Forex research

US Opening Call from Alpari UK on 18 November 2014

Abe, ZEW figures and UK and US inflation in focus today

- Confidence in German economic outlook on the rise;
- UK inflation rises but remains well below target;
- Shinzo Abe confirms delay in next sales tax hike and new elections;
- US inflation data and Kocherlakota speech in focus today.

The latest ZEW economic surveys showed analysts and institutional investors are more optimistic about conditions in the eurozone’s largest economy than they’ve been since July and far more so than the markets had expected. Of course these surveys can change quite dramatically from month to month so I don’t think anyone is going to get too carried away with it, but it’s certainly encouraging. There was also a marginal improvement in the current situation measurement, despite expectations for another decline so there’s definitely positives to take away from this. That said, it did come with a warning on the fragility of the economic environment, with geopolitical tensions continuing to weigh on the economy.
We’ve seen further evidence of the low inflation environment that Bank of England Governor Mark Carney addressed last week, from the October CPI reading which rose slightly to 1.3%. Core inflation remained at 1.5%, below expectations of a small rise to 1.5%. Given that Carney last week claimed that he will soon have to write a letter to Chancellor George Osborne, as inflation is expected to fall below 1% and only return to 2% at the end of the forecasting period of three years, this can’t come as a surprise to anyone. With Carney claiming that inflation will return to 2% in three years, it’s very unlikely that any further loosening of monetary policy is planned.
Japanese Prime Minister Shinzo Abe called a surprise press conference this morning in which he confirmed the rumours that have circulated in the markets over the last week. In response to the poor showing in the third quarter, which drove Japan into technical recession, Abe pushed back the next sales tax hike, from 8% to 10%, by 18 months to April 2017. Abe claimed that the delay was necessary as a second hike could threaten the exit from deflation. He also stated that it would not be delayed a second time which I’m not sure anyone is going to buy as doing this at the wrong time will do more harm than good, hence today’s announcement. Abe also confirmed that the lower house will be dissolved on 21 November, with elections taking place in December. There wasn’t a huge reaction to this though because as already stated, it’s been rumoured for a week and therefore as far as the markets are concerned, it’s old news.
Next up we’ll get inflation data from the US, in the form of the October PPI readings. The amount paid by producers gives a strong indication of future consumer price inflation and these can therefore be viewed as a good leading indicator. Both the PPI and core PPI readings are seen pulling back slightly in October, potentially highlighting future disinflation in the US at a time when the Fed is looking to raise rates and the rest of the world is experiencing difficulties with inflation.
We’ll also hear from FOMC voting member Narayana Kocherlakota, who is due to speak at the St Paul Rotary in Minnesota. Given that these speeches can invite questions, we may get some hints over future Fed policy which have the potential to move the markets.
The S&P is expected to open 1 point lower at 2,040, the Dow unchanged at 17,647 and the Nasdaq 3 points lower at 4,210.
 
UK Opening Call from Alpari UK on 19 November 2014

BoJ kicks things off on busy day for central banks


- BoJ leaves monetary policy unchanged after turbulent week;
- BoE minutes may bring more hawkish tone as inflation heads south;
- MPC voting could provide strong insight into future path of interest rates;
- Markets expected more hawkish tone from FOMC minutes later.

We have a big day ahead of us in the financial markets and attention is going to be firmly on the central banks, with the Bank of Japan having just announced its latest policy decision and minutes from the recent Bank of England and Federal Reserve meetings to come later.
Japan has really been in the spotlight recently, ever since the BoJ last met and announced an unexpected increase to its bond purchases to 80 trillion yen per year, from 60-70 beforehand. Since then, the country has fallen into recession, forcing Prime Minister Shinzo Abe to delay the next sales tax hike by 18 months to April 2017, and the lower house of parliament has been dissolved – as of 21 November – and new elections called for December. It’s a really rocky time for Japan at the moment and all of this more than likely explains the BoJ’s decision to raise its bond purchases last month.
Given that the BoJ got in there early last month, it was always unlikely that we were going to see further bond purchases announced this morning. I’m also not convinced that the BoJ needs to do any more right now, not with Abe’s commitment to implement more fiscal stimulus measures should they win the election and given how accommodative the central bank already is. Too much is also being made of this technical recession as well, the same happened last time the sales tax was raised, it’s only natural in a low growth economy where the consumer makes up around 60% of GDP.
Shortly after the European open, focus will shift from the BoJ to the BoE, as the minutes from the meeting two weeks ago are released. The BoE has long been seen as one the major central banks most likely to raise interest rates first, with some forecasts at times suggesting it would come as early as the end of this year, although that is largely the fault of Governor Mark Carney who dropped that bombshell earlier this year at the annual Mansion House event.
While the BoE is currently looking more likely to tighten monetary policy than loosen it, I don’t think this will come until the end of next year at the earliest. This is nothing to do with the fact that the economy is cooling because that is perfectly normal, it’s the inflation problem that’s facing many central banks now, with Carney only last week admitting that it’s likely to fall below the BoEs lower boundary of 1% and stay there for a while before returning to the 2% target in three years. Surely the BoE can’t be considering raising rates at a time when the Governor is being forced to write a letter to the Chancellor explaining why inflation has been allowed to fall below the acceptable range.
With that in mind, the minutes could offer a more dovish tone than we have become accustomed to from the BoE, while the two members that have voted for rate hikes at the last three meetings may reconsider their position. Any backtracking from Martin Weale or Ian McCafferty could be the clearest sign to the markets that the first rate hike remains some way off.
Later on this evening we’ll wrap things up on the central bank front with the minutes from the recent Fed meeting. The Fed now looks to be in a much better position than even the BoE to raise interest rates next year but even it has inflation concerns that may force it to delay the first hike a little. The case in the US may not be as bad as it is elsewhere but inflation remains below target. That said, the latest PPI data, released yesterday, may hint at higher prices in the coming months, bringing the inflation rate back towards target and making the Fed’s decision a little more straight forward.
The FTSE is expected to open 10 points higher, the CAC 10 points higher and the DAX 15 points higher.
 
US Opening Call from Alpari UK on 19 November 2014

Attention turns to the Fed as BoE turns more hawkish


- BoJ stands pat after last month’s surprise stimulus efforts;
- BoE minutes more hawkish than Carney comments last week;
- FOMC minutes to elaborate on hawkish statement a few weeks ago;
- Housing data also in focus in the US today;
- Oil prices remain under pressure ahead of next week’s OPEC meeting.

The trading day is being dominated by central banks on Wednesday as the Bank of Japan stands pat following last month’s surprise stimulus and the Bank of England minutes show members to be more hawkish than expected. Still to come we have the FOMC minutes from the previous meeting which as always has the potential to really shake things up in the markets.
The BoJ’s decision to leave monetary policy unchanged came as no surprise to the markets, despite seeing significant weakness in the data over the last week. Policy makers clearly anticipated these figures at the meeting a month ago when they increased the monetary base to ¥80 trillion and therefore there was no need to act again today. Whether they’ve done enough remains to be seen but I think it would be ridiculous to overreact at this stage. It can’t come as a massive surprise that the economy fell into recession when the same thing happened last time there was a sales tax hike and the same will probably happen again in 2017.
The minutes from the BoE meeting a couple of weeks ago came as more of a surprise as they didn’t appear to support the views expressed by Governor Mark Carney at the quarterly inflation report press conference. Carney had suggested that inflation will fall below 1% for some time and only return to 2% in three years, which appears to go against the comments in the minutes. The minutes show some of the seven that voted against a rate hike highlighting the risk of inflation overshooting the 2% target and a tight labour market leading to wage growth soon which could boost CPI pressure. Once again we’re getting mixed messages from the BoE but I think right now, the markets are more inclined to agree with the views of Carney last week and many are moving back their rate hike expectations to the end of next year at the earliest.
Next up we have the minutes from the FOMC meeting a few weeks ago. The statement that was released alongside the decision a few weeks ago was erring on the hawkish side, with the FOMC appearing more optimistic on the economy and the labour market. They also gave the impression that they don’t envisage low inflation being a problem, as is being experienced in many other parts of the world, which I would imagine makes a rate hike more probable. The minutes today should elaborate more on this but I imagine investors will go into this expecting more hawkish comments from the Fed, which when Janet Yellen is at the helm tends to be a little dangerous.
On the data side, we’ll get some housing data early on in the US session, with building permits and housing starts for October and MBA mortgage applications for the week to November 14 being released. Both building permits and housing starts have been pretty steady over the last year or so, but remain well below the levels seen before the financial crisis. As it stands, we’re seeing no signs of this changing and I think the markets will be content with the status quo for now, which is what is expected.
We’ll also get the latest crude oil stocks data from EIA today, although I’m not convinced we’ll get the usual reaction to it. Oil prices have been declining for a long time now and remain very heavy despite consolidating a little as of late. I think people are more focused on OPEC’s reaction to the decline next week though and whether production will be cut in an attempt to support prices.
The S&P is expected to open 3 points lower, the Dow 20 points lower and the Nasdaq 3 points lower.
 
UK Opening Call from Alpari UK on 20 November 2014

Markets flat but data-heavy session lies ahead

- FOMC minutes offer nothing new and get muted market reaction
- HSBC PMI points to stalling in Chinese manufacturing activity in November
- Japanese trade deficit shrinks as exports surge on weaker yen
- Eurozone PMIs and UK retail sales in focus this morning.

Europe looks set to open a little flat on Thursday as last night’s FOMC minutes and data from China and Japan overnight failed to provide much direction for the markets.
There wasn’t really anything in the minutes that markets weren’t expecting. The Fed’s concern about the disinflation risk is nothing new, as is the expectation among most members that inflation will return to the 2% target in the medium term. There was no discussion regarding interest-rate hikes and no timetable was given, which doesn’t help us. The only potential surprise was Narayana Kocherlakota’s vote against ending quantitative easing, although even this isn’t that big a deal as he is a strong dove and therefore such a move in perfectly in line with his outlook, especially given his concern over inflation.
Once again overnight we got a very disappointing data release from China and the markets shrugged it off. This time it was the HSBC manufacturing PMI that declined further, narrowly avoiding falling into contraction territory with a 50 reading for November. Regardless of what the market response is, we’re seeing a worrying trend here and the markets confidence that we’re going to see some targeted stimulus is being tested. While Chinese growth looks almost certain to miss the 7.5% target set earlier this year, it appears the government is comfortable as long as it doesn’t fall below 7% and as long as that’s the case, it’s willing to accept some weakness.
As for Japan, we saw the greatest increase in export last month since February , while imports were below expectations resulting in an overall trade deficit of 977 billion yen. It appears Japanese exporters are benefiting from the weakness in the yen that we’ve seen in recent months, although this can work against the country as well at a time when it is importing large amounts of energy. That said, energy prices are very low right now which must be helping matters.
There is lots of economic data being released on Thursday so we shouldn’t be surprised if we see a substantial pick-up in market volatility throughout the European session. First up we have the manufacturing and services PMI readings for the eurozone, Germany and France. These are all preliminary readings for November and are expected to show marginal improvements on the month. While this may be seen as a positive as the bar has been set very low in recent months, I think we’d have to see more of an improvement to get investors excited.
We’re expecting a good month in October for UK retail sales which are seen rising by 0.3% on a month by month basis, which would mean a 3.8% improvement on last year, or 4.2% on the core reading. This is very encouraging as we enter a very important holiday season, a time of the year when the consumer is particularly important. In recent years we’ve seen retailers starting the sales period earlier and earlier as they strive to shift as much of the holiday stock as possible. These figures suggest this won’t be as much of an issue this year although it’s something I’ll certainly be keeping an eye on.
The FTSE is expected to open 4 points lower, the CAC 3 points higher and the DAX 9 points higher.
 
US Opening Call from Alpari UK on 20 November 2014

US data comes to the fore as eurozone slump goes on

- UK retail sales accelerate at fastest pace in six months;
- Eurozone PMI readings plummet again despite hopes of stabilisation;
- US CPI in focus as FOMC shows concern of falling inflation;
- Manufacturing, labour market and housing data also being released.

It’s been a mixed morning in Europe this morning as the latest PMI readings spell further doom and gloom for the eurozone, while in the UK, retail sales were far better in October than expected in a welcome boost to consumer spending ahead of the important holiday season.
The monthly increase in sales was the highest since April and it could come at a better time. The holiday period is so important to the UK, an economy that is very reliant on the consumer, and data like this that suggests the consumer is feeling a little flush is very welcome. There had been signs of late that the economy is cooling a little but this would suggest that it is not being felt by the consumer. The strong monthly performance gave us the nineteenth consecutive month of year-on-year growth and the highest in six months. The improvement was also broad based which is an encouraging sign, with only non-store retailing failing to record growth.
The news was less good for the eurozone, with the PMI data once again reminding us that not only are current conditions poor as the economy barely avoids stagnation, but also that confidence in the economic outlook is continuing to diminish. There was hope today that we were going to see marginal improvements across the board, maybe showing signs of stabilisation, but that certainly didn’t materialise with the French services sector was the only one to beat expectations and even that was from a low base in contraction territory.
There’s still plenty of data releases to come today from the US, starting with the latest CPI inflation and jobless claims figures before the opening bell on Wall Street. Inflation has been a global concern this year, although some countries like the US are faring much better than others, namely the eurozone. That said, as the FOMC minutes showed yesterday, the potential for falling inflation is a concern for the Federal Reserve and it is something that could delay the first rate hike. Narayana Kocherlakota, one of the most dovish FOMC members, wanted to delay the end of quantitative easing last month on fears of low inflation. If prices continue to decline, he could gather support and at the very least push back the first rate hike to the end of next year, or even 2016.
One thing that may make this less of a problem for the Fed though is that the country is nearing what it deems full employment. At this point, the availability of qualified personnel is low and companies therefore have to pay more to attract or retain staff. It’s this wage growth that causes upward inflationary pressures in the economy which is what the Fed is banking on and why it believes the 2% target will be achieved in the medium term, allowing them to raise interest rates for the first time since May 2006.
Being released alongside this is the latest jobless claims number which is expected to be below 300,000 for a tenth consecutive week which is incredibly rare and shows just how strong this recovery is. The flash manufacturing PMI is also being released shortly after the open and is expected to rise to 56.2 from 55.9 last month, as is the Philly Fed manufacturing index and existing home sales for October so there’s still plenty to come today.
The S&P is expected to open 8 points lower, the Dow 64 points lower and the Nasdaq 17 points lower.
 
UK Opening Call from Alpari UK on 24 November 2014

Central Bank stimulus support markets again on Monday

- Central Bank stimulus support markets again on Monday;
- German Ifo numbers give some reason to be optimistic;
- PMI readings in focus during the US session;
- BoE inflation report hearing, GDP releases and OPEC meeting key this week.

The trading week has got off to a good start on Monday, as the positivity surrounding central bank stimulus that drove markets higher on Friday continues to lift investors. The People’s Bank of China’s decision to cut interest rates on Friday morning for the first time in two years has really given the markets a boost, particularly as people had not expected the central bank to take such bold measures. Targeted stimulus measures had been touted and even an injection of cash, but not a cut in interest rates which potentially shows just how concerned the PBOC is about growth and, maybe even more so, the inflation outlook. Add to this the comments from ECB President Mario Draghi who claimed on Thursday evening that the central bank must to more to prevent the eurozone from falling into deflation territory and we have a very accommodative monetary stance from many of the world’s largest central banks. The Fed may be becoming less accommodative but we have to remember that its balance sheet is still more than $4.5 trillion and interest rates remain at record lows. With this backdrop, what exactly is going to stop markets rallying into next year? The start of the week is going to be a little quiet due to there only being a small number of economic releases scheduled. This morning we had the German Ifo release for November which gave us some reason to be more optimistic, as all three indicators – business climate, current assessment and expectations – rose on the month and easily exceeded expectations. As always with these surveys, this is encouraging but the usual downfalls do apply in that they’re not always that reliable a should therefore be taken with a pinch of salt. That said, it’s certainly nice to see some more positive data coming from the eurozone’s largest and most important economy. In the US today we’ll get a couple more PMI readings for November, with the services and composite readings being released. The services reading is expected to pull back slightly from a month earlier to 56.8, which when you take into consideration last week’s decline in the manufacturing PMI would mean that the composite reading should also decline back towards the 55-56 level. The rest of the week will be a little more eventful, with Bank of England Governor Mark Carney appearing before the Treasury Select Committee tomorrow for the inflation report hearing, while we’ll get GDP figures for the third quarter for the UK and the US in the days following, as well as durable goods orders and inflation data. Not to mention the OPEC meeting on Thursday, when some are expecting a cut in production in order to support prices. The S&P is expected to open 3 points higher, the Dow 18 points higher and the Nasdaq 4 points higher.

Read the full report at Alpari News Room​
 
UK Opening Call from Alpari UK on 25 November 2014

Inflation report hearing to dominate European session

- Nikkei rises despite less dovish minutes
- OPEC meeting expected to see oil output cut
- German GDP expected to confirm avoidance of recession
- BoE inflation report hearing put pressure on Carney over falling inflation.

A cautious yet positive start to the day is expected for the European markets today, following the establishment of record highs in the US and a largely positive session overnight in Asia. The largely hawkish news overnight from the BoJ minutes were to an extent brushed aside as traders instead focused upon the expansive global outlook for monetary policy. As such, European futures are pointing towards a positive open, with the FTSE100 +4, CAC +3 and DAX +17 points.
The big news overnight came from the Bank of Japan minutes, following the introduction of a heightened rate of asset purchases; from Y50 trillion per month to the current Y80 trillion. The shock in the market was highlighted by the 320 pip rise in USDJPY that day, where very few if any analysts saw the move coming. Given this, it comes as no surprise that the BoJ committee found a weak majority to carry the action through, with only 5 out of the 9 members voting to increase asset purchases. The minutes showed a great degree of anxiety over whether the benefits of an increase in asset purchases really outweighed the negatives. This narrow victory for the doves, alongside a clearly apprehensive narrative running through the committee meant that for the time being, it is unlikely we are set to see another such move in the next few months. However, with a speech from Kuroda today driving home the point that he would not hesitate to implement further QE should the Japanese economy need it, there is clearly an ultra-dovish Governor in charge at the BoJ and this can be a decisive factor when trying to push through less unanimous policy changes as was the case at the last meeting.
There has been significant discussions regarding Thursday’s OPEC meeting, at which some expect to see a cut to supply as a means to draw a line under oil price weakness that has severely diminished the ability of member nations to generate like for like cash flow from their exports. The announcement from Russia that they are currently losing around $100 billion per year owing to such oil prices shows the effect this can have upon highly oil dependant nations and as such it comes has no surprise that action is being considered. However, with revenues falling for members, it is likely that many will feel that unless their capital reserves are large, they may wish to export more rather than less, to retain a consistent level of funding. After all, the length of time it will take that global supply cut to reach market prices is an unknown.
Today’s European session sees the final German GDP figure released, with expectations pointing towards confirmation of that 0.1% month on month growth which avoided a recession. Yesterday’s IFO business climate survey finally saw some strength come back in to German sentiment and this was for a large part due to the fact that the economy managed to stave off a dreaded recession. However, with risks and weaknesses clearly remaining, I would not be surprised to see this move lower today which could cause a shock to the markets.
We are also due to hear from Mark Carney and the BoE at the inflation report hearings in London. The downward trajectory of inflation within the UK has been a cause for concern in the BoE, pushing expectations of an interest rate hike further into the future. This appears to be a global phenomenon, driven in a large part by falling energy prices. However, with Carney having recently lowered his expectations of inflation, to the extent that he forecasts a level below 1% in the near future, it will mean a letter will have to be written to explain his reasons for such a move to the Chancellor. It is likely that this extreme situation will be cause for concern at the Treasury Committee and I expect to see greater clarity provided regarding inflation expectations, along with the reasons for such low price growth. Markets will be on the lookout for any reason to change their perception of when rates will rise and for this reason, volatility could characterise this event, due at 10am GMT.
 
UK Opening Call from Alpari UK on 26 November 2014

Quiet day sees focus upon overall market sentiment

- Quiet day sees focus upon overall market sentiment
- US GDP and consumer confidence paint alternate pictures
- UK GDP ahead.

European markets are expected to move higher this morning, following a largely positive session overnight in Asia. The inability of the US markets to reach fresh highs did little to dampen investor sentiment elsewhere despite a poor consumer confidence survey as many chose to focus on the strong GDP figure and a globally accommodative monetary stance. Thus European markets are expected to open higher with the FTSE100 +40, CAC +24 and DAX +48 points.
A lack of economic releases overnight means that traders have had little to get their teeth into and for the most part this means having to tap into the overall market sentiment. The sharp increase in the rate of asset purchases in Japan last month, coupled with expectations that the ECB will move to purchase sovereign debt soon (as shown by the move lower in yields recently), means that there is an underlying feeling that whilst the previous rhetoric surrounding the markets was centred around monetary tightening, this couldn’t be further from the truth. The tumbling inflation that has been seen thanks in large part to oil prices has come at the perfect time, forcing central banks to respond by means of pushing back expectations for that first interest rate hike that everyone is speculating upon. Mark Carney played his best poker face yesterday at the inflation report hearings, stating that the next move the BoE will make is going to be a rate hike. However, we do not need to see another bout of QE to be bullish in such a low interest rate environment.
Yesterday saw very mixed messages out of the US, where a unexpected jump in Q3 GDP was somewhat undone by an equally surprising drop in consumer confidence, which reversed the big spike higher last month. The feeling for many is that US Q3 GDP is going to be about as good as it gets for the time being, as it starts to come back off the massive Q2 figure of 4.2%. The estimates across the likes of the UK economy point towards a more stable rate of growth as rates begin to normalise and the house price frenzy of 2014 starts to cool. Whether we will see a rate hike in 2015 remains a bone of contention at this moment, with inflation likely to dictate rates to a large extent. However, when it comes to the question of where the growth will be in the new year, I feel that there is now an overwhelming feeling that the US more so than the UK will experience a very strong 2015. The impact of the ongoing (and seemingly neverending) downturn in the Eurozone is of course greatly impacting the UK who sees the single currency region as its main trade partner. Also, the impact of Russian sanctions will hit the UK more so than the UK simply due to the size of flows between the two countries. However, one thing that many seem to be ignoring the impact that falling energy prices will have upon both businesses and consumers alike. While many believe that QE has a limited degree of impact upon consumer behaviour (see yesterday’s BoJ minutes for example), one thing that businesses and consumer alike have to buy is petrol. Should we see the falling price of petrol reflected properly at the pump, this is probably the strongest form of stimulus yet because it reaches the pockets of almost everyone. For this reason, I think it is likely that this could be the biggest festive season yet in terms of sales, starting this week for Black Friday.
Looking ahead at the European session, the major event of note comes in the form of the UK Q3 GDO number. Just like yesterday’s US number, this is a second revision and thus there is a possibility that it simply confirms the 0.7% figure revealed last month. However, taking a look at the spike we did see in the US number, there is a potential for significant revisions, causing market moves and thus for this reason, it is well worth watching out for this data point.
 
US Opening Call from Alpari UK on 26 November 2014

Eyes on the US for further evidence of recovery


- US data in focus ahead of tomorrow’s Thanksgiving holiday;
- Core durable goods orders an important release today;
- Core PCE Inflation seen rising in line with CPI and PPI;
- Tomorrow’s OPEC meeting likely to cause unease in oil markets.

The combination of a highly stimulative environment in many of the world’s largest economies, along with strong recoveries in the US and UK is continuing to buoy markets on Wednesday.
With US markets set to close on Thursday as the country celebrates Thanksgiving, the end of the week may be very quiet as traders turn the holiday into a long weekend. That could make today even busier, especially with some data that would normally be released Thursday being moved forward to today. There is a lot of economic data scheduled for release today which could make for a very volatile US trading session.
Among all of the data releases, there are a number of key readings which makes today a very interesting one for the markets. For example, durable goods orders is due ahead of the opening bell and can be viewed as both forward and backward looking, making it a very good US economic indicator. Not only does it highlight the spending habits of consumers and businesses, the fact that it focuses on large investments on products that last longer than three years, means it provides insight into their economic outlook. People avoid spending on these large goods if they can if they anticipate tough times ahead. This makes it a very strong indicator for the markets. The overall reading can be quite volatile as it includes items such as aircraft orders which are large items and can be quite volatile themselves in nature, so many people focus more so on the core reading, which is expected to rise by 0.5%.
Being released alongside this number is the Fed’s preferred measure of inflation, the core personal consumption expenditure price index. Inflation has become a hot topic this year and is likely to continue to be in 2015, although the US seems to be suffering far less from low inflation than many of the other major nations. The latest reading is expected to pick up slightly from October’s 1.5% reading, which would be in keeping with the CPI and PPI inflation readings, both of which showed an improvement when released last week.
Also alongside these figures we have the latest jobless claims number, which is expected to be below 300,000 for an incredible eleventh week, as well as the latest personal income and spending figures, so 8.30am in New York (1.30pm GMT) is going to be extremely busy from an economic data perspective and significant market volatility could follow.
Things then calm down a little until shortly after the open when we’ll get the latest Chicago PMI, the revised UoM consumer sentiment reading and the latest housing data, with new home sales and pending home sales numbers for October being released. Despite probably being the least important releases of the day, these still have the potential to bring big moves to the markets and therefore should not be overlooked.
Also on people’s minds today is tomorrow’s OPEC meeting when members are expected to discuss the option of cutting oil production in an effort to stop the slide in prices that we’ve seen since June. Many people are expecting no cut in production, as the biggest members of OPEC refuse to give up market share despite revenue falling as prices tumble. There is a big chance that we’ll see some big moves regardless of the decision as there seems to be a fairly even split between those expecting a cut and those not resulting in quite a tense stand-off.
The S&P is expected to open 2 points higher, the Dow 17 points higher and the Nasdaq 8 points higher.
 
UK Opening Call from Alpari UK on 28 November 2014

Falling oil prices to act as QE4

- Oil prices tumble as OPEC play chicken
- Multiyear low Oil prices to act as QE4
- Japanese inflation falls, pushing Nikkei higher
- Eurozone CPI to dominate after key fall in German CPI.

A mixed-looking open is expected for European markets, following a particularly strong Asian session. The release of poor inflation data from Japan drove much of that bullish prices action overnight, while the eurozone CPI number this morning means that many are holding off until what is expected to be a very volatile release takes place.
Meanwhile, the insistence of OPEC upon retaining a steady rate of oil output has shocked the markets, sending both Brent and WTI tumbling, and with it goes the chance of many producers to continue to operate.
The European open is expected to look somewhat mixed, with futures pointing towards the FTSE100 opening -3, CAC -7 and DAX +2 points.
Yesterday’s announcement from OPEC that saw them retain the current 30 million barrels per day output ceiling was somewhat of an market oxymoron, being both expected and shocking in its nature. The influence of the Saudi’s within the group has clearly been the single most influential protagonist within this saga, whose goals from forcing the price even lower are far-reaching, long term and disruptive. The ability to lower prices below the cost of production for many US shale producers means that many will invariably go out of business, leaving the market altogether or selling equipment and setting them back by years. Meanwhile, by lowering oil prices well below Iran’s cost of production, there is the hope that it will avert them obtaining a nuclear weapon anytime soon as funding dries up. However, the knowledge that many of these producers will have set their prices well into the future with buyers means that these ultra-low oil prices could be here to stay for some time yet.
The establishment of a new lower norm for oil prices comes at a very opportunistic moment, as monetary policy for many is beginning to dry up. However, whilst people protest about the 1% getting richer and how previous stimulus effects fail to adequately trickle down to many, it is hard to think of a more wide-reaching and effective stimulus measure than to lower the cost of gas at the pump for everyone globally. For this reason, we are effectively entering the era of QE4, with motorists able to allocate more of their money towards luxury items, while firms are now able to lower costs of production thus impacting the bottom line and raising profits. The impact of this could be bigger than anything that has come before and the first test dummy will be both black Friday and overall holiday season sales which I believe will be the biggest on record as multi year lows in unemployment come amid multiyear lows in petrol prices to culminate in extremely vibrant retail sales environment.
Overnight, the release of Japanese CPI gave Shinzo Abe more to worry about ahead of the snap election, due next month. Unfortunately for Abe, his decision couldn’t have come at a worse time, with Japan falling into recession a week later and now moving ever further away from his 2% target for CPI. The announcement that CPI fell back to 2.9% meant that when taking into account the April sales tax hike, Japan now has the first sub 1% inflation rate in 14 months, at 0.9%. Markets will be watching closely to see if the coming months show any sign of pickup following the BoJ decision to raise asset purchases to Y80 trillion, yet the bullishness in the Nikkei overnight points to expectations that we could see yet another move from the BoJ in the near future, with a Y100 trillion asset purchase scheme a possibility.
The main event within the European markets today will no doubt be the Eurozone CPI reading, which has been the thorn in the side of Mario Draghi for well over a year now. Unfortunately for Draghi, this does not seem to be going away, with market forecasts pointing towards a fall back to 0.3% after a brief respite last month which saw the opposite move from 0.3% to 0.4%. Yesterday’s German CPI reading of 0.6% was particularly notable given that Jens Weidmann has been one of the opponents to a particularly expansionary monetary policy from the ECB, no doubt driven in part by the German fear of hyperinflation like that seen in 1921-24 in what was then called the Weimar Republic. However, deflation must also be a problem for Germany and finally, their CPI levels are beginning to come closer to the average of the region which will likely bring their views more in line with that of Mario Draghi. For this reason, everything is setup for a more dovish ECB going forward as long as CPI remains low and thus should we see a return to 0.3% it is likely that the stock markets will reflect this in a positive way given what it means for potential monetary policy going forward.
 
Weekly market preview from Alpari UK – 1 December 2014

The biggest week of the month ahead in terms of economic releases, as the focus returns to central banking, employment and PMI readings among other things. In the US, the week will be dominated by labour statistics as we see a crescendo of figures reach a pinnacle on Friday with the release of the jobs report. In the UK, the services PMI figure is going to be key as an indicator of growth going forward. Meanwhile, the eurozone we will see Mario Draghi take the stand once more as the ECB rate decision and press conference dominate Thursday’s European session.

Asian markets will be on the lookout for the Chinese manufacturing PMI number on Monday which will provide a dominant impact upon the start of the new trading week. In Australia, the release of the Q3 GDP figure is sure to be key in what is a particularly busy week for the country.

US

The US markets always brace themselves for volatility on the first week of the month, predominantly due to the release of the non-farm payrolls figure on Friday, which near enough guarantees strong market moves. The current economic backdrop within the US is a mixed one, in large part due to the recent moves in oil prices which were compounded even further by OPEC. Their decision to push prices lower by keeping output at the long term average of 30 million barrels per day sent prices tumbling, which is likely to impact the US in a number of ways. Firstly, the reduction in oil prices is likely to push a number of US shale producers out of business or at least stop production due to costs being above market price. This should lower GDP in the future for the US. Alongside this the falling price of oil will have a disinflationary impact, leading to a cautious Fed when it comes to monetary policy tightening. Finally, with less money being spent at the pumps, there is likely to be a stronger retail sector as consumers gain a greater spending power which should spell out a strong festive period in the US and globally.

The main events I am watching out for revolve around the labour markets, with the ADP non-farm payrolls figure, followed by Friday’s jobs report. This is also accompanied by a whole host of speeches from Fed members (10 in total), which have the potential to move the markets should they begin to move the goalposts in relation to monetary policy.

On Wednesday, the ADP non-farm payrolls figure will give us the first indication of how the labour market has fared in November, with expectations pointing towards a fall back to 228k from 230k last month. This ADP measure is a privately run study and this means they do not have access to public sector data. Partly due to this difference, the ADP and official non-farm payrolls figures can sometimes be unreliable in their correlations. However, this is a highly notable data point and we have seen significant volatility in the past upon release.

The main event of the week is going to be the jobs report, where a whole raft of labour market statistics are released. Arguably the biggest number is the non-farm payrolls figure, which due to its volatile nature has an ability to move the markets significantly. That being said, even when the figure remains stable or comes in as expected, there is often a response simply due to the fact that many will trade the release due to the consistent volatility. It seems the forecasters are expecting to see some correlation with the ADP number this week as they expect a number of 228k also, which would be a rise following last months 214k number. Be very aware of this figure as it has the ability to really move the markets.

Also released alongside the payrolls figure is the unemployment rate, which is often a headline grabbing number and thus is also very influential upon monetary policy. On this case, we are expecting a number of 5.8%, which would represent a steady number over last month. Finally, be aware of the qualitative statistics, such as average hours worked, average hourly earnings and the participation rate. These figures have become increasingly significant as Janet Yellen is on the look out for the degree of ‘slack’ within the economy.

UK

A busy week in the UK, where the release of PMI numbers and the latest BoE monetary policy decision means that almost every day has something to keep an eye out for. The PMI surveys are particularly important as they provide a leading indicator of health or weakness in a given sector prior to those changes being reflected in the statistical data. In the UK, the most important industry is the services sector, which accounts for around 80% of UK GDP and thus I use the services PMI (Wednesday) as a great leading indicator of where jobs, spending and ultimately GDP are going to move in the coming months. This month markets expect to see a moderate rise from 56.2 to 56.6, which is coming off the back of two months of very poor figures. Therefore any movement to the upside in that figure at least provides me with an idea that the sector is stabilising and gaining some ground back again.

Also be on the lookout for the manufacturing PMI (Monday) and construction PMI (Tuesday) figures. In particular the construction sector has been having a great time of it in 2014, with a buoyant housing market expected to provide continued support for new builds given the new valuations achievable. Despite the recent slowdown in the UK housing market, much of which I believe is cyclical to this time of the year, I expect new homeowners to be investing in their new properties which should keep the sector vibrant for some time yet.

Finally, Thursday sees the BoE provide their latest monetary policy decision which has been a major cause for volatility in the past. However, with a high likeliness that Carney and co will keep rates and QE unchanged, I do not expect this to be a particularly interesting event. For this reason, the release of minutes later in the month now appears to be a more noteworthy event as it provides us with clues as to when the MPC will seek to raise rates.

Eurozone

The eurozone area is set for a relatively relaxed week in comparison with the other regions, where the main event to be watching out for will be the ECB monetary policy decision on Thursday. Given the recent implementation of an ABS purchase programme, along with the ongoing TLTRO’s scheme, I do not foresee any big change in policy on Thursday. However, given that the announcement is followed by a press conference, I expect to see pressure put upon Draghi regarding a QE programme down the line given the persistent disinflationary pressures. Much has been made of a possible corporate or sovereign bond buying policy from the ECB and thus we could see some light shed on that element and how it could make up some part of the 1 trillion euro expansionary policy that has previously been mentioned by Draghi.

Asia & Oceania

A somewhat quiet week in Asia, where the lack of any Japanese figures means that the focus will be solely placed upon China. The release of the Chinese manufacturing PMI figure in the early hours of Monday means that for the most part, this coming week will be set on either a positive or negative footing by that release. Given that this figure has been at the forefront of the multiple downturns seen throughout the past year, it is absolutely key that we continue to see the sector grow, which is beginning to be questionable given the fall over recent months. With the sub-50 mark denoting a sector in contraction, the figure of 50.8 seen last month means China is in dangerous territory should we see any further movement to the downside. Estimates point towards a figure closer to 50.6, which would mean yet another step towards that dreaded scenario of a sub 50 survey.

Finally, the Australian economy has a very busy week ahead, where GDP and a RBA monetary policy decision are likely to dominate. On Tuesday, the RBA monetary policy announcement is going to be interesting predominantly for the statement that comes after. The weaknesses still evident within the economy means that I do not foresee any move higher in rates any time soon. However, with real estate prices rising to worrying levels, it is also unlikely we are going to see the RBA lower rates to stimulate jobs and growth. Thus for the time being I believe it is unlikely that there is going to be any shift in policy.

The second estimate Q3 GDP figure is of course absolutely massive, given the worries surrounding the economy within recent times. The mixed signals out of China means that the Australian economy has been slowing in recent quarters, with the initial 0.5% figure for Q3 being the lowest in 10 quarters. For the most part, this weakness has been attributed to a deterioration in net trade. However, with estimates pointing towards a better number of 0.7% on Wednesday, it is clear that the effects of a weakened Aussie dollar is finally being felt.
 
US Opening Call from Alpari UK - 1 December 2014

Chinese and eurozone figures disappoint ahead of US PMI

• Disappointing Chinese and eurozone PMIs weigh on sentiment this morning;
• Central Bank decisions and US jobs report to come this week;
• Swiss vote against increasing Gold holding;
• US PMI readings in focus ahead of busy data week.

The week has got off to a slightly negative start on Monday as some less than pleasing PMI readings from the eurozone and China adds to global growth concerns in 2015.

The latest official manufacturing PMI reading from China narrowly avoided falling into contraction territory for the first time since September 2012, falling to 50.3 from 50.8 and below expectations of 50.6. It was an even closer call for the HSBC reading, which fell to 50 from 50.4, right on the boundary that separates growth from contraction. The decline in the readings may have been felt more had it not been for the interest rate cut from the People’s Bank of China a couple of weeks ago which should hopefully reverse some of the decline in the months ahead. The PBOC is also expected to announce further easing measures early next year, which may be providing further support to markets that remain addicted to central bank stimulus.

It’s a similar scenario in the eurozone where confidence is continuing to plummet, even in the regions strongest economy – Germany – where the manufacturing PMI reading for November fell back into contraction territory only two months after clawing its way back above 50. As in China, the focus at the moment is on the central bank and what it can do to support growth and slow the decline in inflation, with the eurozone lying dangerously close to deflation territory. The ECB has already announced a large batch of measures in an attempt to stop the decline but they don’t appear to be working. Following Draghi’s comments a couple of weeks ago when he claimed the ECB must do more, the latest policy decision on Thursday should be extremely interesting, with some suggesting that the ECB may be ready to unleash the QE bazooka.

The latest ECB decision is just one of many major events to come this week, with the Bank of England also announcing its latest policy decision on Thursday, the US jobs report being released on Friday and a large number of other significant economic releases scheduled throughout the week. Add to this the Autumn forecast statement in the UK and we have a very interesting week in store.

One major event that is already behind us is the Swiss vote on Gold holdings over the weekend. Had they voted in favour of increasing Gold holdings to 20% from the current 7.5% level, it could have had a significant impact on a number of markets, particularly Gold and the Swiss Franc. The EURCHF pair will have been one of the more interesting due to the Swiss National Bank’s pledge to implement a floor on the pair at 1.20, a level it is currently trading very close to and that the SNB may have found it very hard to protect had the initiative been passed. However, there was an overwhelming majority against increasing Gold holdings in the end, which prompted initial buying in the EURCHF pair and selling in Gold but both have reversed much of the moves already.

In the US today, the November manufacturing PMI readings from Markit and ISM are scheduled for release. It’s worth noting that the Markit PMI is a revised reading while the ISM PMI is an initial reading so it tends to have a greater market impact. The official reading is expected to rise slightly to 55, while the ISM number is expected to fall to 58, which is still comfortably in growth territory and very encouraging as we head into 2015.

The S&P is expected to open 5 points higher, the Dow 27 points higher and the Nasdaq 3 points higher.
 
You must log in or register to reply here.

Similar threads

B
best place to research.
Replies
0
Views
2K
boyes51
B
J
DailyFX.com Releases Top Forex Trading Ideas for 2011
Replies
0
Views
3K
jsales
J
M
research participants?
Replies
7
Views
2K
mikaelsegerberg
M
R
Re: RvdMarkets best trading terms for currency trading
Replies
9
Views
3K
rep.rvd
R
M
Forex Prop Trading Firms and Operational Research
Replies
9
Views
7K
shahkhan
S
Top