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UK Opening Call from Alpari UK on 29 October 2014
Data and earnings due this morning, Fed eyed later
• Positive US and Asian sessions feed through to Europe ahead of the open;
• US consumer confidence at seven year high as we enter the holiday season;
• Investors increasingly dovish ahead of the latest policy decision from the Fed;
• Low level data and more earnings on offer during the European session today.
A positive end to the trading sessions in the US and Asia overnight looks to be feeding through to Europe ahead of the open on Wednesday, where the FTSE is expected to open 24 points higher, the CAC 6 points higher and the DAX 28 points higher.
Most of this appears to be stemming from the US, where consumer confidence is at a seven year high according to the latest survey carried out by the conference board. At a time when people are desperate to question to strength of the global economy, it's very encouraging to see the US going from strength to strength. And what better time for consumer confidence to be at a seven year high than in the run up to the holiday season. It's clearly still early doors yet but this could be a very good quarter for the US.
Ahead of the latest monetary policy decision from the Federal Reserve this evening, we're also seeing evidence that people are anticipating a more dovish Fed in response to the slowdown in the eurozone and the disinflation that has been gripping many of the major economies. A survey compiled by CNBC showed that market participants are already scaling back their rate hike expectations to July, from June previously. There's also been a lot of suggestions that it could be put back further to the end of next year, while some have even speculated about the potential for QE4 even with QE3 only expected to come to an end this month.
These expectations are far more dovish than what we had a couple of months ago before that sell-off in the markets knocked everyone's confidence. If they're correct though, this is positive for the markets and could help them push beyond the current highs if confirmed by the Fed. With no press conference following today's decision, only the usual statement, I don't expect any significant shift such as that although I wouldn't write it off at the next meeting in December. Fed Chairwoman Janet Yellen is particularly dovish and I'm sure she'd welcome delaying the first rate hike, with wage growth still non-existent and productivity still an issue.
Back in Europe, there's not a huge amount for the markets to focus on today. There is some UK data being released that centre's around credit availability to households which may be of interest but is unlikely to have much of an impact on the markets. The same applies to the latest French consumer confidence reading and retail sales figures for Spain. While both are obviously of interest, market reaction to them tends to be non-existent.
This leaves us to focus on corporate earnings season, which has got off to a wobbly start this morning as Deutsche Bank posted a surprise net loss. There is still a large number of companies left to report in both Europe and the US before we get the latest announcement from the Fed today and with so little on offer on the economic calendar, this is likely to be a key driver of the markets. That said, people have built up the Fed to be so dovish at this stage, I would be surprised to see a little more caution creep in as we approach the decision, with the Fed now having a lot to live up to. Should we see no change in stance and just the end of QE, the markets may actually be a little disappointed.
Data and earnings due this morning, Fed eyed later
• Positive US and Asian sessions feed through to Europe ahead of the open;
• US consumer confidence at seven year high as we enter the holiday season;
• Investors increasingly dovish ahead of the latest policy decision from the Fed;
• Low level data and more earnings on offer during the European session today.
A positive end to the trading sessions in the US and Asia overnight looks to be feeding through to Europe ahead of the open on Wednesday, where the FTSE is expected to open 24 points higher, the CAC 6 points higher and the DAX 28 points higher.
Most of this appears to be stemming from the US, where consumer confidence is at a seven year high according to the latest survey carried out by the conference board. At a time when people are desperate to question to strength of the global economy, it's very encouraging to see the US going from strength to strength. And what better time for consumer confidence to be at a seven year high than in the run up to the holiday season. It's clearly still early doors yet but this could be a very good quarter for the US.
Ahead of the latest monetary policy decision from the Federal Reserve this evening, we're also seeing evidence that people are anticipating a more dovish Fed in response to the slowdown in the eurozone and the disinflation that has been gripping many of the major economies. A survey compiled by CNBC showed that market participants are already scaling back their rate hike expectations to July, from June previously. There's also been a lot of suggestions that it could be put back further to the end of next year, while some have even speculated about the potential for QE4 even with QE3 only expected to come to an end this month.
These expectations are far more dovish than what we had a couple of months ago before that sell-off in the markets knocked everyone's confidence. If they're correct though, this is positive for the markets and could help them push beyond the current highs if confirmed by the Fed. With no press conference following today's decision, only the usual statement, I don't expect any significant shift such as that although I wouldn't write it off at the next meeting in December. Fed Chairwoman Janet Yellen is particularly dovish and I'm sure she'd welcome delaying the first rate hike, with wage growth still non-existent and productivity still an issue.
Back in Europe, there's not a huge amount for the markets to focus on today. There is some UK data being released that centre's around credit availability to households which may be of interest but is unlikely to have much of an impact on the markets. The same applies to the latest French consumer confidence reading and retail sales figures for Spain. While both are obviously of interest, market reaction to them tends to be non-existent.
This leaves us to focus on corporate earnings season, which has got off to a wobbly start this morning as Deutsche Bank posted a surprise net loss. There is still a large number of companies left to report in both Europe and the US before we get the latest announcement from the Fed today and with so little on offer on the economic calendar, this is likely to be a key driver of the markets. That said, people have built up the Fed to be so dovish at this stage, I would be surprised to see a little more caution creep in as we approach the decision, with the Fed now having a lot to live up to. Should we see no change in stance and just the end of QE, the markets may actually be a little disappointed.
US Opening Call from Alpari UK on 29 October 2014
All eyes on the Fed as QE comes to an end
• US futures treading water ahead of FOMC decision;
• QE3 seen ending in October and statement unlikely to change significantly;
• World Bank fails to ease Chinese growth concerns.
US futures are treading water ahead of the opening bell on Wednesday, which will come as no surprise to many given that the FOMC is due to announce its latest policy decision later on in the day.
This also comes following a good showing on Tuesday, which was driven by a combination of a much better than expected consumer survey and a expectations that the first rate hike will come a little later than previously anticipated. The survey, carried out by CNBC, showed that market participants now see the first rate hike in July, a month later than previously though. This could continue to be pushed back if the inflation data continues in line with the current trend which would make it very difficult for the Fed to hike rates. There are even some that are already talking about the potential for QE4 which displays a massive change in thinking from a couple of months ago when people were discussing the prospect of an earlier rate hike.
What most people do seem to agree on is the fact that the Fed will bring its third quantitative easing program to an end this month with its final $15 billion taper. I would be very surprised to see anything different given that the rest of the tapering process has run so smoothly.
I would also be very surprised if the Fed significantly changes the language of the accompanying statement, which would include the remove of its commitment to keep rates low for a considerable amount of time. Not only have the conditions that Chairwoman Janet Yellen laid on in relation to wage growth not really improved but the inflation scenario is deteriorating both in the US and around the world. It wouldn’t make any sense to deliver a more hawkish statement at this time.
There would also be no opportunity to answer any questions if they did opt to change the statement significantly or delay the end of QE as this meeting will not be followed by a press conference. Given that the Fed will not want to contribute to more market drama if it can be avoided, I imagine any changes would be put off until December. I also can’t see what the benefit of delaying the end of QE would be. People only care about the first rate hike and the pace of increases thereafter. No one cares about QE any more unless there’s going to be a brand new stimulus package, which at this point is extremely unlikely.
The World Bank attempted to ease market concerns about the rate of growth in the Chinese economy today after it claimed that the country can afford to cut its 2015 growth target to 7% while maintaining a health labour market. There have been fears that China is facing a few very tough years after growth slowed 7.3%, its lowest rate since the start of 2009, in the third quarter. However, based on the World Bank’s remarks, there is no risk to the Chinese economy at these levels and it can even afford to slow a little further before the risks begin to build. Based on the muted reaction in the markets, it appears investors are not encouraged by this, potentially suggesting that they see much lower growth than 7% in the coming years.
The S&P is expected to open unchanged, the Dow up 8 points and the Nasdaq down 14 points.
All eyes on the Fed as QE comes to an end
• US futures treading water ahead of FOMC decision;
• QE3 seen ending in October and statement unlikely to change significantly;
• World Bank fails to ease Chinese growth concerns.
US futures are treading water ahead of the opening bell on Wednesday, which will come as no surprise to many given that the FOMC is due to announce its latest policy decision later on in the day.
This also comes following a good showing on Tuesday, which was driven by a combination of a much better than expected consumer survey and a expectations that the first rate hike will come a little later than previously anticipated. The survey, carried out by CNBC, showed that market participants now see the first rate hike in July, a month later than previously though. This could continue to be pushed back if the inflation data continues in line with the current trend which would make it very difficult for the Fed to hike rates. There are even some that are already talking about the potential for QE4 which displays a massive change in thinking from a couple of months ago when people were discussing the prospect of an earlier rate hike.
What most people do seem to agree on is the fact that the Fed will bring its third quantitative easing program to an end this month with its final $15 billion taper. I would be very surprised to see anything different given that the rest of the tapering process has run so smoothly.
I would also be very surprised if the Fed significantly changes the language of the accompanying statement, which would include the remove of its commitment to keep rates low for a considerable amount of time. Not only have the conditions that Chairwoman Janet Yellen laid on in relation to wage growth not really improved but the inflation scenario is deteriorating both in the US and around the world. It wouldn’t make any sense to deliver a more hawkish statement at this time.
There would also be no opportunity to answer any questions if they did opt to change the statement significantly or delay the end of QE as this meeting will not be followed by a press conference. Given that the Fed will not want to contribute to more market drama if it can be avoided, I imagine any changes would be put off until December. I also can’t see what the benefit of delaying the end of QE would be. People only care about the first rate hike and the pace of increases thereafter. No one cares about QE any more unless there’s going to be a brand new stimulus package, which at this point is extremely unlikely.
The World Bank attempted to ease market concerns about the rate of growth in the Chinese economy today after it claimed that the country can afford to cut its 2015 growth target to 7% while maintaining a health labour market. There have been fears that China is facing a few very tough years after growth slowed 7.3%, its lowest rate since the start of 2009, in the third quarter. However, based on the World Bank’s remarks, there is no risk to the Chinese economy at these levels and it can even afford to slow a little further before the risks begin to build. Based on the muted reaction in the markets, it appears investors are not encouraged by this, potentially suggesting that they see much lower growth than 7% in the coming years.
The S&P is expected to open unchanged, the Dow up 8 points and the Nasdaq down 14 points.
Daily Market Update - 29 October 2014 - Alpari UK
Markets higher, yet awaits FOMC announcement - 00;26
US GDP expected to confirm strong US end of year - 03:50
Eurozone CPI set to see out the week - 04:01
Research analyst Joshua Mahony discusses the markets as traders focus upon the release of the latest FOMC announcement and statement later today. Alongside this, Joshua touches on the US GDP release tomorrow and Friday’s Eurozone CPI figure.
Markets higher, yet awaits FOMC announcement - 00;26
US GDP expected to confirm strong US end of year - 03:50
Eurozone CPI set to see out the week - 04:01
Research analyst Joshua Mahony discusses the markets as traders focus upon the release of the latest FOMC announcement and statement later today. Alongside this, Joshua touches on the US GDP release tomorrow and Friday’s Eurozone CPI figure.
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UK Opening Call from Alpari UK on 30 October 2014
Focus on German unemployment and CPI as Fed ends QE
• Fed ends QE3 and adds more hawkish notes to its statement;
• Market reaction to hawkish Fed not as bad as it could have been;
• German unemployment seen rising for fifth month in six;
• Latest German inflation numbers accompany US jobs data this afternoon.
With the quantitative easing program now behind them, the Federal Reserve may be fully focused on that first rate hike and coming across a little more hawkish in its language, but that doesn't appear to be concerning investors as much as you may expect.
The decision to end its third round of quantitative easing came as absolutely no surprise to the markets, despite arguments in recent weeks from certain officials that the final taper could be delayed or the program even increased. In reality, to do so would have been pointless and I think these comments were largely made to quell the excessive market volatility we were seeing and stop the panic selling that was making people lose all perspective.
Despite returning back near to the levels that led to the panic selling, the markets appear to be in a much happier place at the moment, even though nothing has actually changed. The Fed got away pretty much scot free last night despite adding clear hawkish elements to its statement. References to the substantial improvement in the labour market and the broader economy, along with the hawkish tone on inflation, did not go unnoticed by the markets and we US indices did reverse gains to end lower, while US Treasury yields rose, the dollar appreciated and Gold fell. This is all consistent with a more hawkish Fed but still, these moves were only small and could well be reversed today.
Maybe the Fed's decision to leave its commitment to keep rates low for a considerable amount of time in the text was enough to offset the more hawkish comments elsewhere. I would say this doesn't really change anything from the Fed's perspective and that the first rate hike is still likely in the middle of next year, based on current data. The biggest factor may now well be the path of inflation in the coming months, with other countries similarly facing a disinflationary environment.
This morning attention is going to be back on the data with a selection of numbers being released for the euro area. The latest labour market data for Germany is expected to show the unemployment rate remaining at 6.7%, which is still extremely low when compared to its fellow eurozone countries, while the number of those unemployed is seen rising for a fifth month in six, by 5,000. This may be marginal but it's also a worrying trend and clearly highlights the weakness in the economy right now.
The rest of the data is not viewed as being particularly notable from a markets perspective, simply because the reaction tends to be muted. However, I still think it's worth paying attention to, particularly the October sentiment surveys for the eurozone. We may have learned all we need to know from the PMI readings last week, along with other surveys that have been released since, but these provide detailed insight into what areas of the economy are more confident going into the holiday season and those where issues could arrive. Unfortunately, we're expecting a decline in most of the surveys, with only consumer confidence improving slightly. While this will help, businesses are clearly not as optimistic.
This will be followed this afternoon by some US growth and jobless claims data, as well as inflation numbers for Germany. We saw earlier this week that import prices rose in September which could mean more inflation pressure in the coming months. As of yet, that is not expected to be the case with forecasts still suggesting that consumer prices will fall this month by 0.1%, although on an annual basis this brings CPI inflation up to 0.9%.
The FTSE is expected to open 6 points higher, the CAC 8 points higher and the DAX 22 points higher.
Focus on German unemployment and CPI as Fed ends QE
• Fed ends QE3 and adds more hawkish notes to its statement;
• Market reaction to hawkish Fed not as bad as it could have been;
• German unemployment seen rising for fifth month in six;
• Latest German inflation numbers accompany US jobs data this afternoon.
With the quantitative easing program now behind them, the Federal Reserve may be fully focused on that first rate hike and coming across a little more hawkish in its language, but that doesn't appear to be concerning investors as much as you may expect.
The decision to end its third round of quantitative easing came as absolutely no surprise to the markets, despite arguments in recent weeks from certain officials that the final taper could be delayed or the program even increased. In reality, to do so would have been pointless and I think these comments were largely made to quell the excessive market volatility we were seeing and stop the panic selling that was making people lose all perspective.
Despite returning back near to the levels that led to the panic selling, the markets appear to be in a much happier place at the moment, even though nothing has actually changed. The Fed got away pretty much scot free last night despite adding clear hawkish elements to its statement. References to the substantial improvement in the labour market and the broader economy, along with the hawkish tone on inflation, did not go unnoticed by the markets and we US indices did reverse gains to end lower, while US Treasury yields rose, the dollar appreciated and Gold fell. This is all consistent with a more hawkish Fed but still, these moves were only small and could well be reversed today.
Maybe the Fed's decision to leave its commitment to keep rates low for a considerable amount of time in the text was enough to offset the more hawkish comments elsewhere. I would say this doesn't really change anything from the Fed's perspective and that the first rate hike is still likely in the middle of next year, based on current data. The biggest factor may now well be the path of inflation in the coming months, with other countries similarly facing a disinflationary environment.
This morning attention is going to be back on the data with a selection of numbers being released for the euro area. The latest labour market data for Germany is expected to show the unemployment rate remaining at 6.7%, which is still extremely low when compared to its fellow eurozone countries, while the number of those unemployed is seen rising for a fifth month in six, by 5,000. This may be marginal but it's also a worrying trend and clearly highlights the weakness in the economy right now.
The rest of the data is not viewed as being particularly notable from a markets perspective, simply because the reaction tends to be muted. However, I still think it's worth paying attention to, particularly the October sentiment surveys for the eurozone. We may have learned all we need to know from the PMI readings last week, along with other surveys that have been released since, but these provide detailed insight into what areas of the economy are more confident going into the holiday season and those where issues could arrive. Unfortunately, we're expecting a decline in most of the surveys, with only consumer confidence improving slightly. While this will help, businesses are clearly not as optimistic.
This will be followed this afternoon by some US growth and jobless claims data, as well as inflation numbers for Germany. We saw earlier this week that import prices rose in September which could mean more inflation pressure in the coming months. As of yet, that is not expected to be the case with forecasts still suggesting that consumer prices will fall this month by 0.1%, although on an annual basis this brings CPI inflation up to 0.9%.
The FTSE is expected to open 6 points higher, the CAC 8 points higher and the DAX 22 points higher.
US Opening Call from Alpari UK on 30 October 2014
US GDP, jobless claims and German inflation in focus
• Fed statement continues to weigh on sentiment;
• Improvement in eurozone data overlooked;
• US GDP and jobless claims in focus today.
While the Fed ending its quantitative easing program may be yesterday’s news, the prospect of a rate hike in the US is continuing to weigh on sentiment ahead of the open on Thursday.
Given some of the comments we’ve had from certain Fed officials recently, I think a lot of people were expecting the Fed’s statement to be a lot more dovish than it was and therefore, the Fed took us somewhat by surprise. Of course, the Fed maintained its commitment to keep rates low for a considerable amount of time but this is still a very subjective period.
When accompanied by comments referring to the strength of the economy, the improved economic outlook, an improving labour market and no inflation concerns, it’s only natural that investors bring forward their rate hike expectations to the near end of the range. I’d say most people were expecting the first hike to come between June and September and I imagine many of those will now be saying June, at the latest.
In reality, this is only a marginal adjustment and therefore I expect the reaction to it to be temporary. If we see some strong US data and earnings today, for example, I wouldn’t be surprised to see the indices reverse their losses and turn back into the green. The eurozone data has not quite done the job this morning, despite German unemployment falling by 22,000 and all the confidence surveys improving in October. This is a little surprising but I guess German unemployment is not a real concern in the eurozone right now and the improvement in the surveys shouldn’t be too shocking given the improvement we saw in the PMI readings last week.
From a German and eurozone perspective, of greater importance will be the preliminary inflation readings for October. The deflation threat in the eurozone is a massive concern right now and while it may be understandable to be seeing this in some of the peripheral countries because of the austerity, the fact that we’re seeing low inflation in Germany suggests there’s something to be concerned about. If we see a pickup in inflation in Germany in the coming months, it may allay some fears of deflation in the region. This should be helped by the weakness in the euro with it now down around 10% since May.
The first reading of US GDP for the third quarter will be released ahead of the US open. Everyone has been aware that it has been a good quarter for the country as it continues its strong economic recovery and the data today is expected to show this. The country is expected to have grown 3% on an annualised basis in the three months to the end of September which is very impressive growth and the kind only the UK can also boast, with the eurozone stagnating and many others slowing.
Shortly after we’ll get the latest jobless claims reading, which is expected to be in line with last week’s reading of 283,000. These figures have been getting better and better recently, falling to a 14 and a half year low a couple of weeks, while continuing claims at their lowest since the financial crisis began.
The S&P is expected to open 14 points lower, the Dow 58 points lower and the Nasdaq 35 points lower.
US GDP, jobless claims and German inflation in focus
• Fed statement continues to weigh on sentiment;
• Improvement in eurozone data overlooked;
• US GDP and jobless claims in focus today.
While the Fed ending its quantitative easing program may be yesterday’s news, the prospect of a rate hike in the US is continuing to weigh on sentiment ahead of the open on Thursday.
Given some of the comments we’ve had from certain Fed officials recently, I think a lot of people were expecting the Fed’s statement to be a lot more dovish than it was and therefore, the Fed took us somewhat by surprise. Of course, the Fed maintained its commitment to keep rates low for a considerable amount of time but this is still a very subjective period.
When accompanied by comments referring to the strength of the economy, the improved economic outlook, an improving labour market and no inflation concerns, it’s only natural that investors bring forward their rate hike expectations to the near end of the range. I’d say most people were expecting the first hike to come between June and September and I imagine many of those will now be saying June, at the latest.
In reality, this is only a marginal adjustment and therefore I expect the reaction to it to be temporary. If we see some strong US data and earnings today, for example, I wouldn’t be surprised to see the indices reverse their losses and turn back into the green. The eurozone data has not quite done the job this morning, despite German unemployment falling by 22,000 and all the confidence surveys improving in October. This is a little surprising but I guess German unemployment is not a real concern in the eurozone right now and the improvement in the surveys shouldn’t be too shocking given the improvement we saw in the PMI readings last week.
From a German and eurozone perspective, of greater importance will be the preliminary inflation readings for October. The deflation threat in the eurozone is a massive concern right now and while it may be understandable to be seeing this in some of the peripheral countries because of the austerity, the fact that we’re seeing low inflation in Germany suggests there’s something to be concerned about. If we see a pickup in inflation in Germany in the coming months, it may allay some fears of deflation in the region. This should be helped by the weakness in the euro with it now down around 10% since May.
The first reading of US GDP for the third quarter will be released ahead of the US open. Everyone has been aware that it has been a good quarter for the country as it continues its strong economic recovery and the data today is expected to show this. The country is expected to have grown 3% on an annualised basis in the three months to the end of September which is very impressive growth and the kind only the UK can also boast, with the eurozone stagnating and many others slowing.
Shortly after we’ll get the latest jobless claims reading, which is expected to be in line with last week’s reading of 283,000. These figures have been getting better and better recently, falling to a 14 and a half year low a couple of weeks, while continuing claims at their lowest since the financial crisis began.
The S&P is expected to open 14 points lower, the Dow 58 points lower and the Nasdaq 35 points lower.
UK Opening Call from Alpari UK on 31 October 2014
BoJ raise asset purchases, boosting markets
• BoJ raise asset purchases unexpectedly
• Eurozone CPI set to dominate the European session
• Core PCE price index on US agenda.
Global indices look set for a very strong end to the week as the Bank of Japan expanded the rate of asset purchases against most market expectations. Coming off the back of yet more weak inflation data, this move is both rational and unlikely and thus we have seen major gains globally overnight. The European session looks likely to be a lively one too, with the Eurozone CPI dominating an already busy session. European indices are expected to open higher, with the FTSE100 +62, CAC +41 and DAX +101 points.
The release of Japanese inflation data overnight was always likely to be a significant affair, bringing with it yet another indication that the Japanese are moving further rather than closer to the 2% target that Shinzo Abe said he would reach by next year. The fall to 3% means that when we strip out the effects of the April sales tax, the real rate of inflation stands at a meagre 1%. Today’s other readings failed to bring much more joy to the BoJ, with unemployment rising to 3.6% and household spending down -5.6% year-on-year. Thus the need for stimulus was a well-established and expected affair, but it was the timing of it which caught the markets offguard, with a Bloomberg survey finding only 3 of 32 economists expecting a move. A mix of big economic news, coming at a time when few market participant expect it, makes for a substantial move in the markets; on this occasion sending the Nikkei almost 700 points higher, and the USDJPY towards the strongest day since Q1 2013. That being said, the amount of asset purchases in question are not so far removed from the BoJ of old, with a new monthly rate of Y80tn ($724bn), rather than the Y60-70tn we have been so used to. That marks a 12.5-25% rise in asset purchases which to some may be seen as a bold move, but to me seem like somewhat timid in the face of a disinflationary scenario. It remains to be seen whether this will be enough for Japan or whether Kuroda will have to come back to this question once more to raise the rate of purchases further in the future.
Looking towards the European session, the main event of the day is always likely to be the Eurozone CPI reading which could pile yet more pressure upon Mario Draghi to implement further ‘unconventional measures’ in the future. The falling inflation scenario has been one which dominated the past three years, slipping from 3% in Q4 2011 to the 0.3% seen in Q4 2014. This has been the core driver of ECB monetary policy over the past year or so, bringing with it all types of measures, from negative deposit rates, to TLTRO’s and ABS programmes. For the most part, the unknown impact of the TLTRO and ABS policies mean that we are highly unlikely to see the imposition of a fully blown QE programme anytime soon. However, should Eurozone CPI fall any further there would at least be more of a chance that it could happen due to the impact it would have on German opinions in particular who remain one of the biggest oppositions to such a move. For the most part, the likes of Germany are still focusing on their domestic reading, which we saw remained at 0.8% yesterday. However, with the monthly German CPI figure coming in at -0.3%, there is reason to be worried and thus any further move towards the dreaded deflation for the Eurozone number today could bring yet more hope of a full QE programme at some point down the line. That being said, with markets expecting a rise to 0.4%, we could see some sort alleviation of the pressure placed on Mario Draghi to do more for the time being.
The inflationary focus continues later in the US session, with the release of the core PCE price index; the Fed’s preferred measure of inflation. With many expecting to see the FOMC hold off on the first interest rate hike owing to falling CPI inflation, we would need to see a major move lower in this figure today to confirm that stance.
BoJ raise asset purchases, boosting markets
• BoJ raise asset purchases unexpectedly
• Eurozone CPI set to dominate the European session
• Core PCE price index on US agenda.
Global indices look set for a very strong end to the week as the Bank of Japan expanded the rate of asset purchases against most market expectations. Coming off the back of yet more weak inflation data, this move is both rational and unlikely and thus we have seen major gains globally overnight. The European session looks likely to be a lively one too, with the Eurozone CPI dominating an already busy session. European indices are expected to open higher, with the FTSE100 +62, CAC +41 and DAX +101 points.
The release of Japanese inflation data overnight was always likely to be a significant affair, bringing with it yet another indication that the Japanese are moving further rather than closer to the 2% target that Shinzo Abe said he would reach by next year. The fall to 3% means that when we strip out the effects of the April sales tax, the real rate of inflation stands at a meagre 1%. Today’s other readings failed to bring much more joy to the BoJ, with unemployment rising to 3.6% and household spending down -5.6% year-on-year. Thus the need for stimulus was a well-established and expected affair, but it was the timing of it which caught the markets offguard, with a Bloomberg survey finding only 3 of 32 economists expecting a move. A mix of big economic news, coming at a time when few market participant expect it, makes for a substantial move in the markets; on this occasion sending the Nikkei almost 700 points higher, and the USDJPY towards the strongest day since Q1 2013. That being said, the amount of asset purchases in question are not so far removed from the BoJ of old, with a new monthly rate of Y80tn ($724bn), rather than the Y60-70tn we have been so used to. That marks a 12.5-25% rise in asset purchases which to some may be seen as a bold move, but to me seem like somewhat timid in the face of a disinflationary scenario. It remains to be seen whether this will be enough for Japan or whether Kuroda will have to come back to this question once more to raise the rate of purchases further in the future.
Looking towards the European session, the main event of the day is always likely to be the Eurozone CPI reading which could pile yet more pressure upon Mario Draghi to implement further ‘unconventional measures’ in the future. The falling inflation scenario has been one which dominated the past three years, slipping from 3% in Q4 2011 to the 0.3% seen in Q4 2014. This has been the core driver of ECB monetary policy over the past year or so, bringing with it all types of measures, from negative deposit rates, to TLTRO’s and ABS programmes. For the most part, the unknown impact of the TLTRO and ABS policies mean that we are highly unlikely to see the imposition of a fully blown QE programme anytime soon. However, should Eurozone CPI fall any further there would at least be more of a chance that it could happen due to the impact it would have on German opinions in particular who remain one of the biggest oppositions to such a move. For the most part, the likes of Germany are still focusing on their domestic reading, which we saw remained at 0.8% yesterday. However, with the monthly German CPI figure coming in at -0.3%, there is reason to be worried and thus any further move towards the dreaded deflation for the Eurozone number today could bring yet more hope of a full QE programme at some point down the line. That being said, with markets expecting a rise to 0.4%, we could see some sort alleviation of the pressure placed on Mario Draghi to do more for the time being.
The inflationary focus continues later in the US session, with the release of the core PCE price index; the Fed’s preferred measure of inflation. With many expecting to see the FOMC hold off on the first interest rate hike owing to falling CPI inflation, we would need to see a major move lower in this figure today to confirm that stance.
Weekly market preview from Alpari UK – 3 November 2014
The biggest week of the month ahead, where markets focus in on major fundamental releases which will be coming thick and fast on a daily basis. In the US, Friday's jobs report is a reliable source of volatility and thus is something all traders will be watching out for. In the UK, the services PMI figure is the biggest event of note, with the expansion of the sector closely linked with strong economic growth and activity for the month. Meanwhile, in the eurozone the ECB rate announcement and statement will grab the attention of traders, following a somewhat mixed CPI release just gone.
In Asia, the manufacturing PMI figure from China will be crucial in gauging the sustainability of recent strength in the sector. And finally, the Australian jobs report is going to be key for an economy which remains weakened by an inconstant China and weak commodity prices.
US
The US economy will be absolutely key in the markets this week, with the climax of the week being the consistently volatile jobs reports. Leading up to that, the US will be looking towards the ADP nonfarm payrolls as a potential prelude to the labour market focus seen later in the week.
The ADP nonfarm payrolls number is released on Wednesday, with the figure providing a strong focus for the markets upon the labour market health that could come through on Friday's official jobs report. The relationship between these two figures are not necessarily too reliable, with some releases earlier in the year being massively apart from each other owing to the fact that the ADP figure does not includes public sector jobs. However, in recent months there has been a tightening between these two figures and the ADP has at least given a good indication of in which direction we could see Friday's headline figure move. Alongside this, it is worth noting that the Fed are watching all measures of labour market strength in all readings and as such, the ADP can also stand in its own right. Markets are expecting to see the figure move moderately higher, from 213k to 220k.
On Friday, the release of the jobs report means that markets will be mining through a raft of economic readings in an attempt to understand exactly what the FOMC will be feeling about the jobs market and what it could mean for monetary policy going forward. The biggest numbers will no doubt be the nonfarm payrolls number and unemployment rate. The nonfarm payrolls figure is typically the source of massive volatility in the markets given the spikes seen in the number itself and as such, this is usually the first thing people look out for when the report is announced. Following this, the unemployment rate is established as the headline number which is globally comparable and as such markets will be aware of the impact that occurs with any major move in this reading. Finally, with Janet Yellen still seeing a considerable amount of 'slack' in the economy, it is also well worth watching out for any movement in the qualitative measures of the labour market such as the participation rate, average hourly earnings and the average weekly hours. These figures continue to show weak growth and as such the jobs market have too many people either willingly outside of the jobs market, working too few hours, or having earnings grow at too slow a pace. Thus a pickup in these figures could provide a strong backdrop for tightening measures by the FOMC.
UK
The main events of the week in the UK are going to be the PMI releases, seen early in the week, alongside the BoE monetary policy decision which takes place on Thursday. The week will start with the release of the manufacturing PMI figure on Monday, where markets focus in on a sector which behind the services industry, accounts for the second largest section of the economy. The sector has been performing pretty well well in 2014, with manufacturers taking advantage of low interest rates environment. As a result, both domestic and international demand has been strong, leading to positive movement in this figure. However, this has slowed in the past few months, leading to last months figure of 51.6 which was the lowest since April 2013. Thus I am hoping to see a pickup on Monday, despite expectations of a number closer to 51.2.
On Tuesday, the construction PMI is going to bring a focus upon a sector which has been the centre of much attention given the mixed signals coming out of the housing market. A potential peak in house prices appears to be occurring, coupled with weaker demand for loans. However, this also appears to be a cyclical thing, with the housing market slowing down towards the back end of the year. Thus, it will be interesting to see if there is going to be a continued strong performance in the overall construction sector, following a particularly strong 2014. The massive outperformance seen this year has accompanied a booming housing sector and thus while the housing sector cools, it will be interesting to see if this figure does the same. Estimates point towards a reduction to 63.5 from 64.2 and I think this could be about right given the time of year and housing market.
On Wednesday, the main release comes in the form of the services PMI figure, which is closely tied to the economic health of the whole UK given that services makeup so much of the output of the UK economy. Fortunately this figure has had a particularly strong 2014, leading to the booming GDP growth that we have seen so far. However, with last month trailing off somewhat, market estimates are pointing towards another move lower, from 58.7 to 58.5. Ultimately, this figure is one of the biggest indicators of economic strength in the UK and thus, should we see it push yet higher, I will be more confident that the Q4 GDP figure will be a good one. However, should we see any major moves lower, it could be indicative of a slowdown in the economy as a whole.
Finally, the BoE monetary policy decision on Thursday brings Mark Carney back to the fore, where many (including myself) are expecting very little in the way of changes. The falling CPI inflation level means that the likes of the UK, and the US are holding off on the race towards the first rate hike. It gives the likes of Carney and Yellen some breathing room and for the time being, I believe we will see both hold off until they know that disinflation is not a threat in the way that it is in the eurozone. Markets expect the same, with median estimates all looking for both asset purchases and interest rates to remain steady.
Eurozone
The latest European Central Bank meeting will take centre stage this week when it comes to the eurozone. Last week, Japan stepped up by increasing its asset purchases as it realised it was not going to hit its inflation or growth targets. As it stands, the ECB has refused to venture into bond purchases as policy makers disagree on some key issues such as whether it would constitute government funding or discourage the countries from completing the required austerity and reforms. Then there's also the issue of which bonds they would buy and how much, which is a complication that the US, UK and Japan didn't have to face.
The ECB has tried pretty much everything else to stimulate the eurozone economy and stop the region falling into the grips of deflation but as of yet, we're not seeing the benefits. I'm not convinced that we'll ever see quantitative easing from the ECB and I very much doubt it will come at this meeting. That said, Draghi does love to shake things up from time to time and is not afraid to go large, as we saw with his infamous "whatever it takes" speech and the OMT program that followed, not to mention the collection of stimulus measures that were announced a few months ago. Whether the ECB announces any change to monetary policy or not, you can usually bank on market volatility around these announcements and, in particular, the press conference shortly after.
There isn't a huge amount of data being released from the eurozone this week but what we do have is the latest PMI readings for October. While we've already had preliminary readings for Germany, France and the eurozone, the final readings can change and we also get numbers for Italy and Spain, so these are certainly worth keeping an eye on at the start of the week. Throughout the rest of the week, there's a range of other data being released, including Spanish unemployment, German factory orders and French industrial production but these tend to have a lesser impact on the markets. Especially when compared to the kind of moves we can see on ECB day.
Asia & Oceania
It's going to be quite a busy week in Asia, with particular focus being on Japan thanks to the surprise announcement from the Bank of Japan on Friday to increase its bond purchases from ¥60-70 trillion a year, to ¥80 trillion. This sent the markets into a frenzy, firing the Nikkei to near seven year highs and the Dow and S&P to all time highs, while the yen totally collapsed. This couldn't have come at a better time given that the Fed only this week brought its third asset purchase program to an end. This makes Haruhiko Kuroda's speech on Wednesday much more interesting, not to mention the minutes from the meeting, which will be released around midday in the UK. They should provide further information on what prompted to surprise increase in stimulus and potentially what it will take for further increases to occur further down the road.
China also has plenty to offer this week, starting on Saturday morning when the manufacturing PMI for November will be released. We've seen plenty of evidence that the Chinese economy is slowing and the government and central bank are fighting a near impossible battle to maintain growth at these very high levels and avoid a catastrophic hard landing in the coming years. Managing the decline is going to be an extremely tough task and it's not going to get any easier. The World Bank tried to ease the pressure on China last week, claiming that the country can afford to cut its growth target to 7% while maintaining a healthy labour market. I'm not sure the markets would be too happy about this but for now I don't think it's something we have to worry about, with the country achieving 7.3% growth in the third quarter.
The manufacturing sector remains a very important sector for China, so the official reading on Saturday along with the HSBC manufacturing PMI on Monday will be followed closely and could drive sentiment at the start of the week. Both were unchanged last month at quite low levels just on the right side of 50, which separates growth from contraction. If either of these drop into contraction territory, it could get the week off to a very negative start in the markets. There's also two other PMI readings being released, the HSBC services PMI and the non-manufacturing PMI. With the country attempting to move to a more consumer driven economy, these figures are becoming increasingly important, although as it stands, they remain far less important than their manufacturing counterparts.
There's a lot of Australian data being released this week, as well as the latest policy decision from the Reserve Bank of Australia. While these are both important if you're trading the aussie dollar, they don't have much of an impact on the markets of other nations like Chinese data would. The RBA decision on Tuesday and monetary policy statement on Friday is likely to be a bit of a non-event given that it has repeatedly stated that it doesn't intend to cut or raise rates any time soon. The data releases are likely to be much more important, particularly the trade balance figures on Tuesday and the unemployment data on Thursday.
The biggest week of the month ahead, where markets focus in on major fundamental releases which will be coming thick and fast on a daily basis. In the US, Friday's jobs report is a reliable source of volatility and thus is something all traders will be watching out for. In the UK, the services PMI figure is the biggest event of note, with the expansion of the sector closely linked with strong economic growth and activity for the month. Meanwhile, in the eurozone the ECB rate announcement and statement will grab the attention of traders, following a somewhat mixed CPI release just gone.
In Asia, the manufacturing PMI figure from China will be crucial in gauging the sustainability of recent strength in the sector. And finally, the Australian jobs report is going to be key for an economy which remains weakened by an inconstant China and weak commodity prices.
US
The US economy will be absolutely key in the markets this week, with the climax of the week being the consistently volatile jobs reports. Leading up to that, the US will be looking towards the ADP nonfarm payrolls as a potential prelude to the labour market focus seen later in the week.
The ADP nonfarm payrolls number is released on Wednesday, with the figure providing a strong focus for the markets upon the labour market health that could come through on Friday's official jobs report. The relationship between these two figures are not necessarily too reliable, with some releases earlier in the year being massively apart from each other owing to the fact that the ADP figure does not includes public sector jobs. However, in recent months there has been a tightening between these two figures and the ADP has at least given a good indication of in which direction we could see Friday's headline figure move. Alongside this, it is worth noting that the Fed are watching all measures of labour market strength in all readings and as such, the ADP can also stand in its own right. Markets are expecting to see the figure move moderately higher, from 213k to 220k.
On Friday, the release of the jobs report means that markets will be mining through a raft of economic readings in an attempt to understand exactly what the FOMC will be feeling about the jobs market and what it could mean for monetary policy going forward. The biggest numbers will no doubt be the nonfarm payrolls number and unemployment rate. The nonfarm payrolls figure is typically the source of massive volatility in the markets given the spikes seen in the number itself and as such, this is usually the first thing people look out for when the report is announced. Following this, the unemployment rate is established as the headline number which is globally comparable and as such markets will be aware of the impact that occurs with any major move in this reading. Finally, with Janet Yellen still seeing a considerable amount of 'slack' in the economy, it is also well worth watching out for any movement in the qualitative measures of the labour market such as the participation rate, average hourly earnings and the average weekly hours. These figures continue to show weak growth and as such the jobs market have too many people either willingly outside of the jobs market, working too few hours, or having earnings grow at too slow a pace. Thus a pickup in these figures could provide a strong backdrop for tightening measures by the FOMC.
UK
The main events of the week in the UK are going to be the PMI releases, seen early in the week, alongside the BoE monetary policy decision which takes place on Thursday. The week will start with the release of the manufacturing PMI figure on Monday, where markets focus in on a sector which behind the services industry, accounts for the second largest section of the economy. The sector has been performing pretty well well in 2014, with manufacturers taking advantage of low interest rates environment. As a result, both domestic and international demand has been strong, leading to positive movement in this figure. However, this has slowed in the past few months, leading to last months figure of 51.6 which was the lowest since April 2013. Thus I am hoping to see a pickup on Monday, despite expectations of a number closer to 51.2.
On Tuesday, the construction PMI is going to bring a focus upon a sector which has been the centre of much attention given the mixed signals coming out of the housing market. A potential peak in house prices appears to be occurring, coupled with weaker demand for loans. However, this also appears to be a cyclical thing, with the housing market slowing down towards the back end of the year. Thus, it will be interesting to see if there is going to be a continued strong performance in the overall construction sector, following a particularly strong 2014. The massive outperformance seen this year has accompanied a booming housing sector and thus while the housing sector cools, it will be interesting to see if this figure does the same. Estimates point towards a reduction to 63.5 from 64.2 and I think this could be about right given the time of year and housing market.
On Wednesday, the main release comes in the form of the services PMI figure, which is closely tied to the economic health of the whole UK given that services makeup so much of the output of the UK economy. Fortunately this figure has had a particularly strong 2014, leading to the booming GDP growth that we have seen so far. However, with last month trailing off somewhat, market estimates are pointing towards another move lower, from 58.7 to 58.5. Ultimately, this figure is one of the biggest indicators of economic strength in the UK and thus, should we see it push yet higher, I will be more confident that the Q4 GDP figure will be a good one. However, should we see any major moves lower, it could be indicative of a slowdown in the economy as a whole.
Finally, the BoE monetary policy decision on Thursday brings Mark Carney back to the fore, where many (including myself) are expecting very little in the way of changes. The falling CPI inflation level means that the likes of the UK, and the US are holding off on the race towards the first rate hike. It gives the likes of Carney and Yellen some breathing room and for the time being, I believe we will see both hold off until they know that disinflation is not a threat in the way that it is in the eurozone. Markets expect the same, with median estimates all looking for both asset purchases and interest rates to remain steady.
Eurozone
The latest European Central Bank meeting will take centre stage this week when it comes to the eurozone. Last week, Japan stepped up by increasing its asset purchases as it realised it was not going to hit its inflation or growth targets. As it stands, the ECB has refused to venture into bond purchases as policy makers disagree on some key issues such as whether it would constitute government funding or discourage the countries from completing the required austerity and reforms. Then there's also the issue of which bonds they would buy and how much, which is a complication that the US, UK and Japan didn't have to face.
The ECB has tried pretty much everything else to stimulate the eurozone economy and stop the region falling into the grips of deflation but as of yet, we're not seeing the benefits. I'm not convinced that we'll ever see quantitative easing from the ECB and I very much doubt it will come at this meeting. That said, Draghi does love to shake things up from time to time and is not afraid to go large, as we saw with his infamous "whatever it takes" speech and the OMT program that followed, not to mention the collection of stimulus measures that were announced a few months ago. Whether the ECB announces any change to monetary policy or not, you can usually bank on market volatility around these announcements and, in particular, the press conference shortly after.
There isn't a huge amount of data being released from the eurozone this week but what we do have is the latest PMI readings for October. While we've already had preliminary readings for Germany, France and the eurozone, the final readings can change and we also get numbers for Italy and Spain, so these are certainly worth keeping an eye on at the start of the week. Throughout the rest of the week, there's a range of other data being released, including Spanish unemployment, German factory orders and French industrial production but these tend to have a lesser impact on the markets. Especially when compared to the kind of moves we can see on ECB day.
Asia & Oceania
It's going to be quite a busy week in Asia, with particular focus being on Japan thanks to the surprise announcement from the Bank of Japan on Friday to increase its bond purchases from ¥60-70 trillion a year, to ¥80 trillion. This sent the markets into a frenzy, firing the Nikkei to near seven year highs and the Dow and S&P to all time highs, while the yen totally collapsed. This couldn't have come at a better time given that the Fed only this week brought its third asset purchase program to an end. This makes Haruhiko Kuroda's speech on Wednesday much more interesting, not to mention the minutes from the meeting, which will be released around midday in the UK. They should provide further information on what prompted to surprise increase in stimulus and potentially what it will take for further increases to occur further down the road.
China also has plenty to offer this week, starting on Saturday morning when the manufacturing PMI for November will be released. We've seen plenty of evidence that the Chinese economy is slowing and the government and central bank are fighting a near impossible battle to maintain growth at these very high levels and avoid a catastrophic hard landing in the coming years. Managing the decline is going to be an extremely tough task and it's not going to get any easier. The World Bank tried to ease the pressure on China last week, claiming that the country can afford to cut its growth target to 7% while maintaining a healthy labour market. I'm not sure the markets would be too happy about this but for now I don't think it's something we have to worry about, with the country achieving 7.3% growth in the third quarter.
The manufacturing sector remains a very important sector for China, so the official reading on Saturday along with the HSBC manufacturing PMI on Monday will be followed closely and could drive sentiment at the start of the week. Both were unchanged last month at quite low levels just on the right side of 50, which separates growth from contraction. If either of these drop into contraction territory, it could get the week off to a very negative start in the markets. There's also two other PMI readings being released, the HSBC services PMI and the non-manufacturing PMI. With the country attempting to move to a more consumer driven economy, these figures are becoming increasingly important, although as it stands, they remain far less important than their manufacturing counterparts.
There's a lot of Australian data being released this week, as well as the latest policy decision from the Reserve Bank of Australia. While these are both important if you're trading the aussie dollar, they don't have much of an impact on the markets of other nations like Chinese data would. The RBA decision on Tuesday and monetary policy statement on Friday is likely to be a bit of a non-event given that it has repeatedly stated that it doesn't intend to cut or raise rates any time soon. The data releases are likely to be much more important, particularly the trade balance figures on Tuesday and the unemployment data on Thursday.
UK Opening Call from Alpari UK on 3 November 2014
Disappointing Chinese PMI leads way to European session
• Poor Chinese PMI figures lead Asian markets lower
• Eurozone manufacturing PMI’s to focus on German figure
• UK manufacturing PMI expected lower after massive recent losses
European markets are expected to open moderately higher, following a somewhat downbeat Asian session over night that where the positive sentiment from Friday’s shock BoJ decision has been undone to some extent by weak Chinese PMI data. As we approach a major week in the markets in terms of economic events, we are likely to see more caution creep in as traders seek to gain their sentiment through the various releases throughout the week.
With markets in Japan closed for a public holiday, the focus in Asia has largely been upon China, where a handful of PMI’s saw a very disappointing picture being painted of the current strength in the economic powerhouse. Saturday’s manufacturing PMI figure saw a pullback to 50.8 from the 51.1 seen last month, whereas the non-manufacturing PMI figure also fell, dropping back to 53.8 from 54.0. These two figures really put to bed the idea that China has fully recovered from the slowdown seen in the first half of this year and as such it looks likely that the Chinese economy could be floundering for some time yet. The fact of the matter is that the one sector that matters is manufacturing, yet for two and a half years, the sector has failed to gain any sort of meaningful traction, with a peak of 51.7 compared to a reading of 59.2 recorded in mid-2008.
The release of manufacturing PMI figures are going to be the focus of both European and US markets alike today, with European figures in particular likely to be somewhat volatile in the face of recent trends. The worrying downturn in Germany over the past few months has filtered its way into the PMI readings, with last month seeing a figure just below 50, something that would be almost unheard of not so long ago. However, with the initial reading seen last month showing that it could have moved strongly out of contraction, markets will be seeking to gain confidence from such an occurrence if it is confirmed.
In the UK, today kicks off a run of three days, where we see a major PMI release on each day, starting with manufacturing and ending with services. The UK economy may not be as reliant upon the manufacturing sector as some of the main European nations, but with a drive away from services sector overreliance, it is imperative that the economy grows in a more balanced way than before. Three weak releases have seen this measure fall back from 57.5 to 51.6 in just three readings and as such, today’s number will be key to understand whether a line is finally able to be drawn under the recent slowdown in expansion. Estimates point towards a fall to 51.2, yet with recent trends in mind, we could be set for a bigger fall.
Disappointing Chinese PMI leads way to European session
• Poor Chinese PMI figures lead Asian markets lower
• Eurozone manufacturing PMI’s to focus on German figure
• UK manufacturing PMI expected lower after massive recent losses
European markets are expected to open moderately higher, following a somewhat downbeat Asian session over night that where the positive sentiment from Friday’s shock BoJ decision has been undone to some extent by weak Chinese PMI data. As we approach a major week in the markets in terms of economic events, we are likely to see more caution creep in as traders seek to gain their sentiment through the various releases throughout the week.
With markets in Japan closed for a public holiday, the focus in Asia has largely been upon China, where a handful of PMI’s saw a very disappointing picture being painted of the current strength in the economic powerhouse. Saturday’s manufacturing PMI figure saw a pullback to 50.8 from the 51.1 seen last month, whereas the non-manufacturing PMI figure also fell, dropping back to 53.8 from 54.0. These two figures really put to bed the idea that China has fully recovered from the slowdown seen in the first half of this year and as such it looks likely that the Chinese economy could be floundering for some time yet. The fact of the matter is that the one sector that matters is manufacturing, yet for two and a half years, the sector has failed to gain any sort of meaningful traction, with a peak of 51.7 compared to a reading of 59.2 recorded in mid-2008.
The release of manufacturing PMI figures are going to be the focus of both European and US markets alike today, with European figures in particular likely to be somewhat volatile in the face of recent trends. The worrying downturn in Germany over the past few months has filtered its way into the PMI readings, with last month seeing a figure just below 50, something that would be almost unheard of not so long ago. However, with the initial reading seen last month showing that it could have moved strongly out of contraction, markets will be seeking to gain confidence from such an occurrence if it is confirmed.
In the UK, today kicks off a run of three days, where we see a major PMI release on each day, starting with manufacturing and ending with services. The UK economy may not be as reliant upon the manufacturing sector as some of the main European nations, but with a drive away from services sector overreliance, it is imperative that the economy grows in a more balanced way than before. Three weak releases have seen this measure fall back from 57.5 to 51.6 in just three readings and as such, today’s number will be key to understand whether a line is finally able to be drawn under the recent slowdown in expansion. Estimates point towards a fall to 51.2, yet with recent trends in mind, we could be set for a bigger fall.
US Opening Call from Alpari UK on 3 November 2014
Growth concerns resurface after disappointing PMI readings
• Global growth concerns resurface after disappointing PMI readings;
• Chinese PMI readings linger on the right side of 50, for now;
• Eurozone PMI readings disappoint, although there are some bright spots;
• US PMI readings and Fed speeches in focus on Monday.
US futures are pointing to a weaker start of Monday, after closing at record highs last week, as a raft of disappointing PMI readings from the eurozone and Asia weigh on investor sentiment.
Global growth concerns are going to be a recurring theme in the coming months, although clearly it’s not so much so that it stops US indices hitting those record levels. I don’t think we would be seeing this rally if it wasn’t for the efforts of the European Central Bank and the Bank of Japan to stimulate their economies. What we’re experiencing right now is exactly what we saw when the Federal Reserve and the Bank of England were significantly increasing their balance sheets.
The moves by the ECB and the BoJ have almost completely masked the fact that the Fed and BoE have stopped increasing their balance sheets and are headed in the other direction, meaning they don’t have to worry too much about the impact on the financial markets. That burden has now been passed to the ECB and BoJ to deal with further down the road.
Global growth concerns are very much still there though and we’re seeing no signs that this is going to change. Over the weekend, the Chinese manufacturing PMI fell to 50.8, reflecting another decline in confidence in its most important sector. While the HSBC reading this morning actually displayed a small improvement in October, with the number rising to 50.4, there is one thing they both have in common, they both are marginally above the 50 level that separates growth from contraction.
That is a worrying position given that the trend since the summer has been to the downside. Should both of these fall into contraction territory, it would be very concerning for the country and anything that’s concerning for China, is a concern for everyone. The only upside is that there is still plenty of room for more targeted stimulus from the People’s Bank of China, but I think this is really clutching at straws. China is facing a slowdown in the coming years and managing it is going to be very difficult. Targeted monetary stimulus is only going to mask the problem for so long and could create bigger issues further down the road.
The data from the eurozone hasn’t been any more encouraging, with both the German and eurozone manufacturing PMIs being revised lower. Both still represent an improvement on the month which shouldn’t be overlooked, neither should the fact that the French reading was revised higher and the Spanish release beat expectations, but as a whole it doesn’t give me much to be optimistic about.
The focus will remain on PMI numbers as we head into the US session, with both the Markit and ISM readings being released. These are expected to be very much in line with all of the other data we’ve had from the US recently, which points to an economic recovery that is going from strength to strength. We’ll also hear from some members of the Fed, which as always, could heavily impact the markets.
The S&P is expected to open 1 point lower, the Dow 20 points lower and the Nasdaq 3 points lower.
Growth concerns resurface after disappointing PMI readings
• Global growth concerns resurface after disappointing PMI readings;
• Chinese PMI readings linger on the right side of 50, for now;
• Eurozone PMI readings disappoint, although there are some bright spots;
• US PMI readings and Fed speeches in focus on Monday.
US futures are pointing to a weaker start of Monday, after closing at record highs last week, as a raft of disappointing PMI readings from the eurozone and Asia weigh on investor sentiment.
Global growth concerns are going to be a recurring theme in the coming months, although clearly it’s not so much so that it stops US indices hitting those record levels. I don’t think we would be seeing this rally if it wasn’t for the efforts of the European Central Bank and the Bank of Japan to stimulate their economies. What we’re experiencing right now is exactly what we saw when the Federal Reserve and the Bank of England were significantly increasing their balance sheets.
The moves by the ECB and the BoJ have almost completely masked the fact that the Fed and BoE have stopped increasing their balance sheets and are headed in the other direction, meaning they don’t have to worry too much about the impact on the financial markets. That burden has now been passed to the ECB and BoJ to deal with further down the road.
Global growth concerns are very much still there though and we’re seeing no signs that this is going to change. Over the weekend, the Chinese manufacturing PMI fell to 50.8, reflecting another decline in confidence in its most important sector. While the HSBC reading this morning actually displayed a small improvement in October, with the number rising to 50.4, there is one thing they both have in common, they both are marginally above the 50 level that separates growth from contraction.
That is a worrying position given that the trend since the summer has been to the downside. Should both of these fall into contraction territory, it would be very concerning for the country and anything that’s concerning for China, is a concern for everyone. The only upside is that there is still plenty of room for more targeted stimulus from the People’s Bank of China, but I think this is really clutching at straws. China is facing a slowdown in the coming years and managing it is going to be very difficult. Targeted monetary stimulus is only going to mask the problem for so long and could create bigger issues further down the road.
The data from the eurozone hasn’t been any more encouraging, with both the German and eurozone manufacturing PMIs being revised lower. Both still represent an improvement on the month which shouldn’t be overlooked, neither should the fact that the French reading was revised higher and the Spanish release beat expectations, but as a whole it doesn’t give me much to be optimistic about.
The focus will remain on PMI numbers as we head into the US session, with both the Markit and ISM readings being released. These are expected to be very much in line with all of the other data we’ve had from the US recently, which points to an economic recovery that is going from strength to strength. We’ll also hear from some members of the Fed, which as always, could heavily impact the markets.
The S&P is expected to open 1 point lower, the Dow 20 points lower and the Nasdaq 3 points lower.
UK Opening Call from Alpari UK on 4 November 2014
UK construction key following housing slowdown
• Australian economy sees mixed messages as trade balance falls
• Japanese manufacturing PMI gives room for further tax hike
• UK construction key following housing slowdown
• EU economic forecasts to highlight need for either austerity or fiscal expansion
European markets are looking towards a marginally higher open this morning, off the back of a somewhat weak start yesterday. The announcement of both Australian and Japanese data overnight means that there was somewhat of a mixed bag overnight in the Asian and Australian indices, yet with the week building towards some major economic releases, it is expected that global sentiment will converge somewhat should we see any major announcements. European markets are expected to open marginally higher, with the FTSE100 +7, DAX +4 and CAC +1.
Overnight saw the Australian economy come back into focus, with the retail sales, trade balance and RBA rate statement all being released overnight. The decision from the RBA to keep rates stable was somewhat of a given, considering that the economy is too weak to raise rates, yet has a housing boom which means that and cut to rates would be deemed irresponsible and likely to exacerbate soaring house prices. For the most part, the rest of today’s news was positive, with retail sales rising to a 20 month high of 1.7%, while exports and imports both moved into positive territory. However, with exports rising at a mere 1% and imports at 6%, it is clear that all is not perfect is what is supposed to be an export led economy. The perceived overvaluation of the AUD is clearly having an impact on consumer behaviour, pushing people to buy cheap foreign goods and driving down demand for expensive Australian products.
The Japanese manufacturing PMI figure provided a boost overnight, with the news that October manufacturing activity grew at the fastest pace in 7 months (since April). In particular, the rise in orders was notable, bringing with it a feeling that Japan has finally overcome the sales tax imposed in April. The BoJ’s decision to raise asset purchases comes at a time when inflation is falling off and unfortunately this comes at a time when debt is booming. Thus it seems likely that Japan will address inflation through the use of monetary policy (QE), while dealing with debt via fiscal policies, in the form of tax hikes. I expect to see another sales tax hike in 2015 and strong numbers such as today brings more confidence in that happening.
Today brings the release of the UK construction PMI figure, which brings a focus upon a sector which has been the centre of much attention given the mixed signals coming out of the housing market. A potential peak in house prices appears to be occurring, coupled with weaker demand for loans. That being said, this is also cyclical, with the housing market typically slowing down in Q4. Thus, it will be interesting to see if there is going to be a continued strong performance in the overall construction sector, following a particularly strong 2014. The massive outperformance seen this year has accompanied a booming housing sector and thus while the housing sector cools, it will be interesting to see if this figure does the same. Estimates point towards a reduction to 63.5 from 64.2, which seems about right considering the time of year and recent housing market trends.
Today will also see the release of the EU economic forecasts out of the European Commission, the first to take place following the appointment of President Jean-Claude Juncker. For the most part, expectations are low following a somewhat dire 12 months which have seen no country immune to the downturn, as personified by negative growth in Germany. In the past, economic forecasts have been used to determine who is in need of austerity measures, and to what extent. However, with growth floundering and Draghi’s actions seemingly blunt in impact, we are now seeing a shift towards encouraging more fiscal expansion and a less fiscally responsible stance. Thus it will be worth watching to see if this release provides breathing room for an easing in austerity or whether the European Commission deems those strengthening and rebalancing measures to remain fully necessary despite current growth concerns.
UK construction key following housing slowdown
• Australian economy sees mixed messages as trade balance falls
• Japanese manufacturing PMI gives room for further tax hike
• UK construction key following housing slowdown
• EU economic forecasts to highlight need for either austerity or fiscal expansion
European markets are looking towards a marginally higher open this morning, off the back of a somewhat weak start yesterday. The announcement of both Australian and Japanese data overnight means that there was somewhat of a mixed bag overnight in the Asian and Australian indices, yet with the week building towards some major economic releases, it is expected that global sentiment will converge somewhat should we see any major announcements. European markets are expected to open marginally higher, with the FTSE100 +7, DAX +4 and CAC +1.
Overnight saw the Australian economy come back into focus, with the retail sales, trade balance and RBA rate statement all being released overnight. The decision from the RBA to keep rates stable was somewhat of a given, considering that the economy is too weak to raise rates, yet has a housing boom which means that and cut to rates would be deemed irresponsible and likely to exacerbate soaring house prices. For the most part, the rest of today’s news was positive, with retail sales rising to a 20 month high of 1.7%, while exports and imports both moved into positive territory. However, with exports rising at a mere 1% and imports at 6%, it is clear that all is not perfect is what is supposed to be an export led economy. The perceived overvaluation of the AUD is clearly having an impact on consumer behaviour, pushing people to buy cheap foreign goods and driving down demand for expensive Australian products.
The Japanese manufacturing PMI figure provided a boost overnight, with the news that October manufacturing activity grew at the fastest pace in 7 months (since April). In particular, the rise in orders was notable, bringing with it a feeling that Japan has finally overcome the sales tax imposed in April. The BoJ’s decision to raise asset purchases comes at a time when inflation is falling off and unfortunately this comes at a time when debt is booming. Thus it seems likely that Japan will address inflation through the use of monetary policy (QE), while dealing with debt via fiscal policies, in the form of tax hikes. I expect to see another sales tax hike in 2015 and strong numbers such as today brings more confidence in that happening.
Today brings the release of the UK construction PMI figure, which brings a focus upon a sector which has been the centre of much attention given the mixed signals coming out of the housing market. A potential peak in house prices appears to be occurring, coupled with weaker demand for loans. That being said, this is also cyclical, with the housing market typically slowing down in Q4. Thus, it will be interesting to see if there is going to be a continued strong performance in the overall construction sector, following a particularly strong 2014. The massive outperformance seen this year has accompanied a booming housing sector and thus while the housing sector cools, it will be interesting to see if this figure does the same. Estimates point towards a reduction to 63.5 from 64.2, which seems about right considering the time of year and recent housing market trends.
Today will also see the release of the EU economic forecasts out of the European Commission, the first to take place following the appointment of President Jean-Claude Juncker. For the most part, expectations are low following a somewhat dire 12 months which have seen no country immune to the downturn, as personified by negative growth in Germany. In the past, economic forecasts have been used to determine who is in need of austerity measures, and to what extent. However, with growth floundering and Draghi’s actions seemingly blunt in impact, we are now seeing a shift towards encouraging more fiscal expansion and a less fiscally responsible stance. Thus it will be worth watching to see if this release provides breathing room for an easing in austerity or whether the European Commission deems those strengthening and rebalancing measures to remain fully necessary despite current growth concerns.
US Opening Call from Alpari UK on 4 November 2014
EC forecasts and UK data weighs, attention turns to US
• Oil price declines not responsible for market weakness;
• UK construction PMI at five month low;
• Eurozone September PPI reading points to upward inflation pressures;
• European Commission revises down growth and not optimistic on inflation;
• US trade balance, factory orders and earnings in focus today.
It’s looking like being another rocky start to the US trading session on Tuesday, with futures currently pointing slightly to the downside, in line with the moves being made in Europe.
The weakness in the markets at the start of the week is being largely attributed to the weakness in oil prices but I really don’t buy into this. If oil price declines were being driven solely by declining global demand then I would be willing to accept this, but it’s very clear that the biggest driver here is the supply glut which is not something to be disappointed about. Weaker oil prices may be bad for the big oil companies, but when it comes to the global economy, it’s actually a hidden stimulus.
At the end of the day, we’ve seen a strong run over the last few weeks and investors were always likely to get a little nervy around these record high levels. We’re not seeing big declines in the markets off the back of these falling oil prices and therefore I don’t think it’s right to attribute it to this. The weakness in some of the data at the start of the week is a more logical reason, especially given that it came from a number of regions and at a time when investors were maybe looking to lock in some profits. I don’t see this weakness being a long term thing and in fact, I think the next few months are going to be very good for the markets.
It’s not been the greatest start to the European session today either, which isn’t helping matters. The UK construction PMI fell to a five month low of 61.4, missing analyst expectations by some way, which some will suggest is further evidence that the UK economy is cooling. I’m not necessarily convince quite yet, the number is still above 60 and has been since October last year. This is hardly something to grumble at right now, unless we see a continuation of the trend in the coming months.
On a more upbeat note, the latest PPI reading for the eurozone showed prices rising by 0.2% in September, when compared to a month earlier, while the year on year figure was also a little better than expected. This is only a marginal improvement but hopefully a sign nonetheless that price pressures are turning to the upside, potentially suggesting that the ECBs efforts to stem disinflation are actually working without the need for quantitative easing.
The new European Commission projections for growth and inflation would suggest that the upside in the inflation reading is not expected to be too great, despite the ECBs efforts, after it today announced that it sees inflation remaining below the 2% target until at least 2016. This could encourage the ECB to do more, although I remain doubtful that we’ll see QE. Growth forecasts were also revised lower but this can’t come as a surprise to anyone given all of the data we’ve seen over the last six months.
We have a few more pieces of data being released today, with trade balance figures being released for September shortly before the US open and factory orders for the same month shortly after. With so little due out, focus may instead be on earnings, with 32 S&P 500 companies reporting on the third quarter today. It’s also worth remembering that the US jobs report will be released later in the week which does tend to impact risk appetite in the days leading up to it.
The S&P is expected to open down 5 points, the Dow down 37 points and the Nasdaq down 12 points.
EC forecasts and UK data weighs, attention turns to US
• Oil price declines not responsible for market weakness;
• UK construction PMI at five month low;
• Eurozone September PPI reading points to upward inflation pressures;
• European Commission revises down growth and not optimistic on inflation;
• US trade balance, factory orders and earnings in focus today.
It’s looking like being another rocky start to the US trading session on Tuesday, with futures currently pointing slightly to the downside, in line with the moves being made in Europe.
The weakness in the markets at the start of the week is being largely attributed to the weakness in oil prices but I really don’t buy into this. If oil price declines were being driven solely by declining global demand then I would be willing to accept this, but it’s very clear that the biggest driver here is the supply glut which is not something to be disappointed about. Weaker oil prices may be bad for the big oil companies, but when it comes to the global economy, it’s actually a hidden stimulus.
At the end of the day, we’ve seen a strong run over the last few weeks and investors were always likely to get a little nervy around these record high levels. We’re not seeing big declines in the markets off the back of these falling oil prices and therefore I don’t think it’s right to attribute it to this. The weakness in some of the data at the start of the week is a more logical reason, especially given that it came from a number of regions and at a time when investors were maybe looking to lock in some profits. I don’t see this weakness being a long term thing and in fact, I think the next few months are going to be very good for the markets.
It’s not been the greatest start to the European session today either, which isn’t helping matters. The UK construction PMI fell to a five month low of 61.4, missing analyst expectations by some way, which some will suggest is further evidence that the UK economy is cooling. I’m not necessarily convince quite yet, the number is still above 60 and has been since October last year. This is hardly something to grumble at right now, unless we see a continuation of the trend in the coming months.
On a more upbeat note, the latest PPI reading for the eurozone showed prices rising by 0.2% in September, when compared to a month earlier, while the year on year figure was also a little better than expected. This is only a marginal improvement but hopefully a sign nonetheless that price pressures are turning to the upside, potentially suggesting that the ECBs efforts to stem disinflation are actually working without the need for quantitative easing.
The new European Commission projections for growth and inflation would suggest that the upside in the inflation reading is not expected to be too great, despite the ECBs efforts, after it today announced that it sees inflation remaining below the 2% target until at least 2016. This could encourage the ECB to do more, although I remain doubtful that we’ll see QE. Growth forecasts were also revised lower but this can’t come as a surprise to anyone given all of the data we’ve seen over the last six months.
We have a few more pieces of data being released today, with trade balance figures being released for September shortly before the US open and factory orders for the same month shortly after. With so little due out, focus may instead be on earnings, with 32 S&P 500 companies reporting on the third quarter today. It’s also worth remembering that the US jobs report will be released later in the week which does tend to impact risk appetite in the days leading up to it.
The S&P is expected to open down 5 points, the Dow down 37 points and the Nasdaq down 12 points.
Webinar - 4 November 2014 - Alpari UK
Weekly Market Webinar
Live every Tuesday afternoon our chief market analyst James Hughes, market analyst Craig Erlam and research analyst Joshua Mahony take a look at the major stories moving the markets. They will also look at some of the charts and discuss the big technical levels traders should be looking out for.
Click here to Register for our Webinar
Weekly Market Webinar
Live every Tuesday afternoon our chief market analyst James Hughes, market analyst Craig Erlam and research analyst Joshua Mahony take a look at the major stories moving the markets. They will also look at some of the charts and discuss the big technical levels traders should be looking out for.
Click here to Register for our Webinar
UK Opening Call from Alpari UK on 5 November 2014
US midterms see Republicans take control of the Senate
• Chinese PMI and BoJ speech push Asian markets in opposite directions
• US midterms see Republicans take control of the Senate
• Eurozone services PMI expected to continue downbeat sentiment
• UK services PMI crucial to future growth
European markets are hoping for a more upbeat start to trading today, following on from a somewhat depressing Tuesday which saw growth and inflation estimates revised downwards yet again. Today’s European optimism comes against a largely negative Asian session which has seen the Nikkei as the only major winner whilst the likes of the Hang Seng pulled back. Today’s session will largely focus upon the release of finaly Eurozone PMI figures and the UK services PMI number. European markets are expected to open higher, with the FTSE100 +41, CAC +36, and DAX +67 points.
The Asian session saw mixed fortunes as the Chinese services PMI dragged lower, whilst the BoJ governor Kuroda struck a dovish tone following Friday’s shock easing announcement. The further deterioration of the Chinese services PMI figure saw the second consecutive fall in this reading, with a number of 52.9 compared with last month’s 53.5. Coming following a poor manufacturing PMI release over the weekend, this further compounds the view that China is struggling to move forward in a convincing way following a slowdown earlier this year. Meanwhile, BoJ governor Haruhiko Kuroda spoke for the first time since Friday’s announcement of further asset purchases on Friday. As expected, he struck a dovish tone, borrowing Mario Draghi’s ‘whatever it takes’ slogan, when referring to the steps the BoJ are willing to take to avoid the persistence of the deflationary mindset that has plagued the Japanese region for decades. Most importantly, this clearly means that the BoJ would be willing to intervene yet again if necessary to achieve that 2% inflation goal, which considering the recent downward trajectory in CPI, seems likely to be required.
The US midterm elections has brought about a somewhat unwelcome result for Barack Obama, who has seen the democrat run Senate go the way of the Republicans, who rode the wave of disenchanted voters to a famous victory overnight. The control of both the House and Senate for the final two years of Obama’s run as President means that there is going to be immense difficulty in passing any legislature or really getting anything done of any meaning. As such, this means the coming two years are likely to be marked by a blunted President that will no doubt have to contend with a greater assault on budget deficits and Obama’s healthcare bill among other things. Already we have seen House speaker John Boehner say that the House will seek to revote on "many common-sense jobs and energy bills that passed the Republican-led House in recent years with bipartisan support but were never even brought to a vote by the outgoing Senate majority." Thus it appears that the US could be in a strange position where they have a Democratic leader, yet increasingly Republican policies.
The European session looks to be dominated by the release of services PMI figures out of the Eurozone and UK. The final services PMI figures from the Eurozone come at a key times, following the release of some unsurprisingly disappointing growth and inflation estimates yesterday, with downgrades across the board. Today’s services PMI’s aren’t expected to be much better, with France and Italy expected to remain within contraction while Germany shows slowing growth. However, given that these are final figures, the impact is likely to be muted.
The big European release comes from the UK, with the services PMI number this morning. The services sector accounts for around two thirds of UK GDP and as such, the performance of today’s services PMI number goes a long way to providing a guide for GDP growth in the future. A very strong 2014 does appear to be continuing to some extent, with markets expecting a reading of 58.5, just some way short of the 58.7 number seen last month. Whilst this remains some way short of the 60.5 peak seen in August, it remains a very robust level of economic expansion in the sector and should the figure remain closer to 60 than 50, it is likely to point towards strong jobs and output for the UK economy as a whole.
US midterms see Republicans take control of the Senate
• Chinese PMI and BoJ speech push Asian markets in opposite directions
• US midterms see Republicans take control of the Senate
• Eurozone services PMI expected to continue downbeat sentiment
• UK services PMI crucial to future growth
European markets are hoping for a more upbeat start to trading today, following on from a somewhat depressing Tuesday which saw growth and inflation estimates revised downwards yet again. Today’s European optimism comes against a largely negative Asian session which has seen the Nikkei as the only major winner whilst the likes of the Hang Seng pulled back. Today’s session will largely focus upon the release of finaly Eurozone PMI figures and the UK services PMI number. European markets are expected to open higher, with the FTSE100 +41, CAC +36, and DAX +67 points.
The Asian session saw mixed fortunes as the Chinese services PMI dragged lower, whilst the BoJ governor Kuroda struck a dovish tone following Friday’s shock easing announcement. The further deterioration of the Chinese services PMI figure saw the second consecutive fall in this reading, with a number of 52.9 compared with last month’s 53.5. Coming following a poor manufacturing PMI release over the weekend, this further compounds the view that China is struggling to move forward in a convincing way following a slowdown earlier this year. Meanwhile, BoJ governor Haruhiko Kuroda spoke for the first time since Friday’s announcement of further asset purchases on Friday. As expected, he struck a dovish tone, borrowing Mario Draghi’s ‘whatever it takes’ slogan, when referring to the steps the BoJ are willing to take to avoid the persistence of the deflationary mindset that has plagued the Japanese region for decades. Most importantly, this clearly means that the BoJ would be willing to intervene yet again if necessary to achieve that 2% inflation goal, which considering the recent downward trajectory in CPI, seems likely to be required.
The US midterm elections has brought about a somewhat unwelcome result for Barack Obama, who has seen the democrat run Senate go the way of the Republicans, who rode the wave of disenchanted voters to a famous victory overnight. The control of both the House and Senate for the final two years of Obama’s run as President means that there is going to be immense difficulty in passing any legislature or really getting anything done of any meaning. As such, this means the coming two years are likely to be marked by a blunted President that will no doubt have to contend with a greater assault on budget deficits and Obama’s healthcare bill among other things. Already we have seen House speaker John Boehner say that the House will seek to revote on "many common-sense jobs and energy bills that passed the Republican-led House in recent years with bipartisan support but were never even brought to a vote by the outgoing Senate majority." Thus it appears that the US could be in a strange position where they have a Democratic leader, yet increasingly Republican policies.
The European session looks to be dominated by the release of services PMI figures out of the Eurozone and UK. The final services PMI figures from the Eurozone come at a key times, following the release of some unsurprisingly disappointing growth and inflation estimates yesterday, with downgrades across the board. Today’s services PMI’s aren’t expected to be much better, with France and Italy expected to remain within contraction while Germany shows slowing growth. However, given that these are final figures, the impact is likely to be muted.
The big European release comes from the UK, with the services PMI number this morning. The services sector accounts for around two thirds of UK GDP and as such, the performance of today’s services PMI number goes a long way to providing a guide for GDP growth in the future. A very strong 2014 does appear to be continuing to some extent, with markets expecting a reading of 58.5, just some way short of the 58.7 number seen last month. Whilst this remains some way short of the 60.5 peak seen in August, it remains a very robust level of economic expansion in the sector and should the figure remain closer to 60 than 50, it is likely to point towards strong jobs and output for the UK economy as a whole.
US Opening Call from Alpari UK on 5 November 2014
Focus turns to data as markets cheers Republican victory
• Republican victory in the Senate provides market boost;
• Things continue to look grim in the eurozone;
• UK services PMI falls to 18-month low, adding to concerns of a cooling economy;
• US ADP, services and ISM PMI readings in focus.
It may have been a slow start to the week but markets are likely to spring back to life today as investors celebrate the Republican victory in the Senate that will give the business friendly party control of both sides of Congress.
The victory for the Republicans puts Obama in a very difficult position as he sees out the final two years of his term but the markets don’t appear at all concerned about this. In the past, this outcome has been good for the markets and therefore the result is being well received once again. We’re only seeing small gains in US futures ahead of the open, but this may reflect both that this result is expected as well as the fact that markets are already at quite overextended levels.
Things are continuing to look quite grim in Europe unfortunately as the latest batch of services PMIs showed activity falling once again in October, with the German and eurozone figures even being revised lower than their initial estimates. There were some positive points, with the French PMI reading being revised higher and the Italian reading exceeding expectations to climb back above 50, but these don’t paper over the cracks of what is becoming quite a dire situation. The composite reading was revised lower to 52.1, only marginally above the September reading which was the lowest since November last year.
The UK services PMI provided further evidence that the economy is cooling in the second half of the year as the number fell to 56.2, the lowest since May last year. At this stage I’m not overly concerned given that other sectors remain very strong, including construction and manufacturing, but this is by far the biggest sector in the UK and therefore it can’t be ignored. Further signs of deterioration here could weigh on growth in the final quarter of the year and lead to growing concerns about the impact on the UK of the stagnation in the eurozone, by far its largest trading partner.
The end of the week is going to be very data heavy, starting today with a number of important economic releases. The ADP employment change number remains a very important piece of data despite the general view that its ability to provide an accurate estimate of Friday’s official non-farm payrolls number is poor. One thing it does tend to do is give an early indication of when the official reading is going to be significantly above or below forecasts, which regularly happens. For this reason, it is still an important release that has the potential to create big moves in the market.
Other notable releases today include the latest services PMI reading for the US, which is expected to be unchanged from its preliminary reading of 57.3. The services sector is so important to the US that these releases should never be ignored. These provide early warnings of future weakness or strength in the economy and markets tend to react to it. This will be followed by the ISM non-manufacturing PMI which is expected to fall to 58 from 58.6 last month. Despite coming after the official release, the ISM number commands great respect in the markets and can even cause more of a stir than the official services PMI number.
The S&P is expected to open 7 points higher, the Dow 52 points higher and the Nasdaq 13 points higher.
Focus turns to data as markets cheers Republican victory
• Republican victory in the Senate provides market boost;
• Things continue to look grim in the eurozone;
• UK services PMI falls to 18-month low, adding to concerns of a cooling economy;
• US ADP, services and ISM PMI readings in focus.
It may have been a slow start to the week but markets are likely to spring back to life today as investors celebrate the Republican victory in the Senate that will give the business friendly party control of both sides of Congress.
The victory for the Republicans puts Obama in a very difficult position as he sees out the final two years of his term but the markets don’t appear at all concerned about this. In the past, this outcome has been good for the markets and therefore the result is being well received once again. We’re only seeing small gains in US futures ahead of the open, but this may reflect both that this result is expected as well as the fact that markets are already at quite overextended levels.
Things are continuing to look quite grim in Europe unfortunately as the latest batch of services PMIs showed activity falling once again in October, with the German and eurozone figures even being revised lower than their initial estimates. There were some positive points, with the French PMI reading being revised higher and the Italian reading exceeding expectations to climb back above 50, but these don’t paper over the cracks of what is becoming quite a dire situation. The composite reading was revised lower to 52.1, only marginally above the September reading which was the lowest since November last year.
The UK services PMI provided further evidence that the economy is cooling in the second half of the year as the number fell to 56.2, the lowest since May last year. At this stage I’m not overly concerned given that other sectors remain very strong, including construction and manufacturing, but this is by far the biggest sector in the UK and therefore it can’t be ignored. Further signs of deterioration here could weigh on growth in the final quarter of the year and lead to growing concerns about the impact on the UK of the stagnation in the eurozone, by far its largest trading partner.
The end of the week is going to be very data heavy, starting today with a number of important economic releases. The ADP employment change number remains a very important piece of data despite the general view that its ability to provide an accurate estimate of Friday’s official non-farm payrolls number is poor. One thing it does tend to do is give an early indication of when the official reading is going to be significantly above or below forecasts, which regularly happens. For this reason, it is still an important release that has the potential to create big moves in the market.
Other notable releases today include the latest services PMI reading for the US, which is expected to be unchanged from its preliminary reading of 57.3. The services sector is so important to the US that these releases should never be ignored. These provide early warnings of future weakness or strength in the economy and markets tend to react to it. This will be followed by the ISM non-manufacturing PMI which is expected to fall to 58 from 58.6 last month. Despite coming after the official release, the ISM number commands great respect in the markets and can even cause more of a stir than the official services PMI number.
The S&P is expected to open 7 points higher, the Dow 52 points higher and the Nasdaq 13 points higher.
Daily Market Update - 5 November 2014 - Alpari UK
Republicans take senate, leaving Obama as a lame duck - 00:14
BoJ governor Kuroda will do “whatever it takes” - 01:36
UK services PMI falls to 17 month low - 03:19
A look at the ADP NFP release later - 04:59
Republicans take senate, leaving Obama as a lame duck - 00:14
BoJ governor Kuroda will do “whatever it takes” - 01:36
UK services PMI falls to 17 month low - 03:19
A look at the ADP NFP release later - 04:59
UK Opening Call from Alpari UK on 6 November 2014
Central banks in focus as BoE and ECB step forward
• BoJ minutes provide few surprises
• Australian jobs data comes in largely positive
• BoE expected to remain steady
• ECB likely to focus upon ABS and TLTROs
European markets are expected to open lower today, following on from a somewhat dour Asian session overnight that saw all the major bourses move to the downside. The release of BoJ minutes was expected to put a somewhat dovish spin on affairs, yet with Kuroda already providing a lot of meat on the bone of Friday’s decision, there was little left to reveal in those minutes. Australian jobs data did provide the one boost overnight, however with the announcement of both BoE and ECB monetary policy later today, I see a lot of caution coming into investor sentiment. As such, futures point towards a lower open, with the FTSE100 -17, CAC -11 and DAX -29 points.
The release of minutes from the BoJ overnight was expected by many to provide yet another boost to the Nikkei strength and Yen weakness, as the provision of a yet more granular view to their dovish view was presented. However what we saw was the opposite, with markets instead taking the moment to pause in those moves and instead shrugging off what appears to be just a reiteration of what we already know. The BoJ remains geared towards hitting 2%, which will be reached at some point or another through continued stimulus measures, yet we already know this from Kuroda’s ‘whatever it takes’ speech earlier this week. The minutes also expressed their view that a weaker yen in beneficial for the Japanese economy. Again, this view has been known since the introduction of Shinzo Abe as the new leader. Thus, whilst the content of these minutes were actually very strong in their message, the existence of previous like of like comments means that markets took very little from them.
The Australian economy was boosted by a strong jobs report overnight which saw unemployment remain steady, alongside a very strong employment change figure. The unemployment rate has been a thorn in the side of the Australian economy over the past three years, which has seen it rise from sub 5% to the 6.2% seen today. With that in mind, the flatlining of this reading could be seen as a positive result and indicative of an end to the upward trend. In terms of the employment change, it is very difficult to gauge exactly what is good and bad because the figure is so volatile that almost every month of employment growth is followed by one where the figure falls. However, these numbers should be taken with more than a pinch of salt as the recent volatility in the Labour Force Survey alludes to, with the ABS recently changing the methodology behind the collation of data, leading to lower reliability and a much greater scepticism regarding how the data is collated.
The big news stories of the European session are likely to come out of the central banks, with both the BoE and ECB announcing their latest monetary policy decisions to much fanfare. However, for the most part, the BoE has become somewhat of a predictable affair, with rates likely to remain steady for some time yet given falling inflation and this week’s worsening PMI figures. The MPC usually only provides a statement alongside the announcement when something changes and given that this seems highly unlikely, I expect today’s meeting to be somewhat of a non-event for the markets.
In the ECB, there is a lot more activity for traders to grab hold of, with recent meetings seeing both the announcement and subsequent details surrounding the new ABS scheme. Recent noises coming from the Eurozone suggest that many central bankers are not happy with how Mario Draghi conveys his message, so it will be interesting to see if we see any change in tact. However, for the most part, I am sceptical about the possibility of any further policy measures being introduced for the next few months, instead expecting the ECB to focus upon the TLTRO issue in December and introduction of the ABS plan. Thus today is likely to take a similar form to last month, where Draghi further elaborates upon the setup of the programme and how he thinks it will help the current dire situation in the single currency region.
Central banks in focus as BoE and ECB step forward
• BoJ minutes provide few surprises
• Australian jobs data comes in largely positive
• BoE expected to remain steady
• ECB likely to focus upon ABS and TLTROs
European markets are expected to open lower today, following on from a somewhat dour Asian session overnight that saw all the major bourses move to the downside. The release of BoJ minutes was expected to put a somewhat dovish spin on affairs, yet with Kuroda already providing a lot of meat on the bone of Friday’s decision, there was little left to reveal in those minutes. Australian jobs data did provide the one boost overnight, however with the announcement of both BoE and ECB monetary policy later today, I see a lot of caution coming into investor sentiment. As such, futures point towards a lower open, with the FTSE100 -17, CAC -11 and DAX -29 points.
The release of minutes from the BoJ overnight was expected by many to provide yet another boost to the Nikkei strength and Yen weakness, as the provision of a yet more granular view to their dovish view was presented. However what we saw was the opposite, with markets instead taking the moment to pause in those moves and instead shrugging off what appears to be just a reiteration of what we already know. The BoJ remains geared towards hitting 2%, which will be reached at some point or another through continued stimulus measures, yet we already know this from Kuroda’s ‘whatever it takes’ speech earlier this week. The minutes also expressed their view that a weaker yen in beneficial for the Japanese economy. Again, this view has been known since the introduction of Shinzo Abe as the new leader. Thus, whilst the content of these minutes were actually very strong in their message, the existence of previous like of like comments means that markets took very little from them.
The Australian economy was boosted by a strong jobs report overnight which saw unemployment remain steady, alongside a very strong employment change figure. The unemployment rate has been a thorn in the side of the Australian economy over the past three years, which has seen it rise from sub 5% to the 6.2% seen today. With that in mind, the flatlining of this reading could be seen as a positive result and indicative of an end to the upward trend. In terms of the employment change, it is very difficult to gauge exactly what is good and bad because the figure is so volatile that almost every month of employment growth is followed by one where the figure falls. However, these numbers should be taken with more than a pinch of salt as the recent volatility in the Labour Force Survey alludes to, with the ABS recently changing the methodology behind the collation of data, leading to lower reliability and a much greater scepticism regarding how the data is collated.
The big news stories of the European session are likely to come out of the central banks, with both the BoE and ECB announcing their latest monetary policy decisions to much fanfare. However, for the most part, the BoE has become somewhat of a predictable affair, with rates likely to remain steady for some time yet given falling inflation and this week’s worsening PMI figures. The MPC usually only provides a statement alongside the announcement when something changes and given that this seems highly unlikely, I expect today’s meeting to be somewhat of a non-event for the markets.
In the ECB, there is a lot more activity for traders to grab hold of, with recent meetings seeing both the announcement and subsequent details surrounding the new ABS scheme. Recent noises coming from the Eurozone suggest that many central bankers are not happy with how Mario Draghi conveys his message, so it will be interesting to see if we see any change in tact. However, for the most part, I am sceptical about the possibility of any further policy measures being introduced for the next few months, instead expecting the ECB to focus upon the TLTRO issue in December and introduction of the ABS plan. Thus today is likely to take a similar form to last month, where Draghi further elaborates upon the setup of the programme and how he thinks it will help the current dire situation in the single currency region.
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