Forex research

[Alpari UK]

Webinar - 9 December 2014 - Alpari UK

Weekly Market Webinar

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

Click here to Register for our Webinar

 

[Alpari UK]

US Opening Call from Alpari UK on 10 December 2014

Europe pares losses but US seen opening lower

• Europe pares losses but US seen opening lower;
• Asia offering little direction with central banks offsetting poor data;
• Oil prices not expected to bottom out any time soon.

While European markets are paring losses from earlier in the week on Wednesday, US futures are pointing back to the downside ahead of the open reflecting the more risk averse attitude in the markets this week.

The second week of the month is often one of the quieter weeks and much of the sentiment tends to be driven by Asia, where a number of important economic indicators provide an update on how the countries are performing. The problem we have at the moment is that the data coming from China and Japan paints quite a depressing picture, with both economies facing quite difficult situations and thus far, struggling to show they’re up to the task.

From a markets perspective we can’t really take too much away from the figures because both central banks are doing everything they can to provide support when the economy is faltering, the problem being that in both cases, it’s pretty much priced in. What is does give us though, at a time when stock markets are at a record high, is an opportunity to take a breather and allow for a correction, which is what I believe we’re seeing this week.

There’s little to come today on the economic calendar that will change this. MBA mortgage applications will be of interest but they don’t tend to have much of a market impact. Of more interest will be the change in EIA crude oil stocks, especially given the focus on oil markets at the moment. Oil prices remain under pressure, despite the temporary reprieve seen in WTI yesterday driven by a weaker dollar.

I see no reason why we won’t see a continuation of the downtrend, at least down to $60.31 where the 200-month SMA may offer some support. Below here we have 58.32, the lows from July 2009 and $53.55, where the 240-month SMA could offer a bottom as it did at the end of 2008 and early 2009. With oil producers intent on not losing market share, it’s just a case of who blinks first and folds underneath the pressure of these very low prices. OPEC held strong at the last meeting but there is talk that an emergency meeting may take place soon, well ahead of the planned June meeting, at which point production may be cut and prices may bottom out.

The S&P is expected to open 3 points lower, the Dow 27 points lower and the Nasdaq 8 points lower.

 

[Alpari UK]

Daily Market Update - 10 December 2014 - Alpari UK

 

[Alpari UK]

UK Opening Call from Alpari UK on 11 December 2014

Europe seen carrying losing streak into fourth day

• Fourth quarter off to a bad start as Japanese machine orders break four month winning streak;
• Australian jobs report shows signs of stabilisation;
• US data the focus today, with retail sales and jobless claims to come this afternoon.

European indices look set to continue their downward spiral this week and more disappointing data from Japan and a very negative end to the US session on Wednesday weigh on investor sentiment.

There is certainly a more risk averse feel to this week, probably largely driven by a lack of economic data or announcements, not to mention all the negative speculation earlier in the week relating to the Fed, the Greek Presidential election risk and the sell-off in Chinese stocks on Tuesday. On top of this, the more important data has come from China and Japan and has been discouraging, to say the least.

This trend continued overnight as Japanese machine orders for October broke a four month winning streak to get the final quarter off to a dreadful start. After the country entered recession in the third quarter, it was hoped that the impact of April’s sales tax hike would begin to fade and the economy would bounce back in the current quarter, bringing the country out of recession in the process.

While I still believe this will happen, it’s got off to a rotten start, with capital spending by companies falling by 6.4% on a month by month basis, and 4.9% compared to a year ago. On the one hand this may suggest that confidence in the economic outlook and by extension, Abenomics, is faltering which would be very worrying. On the other hand, this is only one bad figure in five and it could therefore just be a bad month. The important thing now is whether we’ll see it bounce back in November. If it does, then this figure is almost irrelevant as it would no longer suggest a reversal in the longer trend of rising investment.

Still, this appears to have been enough to spook the markets once again, although this week, it doesn’t seem to take much. I still believe that investors are using this quieter week to allow the markets to correct a little and create opportunity, something which is maybe hard to come by around the current levels.

On a more positive note, the Australian jobs report offered a little more optimism in a country that’s going through a rough time at the moment as it attempts to rebalance the economy and remove its reliance on the once booming mining sector. Unemployment has been slowly creeping up in recent years and did so again in November, rising to 6.3% in line with expectations. However, there are signs of stabilisation, which may suggest the country is turning a corner and may not need further assistance, in the form of a rate cut, from the Reserve Bank of Australia, with interest rates already at record lows.

Employment rose by 42,700 last month which was well ahead of expectations of 15,000, while the participation rate also rose slightly to 64.7%. The only worrying thing was that part-time employment made up 40,800 of those jobs but that is to be expected at this stage of the recovery and will surely improve next year.

While there is a lot of economic data being released in the European session, it’s going to be another fairly quiet morning as the majority of it is low impact so markets don’t pay much attention. Later on in the US though, we will get the latest retail sales and jobless claims numbers so things are likely to pick up this afternoon.

The FTSE is expected to open 23 points lower, the CAC 21 points lower and the DAX 47 points lower.

 

[Alpari UK]

Daily Market Update - 11 December 2014 - Alpari UK

 

[Alpari UK]

UK Opening Call from Alpari UK on 12 December 2014

Europe back in the red as oil falls to five and a half year low

• Oil price decline unwinds some of the retail sales gains overnight;
• WTI crude hits five and a half year low, falling below $60 a barrel;
• US government avoids shut down as spending bill narrowly passes;
• Mixed Chinese data as better retail sales offset disappointing industrial production;
• Few data points of note today but nothing major.

European indices are expected to open deep in the red on Friday, as a negative end to the US session overnight feeds through into Asian and European markets as we head into week end.

It was all looking rosy during the US session yesterday, retail sales data was much better than expected thanks to better holiday spending as consumers and retailers begin the feel the benefit of lower prices at the pump. However, as the session wore on and oil prices continued to tumble, energy stocks really started to feel the pressure of US crude falling below the psychologically important $60 a barrel level.

It's been another bad week for energy stocks, with oil prices falling more than 9% as OPEC - which accounts for one third of global oil production - cut its 2015 demand forecasts to the lowest in more than a decade, while at the same time its most influential member, the Saudi's, continued to deny that there would be any slow down in production. It's a battle over market share at the moment and no one wants to back down. The supply glut in the oil market saw inventories in the US grow again this week, helping to further weigh on oil prices. The decline in oil prices is showing no signs of slowing which would suggest that $50 a barrell is quite likely and soon.

The move to a five and a half year low in US crude was accompanied by concerns over another government in the US as the House attempted to block a spending bill that would have prompted a repeat of the deeply unpopular events of 2013. Fortunately, a last minute deal, as has become the norm with Congress nowadays, was struck and the bill managed to scrape through by 219 votes to 206.

Oil prices really are a big market driver at the moment, whether it be for good (consumer spending) or bad (energy companies) reasons. It was a little surprising not to see further declines following the release of Chinese industrial production figures for November which grew at a slower than expected 7.2%, well below forecasts of 7.5%.

I say it was only a little surprising as Beijing factories were forced to temporarily close last month in order to ease pollution ahead of the Asia-Pacific Economic Cooperation (APEC) summit, which will have slowed production, the only question is by how much. Clearly markets had factored in a bigger disappointment than forecasts were suggesting as we're not seeing any other evidence of oil prices stabilising.

The other Chinese data released overnight was retail sales and urban investment. The latter was in line with expectations and slightly down from last month at 15.8%, while retail sales rose ahead of expectations by 11.7%, the highest since August. With the country looking to move towards the consumer driven model in the future, a rise in consumer spending is going to be important in offsetting any slowdown in government investment and exports.

Today, like most of the week so far, offers plenty of economic data but most of it is viewed as tier one, meaning the potential for market moves off the back of them is low. Of interest is the employment change and industrial production figures from the eurozone and PPI inflation and UoM consumer sentiment readings from the US, but even most of these are unlikely to have much of an impact on markets.

The FTSE is expected to open 80 points lower, the CAC 45 points lower and the DAX 100 points lower.

 

[Alpari UK]

US Opening Call from Alpari UK on 12 December 2014

Focus remains on US consumer after retail sales surprise

Oil prices are weighing heavily on European stocks again on Friday as the sell-off after the close on Thursday finally gets its opportunity to impact energy companies on this side of the pond. That said, US futures are also looking very heavy ahead of the open, suggesting that risk aversion is continuing to spread throughout global markets this week.

The break below $60 a barrel in WTI crude appears to be quite a significant psychological move that could well add to its already bearish outlook. With this level broken, barring any fundamental change, we could see some support around $58.32, a previous support, but I think $56 will be more significant having acted as support and resistance on numerous occasions. While many are looking to $50 as the potential floor, $53.54 may prove to be a major barrier with the 240-month SMA having been so at the end of 2008 and start of 2009.

We could also look to the Chinese data overnight as a reason why equity markets are finding themselves back in the red following a single days reprieve. However, the fact that we haven’t seen negative ramifications for arguably the asset most sensitive to the Chinese industrial production figures – oil – would suggest people weren’t too disappointed with the drop to 7.2%. Instead, it’s more likely that this was driven by the temporary closure of Chinese factories ahead of the Asia-Pacific Economic Cooperation (APEC) summit in an effort to reduce pollution, something that markets may have factored in ahead of the release.

I think this is just a week when the lack of positive news flow and meaningful data releases has potentially created an opportunity for investors to lock in some profits and wait for some more attractive levels. There is some data to come today and there’ll be particular interest on the preliminary UoM consumer sentiment figure for December, one of the most important months for all retailers. With retail sales yesterday surprising to the upside and consumers feeling a little more flush thanks to falling prices at the pump, I wouldn’t be surprised to see a number above expectations which may give markets one final lift into the week’s close.

The S&P is expected to open 12 points higher, the Dow 110 points higher and the Nasdaq 30 points higher.

 

[Alpari UK]

Daily Market Update - 12 December 2014 - Alpari UK

 

[Alpari UK]

Weekly market preview from Alpari UK – 15 December 2014

The markets are set for a major week, where almost every region is expected to see something that could really provide volatility. In the US, the focus will certainly be upon Janet Yellen and the FOMC when they decide whether to keep their statement the same or not. In the UK, the jobs report looks set to provide an insight into the health of the labour market in November. Meanwhile, the eurozone PMI figures are going to be crucial following disappointing figures last month.

In Asia, the Japanese snap elections on Sunday are going to provide the setup to a big week which ends in the latest BoJ decision on Friday. On he other hand, the Chinese focus looks to be upon the HSBC manufacturing PMI which represents the only event of note to watch out for. Finally, the Australian traders will be well aware of the release of RBA minutes on Tuesday following the recent decision to keep rates stable.

US

A crucial week in the US markets, predominantly due to the release of the FOMC monetary policy decision on Wednesday. However, with the release of data points such as the CPI and the Philly Fed manufacturing index also being released, there is more to look out for other than the FOMC.

That being said, Wednesday’s FOMC meeting is certainly the main event of the week given the impact that this month’s jobs report has had upon expectations of a shift in tone this week. No change in actual policy is expected given the fact that the earliest most analysts see any change is mid to late 2015. However, the tone of the statement is going to be absolutely crucial this week, with many expecting Janet Yellen to remove the ‘considerable time’ comment with regards to how long rates would remain at the current lows. This month’s jobs report was overwhelmingly positive, with payrolls, average earnings and hours worked all improving. As a result, Yellen will be under greater pressure to make a move, yet with disinflationary pressures likely to persist due to falling oil prices, it is going to be interesting to see whether the committee chooses to keep the comment in or not. Given that opinions are split within the markets, I expect to see some volatility irrespective of the decision by the Fed. Also be aware that the Fed are due to release the latest FOMC economic projections, with growth and inflation the most important to watch out for in terms of any revisions.

Also on Wednesday, the latest US CPI figure will provide greater clarity upon whether the disinflationary pressures that have been evident amongst the likes of the UK, China, Japan and most notably the eurozone. As yet, the US has remained relatively resilient, with last month’s reading of 1.7% representing a pretty untroubling figure for the Fed. However, the global trend is certainly to the downside and thus it will be interesting to see if this is finally represented in the US. Should we see a big move lower, it could impact future expectations of monetary policy at the Fed. Expectations point towards a fall from 0% to -0.1% on a month-on-month basis.

UK

A big week ahead in the UK, where the bank stress test results, CPI figure and jobs report means that we will certainly have alot to get stuck into as the week progresses. Tuesday’s stress test results will be watched closely within the markets, with particular attention being paid by those investing in the banking sector. Given the size and importance of the banking sector in the UK, it is going to be absolutely crucial to know that the top banks are adequately prepared for a potential crash going forward. Whilst we have seen the results from the European stress tests not so long ago, this round of tests are expected to be tougher and thus there is likely to be a higher fail rate. Unlike the European tests, this will be a small scale thing, comprising of just the eight largest lenders. Watch out for how many and by how much different banks have failed to gauge exactly how much market impact this could make.

Later on Tuesday, the CPI figure for November is going to provide us with a clear idea of whether inflation is going to continue the downward trajectory seen since the 3.7% peak in 2011. Currently at 1.3%, the threat to BoE policy isn’t massive right now, but with oil prices falling it is clear that as time goes on, there will be downward pressures upon this figure. For the most part, the fall in oil prices will not be felt for the consumer yet at the pump given that oil is generally bought in the futures market and thus any major gas station will generally have prices fixed for a given time frame. However, the likeliness is that once that contract runs out, there will be a fall in petrol prices and thus CPI will fall more sharply. Therefore BoE inflation expectations will certainly be downward in the future months and this means that I expect CPI to continue to fall going forward. Perhaps not at the rate that the likes of Brent and WTI have been moving for the reasons above but it is likely to be the case that inflation will continue to fall for some time yet.

Given the influence of the oil prices on this figure, it is worthwhile also watching the core CPI figure which strips out volatile elements such as energy. This month both the core and headline figures are expected to remain steady, yet with the influence of oil prices likely to continue to persist, I would expect a greater disparity between the two as we go into 2015.

Wednesday sees the release of the November jobs report, with the claimant count and unemployment rates representing the most commonly watched elements. The jobs market, just like in the US, is absolutely crucial for monetary policy going forward. The outlook from the MPC is likely to be influenced heavily by the jobs data and thus any big move on Wednesday not only impacts the view of how healthy the UK economy and growth is going to be going forward, but also the BoE actions going forward.

The unemployment rate is likely to be the main figure which newspapers grab on to given its simplicity. Therefore people will grab onto this as a gauge of where the UK economy is currently. Market estimates to the figure remaining at 6%, yet with the trend certainly to the downside, I wouldn’t be surprised to see a move lower. The claimant count figure is the more volatile of the two and for that reason it can bring about a greater impact upon the markets. This month’s figure is ex[expected to fall to -22k, from -20.4k last month.

Eurozone

The eurozone region is looking forward to a key week, given the release of the PMI and final CPI figures. The first of these events comes in the form of a whole raft of PMI numbers, which provide a forward looking idea of what each sector is looking like from the perspective of purchasing managers. These figures can typically provide a great indication of what the economy is looking like right now. Given that figures such as jobs and growth data typically lag somewhat, the PMI numbers will give us an idea of which direction they could go in. The most important of these is the German manufacturing PMI and eurozone manufacturing PMI figures owing to their size and proximity to the 50 mark (which separates contraction from expansion). With the German manufacturing PMI currently in contraction at 49.5 and eurozone manufacturing PMI moderately expanding at 50.1, it will be crucial to see if either moves above or below that 50 mark to spark market interests.

Wednesday’s final CPI reading is crucial simply due to the pressure that inflation has placed upon Mario Draghi and the ECB. Following a poor TLTRO takeup, it is expected that the ECB are moving closer to QE and any move lower in this could push him closer towards that move. However, this is a final number and thus we have already seen the first estimate come in at 0.3%. Expectations point towards it remaining there, but any move could really spark interest in the markets.

Asia & Oceania

A big week ahead in Asia, where Japan in particular has alot to look out for given Sundays snap elections and BoJ announcement later in the week. Sunday’s election in Japan took many by surprise given that most do not see Shinzo Abe’s role as being jeopardy at all. The ability to finally end a decade of deflation and poor growth means Abe has a great degree of support in Japan. However, he clearly feels there is the need to gain a greater majority and thus he used this election as a means to both gain that along with the ability to ratify public opinion on the very divisive issue of an increased military force. However, Abe will be less than happy by recent developments, which have seen the economy move into recession. Thus it is unlikely that Abe will gain much ground at this election, yet I also do not think he is going to be suffering too much given the impact his measures have had. Therefore I do not think we will see too much of a difference in the voting and ultimately I believe Abe will be re-elected quite comfortably.

Friday sees the BoJ make yet another crucial decision in relation to monetary policy, following a much more dovish stance in recent months. The decision to ease further, raising asset purchases from 50 to 80 trillion yen was a big surprise and has led to major selling of the currency in the FX markets. However, with disinflation persisting and the country now in recession, it is possible we could see another move in the next few months. Therefore keep a keen eye out for this release as a potential source of volatility.

Finally, the Chinese HSBC manufacturing PMI figure is going to be the only figure out of China to be watching out for. This focuses predominantly upon the smaller to medium sized firms (SMEs) and thus any downturn in the region will often show on this measure first. Given last month’s number of 50, the measure is teetering on contraction, leading many to believe we could see that fall back below 50 following 5 months of positive growth. Therefore, keep on the look out for a potential drop below 50 to spark off fears of yet another deterioration in the Chinese region which typically has an impact upon the global market sentiment.

 

[Alpari UK]

UK Opening Call from Alpari UK on 15 December 2014

Markets continue lower as Abe retains super-majority

• Oil gaps lower but recovers early in the session to trade above Friday's close;
• Japan's coalition retains super majority in pointless election;
• Confidence in Japanese manufacturing sector slips after country falls into recession;
• PBOC expects 7.1% growth in 2015 which may concern investors;
• Start of the week quiet but things will pick up.

The negativity that drove the US to its worst weekly performance in three years appears to be continuing on Monday as Asian market traded deeply in the red overnight and European futures point to a similar open as well.

The poor performance in equity markets has been driven largely by a lack of economic events and negative speculation, particularly relating to the Fed's statement which is due to be released later this week. This can sometimes happen in quieter weeks, especially when the markets have been on a good run. Investors are looking for a reason to lock in a little profit and any news therefore has a negative twist put on it and reports emerge that spook investors.

The best example of this is the speculation that the Fed is believed to be considering removing its commitment to keeping rates low for a considerable period of time after the end of quantitative easing, which came in October, raising the odds of a rate hike in the middle of next year or even sooner. While this report may be true, we should remember that the same report emerged last month and turned out to be false which suggests to me that it may not be totally trustworthy and instead just be a little fear creeping into the markets.

The main thing weighing on sentiment recently and driving certain equities lower is the continued sell-off in oil, with the decline having continued on Friday having broken through the $60 a barrel level in WTI crude and gapped lower this week. This is particularly hurting energy companies but as we saw last week, the consumer is clearly be nefiting which should be viewed as a positive, particularly for countries like the US and the UK where the consumer is so important to the economy.

Markets largely shrugged off Shinzo Abe's election victory over the weekend as the coalition retained its super majority in a vote that effectively changed absolutely nothing. While Abe's Liberal Democratic Party lost a few seats in the vote, its coalition partner gained a few leaving the coalition no worse off than it was before. While Abe may view this as a vote of confidence from voters, the rest of us are left wondering what the point of this exercise was while the markets couldn't care less. No one expected the result to be any different and nothing has changed.

Of more interest to investors was the Tankan manufacturing index for the fourth quarter which was released overnight and showed a slight turn to the downside, falling from 13 to 12, adding to concerns about an economy that in the third quarter fell into recession. While this is a concern, as the last six months has clearly damaged confidence in the economic outlook, the country is still expected to climb out of recession in the fourth quarter and with this is likely to come an improvement in sentiment so it may not be worth getting too concerned yet.

What investors may find more concerning was the report from the Chinese central bank that claimed growth could fall to 7.1% next year. This fact in itself is not going to shock anyone given the country's performance this year, but given that the central bank forecasts this fall may prompt people to revise lower their forecasts as the likelihood is that it is to the upside of what we can actually expect. This year has taught us that the government and central bank are probably a little over-optimistic while being willing to let growth fall more than they were in the past. Therefore, when they release forecasts like this, we should probably price in below 7% growth and that is what I expect many to do in the coming months.

It's going to be a quiet start to the week, with very little data being released. The New York empire state manufacturing index and industrial production figures are the only notable releases today and even these won't shake things up too much. As the week goes on there's plenty of major events though including the Bank of England minutes and latest FOMC decision on Wednesday and the BoJ decision on Friday so I don't expect it to be quite as slow as the week just gone when it comes to news-flow.

The FTSE is expected to open 51 points lower, the CAC 21 points lower and the DAX 40 points lower.

 

[Alpari UK]

Daily Market Update - 15 December 2014 - Alpari UK

 

[Alpari UK]

Ruble falls 26% from day lows as markets reject 6.5% rate hike

The Russian Ruble is in freefall this morning despite efforts made overnight from the Central Bank of Russia to at least slow the decline. The CBR threw everything including the kitchen sink at the currency problem overnight following the largest one day drop against the dollar since 1998. Initially, the 6.5% rate hike to 17% appeared to have brought some short-term reprieve for the Ruble but unfortunately for the CBR, it was much more short-term than they hoped and it wasn’t long before the markets rejected the central banks efforts and opted to continue on the same course.

Clearly many traders were very grateful to the CBR for giving them such a great opportunity to buy in at such discounted levels. Since the initial pull-back to 58.33, the dollar has sky rocketed more than 26% before settling just above 73. At the time of writing, it doesn’t look like traders are in any way interested in exiting their longs yet, with prices just consolidating. I get the feeling that traders are just taking a breather and there could be some more crazy selling to come in the Ruble.

 

[Alpari UK]

Daily Market Update - 16 December 2014 - Alpari UK

 

[Alpari UK]

UK Opening Call from Alpari UK on 17 December 2014

Volatility reigns as BoE and FOMC look set to dominate

• Russian confidence at a low as ruble plummets
• Eurozone begins slowly turning around
• Falling UK CPI crucial ahead of US release
• MPC minutes key as falling inflation could change outlook
• FOMC announcement focused around potential language change.

Market volatility appears to be the order of the week, as a range of economic and political announcements mean that we have seen traders find it difficult to know whether we should be coming or going. A US fiscal deal, sharp movements in the oil price, a Russian central bank freakout, UK bank stress tests and a plummeting CPI has contributed to a particularly notable week where it can be quite tough to actually predict in which direction the indices will end up at the end of the day. This has been exemplified perfectly by the Asian markets overnight, which saw the likes of the Hang Seng and Nikkei swing between major losses and gains. Ultimately the current market indecision shone through with the Nikkei ending up higher while the Hang Seng closed lower. We are expecting the European markets to have more of a consensus, with the FTSE100 likely to open around -60 points, DAX -121 points and the CAX -66 points.


Yesterday saw an extremely volatile European session, personified by an absolute lack in the Russian central bank, a very mixed set of data points out of the eurozone, along with a UK CPI level that was the lowest since 2002. The Russian decision to hike their interest rate by 6.5% was a bold one to say the least, showing exactly how serious they are about halting the recent slide in the value of the ruble. However, the markets were far from tempted by these massive rates and instead saw it as an act of desperation, leading to an 11% fall against the dollar; the steepest fall since the 1998 Russian financial crisis. With Obama due to announce another set of sanctions in the very near future, it is clear that Putin may have to change tact to get their economy back on track and that can only really be a shift in Ukraine policies given that oil prices appears to only be heading in one direction.

The eurozone’s weaknesses appear to be abating to some degree, with the announcement of an absolutely massive ZEW report, along with a largely positive range of PMI figures. Exports appear to be on the rise and with a weakening oil price alongside an already weak euro, the conditions appear to be conducive to enabling a recovery in the region. Whilst it is not really worth getting too excited, this is a sign that the recent downturn may be ending and now we are moving towards one of a recovery.

UK CPI fell to the lowest level since 2002, as a rate of 1% shocked the markets and led many to believe that the BoE will have no choice but to become even more accommodative going forward in terms of interest rate hike timelines. One thing is clear and that is that this slump in inflation is to a large extent driven by falling oil prices and thus central bank policy is unlikely to really impact that factor. Should the BoE manage to compensate for this fall in inflation by raising core inflation (without energy), then they also run the risk of seeing the headline figure skyrocket once this game of chess being played by Saudi Arabia is over and prices return to ‘normal’ in the energy market.

What will be interesting is whether yesterdays figure is indicative of the global experience and that will be seen later today, when the US CPI number is released. So far, the US has managed to keep their head above the water somewhat, with disinflation in Europe having less of an impact upon their level of CPI. However, as falling oil prices are gradually factored into the prices at the pump and for firms, it will be likely that the US should follow suit. Both the core and headline figures are expected to fall, but given the experience within the UK, there is the possibility of a surprisingly larger fall than estimated.

The European session is looking likes it will be largely dominated by the UK, where the BoE minutes are released simultaneously alongside the jobs report. The BoE clearly has a penchant for releasing data points together, with the announcement that soon these minutes will be released alongside the initial announcement, starting in 2015. However, for now the focus will be upon the belated outlook seen within the meeting earlier this month and given the movement within inflation recently, there was an expectation that we could have seen votes change in favour of no change in the interest rates. This was not the case, however there is likely to have been a change in outlook from the committee, as the threat of further disinflation became increasingly evident. Thus the minutes will be crucial in determining whether the MPC is worried about the impact falling oil prices will have upon inflation and what they would do should it fall like it has yesterday.

Meanwhile, the US session will see the release of the latest FOMC decision, with many hoping for a change in language from Janet Yellen. The US economy has been booming of late and despite the woes felt across the likes of the eurozone and Japan, they are clearly not too worried about the threat of contagion as many expect an even more bullish Fed with month. This months meeting will be dominated by one single phrase and whether it is included or not will likely be the major determinant of market direction off the back of the meeting. That phrase relates to the FOMC’s promise to keep rates low for a ‘considerable time’. Should this be removed, then the timeline for a rate hike has surely got to be shortened in response. However, given the experience of the UK in relation to CPI, it is likely the Fed will be pragmatic at a time when oil prices are starting to hit global inflation levels. Thus I do not see it to be sensible for the FOMC to change their statement at a time when their inflation levels could follow suit, leaving Yellen and co in a sticky situation where the ‘considerable time’ phrase were to be put back into the statement.

 

[Alpari UK]

Daily Market Update - 17 December 2014 - Alpari UK

 

[Alpari UK]

US Opening Call from Alpari UK on 17 December 2014

Fed in focus as investors look to statement for rate clues

• Two MPC members continue to vote for rate hike despite low inflation outlook;
• Wage growth exceeds expectations again but remains below 2%;
• Russian Foreign Ministry looking to sell final $7 billion of reserves;
• Fed expected to remove commitment to low rates at today’s meeting.

The Bank of England minutes from the meeting a couple of weeks ago showed two policy makers – Martin Weale and Ian McCafferty – once again voting in favour of a 25 basis point rate hike despite the fact that inflation fell to 1% last month, as measured by the consumer price index. This is well below the BoE’s 2% target and while many have pointed to falling oil prices as being behind the move, core inflation which strips this out fell to 1.2%, which suggests there’s more to it.

With this in mind, I find it hard to understand how Weale and McCafftery can still justify wanting to raise rates which would typically weigh even heavier on the inflation outlook. That said, they are widely viewed as the most hawkish members of the Monetary Policy Committee so maybe it shouldn’t be too surprisingly. On that same point, their opinions are unlikely to represent those of the rest of the committee and I don’t see the voting changing much towards a hike for most of the year at least. It could even be 2016 before it happens given the outlook for inflation and wage growth.

Wage growth is improving in the UK and once again in the three months to October was better than expected, rising by 1.4% including bonus’ and 1.6% excluding bonus’. While this should be celebrated as it shows progress is being made and more importantly, it’s above inflation meaning real wages are finally rising on a consistent basis, it remains below the central banks 2% target so we can’t get carried away. The fact that real wages are rising is purely down to luck and if the BoE can achieve its target in the near future, real wage growth will once again be non-existent. Big improvements still need to be made and for that reason, it’s important that the BoE remains accommodative.

While the BoE may have become much less hawkish of late, its job over the next 12 months could not be much different than that of the ECB which is looking to aggressively expand its balance sheet in an effort to stop the eurozone falling into a deflationary spiral. Efforts made by the ECB so far have been good enough, with its balance sheet actually shrinking as a result of LTRO repayments. The first two take-ups of TLTRO’s have quite frankly been poor and nothing else appears to have done much at all, with inflation confirmed this morning as being at 0.3% in November. There was speculation after the last meeting that the ECB was drawing up plans for a broad based quantitative easing program which may be the best chance it has of preventing an deflation crisis. It may create political problems but the central bank is clearly getting desperate and running out of ideas.

Further efforts are being made by the Russian Foreign Ministry to stabilise its currency after two days of absolute mayhem for the rouble. Prices rose to an all-time high of 80 roubles to the dollar yesterday before retreating, having fallen to 58 earlier in the same day in some of the most volatile trading conditions most people will ever see. The ministry only reportedly has $7 billion of reserves which makes you wonder how much its efforts will actually stabilise it, given that the Central Bank of Russia has apparently conducted $80 billion of interventions this year to little avail.

As if everything that’s gone on this week wasn’t enough for the markets to get to grips with, this evening we’ll get the final monetary policy decision of the year from the Federal Reserve. The decision itself is unlikely to come as a shock, with rates remaining unchanged, it’s the wording in the statement that people are most concerned with. For a long time now, the Fed has committed itself to keeping rates at record lows for a “considerable” amount of time beyond the end of QE. The FOMC is believed to be considering removing it this month in a move that would clearly signal an imminent rate hike to the markets. I expect plenty of volatility around this event whatever they do. I’m sure if this is removed, Chair Janet Yellen will do her very best to assure the markets that it won’t come until the middle of next year, the only question is whether the markets will buy it.

The S&P is expected to open 7 points higher, the Dow 62 points higher and the Nasdaq 14 points higher.

 

[Alpari UK]

UK Opening Call from Alpari UK on 18 December 2014

Data heavy day ahead with focus on UK, US and Germany

• Fed takes more cautious approach on rates and retains "considerable time" pledge;
• German Ifo surveys and UK retail sales the focus this morning;
• Lots of US data to come later including jobless claims and PMI readings.

Investors were given a small boost overnight which is driving index futures higher ahead of the open as the Fed spoke of its confidence in the US economic recovery, while taking a slightly smaller step towards warning on imminent rate hikes in 2015. The FOMC opted not to remove its pledge to keep rates low for a "considerable" time, instead adding a sentence that stated it can be "patient in beginning to normalise the stance of monetary policy" as well as a number of caveats that effectively gave it the freedom to alter its position at any point while technically remaining transparent.

It would appear that the Fed is going to be far more gradual in its approach to raising rates while remaining as transparent as possible with investors so as to avoid any unnecessary shocks in the market. The unprecedented nature of the Fed's exit strategy - with it attempting to return to normalisation following the greatest stimulus program in its history in which it raised its balance sheet to more than $4.5 trillion - means it needs to tread extremely carefully as it simply doesn't know what the consequences could be if it doesn't. The markets can become extremely volatile very quickly at which point panic will usually set in and this is something the Fed desperately wants to avoid.

I do wonder if the Fed's decision to take such a small and mindful step at this meeting has anything to do with the excessive amounts of volatility already seen in certain markets already this week. Maybe the Fed decided that given how trigger happy investors became following the rouble sell-off, it would be sensible not to risk further panic in the markets by removing its pledge altogether and risk sending the wrong message. Clearly the Fed is saying that the middle of next year remains the target but there are a number of things that could change this and just removing its pledge may suggest that the first rate hike will come sooner than expected, something the market were unlikely to be too pleased with.

While the biggest event of the week may now have passed without too many problems, there's still a lot to come starting today with a number of key economic releases. From Germany we'll get the latest Ifo readings of business climate, current assessment and expectations, all of which are expected to have improved slightly in December. The survey tends to be quite respected by the markets due to its larger sample and therefore can have a significant impact on the markets. Given the much better manufacturing PMI and ZEW surveys earlier in the week, I think we could see a much better improvement in the business climate reading for December, which hopefully bodes well for the new year.

In the UK the consumer is under the spotlight with retail sales figures for November being released. The consumer is so important to the UK economy and these figures could provide insight into what the consumer trends will be as we enter the hugely important holiday season. Holiday spending seems to start earlier and earlier nowadays as retailers bring forward sales more and more in an effort to entice customers into their stores. Expectations are for only a small rise in sales of 0.3% last month following a strong showing the month before. This markets a dramatic improvement on the year earlier period though so I don't think it's anything to be too disappointed with, especially at a time when wage growth remains subdued.

There's plenty more data to come from the US later including weekly jobless claims, December services and composite PMI readings, CB leading indicator and the Philly Fed manufacturing index. With all this to come, I think we have a few more days of market volatility to come before we enter the quieter holiday period.

The FTSE is expected to open 46 points higher, the CAC 35 points higher and the DAX 88 points higher.

 

[Alpari UK]

US Opening Call from Alpari UK on 18 December 2014

US jobless claims, PMIs and Philly Fed figures in focus

• FOMC stance helps lift global markets on Thursday;
• German Ifo provides optimism ahead of 2015;
• UK retail sales surge on black Friday sales;
• Putin inaction gets market disapproval as rouble falls further;
• US jobless claims, PMIs and Philly Fed figures in focus today.

An upbeat Fed message on the economy on Wednesday combined with encouraging economic data from Germany and the UK this morning is helping to lift global markets on Thursday, with US futures pointing towards another day of strong gains.

It was widely expected that the FOMC would remove its pledge to keep its target range for the federal funds rate between 0 and 0.25% for a “considerable time” after the end of quantitative easing, which came in October, but it instead opted to just soften the language around it, making it less of a commitment and more guidance. The message remained fairly dovish with the Fed stating that it would be patient when it comes to raising rates. The use of a number of caveats also gave it the option to be very flexible with the hikes. The most important message that came from this was that we’re unlikely to see a rate hike in the next couple of months but the US economy is finally in a position to stand on its own two feet and the markets clearly approve of the message.

The German Ifo business climate reading for December exceeded forecasts this morning, rising to 105.5 up from 104.7, with the rise being led by the expectations figure that rose to 101.1 from 99.7. Current assessment was unchanged at 110. While these figures don’t necessarily come as a great shock given the similar improvements in the manufacturing PMI and ZEW readings earlier in the week, they are nonetheless encouraging. The stabilisation in the current assessment figure alongside a more optimistic outlook hopefully points to some form of resurgence going into 2015 following what has been a year to forget in 2014.

UK retail sales were much stronger in November than expected which is helping to feed into the strength in the pound this morning. Any gains following the release were quickly reversed but this was probably largely driven by the strength of the rally into the release. It has since continued higher, further supporting the view that the reversal was merely a correction. It was expected that we’d see a small increase of 0.3% but this was smashed to bits, with the overall reading showing 1.6% growth, equating to a 6.4% improvement on the year. Black Friday sales were largely behind the upside surprise driven by heavy discounting which generated record annual sales growth in electrical and department stores.

In Russia, Vladimir Putin addressed the nation and took the expected stance of blaming external factors for the countries struggles and currency decline. He appeared to offer little in the way of a solution to the crisis, instead assuring people that the recession would pass in the next couple of years as the global demand for oil recovers. While his still strangely high popularity may mean he doesn’t receive a backlash from the Russian public for his inaction at a time of great distress for the country, the markets aren’t quite as forgiving and the dollar quickly rallied to 64 against the rouble before stabilising around 61. Once again, Putin is relying on nationalistic pride to get him through this, claiming the West is trying to put the “bear on a leash” and pull out its teeth. While this may work in his favour for now, once the economic troubles hit people hard, they may not be as willing to accept it.

Still to come today we have plenty of US data being released starting with the latest jobless claims figures. The numbers appear to be stabilising now just below the 300,000 level, with this week’s seen at 295,000. This remains a strong reading and provides further evidence of the strong position the US economy now finds itself in. The preliminary reading of the December services and composite PMIs will follow this and both are expected to show a rebound from Novembers small decline. The services PMI in particular could give us some great insight into the expected spending patterns of the consumer in the always important holiday period. Also being release is the CB leading indicator and the Philly Fed manufacturing index so there’s plenty for traders to get their teeth stuck into today.

The S&P is expected to open 24 points higher, the Dow 179 points higher and the Nasdaq 50 points higher.

 

[Alpari UK]

Daily Market Update - 18 December 2014 - Alpari UK

 

[Alpari UK]

UK Opening Call from Alpari UK on 19 December 2014

BoJ remains steady, yet bullish markets push higher

• FOMC continues to drive bullish sentiment
• BoJ keeps stable yet election provides renewed mandate
• German GFK survey looking to top off strong week

The end of a memorable week in the markets, which seemed likely to go out with somewhat of a whimper given the relative lack of events to get the market moving. However, this doesn't look like it will affect sentiment too much with many still reeling from the massive news out from the likes of the FOMC, Japan and Russia. As a result, the European markets are hoping to extend the positive sentiment seen overnight in Asia, by pushing yet higher and closing out the week on a positive note. The FTSE100 is expected to open up by 77 points, CAC by 53 points and DAX by 106 points.

The dominant market sentiment driver appears to be the FOMC statement from Wednesday, which saw Yellen and co produce an increasingly dovish tone amid calls from many for the Fed to finally be done with the 'considerable time' section of the statement. In fact, they moved the opposite way, noting that they will be 'patient' with the process; no doubt a reference to the need to hold off until the oil price and thus inflation rate stabilises. Ultimately, Saudi Arabia's decision to push oil prices lower has brought about an unexpected source of market bullishness, where the likes of the BoJ and ECB are now even more likely to push for further easing, whilst the likes of the UK and US have taken a step back somewhat from what looked like a strong push towards raising rates in 2015.

Overnight, the BoJ kept monetary policy stable at 80 trillion yen of asset purchases monthly; a move that was largely expected by all. Kuroda, along with Shinzo Abe was essentially on the stand when Sunday's election went ahead given that his loose monetary policy has been a backbone of so-called 'Abenomics' as we know it. Thus the ability to retain a super-majority will have emboldened Kuroda and the BoJ to remain bold with their monetary policy going forward. With inflation likely to continue falling due to the impact of oil prices, it will be interesting to see if the BoJ will move yet again in heightening the rate of asset purchases. There is certainly the need to push both growth and inflation higher, but the question is whether the BoJ really believes that another shift in the rate of purchases will make an impact. Given that we have only recently seen a seismic shift from 50 to 80 trillion yen of QE, it is highly likely that the committee will leave the effects to work through into the economy for some time and only then will they know how effective it is by itself at raising prices. Thus as we come into 2015, it is not unlikely that we will see another rise in easing, yet Q1 seems to be somewhat of a stretch.

Looking at the European session, there seems to be very little in terms of major events, with one of note coming in the form of the German GFK consumer climate survey. This release has the chance of topping off a very strong week for the German economy following very strong manufacturing PMI, ZEW and Ifo surveys. Conditions are clearly improving the Europe biggest economy and that can only be a good thing for the eurozone. Signs point towards a potential bottoming out in eurozone fortunes of late and this is likely to have been driven by Germany. Given that surveys are typically seen as a great indicator of future quantitative figures, a clean sweep of positive figures would be a huge boost to an ailing economy of late. Markets expect a third consecutive increase in this figure, from 8.7 to 8.9, yet given the trend we have been seeing, I think it may even go higher yet.