change is expected from either of these, although the former could provide further insight into the possibility of further stimulus next year, with many thinking it will inevitably happen.

Ahead of the US open, the S&P is seen 4 points higher, the Dow 41 points higher and the Nasdaq 9 points higher.

 

[Alpari UK]

Daily Market Update - 6 October 2014 - Alpari UK

 

[Alpari UK]

UK Opening Call from Alpari UK on 7 October 2014

Focus on UK with data and BoE survey being released

• Mixed start seen with little direction coming from US and Asia;
• RBA and BoJ unchanged but messages are very different;
• Yen rallies on warnings from Japanese PM Abe about yen weakness;
• UK in focus with data and BoE credit conditions survey being released.

European futures are pointing to a mixed start to the trading session on Tuesday, as investors take little direction from the US and Asian sessions overnight and look forward to another fairly quiet day in terms of major economic events.

Things don't really pick up until Wednesday when we'll get the minutes from the September Fed meeting which could provide further insight into the timing of the first rate hike, with markets still pricing it in for the middle of next year despite the fact that the economic data continues to remain strong and support earlier action from the central bank.

The problem with big events like these, as well as the latest Bank of England decision which comes on Thursday, is that they can prompt a little bit of caution from investors as they don't want to get caught out by these central banks which is very easily done. This is especially the case during trading sessions like yesterday when there is no big economic releases or news flow to provide a catalyst for some volatility.

Things should be a little better today, although once again we're getting little direction from the Asian session overnight with Chinese markets closed for a second day. The US session overnight was quite choppy as the lack of data and news flow prompted some early profit taking on the gains made late last week as the major indices approached some important technical levels. Eventually US indices ended the day marginally lower but I don't think there's much we can read into that.

This morning we've had two central bank decisions, with the Reserve Bank of Australia and the Bank of Japan leaving rates unchanged but sending quite different messages. The RBA stressed that while there was not expected to be any change in its stance for some time, the Aussie dollar remains strong, especially when compared with the weakness in commodity prices. Given both the strength in the US dollar recently and its commitment to leave rates unchanged, this doesn't necessarily mean much at this stage although traders will monitor these comments in the coming months to see if the language gets stronger.

The BoJ on the other hand pointed to the weakness in industrial production and highlighted the expected prolonged weakness in inflation at around 1.25%, while one policy maker even suggested making the 2% target a medium to long term goal but was heavily outvoted by eight to one. This would ordinarily suggest that the central bank may look to ease monetary policy further in the coming months but the comments on the damaging impact of the weak yen on small businesses and households from Japanese Prime Minister Shinzo Abe appear to have overshadowed this. We've seen in the past how much influence Abe can have on monetary policy decisions so these comments cannot be overlooked, and they haven't. The yen strengthened against the dollar following these comments.

The focus will predominantly be on the UK for much of the European session, as industrial and manufacturing production figures for August are released. These numbers are expected to bounce back following the previous months slight slowdown, once again reflecting the fact that while not every month is going to be great, the UK economic recovery is both strong and sustainable and any period of weakness is only temporary. These releases will be accompanied by the BoE credit conditions survey which should provide useful insight into bank lending in the previous quarter which can tell us a lot about both the health of the banks themselves and consumer and business appetite for loans, which only grows with confidence in the economic outlook.

Later on we'll also get the NIESR GDP estimate for the three months to September which could act as a preview for the first official release which is due in a couple of weeks. The numbers for the last couple of months haven't been as strong as we've become accustomed to which is to be expected but as long as we get another decent figure, above 0.5%, the markets are likely to be happy enough.

Ahead of the open, the FTSE is expected to open 13 points higher, the CAC 7 points lower and the DAX 10 points lower.

 

[Alpari UK]

Daily Market Update - 7 October 2014 - Alpari UK

 

[Alpari UK]

US Opening Call from Alpari UK on 7 October 2014

Risk appetite low ahead of UK data and Fed speeches

• Poor German data weighs on sentiment;
• UK data mixed, NIESR GDP estimate up next;
• Fed speeches could provide clues ahead of tomorrow’s minutes.

It’s been a fairly negative start to the trading day in Europe, with industrial production numbers in Germany in particular hitting investor sentiment.

Once again it’s the eurozone that causing the biggest concerns after the latest data from Germany provided further evidence that the economy is struggling to recover from the summer lull. A certain proportion of the blame for the downturn has been put on the Ukrainian crisis and what it did to trade relations between Russia and the eurozone.

However, many people are starting to question just how much this can be blamed for the slowdown and whether it is in fact more to do with the fact that the economy just hasn’t recovered as much as we previously hoped. The eurozone economy is still extremely fragile and the low inflation environment is probably not helping matters. If we do see an improvement later this year I don’t expect it to be overly significant.

The UK figures were a little mixed this morning, with manufacturing production exceeding expectations in August while industrial production slightly missed. The July numbers were revised higher though which put more of a positive spin on things. Next up from the UK we have the NIESR GDP estimate for the three months to September which could provide an accurate forecast of the official third quarter GDP figure that will be released in a couple of weeks. For this reason, traders are likely to watch this very closely.

As far as the US is concerned, it’s looking a little quiet on the economic data side of things. We will hear from two members of the Federal Reserve which could provide some useful insight ahead of the minutes release tomorrow. Until now, aside from having two dissenting voters, the Fed has shown no willingness to change its stance despite the ongoing improvement in the data. It was speculated that they may remove the commitment to keep rates low for a “considerable period of time” after the end of asset purchases (this month) at the last meeting but that never happened. Maybe the minutes will tell us more about whether they intend to do that this month.

Ahead of the opening bell on Wall Street, the S&P is seen 8 points lower, the Dow 66 points lower and the Nasdaq 16 points lower.

 

[Alpari UK]

UK Opening Call from Alpari UK on 8 October 2014

Sell-off continues as IMF downgrades global growth again

• Chinese HSBC services PMI falls back in September;
• IMF growth revisions spark another round of selling;
• Earnings season may give investors reason to be positive;
• FOMC minutes could cause quite a stir later.

It may have been a bad couple of weeks for the stock markets but it's clearly not over yet as another sell-off yesterday brought about the heaviest fall in more than two month in the US. This carried into Asia overnight as Chinese investors returned from their long weekend to see almost three quarters of a percent wiped off the Hang Seng and it now looks to continue into the European session again, with futures currently pointing to a much lower open.

Part of the Chinese sell-off could be attributed to the weakness seen in the HSBC services PMI reading, which fell from 54.1 to 53.5 for September. This is only a small drop but just provides further evidence of the uphill task facing the Chinese in their attempts to manoeuvre towards a consumption driven economy. Given the stimulus efforts announced last month from the PBOC, investors may be willing to overlook this minor weakness and instead wait to see what impact the new stimulus efforts have on the slowing economy.

The catalyst for the global sell-off on this occasion appears to be the IMFs decision to revise down global growth forecasts for this year and next by 0.1% and 0.2%, respectively. This has hardly come as a great shock given the crisis in the Ukraine and the impact it's had on a number of countries, not to mention the overall slowdown in the eurozone and the fact that we recently saw similar revisions from the OECD. What really didn't help was the fairly pessimistic language in the IMF comments, with the organisation using words such as "weak" and "uneven" to describe the current global economic recovery.

That's not to say what they're saying isn't correct because it absolutely is, but the markets appear to be very sensitive at the moment and it doesn't take much to get a reaction. This is effectively just the straw that broke the camels back. It says a lot about how investors perceive the levels that we've been trading at if everyone's fingers are on the trigger and at the first sign of negativity, we get heavy selling.

On the bright side, with earnings season unofficially beginning today, investors may find more reason to be positive again, at least for the next month or so. Wall Street has a tendency to go into earnings seasons with low expectations making it quite easy for companies to have a better than expected quarter. That said, we have seen some improvements on the revenue side of things this year, which could continue into the third quarter. For a long time, investors were focused predominantly on earnings growth, regardless of what was driving it. Now that we're seeing more organic growth, investors may be less willing to accept earnings growth that is still being driven solely by cost cutting efforts.

Today is expected to be very quiet in terms of economic data, particularly in Europe, which means the focus is likely to remain largely on the US. Not only is it the start of earnings season, we also have the release of the FOMC minutes from last month's meeting coming later on this evening, which could cause quite a stir in the markets.

Ahead of the European open, the FTSE is seen 29 points lower, the CAC 25 points lower and the DAX 58 points lower.

 

[Alpari UK]

US Opening Call from Alpari UK on 8 October 2014

Attention turns to FOMC minutes and earnings season

• Attention shifts to FOMC minutes following equity sell-off;
• Alcoa kicks off the third quarter earnings season.

With the sell-off over the last 24 hours now behind us, investors can look forward to the next two big events that are likely to dominate the markets in the coming weeks, the Fed and earnings season.

The stance of the Fed is always a major talking point for the markets, particularly when we appear to be approaching a change in monetary policy and even more so when it’s the first rate hike since June 2006. Later on today we’ll get the release of the FOMC minutes from the September meeting and people are going to look very closely at these for signs that the Fed is becoming more hawkish and could bring forward its first rate hike.

The dot plots that we saw after the last meeting, along with the fact that we now have two dissenting members of the Fed – Charles Plosser and Richard Fisher – suggests certain members, at least, are becoming more hawkish. However, there are still plenty of dovish policy makers including Chairwoman Janet Yellen, who is widely viewed as one of the most dovish of the group.

This is why the message coming from the Fed continues to promise these low interest rates for a considerable amount of time, but that can only continue for so long. At some point this will need to be dropped from the statement and there has been a lot of speculation recently that the time has come. Some expected this to happen at the September meeting but instead we may have to settle for clues in the minutes that it will be dropped in the coming months. If that comes this year, people may be forced to bring forward their hike expectations from the middle of next year, which is when many expect the first hike to come.

Alcoa unofficially kicks of corporate earnings season after the closing bell today, which could for the next month or so turn people’s attention away from economic data and even central banks to an extent, and towards company reports. People have been clinging to anything central bank related recently simply because there hasn’t been much else to focus on and even though the first hikes from the Fed and BoE aren’t expected for another six months at least.

Earnings season should provide great insight into both how companies performed in the third quarter and how confident they are in the economic recovery. For a long time, investors have focused primarily on earnings growth, regardless of how it was driven, which has enabled stocks to continue to rally even at a time when economies were not performing well and central banks were being forced to provide extraordinary support. Now, economies are recovering and investors may be less inclined to accept austerity driven earnings growth, bringing revenue growth back into focus. We need to see organic growth if this recovery is going to be sustainable, not to mention evidence that companies are investing and confident in the economic outlook.

Ahead of the opening bell on Wall Street, the S&P is seen unchanged at 1,935, the Dow up 1 point at 16,720 and the Nasdaq up 2 points at 3,960.

 

[Alpari UK]

Daily Market Update - 8 October 2014 - Alpari UK

US markets looking technically vulnerable - 00:16
IMF downgrades growth estimates - 00:50
A look at the FOMC meeting - 02:48

Research analyst Joshua Mahony discusses the IMF downgrades that have led to selling in the markets. He also provides a preview to the FOMC meeting minutes released later today

 

[Alpari UK]

UK Opening Call from Alpari UK on 9 October 2014

BoE rate hike close but no change expected today

• Indices rally as Fed minutes offer less hawkish tone than expected;
• Another volatile Australian jobs report makes assessing the labour market difficult;
• BoE unlikely to make changes to interest rates or asset purchases;
• US jobless claims the only notable release this afternoon.

European futures are pointing to a very strong start on Thursday, with most major indices seen opening more than 1% higher after even larger gains were made in the US overnight.

You would imagine that gains of this nature would come off the back of some pretty significant news but in fact, it's just another sign that the markets are acting very irrationally at the moment. Only a day ago, we were talking about the fact that indices shed more than 1% after the IMF revised down its global growth forecasts in a move that no one could be surprised about and, in fact, most were expecting.

Now we've seen even larger gains as a result of the Fed not appearing more hawkish in the minutes from the September meeting. At the same time, the central bank did not appear more dovish and, in fact, there were discussions on removing its commitment to keeping rates low for a considerable amount of time, but there was concerns about what impact this would have on the markets. All things considered, this doesn't strike me as something worth cheering to that extent, by any stretch of the imagination, which certainly makes the recent moves quite bizarre.

The fact that investors are still clearly rather obsessed with that first rate hike is a little concerning and it doesn't fill me with confidence that the markets can withstand even slightly more hawkish language from the Fed. Once again, it just suggests that investors are very sensitive at these levels which suggests it's only a matter of time until the markets come crashing down. I don't think a 10% decline would be a bad thing to be honest, the concern is if we go beyond that. We've seen many times before just how quickly large amounts of cash can be wiped off the stock market and what that does to confidence.

There's been a lot said recently about the volatility in the Australian jobs data and how difficult it makes providing an accurate assessment of the labour market. This hasn't just come from the markets, only 24 hours ago the Reserve Bank of Australia made similar comments. Well, that volatility continued overnight and the new methodology regarding seasonal adjustments doesn't appear to have helped much.

We were expecting 20,000 net new jobs to be created in September but instead there was a decline of 29,700 leading to a rise in unemployment to 6.1%. The rise could potentially have been more but for the unexpected decline in the participation rate to 64.5%. The only plus side in all of this was that the decline in the jobs figure was driven by a significant drop in part-time employment while full-time employment actually rose by 21,600. This is only a small positive from the report but still a positive nonetheless.

The rest of the day, as has been the case all week, is looking a little quiet. We'll get the latest rate decision from the Bank of England later, which is likely to be something of a none event due to the central bank's insistence on offering no corresponding statement or press conference, as we get from most other major central banks. Instead, all we're likely to get is confirmation that rates and asset purchases are unchanged at which point we'll have to wait for the minutes and voting in a couple of weeks. The chances of any change are slim despite the fact that two members have voted in favour of hiking rates recently, but we'd need to see three more policy makers join them which is very unlikely at the moment.

The US session is also looking a little quiet, with the weekly jobless claims figure the only notable release. Alcoa unofficially kicked off corporate earnings season last night but that won't get into full swing now until next week, at which point investors will be very interested to see exactly how US companies are performing and whether they're actually confidence enough in the economic outlook to invest in it.

Ahead of the European open, the FTSE is expected to open 60 points higher, the CAC 54 points higher and the DAX 113 points higher.

 

[Alpari UK]

US Opening Call from Alpari UK on 9 October 2014

Jobless claims in focus as BoE leaves policy unchanged

• Fear driven markets may signal imminent correction;
• Alcoa gets earnings season off to a flyer;
• Four sub-300,000 claims not seen since 2006;
• BoE expected to leave policy unchanged.

We’re expecting another positive start to the trading session in the US on Thursday, following the strong gains made on Wednesday after the Fed maintained its dovish stance on interest rates.

There’s a lot of fear in the markets at the moment and it’s all centred around the Federal Reserve, when it will raise interest rates and the pace of hikes after the first one takes place. That fear is leading to some irrational moves in the markets which concerns me given that it’s occurring at these record high levels. Investors are clearly quite uncomfortable with current valuations and are hitting the panic button at the first sign of trouble, for example on Tuesday after the IMF revised down its global growth forecasts.

The Fed is very aware of this which is why it opted to maintain its commitment to keep rates low for a considerable amount of time. At some point this language will have to be removed and when it does, it could prompt a significant correction. What we need now to calm the nerves is a very good earnings season, something that shows us that we don’t need Fed stimulus to justify current valuation, that companies are performing well and things are only going to get better.

Alcoa got things off to a great start on Wednesday evening but they are not considered the bellwether they once were. What they did show though is that all of the cost cutting pain of recent years was not for nothing and the company is now in a great position going forward. That is the message we need to get from the rest of earnings season and if we can see companies beating on both earnings and revenue expectations while keeping profit warnings to a minimum, it may be enough to ease investors’ concerns about interest rate hikes.

Today is shaping up to be a fairly quiet day with not much due on the data side of things. The only notable release is the weekly jobless claims number which is expected to rise slightly to 294,000. This would mark a fourth consecutive week of sub 300,000 claims which would be the first time since the start of 2006. Needless to say that says a lot about the progress made in the US over the last 12 months and further suggests that the economy no longer needs such an accommodative central bank.

We’ll also get the latest monetary policy update from the Bank of England before the open, although no change is expected in either interest rates or asset purchases. The fact that the BoE doesn’t release a statement or follow up with a press conference, this tends to make it something of a non-event despite it having the potential to cause major ripples in the markets.

The S&P is currently seen opening 5 points higher, the Dow 27 points higher and the Nasdaq 13 points higher.

 

[Alpari UK]

Daily Market Update - 9 October 2014 - Alpari UK

 

[Alpari UK]

UK Opening Call from Alpari UK on 10 October 2014

Investors head for the exit as fear grows in the market

It's been an incredible week in the markets in which we've seen huge amounts of volatility that have quite frankly been driven by nothing but fear. As we approach the final trading session of the week, early market indications suggest we're in for another roller-coaster day, with Europe's main indices seen opening more than 1% in the red. The FTSE is currently expected to open 80 points lower, the CAC 53 points lower and the Nasdaq 114 points lower.

People around the world are trying to rationalise the moves and attribute them to any minor event, economic release or comment that hits the news wires, but the simple fact of the matter is that at times, there's no rationalising the irrational. These moves are being driven by fear and nothing else. Markets have lingered around these record highs for too long and investors are very uncomfortable.

I don't for a second believe that German export number, despite them being very poor, prompted a 2% decline in the US on Thursday, nor do I believe it was driven by comments from Mario Draghi or any Fed officials because to be frank, it's the same old material we've heard for months.

This kind of irrational behaviour strikes me as something that comes just before we get that big 10% correction that people have spoken about for so long that makes everyone a little more comfortable with stock market levels. This buy the dip mentality finally appears to be fading and once that goes, the decline could be quite rapid, as we've now seen on both Tuesday and Thursday.

One saving grace for the markets could be corporate earnings season which unofficially got under way on Wednesday but kicks into full swing next week. A good set of earnings could relax investors a little and take some away some of the anxiety that has crept into the markets. We've already seen some great numbers from Alcoa, if that continues then all of a sudden people have reason to buy the dips again.

Unfortunately, that's not going to help us today and with the economic calendar offering little that could halt the decline, we could be in for another day of very volatile trading and potentially big losses. We're already on course for one of the worst weeks this year and it could get much worse before the day is out.

In terms of economic data, UK trade balance figures are the only notable release of the day but even then, this is only medium impact data and quite often has a minimal impact on the markets. That said, as we've seen already this week, markets have been far more responsive than normal to these figures so I wouldn't be surprised to see a disappointing number here prompt another wave of selling.