Forex research

US Opening Call from Alpari UK on 13 August 2013

US futures higher ahead of retail sales

Today’s US opening call provides an update on:

* Retail sales to provide insight into US consumers;
* Fed member Lockhart to speak on health of US economy;
* More strong eurozone data ahead of GDP figures;
* UK inflation falls in line with expectations.

US futures are pointing to a higher open on Tuesday, ahead of the release of some important retail sales figures for July.

Retail sales figures are viewed by many analysts as a preferential reading of economic health for the US, due to the contribution of consumer spending to the GDP figure. Basically, if consumers don’t feel secure in their jobs or are feeling the pinch financially, they tend to spend less and the economy struggles to grow.

As a result, retail sales can be seen to be a measure of both financial health of consumers, as well as confidence in the economy going forward. Especially at times of high unemployment, low wage growth, poor economic growth, higher taxes and rising fuel costs, like we’re seeing at the moment.

Today we’re expecting an increase of 0.3% in the broader figure, with core retail sales jumping to 0.4%. Traders tend to react more to the latter, due to the volatility in car sales, which isn’t included in it. If we see a poor figure today, it will only make it more difficult for the Fed to justify tapering in September as it would suggest the health of the consumer is not enough to support a sustainable recovery on its own.

On that note, we’ll hear from Federal Reserve Bank of Atlanta President, Dennis Lockhart, later on today when he speaks on the US economy and the strength of the dollar. While Lockhart is not currently on the FOMC, he will have insight into what the other members are thinking and could provide clues as to when the Fed is likely to begin tapering.

It’s been a bright start to the day so far in Europe, with more data suggesting the recovery in the eurozone is finally underway. Of course, any recovery is going to be extremely fragile, but compared to the last couple of years, it’s very encouraging.

The surveys have been improving significantly every month in the second quarter and that looks to be continuing into the third. Today’s ZEW economic sentiment figures for the eurozone and Germany continued the trend, coming out well above expectations at 44 and 42, respectively. Of course, the improvement in the surveys will be pointless if it doesn’t translate into better economic data, which we are expecting it to tomorrow, when the GDP figures are released. Expectations are currently for the eurozone to climb out of a year-long recession in the second quarter.

Over in the UK, the focus has been on the release of the inflation figure, which fell to 2.8% in July. There’s going to be a lot more attention paid to this figures now that new Bank of England Governor, Mark Carney, has set an inflation threshold for forward guidance to remain in place. The threshold actually refers to inflation expectations two years down the line, which is very subjective, however the official figure should give some insight into where the BoE see’s inflation going. Based on today’s figure, it looks like inflation remains well anchored and there’s little threat in the short term of interest rates being reviewed.

Ahead of the open we expect to see the S&P up 6 points, the Dow up 63 points and the NASDAQ up 12 points.
 
UK Opening Call from Alpari UK on 14 August 2013

GDP figures to extend positive run for the eurozone

Today’s UK opening call provides an update on:
• Not enough data to justify tapering in September according to Fed’s Lockhart;
• Eurozone expected to climb out of year-long recession in Q2;
• Forward guidance clarity sought from BoE minutes;
• Fed’s Bullard to provide further tapering insight.

European indices are expected to open slightly higher on Wednesday, after a non-voting member of the FOMC suggested that tapering is unlikely to begin in September.

Investors still remain split on when the Fed will begin scaling back its asset purchases, with the majority sitting in either the September or December camps. Dennis Lockhart, President of the Atlanta Fed, claimed last night that the FOMC is unlikely to have enough data to justify tapering in September, which therefore leaves December as the most likely starting point.

While Lockhart is not a voting member of the FOMC, his views are seen as close to the consensus at the Fed, which is why they carry some weight. If we see more signs in the coming weeks that September is a no go for tapering, it could provide the spark that sends US indices back towards those record highs, following a bit of sell-off since the start of the month.

Asian markets lacked any real direction over night, with most indices trading relatively flat. The same can’t be said for the European session this morning, with Lockhart’s comments providing some early direction, followed by back-to-back GDP figures from the eurozone, Bank of England minutes and UK employment data.

The data out of the eurozone over the recent months has been an unexpected surprise. A few months ago, it seemed unlikely that the euro area would move out of recession this year, let alone in the second quarter, as is expected to be confirmed this morning. The eurozone is expected to have recorded marginal growth of 0.2% in the second quarter, which is enough to bring the region out of recession and begin on the road to recovery. Any decent recovery is very unlikely for probably a few years, with the area probably stagnating somewhat in the meantime.

The release of the Bank of England minutes from earlier this month will be monitored closely by the markets this morning. While Governor, Mark Carney, did not announce the central bank’s new forward guidance at the meeting, it is likely that it will have been agreed upon here. The markets were less than impressed with the BoEs attempt at forward guidance last week, due to the amount of caveats it came with that essentially invalidated it entirely. The minutes may provide further clarity on the matter and may put investors concerns at ease. If not, then Carney has a tough job ahead, convincing businesses and consumers that rates will remain low so that they can borrow and spend without the worry of interest rate hikes in the near future.

The unemployment rate, one of the thresholds for the forward guidance, will also be released this morning. Carney announced last week that interest rates will only be discussed again when unemployment falls from 7.8% to 7%, which he expects to take three years. The unemployment rate is expected to remain at 7.8% today, while the number of people claiming unemployment benefits is expected to fall by 15,000.

The US session later on may be a little quieter, with the economic calendar looking a little light. One thing worth keeping an eye on will be a speech from FOMC voting member, James Bullard, in Kentucky. Following Lockhart’s comments last night, Bullard is likely to receive a number of questions about his expectations ahead of the September meeting. While Bullard is a well known dove, any suggestion that what Lockhart said is correct could prompt further rallies in US equities later, while the dollar would probably come under pressure.

Ahead of the open we expect to see the FTSE up 2 points, the CAC up 9 point and the DAX up 16 points.
 
US Opening Call from Alpari UK on 14 August 2013

Eurozone out of recession, markets unimpressed

Today’s US opening call provides an update on:

* Strong German and French growth drags eurozone out of recession;
* BoE vote on forward guidance not unanimous;
* UK jobless claims fall for ninth month but unemployment remains at 7.8%;
* Fed’s Bullard to speak in Kentucky.

We’ve seen a very bizarre reaction to the eurozone GDP figures in the markets this morning, with investors selling in response to better than expected figures.

The day got off to a great start, with France climbing out of recession in style. The country recorded 0.5% growth in the second quarter, smashing expectations of 0.1% growth, and well above first quarter growth of -0.2%. Germany kept things going, recording 0.7% growth in the second quarter, ahead of expectations of 0.6%.

Given that these are the two largest economies in the eurozone, it was almost inevitable that the eurozone GDP figure would beat expectations and confirm that the area climbed out of recession in the second quarter. What wasn’t guaranteed was the reaction to the data, with European indices currently a mixed bag and the euro trading lower on the day. There appears to be little reason for the negative reaction to the figures, but it could just be a simple case of strong data being priced in already following a number of positive data releases.

The Bank of England minutes confirmed something that many had previously suggested, that the vote on forward guidance was not unanimous. One MPC member, Martin Weale, wanted a shorter time horizon for inflation than the 18-24 months that the BoE announced last week.

Had the other members agreed to this, the forward guidance would have been even more useless than it already is, given that inflation is currently already well above the 2.5% upper boundary. Understandably, the markets took this as a hawkish sign, prompting a rally in sterling as sending it higher on the day against the dollar.

On a more upbeat note, the number of people claiming unemployment related benefits in the UK fell for the ninth consecutive month in July. The number of people claiming fell by 29,200, while June’s figure was revised lower to 29,400. This was yet another good sign for the UK, although the unemployment rate remained at 7.8%, where it has been since the start of the year, barring February when it temporarily jumped to 7.9%. This just highlights how big the job of getting unemployment down to 7% is going to be. As people find work, more rejoin the labour force, keeping the rate stubbornly high.

The US session is looking a little quieter on Wednesday, with the economic calendar looking pretty thin. The key event will be a speech from James Bullard, President of St Louis Fed and FOMC voting member, in Kentucky.

Following comments yesterday from Dennis Lockhart, President of the Atlanta Fed, that the Fed is unlikely to begin scaling back its asset purchases in September due to a lack of data that shows the economy can support itself, investors will be looking for confirmation from Bullard that this is the case. That said, Bullard is a known dove, so any confirmation of this should be taken with a pinch of salt.

Ahead of the open we expect to see the S&P down 3 points, the Dow down 25 points and the NASDAQ down 3 points.

Read the full report at Alpari News Room​
 
UK Opening Call from Alpari UK on 15 August 2013

Retail sales to show UK recovery continuing into Q3

Today’s UK opening call provides an update on:

• US falls as rising Treasury yields stoke tapering fears;
• Not enough data to justify September tapering according to Fed’s Bullard;
• UK recovery expected to continue into Q3 with strong retail sales in July;
• US data in focus this afternoon, in particular jobless claims and philly fed.

European indices are expected to open mostly lower on Tuesday, tracking losses made in the US on Wednesday, which also weighed on Asian stocks over night.

The sell-off in the US came after another rise in US Treasury yields, to around 2.71%, on increasing expectations that the Fed will start tapering its asset purchases in September. While I still believe it won’t come until December, at the earliest, I am certainly in the camp that hopes it will happen in September. All these swings in the markets driven by fear of when the Fed will begin tapering is overshadowing the fundamentals once again and preventing the markets from functioning correctly.

The reactions are not even always rational. For example, in the last two days we’ve heard from two members of the Fed and both have agreed that there is not enough data to justify cutting back the asset purchases in September. This appears to have been completely ignored. Now, while people would be forgiven for ignoring these comments from James Bullard, who is a well known dove, Dennis Lockhart, despite being a non-voter, is generally seen over sharing the views of the majority at the Fed, so these comments should carry some weight.

Instead though, the markets appear to have reacted to comments from Bullard, in which he claimed the Fed should hold press conferences after all its meetings, including October. He believes not having press conferences after certain meetings leaves only a select number of dates when the Fed can make the key decision, which just reaffirmed the markets view that tapering will begin in September or December. However, in calling for a press conference in October, Bullard has essentially suggested that the Fed could be forced to act too early, in September, rather than wait and extra month for more data. This is probably clutching at straws, but that’s what the markets have been reduced to nowadays as everyone attempts to predict when the Fed will act. All comments are over-analysed and the message is different depending on who’s reading it and what they want to believe.

The economic calendar is looking very light this morning, with UK retail sales for July the only release. The recovery looks likely to continue into the third quarter, with retail sales for July seen rising 2.5%, while core retail sales, the measure many in the markets pay more attention to as it strips out the more volatile items including fuel prices, are seen rising 2.7%. Given that consumer spending makes up around two thirds of the economy, this figure is seen as a hugely important measure of economic health.

After this, the focus will switch to the US, with a number of pieces of important economic data due to be released. First up we have the July CPI figure, weekly jobless claims and empire state manufacturing index all being released at 1.30pm UK time. Many people will be closely watching the CPI figure for signs that inflation is closing in on 2.5%, the point at which the Fed will revisit interest rates, however they probably shouldn’t pay too much attention to the figure.

Obviously if we see a significant spike in the figure, we should sit up and take note. However, the personal consumption expenditure figure, released earlier this month showing a rise of only 1.3%, is the preferred measure of inflation for the Fed. Therefore, while the CPI is important, while the PCE figure remains so low, any rise is likely to only have a limited impact.

The figures we should be paying attentions to are the other two, the weekly jobless claims and the philly fed manufacturing index, which will be released at 3pm UK time. That is according to a recent study by Goldman Sachs, who believe they are important growth indicators that don’t necessarily get the recognition that they should, with investors paying more attention to non-farm payrolls and advanced GDP readings. Whether you agree with this or not, it is important to make note of this because if Goldman Sachs believe it to be true, many are likely to agree and the ones that don’t will probably react as if they do, purely out of respect for the size and influence of the bank.

Ahead of the open we expect to see the FTSE down 21 points, the CAC down 5 point and the DAX down 6 points.
 
US Opening Call from Alpari UK on 15 August 2013

US futures lower ahead of key data releases

Today’s US opening call provides an update on:

* Plenty of US economic data due to be released;
* Goldman Sachs highlights jobless claims and Philly Fed manufacturing index;
* CPI figure important, but Fed prefers PCE as measure of inflation;
* UK retail sales smash expectations pushing sterling through key resistance.

European indices are trading mostly lower on Thursday, and US futures are pointing to a similar open ahead of some big economic releases.

There are a number of pieces of economic data due out of the US today, including the CPI, empire state manufacturing and industrial production figures for July. However, a recent report from Goldman Sachs suggests the releases we should pay most attention to are the weekly jobless claims and Philly Fed manufacturing index.

These figures, Goldman Sachs believes, are important growth indicators that don’t have as big an impact on the markets as they should. Whether or not people agree with this, Goldman Sachs is a big presence in the markets and people should therefore keep an eye on them. It will be interesting to see if we a bigger reaction to these figures now following the release of the report.

Another figure that tends to attract a lot of attention is the CPI figure, which is expected to show inflation rising to 2% in July. With 2.5% inflation being the threshold at which the Fed will consider raising interest rates, this is likely to start having a bigger impact on the markets soon, especially if it comes out above expectations.

That said, the Fed is known to prefer personal consumption expenditure as a measure of inflation, and this is currently at 1.3%, based on data released earlier this month. As a result, even once the CPI figure reaches 2.5%, it’s unlikely to prompt a rate hike, with deflation currently looking a bigger threat.

The European session has actually been largely positive so far, although you wouldn’t think so looking at the markets. While it’s been relatively quiet on the eurozone front, the retail sales data out of the UK smashed expectations, rising 3% in July compared to a year earlier.

The data had minimal impact on the FTSE, but sterling rallied strongly on the data, breaking through a key level against the dollar before running into resistance around 1.56. The UK data just keeps getting better at the moment and is showing no signs of changing. At this rate, a year that started with talk of a triple dip recession could end with far better growth figures than even the most optimistic forecasts.

Ahead of the open we expect to see the S&P down 6 points, the Dow down 48 points and the NASDAQ down 21 points.
 
UK Opening Call from Alpari UK on 16 August 2013

Eurozone inflation and US consumers in focus on Friday

Today's UK opening call provides an update on:

• US stocks fall on better weekly jobless claims
• Markets spooked by pessimistic outlook from Wallmart;
• Eurozone CPI to remain low, although no further stimulus expected;
• US consumer sentiment and housing data may disappoint.

European futures are trading relatively flat on Friday, largely ignoring the sizable losses in the US indices over night on increasing expectations that the Fed will start tapering in September.

US weekly jobless claims fell to a six year low last week, which despite being a positive thing for the economy, was instead viewed as another sign of improving labour market conditions that will probably convince the Fed to begin tapering next month. The figure prompted more selling in US Treasuries which pushed the yield up to 2.8%, from 2.71% earlier in the session.

We're seeing some more unusual activity in the markets at the moment, similar to what we saw a few months ago when investors were viewing anything as a signal to buy into the rally. Now we're seeing the opposite, with investors apparently seeking shorting opportunities ahead of the expected Fed decision in September. Investors are therefore being very selective about what they pay attention to, rather than looking at the bigger picture.

For example, Wallmart became the latest retailer to disappoint on sales yesterday, while offering a gloomier outlook than analysts had expected. A lack of consumer demand was the main reason for the drop in sales, which is a bad sign for an economy the relies on consumer spending to drive around two thirds of its growth.

If consumers aren't spending due to higher mortgage rates, fuel costs and the payroll tax. This should encourage the Fed to maintain its asset purchases for now, however markets ignored this and the losses in Wallmarts shares just contributed to the overall losses in the US indices.

It's looking like a quiet start to the European session on Friday, with a final reading of the eurozone CPI figure the only notable economic release this morning. Eurozone inflation has been a big talking point over the course of this year, with many calling on the ECB to do more to stimulate the economy, either with more aggressive rate cuts or more ambitious forward guidance.

So far we've seen neither, with the central bank instead opting to cut the refi rate by only 25 basis points, leave the deposit rate unchanged at 0% and offer completely useless forward guidance that offered no thresholds whatsoever. Instead it suggested rates would remain low for at least 12 months, which under the circumstances was already assumed.

The final CPI reading for July is expected to remain unchanged from the original figure that was released at the end of last month. The core CPI is expected at 1.1%, which suggests the ECB has plenty of room to manoeuvre when it comes to providing some form of monetary stimulus to the euro area.

Things should pick up a little during the US session later, with a few more key pieces of economic data being released. The obvious release to look out for is the preliminary UoM consumer sentiment figure, given how much consumer spending contributes to US GDP.

As it stands, a figure around 85.5 is expected, although I believe this could be a little high. Consumers are likely to be feeling the pinch at the moment, with higher fuel prices combining with higher mortgage rates to leave consumers watching the pennies. The earnings report from Wallmart yesterday highlights this, so I'll be very surprised if we don't see a disappointing figure here today.

Higher mortgage rates off the back of Fed tapering expectations are not just going to have an impact on spending, but also the housing market.

Previously, those potential buyers who were on the fence about whether it was time to buy or not may have been convinced by the prospect of lower rates, but that is no longer the case. We've already seen it having a negative impact on housing data over the last month and I expect the same today, in the housing starts and building permits figures.

Ahead of the open we expect to see the FTSE down 13 points, the CAC up 3 point and the DAX down 6 points.
 
US Opening Call from Alpari UK on 16 August 2013

Expectations too high ahead of consumer sentiment reading

Today’s US opening call provides an update on:

* Focus on US data and Fed comments;
* Traders seeking shorting opportunities as September meeting approaches;
* UoM consumer sentiment expectations too high;
* Housing data potentially impacted by higher mortgage rates.

It’s been a relatively quiet morning so far in Europe, but things should pick up as we move into the US session with a number of key pieces of economic due to be released.

There’s been a lot of attention on the US this week, with economic data and comments from Fed members being picked apart ahead of the September meeting. The consensus in the markets now appears to be that the Fed will begin the first phase of its QE exit strategy at the September meeting, probably reducing its asset purchases to $60-65 billion a month, which is still a huge figure.

US Treasury yields rose to 2.8% on Thursday – the first time they have reached this level in two years – in response to the weekly jobless claims which fell to six year lows. The rise in yields coincided with a massive drop in US indices, with the Dow recording triple digit losses for the second consecutive session to end more than 200 points down on the day.

Clearly the shift of focus onto fundamentals during the corporate earnings season was only temporary and once again, the Fed dictates where the markets go. The only difference between now and before the corporate earnings season is that instead of looking for any excuse to go long, traders are going short at every opportunity, be it hawkish sounding comments from the Fed or good data.

There’s a few pieces of economic data due out this afternoon, which will be worth keeping an eye on. The UoM consumer confidence figure, as always, is extremely important given that consumer spending makes up around two thirds of US output.

Market expectations are currently for a slight improvement to 85.5 from 85.1 last month, but I struggle to see how we’re going to see this. Reports over the last month have suggested that consumers have felt the pinch as a result of higher fuel prices and mortgage rates, while consumer confidence in July unexpectedly fell further than expected.

On top of that, Wallmart disappointed yesterday when reporting second quarter earnings, with same store sales falling and sales expectations for the year as a whole being much lower than expected. All things considered, it seems very likely that the consumer sentiment figure today will fall significantly short of current expectations.

Also today we have the release of some July housing data. Housing starts and building permits are both expected higher in July, but again it will be interesting to see if falling demand due to higher mortgage rates has had an impact on these figures, like it has other housing figures recently.

Ahead of the open we expect to see the S&P up 2 points, the Dow up 3 points and the NASDAQ up 3 points.

Read the full report at Alpari News Room​
 
UK Opening Call from Alpari UK on 19 August 2013

Investors look to FOMC minutes for tapering hints

Today’s UK opening call provides an update on:

• Markets lacking direction as investors seek more tapering clues;
• FOMC minutes on Wednesday to provide insight into views among Fed members;
• Jackson Hole to be a non-event compared to previous years;
• Retailers reporting earnings amid weaker consumer demand.

European indices are expected to open relatively flat on Monday, following a quiet session in Asia overnight that saw indices bouncing between small gains and losses.

The markets appear to be lacking any real direction at the moment, as improving data out of Europe continues to be overshadowed by increasing expectations that the Fed will begin winding down its asset purchase program in September. The improving economic data out of Europe should be providing a real boost to the markets, given that other countries have suffered over the last few years due to the ongoing slowdown in the region.

However, people are more concerned about whether the Fed will begin tapering at its next meeting in September, which is likely to continue to weigh on stocks over the next month or so. The majority in the markets appear to believe that tapering will begin in September, with the Fed testing the water with a small reduction to see what impact it has on government bond yields and then stock markets.

We may get some indication as to whether this is the case when the minutes from the June meeting are released on Wednesday evening. The minutes of the final meeting before September’s could give an indication about how many members are pushing for a rate cut in September, what conditions are necessary to convince them that September is the time to begin tapering and how much they intend to cut by.

This unsurprisingly makes the release of the minutes the key event this week. Aside from this, the economic calendar is looking a little light, with US housing data and Reserve Bank of Australia meeting minutes the only other key releases this week. The Jackson Hole symposium would ordinarily be a big occasion for the markets, given that on two occasions, Fed Chairman, Ben Bernanke, has used this as an opportunity to drop pretty big hints about the start of quantitative easing.

However, that is not to be on this occasion, as Bernanke, along with a number of other central bank governors, will not be attending. We will hear from Janet Yellen at the symposium, one of two likely successors to Bernanke, although we’re unlikely to get anything significant from her as she’ll only be moderating a panel discussion on Saturday.

As corporate earnings season draws to a close, there may be a little more focus on the consumer this week, with a number of retailers scheduled to release second quarter earnings. Last week we saw earnings from Wallmart disappoint, with the retailer reducing its growth outlook for the year on weak consumer demand. This was also reflected in Friday’s UoM consumer sentiment figure, which was well below market expectations.

Ahead of the open we expect to see the FTSE up 3 points, the CAC down 2 point and the DAX down 14 points.
 
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Weekly market preview – 19 August 2013

A moderately quiet week ahead for the global markets as far as economic events are concerned. The emphasis for the undoubtedly remain focused upon the timeline for Fed tapering, a resurgent eurozone, the Chinese slowdown and indecision as to the validity of BoE forward guidance.

In the UK, much of the focus will be upon the second GDP estimate for Q2 which has the potential to shock markets should we see a chance from the preliminary 0.6% figure. The US plays host to the Jackson Hole Symposium towards the end of the week, which provides the stage for potential Fed governors to stake their claim in the absence of many key central bankers. Meanwhile, in the eurozone, the release of prominent PMI figures for the French, German and eurozone economies. Markets will be watching closely to see if the recent positive sentiment brought about by recent GDP figures feeds through to another positive week for the eurozone.

In Asia, the Chinese HSBC flash manufacturing PMI figure is seeking to reverse some of the losses seen over the past three releases. Meanwhile, the Japanese markets will be geared solely towards the trade balance figure on Monday. Finally, the Australian focus will be on Tuesday, with the release of minutes from the monetary policy meeting back on 6 August.


UK

A very quiet week in terms of economic releases in the UK, where the only release of note comes in the form of the second estimate GDP release on Friday. The preliminary figure is typically the most volatile GDP release, and thus there is lessened expectations for this week. That being said, the NIESR Q2 GDP figure pointed to a potential 0.7% rise, which is above the 0.6% preliminary number provided in early August. Subsequently, with markets expecting no change, an adjustment would likely catch people by surprise and spark volatility.

US

A somewhat busier week for the US, with the major event coming in the form of the Jackson Hole symposium, FOMC minutes and home sales figures. The week begins in earnest on Wednesday, with the existing home sales figure, which is expected to show further improvements for the crucial housing sector. Market expectation is for a rise from 5.08 million to 5.15 million, which would represent a reversal after a reduction last time around. The importance of the existing figure is that this represents the majority of the total home sales data and thus is the leading indicator of housing market strength. On the whole, this release has tended to disappoint with four out of the last five figures coming in below estimates and thus the bias continues to be downward.

Also on Wednesday, the minutes from the last FOMC meeting are released. The talk of tapering within the markets have reached a crescendo over recent weeks, with speculation pointing to a potential reduction in the rate of asset purchases occurring in September. This is by no way guaranteed and thus these minutes are likely to be poured over for any indication of a timescale. Other points to look out for are hints as to the amount and type of purchases which are going to be affected.

Such tapering is expected to be largely effected by the ongoing employment data out of the US. However, given the lack of remaining rate and non-farm payroll figures until the September decision, the weekly unemployment claims figure will play a more prominent role. This week we are expecting a marginal rise from 320k to 322k, which would likely bring little in terms of response. However, be aware than any large movement away from this estimate could bring market volatility.

Finally, the week is rounded off by the annual Jackson Hole symposium, due to be held on Thursday and Friday. This is a meeting where central bankers, finance ministers, academics and alike can hold discussions away from the press. Given the 2010 speech from Ben Bernanke provided strong hints to QE2, markets will be paying close attention to any announcements this year. That being said, the notable lack of high caliber central bankers (no Mario Draghi nor Mark Carney) brings about a more domestic feel. Thus many will be looking out for speeches from the likes of Janet Yellen, whose bid to become Fed chair has been the centre of debate over the recent months.

Eurozone

A particularly strong period for the eurozone recently comes back into question this week, with the release of crucial PMI figures for France and Germany, along with the region as a whole. Of those, it is the German manufacturing PMI reading which hold the most importance given the size of German industrial exports and the value that adds to the eurozone as a whole. This figure is expected to push further into expansion, from 50.7 to 51.1. Meanwhile, the other notable single release is the French manufacturing PMI, which is predicted to move out of contraction and into expansion, with a shift from 49.7 to 50.4. Overall, it is worth noting both releases in particular, but it is the overall movement of the full six figures which are likely to move the wider market. An out-performance across the majority of surveys will bring a notably positive tone for the prospects of the region and that is what I expect to occur given recent strength within the single currency.

Asia & Oceania

The major event of the week from a Asian perspective comes in the form of the Chinese HSBC flash manufacturing PMI figure for August. The importance of this figure is derived from the clear unreliability of Chinese data, with manipulation seemingly rife and difficult to quantify. Subsequently, the HSBC figures have tended to provide a more objective reading into the strength of the economy and in particular the key manufacturing sector. It is worth noting that the sizable spread between the HSBC and official manufacturing PMI readings are partly associated with the larger weighting given to small or medium sized firms in the HSBC measure. Nevertheless, this release is highly significant and the ability to reverse the recent decline would be an important step in convincing the world that the recent slowdown is coming to an end. Market expectation is for a rise from 47.7. to 48.3, which if attained would be notable. Overall the markets will be looking to at least see this figure moving in the right direction after a disappointing last month.

The Japanese week is likely to be fairly quiet, with the trade balance representing the only notable release. The importance of this figure will be whether the exports show significant strength given the relative weakness of the yen in 2013. The imposition of a sales tax has been hotly discussed over recent months and thus increased signs of international competitiveness would provide extra leeway for such a tax. It is also worth noting that Bank of Japan governor Haruhiko Kuroda will be speaking at the Jackson Hole summit later in the week where analysts will be looking out for any potential change in direction in policy.

Finally, the Australian markets will be looking towards the release of crucial RBA monetary policy minutes on Tuesday. This comes off the back of a reduction in the headline interest rate from 2.75% to 2.5% at the 6 August meeting. Overall, the discussions of a 50 basis point cut will be what people are keeping an eye out for. The reduction of the Australian dollar is key for the RBA and given the muted effect within the fx markets from this recent decision, people are looking ahead to see if another reduction could be discussed for future meetings.
 
US Opening Call from Alpari UK on 19 August 2013

Markets lacking direction ahead of FOMC minutes

Today’s US opening call provides an update on:

  • Markets lacking direction;
  • Retailers report second quarter earnings;
  • FOMC minutes to provide clues on tapering;
  • Jackson Hole symposium a non-event this year.

US futures are pointing to a relatively flat open on Monday, following a mixed session in Asia over night and negative start to the week in Europe.

Markets are lacking any real direction at the moment, with the prospect of the Fed reducing its asset purchases in September having a bigger impact than anything else. Investors don’t really have too much else to focus on, with the corporate earnings season drawing to a close and the economic calendar looking very light.

We could see investors turn their attention back to earnings season briefly this week, with some major retailers due to report second quarter earnings. Consumer spending makes up around two thirds of US GDP so these earnings are actually very important.

If like Wallmart last week, retailers revise down their expectations for the year, it would suggest that analysts and the Fed have once again overestimated how the economy will perform. This must have an impact on the Fed’s decision in September and is yet another reason why they shouldn’t seriously consider tapering until December, when the data will confirm whether or not the recovery is sustainable.

We will get some insight into the thinking of the FOMC on Wednesday, when the minutes from the meeting in July are released. There is no meeting in August so this was the final meeting before the one in September, when the majority in the markets expect the Fed to announce a small reduction in asset purchases.

The minutes could also give an indication on how the Fed will reduce its asset purchases, including how much it will reduce it by and whether it will reduce purchases of both government bonds and asset-backed securities, or just focus on one to begin with.

Aside from this, the week is looking a little quiet. The Jackson Hole symposium on Friday is going to be a bit of a non-event this year, with many central bankers not attending, including Fed Chairman, Ben Bernanke. Bernanke has used this event to drop big hints around quantitative easing previously. Without Bernanke there, and with Janet Yellen, Bernanke’s potential successor, only moderating a panel discussion, I don’t expect the event to attract too much attention this year.

Ahead of the open we expect to see the S&P down 2 points, the Dow down 15 points and the NASDAQ up 2 points.
 
Technical Analysis from Alpari UK on 20 August 2013

EURUSD

This pair remains stuck in a range between 1.32 and 1.34. Last week we saw a breakout attempt on both sides but both failed, highlighting the fact that the markets are really lacking direction over the last month. On the weekly chart, the descending trend line dating back to May last year is continuing to provide resistance for the pair after it once again closed below here last week. Last week’s candle was also a spinning top, which typically signals a reversal of the current trend and is therefore bearish in this case. The 200-week SMA is also providing significant resistance for the pair, while the stochastic is in the process of crossing in overbought territory, both of which are also bearish. All in all, the weekly chart certainly suggests we’re due some dollar strength. The daily chart also highlights a general lack of direction at the moment. The fact that the price action is flattening off can be read in two ways. Either we’re seeing some consolidation ahead of a continuation of the uptrend, or the bulls have lost momentum and the bears are creeping back in. I think the latter is true, although I’ll need to see some confirmation of this. As you can see on the daily chart below, we have an incomplete head and shoulders formation, and the pair appears to be headed back towards the neckline. If we get a close below here, this should prompt a more aggressive move lower, which could then break through 1.32, taking any stops with it.

eurusd-daily9.png


eurusd-weekly6.png



GBPUSD

Cable is long overdue a correction, having closed higher on five of the last six weekly candles. However, that doesn’t necessarily mean it will happen now. The pair has broken some key levels over the last week or so, including the descending trend line dating back to the start of the year, the 200-day SMA and the 50-week SMA, so the uptrend doesn’t appear to have lost any momentum yet. That said, it’s worth keeping an eye on the key resistance levels as these could give an indication about where the reversal will occur. The pair is currently finding resistance around 1.5650, a previous level of resistance on numerous occasions, however I expect it to push on further with the next key level of resistance coming around 1.5750. This has previously been a key level of support and resistance, while the 200-week SMA should also provide significant resistance at this level.

eurusd-daily10.png


eurusd-weekly7.png


USDJPY

We’re continuing to see consolidation in the dollar yen pair, following the aggressive push higher in the final quarter of 2012 and the first quarter of 2013. The pair looks to be nearing a breakout, however we may have to wait a few weeks yet, with it possibly coming in September if the Fed confirms its intentions to taper. For now though, I expect further consolidation, with the pair now targeting 95.76 again, after breaking below an ascending trend line (blue), before retesting it and failing to break back above. The pair is currently finding support around 97, a previous level of support, but I expect it to break below here in the coming days before finding support from the ascending trend line, dating back to 25 February, which also coincides with that previous low, around 95.76.

usdjpy-daily7.png


usdjpy-weekly3.png
 
US Opening Call from Alpari UK on 20 August 2013

Investors uneasy ahead of FOMC minutes on Wednesday

Today’s US opening call provides an update on:

* Investors uneasy ahead of FOMC minutes on Wednesday;
* FOMC minutes unlikely to contain tapering clues;
* Stocks and bonds to remain under pressure as markets hate uncertainty;

With the September meeting of the Federal Reserve fast approaching, we’re seeing a lot more unease in the markets, with Treasury yields currently above 2.8% and money pouring out of emerging markets.

Clearly the markets are preparing for the announcement from the Fed that they will begin scaling back its asset purchases, and the recent response in the markets suggests the majority think that will come in September.

We’re seeing a lot more risk aversion in the markets now, with Asian indices plummeting over night and European stocks following suit this morning. With very little data out over night and again today, investors are clearly preparing themselves ahead of the Fed minutes which will be released on Wednesday.

I’m not convinced at this stage that we’ll learn too much from the minutes that we don’t already know. The Fed is unlikely to set thresholds that must be met in order to taper in September, and they’re unlikely to have discussed how much they plan to taper because that, like the decision itself, is probably heavily dependent on the data.

That has never stopped the markets panicking in the past and doesn’t look like stopping them now. The markets hate uncertainty, especially when it is likely to have a significant impact on the markets.

Strangely, US futures are pointing to a flat open, despite the reactions seen in Asia and Europe. This could be just a technical pull back after indices yesterday ended the session half a percentage point lower, or a reaction to the slight pull back in Treasury yields which fell to 2.81% on Tuesday after hitting highs of 2.88%.

Whatever the reason, I expect equities and Treasury prices to remain under pressure in the coming weeks, whether or not the minutes tomorrow spark any selling. While I’m still of the opinion that the data hasn’t been good enough to justify tapering in September, the majority in the markets clearly disagree. For now, the latter is all that matters.

Ahead of the open we expect to see the S&P up 1 point, the Dow up 12 points and the NASDAQ flat.
 
UK Opening Call from Alpari UK on 21 August 2013

Markets expecting too much from FOMC minutes

Today’s UK opening call provides an update on:

• Investors seek tapering clues from FOMC minutes this evening;
• Small improvement expected in existing home sales in July;
• UK government borrowing improving as economy picks up;
• UK mortgage approvals expected to continue steady rise.

All eyes are going to be on the US on Wednesday, with housing data out shortly after the opening bell and more importantly, minutes from the Fed meeting in July being released this evening.

For about a year now, the way the financial markets have behaved has been dictated by the Federal Reserve, with quantitative easing inflating equity and debt prices not just in the US, but in Europe, Asia and the emerging markets. Ever since Fed Chairman, Ben Bernanke, suggested in May that the Fed could start reducing its asset purchases from the current level of $85 billion dollars a month later this year, the markets have been trying to guess exactly when this will be and by how much.

The markets quickly narrowed it down to one of two meetings, September or December, as these were the only two remaining meetings this year when Bernanke holds a press conference afterwards. The Fed have previously saved the big decisions for such meetings. Over the last few months, the consensus has shifted repeatedly between these two dates, but not the majority in the markets seem convinced that the Fed will begin to taper in September.

I am still not among the majority as I don’t believe the data has been indicative of a sustainable recovery in the US. On top of that, the rise in rates that would come with tapering in September could severely damage the recovery in the housing market, which has thus far underpinned the recovery in the economy as a whole.

That said, the markets suggest the majority do not share that opinion, which is why we’ve seen so much caution in the markets over the last couple of days. The minutes of the July meeting, the final one before September’s, will be released this evening and could provide some key clues around the Fed’s decision to reduce its asset purchases, including what improvement they’ll need to see in the data in order tapering to begin, when they’d be looking to start and how much they will taper by.

While all this could be in the minutes, I think the best we can hope for is to get an indication about what the numbers were like in terms of the voting in July and whether any of the more dovish members were coming around to the idea of tapering in September. We’ve heard from a number of Fed members since the meeting and the camp seems split pretty evenly on the matter, which again, to me, suggests tapering in September is unlikely.

As I mentioned earlier, the recovery in the housing market really has contributed hugely to the economic recovery as a whole in the last year. However, the recent rise in Treasury yields, and therefore mortgage rates, does appear to be having an impact on this. While we haven’t seen a dramatic reduction in the number of those buying properties, we have seen an impact and it’s still early days. Housing data, including today’s existing homes sales, will be watched closely in the coming months for further signs that the recovery has been damaged by these rising rates.

It’s going to be relatively quiet again in Europe this morning with very little economic data due out. Public sector net borrowing is expected to have fallen by £5.6 billion in July, which based on past data isn’t that uncommon. UK mortgage approvals will also be of interest to the markets, given that, like the US, the UK is attempting to start a recovery in the housing market in the hope that it provides a boost to the wider economy, through schemes such as “Help to Buy” and “Funding for Lending”. So far, the efforts appear to be working, the economy has picked up significantly this year, as has the housing market, with mortgage approvals rising steadily over the last year.

Ahead of the open we expect to see the FTSE down 3 points, the CAC down 2 point and the DAX down 5 points.
 
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