Forex research

[Alpari UK]

UK Opening Call from Alpari UK on 13 June 2014

Europe to open lower following oil price spike on Thursday

For a while now we’ve been waiting for that next major catalyst that can either provide a boost for the next leg higher in indices or bring about a long overdue correction and it looks like the latter may have won the race. Overnight, US indices suffered further losses, with the S&P ending the day in the red for a third consecutive day, while the Dow recorded a second day of losses for the first time in almost a month.

The move was prompted by a spike in oil prices that came as a result of increasing unrest in Iraq. Overnight, Brent crude prices soared to $113.38, while WTI hit $107.07 for the first time since 19 September. This has the potential to seriously disrupt the supply of oil from, what is, a major oil producing country, and therefore it is hardly surprising that we’ve seen such a significant reaction in the markets.

The only question now is whether the situation in Iraq will deteriorate further and, if it does, how high oil prices will go before the expected fall in oil exports is offset with increased production elsewhere. In the past, the Saudi’s have been more than happy to make up the shortfall but clearly, financial markets are not willing to bet on this just yet. A sustained spike in oil prices could have a very negative impact on the global economy, just at a time when many countries are just finding their feet again.

It’s important to remember that it’s not just consumers that suffer at the pump as a result of rising oil prices, companies also suffer quite significantly as well. Any company that relies on transporting goods, say throughout the UK for example, will see costs rise quite significantly as a result of the rising prices, while airlines will also suffer, for obvious reasons. Add to this the fact that if consumers are spending more at the pump, disposable income is significantly reduced which leaves less available to spend elsewhere. A reduction in consumer spending is not good for business and could therefore be disastrous for the economy.

Bank of England Governor Mark Carney also stole a few headlines last night after announcing during his annual Mansion House speech that interest rates could rise earlier than financial markets currently expect. Unsurprisingly we saw a significant spike in the pound in response to these comments, with traders now pricing in a rate hike as early as later this year, rather than early 2015. Sterling rallied more than one cent against the dollar, while the euro also suffered quite significantly at the hands of the sterling rally.

The Chinese data, released this morning, has given the markets a bit of a boost ahead of the European open. Retail sales and urban investment became the latest figures to exceed expectations, which is hopefully a good sign that the economy is turning around and can have a much better second half of the year. There’s been plenty of concern that the country is slowing at a faster rate than intended and could face a hard landing. The latest data would suggest otherwise.

Today there’s a lot of economic data being released, but as with a couple of other days this week, the majority of it is low impact data and therefore we could actually see quite a mild end to the week. The eurozone trade balance figure stands out as the notable economic release this morning, while the week will be wrapped up with the University of Michigan consumer sentiment reading for June. This is a preliminary reading so has the potential to have quite an impact on the markets.

Ahead of the open, the FTSE is expected to open down 21 points, the CAC down 6 points and the DAX down 8 points.

 

[Alpari UK]

US Opening Call from Alpari UK on 13 June 2014

US futures shrug off oil prices and Carney comments

• US futures shrug off oil prices and hawkish Carney comments;
• Sterling rallies as Carney warns that first rate hike may come earlier than expected;
• Preliminary UoM consumer sentiment reading key today.

Yesterday’s spike in oil prices along with Mark Carney’s surprising hawkish comments at the annual Mansion House event appear to have condemned European indices to end the week on a negative note. Meanwhile, US indices are expected to shrug this off much easier, with the S&P seen opening unchanged, the Dow down 4 points and the Nasdaq up 2 points.

The bulk of the downside resulting from the oil spike was probably largely priced into US stocks yesterday, which would explain why they appear to be showing such resilience ahead of the open. That said, it’s unlikely that oil prices have peaked quite yet, in fact there could be a significant amount of upside to come if previous episodes of disrupted supplies are anything to go by, so I expect there’ll be more suffering to come for stocks.

Given what we’re just recovering from, it would be outrageous to say this has come at the worst possible time, but it is certainly extremely inconvenient. The recoveries in the UK and US are still fragile, while the eurozone is only stagnating at best. We could have really done without another oil price shock that could derail what recoveries we are seeing and extend what has already been one hell of a financial crisis.

With US President Barack Obama not ruling anything out, we have to assume that the situation in Iraq is going to get worse before it gets better. This will be disruptive to say the least, not just to the consumer who will see disposable income take yet another hit as they are forced to pay higher prices at the pump, but also to companies that rely on oil and gas. Hence why these stocks could suffer a lot more in the coming weeks and months.

This could potentially make the comments made by Bank of England Governor Carney a little irrelevant as I can’t imagine that the MPC would look to tighten monetary policy at a time when the economic recovery is under threat. Clearly the markets don’t see it that way, which is understandable as it’s a little early to start pricing in such assumptions.

Carney’s warning that interest rates could rise earlier than financial markets are currently expecting came as a total surprise to traders, most of whom were not expecting the first hike until the first quarter of 2014 at the earliest. Sterling rallied aggressively following the comments, just falling short of 1.70 against the dollar for the second time in a little over a month. Unlike last time though, traders now have a reason to buy at these levels and force the pair through this major resistance. I expect this will happen in the coming days, potentially following a brief correction given the scale of the rally since yesterday. A break through 1.7042 would see the pair trading at levels not seen since October 2008, the period when sterling went from trading at more than $2 to the pound to $1.35 in the space of five months.

The end of the week is looking pretty quiet with the only notable economic release being the preliminary UoM consumer sentiment reading for June. This is an important piece of data as it gives us key insight into consumer attitudes in the coming months. The consumer is so important to the US economy that this cannot be ignored.

 

[Alpari UK]

Weekly market preview from Alpari UK – 16 June 2014

A key week in the markets where the Fed comes back into focus with the Federal Reserve bringing about the most notable event in the form of the latest monetary policy decision on Wednesday. Elsewhere, the UK CPI figure will bring an update to the real income story. Meanwhile in the eurozone, the CPI figure is going to be a major driver of interest within the markets. On the Asian front, the focus will largely be upon the Japanese economy, where the release of the latest monetary policy meeting is going to be the focus of Wednesday.


US

A largely quiet week on the whole in the US, where the major economic data releases amount to the latest CPI and Philly Fed manufacturing index. That is with the exception of the FOMC announcement, which will make up the most notable event of the week when it occurs on Wednesday.

The FOMC announcement marks the conclusions of the two day meeting where we will see the latest Fed forecasts, along with the monetary policy decision from Yellen & co. Unfortunately this event has become somewhat predictable recently, which brings down the propensity for volatility. That being said, given the size of the announcement, we are always likely to see some notable price action. My opinion earlier this month is that should we see a non-farm payrolls figure above 200k, then we would most likely see another $10bn taper this week. Thus with the payrolls number of 217k, I expect to see much of the same from the Fed. As such, be aware that the press conference and quarterly economic projections are just as likely to provide significant volatility as the core announcement.

Earlier in the week, the US CPI measure of inflation is due out, with estimates pointing towards a steady level of 0.2% quarter on quarter. On a yearly front, this amounts to 1.7% compared to the May 2013 figure. Unlike the eurozone, the Fed is not too worried about this figure as it currently stands given it’s proximity to the 2% level. However, should we see a major move to the downside, this could be enough to bring about discussions within the Fed regarding whether tapering is too sharp.

Finally, the Philly Fed manufacturing index figure is due on Thursday, where we are expecting to see a second consecutive pull-back from the high in March towards 14.8. Bear in mind that this survey is typically something which generally only has a significant effect if it falls markedly short or higher than market expectations. This is in contrast to some of the more notable releases which seemingly bring volatility irrespective of the announcement. Given the major move to the upside two months ago, a pull-back would not be a shock. However, a move to the upside could be the thing needed to drive the markets forward yet again.

UK

A mixed week ahead, where the CPI, BoE minutes and retail sales figure represents a few interesting items to keep a look out for. On Tuesday, the CPI measure of inflation is likely to dominate where expectations point towards a fall back to 1.7%. For the most part, the inflation level has become alot less of a threat to monetary policy in the UK in recent months following the fall back below 2%. In all likeliness, the main worry for the BoE would be a move into a deflationary environment, similar to that in the eurozone. Thus should we see a significant fall in this figure, it could bring a change in expectations of future monetary policy.

On Wednesday, the release of the monetary policy minutes is expected to revitalise the discussion regarding when we will see interest rates rise in the UK. The meeting earlier in the month saw Carney note that we had edged closer to the point where we would see interest rates rise. This has been followed up more recently by Carney speculating that rates would increase earlier than many expect. Thus the minutes are going to be watched closely for any sign of when the MPC expect to see the start of interest rates hikes.

Finally, on Thursday, the retail sales figure is widely expected to move back into negative territory for the first time in four months. The role of the consumer in driving the UK economy forward is absolutely key, as highlighted by the fact that Mark Carney saw consumption as one of the major areas to watch out for in relation to his forward guidance policy. The retail sales growth shows the confidence of consumers to make investment decisions and thus reflect both current and future confidence.

Eurozone

A rather front weighted week for the eurozone, where the release of the CPI inflation rate, along with the ZEW economic sentiment numbers represent the only two major events on my agenda. Monday’s CPI release is by far the most important of these, given the disinflation seen in the last year. The inability of the actions from the ECB to actually bring about any decent level of inflation was what drove him to implement a whole range of measures seeking to raise this figure. On this occasions, we do not expect to see any major moves in relation to monetary policy given that the steps have been taken and thus Draghi will be waiting to see what the effects of his policies are in the coming months. However, a further move to the downside means that the pressure will be on the ECB to avoid deflation or else QE could be on the cards down the line.

On Tuesday, the ZEW economic sentiment figures for Germany and the eurozone are expected to provide a valuable insight into the outlook of German institutional investors and analysts as to the direction and health of both the country and eurozone as a whole. In general, the German figure is typically the most important given that this is a German centric measure. On this occasion, there is the expectation that we will see a reversal in the German figure, following five months off downside. Should this occur, it would point towards a possible bottoming out, where German investors believe that the economic situation is getting progressively better.

Asia & Oceania

A quiet week in Asia and Australia, where the only real major event comes on Tuesday, when the BoJ release their latest monetary policy minutes. The ability of the economy to withstand the sales tax hike in April has been the hot topic in Q2. Thus as time goes on, we will be watching more and more closely for any sport of reaction from the BoJ should the weaknesses continue. I do not expect to see any major hints in this month’s minutes, yet it cannot be ruled out and thus it is worth keeping a look out for this release.

 

[Alpari UK]

UK Opening Call from Alpari UK on 16 June 2014

Geo-political fears drive markets lower

• European markets expected lower following geo-political fears
• Iraq insurgency continues to gather pace as US considers military action
• Ukraine crisis also gathers steam following the downing of a military plane
• FOMC likely to discuss possible response to Iraq and Ukraine crises
• ECB inflation could give a hint to future ECB action

European markets are expected to open in the red following a notably pessimistic Asian session which saw the Nikkei fall over 1%. The escalating tensions within Ukraine and Iraq have provided a more pessimistic geo-political backdrop, with Iraq in particular providing the possibility of yet another armed intervention from the US. European markets are expected to follow their Asian counterparts, with futures pointing towards the FTSE100 opening down 24 points, CAC down 26 points and DAX 48 points.

The escalation of conflict within Iraq has been driving up the price of oil and energy, along with precious metals. However, this is beginning to feed into the equities markets, where the possibility of US involvement is driving increased flow from equities to bonds and safe haven assets. The emergence of photographic evidence that the radical ISIS group massacred hundreds of Shiite soldiers has added a renewed degree of urgency in the US response, following an expansionist policy that has seen Tal Afar taken under their control most recently. The announcement that the US will possibly work alongside Iran in providing military support is the most worrying part of this, with investors hoping that this is not the beginning of yet another armed conflict which runs for years. Following it's involvement in the Syrian and Ukrainian crises, this represents yet another reason for the markets to fear the use of military force from a western nation.

The Ukrainian conflict rattles on yet again, with the news that the pro-Russian separatists managed to shoot down a Ukrainian military transport plane on Saturday, killing all 40 service members and nine crew on board. This represents the biggest cost to life in the conflict so far and is calling for a greater role from Russia to find some sort of resolution to this problem. The increasingly untenable situation within East Ukraine has led to a call to arms from pro-Ukrainians which saw the Russian embassy attacked in recent days. Unfortunately there is no easy way out of this situation and thus a civil war looks increasingly likely; something the EU and US will be keen to avoid involvement in.

With the FOMC meeting ahead later this week, an escalation of geo-political concerns have the potential to bring about a more cautious tone from the committee as fiscal and monetary policy have often worked hand in hand to help support the economy when significant resources are being allocated for military purposes. Thus a slow down in tapering could actually be seen as a tool to halt any slide in the markets should a more protracted sell-off occur in response to the Iraqi and Ukrainian crises.

Today marks the return of the all important eurozone CPI release, which follows the decision from Mario Draghi to implement a whole range of measures aimed at raising inflation and devaluing the euro. The somewhat mixed fortunes of the euro show a somewhat mixed response to these measures, with many believing a fully blown QE policy would be the one most potent tool in providing price growth. Given the relatively new announcement of those measures, it is unlikely that any further downside could spark yet more action from Draghi right now. However, should we see a rise, this could feed into a positive euro given that this would reduce the likeliness of any further ECB action down the line. Expectations are for the rate to remain at 0.5.

Read the full report at Alpari News Room​

 

[Alpari UK]

UK Opening Call from Alpari UK on 17 June 2014

Despite the continued violence in Iraq and Russia turning off gas supplies to Ukraine, stocks on Wall Street pushed higher at the close yesterday leading many to look towards a stronger open for Europe this morning. However a negative session in Asia has poured cold water on that with the markets now instead focussing on the geo political uncertainty as well as what could be a pretty busy day of economic data. Markets are also digesting a cut by the IMF to the US growth forecast, as Christine Lagarde urges the Fed to keep interest rates low and raise the minimum wage in order to kick start the economy.

Today’s session will be one where we focus on UK data initially, especially ahead of tomorrow’s BOE announcement. Of course we expect nothing out of this announcement tomorrow but poor numbers today out of CPI and RPI could well give Mark Carney something to think about. Expectations are for the CPI inflation reading to drop a little lower to 1.7% on the YoY figure. The fall is not likely to be big enough to get the BoE worrying about deflation, but with deflation such an issue in the Eurozone and becoming an issue in the US it will definitely be closely watched. The theme of CPI inflation will continue into the afternoon as the US version will also be released a little later with this fear of deflation expected to ease a little with the YoY figures expected to rise to a much safer 1.9%. We cannot forget about the Eurozone today as the release of the Zew survey will undoubtedly be a talking point. Over the last few months Germany has seen this number struggle as threats of retaliatory sanctions from Russia on Europe got a little closer. With Russia now switching off the gas supplies to Ukraine we could well see this number struggle again as Germans and Europeans see the rising threat again.

Overall we are looking a fairly busy session today with a fair amount of data for traders to get excited about, and if that stuff is not enough there is even some UK corporate data to get excited about. If that doesn’t work either then go home and put the Brazil game on.

Ahead of the open we expect the FTSE to open higher by 12 points and the DAX to open higher by 27 points.

 

[Alpari UK]

US Opening Call from Alpari UK on 17 June 2014

US futures higher ahead of inflation and housing data

• US futures higher as stocks continue to pare losses;
• Gold slips on short term rally in risk assets;
• US Inflation stands out as key release today;
• May housing data also scheduled for release ahead of the open.

US futures are pointing to a positive start to the session on Tuesday, as indices look for a third day of gains and attempt to erase more of the losses suffered as a result of the crisis in Iraq.

The gains seen over the last couple of sessions have been fairly small in comparison to those on Wednesday and Thursday last week when the crisis escalated quite rapidly. This appears to be a sign that the strength seen over the last couple of days is temporary and simply a case of stocks paring those initial losses. From a technical standpoint, the Dow is still looking quite bullish having found support at the end of last week around the previous highs of 16,735, but I don’t expect this to hold much longer.

The recent recovery in stocks has coincided with a pullback in Gold, which is generally regarded as the risk averse trade. The recent turmoil in Iraq has therefore generated a lot of interest in the precious metal, as well as many other commodities including, of course, oil which has rallied on fears of potential supply disruptions from a major oil exporting country. As with the recovery in stocks in recent days, I don’t expect this pullback in commodities to last, with the situation in Iraq likely to deteriorate before it improves.

There’s plenty of economic data being released from the US today, which may provide a small distraction to events in the middle east. That said, in my experience, traders tend to overlook these data releases more when such a significant geopolitical risk emerges, particularly in the early stages of it. The CPI inflation reading stands out as the key release today, with the core reading seen closing in on the Fed’s 2% inflation target. That said, this is not the Fed’s preferred measure of inflation, although it may provide some insight into the direction of inflation in the coming months.

There’s also two pieces of housing data being released today for May, with housing starts and building permits both scheduled to be released alongside the inflation numbers ahead of the opening bell. Both numbers are expected to fall slightly following the spike in April, with housing starts expected at 1.05 million and building permits at 1.055 million.

Ahead of the opening bell on Wall Street, the S&P is seen unchanged, the Dow 6 points higher and the Nasdaq 3 points higher.

 

[Alpari UK]

US Opening Call from Alpari UK on 18 June 2014

Will the Fed follow BoE and hint at earlier rate hike?

• Traders cautious ahead of FOMC decision and press conference;
• Another $10 billion taper expected;
• Fed may follow BoE and hit at earlier rate hike following new projections;
• BoE minutes show officials calling for rate hike later this year.

We’re potentially seeing a little bit of caution from traders ahead of the opening bell on Wednesday, given the FOMC decision and press conference later which always has the potential to create big moves in the markets. As it stands, the S&P is expected to open unchanged, the Dow down 4 points and the Nasdaq up 3 points.

It’s not necessarily the decision itself that has the potential to shake things up, with the Fed being quite clear in the past that it intends to continue to taper by $10 billion per month unless circumstances drastically change. While this may be a little predictable, the same can never be said of the press conference, especially one that includes a new set of economic projections that could alter when the Fed expects to bring an end to its quantitative easing program and, more importantly, begins to raise interest rates.

Currently, the markets are pricing in the first rate hike around the middle of next year, with rates potentially hitting 1% by the end of the same year. The strength of the recovery in the US in the second quarter, combined with yesterday’s jump in CPI inflation to above 2% in May, could prompt some of the more hawkish Fed officials to call for the first hike to come earlier than we’re expecting. We’ve already seen similar comments from Mark Carney, Governor of the Bank of England, so it wouldn’t be too much of a surprise if the Fed was on the same page. Aside from this, the rest of the day is looking pretty quiet, which is only likely to feed into the more cautious approach being seen already.

Unsurprisingly this morning, the BoE minutes pointed to a potential rate hike before the end of the year. This would have been quite a shock for the markets had it not been for Carney intentionally dropping a big hint last week during his speech at the annual Mansion House event. Clearly, he was just trying to avoid any excessive market volatility following the release of the minutes this morning. Sterling rallied strongly against the dollar immediately following the minutes, before running into resistance again around $1.70. The pair is now trading back around the level it was at before the minutes were released, around 1.6940, so clearly Carney’s warning worked perfectly.

 

[Alpari UK]

US Opening Call from Alpari UK on 20 June 2014

Dovish Fed continues to boost appetite for risk

Wednesday’s dovish comments from Fed Chairwoman Janet Yellen remain the key driver of sentiment in the markets today, as traders continue to favour risk assets in the absence of anything else to convince them to do otherwise. The gains being made aren’t exactly massive, but they have been enough to send the S&P to another record close on Thursday and get Europe off to a good start today.

Of course, there is still plenty of downside risk for the markets right now, most notably Iraq where the crisis is likely to get worse before it gets better. This may explain why we’re only seeing limited gains in certain assets, such as stocks, right now. Traders are clearly concerned that the situation in Iraq could escalate very quickly and the impact this would have on oil would be very bad for stocks.

One thing that’s benefitting from both Yellen’s dovish stance and the uncertainty in Iraq is Gold, which is seen as both an inflation hedge and a safe haven asset. The precious metal broke through $1,300 yesterday to hit two month highs and despite trading slightly lower today, still looks very bullish. We may see some further pressure on Gold today but as long as it closes above $1,300, I expect it to reach its next target, $1,331, in the next week or so.

There’s unlikely to be much in the way of catalysts for the markets today, with the economic calendar offering very little that would usually have any impact. The Canadian inflation and retail sales numbers may have some impact on Canadian pairs in the currency markets but this shouldn’t have any impact elsewhere. The eurozone consumer confidence reading may also be of interest, but again this doesn’t tend to carry much weight in the markets.

Ahead of the opening bell on Wall Street, the S&P is expected to open unchanged at 1,959, the Dow up 11 points at 16,932 and the Nasdaq up 2 points at 3,802.

 

[Alpari UK]

Weekly market preview from Alpari UK – 23 June 2014

A busy week ahead for the markets, where a range of notable releases make up for the somewhat lack of any single guaranteed market mover. In the US, the main event of note comes in the form of the final GDP figure for Q1. Whereas in the UK a somewhat quiet week sees a focus upon the BoE financial stability report on Thursday. On the other hand, a busy week in the eurozone sees the release of various PMI figures on Monday morning.

In Asia, the main event of the week comes on Monday when the Chinese HSBC manufacturing PMI figure is expected to shine a light on the tentative recovery we have seen in recent months. In Japan the retail sales figure on Friday will be absolutely key to determining how the sales tax hike is affecting consumption going forward.

The ongoing conflict within Iraq is also a major theme going forward, where any military involvement from the US is likely to lead to a flight to safety in the form of risk off sentiment.

US

A somewhat mixed week ahead, where the release of consumer confidence and GDP figures form the mainstay of the week which is also accentuated by the release of housing data and unemployment claims. The main event of the week is likely to be Wednesday’s final GDP release for Q1. This is the third release of the GDP figure for the somewhat turbulent first quarter of the year, which saw substantial weaknesses owing to the existence of adverse weather conditions. The effect upon the economy from housing to jobs was stark and this has been reflected within the growth figure. However, with each revision to the GDP number it seems that the impact of that weather is ever more reflected. In line with this, the initial advance figure of 0.1% was lowered to -0.6% for last month’s preliminary figure and finally we are expecting to see a figure closer to -1.7% on Wednesday. The impact within the markets remains to be seen even if we do see anything like -1.7% given that markets are now largely focusing on more recent indicators. However, any further deterioration in output to such a degree should always be seen as important.

On Tuesday, the release of the latest consumer confidence survey is set to shed light on the health of the retail sector. This acts almost as the qualitative release whereas the retail sales figure measures the quantitative impact. Earlier this month we saw the May retail sales post a moderate rate of growth at 0.3% which followed a marginal rise in the consumer confidence from 82.3 to 83.0. On this occasion, we are expecting yet another small rise to 83.4, which could spell out a similar rate of growth in retail sales when they’re released next month. Be mindful of the importance of consumer power within the US, where personal consumption makes up around 70% of GDP. For this reason, I believe Tuesday’s figure could be a hugely valuable and under-appreciated indicator of future economic growth announcements.

UK

A very quiet week in the UK, where the main event of note is going to be Thursday’s financial stability report accompanied by a speech by BoE governor Mark Carney. Released twice a year, this report focuses largely upon the financial system and specifically how to promote stability going forward. One element that could come into this is the particularly hot topic of the housing market, which is driven in part by the potential over-extension of the banks in loan to value ratios. However, the existence of low rates, coupled with the existence of ‘help to buy’ means that there is a commonly held view that the market is somewhat ‘frothy’ to put it kindly. Apart from the housing market, I am sure the event will throw up some a question or two relating to when Carney sees interest rates rising. His previous comments have led us to believe that we could see a move sooner than expected and thus the markets will be willing to react should expectations change accordingly.

Eurozone

A busy week ahead for the eurozone, where the early part is dominated by the release of PMI surveys for both the manufacturing and services sectors. This is followed by the release of the German Ifo business climate survey on Tuesday. However, it is the PMI releases on Monday which are of most interest, with France, Germany and the eurozone economies coming under scrutiny. Within those three, we can gauge a comprehensive overview of the strength or weaknesses in the manufacturing and services of the most important regions. For this reason these figures will provide clues as to how the area will grow going forward. In particular keep an eye out for the French manufacturing PMI, which is beginning to move back towards the 50 mark which denotes a sector in expansion. Despite this, forecasts point towards a possible stagnation around the 49.6 mark.

On the other hand, the German manufacturing sector is the most dominant driver of growth from any one sector in the eurozone. Thus any strong growth is likely to be greeted positively in the markets. Finally, it will of course be crucial to follow the eurozone surveys for a comprehensive view of how the manufacturing and services sectors are growing. Be aware that for us to see any significant moves in the markets, we would either need to see a substantial shift away from expectations in one of the key surveys or else a shift in a single direction across the majority of the measures.

On Tuesday, the German Ifo business climate survey is released, with the typical associations between German economic strength and the eurozone growth likely to come back to the fore. This figure is the type of release which typically requires a strong move away from expectations to grab the market’s attention and on this occasion there is very little chance expected. Thus the stage is set for a potential surprise should the figure move comprehensively away from the 110.4 level seen last month.

Asia & Oceania

An interesting week ahead in the Asian region, where the week begins strongly with the release of the HSBC manufacturing PMI figure due very early on Monday. This figure has been at the forefront of the slowdown in China over recent months given its focus upon the smaller and thus weaker firms. However, recently we have seen an uptick in the measure towards the all important 50 mark. This has preceded growth in the headline manufacturing PMI and subsequently eased worries of a more protracted slowdown. The one thing the markets will be looking for is a possible move back above 50, which would be the ultimate sign that the worst is over. However, forecasts point towards this potentially being a little too far on this occasion with expectations of a move from 49.4 to 49.7.

In Japan, the focus will be upon the release of the consumer data on Friday with the BoJ likely to be watching out for any signs that the sales tax hike has led to a downturn in consumption since it’s inception in April. The retail sales figure will be key to this message, where market forecasters are expecting to see a somewhat positive move towards -1.9% from last months -4.3% figure. This is going to be a key indicator in determining whether the BoJ will push for any further asset purchases in the future. Subsequently those trading the yen will be watching this release very closely.

 

[Alpari UK]

UK Opening Call from Alpari UK on 23 June 2014

Asian PMI data buoys markets yet Europe looks a little tentative

• Manufacturing in Japan jumps into expansion following sales tax;
• Chinese HSBC PMI also ends contraction, allaying slowdown fears;
• Iraq worries continue to weigh as ISIS gains border crossings;
• Eurozone PMI data expected to dominate European session.

Asian markets started the week on a strong foot today following an upbeat report out of China which saw the HSBC finally climb out of contraction. Despite this, the European markets are looking a little tentative given the ongoing escalation within Iraq which has seen further key targets taken by the ISIS militia group. As such the European futures point towards a mixed open with the FTSE100 +6, DAX -1 and CAC -0.5 points.

Today looks set to be dominated by PMI figures, with the likes of Germany, France, Eurozone and US figures due later. However, the Asian session has already seen two key figures, with the Japanese and Chinese manufacturing PMI figures released overnight. Both of these figures were highly notable for very different reasons, yet highlighted a return to strength from a period of downturn. In Japan the imposition of a higher sales tax in April drove this measure sharply lower into contraction despite the previously buoyant manufacturing sector. However, today’s reading of 51.1 represents the first expansionary figure in the three months since the tax and thus highlights that it may have had a more short term impact than many had expected. The implication of this if expanded across more of the key indicators would be that markets will begin pricing in a tighter BoJ monetary outlook where additional asset purchases become increasingly unlikely.

In China, today’s figure of 50.8 represents the first time in in six months that the manufacturing sector expanded according to HSBC. This PMI figure has recently become the front line in the slowdown of the region, paving the way for losses in the official government PMI figure. It’s focus upon small and medium sized enterprises means that any weaknesses were always likely to be reflected to a greater degree within the HSBC figure given that they typically do not get the same access to credit and favourable conditions that the largest Chinese firms enjoy. The ability of these smaller firms to move back into growth provides us with more confidence of a recovery from the recent slowdown and shows that the stimulus measures introduced earlier this year are having a positive effect.

Despite these positive figures out of Asia, Europe is looking somewhat nervously across to Iraq, where the expansion of ISIS held territory means that the US and Western forces are becoming increasingly caught between a rock and a hard place in relation to potential military involvement. The capture of border crossings into Syria means that there are now sections of the border which ISIS militants can cross freely from war torn Syria. Iraqi officials have already requested military assistance from the US, yet the feeling is that the current Iraqi premier Nuri al-Maliki is too divisive and has not pushed through the inclusive reforms the US wanted him too, instead favouring Shi’ite interests. Given that ISIS seeks to split the country, the US seeks a leader who represents both Sunni and Shi’ite which will better position the country to deal with the ISIS threat. However, it is likely that the US would prefer the country to be in the hands of the government than ISIS and thus as the threat grows, they will have to decide if and when they wish to step as the election of a new premier would likely take time and organisation that is in short supply at the moment.

The European session points to further PMI figures dominating affairs, with the flash manufacturing and services PMI surveys due for the French, German and Eurozone economies as a whole. For the large part it will be the manufacturing sector which is of most importance, especially within the German figure. However, it could be the French data which steals the headlines as it pushes ever closer to the expansionary 50 mark. The manufacturing sectors in both France and Germany are key contributors to Eurozone growth and thus any strong or weak performance today could also feed into the Eurozone figures which will be heavily weighted towards the larger performers.

 

[Alpari UK]

UK Opening Call from Alpari UK on 24 June 2014

UK inflation report expected to bring more hawkish tone

• Global rally based on low volumes;
• UK inflation report expected to be more hawkish;
• Is German business confidence at a top?
• Iraq fears persist as Kerry promises sustained US involvement.

Another tentative open is expected in European markets this morning as we see indecision of sentiment following a somewhat mixed day in the markets yesterday. The release of particularly positive factory data out of Japan, China and the US was marred somewhat by a poor Eurozone report which saw France slip even further into contraction whilst the German expansion grew at a slower rate. Subsequently, the feeling is mixed is the futures market, where the FTSE100 is expected to open +5, CAC +2.5 and DAX -1 points.

The most hated rally in history continues to advance forward with the S&P500 hitting all-time highs on an almost daily basis over the last week. The clearly defined primary bull market clearly encourages market participants to go long and this would have been a highly productive stance over recent years. However, with increasingly low volumes behind such moves, we have seemingly hit another point at which many believe the benefits of being in the markets only marginally outweigh the negatives. As such, I see a market where traders are forced into long positions, yet do so without too much conviction which means that any downturn is likely to be sold into rather than bought into. However, for this to happen the markets would need volume and whilst that is not apparent, the slow but steady train can keep chugging.

Today’s European session look to focus upon the BoE’s UK inflation report hearings which have shown the markets time and time again that they can be the source of significant volatility. The discussion centres around projections for employment, growth and inflation which has obviously linkages with the rate of change in monetary policy going forward. Mark Carney has become increasingly hawkish in the weeks since last month’s inflation report where he likened the UK economy to a nation attempting to progress through the qualifying rounds of the world cup. Unfortunately the World Cup analogies are likely to be few and far between this time, and with Carney having said that he believes rates will rise earlier than many expect, his tone is expected to be more hawkish too. The UK economy is the best performing of the major developed nations and that is likely to be the reason why there are grounds for optimism. However, with weaknesses still evident within the employment market and the housing starting to cool off, there are also clear reasons to hold off on interest rates for the time being.

Also this morning, the German business climate figure is expected to draw significant attention following yesterday’s poor PMI showing. A key barometer of economic health, the IFO survey provides us with a leading indicator of current market sentiment and forward expectations of 6 months’ time. Recent months have shown signs of a peak within this measure forming, given it’s stagnation throughout 2014. However, with question marks hanging over the Eurozone right now, the last thing that is needed is yet another weak data point for the strongest and most important economy.

In Iraq, US secretary of state John Kerry has promised ‘intense and sustained’ US support for the Iraq government and population. This comes off the back of a claim that the incumbent government has agreed to form a new cross-cultural government by 1 July. Unfortunately for Kerry, he is unlikely to be able to remove the divisive Prime minister al-Maliki, yet a government that represents Sunni, Shi’ite and Kurdish interests is likely to be the only way to create unity against ISIS. Ultimately the markets will be looking to see what type of military involvement the US takes with the likely response to be a more risk off scenario. As ever, oil and gas prices are also being impacted by this crisis, with both pushing ever higher overnight at the announcement that ISIS have taken control of the main oil refinery at Baiji, south of Mosul.

 

[Alpari UK]

US Opening Call from Alpari UK on 24 June 2014

Iraq fears persist to counteract positive US data

• German IFO figure shows further weakness after yesterday’s PMI disappointment;
• Mark Carney confuses markets with a more dovish outlook;
• Iraq fears continue to feature with US involvement likely in July;
• US consumer confidence expected to provide key to future growth..

US markets are expected to open lower today, giving up some of yesterday’ gains which brought about yet another record high in the S&P500. The positive data released in the form of the manufacturing PMI and existing home sales figures yesterday have been counteracted somewhat by negative sentiment driven from Iraq developments as secretary of state John Kerry offered a promise of action from the US military. As a result, US futures point towards a negative open, with the S&P500 -5.5, Dow -39 and Nasdaq -10 points.

The European session has already brought about significant volatility in the markets, with the second consecutive data point out of Germany in as many days. Yesterday’s disappointing PMI release saw the manufacturing sector growth come under some pressure and today was an opportunity to gain a swift redemption with the release of the IFO business survey results. However, yet again the story wasn’t rosy for the Eurozone’s biggest economy, with current and future expectations of business conditions falling sharply. It was the forward expectations that suffered the most, falling from 106.2 to 104.8. This points to increased anxiety regarding Russian ties coupled with weaknesses in major export sectors such as China. Add to this the effects of a historically strong euro and it is clear that businesses and exporters in particular feel unsure of future economic conditions.

In the UK, the inflation report hearings have been taking place, with Mark Carney and his fellow MPC members facing a grilling from the government regarding last month’s report. This was expected to be a somewhat hawkish affair given the recent statements from Carney regarding his view that there will be a rate hike earlier than many within the markets are currently factoring into their investment decisions. However, he took a surprisingly dovish stance, following on from his outlook last month when he likened the UK to a team in the qualifying stages of the World Cup. The sell-off in GBPUSD followed his insistence that he sees substantial ‘spare capacity’ and ‘slack’ in the economy; jargon which we have become accustomed to in recent months which is so difficult to accurately measure that the BoE today admitted that they may have previously calculated it incorrectly in the past. Mark Carney did clarify why he made such hawkish statements earlier this month at the Mansion house speech where he saw rates rising earlier than many expected. Those comments were a measured decision to bring the markets back into alignment in relation to expectations going forward, yet for the most part it seems Carney is as dovish as ever. In doing so, Carney was accused of being ‘an unreliable boyfriend’ who has been blowing hot and cold on the issue of rates which makes it difficult for people to accurately predict when rates will rise.

In the US session, the developments in Iraq continue to persist, with John Kerry spending his time trying to put together a coalition government that avoids the country splitting between the Sunni, Shi’ite and Kurdish factions. The battle for the Baiji oil refinery has taken an unexpected twist, with government forces taking the strategically key facility back from ISIS forces. For a rebel force with an estimated $2 billion of funds, ISIS are clearly driven to gain strength by any means possible, be it controlling oil flow or raiding bank vaults as they go. Thus today’s announcement is certainly welcome and shows that the government forces still retain the will to fight back against the tide of the ISIS. John Kerry’s comments lead me to believe that the US are likely to step in with a military role should we see a convincing coalition government put together. This is expected to be addressed on 1 July and thus this could act as a timeline upon when we could see US forces move into the region.

Looking ahead, the main event of note is likely to be the CB consumer confidence survey released later today. The importance of the consumer within US growth is undisputed, with 70% of GDP driven by consumer led spending. This can come in many forms, yet the fact of the matter is that investment activity is influenced heavily by the individual’s confidence in factors such as their employment situation and current economic conditions. Thus today’s release is likely to provide a leading indicator to both future spending data and ultimately growth within the US. Recent trends have been relatively encouraging, rising from 78.1 to 83.0 over a 3 month time-frame. Expectations point towards a further rise towards 83.5, which would represent the highest level since January 2014. Whilst many may pay little attention to this, I see it as absolutely key to determining the future path of growth in the US.

 

[Alpari UK]

UK Opening Call from Alpari UK on 25 June 2014

Quiet European session sees focus upon geo-political risks

• Iraq fears persist as Kerry attempts to form coalition;
• Abe’s third arrow falls of deaf ears;
• US oil exports lifted for the first time since 1970’s;
• Putin makes gesture over Ukraine, but is it enough?;
• European session looks light with German data only highlight;
• US GDP revision expected to further downgrade Q11.

European stocks look set to follow their Asian counterparts lower today as geo-political risks overcome central bank policy as the main driver of investor sentiment. A somewhat quiet European session today is expected to be trumped by the release of the US Q1 GDP revision later this afternoon. European futures point towards a negative open, with the FTSE100 -43, CAC -33 and DAX -55 points.

Iraqi fears continue to dominate currently as John Kerry spent much of yesterday trying to add a Kurdish element to the planned coalition government that will come into play on 1 July. The regaining of the Baiji oil refinery by government forces yesterday acted was a victory which have become few and far between. As time progresses towards a potential creation of a new government coalition, it is likely that markets will become more risk averse given the likeliness of US air strike and military intervention. As we have seen across many of the conflicts in oil rich regions, the first week of any conflict is typically the most meaningful for the markets where they often revert to norm soon after. Thus whilst we have seen a significant spike in oil prices, it will be the first strike by US forces that will truly impact the equity markets in a meaningful way.

Yesterday saw the release of the much fabled ‘third arrow’ from Shinzo Abe in an address from his official residence in Tokyo. This came in the form of a raft of policies aimed at stoking growth in the face of the consumption tax introduced in April. Included within this were corporate-tax cuts, trade liberalization, reduced barriers for agricultural land consolidation, special zones of lighter regulation and the possible introduction of casinos to attract greater tourism. Interestingly, Japan has long held a sales tax well below most of the major developed nations, with even their newly enhanced rate of 8% being a fraction of the 20% seen in the UK. Thus with an economy that has over 200% debt to GDP, it makes sense that such a tax had to rise. However, the decision to decrease corporate taxes seems to be aimed solely at near term growth and not upon long term fiscal stability. As such I believe the Japanese could come unstuck down the line when they finally seek to address the issue of their debt mountain and have to raise the sales tax further whilst also raising corporate tax to bring down their liabilities. The market response was somewhat muted in response to these policies where much like the Eurozone, everyone seems to be awaiting a further packaged of asset purchases rather than some wishy washy fiscal plans which could have very little impact.

Oil prices subsided temporarily yesterday with the announcement that the US is set to allow two firms to export US oil despite a ban on exports that has been in place since the Arab oil embargo in the 1970’s. Now this is clearly a tentative step towards a potential liberalisation of such imports in the face of booming US shale production and fears over Iraqi and Russian supply. However, markets have taken this to mean that we could see further global supply which would likely bring down the cost globally. However, any such move to liberalise oil exports fully would likely be faced by significant political opposition in the US as it would be expected to raise the price at the pumps for US citizens which in a nation full of gas guzzlers is never a popular policy.

Vladimir Putin yesterday asked Russia’s parliament revoke a mandate for sending troops to Ukraine, in a symbolic gesture ahead of the Fridays European summit which was expected to introduce further sanctions upon Russia. This comes amid continued violence that saw a military helicopter shot down by pro-Russian forces despite the introduction of a week-long ceasefire that only took hold last Friday. Ultimately, Putin’s gesture is unlikely to win too many over, given that the Ukrainian forces have been fighting against forces carrying Russian issued firearms and where the flow of new recruits appears to be consistently coming from Russia. Thus it will be Putin’s willingness to become involved as a mediator to resolve this conflict that will truly define whether he wants to see peace in Ukraine rather than a divisive war that could lead to yet more appropriation of land by the Kremlin.

Today’s European session looks particularly quiet today, with the release of German consumer climate data due to be released pre-market. Following a disappointing PMI report and subsequent IFO figures yesterday, there is a clear possibility of a third poor release in as many days this morning. However, on the whole this figure tends to move very little and we have not seen much volatility as a result of it’s release for quite some time. Thus we are expecting a very quiet European session.

In the US session, the focus will be upon the third and final release of the Q1 GDP figure, which appears to becoming progressively worse as time goes on. The impact of an extended period of adverse weather conditions throughout the quarter is to blame for poor hiring conditions, spending and alike. However, the revisions being touted within the markets are nothing to turn your nose up at, with forecasters looking for a figure closer to -1.7% this time around. The impact upon the markets remains to be seen given the fact that the figure is driven by weather factors and we are now only 5 days away from Q3. However, with such a downward revision potentially on hand, the release is well worth looking out for.

 

[Alpari UK]

US Opening Call from Alpari UK on 25 June 2014

US futures higher ahead of key data releases

• Risk aversion continues to be seen in Europe;
• Investors potentially locking in profit ahead of quarter end;
• Further gains expected in oil and gold;
• Durable goods orders, GDP revision and PMI readings in focus.

European indices are trading deep in negative territory this morning, while US futures are pointing to a slightly higher open, with the S&P up 3 point, the Dow up 17 points and the Nasdaq up 2 points.
The losses in Europe follow similar moves in the US and Asia, where investors have clearly adopted a more risk averse tone recently on fears of further escalations in Iraq. Even yesterday’s stronger consumer and housing data did nothing to lift investors which clearly highlights how concerned they are about the potential for the situation to get much worse before it improves.

I think it’s also worth remembering that we’ve seeing an impressive run in US stocks recently, so this could also simply be a case of profit taking, especially as we’re now approaching the end of the quarter.

In the commodity space, Brent crude prices have eased off slightly, although this is unlikely to last with US intervention looking increasingly likely. This is unlikely to help investor sentiment which has already taken a significant hit in recent weeks. Gold has been one of the biggest winners from all of this, thanks to its role as a safe haven asset. A more dovish stance from the Fed has done prices no harm either, helping keep it above $1,300 over the last few days. It’s currently going through a period of consolidation but I imagine this will only be temporary and as soon as we get a further flare up in Iraq, accompanied by another spike in oil prices, Gold will continue its ascent.

There are a few key economic releases that traders should pay close attention to today. While there may not have been much of a positive reaction in equities to the strong readings yesterday, the dollar certainly benefitted and we could see a similar response today. Durable goods orders for May will be released ahead of the open, as will the third revision of the first quarter GDP figure. Under normal circumstances, both of these could have a significant impact on the markets, so it makes sense to not overlook them today.

Durable goods orders are a good indicator of economic health and people’s confidence in the economy, so can be viewed as both a lagging and leading indicator. People only tend to make these large purchases when they feel the economy is on a strong footing and the future is bright. Today we’re expected orders to be unchanged for last month, which is probably more a reflection of the strength in the data in recent months than the performance in May. First quarter GDP on the other hand is expected to be revised lower again to -1.7%, but I’m not sure how much impact that would actually have on the markets as a poor first quarter is pretty much priced in by now and the second quarter has been much better. After the open we also have the preliminary services PMI and the composite reading, both of which are important leading indicators.

 

[Alpari UK]

UK Opening Call from Alpari UK on 27 June 2014

Juncker appointment could be the first step to UK EU exit

• European markets expected higher despite poor Asian session;
• Japan CPI and retail sales boost reduces likeliness of BoJ action;
• EU summit could determine the pathway for UK membership discussions.

European markets are expected to confound the losses seen over night in the Asian market by opening to the upside. This comes on a day where a distinct lack of economic data out of the European region leads markets to focus back upon correcting some of those losses seen earlier in the week. That being said, there has been a trend of inconsistent futures trading which has seen gains and losses reversed when it comes to the open given the unpredictable degree to which the markets are pricing in the conflict in Iraq. Having said that, the European open is expected to be a positive one with the FTSE100 +9, CAC +16, and DAX +14 points.

A busy Asian session saw a raft of key Japanese data points released with substantial consequences for monetary policy on the line. As reflected by the slump in Asian indices, the commonly held view is that those figures point to a decreased likeliness of further asset purchases down the line for the BoJ. A combination of better than expected retail sales and unemployment combined with the highest rate of price growth since 1982 to paint a picture of a successful policy mix from Shinzo Abe. The only dampener to this was the tumbling household spending which fell by -8%; the most in over three years. However, it was the move in national CPI which shocked the markets, rising to 3.4% in a year on year basis. The introduction of the sales tax in April has been widely considered to have added 2% to this figure and thus CPI now lays at 1.4%; some 0.6% away from the ultimate target of 2%. In the words of Mark Carney, it feels as if Japan has reached ‘escape velocity’, managing to finally break above the 1.3% level which CPI has been stuck at for the whole of 2014 so far. The test will be whether this can act as a boost to push price growth further forward in the coming months or if we are not going to spend an H2 at this new level. If so, it would be likely that this could provide a basis for BoJ easing in the future.

A quiet European session sees the conclusion of the EU summit which has pitched David Cameron against the majority of the other EU leaders, not for the first time. On this occasion it is over the battle for the EU commission presidency where pro-euro Jean-Claude Juncker is widely tipped to take the top job. Having served as the longest standing head of the eurogroup, Juncker is certainly no spring chicken. Nor is he a reformist that David Cameron feels the position needs. This comes amid increasing unrest over the role of the EU and the consequences such close ties have had for member countries down the years. This unrest has been represented in the ballot box, with the likes of UKIP and the French far right group Front National gaining winning their respective parliamentary elections and thus forcing their way into the European parliament. However, it seems that European leaders do not wish for this to get in the way of their idea of what a EU commission leader should be and thus remain confident in the ability of Juncker to lead the group forward. David Cameron feels quite the opposite and has been trying to fight for a more reform minded individual. The likeliness is that Juncker will be appointed, yet it is the process within which this is done which will be key. David Cameron’s warnings of ‘consequences’ if his objections are simply overruled points to a possible feeling that the UK would move closer towards an exit from the region should they become isolated. In recognition of this, there have been signs that the likes of Angela Merkel would be willing to find some sort of compromise and thus today’s session could be key in determining whether the UK is on the pathway to exit exiting from the European Union some 41 years after joining.

Read the full report at Alpari News Room​

 

[Alpari UK]

US Opening Call from Alpari UK on 27 June 2014

US futures take a breather on Bullard rate warning

• Markets take a breather on Bullard interest rate warning;
• Juncker to be appointed European Commission President, despite Cameron objections;
• UK GDP misses expectations but still shows 3% growth;
• US consumer sentiment in focus.

European markets are expected to confound the losses seen over night in the Asian market by opening to the upside. This comes on a day where a distinct lack of economic data out of the European region leads markets to focus back upon correcting some of those losses seen earlier in the week. That being said, there has been a trend of inconsistent futures trading which has seen gains and losses reversed when it comes to the open given the unpredictable degree to which the markets are pricing in the conflict in Iraq. Having said that, the European open is expected to be a positive one with the FTSE100 +9, CAC +16, and DAX +14 points.

A busy Asian session saw a raft of key Japanese data points released with substantial consequences for monetary policy on the line. As reflected by the slump in Asian indices, the commonly held view is that those figures point to a decreased likeliness of further asset purchases down the line for the BoJ. A combination of better than expected retail sales and unemployment combined with the highest rate of price growth since 1982 to paint a picture of a successful policy mix from Shinzo Abe. The only dampener to this was the tumbling household spending which fell by -8%; the most in over three years. However, it was the move in national CPI which shocked the markets, rising to 3.4% in a year on year basis. The introduction of the sales tax in April has been widely considered to have added 2% to this figure and thus CPI now lays at 1.4%; some 0.6% away from the ultimate target of 2%. In the words of Mark Carney, it feels as if Japan has reached ‘escape velocity’, managing to finally break above the 1.3% level which CPI has been stuck at for the whole of 2014 so far. The test will be whether this can act as a boost to push price growth further forward in the coming months or if we are not going to spend an H2 at this new level. If so, it would be likely that this could provide a basis for BoJ easing in the future.

A quiet European session sees the conclusion of the EU summit which has pitched David Cameron against the majority of the other EU leaders, not for the first time. On this occasion it is over the battle for the EU commission presidency where pro-euro Jean-Claude Juncker is widely tipped to take the top job. Having served as the longest standing head of the eurogroup, Juncker is certainly no spring chicken. Nor is he a reformist that David Cameron feels the position needs. This comes amid increasing unrest over the role of the EU and the consequences such close ties have had for member countries down the years. This unrest has been represented in the ballot box, with the likes of UKIP and the French far right group Front National gaining winning their respective parliamentary elections and thus forcing their way into the European parliament. However, it seems that European leaders do not wish for this to get in the way of their idea of what a EU commission leader should be and thus remain confident in the ability of Juncker to lead the group forward. David Cameron feels quite the opposite and has been trying to fight for a more reform minded individual. The likeliness is that Juncker will be appointed, yet it is the process within which this is done which will be key. David Cameron’s warnings of ‘consequences’ if his objections are simply overruled points to a possible feeling that the UK would move closer towards an exit from the region should they become isolated. In recognition of this, there have been signs that the likes of Angela Merkel would be willing to find some sort of compromise and thus today’s session could be key in determining whether the UK is on the pathway to exit exiting from the European Union some 41 years after joining.

 

[Alpari UK]

Weekly market preview from Alpari UK – 30 June 2014

It’s the first week of the month which can only mean one thing, central bank meetings galore and an abundance of high impact economic data, including of course, the US jobs report. The week will be shortened for those in the US, with 4th July celebrations meaning the markets will only be open from Monday to Thursday. As always, this tends to mean trading volumes on the final day of the week, and to a lesser extent throughout the week, are likely to be reduced.

Over in Europe, all eyes will be on the ECB meeting, which takes place on Thursday. That said, following the central banks decision last month to throw everything but the kitchen sink – with the kitchen sink in this case being quantitative easing – at the disinflation problem, this meeting could invite a little less attention and therefore markets may not be quite as volatile as we saw last month. That is not necessarily a bad thing though, volatility is good, excessive volatility though is arguably as bad as none at all.

The Asian sessions this week will be no quieter. Between the Reserve Bank of Australia decision on Tuesday, Chinese PMI readings and some key Japanese economic data, there’s going to be plenty for traders to get their teeth stuck into.


US

The start of the week is actually looking fairly quiet for the US, especially when compared to Wednesday and Thursday when traders will hardly have a chance to catch their breath. The two economic releases that stand out are the PMI readings, the Chicago PMI on Monday and the manufacturing PMI on Tuesday. The manufacturing PMI has returned near to the levels we were seeing at the end of last year, following the dip in the first quarter, which was largely driven by the woeful weather in many parts of the country. It was at the end of 2013 that many people were very optimistic about the economic picture this year and maybe now that we’re seeing these numbers back at similar levels, that optimism will return. This optimism and confidence in the economy is extremely important which is why these PMI readings are tracked so closely.

Things start to heat up on Wednesday with the private payrolls figure from ADP. The non-farm employment change reading is general viewed as a guide for the official non-farm payrolls figure, which will be released this month on Thursday due to Friday’s bank holiday in the US. Job creation is extremely important in any economy, particularly during a recovery and even more so when that recovery has been disrupted for an entire quarter by horrendous weather conditions that contributed largely to the 2.7% contraction in the first three months of the year. A reading of 206,000 is expected for the ADP reading, which if in line may not tell us too much given that traders tend to use this as a warning that the official number could either significantly miss or beat estimates.

Fed Chairwoman Janet Yellen is scheduled to speak at the International Monetary Fund in Washington DC on Wednesday. This is something that most traders, whether they’re planning to watch it or not, should be aware of and prepared for. Regardless of the event, comments from central bankers can bring a significant amount of volatility in the markets, especially when they are head of the Federal Reserve. Given the hawkish comments from James Bullard last week, Yellen is likely to be asked to clarify the Fed’s position on rates and confirm whether a rate hike at the start of next year is likely. As always, we should expect volatility and the potential for big moves.

This brings us to the final day of the week for many Americans and it promises to be a busy one. The jobs report will, as always take centre stage, with traders focusing primarily on the headline non-farm payrolls number, which is expected to post yet another number north of 200,000. Other aspects of the jobs report are also important though and can overshadow this reading, especially if it’s nearly in line with expectations. These include previous revisions to the non-farm payrolls figure, average hourly earnings and of course, the unemployment rate, which has fallen dramatically in recent months, even as the participation rate has remained fairly constant. We also shouldn’t forget the ISM non-manufacturing PMI, the final US release of the week. The services sector is extremely important to the US and therefore this tells us how optimistic people in the country’s most important sector actually are.


UK

With the Bank of England not meeting until next week, it’s looking like a pretty quiet week in the UK. Of the few pieces of data being released, the PMI readings clearly stand out, particularly the services number given that it is by far the country’s biggest sector. Services make up more than two thirds of total UK output so you can understand that while the manufacturing and construction sectors are important, if the services sector isn’t optimistic, it is a massive cause for concern. Fortunately, while the services PMI is seen pulling back slightly, it is still expected to remain at the high level of 58.1, down from 58.6 in June. The manufacturing and construction PMIs are also expected to ease off slightly, but as with the services number, they remain comfortably in growth territory so are far from being a concern.


Eurozone

This is going to be a very busy and important week for the eurozone, with a wide variety of data being released, from lagging numbers such as flash inflation numbers and retail sales to leading ones such as the manufacturing and services PMIs. On top of this we’ll have the ECB meeting which always promises plenty of market volatility.

The ECB meeting always stands out as the main event of the week and, to an extent it still does despite the action taken last month. The decision from the ECB to announce a whole package of stimulus measures was initially seen as far more stimulative than most had been expecting but it wasn’t long before people started picking holes in it. Clearly now, all anyone is interested in is quantitative easing and we may have to wait a while for that, if we ever actually see it. The ECB is extremely reluctant to try something that has been very successful in the US, UK and Japan, but would be far more complicated for them due to the lack of a single eurozone bond. Purchasing debt from individual would be much more difficult and in driving down yields on some country’s debt, may act as an incentive to ease off the austerity and reforms. This may make Thursday’s meeting a little less interesting but Mario Draghi has a way of getting exciting the markets.

The decision from the ECB to announce that new monetary stimulus package last month has also taken some of the importance away from the CPI reading for a couple of months. Any stimulus is going to take at least a couple of months to have an impact, so even if we see another dip in the inflation figure, it’s unlikely to tempt the ECB into easing further. Add to that the fact that the CPI inflation reading is expected to rise to 0.6% and this is unlikely to have the kind of impact it has in the recent past.

Aside from these, we also have manufacturing and services PMI readings for a number of eurozone countries being released, as well as the latest unemployment rate and retail sales for the eurozone, Spanish unemployment and German factory orders, among others. This is a lot to digest and as a result, I expect a lot of volatility in the euro this week.


Asia & Oceania

All of this in itself would be the makings of a busy week in the financial markets, but it’s not over there. China, Japan and Australia all have plenty to offer themselves, ensuring that the Asian session is likely to be just as lively as the other two.

The Chinese PMI readings quite often tend to have a significant impact no just on sentiment in Asia, but globally, so these are certainly something worth keeping an eye on. Quite often, the European open levels can be largely driven by either a good beat or bad miss on these numbers and that can impact risk appetite throughout the trading day. With China in the process of transitioning away from an investment and export driven model to one more associated with more developed countries, focusing on domestic consumption and building up the middle class, the services sector is becoming increasingly important. For that reason, the HSBC services and official non-manufacturing PMI readings are worth monitoring later on in the week. Both of these are currently in growth territory so don’t appear to pose a massive risk right now.

Manufacturing though remains of massive importance to the Chinese economy so its still the HSBC and official manufacturing PMIs that have the greatest impact. Sentiment around China hasn’t been great recently and many have questioned whether the country can maintain the kind of growth levels it has become accustomed to. The answer to this is probably no but that doesn’t mean they won’t manage the decline. These PMI readings tend to give an indication of expected activity in the sector in the coming months so are valued highly and can prompt quite a significant in the markets.

In Japan this week we have some key pieces of economic data being released, particularly the Tankan manufacturing index which is only released quarterly. It’s difficult to know at this stage what to expect from this. Economic activity picked up massively in the first quarter, largely driven by the increase in spending ahead of the sales tax hike on 1 April. However this did not have as much of an impact on the Tankan manufacturing index in the first quarter, although there was a noticable improvement in the non-manufacturing index. In the same way that activity dramatically increased in the first quarter, it is expected to decrease in the second so while these numbers may be poor, they may be somewhat overlooked as they will be viewed as distorted. To get a real idea of these numbers, the first three or four quarters will need to be averaged out, rather than paying too much attention to each one individually.

It’s looking like a very busy week for Australia, where there is plenty of data being released as well as a monetary policy decision from the Reserve Bank of Australia. Nothing is expected from the latter though as they have made it perfectly clear in recent months that rates are unlikely to change and there’s even been suggestions that the next one could be a hike, although that may not come this year.

The data is probably therefore more important here and the RBA will be looking for further evidence that the economy is improving once again. Between the housing data on Monday and Thursday, retail sales and trade balance figures, we could be looking at a fairly volatile week for the Aussie dollar. We’ll also hear from RBA Governor Glenn Stevens and Assistant Governor Guy Debelle in the days following the rate decision so may get more clarity on when we can expect that first rate hike.

 

[Alpari UK]

UK Opening Call from Alpari UK on 30 June 2014

Data heavy week could bring the return of volatility

• Indices seen kicking off a busy week on a positive note;
• Data heavy week may bring back some market volatility;
• Eurozone CPI reading among the key releases this morning.

European indices are on course to end the second quarter on a positive note, with the FTSE seen opening 8 points higher, the CAC 7 points higher and the DAX 22 points higher.

This comes ahead of a very busy week in the markets, which includes some major central bank decisions and a large number of key economic releases, including the US jobs report on Thursday. Ordinarily, we can expect to see a little caution from traders in the early part of the week, with many of these events coming later on, but that doesn't appear to be the case if the European futures levels are anything to go on.

One reason for this is that Thursday's monetary policy decision from the ECB is unlikely to include a change in stance following last months all out assault of stimulus measures. While the ECB still has quantitative easing left as an option, it's likely to give the other stimulus measures a chance first before being forced to utilise the one policy option that has proven to work but it is most reluctant to adopt. With that in mind, we're probably looking at the end of this year at the earliest.

Quite often, it's the uncertainty around central bank decisions that causes the paralysis in the markets. It seems right now, all of the major central banks are either months away from a change in stance and have made their positions very clear. Of course, this may change along with the data, but one bad jobs report on Friday, for example, is unlikely to have as big an impact on the Fed's decision making as it has on many occasions in the past.

That said, there is plenty of important data being released this week which should bring a welcome return of some market volatility. This has been a big issue this year and has led many to question whether the low volatility levels are a sign of complacency from investors at a time when many major indices are trading at, or near, all time highs. While this is debatable, what isn't is the fact that traders want more volatility than we're currently seeing so any pick up will be welcomed.

There is a lot of economic data being released on Monday, but it is important to know the important data from the noise and plenty of today's releases fall under the latter. While I wouldn't claim they should be ignored altogether, there are many that are likely to have minimal, if any, market impact, while others have the potential to significantly move markets.

The eurozone CPI reading is a prime example of this, particularly in recent months, with the ECB coming under significant pressure to do more to stop the rapid disinflation in the region. Given that they finally succumbed to the pressure last month, meaning any further action is unlikely any time soon, and that this action is unlikely to be see in the June reading, I don't expect to see the same kind of reaction to today's figure. That said, should we see another significant drop towards the deflationary levels, the ECB would likely come under pressure to do more once again, regardless of the position taken last month.

 

[Alpari UK]

US Opening Call from Alpari UK on 30 June 2014

Softer US open expected ahead of housing data

• European session quiet despite large amount of economic data;
• Muted response to eurozone inflation data;
• US pending home sales headlines today’s economic data.

We’re expecting a slightly softer start when the opening bell rings on Wall Street later. Following a fairly quiet start to the European session, which has seen indices there treading water, the S&P is expected to open 1 point lower, the Dow 10 points lower and the Nasdaq 1 point lower.

There certainly hasn’t been a lack of economic data released during the European session, the problem is that most of this was just a lot of noise. Only certain data releases tend to have a noticeable impact on the markets and the majority of the data released today does not fall into that category.

One release that can have quite a significant market impact is the eurozone CPI inflation reading, as this can directly affect how hawkish or dovish the ECB is. However, this month the reaction was always going to be more muted than we’ve seen so far this year. The ECBs decision to throw everything but the kitchen sink at the deflation threat last month has left the odds of further action in the short term very low. Many people have questioned just how effective this new round of stimulus can actually be but regardless, it has bought them time. They are clearly extremely reluctant to try quantitative easing and now they don’t have to for a while.

The trading week in the US is going to be shortened as a result of the Independence Day bank holiday on Friday, which means we have a lot of data packed into only four days. Of the releases today, the one that really stands out is the pending home sales release for May.

We’ve started to see a clear improvement in the housing data in recent months, which can be largely attributed to lower rates that many in the markets had not been expecting. There are still issues to be faced in the housing market, such as the need for more on the supply side and the fact that rates will start rising again fairly soon. For now though, the numbers are expected to remain pretty strong, with sales seen rising by 0.8% in May.

 

[Alpari UK]

UK Opening Call from Alpari UK on 1 July 2014

European stocks under pressure ahead of data

• Proshenko declares an end to cease-fire in Ukraine;
• Japanese stocks rally on increased monetary easing hopes;
• Chinese manufacturing activity picks up in June;
• Eurozone manufacturing PMIs and unemployment reports in focus.

A mixed session in Asia overnight combined with a busy day ahead in Europe and the end of the cease fire in the Ukraine is weighing on investor sentiment a little on Tuesday.

The situation in the Ukraine is unlikely to weigh too heavily on the markets at this stage as it merely signifies a return to a situation that the markets had already accepted, to an extent. The restart of fighting is clearly far from ideal but it did seem inevitable given that in recent days there have been protests in Kiev about the pro-Russian rebels refusal to fully respect the cease fire, with claims being made that they were taking advantage of the opportunity and attacking Ukrainian troops and making further gains. In response, President Petro Poroshenko has declared an end to the cease-fire, against the wishes of Russian, German and French leaders who had been trying to negotiate an extension to it.

Following the release of a number of key data points in Asia overnight, the markets are on course to end the day fairly mixed. Japanese stocks appear to be benefitting from the weaker yen which suffered some selling following the release of the second quarter Tankan surveys. The headline figures don’t make for great reading and suggest the economy was hit harder in the second quarter than was previously expected, but there are some encouraging points to take away, most notably the fact that larger firms are planning to increase their spending by 7.4% this financial year, which is more than previously thought.

However, I don’t think this is behind the rally in Japanese stocks overnight. The fact that companies appear to have been hit harder by the sales tax hike than the Japanese government was hoping, despite attempts made to offset any downturn with a boost in fiscal stimulus, may be enough to pursued the Bank of Japan to provide additional monetary stimulus which would further weaken the yen and provide support to Japanese exporters.

In China, the manufacturing sector appears to be benefiting from a round of targeted fiscal stimulus aimed at providing a small boost to an economy that was showing signs of slowing earlier this year. The People’s Bank of China has also played its part, with its own targeted monetary easing, and the efforts appear to be bearing fruit. The HSBC manufacturing PMI, despite being revised marginally lower, rose to 50.7 in June, it first growth reading (above 50) this year. At the same time, the official manufacturing PMI rose to 51 from 50.8. It would appear things are looking up in China.

As mentioned earlier, we have a very busy day ahead when it comes to economic data, which may explain the cautious approach from traders this morning. The manufacturing PMIs and Eurozone unemployment reports stand out as the key releases among them all, although this accounts for most of this morning’s releases so doesn’t exactly narrow it down. With the reports being scattered throughout the morning, we may see quite an uptick in volatility today, especially when compared with Monday. It doesn’t end there, later on we have more data coming from the US this time, with two manufacturing PMI readings being accompanied by the economic optimism survey and car sales.

Ahead of the open, the FTSE is expected to be 1 point lower, the CAC 9 points lower and the DAX 13 points lower.