Forex research

[Alpari UK]

UK Opening Call from Alpari UK on 19 December 2014

BoJ remains steady, yet bullish markets push higher

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

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

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

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

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

 

[fxapex]

US economy has been going strong which is going to send USD higher, there are chances are that USD will perform strongly against most of the currencies after the festive season.

 

[Alpari UK]

UK Opening Call from Alpari UK on 30 December 2014

Greek elections and oil prices weigh further on sentiment

European investors are continuing to be put off by the growing risks associated with the snap Greek elections this morning, as fears that victory for the far left leaning Syriza party next month could encourage other austerity hit countries to move in the same direction.
We’ve already seen a rise in popularity in anti-austerity parties in many countries including the UK which has been suffered much less than many of the eurozone periphery. The European elections last year saw a significant rise in voting for these parties, leading to many being elected. The fear is that with so many elections in the hardest hit countries to come next year, the eurozone project could come under some serious pressure if more of these parties are elected.
The Syriza party is clearly confident of victory, as seen by its leader Alexis Tsipras’ tweet to the leader of Spain’s anti-austerity party in which he declared “We will win”. His confidence is understandable given the lead that his party has in the polls, although based on those numbers, he would not have enough support to gain a majority so there’s still plenty to play for.
US markets weren’t really impacted by the Greek news on Monday but they are edging lower this morning as lower oil prices continue to weigh on energy stocks. With so little data being released this week, we’re likely to see oil prices play a major role in equity market moves. The only notable release today is the December consumer confidence reading, which is expected to rise to 93 from 88.7, just shy of the seven year high reached in October.
The S&P is expected to open 5 points lower, the Dow 25 points lower and the Nasdaq 5 points lower.

 

[Alpari UK]

UK Opening Call from Alpari UK on 31 December 2014

US data in focus but year end trading volumes remain low

The final day of the year is likely to be very lightly traded with many investors getting ready for their new years celebrations rather than trying to work out what is exactly behind today’s market moves.
The problem we face on days like today is that because trading volume is so light, it can take very little to move the markets compared with an ordinary trading day. Throw into the equation that it’s the final day of the year and something as simple as fund managers balancing their books, locking in some profits or cutting losses can be behind market movements.
Of course we could look at yesterday’s selling in the US and suggest it has something to do with the snap Greek elections and how that may influence the ECBs decision to buy government bonds – quantitative easing – which many have suggested will come in January. However, there was no selling on Monday following the failure of the third Presidential vote which would suggest otherwise.
Oil prices are another thing that could be blamed for yesterday’s selling but again, prices did not close far from their opening levels, unlike with US stocks. And today we’ve seen further selling in oil, with it now back near the five year lows hit yesterday, and yet US futures are pointing higher.
It will be interesting to see what kind of an impact today’s US economic data will have on the markets, if any, with jobless claims, Chicago PMI and pending home sales numbers all being released. None of these tend to be particularly big numbers for the markets, but in this low volume environment, we may get more of a reaction than we are used to seeing.

Read the full report at Alpari News Room​

 

[Alpari UK]

UK Opening Call from Alpari UK on 5 January 2015

Eurozone dominating as markets come back to work after Christmas

Good morning and Happy new year!

Isn't it depressing!

This Monday finally sees the return of most traders from the Christmas break and also the return of the volume into these markets. We may have had an extended Christmas break but it very much seems that the news stories dominating market direction have not changed, with a slip lower in the oil price, the ECB driving the Euro lower and the Non farm payroll number all dominating proceedings as we jump back into this first full week back. We also come back on a fairly busy week for the economic calendar this week with Eurozone CPI, PMI numbers, BOE rate decision and the US jobs report all set for release this week. So any one who thought they could just ease themselves back into things with a comfortable week will have a bit of a shock coming.

The Eurozone is the main talking point as we get going this morning as the Euro weakened to a nine year low against the US dollar trading below 1.1800. This is no surprise after the drama of the last couple of weeks with Greece, Germany and Mario Draghi himself. Greece seem to be edging closer to a Eurozone exit as the major political parties get themselves ready for elections later this month. It has been said over the weekend that German Chancellor Angela Merkel is now ready to cut losses in terms of the overall Euro area and accept a Greek exit from the single currency union. Germany itself has been struggling with extremely poor economic data, with unemployment CPI, GDP growth and import and export growth all looking sluggish. CPI readings this morning out of Germany will give yet another clue into how well the Germans are managing to hold off the drastically low inflation number for the Eurozone as a whole. Last week also saw ECB president Draghi hint yet again that a full round of government bond buying was just around the corner after he told us that further preparations were being made. Expectations now seem to pushing towards the next ECB meeting for the news of full blown QE, and with Eurozone CPI is expected to show that prices fell for the first time in five years in December which would add further weight to Mario Draghi’s plan.

However hitting the CPI readings as ever is the continuing slide in the oil price. Oil saw a brief rest bite over the Christmas period as lower volumes meant that the falls were not extended however with a full session of solid trading volumes today we are already seeing lower prices. WTI crude oil dropped to $51.78 overnight. The news of lower oil prices will not be a positive thing for those looking for a strong number in the CPI readings from Europe later in the week. Despite the fact that some write off the low oil prices as something unnaturally dragging the CPI readings down we cannot escape the fact that even if you strip out the oil price from your readings, anything on a domestic level still needs energy to run, meaning that the oil price is not as irrelevant as people would like to think when looking at the core CPI readings, which are expected at 0.7% for December when we get the reading on Wednesday.

As the week moves on we have a whole host of economic data due to release, most notably the US non farm payroll number. With the Fed still looking on track with its monetary policy and potential date for rate hikes this number should be judged on a month by month basis these days and not as a tool to gauge the date for a rate hike. Continued dollar strength should continue its weekly theme no matter what the payroll result on Friday, however as usual equity markets are likely to be in for some fierce volatility over the number.

Ahead of the open we expect to see the FTSE100 open lower by 10 points and the German DAX lower by 11 points.

 

[Alpari UK]

US Opening Call from Alpari UK on 5 January 2015

Slow start to a big week for the US expected

• Focus on Europe as Greek elections threaten ECB QE plans;
• UK a concern with general election, EU vote and cooling economy weighing;
• US session quiet but busy week lies ahead.

A quiet start to the week for the US despite the return of many traders following the new year break as a lack of economic data or events leaves investors looking for direction elsewhere.

For now, it’s Europe that’s guiding investors with snap Greek elections later this month potentially setting a precedent for elections in other austerity stricken countries this year, with the anti-austerity Syriza party currently leading in the polls. While a Greek exit won’t be as catastrophic as it would have been a few years ago, it’s certainly undesirable and should Syriza rise to power, the eurozone faces the tough task of doing what it can to keep Greece in the union while not incentivising other countries to vote in parties of similar mindset. For this reason, it’s going to be a massive year for the eurozone.

With this in mind, the ECB faces a tough choice when it meets in a couple of weeks in the first of its now 6-weekly meetings. The market has quite heavily priced in the adoption of quantitative easing from the ECB, which it has been rumoured to be preparing for this month’s meeting. However, with Syriza leading the polls which may cause issues around its membership of the currency block and therefore the ECBs willingness to buy its bonds, the central bank may be forced to rethink its plans and either exclude Greece or opt for some other form of stimulus, which I imagine the markets wouldn’t take to as well.

The UK is also becoming increasingly viewed by investors as one to steer clear of with a general election due later this year which is simply too close to call, a vote on EU membership in the pipeline if the Conservatives remain in power and the economy showing signs of broad based cooling following a strong 18-month run. The only thing that’s supported the currency recently has been the fact that the Bank of England is likely to be one of the first major central banks to raise interest rates but even this now looks unlikely until next year.

He construction PMI this morning providing further evidence of the cooling in the economy, falling to 57.6 from 59.4, much larger than the expected drop to 59. This was the third consecutive month that we’ve seen a decline in the number although we should take a couple of things into consideration with this. Firstly, a decline in construction activity in the winter months is not that uncommon. Secondly, 57.6 is still a very good reading and points to continued strong growth in the sector which should not be sniffed at.

The US session is looking a little quieter today but things will pick up as the week goes on. Between PMI readings tomorrow, FOMC minutes on Wednesday, jobless claims on Thursday and the jobs report on Friday, it’s not going to be a straightforward first week for investors although it should set things up nicely for the year.

The S&P is expected to open 9 points lower, the Dow 68 points lower and the Nasdaq 16 points lower.

 

[Alpari UK]

Daily Market Update - 5 January 2015 - Alpari UK

 

[Alpari UK]

UK Opening Call from Alpari UK - 6 January 2015

Oil below $50 and potential Greece exit dominate markets

Good Morning all!

The first full week after the Christmas period started off with a bang yesterday as equity, currency and commodity markets all posted big moves as fears surrounding the lower oil price and the political situation in Greece saw traders sell their assets. WTI Crude oil dropped below $50 a barrel for the first time since 2009 before rallying slightly to trade slightly higher than the huge psychological figure. T the start of 2014 oil prices had been around the $105 per barrel level, 12 months on the picture could not be any different with the global economy continuing to worry that a lower oil price could hit the large oil producing nations. During yesterdays equity session European, US and Asian markets all fell sharply with oil and energy stocks leading the major bourses lower. The Dow ended lower by over 300 points with the Nikkei ended lower by over 2.5%.


With the new year has come the same old problems for global financial markets with the supply glut and weaker demand for oil causing tumbling prices in both brent and WTI crude oil. The lower prices could well be driving a lot of oil producing nations in to extremely tough economic times as the current price drops way below the cost price for these countries to actually extract oil from the ground. With the likes of Russia and a lot of the middle east needing the oil price between $105 – $90 to break even you can see why a lot economies are struggling when the price is barely treading water at $50 a barrel.

Europe is the other major talking point in global markets yet again this week and it feels like we have moved full circle on the Eurozone crisis as markets are yet again dominated by a potential exit from the euro area by Greece. After years of political fighting and billions of Euros in bailout money it could be that we are closer to a Greek exit than we have ever been as the greatest power in the Eurozone now see the exit of Greece from the Euro as a viable option for a sustainable and recovery Eurozone. German Chancellor Angela Merkel has almost voiced her support for a move by Greece after years of being totally against any move to break up the Eurozone saying that she now believes that the Eurozone could cope with an exit. With elections called for later this month and populist parties who are opposed to further Eurozone led austerity measures leading the way in the polls it is almost a case of who will act first will it be Greece’s people voting for no Eurozone or will the ECB blink first and call for the change.

Of course Greece isn’t the only story in Europe as the ECB continues its internal fight to see whether the economy needs a full round of government bond buying quantitative easing pumped in. Mario Draghi has been hinting since last April that QE is something that could be looked at but over the last couple of weeks we have seen the strongest hints yet that stimulus will be added to the economy to try and boost growth and pull the ultra low inflation number higher. Wednesday will be a key day this week as the Eurozone CPI reading is released. Obviously a lower oil price is going to affect this reading, but a poor number cannot be just brushed under the carpet due to lower energy prices. The German reading yesterday showed CPI at its lowest level in 5 years and a continued week number as expected in Europe’s number on Wednesday would be further proof that the full round of QE could be ready for delivery as soon as next weeks ECB rate meeting.

Ahead of the open we expect to see the FTSE100 open lower by 11 points with the German DAX higher by 8 points.

 

[Alpari UK]

Daily Market Update - 6 January 2015 - Alpari UK

 

[Alpari UK]

UK Opening Call from Alpari UK - 7 January 2015

Good Morning!

Asian stocks extended losses for equity markets overnight as the energy and commodity story continued to dominate proceedings for global market. The oil price is the only thing that investors can focus on at the moment and with the drop in both WTI and Brent Crude oil continuing it currently seems that there is no light at the end of the tunnel. Many will be asking just how much lower this oil price can go before some kind of stabilising effect kicks in, however after every $10 fall experts have been calling the end of the slide but have seen it continue to drop like a stone. Traders will be looking for the $40 level now as a base for the oil price but after further comments from Saudi Arabia yesterday hinting of still no move to curb output then no one would be surprised to sees us drop yet lower than that level. Breakeven prices and Fracking costs have long been broken and it now almost seems we will keep going lower until the members of the OPEC cartel literally can no longer afford a slip in prices.

There are other stories moving markets today, with some important data due for release over the next few days. Europe and the potential QE and Greek exit from the Eurozone is the other main story that people are able to get their teeth into. This morning sees the all-important Eurozone CPI reading and it could well be the first time we see a period of deflation as the headline figure could potentially drop to -0.1%. However markets may not look to this as such a bad thing and could in fact see equities boosted as it would almost certainly confirm that a full blown program of QE was right around the corner and could be with us as early as next weeks ECB rate setting meeting. Gain we cannot look away from the oil price here as it would be the lower energy costs that drag the CPI inflation figure to this low. However the worrying factor for Mario Draghi and the ECB will be that the core CPI number, that strips out energy prices has still been falling at the same rate as the headline number just from a slightly higher base. This means that domestic prices are falling regardless of the drastic fall in oil prices.

AS the week now rolls on we get more and more data to work in tandem with the low oil price. Obviously today the CPI reading in Europe will take centre stage but this afternoon also sees us start to gear up for Friday’s non farm payroll number with the ADP payroll figure. Tomorrow sees the BoE policy meeting and despite not much expected, many will want to see if there is any hint of a change in monetary policy. Friday will of course see the payrolls and jobs report from the US, always a big story and likely to give yet more fuel to the markets along side this drastically low oil price that has the entire market panicking and playing the “risk off” card jumping out of risky assets and into the safe havens such as the US dollar and gold prices.

Ahead of the open we expect to see the FTSE open higher by 13 points with the German DAX higher by 19 points.

 

[Alpari UK]

Brent Crude Breaks Below $50 for the First Time Since May 2009

Brent crude broke through the psychologically significant $50 a barrel this morning at the first time of asking, providing further evidence that traders are not interested in picking bottoms in the oil price collapse just yet, despite it being down more than 56% in a little over six months. This is the first time Brent has traded below $50 since May 2009 and the fact that traders barely even hesitated at this level makes $40 a barrel for Brent crude look extremely likely. With momentum only appearing to gather, I don't even think it will stop there unless we see a change in stance from OPEC (more specifically the Saudi's given their clear pull in the group) or US shale companies starting to fall, which is clearly what OPEC is banking on.

Brent is now wavering around the $50 level but this simply looks like a dead cat bounce more so than anything else, making further losses in the short term look very likely, just as we saw in WTI a couple of days ago. With traders playing such little attention to technical levels until now, it's difficult to highlight key levels but there are many levels between current prices and 47.26 - April 2009 lows - that have been strong support and resistance levels previously so we may see sellers take their foot off the gas a little in this region. Should this break though, particularly today, then $40 and even $36.20 - December 2008 lows - look a strong possibility.

 

[Alpari UK]

US Opening Call from Alpari UK - 7 January 2015

Focus turns to FOMC minutes as Brent pierces $50

Oil is once again what everyone is talking about this morning after Brent crude pierced the $50 a barrel level for the first time since May 2009, although there are plenty of other things to focus on today as the FOMC releases the minutes from its December meeting and we get the latest update on job creation from ADP.

The $50 level in Brent crude was widely seen as the next big psychological level at which traders may be tempted to lock in some profits or even be tempted to buy into the decline, although this was far from guaranteed as the same level in WTI proved to be nothing more than another hurdle that traders were more than happy to clear. We do appear to have seen more of a reaction to the level in Brent, with it having bounced as high as $51.63 since, although in the grand scheme of things this isn’t much better than the rally to $50.88 in WTI shortly after reaching the same level.

As it stands, this looks nothing more than a dead cat bounce and I expect traders to remain very reluctant to be overly bullish at these levels as the fundamental picture has not changed. I’ll be very surprised if the $50 level holds until the end of the day, let alone in the longer term. The fact of the matter is that there is still an oil supply glut and demand isn’t there. Unless one of these factors change, oil prices are going to remain very heavy. The decline may slow and probably will but I would not bet against both WTI and Brent breaking through $40 in the coming weeks.

It’s not just oil producing countries and energy firms that are feeling the pressure of falling oil prices, central banks in oil importing nations are also being put into an uncomfortable position, whether it being the Fed and BoE having to question the timing of the first hike or the ECB potentially being forced into bond buying despite an important election taking place in Greece only a few days later.

This morning it was confirmed that the eurozone has finally fallen into deflation territory for the first time since 2009, driven by a 6.3% decline in energy prices which won’t come as much of a surprise to anyone given the movements in oil prices. All other prices remained quite stable, while services actually rose by 1.2% which explains why the core reading rose to 0.8% from 0.7% the month before. The rise in the core reading may potentially give the ECB the opportunity to delay its next stimulus package until after the Greek election when it will have a much better idea of what it’s dealing with.

I don’t think the rise in the core reading has done anything to change the consensus opinion in the markets though, with equity markets appearing to react positively to the drop into negative territory of the headline figure, suggesting they’re still convinced that QE is still on the cards this month and potentially even more so.

The decline in oil prices doesn’t appear to be changing the Fed’s view on upcoming interest rate hikes from current record lows, with everything continuing to point to the middle of the year for the first hike. That said, with oil continuing to plummet, this may change and if we get any indication that this is the case in today’s minutes, it would more than likely have a major impact on the markets.

While the inflation decline in the US hasn’t been close to as bad in other countries, it is certainly heading lower and already below the Fed’s 2% target. If this is to continue, the Fed will be in the very difficult position of seeing a strong economic recovery but potentially being forced to leave rates at the current lows so as to not exacerbate the inflation problem. The minutes may provide further clarification on whether this is the case or if they consider the movement in oil prices to be temporary and not threatening thereby continuing on the course of rate hikes as planned.

Today also sees the release of the non-farm employment change figure which is seen as an estimate of Friday’s non-farm payrolls figure based on the numbers compiled by ADP, which provides payroll services to a large number of corporations. The release is generally not seen as a very accurate estimate of the official NFP figure but it can give an indication of whether we’re going to see a big swing away from expectations, which is more what this is used for.

The S&P is expected to open 12 points higher, the Dow 94 points higher and the Nasdaq 21 points higher.

 

[Alpari UK]

Daily Market Update - 7 January 2014 - Alpari UK

 

[Alpari UK]

UK Opening Call from Alpari UK - 8 January 2015

Oil prices push back and lead equity recovery

Good morning!

Oil prices yet again have dominated the overall market direction over the last 24 hours as a slight rebound in major prices has seen equity markets recover losses incurred earlier in the week. However we are going to need to see much more of a recovery if prices are going to continue to recover as yesterday only saw a brief rest bite and a potential dead cat bounce on both WTI and Brent crude oil. However there has been talk over the last 24 hours that $40 could be the absolute price floor for oil as all oil producers continue to lose money even with the price above $50 a barrel. However those eyeing a price floor at $40 are also concerned that any recovery from this level may not happen until the second half of the year.

So with oil prices rebounding slightly and lower than expected Eurozone CPI hinting at a move to introduce QE at next weeks ECB meeting, equity markets were able to post some nice gains. However last nights Fed meeting minutes saw Janet Yellen warn yet again of global growth fears hitting all economies. Of course we know the Fed are well on track and the US is leading the way in terms of economic recovery but the global growth issue is something that all economies must be worried about. She also hinted that interest rates in the US could go up before inflation picks up. Of course inflation in the US is nowhere near as low as in the Eurozone, but yesterday showed that Janet Yellen is willing to stick to her plan without waiting for the oil price to drag the inflation level higher.

Later today we will get the BoE rate decision and of course the expectations for today’s meeting are no change across the board. In the UK we are almost sitting in a bit of a sweet spot in terms of the economy where currently things are both positive for the electorate and government/central bank. With growth figures, unemployment and average earnings figures moving in the right direction the government is happy with the current economic position. The one fear is of course the lower inflation figure, a figure which is insuring that while average earnings slowly go up prices remain static if not lower. It almost shows that at the moment there is no real need to push ahead with a change in monetary policy and we may not see a rate hike now in the UK until 2016. It also shows that the fear of deflation at the moment for the UK is not a totally bad thing after all, especially when the current government will be asking the electorate to go to the poll in the next 5 months.

The last two days of the week are obviously busy ones with the BoE following on from Eurozone CPI and leading into CPI from China overnight and then of course the all-important US jobs report and non farm payroll number tomorrow afternoon. So despite a lot of data already being release so far this week and the dominating oil price causing yet more big swings in markets, the moves are certainly not over for the week just yet, as the first full week of the new year continues to keep everyone on their toes.

Ahead of the open we expect to see the FTSE 100 open 72 points higher with the German DAX higher by 120 points.

 

[Alpari UK]

Daily Market Update - 8 January 2015 - Alpari UK

 

[Alpari UK]

UK Opening Call from Alpari UK - 9 January 2015

Non Farm Payrolls to finish off busy first week back

Morning all,

The first week of the new year is nearly over and for very many it is not going to be a week that they quickly forget. With oil prices dropping below $50 a barrel, deflation finally in the Eurozone and some huge swings in equity and currency markets you could have been forgiven for thinking there had been no festive break at all. The week is not yet over in terms of the volatility either as later this afternoon we will see the release of the US non-farm payroll number within the jobs report. However before we get there we have seen inflation data from China overnight which has shown inflation hit a 5 year low falling to 1.5%, well below the government’s target of 3.5%. Yet again, and very much like the Eurozone number earlier this week, a main driver of the fall has been to do with the incredibly week oil price. However regardless of the oil price fall the fact that domestic prices are also so week is of course a cause for concern for China, with growth still struggling then ultra low inflation and global growth fears could well cause more jitters yet as we move into next week.

The last session of the week is set to be a fairly busy one on the economic calendar as traders also try and decide how to position themselves over the weekend after what has been a tumultuous week. Obviously there will not be too many traders moaning about the volume and volatility that has returned to global markets this week, however just how successful the week has been may well decide just how much risk people are willing to take on as we head in to the payroll figure later this afternoon. It has been a week where many have looked to take the risk of trade with many still dumping the pound and the euro in favour of the US dollar and gold. However equity markets have been mixed throughout the week, including a real mixed bag for some of the retailers in the UK on what has now been dubbed (as we can’t help but name days) super Thursday for the retail industry. This morning will see numbers out of the UK again today with industrial and manufacturing production as well as trade balance figures. It seems that the UK is actually sitting in a bit of a sweet spot at the moment in terms of the economy. With ultra-low prices and low petrol prices meaning the general public can happily put their hands in their pockets and spend money. While on the other hand strong growth figures are coupled with improving unemployment and Average earnings numbers and a falling deficit. It is rarely that things look positive for both electorate and government, but there is also no better time for this to happen than in the run up to a general election.

So on to the payrolls and what is expected , we are looking at a number around 240K this afternoon when we get the reading. This would be a long way below last month’s surprise jump over 300K and could cause a bit of disappointment. However Decembers number is always that little bit lower due to seasonal effects, however with the US economy well on track and the Fed happy with the state of monetary policy it could well be that this number does not actually hold much significance, unless drastically lower. Personally I think we could see a better number yet again, which along with positive numbers all over the economy is going to lead to earlier than expected rises in interest rates with my prediction being that we could well get the first rate hike by March. Whenever it is we get the first rate hike however it is not going to be unemployment that is an issue as today will most likely show that the job market in the US continues to improve and is doing so at a pretty fast rate.

Ahead of the open we expect to see the FTSE open lower by 6 points with the German DAX lower by 20 points.

 

[Alpari UK]

US Opening Call from Alpari UK - 9 January 2015

Wage growth key in jobs report as Fed eyes rate hike

• Oil price stabilisation provides further boost for equities;
• US jobs report in focus as Fed prepares first rate hike;
• Investors may be overly optimistic on job creation;
• Wage growth key in providing inflationary pressures.

After a busy week in the markets in which most of the focus has been on oil prices, attention will turn to the US today with the December jobs report potentially providing the next catalyst for the markets.

The stabilisation of oil prices in recent days has given equity markets a boost as energy companies pare some of the significant losses sustained throughout the enormous sell-off in oil. Oil prices aside, the current environment is actually quite bullish for the markets, even with the Fed having ended its quantitative easing program in October and looking ever more likely to raise interest rates in June. The ECB is widely expected to announce its own bond buying program imminently and the Bank of Japan is already buying bonds on an extremely large scale.

With the market having accepted that interest rate hikes in the US are on the horizon, we no longer appear to be in a scenario in which good news in bad news for the markets. This is probably due to the very accommodative stance of other central banks but regardless, further evidence that the US economy is strengthening is generally viewed positively by the markets.

With that in mind, there is no batch of data that is viewed as being more important than the US jobs report which provides an update on job creation, unemployment, wages, hours worked and participation. While the unemployment rate and non-farm payrolls figures tend to make the headlines, it’s the other readings that I believe hold the key to when the FOMC will decide to raise interest rates.

Unemployment is expected to fall to 5.7% in December, very close to the level that the Fed deems full employment while 240,000 jobs are believed to have been created, the eleventh consecutive month that this number has exceeded 200,000 which is the longest stretch since 1994. It’s no wonder people are getting carried away with the recovery in the US and bullish on the dollar!

Taking that into consideration, it is extremely unlikely that these figures will change the FOMCs view on interest rates, regardless of what they are. What I would say though is given the strength in last month’s reading, I wouldn’t be surprised to see a figure well below the 240,000 as well as a downward revision to the November reading. I don’t think that will bother investors too much though as they should be more concerned with wage growth, hours worked and participation as its these that are going to create inflationary pressures going forward which is what the Fed is banking on. If we get signs between now and the June meeting that these are deteriorating, the FOMC may be convinced to push back the first hike.

The S&P is expected to open 4 points lower, the Dow 46 points lower and the Nasdaq 4 points lower.

 

[Alpari UK]

Mixed US jobs report as important Fed metrics disappoint

At first look, the US jobs report was extremely impressive, 252,000 jobs created in December and November’s revised up from the already staggering 321,000 to 353,000, the highest since January 2012. Unemployment fell to 5.6% in December, only 0.1% above what the Federal Reserve deems to be full employment, at which point we should start to see some real wage growth and inflationary pressures, hence the need for a rate hike in the next 6 months.

Unfortunately that’s where the positivity around the report ends as participation fell back to 62.7%, which was probably largely responsible for the decline in the unemployment rate, while wages fell by 0.2% on the month dragging the yearly figure back to 1.7%. While this is still good, it’s certainly not the report the FOMC was hoping to see, with all of the metrics they are most interested in right now disappointing. I don’t think this changes the outlook for the first rate hike this year but a couple more months of the same and they may be start to consider waiting a little longer until they are more convinced on the sustainability of the recovery.

The market reacted almost exactly as you would expect to this report, with the dollar strengthening immediately after the release as traders react to the job creation and unemployment numbers, before pulling back as the wage and participation readings take some of the shine off the report. All things considered, the report is still strong and I’m sure wage growth and participation will improve in the coming months as the recovery goes from strength to strength. Given that many jobs that are created in the holiday season are low paid, we maybe shouldn’t be too surprised at the decline in wage growth and instead be pleased with the level of job creation.

 

[Alpari UK]

2015 – The Year Ahead

It would be hard to imagine a more volatile and unpredictable year than the one we’ve just left, and to some extent we enter 2015 with many questions to be answered.

From a financial markets standpoint, the prospect of major political and economic turmoil means that price volatility is almost guaranteed. The major disparity seen between weaker regions such as the eurozone and Japan, compared to the stronger performers such as the UK and US, will be front and centre given the divergent paths of monetary policy between the two camps. With that in mind it is worth taking a look at what could be some of the major themes throughout 2015.


Political instability

From a political view, the focus will largely be on European elections, which given the rise of anti-austerity and anti-EU sentiment means that there will be a push towards more isolationist policies by the dominant parties, as a means to appease the clear unrest seen throughout some of the major economies.

The UK election in May is no doubt going to be dominated by the question of how far both Labour and the Conservatives will go towards the anti-immigration rhetoric touted by UKIP and Nigel Farage. Teresa May’s announcement that international students will be ejected from the country immediately after finishing their qualifications highlights this, and points to a crude and reactionary policy which is focused upon appeasing voters despite essentially leading to a brain drain from UK institutions.

However, given the fact that the UK seems to be headed towards a referendum upon EU membership, the UK’s ability for options which can limit mass immigration without leaving the union will be important as a means to deter people from voting in favour of the drastic move to the exit doors.

Greek election

On mainland Europe, the Greek election on 22 January is the first and one of the biggest of multiple flashpoints which could greatly affect the structure of the eurozone as we know it.

The rise of the anti-austerity Syriza party means that the single currency region could be a much more confrontational place very soon. Given their promise to write-down debt and alleviate the pressure of the austerity measures which were implemented as a prerequisite to gaining funds, there is little chance that the likes of Germany will want to lose out on both fronts. As a result, Angela Merkel has already been warning voters through an apparent ‘leak’ that the Bundestag have been preparing for a Greek exit.

For the most part though, it is highly unlikely that of all countries, Germany would want to initiate the breakup of the eurozone, yet should Syriza get into power, it would without doubt be a bumpy road ahead, and the threat of contagion throughout the eurozone would be critical. With the likes of Spain and Portugal also due for elections this year, we are expecting to see political instability play a significant role in 2015.

Oil price slide

The incessant fall in oil prices through the second half of 2014 gained in importance once it became clear that rather than simply being a result of heightened supply, it was also being driven by an agenda from Saudi Arabia, who plan to reduce prices to a level which would make many of the worldwide drilling and fracking operations economically unviable.

This means that we could see global supply come down eventually, but that could take time, with much of the investment in drilling having been assigned for a while yet. With Russian oil output has hitting a post-Soviet Union record high, and Iraqi oil exports at their highest levels since 1980, there is significant doubt as to whether the falling prices are going to force output lower.

The current trend clearly shows that those countries outside of OPEC are deciding to actually increase their exports to compensate for a lack of earnings at previous levels, and given that restrictions upon Iranian exports could be lifted at some point in 2015, we could yet see another major oil producer hitting the markets with major supply.

The impact of the recent falls in oil prices are far-reaching, to say the least. There are mixed feelings for many, with the energy sector no doubt feeling the brunt of this shift and subsequent job losses are likely to follow once companies refrain from drilling, due to the loss of profitability at lower prices. However, on a macro level, it is less clear, with economies reliant upon oil exports set to lose crucial tax revenues while net importers should gain from the lower prices. However, aside from that, there is a more widespread boost to the rest of the economy, where lower oil and gas prices will lead to a greater degree of disposable income to be spent by consumers. Therefore retail firms will no doubt see 2015 as a massive opportunity to boost sales for luxury items and experiences such as holidays.

Lower oil prices also mean that the costs of production will be cut significantly and this can only be a good thing for everyone. While producers will no doubt pass a lot of this saving on, it is likely that they will also take the opportunity to increase profit margins and so transport-reliant industries are set for a particularly good year.

Inflation and its impact on central banking

The influence of these falling oil prices are no doubt going to compound the problem of disinflation that has been felt around the world. No more so than in the eurozone, where markets are still reeling from the announcement that CPI fell to -0.2% in December 2014. This move into deflation could be the first month of many such announcements, and puts pressure on ECB president Mario Draghi to finally introduce a fully-blown quantitative-easing programme.

The fact that deflation has finally arrived is hugely significant, but perhaps the most important question is when the eurozone will move back into inflation. With oil prices tumbling, the pressure will no doubt be downward for global price growth and this is going to have a profound effect on central bank policies.

The ECB appears to be on the cusp of a round of fully-blown quantitative easing, which is likely to continue the equity rally seen throughout 2014. However, the delaying of interest-rate hikes from the likes of the US and UK is likely to be just as important, leading to a continued emphasis on credit and investment over savings across the western world.

The impact of current inflation levels hasn’t yet taken hold within the likes of the UK, US and China, to the same extent as it has within the eurozone. However, the signs are that the impact of falling oil prices will invariably catch up with inflation data in the end – and once it does, there is little doubt that the central banks will have to take heed and act accordingly. Given that the norm for central banks is to see price stability as their core mandate (this typically means price growth around 2%), the move lower in prices will no doubt have a massive impact upon the degree of monetary policy seen globally.

 

[Alpari UK]

Daily Market Update - 9 January 2015 - Alpari UK