Forex research

UK Opening Call from Alpari UK on 5 August 2013

Services PMIs to highlight ongoing recovery in Europe

Today’s UK opening call will provide an update on:

• Focus on FOMC members this week as investors attempt to guess when tapering will begin;
• Chinese stocks boosted by services PMIs;
• Eurozone services PMIs expected to show further improvement in July;
• US services sector in focus this afternoon.

European indices are expected to open slightly higher on Friday, as investors try to make sense of last weeks Fed statement and jobs report and what it means for tapering later this year.

A mostly unchanged Fed statement last week, from the one in June, combined with a disappointing jobs report on Friday, has slightly increased the number of people expecting tapering to begin in December, compared to September. This is why the stock market continued to rally on Friday, with S&P 500 and the Dow once again hitting record highs.

Comments from Fed voting member, James Bullard, shortly after supported this view, when he claimed that the Fed tapering should not begin on expectations of an improvement in the economy, but when we actually see evidence, which we clearly haven’t yet. We’ll hear from a number of other members of the Fed this week, all of which are expected to be followed closely ahead of the next meeting in September, when many still believe the Fed will begin to taper.

Chinese stocks received a small boost over nigh by the release of the services PMIs over the weekend. The official PMI, release on Saturday, showed the sector growing at an impressive rate, with a figure of 54.1. As always, there was a big difference between the official figure and the HSBC one, which remained at 51.3, but even this is comfortably in growth territory, which is encouraging given the efforts in China to become less reliant on investment and exports.

The economic calendar isn’t necessarily looking as full as last week, but there’s still plenty for the markets to get their teeth stuck into, starting this morning with the release of the services PMIs in the eurozone for July. While many of these are revised figures, we do regularly see some significant revisions which can have a real impact on the markets.

Recent surveys out of the eurozone have been very encouraging, with the majority either making the move into growth territory or coming very close. This is expected to remain the case today, with any upward revisions to the figures only adding to suggestions that we’re finally witnessing a turnaround in the euro area. Just to be clear though, a turnaround doesn’t mean the crisis is coming to an end, there’s still a long road ahead.

The UK services PMI is expected to improve again in July, hitting 57.4, up from 56.9 in June. As with the data out of the eurozone, the UK data has been extremely encouraging over the last four or five months. As I’ve pointed out previously though, with the global recovery still very fragile, we shouldn’t get carried away with this, although the signs are positive.

Also today, we have June’s retail sales figure for the eurozone, which is expected to fall 0.5% from a month earlier, and the sentix investor confidence figure, which is expected to rise to -9.5 in July, the highest level since February.

Over in the US, we also have the services PMI for July being released. As with the UK, this is expected to remain comfortably in growth territory, at 53, up from 52.2 last month. Services contribute more than two thirds to US GDP so this figure is also followed very closely by the markets, with any weakness signalling difficult times ahead.

Ahead of the open we expect to see the FTSE up 4 points, the CAC up 4 point and the DAX up 5 points.

Read the full report at Alpari News Room​
 
US Opening Call from Alpari UK on 5 August 2013

Europe higher on better services PMIs

Today’s US opening call provides an update on:

* Tapering in September unlikely following dovish statement and disappointing jobs report;
* Comments from FOMC members key this week;
* Eurozone services PMIs within touching distance of growth territory;
* UK services PMI hits six year high.

With corporate earnings season beginning to wind down and economic data highlighting just how fragile the US recovery is, there’s going to be a lot of attention on the Federal Reserve this week, in particular the many speeches from the FOMC members.

Tapering in September now looks very unlikely, following the slightly dovish statement on Wednesday and the disappointing jobs report on Friday. It would be very difficult for the Fed to claim that the recovery in the US is sustainable, when growth has been well below expectations from earlier this year and the reason for a drop in unemployment is a combination of falling participation rates and higher than normal part-time and temporary employment.

James Bullard was the first to come across quite dovish shortly after the jobs report on Friday, claiming that tapering could not begin on expectations that the economy would pick up. Instead, the Fed will have to wait for the data to back it up. Many more FOMC members are due to speak this week, and you can guarantee what they say will be followed very closely by investors.

Fundamentals are certainly playing a much bigger part in the markets at the moment. However, with fewer companies reporting second quarter earnings and increasing uncertainty over the Fed’s bond buying program, any comments from FOMC members that hint at December tapering will only support the rally.

It’s been a positive start to the week in Europe, with services PMIs being revised higher in all cases except for Germany. The Spanish, French, Italian and eurozone PMIs are all now within touching distance of 50, the level that separates growth from contraction, which is really encouraging given where they were only a few month ago. A return to growth before the end of the year doesn’t look like too bad a call now.

The UK, which only a few months ago was facing a triple dip recession, is looking better by the day. July’s services PMI was revised up to 60.2 this morning, the highest in six years and well above that of any of the other major economies. While these PMIs can fall rapidly if things take a turn for the worse, we’ve seen a consistent improvement in these figures all year, while growth has exceeding all expectations.

The rest of the day could be a little quieter, with the economic calendar looking a little light and earnings season winding down. The only notable economic release is the ISM services PMI, which is likely to remain comfortably in growth territory at 53.

Ahead of the open we expect to see the S&P down 2 point, the Dow down 17 points and the NASDAQ flat.
 
UK Opening Call from Alpari UK on 6 August 2013

European markets expected lower while RBA interest rate is cut

Today’s UK opening call will provide an update on:

• Global markets fall as rally comes to a halt
• RBA cut interest rates as expected
• UK manufacturing production
• FOMC board member Evans due to talk later in the day

Global indices are expected to open lower today, coming off the back of a weak Asian session where the Hang Seng and Nikkei 225 both suffered continued losses. The markets have seen significant upside momentum throughout July, driven in part by a relatively strong corporate earnings season in the US, coupled with diminished likeliness of monetary tightening from the major Central banks in Europe and America.

The shift away from the Fed, ECB and BoE as the core driver of market price action has been noticeable, with a strong non-farm payroll (NFP) reading in July having little impact on stock strength despite the associated notion that tapering could be earlier than some would like. On the other hand, the disappointing NFP figure released on Friday was expected to provide a boost to this rally, with markets now understanding that tapering will likely occur at December at the earliest.

Tomorrow is expected to bring some form of forward guidance from the BoE alongside the quarterly inflation report. Typically seen as an opportunity to express the existence of long term low interest rates and monetary accommodation, this speech has the potential to provide a boost to the equity markets. However, given the possible overheating of those markets, it is possible that the downside potential of Carney failing to provide enough could overshadow upside which is likely to be more muted given the topping off of the FTSE100 at the moment.

This morning, the RBA has reduced the headline interest rate for the Australian economy by 25 basis points, from 2.75% to 2.50%. This was largely factored in and subsequently we have since seen approximately a 25 pip rise in the AUD/USD pair despite the association that such a shift would typically devalue the Australian dollar. This news came off the back on continued rhetoric out of the the RBA governor Glenn Stevens that the economy continued to suffer from a weakening export markets and deteriorated export prices. He also clearly expressed a view that the Australian dollar continues to be overvalued and thus a further interest rate cut seemed to be warranted to help further devalue their currency and given their weakened terms of trade.

This decision also came off the back of a rather unorthodox decision from Australian PM Kevin Rudd to declare he hopes to see interest rates as low as possible for the economy. A decision which raised some eyebrows given the valued independence provided by central bank policy decision-making. This announcement, coupled with weak trade balance figures, which saw both imports (-2%) and exports (-1%) decline, made a reduction in the headline rate almost inevitable.

Whether this represents the final interest rate cut from the RBA in 2013 is doubtful, with concerns regarding a Chinese slowdown, a deteriorating jobs market and a diminished growth outlook. The accompanying statement also noted that they see inflation remaining within target for the next two years despite a weakening AUD, thus allowing for further rate cuts going forward.

One of the major events of the day comes in the form of the UK manufacturing production figure, due at 9.30am BST. The strength of the UK economy has been highlighted over the past week, with significant beats in all three key PMI figures boosting investor sentiment. The manufacturing PMI perhaps provided the least impressive rise of the three, despite rising significantly from 52.9 to 54.6, capping off three consecutive months of expansion in the manufacturing sector.

Subsequently, it is important to have consistency across indicators to provide a more well rounded picture for the economy and in this case we are seeking further evidence of a strengthening manufacturing sector through a rise in manufacturing production. Expectations of a 0.9% rise could be a little wide of the mark given the previous two failures to meet market forecasts. However, a return to positive growth in production would be a sign of expansion nonetheless.

Tomorrow is expected to bring about the announcement of forward guidance and the use of thresholds from the BoE. Subsequently while we do not expect releases such as manufacturing production to factor into such thresholds, it does factor into the general health outlook of the UK economy.

Later in the day, the focus will shift towards the speech from FOMC member Charles Evans where markets will be looking out for any further indications of his estimated tapering outlook. Evans is a voting member, thus increasing the importance of his views. Given Evans’ recently dovish stance, any views expressed would likely be leaning towards either delayed tapering. Previously the Fed tones have originated from those lower members and subsequently been reflected by the views of the chair and thus markets will be looking for any indications of where the current stance is of the Fed.

UK and European markets are expected to open lower, with the FTSE100 -24 points, CAC -7 points and DAX -16 points.
 
US Opening Call from Alpari UK on 6 August 2013

Investors turn to Fed voter Evans for tapering hints

Today’s US opening call provides an update on:

  • Aussie rallies as RBA cuts rates and issues more neutral statement;
  • UK recovery gathers pace in June and July;
  • Italy close to climbing out of recession after longest period of contraction on record;
  • Fed’s Evans due to speak later.

We saw a classic example of buying the rumour and selling the news over night, when the Reserve Bank of Australia cut interest rates by 25 basis points to record lows of 2.5%. The view among economists and traders in the run up to the decision was that a rate cut was almost guaranteed, so it entirely priced in. Unless we saw a surprise 50 basis point cut, we were always going to see some profit taking.

On top of that, we had the statement from the RBA which was far less dovish than we’ve seen previously, leading many to believe that another rate cut in the next couple of months is unlikely. I still think that we rates could be cut to 2.25% before the year’s out, or during the first quarter of next year at the latest, but that is later than traders were previously predicting.

Over in the UK, the recovery is continuing to gather pace, with industrial and manufacturing production figures for June showing the biggest year on year improvement since February 2011 and July 2011, respectively.

On top of that, according to Halifax, house prices rose 0.9% in July, the sixth consecutive increase, as home buyers continue to benefit from low interest rates, the funding for lending scheme and the governments help to buy scheme. Finally, retail sales increased by 2.2% in July, the biggest improvement since March. Given how much consumer spending contributes to UK GDP, this is a major boost for the economy. Hopefully this should be reflected later in the NIESR GDP estimate for the three months to July, with an improvement on last month’s figure of 0.6%.

Also on a positive note, Italy contracted less than expected in the second quarter and could finally be close to moving out of recession after two years of pain. While the contraction figure of -0.2% leaves Italy in its longest recession since records began in 1970, we really should focus on the fact that the country finally appears to be turning a corner. There’s still a long way to go yet, and plenty that could go wrong, such as a break-up of the unstable grand coalition, but the early signs are encouraging.

Looking ahead to the rest of the day and the focus is likely to be on the speech from voting Fed member Charles Evans. With the markets still undecided on whether the Fed will begin tapering in September, December or later, Evans’ comments are going to be listened to very closely. As a dove, any suggestion that tapering could begin at the next meeting will probably spark some selling of US equities and buying in the dollar.

Ahead of the open we expect to see the S&P down 2 point, the Dow down 19 points and the NASDAQ down 2 points.
 
UK Opening Call from Alpari UK on 7 August 2013

Markets pause ahead of key UK inflation report

Today’s UK opening call will provide an update on:
• Markets expected to trade lower
• UK NIESR GDP estimate beats expectations
• Fed's Evans hints at possible September tapering
• UK inflation report expected to dominate


Global indices are expected to trade lower again today, in a continuation of slowdown seen over the past three days. Coming off the back of a significant stock market rally, the ability of the markets to take a breather is not particularly notable in itself. However, it is the inability of the likes of the FTSE100, CAC and DAX to break into new highs which brings into question the longevity of current levels. Should this mark the beginning of a longer downtrend, a highly bearish double top formation may come into existence; the precursor to potentially significant losses.

The losses expected in the markets today fly in the face of the UK NIESR GDP estimate released yesterday, which indicated that the economy grew at a rate of 0.7% in the three months ending in July. This comes against median market estimates of 0.6% which in turn where largely based upon the official preliminary Q2 GDP figure from the ONS. Or in other words, the UK economy was seen to have grown 0.1% faster in July than in April 2013.

However, some of the losses in both Asian and US markets can be attributed to increasingly hawkish comments of the typically dovish Fed member Charles Evans yesterday. Evans discussed his current outlook for tapering, taking into account recent notable shifts in jobs data last week and notably views a possible tapering within September as possible. Of course, should we see a pullback in the volume of asset purchases made by the Fed, it is likely that it would be minimal. However, given the disappointing non-farm payroll figure last week, it has been widely speculated that December is much more likely for an initiation of the tapering process.

Today is expected to be dominated by the quarterly inflation report from the Bank of England, due out around 10.30pm BST. Since Mark Carney’s inception as BoE governor on 1 July, the markets have sought to find out how he will implement a framework which can push the UK economy forward under the the current inflation targetting framework. The indication from the chancellor of the exchequer in March that the BoE will require ‘unconventional policy’ going forward was borne out of a view that given the trade-off between asset purchases and inflation, then alternate measures will be required to spur growth as long as the inflation rate remains the number one target.

Mark Carney’s ability to swing MPC votes to a full consensus against additional asset purchases is likely to have been driven by a clear outline of where he sees the BoE going forward. Subsequently, today’s inflation report was cited as the primary target for discussions and declaration of both an outline to a long term low interest rate scenario, coupled with thresholds to measure when the economy is sufficiently ready to raise rates.

We know that Carney looks favourably upon the notion of committing to long term low interest rates, as he performed such forward guidance at the BoC in April 2009. He noted that “it worked because it reached beyond central bank watchers to make a clear, simple statement directly to Canadians”. Put simply, the ability to promise long term low interest rates provides a positive outlook and framework for the population who know that they can plan with confidence for the upcoming period.

That being said, the inability of the ECB and Fed to prescribe forward guidance with any clarity should act as a warning to the new governor where typically leaders have tied themselves in loops attempting to interpret whether the current economic conditions are sufficient or conducive to a more tight monetary policy outlook.

Overall we are expecting to see a commitment to low interest rates, coupled with thresholds which must be reached as a precursor to addressing the issue of whether rates should be raised. Given the inflation targets set by the chancellor, it is likely that there will be in inflation element, however I believe the growth or jobs data will also accompany this. That being said, there are problems associated with both these methods, where unemployment rates can be skewed by shifts in the participation rate (as seen in the US on Friday) and GDP rates are often unreliable and subject to significant retroactive revisions.

Also later today we are looking for key German industrial production data out of the eurozone, along with important Canadian Ivey PMI and building permits data.

European markets are expected to open lower today, with the FTSE100 -13 points, CAC -7 points and DAX -30 points.
 
US Opening Call from Alpari UK on 7 August 2013

Markets fall as Carney provides forward guidance

Today’s US opening call provides an update on:

* Markets trading lower after BoE inflation report
* Mark Carney provides forward guidance, linking interest rates to unemployment
* German industrial production reaches 14 month high

Global indices are trading lower ahead of the US open after the key quarterly inflation report out of the UK failed to provide the boost expected by the forward guidance provided by Mark Carney in his first speech as the governor of the Bank of England. The inability of markets to rally upon what is supposed to be equity positive news points to either an innate weakness within the upside seen throughout the past six weeks or else a market which had already factored in a more significant statement from the BoE.

The highly anticipated announcement from the Bank of England today provided clarity of which indicator the markets will be closely watching from now on, as Carney decided that interest rates will be kept at 0.5% until the unemployment rate reaches 7% or below. Much like recent clarification from the Fed regarding their guidance, this is a prerequisite for the bank to open discussions as to whether rates should be raised, as opposed to a threshold which will automatically raise rates. Bearing this in mind, the UK economy is not expected to reach 7% unemployment until Q3 2016, providing markets with an estimated three years of low inflation and stable asset purchases.

The primary remit of the Bank of England is of course price stability and any forward guidance was always likely to include an element to ensure this remains in focus. Subsequently, it came as no surprise that Carney provided the caveat that the forward guidance framework could be invalidated should the 18-24 month expectation for CPI reach 2.5%. This allows for some room to breathe and provided a boost to the forex markets, where sterling rose unexpectedly despite a commitment to the current 0.5% interest rate and £375 billion asset purchase policy.

Overall, Mark Carney sought to provide direction to both the markets and also the wider population. The ability to promise low interest rates for the foreseeable future allows for better forward planning for the likes of homeowners and business owners alike. This was the outlook for Carney when implementing forward guidance under his role as the Canadian BoC governor in April 2009 and the success of that no doubt drives him in today’s announcement. The ability to implement and manage forward guidance successfully has come under question recently after ECB and Fed attempts have created convoluted and confusing messages for the market.

In other news, the German Industrial Production figure rose to a 14 month high, significantly beating market expectations. This comes off the back of a particularly strong period for the eurozone, and provides another boost given the size and importance of the German industrial sector. The 2.4% rise represents a significant out-performance over the 0.3% forecast and shifts the emphasis towards growth for the sector considering last month saw the first negative reading for this figure in seven months. That being said, given the proximity of this release to the BoE forward guidance statement, any meaningful effect was largely overshadowed in the markets.

Looking ahead, key Canadian data in the form of the Ivey PMI and building permits figures, coupled with US crude inventories provide a focus for the US session.

US markets are expected to open lower, with the S&P500 -5 points and DJIA -41 points.
 
UK Opening Call from Alpari UK on 8 August 2013

Europe to open higher on improved Chinese trade data

Today’s UK opening call provides an update on:

• Chinese trade data improves in July;
• BoJ appears in no hurry to loosen monetary policy further;
• Australian unemployment remains at 5.7%;
• Pull back in US indices continues on expectations of September tapering.

Strong trade figures from China provided a significant boost to Asian indices over night, and look to be having a similar impact on European futures as well, with indices currently expected to open in positive territory.

Both imports and exports were much better than both the previous month, when both surprisingly fell, and the forecasted figures. Imports were up 10.9% in July, following a drop of 0.7% in June, while exports rose 5.1% following a 3.1% decline. While these figures are encouraging, I remain very sceptical about the trade data coming out of China.

China may be committed to cracking down on activities which distort the export figures, such as disguising credit inflows as legitimate exports, but this is going to take some time to stamp out. Also, there’s been suggestions for quite a while now that Chinese data may be manipulated to appear far better than it actually is, which hardly makes it reliable.

The Japanese yen continued to rally following the release of the Bank of Japan interest rate decision and statement. The lack of additional easing from the BoJ is what’s responsible for a lot of the yen strength recently, with the markets clearly having withdrawal symptoms from the lack of new QE activity recently and craving more.

The statement from the BoJ was not very dovish at all, which suggests the central bank is very unlikely to announce any additional easing before the end of the year. The BoJ pointed out again that the economy is continuing to recover moderately, while insisting that inflation is likely to continue to rise.

Data out of Australia was relatively mixed, with the unemployment rate remaining at 5.7%, despite expectations of a 0.1% increase. However, both full-time and part-time employment fell in July, which is going to be a concern. The Reserve Bank of Australia cut interest rates for an eighth time in two years earlier this week in a bid to halt the recent decline in the economy. However, many including myself, still expect another rate cut later this year, as the economy continues to suffer following the end of the mining boom, which the country became far too reliant on in recent years.

US indices continued to retreat over night, with investors taking advantage of the lack of news and data to provide some relief to the rally that has seen the S&P and Dow hit record highs on numerous times this year. People are continuously calling for some form of healthy retracement in US equities at the moment following the aggressive move higher this year and I think that’s all we’re seeing.

The move lower is being aided by investors trying to predict when the Fed will start scaling back its asset purchases. The consensus on this changes more than the UK weather, with investors now leaning towards a September taper despite the disappointing jobs report last week. This is why it’s so important to keep tabs on what the FOMC members say on a day to day basis because even the opinions of non-voting members are moving the markets at the moment.

Ahead of the open we expect to see the FTSE up 9 points, the CAC up 19 point and the DAX up 32 points.
 
US Opening Call from Alpari UK on 8 August 2013

US futures point to higher open ahead of jobless claims

Today’s US opening call provides an update on:

* US futures track Asia and Europe higher;
* Chinese trade data provides early boost;
* Rio Tinto warns against significant Chinese recovery this year;
* Weekly jobless claims in focus this before the opening bell.

US futures are pointing to a higher open on Thursday, tracking gains made in Asia over night and so far in Europe this morning.

The main reason for the bright start in Europe has been the significant improvement in the Chinese trade data in July. While the headline figure showed a narrowing of the trade surplus, the breakdown of the data was more encouraging. Exports rose by 5.1% in July, following a 3.1% decline a month earlier, while imports jumped an impressive 10.9% after falling 0.7% previously.

There are two things to take away from this. Firstly, China’s exports may not be performing quite as badly as first feared, and secondly demand within China for external goods remains strong and is on the rise, which is essential if we’re going to see a successful shift to a more consumer led economy.

While the data is encouraging, it is worth taking it with a pinch of salt, given the amount of concerns raised over Chinese data this year, particularly in relation to exports. There are apparently efforts being made to stop exporters disguising capital inflows as genuine exports, but this is likely to take some time to fully stamp out. There are also concerns over whether other parts of the official Chinese figures are being manipulated to convey an economy performing better than it actually is. This must also be taken into consideration.

One company that isn’t overly confident about a Chinese recovery later this year is Rio Tinto. While the company does not expect a hard landing, it did give a pretty gloomy outlook for the Chinese economy which, along with low commodity prices, it expects to weigh on profits in the second half of the year.

It’s been a quiet start to the European session so far, with little driving things aside from the Chinese data. Things may pick up a little as the day goes on, with US weekly jobless claims being released before the opening bell. Last week’s number came in well below market expectations at 326,000, the lowest since 2008. Today’s figure isn’t expected to be quite so low, at 336,000, although this would still be very low for the summer months. Really, anything below 350,000 will be seen as a good number here.

Ahead of the open we expect to see the S&P up 4 points, the Dow up 44 points and the NASDAQ up 12 points.
 
UK Opening Call from Alpari UK on 9 August 2013

Chinese data suggests the recovery is underway

Today’s UK opening call provides an update on:

• Europe boosted by US and Chinese data;
• Chinese inflation remains low at 2.7%;
• Retail sales in China strong, despite miss.

European indices are expected to open higher this morning, as encouraging US and Chinese data continues to give investors hope that the global recovery will take off in the second half of the year.

The idea that the global recovery will take off may be a little ambitious, if not completely unrealistic, however we are seeing some encouraging signs here and there that the recovery is just around the corner. The only concern right now is whether it is sustainable and the honest answer there would have to be, probably not. It remains extremely fragile and there is many things that could derail it with unbelievable ease.

That said, the best thing right now is to focus on the positives, while remaining extremely vigilant to any potential dangers along the way. And there’s plenty to be positive about. Using recent examples, the weekly jobless claims have remained extremely low this year, averaging below 350,000, as businesses in the US retain more and more staff on the belief that despite being slow and at time frustrating, the recovery is underway. We had another great figure yesterday, which brought the four week average down to a five year low, which helped boost equity markets in the US, as well as Asia over night and now European futures this morning.

While I remain sceptical about the official figures out of China, there are some encouraging signs there. While the country remains committed to the transition from its over-reliance on exports and huge investment to a consumer led model, the recent commitment by ruling party to keep growth above 7% appears to be having a positive impact.

Yesterday’s trade balance figures showed a massive surge in imports, while exports also rose by more than 5% after a drop last month. This morning, it’s the inflation data that’s provided a boost, remaining at 2.7% despite expectations of an increase to 2.8%. Attempts to slowly deflate the housing bubble in China is thought to be partly responsible for this. The rise in house prices in China is slowing, which is affecting demand for items such as furniture.

The retail sales figure for July, despite falling short of expectations, should also be viewed as another positive point. The fact that we’re seeing growth of 13.2% on the retail side is what is needed in order to pick up some of the slack from the lower demand for Chinese exports, due to the recession in the eurozone and slowing growth in other countries.

Industrial production rose by 9.7% in July, which is the biggest jump in the figure since February, in a sign that the targeted investment by the government, in response to the slowing growth this year, is already having a positive impact. Urban investment, which will probably pick up again in the second half of the year, was also slightly higher than expected at 20.1%.

The rest of the day is looking quieter on the data front, while earnings season is also coming to a close with no major companies reporting earnings today. The season has been a little mixed with more than 70% of S&P 500 companies beating earnings expectations, although the size of the beats has been smaller than usual. This suggests that either these cost cutting measures are not picking up the slack from the lower revenues as well as they have in recent years, or expectations are rising which would not necessarily be a bad thing when the Federal Reserve is looking to wrap up its asset purchase program.

Ahead of the open we expect to see the FTSE up 22 points, the CAC up 14 point and the DAX up 21 points.
 
US Opening Call from Alpari UK on 9 August 2013

FTSE leads the way after strong Chinese data

Today’s US opening call provides an update on:

* FTSE leads the gains in Europe;
* Chinese CPI remains at 2.7%;
* Miners lead the way on strong industrial production figure;
* Retail sales encouraging, despite falling short of expectations.

It’s been a relatively quiet start to the European session on Friday, after the Chinese data released over night failed to drive markets one way or another.

While we didn’t get the reaction to the data that we saw yesterday, following the trade balance figure, I’d say the data out of China over night was actually quite positive. This explains why the FTSE is one fifth of a percentage point higher, while most other European indices and US futures are slightly in the red, given its larger exposure to China.

The data was obviously not overwhelming, but there were certainly some positive points in there. The CPI figure remained at 2.7% last month, despite expectations of a rise to 2.8%, which is still well below the inflation target of 3.5%. That doesn’t mean though that we’re going to see attempts by the PBOC to spur inflation, they’ve made it perfectly clear that they’re reluctant to reduce interest rates in an attempt to reduce the size of the shadow banking industry which could cause a lot of damage down the line.

The encouraging aspect of the inflation figure was the reason why it didn’t rise. The attempts by the government to slowly deflate the property bubble appear to be working, with the rise in house prices now slowing. What this means is less is being spent on furniture and other household goods, which contributed to the lower inflation figure. While this won’t have an immediate positive impact on the country, it is essential for its longer term health.

The reaction in the markets was probably more in relation to the industrial production figure, which rose 9.7% year on year against expectations of 9%. The heavy weighting of the mining firms in the FTSE, which are currently up more than 2%, is what’s pushing the index higher this morning. Many other areas of the index, like those of other European indices, are lower on the day.

While the retail sales figure was below market expectations, I still think it’s a good solid number. A 13.2% increase compared to a year earlier should help to pick up some of the slack in the economy from the fall in exports, with the global economy still quite weak. The rest of the slack, to ensure the country’s growth remains above 7%, will now have to come from target investment from the government.

Ahead of the open we expect to see the S&P down 6 points, the Dow down 51 points and the NASDAQ down 9 points.

Read the full report at Alpari News Room​
 
UK Opening Call from Alpari UK on 12 August 2013

Questions raised over sales tax as Japanese growth cools

Today’s UK opening call provides an update on:

• Second quarter Japanese growth falls short of expectations;
• Chinese stocks boosted by speculation over targeted fiscal stimulus;
• US retail sales and inflation watched closely this week;
• UK also in focus, with retail sales, inflation data and BoE minutes being released.

It’s been a mixed start to the week in Asia, with Chinese stocks rising on speculation of targeted fiscal stimulus, while Japanese stocks took a hit following the release of softer than expected growth figures.

The Japanese economy grew by 0.6% in the second quarter, or 2.6% on an annualised basis, which is well below market expectations of 0.9% and 3.6%, respectively. While we’re still clearly seeing big improvements in the data this year, the fact that we’ve seen such a big miss in the figure this morning is likely to raise a couple of questions.

The first is whether the government should still go ahead with the planned sales tax hike. While this is necessary to show that government is serious about getting its finances in order, with debt currently well above 200% of GDP, it could discourage consumers from hitting the shops. This is essential if we’re going to see an end to the two decades of deflation in the country.

The second is whether the monetary policy from the BoJ is accommodative enough to help hit such ambitious growth and inflation targets. We may not see too much pressure on the BoJ to do more quite yet, but these may be early signs that the central bank need to do more. This could lead to rising expectations in the coming months that the BoJ will announce additional stimulus measures.

Things are looking a little more positive in China, following speculation that the government is providing stimulus to certain cities and provinces in order to support the economy. While few believed it would anyway, this would prove that the government isn’t willing to go cold turkey on the country and will instead just be more sensible about how it offers support to the economy.

We could be looking at a relatively quiet start to the week in Europe and the US, with the economic calendar looking pretty light on Monday. Over the last month or so it has been the corporate earnings season that has been the biggest driver in the markets, but with this now winding to a close, attention is going to be back on the data, with investors once again trying to guess when the Fed will begin scaling back its asset purchases.

Retail sales data, released tomorrow, could prove useful with this, given that consumer spending contributes so much to US GDP. An sustainable improvement in these figures can only increase the chances that the Fed will begin to taper. The inflation figure, released Thursday, will also be key, given that the Fed has vowed to remain accommodative as long as inflation remains below 2.5%. With this expected to rise to 2% in July, people may start to fear that interest rate hikes are not as far away as first thought.

Also this week, there’ll be some focus on the UK, with inflation figures being released tomorrow and the minutes from the this month’s Bank of England meeting on Wednesday, along with the unemployment rate. While unemployment won’t be too much of a focus yet, with it being significantly above the 7% target, the CPI figure and the minutes will be. Inflation is already quite high, so any rise here could jeopardise the banks forward guidance at this very early stage.

Ahead of the open we expect to see the FTSE up 21 points, the CAC up 8 point and the DAX up 22 points.
 
Weekly market preview – 12 August 2013

An interesting week for the markets, following last week’s forward guidance provision from Mark Carney and unexpected strength out of China. Subsequently, the underlying topics continue to be the Fed tapering talk, eurozone recovery, Chinese strength and now the UK unemployment outlook.

Following Carney’s announcement, it is the CPI (Tuesday) and unemployment rate (Wednesday) which will take precedence for the UK this week. Meanwhile, the eurozone is likely to focus upon the provision of key GDP data out of France, Germany and the eurozone as a whole. In the US, a largely quiet week will be dominated by the three speeches from Fed voting member James Bullard where markets will be looking out for any further hints as to when the asset purchase tapering will begin. Finally, in Asia, a very quiet week is likely to be dominated by the provision of the preliminary GDP figure for Japan on Monday morning.


UK

The recent announcement from BoE governor Mark Carney that the provision of long term low interest rates will be tied to the existence of above 7% unemployment rate comes into focus immediately, with the release of this figure on Wednesday. However, is it notable that this provision was also accompanied by the requirement that the forward expectation of CPI is below 2.5%. Subsequently the release of the CPI measure of inflation on Tuesday will also be followed closely this week. Also on the agenda are retail sales figures along with the minutes and votes from the last monetary policy committee.

The first important release of the week comes in the form of the UK CPI measure of inflation, released on Tuesday. Traditionally important owing to the price stability mandate provided by the BoE, this measure will be watched even closer given Carney’s indication that forward guidance would only be valid under conditions where sub 2.5% inflation is expected 18-24 months ahead. Given the forward expectation element, it becomes increasingly vague rather than stating the requirement of a specified current level. That being said, should CPI continue to rise, it would somewhat stop forward guidance in it’s tracks before it had begun. Subsequently a reduction in the CPI is necessary for low rates going forward and the median market forecast of 2.8% would be welcome in facilitating forward guidance.

The second part of Carney’s announcement was in relation to the dominant threshold, which too the Fed’s lead in utilising the headline unemployment rate as a proxy for economic health. The target level of 7% was provided as a point at which the BoE would reassess the provision of 0.5% interest rates. Subsequently it is this measure which will be expected to bring about significant volatility going forward where a reduction will be expected to be sterling positive, while a rise would likely be sterling negative. This figure is released on Wednesday morning, where market expectation is for the rate to remain at 7.8% for the fourth consecutive month.

Also on Wednesday morning, the BoE release minutes from the last MPC meeting, including the votes for both the interest rate and asset purchase decision. Markets expect little change, with both voting 9-0 against any amendments to either monetary policies. This does seem to be a given owing to the focus upon the inflation report which occurred shortly after this meeting, thus the only potential for market volatility will be associated with something unexpected in the minutes.

Finally, on Thursday, the release of the retail sales figures will provide a clear overview of consumer activity in July. Last month’s figure of 0.2% is expected to rise to 0.7%, which would be positive, yet unlikely to result in any significant market movement. Keep your eyes peeled for any sizable difference between expectations and the actual figure for a reaction in the markets.

Americas

A quiet week for the US economy in terms of economic events, where the focus will be upon retail sales data on Tuesday, numerous speeches from Fed’s James Bullard and two notable manufacturing surveys. On Tuesday, the retail sales figure looks set to dominate, with market expectations pointing towards a moderate reduction from 0.4% to 0.3%. In a similar manner to the UK release, markets will be looking for a significant miss or beat to bring about a notable reaction.

Later in the week, the Fed comes back to the fore, when voting member James Bullard addresses the monetary policy outlook in three speeches taking place over Wednesday and Thursday. Given his role as a voting member of the FOMC, the markets will typically take note of anything notable that is said. On the whole, we have heard alot regarding the Fed’s potential tapering of QE and thus it is worth looking out for anything new regarding time-frames, quantity or type of assets being trimmed. Any previous change of tone from the Fed have generally been filtered through other members prior to Bernanke actually announcing anything officially. Thus it is speeches like this which could provide key clues to central bank thinking.

Finally, on Thursday, the release of the empire state manufacturing index and Philly fed manufacturing index provide a significant overview of the key sector. The empire state figure is typically seen as less influential, however it is also a leading indicator given it references the current month. This month, forecasts are for a moderate rise from 9.5 to 10.2, which would represent the highest level in around 15 months.

Meanwhile, the Philly fed survey is expected to show the opposite, falling from 19.8 to 15.6 in July. What markets are typically looking for is a clear picture from both these indicators and thus a strong out-performance or under-performance in both figures would be likely to gain a sense of direction for the day.

Eurozone

A notable week for the eurozone economy, where proceedings are dominated by the release of preliminary Q2 GDP figures for Germany, France and the eurozone. The increasing strength of the single currency region has been exhibited recently through better than expected PMI figures, along with the Italian GDP figure. Subsequently, the core growth figures from the two main constituent economies followed by the eurozone as a whole has the ability to provide a further boost this week.

Estimates are for a push into growth for France, with a median of 0.1% being predicted after the previous figure of -0.2%. Meanwhile the German figure is expected to rise from 0.1% to 0.6%, which would represent the highest rate of growth in nine months. Finally, market estimates point towards the eurozone growing for the first time in seven months, with a 0.4 rise from 0.2% to 0.2% being touted.

Overall, we want to see a consistent picture across all three GDP releases, and if all goes to plan Wednesday could be a highly significant day for the eurozone after the troubles seen throughout this crisis.

The other important release in the eurozone will come in the form of the German ZEW economic sentiment figure, released on Tuesday. Given the importance of the German economy in driving the single currency forward, it is this survey which is more commonly watched than the eurozone measure. Market expectation is for a positive reading of 40.3 from last month’s 36.3. It is worth noting that this figure has disappointed regularly, with four of the last five readings coming in below estimates. Thus this figure can bring volatility simply by surprising the markets.

Asia & Oceania

A very quiet week for Asia and the Oceania region, where the only major event to look out for comes in the form of the Japanese preliminary GDP release on Monday morning. The importance of this figure is clear given the policies undertaken by Shinzo Abe and the BoJ to grow and reinflate their economy over the last year. Whilst Japan has managed to attain reasonable growth levels back in Q1 2012, this was shortlived and the ability to maintain and grow upon the 1% seen in Q1 allows for greater expectations going forward. The forecasts point towards a 0.9% rise, which would be notable for this very reason, despite representing a reduction from the previous quarter.
 
UK Opening Call from Alpari UK on 13 August 2013

BoE forward guidance puts focus on UK inflation data

Today’s UK opening call provides an update on:

• Nikkei rallies on reports of a cut in Japanese corporation tax;
• BoE forward guidance puts focus on UK inflation data;
• Eurozone sentiment surveys to improve further ahead of GDP release;
• US retail sales to provide crucial insight into consumer.

The Nikkei led the gains in Asia over night, following reports that Prime Minister, Shinzo Abe, is planning to announce a cut in corporation tax if he goes ahead with the consumption tax hike that has received a lot of criticism in recent months, despite being necessary in order for Japan to deal with its debts. The fear is that the increase in the tax could damage consumer confidence, which despite the recent improvement, is very fragile. If consumers stop spending again, it will be very difficult to achieve the 2% inflation target.

However, this doesn’t appear to be too major a concern to investors as long as it’s accompanied by a cut in corporation tax, which could in theory encourage hiring, wage increases and investment. As we saw yesterday, private investment actually fell 0.1% in the last quarter, which contributed to the lower than expected growth figure of 0.6%. Any efforts to boost this are clearly going to be welcomed in the markets.

The minutes from the Bank of Japan meeting last month contained no surprises. The small downward revision to growth and inflation expectations may have sparked a debate on whether more would need to be done to achieve 2% inflation in two years and support the economy, but that did not happen, with the members instead voting unanimously to leave monetary policy unchanged.

The effectiveness of Mark Carney’s forward guidance will be tested for the first time this morning, when July’s CPI figure is released. It’s safe to say the markets weren’t blown away with the Bank of England’s forward guidance last week, given the number of caveats that accompanied it, one of which being that inflation expectations two years down the line must be at or below 2.5%.

These expectations are very subjective and in fact, the BoE itself has previously found it very difficult to provide accurate forecasts. Unless they start releasing renewed inflation expectations on a more regular basis, potentially along with the CPI figure, it’s going to be very difficult for the markets to determine how the individual figures impact the BoEs forecasts.

It’s not like over in the US, where inflation has been well below target for a long period of time, meaning the risk of a significant spike in the figure is low. Inflation in the UK has been volatile for a long time now and there’s no guarantee, in fact it’s quite unlikely, that expectations will remain below 2.5% for the three years that Carney believes it will take for unemployment to return to 7%. As a result, we could see much bigger reactions to inflation figures in the UK than we’ve seen over the last 12 months in the US.

Also this morning we have the ZEW economic sentiment figures being released for Germany and the eurozone. The data out of the eurozone has been much better over the last few months, which has led many to believe the area actually climbed out of recession in the second quarter, much earlier than had previously been expected. We’ll see if this was the case tomorrow, when the GDP figures for the eurozone are released.

The ZEW figures are expected to improve once again in August, with the eurozone figure seen jumping to 37.4, the highest since February, and the German figures seen rising to a five month high of 40.

Later on we have retail sales data out of the US for July, which should always be followed closely, given that consumer spending contributes around two thirds to total output. The retail sales figure gives great insight into how the consumer is coping with the rising mortgage rates, higher fuel costs and low wage rises. The payroll tax hike at the start of the year should also be felt more now, given the additional squeeze of higher fuel and mortgage costs, which had previously cushioned the blow somewhat.

Ahead of the open we expect to see the FTSE up 16 points, the CAC up 11 point and the DAX up 21 points.
 
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