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UK Opening Call from Alpari UK on 24 July 2013

Europe higher despite poor Chinese manufacturing figure

Today’s UK opening call provides an update on:

• Chinese manufacturing contraction gathers pace in July;
• Investors not rattled after Premier Li vows to defend minimum 7% growth target;
• Eurozone PMIs expected to close in on 50 level;
• US housing data in focus after Monday’s disappointment.

Most European indices are expected to open higher on Wednesday, despite seeing another disappointing manufacturing PMI out of China.

The HSBC flash manufacturing PMI fell for a fourth consecutive month in July, to 47.7, adding to concerns that the slowdown in China is gathering pace. Under normal circumstances, this would weigh heavily on investor sentiment and therefore risk assets, such as the European indices, however that is not the case this morning. That said, the FTSE 100, which is more exposed to China due to its heavy weighting of miners, is expected to open marginally lower, however under the circumstances this reaction is minor compared to what it would have been last week.

The difference between now and a week ago is simple. A week ago there were concerns that Chinese growth could fall to as low as 5% in the next 12 months, due to falling demand for exports, particularly from the US and Europe, as well as problems at home, with lending rates spiking and consumers not filling the void left by falling export orders. Since then, the Premier Li Keqiang has vowed not to defend the minimum growth target of 7%, which means any slowdown will be met with more infrastructure spending in order to boost growth again. This should limit the short term negativity surrounding poor Chinese data because it seems for now that growth is guaranteed to remain at these higher levels.

The same cannot be said if we see similarly poor PMI figures out of the eurozone this morning. While we’ve seen a significant improvement in both the services and manufacturing PMIs in France, the opposite has been true of Germany, who’s manufacturing and services industries spent most of the second quarter in contraction territory.

The eurozone as a whole appears to have benefitted in recent months from a lack of attention on the region, with investors and analysts distracted by the Federal Reserve and its plans to taper. Even the political instability in Portugal only grabbed the headlines for a couple of days, which suggests that the perceived risk in the euro area is falling, or investors can’t focus on two things at once. Unfortunately, the latter is probably more accurate.

That said, in the short term that may not be a bad thing. Both the French and eurozone manufacturing and services PMIs are now very close to the 50 level, which separates growth from contraction. If we can see either, or both, climb into growth territory in July, it should provide a big boost to the markets. However, I may be getting ahead of myself here, as current expectations are for a small improvement in the figures, with all remaining below 50.

In the US, we also have the release of the flash manufacturing PMI, which is expected to remain comfortably in growth territory in July, at 51.9. It is worth noting here that we did see a significant drop in the Richmond Fed manufacturing index yesterday, which may weigh on this figure.

Also today, we have the new home sales figure, which is expected to rise to 485,00, the highest level since July 2008. Again, it’s worth highlighting here that Monday’s existing home sales figure was well below expectations, which could be an early sign that rising mortgage rates could weigh on housing data in the future. We should be prepared for a surprise to the downside again, just as we saw on Monday.

Ahead of the open we expect to see the FTSE down 4 points, the CAC up 7 point and the DAX up 10 points.
 
US Opening Call from Alpari UK on 24 July 2013

Europe pushes higher on stronger eurozone PMIs

Today’s US opening call provides an update on:

* Contraction in Chinese manufacturing gathers pace in July;
* Japanese exporters benefit from weaker yen;
* Conditions continue to improve in the eurozone;
* US new home sales and flash manufacturing PMI released Wednesday.

European indices are trading higher across the board on Wednesday, as investors get a boost from eurozone PMIs and shake off the disappointing data from China.

A week ago the Chinese data may have had a much bigger impact on market sentiment. However, with Premier Li Keqiang coming out earlier this week and providing assurances that growth will not be allowed to drop below 7%, the fear of a hard landing in China has clearly subsided, for now.

Things are starting to look up for Japan, despite the country reporting another trade deficit. Japanese exports rose for a fourth consecutive month, up 7.4% from a year earlier. While exporters are clearly benefitting from a weaker yen, we may have to wait a little longer before we see a trade surplus from Japan again, with imports still rising faster than exports, due to the weaker currency making imports more expensive, and demand from China, Japan’s biggest export partner, rising at a slower rate.

If manufacturing and services PMIs are to be believed, the next six months should be much better for the eurozone. While both figures remained in contraction territory for France, they’re only marginally off being back in growth territory once again, having been below 45 only four months ago. If the actual data starts to reflect this improved optimism in the surveys, France will not be in recession for long.

The data from Germany and the eurozone was even better. Both the manufacturing and services sectors are seen growing in Germany in the next six months, while only the services sector remained in contraction territory in the eurozone, and even this was very close to 50.

There are a still a few items on the economic calendar worth keeping an eye on today, starting with the US flash manufacturing PMI. This is expected to remain comfortably in growth territory, at 51.9, although it is worth remembering that the Richmond Fed manufacturing index came in well below expectations yesterday at -11. While this doesn’t mean we’ll see a contraction figure in the official PMI, we should potentially prepare for another disappointment today.

New home sales are also going to be watched closely, after existing home sales missed expectations on Monday. Housing data has been key to the recovery, albeit minor recovery compared to forecasts earlier this year, in the US, although the figures may start to fall as mortgage rates move up in line with rising Treasury yields.

Corporate earnings will also be in focus on Wednesday. Apple and AT&T reporting better than expected earnings last night, which provided a boost in afterhours trading. Today we have a number of companies reporting, having already had results from ARM, including PepsiCo, Visa, Boeing and Facebook.

Ahead of the open we expect to see the S&P up 5 points, the Dow up 28 points and the NASDAQ up 24 points.
 
UK Opening Call from Alpari UK on 25 July 2013

UK recovery expected to gather pace in the second quarter

Today’s UK opening call provides an update on:

• Mixed earnings from the US weighs on stocks, Techs perform well;
• Asia lower as Caterpillar warns of global downturn;
• German IFO and UK Q2 GDP eyed this morning;
• US auction watched as yields hit two year high.

European indices are expected to open slightly higher this morning, despite stocks in the US and Asia falling on mixed earnings and a global growth warning from Caterpillar.

While US earnings season is still being seen as a success so far, yesterday was pretty mixed, which weighed on investor sentiment. Strong earnings from Apple helped boost the Tech sector, however this was one of the few sectors that advanced during the US session. Facebook shares also made significant gains in afterhours trading, over night, after the company smashed earnings and revenues expectations in the second quarter. Also, mobile ad revenue, whose weakness was largely responsible for the stock’s decline following the IPO last year, grew substantially in the second quarter and now makes up 41% of total ad revenue. With users now accessing Facebook from a mobile devise more and more, this has become hugely important for investors.

To an extent, the pull back in the markets was also technical. The S&P, for example, has been trading at record highs again recently, so any negative or mixed news is going to be seen as an opportunity to sell and buy again at a lower price. I’m not concerned that the index has now made two daily losses, I’m convinced that this will be seen as an opportunity to buy on the dips and the S&P will be back trading at record highs, potentially even today.

The mixed US earnings also weighed on Asian stocks over night, where indices traded in the red across the board. Caterpillars gloomy outlook for the rest of the year didn’t help matters. The companies huge exposure to China gives it a lot of credibility when it comes to its outlook, so claims that the global economy will only grow by 2% this year did not sit well with investors. These warnings shouldn’t come as too big a surprise to investors though, given the slower than anticipated growth being seen in the US and China this year, not to mention the ongoing slowdown in Europe.

One again today, corporate earnings are going to be key when it comes to market sentiment. Among the big names reporting second quarter earnings in the US, we have Amazon, 3M and General Motors, while in the UK the most notable earnings will come from BT.

There’s also a few economic releases on Thursday, which could shake things up. The German IFO business climate figure is expected to climb again, although only marginally, to 106.1. The slowdown in China, one of Germany’s biggest trading partners and the continued decline in the eurozone, is expected to continue to weigh on this figure in the short term. Under the circumstances, these small gains are actually encouraging, although we’re unlikely to see a substantial improvement here for some time.

Also this morning, we have the first estimate of the UK’s second quarter GDP figure. Market expectations are currently for a figure of 0.6%, which by historical standards is nothing to write home about, but in the current economic environment would be quite encouraging. Any figure around this would provide a real boost to the FTSE and pound sterling, and also ease the pressure on the Bank of England to stimulate an economy that is on the track to recovery. Forward guidance would clearly aid the recovery, however anything along the lines of asset purchases would not be necessary.

Over in the US, we have durable goods orders, which are expected to rise by around 0.5%, followed by weekly jobless claims, which are expected at 340,000 following last week’s surprise drop to 334,000. Also worth keeping an eye on will be the US auction of seven year notes, given the recent spike in US yields. Demand is likely to remain high for the auction, but it will be interesting to see what investors demand for holding US debt, with some claiming that these yield increases are only just getting started.

Ahead of the open we expect to see the FTSE up 2 points, the CAC up 2 point and the DAX flat.
 
US Opening Call from Alpari UK on 25 July 2013

US to track Europe lower on mixed earnings

Today’s US opening call provides an update on:

* Mixed earnings blamed for lower start in Europe and the US;
* Drop of 16% in BT profits see the company trading almost 2% lower;
* UK grows by 0.6% in Q2, in line with expectations;
* US jobless claims and durable goods orders released on Thursday.

European indices are trading in the red across the board on Wednesday, and the US is expected to follow suit, with mixed corporate earnings apparently being blamed for the losses.

While the earnings season isn’t going fantastically, I don’t think it’s going badly either. It looks to me like some results, such as AT&T and Caterpillar, are being used as an opportunity to sell at the current highs, creating another opportunity to buy the dips.

The growth warning from Caterpillar is a bit of a concern, however they didn’t necessarily tell us anything we don’t already know. Any comments from the company do carry a lot of weight, given their exposure to China, in particular, but I don’t see these as a game changer.

There are plenty of companies reporting second quarter earnings on Thursday. With fundamentals now playing a much bigger part in the markets, these are likely to have a significant impact again today. Among those companies reporting earnings on Thursday, we have Amazon, 3M and General Motors.

Earnings from BT this morning have hardly helped matters. The company reported a 16% drop in first quarter profit, before falling almost 2% early in the session. On a brighter note, the economic data has been positive this morning, with both the UK GDP and German Ifo coming out in line with expectations.

While this may not seem that impressive, it’s been a long time since we’ve seen quarterly growth as high as 0.6% in the UK, without it being attributed to the Olympics. It is also the first time in almost three years that we have seen growth in all four sectors of the economy, services, industrial production, construction and agriculture, which is a massive boost for the UK.

The German Ifo business climate was marginally above expectations, at 106.2 in July. Again, the fact that we’re seeing gradual improvements here is a bigger achievement that it looks, given that some of Germany’s biggest trading partners are either contracting or at least slowing. Unfortunately though, these figures were largely overshadowed by earnings which look to continue to weigh on markets today.

There are a couple of notable economic releases still to come today. In the US, we have the durable goods orders for June, which give a good indication about spending in the US. A pick up here generally suggests that Americans are more optimistic about the outlook and are therefore investing in things with a longer shelf life. A rise of 0.5% is expected, although given last month’s significant increase and the historical volatility in the figure, we could easily see a miss here.

Also out today is the weekly jobless claims, which are expected to rise slightly to 340,000, following last week’s surprise drop to 334,000. The fact that these figures have stayed predominantly below 350,000 this year is really encouraging for the US, even if hiring isn’t quite as high as they’d hope. This shows businesses are not looking at downsizing, despite the lower growth being seen.

Ahead of the open we expect to see the S&P down 8 points, the Dow down 74 points and the NASDAQ down 7 points.
 
UK Opening Call from Alpari UK on 26 July 2013

UK and US earnings in focus on Friday

Today’s UK opening call provides an update on:

• European indices track US higher;
• Nikkei tumbles on stronger yen;
• “Abenomics” having desired effect as CPI jumps to 0.2%;
• Focus on UK earnings.

European indices are expected to open higher on Friday, following on from gains made late on in the US session, which saw indices end Thursday in positive territory.

Things were relatively mixed in the Asian session over night, with the Hong Kong and Australian indices both recording gains, while Japanese stocks tumbled, in particular exporters, due to a strengthening yen. Exporters have benefitted significantly from the weakening yen so far this year, with the moves in the currency market making Japanese exports cheaper, so it’s not unusual to see a stronger yen go against them.

Early indications suggest that “Abenomics” may actually be working, albeit slowly, after Japanese inflation rose to 0.2% in July, compared to a year earlier. This figure came in above expectations of 0.1% and well above last month’s figure of -0.3%. It is also the biggest increase in consumer prices since May last year which is a real positive. Even the core CPI figure which strips out volatile food prices jumped 0.4%, which is a very positive sign.

It’s looking like being a relatively quiet end to the week in the markets, with the economic calendar looking pretty empty, and not many companies due to report second quarter earnings, especially compared to the numbers seen over the last week. The only notable economic release on Friday comes from the US, with the revised UoM consumer sentiment figure due to be released just before 3pm BST.

This is expected to be revised slightly higher to 84.0 from 83.9, so no market reaction is expected. We could see some kind of reaction if we get a bigger revision, although the reaction to the economic data so far this week suggests investors are more concerned with earnings than they are with economic data.

On the earnings front, there are a couple of noteworthy earnings in the US, including AbbVie and LyondellBasell Industries. However, the focus may be on the UK today, with Anglo American, BG Group and BSkyB all reporting earnings.

Ahead of the open we expect to see the FTSE up 25 points, the CAC up 24 point and the DAX up 54 points
 
UK Opening Call from Alpari UK on 30 July 2013

Eurozone recovery expected to continue in July

Today’s UK opening call provides an update on:

* Investors have one eye on Fed press conference on Wednesday;
* Deterioration in US housing data could push tapering back to December at the earliest;
* Eurozone data in focus this morning.

European indices are expected to open slightly higher on Tuesday, as equities in both the US and Asia remain under pressure ahead of the rate decision and press conference from the Federal Reserve on Wednesday.

The end of the year can’t come fast enough for those looking for some kind of normality to the markets. For now though, we’ll have to make do with all the hysteria that comes with Fed press conferences and tapering. Over the last few weeks, we have seen some return to normality in the markets, with corporate earnings season being a key driver of sentiment. However, investors clearly still have one eye on what the Fed is doing.

This hasn’t been helped by the recent deterioration in the US housing data, which up until recently has been a major boost for the economy. Higher mortgage rates are clearly acting as a deterrent to those still on the fence about whether to dive back into the housing market, as highlighted by the recent drop in the existing and pending home sales figures.

The deterioration in what has been one of the strong areas of the US economy may now encourage the Fed to hold off on tapering until the end of the year at the earliest, with unemployment still well above 7%, the participation rate low and part-time employment at high levels. Any hint at this on Wednesday from Bernanke will undoubtedly be bearish for the greenback and bullish for stocks.

As for today, we could see an element of caution in the markets, as we saw on Monday. Not only do we have the Fed rate decision and press conference tomorrow, we also have the release of the second quarter GDP figure, the BoE and ECB rate decisions on Thursday and the US jobs report on Friday.

There is still plenty to keep an eye out for on Tuesday though, starting with the German Gfk consumer confidence figure, which is expected to rise to 6.9, up from 6.8 a month earlier. The Spanish flash GDP figure is also expected to show that the country narrowly avoided climbing out of recession in the second quarter, after contracting by 0.1%. Any positive surprise here will be a major boost to the country, which has been stuck in recession since the fourth quarter of 2011.

At 10am BST, we have the release of a number of eurozone sentiment figures for businesses and consumers. All of these are expected to improve, as we saw with the PMIs last week, although most should remain in negative territory, as people remain pessimistic about the outlook for the eurozone this year.

All things considered, it may be the case the Mario Draghi’s forecasts earlier this year that the eurozone would climb out of recession in 2013, may not have been that unrealistic after all. There has been a significant improvement in confidence in the second quarter and now we could see Spain pull out of recession in the second or third quarter. That said, the recovery remains fragile and it won’t take much for confidence to be shattered once again.

Finally, the German CPI figure is expected to show that inflation remained at 1.8%, year on year, in July. With German Bundesbank head, Jens Weidmann, a major player on the board of the ECB, this doesn’t bode well for those hoping for a rate cut on Thursday, given that this falls nicely within the ECBs inflation target of at, or below 2%. That said, it’s the eurozone inflation figure, released Wednesday, which will have the biggest impact on the decision.

Ahead of the open, we expected the FTSE to be up 30 points, the CAC up 17 points and the DAX up 34 points.
 
US Opening Call from Alpari UK on 30 July 2013

Earnings back in focus ahead of central bank meetings

Today’s US opening call provides an update on:

* Confidence on the rise in the eurozone;
* Spain remains in recession, but only just;
* Traders cautious ahead of central bank meetings;
* Corporate earnings remain in focus on Tuesday.

European indices are trading higher this morning, following some positive data and earnings early in the session.

The economic data out of the eurozone has once again been quite encouraging. The German Gfk consumer confidence rose for a sixth consecutive month, coming in above expectations at 7.0. This is the highest consumer confidence figure seen in Germany since June 2007, which under the circumstances is quite encouraging.

Also encouraging is the other eurozone sentiment surveys for July, which were also released this morning. Consumer confidence, business climate, economic sentiment, services sentiment and industrial confidence figures all improved significantly this month, which suggests Mario Draghi may have in fact been correct earlier this year, when he claimed the eurozone would pull itself out of recession later this year.

One country that looks on the verge of pulling itself out of recession is Spain. In the second quarter, it contracted by only 0.1%, which means with only a marginal revision, the country may have already moved out of recession. While all of this looks positive for the euro area though, things can still go very wrong, as we’ve seen on numerous occasions in the past, so it’s still far too early to get carried away.

US index futures are trading in positive territory this morning, tracking their European counterparts higher. There is clearly an element of caution in the markets though, which is unsurprising given some of the events still to come this week.

We always see a little caution during the week in the lead up to the jobs report. Especially when we have Fed, BoE and ECB meetings and the flash US GDP reading for the second quarter. Many are now expecting the Fed to come across more dovish following some weak growth and housing data. The unemployment rate is also likely to stay high as we see an improvement in the participation rate.

Today we’re likely to see more focus on corporate earnings again. We’ve already had some disappointing results from Barclays this morning, which helped pull RBS and Lloyds lower ahead of their results later this week. Still to come today, we have BP, Deutsche Bank and Pfizer all reporting earnings.

Ahead of the open we expect to see the S&P up 2 points, the Dow up 24 points and the NASDAQ up 6 points.
 
UK Opening Call from Alpari UK on 31 July 2013

Eurozone unemployment and CPI in focus ahead of FOMC

Today’s UK opening call provides an update on:

• Traders cautious ahead of FOMC statement;
• Eurozone unemployment expected to drop for first time since March 2011;
• ECB left with little room to manoeuvre if inflation rises to 1.7%;
• US growth falling and H2 is looking no better.

The cautious tone seen over night in the US looks set to continue in Europe today, as investors opt to sit on the sidelines ahead of some major economic releases and the Federal Reserve statement.

While few believe that the Fed will make any changes to its asset purchase program today, in the form of tapering, it very rarely pays to try and guess what the Fed is going to do. Even when correct, markets can be so volatile around the decision and the release of the statement, that most forms of technical analysis go out of the window and it can be very difficult to profit from it. That’s why we always tend to see similar scenarios to what we have this morning, with markets opening largely flat.

This is now likely to be a common theme for the rest of the week, with the Bank of England and ECB rate decisions tomorrow and the US jobs report on Friday. That said, one thing is guaranteed for the rest of the week, there’s going to be no shortage of volatility in the markets.

While the headline event on Wednesday is going to be the monetary policy decision and statement from the Fed, the rest of the day is going to be far from quiet. Unemployment data from Germany, Italy and the eurozone as a whole will be of interest this morning. There’s been a significant improvement in a number of the business and consumer surveys in recent months, which should hopefully have resulted in a boost in consumer spending and hiring, or so you would assume. The eurozone unemployment rate is expected to fall from 12.2% last month, to 12.1% in June, which would represent the first drop in unemployment since March 2011. This would be quite an encouraging sign going forward.

The CPI figure for the eurozone will also be of interest today, ahead of the ECB rate decision tomorrow. Inflation is expected to have risen to 1.7% in July, leaving the ECB very little room to manoeuvre if it is going to stay within its target of at, or below, 2% inflation. There is already very little chance that the ECB will cut interest rates tomorrow, and this figure, if in line with expectations, will only reduce the odds further.

Moving on to the US next and the focus before the opening bell is going to be on the release of the second quarter GDP figure. Growth in the US has been extremely disappointing so far this year, especially when compared with most forecasts from the beginning of the year. Today’s figure is expected to show the economy grew at an annualised rate of 1.2% in the second quarter, well below original forecasts for this year of 2.5-3.5%. Some believe growth will pick up in the second half of the year, but I remain sceptical, with rising oil prices, cuts to government spending, falling demand in the housing market and a slowdown globally likely to weigh on growth in the US.

Finally we have the headline event, the FOMC rate decision and corresponding statement. As I mentioned earlier, no tapering decision is expected today, with the Fed not scheduled to hold a press conference after. This is likely to come either in September, or, more likely, December. However, the statement will probably contain vital clues about when tapering will begin, based on the current economic environment, and when asset purchases will come to an end. As a result, plenty of volatility is expected around this announcement.

Ahead of the open we expect to see the FTSE up 10 points, the CAC down 5 point and the DAX down 6 points.
 
US Opening Call from Alpari UK on 31 July 2013

Markets marginally higher as traders turn to FOMC statement

Today’s US opening call provides an update on:

* Markets only marginally higher in response to strong eurozone unemployment data;
* Traders to use GDP and ADP to guess at Fed’s stance;
* ADP important today despite historical inaccuracy;
* Earnings suggest it is not the time to turn the QE taps off;
* Gold slightly higher in the lead up to the Fed statement.

Encouraging unemployment data for the eurozone has got things off to a positive start on Wednesday. However, investors are clearly focused on one thing today, the FOMC statement, with European indices and US futures only trading marginally higher in response to the figures.

We also have the first reading of the second quarter GDP figure for the US due out before the opening bell, as well as the ADP non-farm employment figure, but even these are simply going to be used to try and guess whether the stance of the Fed is going to be more dovish or hawkish.

While there is a lot more emphasis on the fundamentals at the moment, as seen over the last couple of weeks with corporate earnings being a key driver in the markets, the Fed is always going to play an equally important role. People may have accepted that tapering will begin later this year, but that doesn’t mean that it doesn’t matter when.

There appears to be a slightly higher bias towards September at the moment, which is why the FOMC statement tonight is so important. This is the last meeting until September, so the statement should give a major clue about whether they are leaning towards tapering in September, or whether they’ll hold off until December. For me, I think it’ll be December at the earliest. Especially if the GDP figure today is in line with, or below, expectations.

Despite being historically inaccurate, the ADP figure will also be important today. The non-farm payrolls figure won’t be available until Friday, so the ADP figure will give us a clue about what kind of number the Fed has been working with when constructing their statement.

Aside from this, traders will also have one eye on corporate earnings with Comcast, Mastercard and Phillips 66 all reporting in the US. Despite the positive start, corporate earnings season hasn’t actually been overly encouraging this time round. While around two thirds of the S&P 500 companies have beaten earnings expectations, the beats have been smaller than in previous quarters, and revenues have still not been great. This is hardly ideal at a time when the Fed is looking to turn the QE taps off.

So far this morning, the markets have been relatively steady despite the raft of good data. Gold and silver are both trading slightly higher in the lead up to the FOMC statement, which could suggest that traders are expecting something a little more dovish from the Fed.

All things considered, one message looks clear across all of the markets, and that is one of caution. Traders are very cautious ahead of the statement and rather than trying to guess the outcome, are currently opting to sit on the sidelines and see how it plays out. That may all change though if we see any surprises in the economic data this afternoon.

Ahead of the open we expect to see the S&P up 3 points, the Dow up 25 points and the NASDAQ up 5 points.
 
UK Opening Call from Alpari UK on 1 August 2013

All eyes on BoE and ECB following dovish Fed statement

Today’s UK opening call provides an update on:

• Stocks boosted by surprise growth in Chinese manufacturing;
• FOMC come across slightly more dovish in last night’s statement;
• BoE expected to hold off on forward guidance until next week;
• Draghi likely to give little away on ECBs “forward guidance”.

Stock markets received a boost over night, after the official Chinese PMI showed the manufacturing sector growing in July, beating market expectations for a small contraction.

There has been a major concern recently that falling external demand for Chinese manufactured goods, and weak demand domestically, could see the sector shrink significantly in the coming months and years. That doesn’t appear to be the case at the moment, according to the official PMI, which gave a reading of 50.3, indicating that the sector grew slightly last month. The markets were originally expecting a figure around 49.8, indicating a contraction.

Once again, the HSBC manufacturing PMI told an entirely different story, falling to 47.7, in line with market expectations. In recent months, investors have been more inclined to follow the HSBC figure, due to fears that the official figure could be easily manipulated, which many believe to have been the case on numerous occasions this year. However, there is another thing that would explain the difference in the figures. While the official PMI surveys a larger sample of state-run firms, which continue to be supported by large amounts of fixed asset investment, the HSBC PMI focuses more on small to medium sized firms, which are feeling the impact of rising wages, an appreciating yuan and slowing global demand much more.

Global markets also received a small boost over night from the FOMC statement, which despite being almost identical to June’s statement, did come across a little more dovish, suggesting that the Fed may hold off until December before tapering. As expected, the statement was overly scrutinized, so it is entirely possible that people have read too much into the statement, and the Fed’s position is in fact unchanged from the month before. That would explain the fact that US indices pared gains towards the end of the session to end the day slightly lower.

Today the focus will switch from the Federal Reserve to the Bank of England and the ECB. No change in interest rates or asset purchases is expected from the BoE, after the statement last month made it perfectly clear that the central bank would like to explore other methods of supporting the economy. We could get some form of forward guidance on interest rates, however it has been suggested that this may be given instead with the inflation report next week.

Following the last meeting, Mark Carney’s first as Governor, the BoE released a statement, similar to what we get on a monthly basis from the Fed. It is believed that the reason for the statement on this occasion was to clarify the bank’s fresh approach and new direction under Carney and it is unlikely to be a regular feature. That said, I think it’s safe to say that the markets would welcome more transparency from the BoE, so it will be interesting to see if this has been taken on board.

Shortly after the BoE decision, we have the ECB decision on interest rates, and once again, no change is expected. As always, ECB President Mario Draghi will hold a press conference at 1.30 (UK time), during which, increase amounts of volatility in the markets is to be expected. In the press conference, Draghi is expected to point out the recent improvement in the data out of the eurozone, while continuing to highlight the downside risks to the economy. While the markets would like more clarity on the ECBs forward guidance offered last month, since the guidance offered was extremely vague and barely guidance at all, I expect today’s responses will be just a vague and unhelpful.

We also have a relatively full economic calendar on Thursday, with the revisions to the eurozone manufacturing and PMIs due out early in the session. The first estimates of the UK and US manufacturing PMIs are also due out today, both of which are expected to improve slightly on last month. In terms of corporate earnings, there are a few major companies reporting today, most notably the second largest component of the S&P 500, Exxon Mobil, and in the UK, Royal Dutch Shell.

Ahead of the open we expect to see the FTSE up 25 points, the CAC up 21 point and the DAX up 47 points.
 
US Opening Call from Alpari UK on 1 August 2013

BoE & ECB: Focus on forward guidance

Today’s US opening call provides an update on:

* Europe higher on dovish Fed statement and Chinese manufacturing data;
* Strong PMIs help extend gains early in the session;
* BoE and ECB expected to leave rates unchanged, investors look for forward guidance;
* Economic data and earnings to come in the US session.

Investors are not holding back this morning, despite the fact that we are due to get interest rate decisions from the Bank of England and the ECB today, as well as a press conference shortly after from the latter.

Usually in the lead up to these meetings, there can be an element of caution in the markets, but that is certainly not the case this morning. Some dovish remarks in the FOMC statement last night, along with encouraging manufacturing PMIs from China and the eurozone today, has given investors a real boost so far in the European session.

While the FOMC statement did come across as more dovish, the Fed was careful not to give very much away, which means there is a risk that the markets have overreacted to minor irrelevant details. An example of this is the reaction to change from the “moderate” improvement in the economy in the previous statement to “modest” this month.

We may also be getting a little carried away with the Chinese manufacturing PMIs over night. In recent months, people have paid more attention to the HSBC PMI as there has been fears that the official PMI has been manipulated. With the official PMI rising to 50.3 this month, while the HSBC fell deeper into contraction territory, it has now been suggested that the difference may be due to the fact that the official survey includes larger state-run firms while the HSBC survey focuses on small to medium sized firms.

Even if this is true, it would be foolish to ignore the fact that manufacturing from small/medium sized firms is contracting at an increasing rate. All this does is increase the reliance on state-run enterprises for growth at a time when the government is looking to move away from the model of investment led growth. That said, the markets don’t appear concerned at this stage, instead using the official figure as an excuse to buy into any dips.

With the Fed statement disappointing after all the hype in the lead up to it, attention will now shift to the Bank of England and ECB meetings today. Neither are expected to make any changes to monetary policy, with the BoE and ECB expected to keep interest rates at 0.5%, and the former keeping asset purchases at £375.

One thing that traders will be looking for in both cases is forward guidance. The ECB offered what it calls forward guidance at the last meeting, but in reality it was nothing of interest. Claiming interest rates will remain low for an extended period of time is no different than previous claims that the ECB will remain accommodative for as long as necessary. An accommodative stance was always going to be necessary for an “extended period” of time, so unless Draghi plans to elaborate on this, we should really just ignore it.

At the same time, the statement from the BoE following the last meeting hinted at forward guidance, which looks to have been priced in now, to an extent. Forward guidance is not expected today though, but next week instead along with the inflation report. Unless the rate decision is accompanied by another statement, the BoE should be a dull affair.

Elsewhere today, we have some important pieces of data due to be released, including the US manufacturing PMI for July, which is expected to rise to 53.1, as well as the weekly jobless claims, which is expected to remain below 350,000. Corporate earnings season is also continuing to drive markets, although maybe not as much as in the last couple of weeks, and today we have Exxon Mobil reporting, the second largest component of the S&P 500.

Ahead of the open we expect to see the S&P up 11 points, the Dow up 90 points and the NASDAQ up 18 points.
 
UK Opening Call from Alpari UK on 2 August 2013

Traders turn to jobs report for tapering clues

Today’s UK opening call provides an update on:

• S&P and Dow hit new record highs over night;
• NFP has tended to beat expectations this year, figure above 184k likely;
• Drop in unemployment doesn’t take rise in participation rate into consideration;
• Fed’s Bullard due to speak this evening.

European indices are expected to open higher on Friday, after the S&P 500 and Dow in the US hit new record highs on Thursday following better than expected jobless claims and manufacturing data.

Investors appear completely unfazed by the prospect of Fed tapering in September and are instead buying on strong economic data, therefore focusing more on the fundamentals rather than what the central bank is doing. I’m still not convinced that we will see tapering in September, regardless of some of the data we’ve seen recently. The Fed’s statement on Wednesday, if anything, was more dovish than hawkish, which suggests they’re still concerned that the recovery is not sustainable. The last thing they want to do is withdraw support too early and have the recovery run into a brick wall.

The jobs report, released later on today, should give us a much better idea about how the economy is performing. The number of jobs created in July is expected to be around 184,000, bring the unemployment rate down from 7.6% to 7.5%. That said, there has been a tendency for the non-farm payrolls figure to beat expectations this year, with stocks then performing well on days when the jobs report is released.

The ADP figure, released Wednesday, suggests we could be in for another upside surprise today, after coming out above expectations at 200,000. That said, this has not been an accurate estimate of the NFP figure in the past so it should only be taken with a pinch of salt.

The unemployment rate will also be of interest today, given that the Fed is determined to see it fall below 6.5% before it considers raising interest rates, and 7.5% before tapering begins. The rate is expected to hit 7.5% today, but I don’t think we’ll see this. Even if we do get a good NFP figure, the forecast doesn’t appear to account for those returning to the labour market, after previously giving up. The increase in the participation rate, as we saw last month, is going to push the unemployment rate higher. We say the opposite at the back end of last year, when unemployment was falling, quite rapidly at times, despite NFP figures being average at best.

I think the smaller details should also be watched closely today as they will also have a bearing on whether the Fed tapers in September or not. For example, we may see a good NFP figure and a drop in the unemployment rate, but if the jobs created are mostly temporary or part-time, the improvement is hardly sustainable and therefore the withdrawal of stimulus would quickly reverse it. Also, things like average earnings and personal spending are also key today.

While the jobs report is going to be the main event today, there are a few other things worth keeping an eye out for. For example, the UK construction PMI is expected to rise to 51.6 in July, as the UK recovery continues to gather pace. US factory orders are expected to rise by 2.3%, although these numbers do tend to be volatile.

We’ll also here from voting FOMC member, James Bullard, who is due to speak on the US economy in Boston. This is likely to be followed closely, given that is comes shortly after the release of the jobs report. It will be the first chance for people to get some insight into how the report impacts the Fed’s position on rates and asset purchases. It is worth noting that Bullard is a well known dove, so if his comments come across slightly dovish, we shouldn’t read too much into it.

Ahead of the open we expect to see the FTSE up 27 points, the CAC up 22 point and the DAX up 58 points.
 
US Opening Call from Alpari UK on 2 August 2013

Markets pause ahead of key US jobs data

Today’s US opening call provides an update on:

* US futures flat as caution returns to the markets;
* NFP has tendency to beat market expectations in 2013;
* Unemployment rate also in focus as it nears Fed threshold.

European indices are trading slightly higher on Friday, while US futures are pointing to a flat open as caution returns to the markets ahead of the US jobs report for July.

So many times this week we’ve seen traders take a back seat and prepare for surges in volatility, only to be disappointed. We’ve had meetings of the Fed, ECB and Bank of England this week and each of them has been an extremely dull affair, with none of the above giving anything new away. The most disappointing of the lot was the ECB press conference yesterday, where ECB President, Mario Draghi, conceded that interest rate cuts and forward guidance thresholds hadn’t even been discussed.

Thankfully there’s been plenty of economic data released this week to help give the markets a bit of energy, while corporate earnings season has also helped. The lack of volume in the markets over the summer months hasn’t helped things over the last few week, although we have seen some improvement here this week.

I doubt we’ll be disappointed today though because irrespective of what number we get. With the Fed looking to taper in September or December, and traders appearing split on which they think it will be, whatever number we get is sure to get a response in the markets.

Current expectations are for a figure around 184,000, just short of last month’s 195,000. However, when you take into consideration the number of times we’ve seen above forecast figures this year, and the ADP figure of 200,000 released Wednesday, another beat here today looks on the cards.

While we have seen markets focus more on the fundamentals recently, and therefore buy on strong data even if it increases the probability of Fed tapering, it is still uncertain whether a strong jobs report today will have the same impact.

Traders bought into the slightly dovish Fed statement on Wednesday, which suggests that while they are more focused on the fundamentals, they still favour a scenario in which the Fed injects $85 billion per month into the financial system for as long as possible.

The unemployment rate will also be watched closely on Friday, given the Fed’s threshold of 7.5% to taper asset purchases and 6.5% to raise interest rates. Market expectations are for a drop to that 7.5% threshold today, although I can’t see it. It doesn’t appear to take into consideration the inevitable upward pressure that an increase in the participation rate would have on the unemployment rate.

The finer details in the report will also be important, including the number of part time and temporary jobs that contribute to the non-farm payrolls figure. We’re already seeing these contribute to the number of jobs added a lot more than is healthy. If the Fed withdraws its support, these will be the first to go and the unemployment rate will spike again.

Ahead of the open we expect to see the S&P down 1 point, the Dow down 5 points and the NASDAQ down 1 point.

Read the full report at Alpari News Room​
 
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