Forex research

[Alpari UK]

UK Opening Call from Alpari UK on 16 July 2014

Strong Chinese GDP fails to impress the markets

• Mixed messages from Janet Yellen in day one of her testimony;
• Strong Chinese data leaves Asian markets somewhat underwhelmed;
• UK jobs report absolutely key after yesterdays CPI reading.

A surprising degree of indecision seems to be creeping into the markets today despite better than expected figures out of China and an ongoing accommodative stance from Janet Yellen yesterday. Asian stocks saw a choppy session which ended without any clear direction and this appears to be creeping into the European mindset where we are expecting a mixed open. The FTSE100 is expected to open flat, CAC +5 and DAX -6 points.

Yesterday saw Janet Yellen take to the stand in what was the first in two days of testimony at the semi annual monetary policy report. Perhaps it was her way or trying to bring the much needed volatility back into the markets, but Yellen seemed to be both dovish and hawkish at different points within her testimony. She warned that should the labour market continue to improve faster than expected, then the rate hike would happen sooner and more rapidly than currently envisioned. However, she also later noted that the labour market remained weak and that an accommodative stance still remains necessary. So no more clarity there then.

In fact, the markets had managed to see some significant volatility yesterday well ahead of Janet Yellen even taking the stand. The release of a shocking spike in UK CPI (the highest jump in 20 months) followed by yet another very poor ZEW figure out of Germany meant that the likes of GBPUSD and EURUSD saw some major moves and subsequent retracements (certainly in the case of the EURUSD).

This volatility was expected to continue overnight, with the release of some absolutely key figures out of China, yet it seems markets do not know exactly how to take them given the mixed response. The release of Chinese growth, industrial production and fixed asset investment all gave us a pleasant surprise, showing that the slowdown within China was largely overstated and gives me greater confidence that within H2, the Asian powerhouse will be able to really kick on. However, we did not see the major market moves that would be expected and this is likely to be down to the fact that growth still remains relatively weak despite the rise from 7.4% to 7.5%. Yes this is the first rise in three quarters for China, but this is also only 0.1% higher than the slowest rate of growth since Q2 2009. It is not necessarily something to make a song and dance about. That being said, industrial production rose significantly more than expected and fixed asset investment also came in to the upside, so things should begin to pick up from here. It just seems that in Asia, they are not quite yet ready to become too enamoured by a single GDP print that is 0.1% higher than a multiyear low.

The UK comes back into focus this morning, when the release of employment figures will bring both the strength of the economic recovery and the timing of monetary policy from the BoE back into focus. Yesterday’s CPI reading of 1.9% provided us with a heightened awareness of exactly why today’s jobs report is so important. On one hand, the rapidly rising inflation rate is something which Mark Carney and co cannot tolerate for very long, and thus where we see a strengthening jobs market, it is safe to say that rates will be rising sooner rather than later. However, with Mark Carney also utilising the ‘spare capacity’ mindset, elements such as real wage growth become more important to such decision. Therefore, unless we start to see average earnings rise rapidly, there is going to be an issue at hand because the BoE will have to decide whether they are comfortable raising rates at a time when real wages are tumbling. Expectations for average earnings point towards a fall from 0.7% to 0.5%, standing in stark contrast to yesterdays spike in CPI. However, both claimant the count and unemployment rate figures are expected to come in steady following a very strong release last month and thus this current predicament is going to pose a problem for those at the MPC unless one of these measures begins to reverse their trend.

 

[Alpari UK]

US Opening Call from Alpari UK on 16 July 2014

Markets bounce back ahead of second Yellen testimony

• Markets bounce back after yesterday’s losses;
• Yellen’s softened tone doesn’t change anything, yet;
• Chinese data boosts investor sentiment;
• UK unemployment falls but wage growth remains a problem;
• Yellen testimony key again today.

Janet Yellen may have spooked investors a little yesterday, with her warning that rates could rise earlier and quicker if economic data improves, but that’s not holding them back on Wednesday following the release of a strong second quarter GDP figure from China.

In reality, Yellen’s comments don’t actually change anything. The Fed’s monetary policy stance has always been data dependent and always will be. However, until now Yellen has refused to even speculate about higher rates, claiming it won’t happen until well after the end of tapering. Yesterday’s acknowledgement that they could rise has been seen as a slight softening in stance by Yellen and a sign that the Fed sees potential for the data to continue to improve to the point that a rate hike will need to be considered.

While this may have spooked investors, it was only ever going to be temporary because it doesn’t change current rate expectations. Today’s Chinese data has been a real boost for investors who have been looking for any reason to buy the dips recently. Given the concerns about Chinese growth earlier this year, it is a big relief to see the country growing at 7.5% in the second quarter, even if this is largely due to the targeted stimulus efforts of the government and central bank. As long as this continues, investors will be happy.

There was mixed news for the UK this morning, who saw its unemployment rate fall to 6.5% in the three months to May, a near five and a half year low, and jobless claims fall 36,300. As has been the trend for a while now, this positive employment report came alongside data showing weakness in wage growth which is likely to delay any decision by the Bank of England to hike interest rates. They will be very reluctant to raise rates at a time when inflation is easily outstripping wage growth, especially given how reliant the economy is on consumer spending.

There’s plenty of data due out of the US today, although the majority of it is lower impact reports, such as PPI inflation and industrial production numbers. The key event will again be Janet Yellens testimony, this time in front of the House Financial Services Committee. This tends to go much the same way as yesterday’s testimony but it’s still worth watching as some of the questions will be different and there may be attempts made to expand on some of yesterday’s hawkish comments.

Ahead of the opening bell, the S&P is expected to open up 5 points, the Dow up 42 points and the Nasdaq up 21 points.

 

[Alpari UK]

UK Opening Call from Alpari UK on 17 July 2014

Eurozone CPI looks to dominate an otherwise quiet session

• Yellen pulls back from micro commentary
• Time Warner bid shows M&A market continues to boom
• Potential second corporate default brings risk off view to China
• Eurozone CPI expected to dominate European session.

European markets are looking a little downbeat despite a fourth day of growth in Asian stocks. That being said, with yesterday representing one of the strongest days of upside in over four months for the FTSE100, perhaps a move to pare some of those gains was always likely. A light overnight session is looking to give way to a somewhat one-dimensional European outlook with Eurozone CPI providing the single major release ahead of the US open. European markets are expected to open lower, with the FTSE100 -16, CAC -10 and DAX -12 points.

Janet Yellen’s two day testimony in Washington drew to a close yesterday, as she fielded questions from the House financial services committee. This was largely a non-event, with an identical initial statement matched by fairly similar question to that pitched by the Senate. However, it was notable that Yellen took a step back from her initial comments regarding the fact that she sees concern over biotech and social-media company valuations. On this occasion, Yellen stated that the Fed doesn’t necessarily target equity valuations, with valuations seeming to be at historical norms.

However, I am sure Yellen will pay close attention to the ongoing M&A boom which continued apace with the $80 billion takeover bid from 21st Century Fox for Time Warner. The ongoing environment of major M&A activity is a sign of booming balance sheets and economic confidence within the markets. Thus whilst we continue to see major takeover bids such as this, it points to yet further strength within the markets as firms make the most of record low interest rates and growing revenue streams.

In China, signs are pointing towards a possible second corporate default in what is the worlds largest corporate debtload. The default of Chaori back in March rang alarm bells for many in the markets, given Chinese unwillingness to let such a thing happen in the past. However, at that point we asked whether this was going to be the first of many. Thus the announcement that Huatong Road & Bridge Group Co. may be the second to go down the default path is highly notable and brings a more risk off scenario for investors.

The major event of the day comes from the Eurozone, where the latest CPI figure looks set to provide yet another test of Mario Draghi’s monetary policy framework. Weak inflation has been the single most persistant problem for Draghi in 2014, as a threat of deflation has turned even the most ardent hawk into a dove. Markets have been baying for a gutsy response from Draghi and in turn he decided to throw everything but the kitchen sink at the problem, expecting that the likes of negative deposit rates and TLTRO’s will reverse the downward trend in prices. However, this is likely to take some time to significantly affect CPI and as such markets are looking out for a steady figure of 0.5%. By all means, a steady figure is better than another drop in price growth, yet with CPI standing at the lowest level in 4 ½ years, we are beginning to approach a now or never moment where any further decrease could call for drastic measures. Those measures would surely have to come in the form of asset purchases, which remains the one golden card Draghi has yet to play. It does not come without difficulties and as such he would most likely prefer not to resort to such drastic measures. However, as months pass and the expectations grow in response to Draghi’s recent actions, we have to see a shift in CPI or else markets will begin pricing in a high likeliness of asset purchases.

 

[Alpari UK]

US Opening Call from Alpari UK on 17 July 2014

Russian sanctions weigh on risk appetite ahead of US data

• Risk appetite takes a hit on new Russia sanctions;
• Negative impacts likely to be temporary, could reverse today;
• Housing, jobs and manufacturing in focus for the US.

Risk aversion has returned to the markets on Thursday after the US and Europe announced a fresh round of sanctions against Russia in response to its part in the Ukrainian conflict. European indices are trading lower across the board and we’re expecting to see a similar response after the opening bell on Wall Street, with the S&P seen 7 points lower, the Dow 38 points lower and the Nasdaq 14 points lower.

The Ukrainian crisis hasn’t been a big focus for the markets recently, with it having fallen out of the headlines and the risk associated to it having been priced in. However, additional sanctions such as those imposed by the US and those expected by Europe at the end of July, have the potential to escalate the crisis further, not to mention damage the economies of those involved in the sanctions. Germany is the prime example of this given the amount of trade it conducts with Russia.

The pull back in the markets is only likely to be temporary though, given the size of the sell-off that we’ve seen in response to the sanctions. This is hardly a major development, it’s simply a case of a tad more risk being priced in. In fact, we could see these losses reversed as early as today, with plenty of data being released from the US this afternoon.

While Yellen’s testimony over the last couple of days was viewed as slightly hawkish, I don’t believe there was enough in it to prompt the kind of sell on good news scenario that we’ve seen at times in recent years. Yellen highlighted housing as one area that has not really performed well this year so at this stage, a boost in building permit and housing starts would be welcomed, not feared.

The jobless claims numbers have been persistently strong and the same is expected today, with 310,000 new claims expected for last week. Continuing claims are also expected to drop slightly, to 2.575 million, close to the near 6 year lows that it hit recently. We also have the Philly Fed manufacturing index being released today so there’s plenty of data for traders to get their teeth stuck into that could provide that boost to move indices back into positive territory.

We also shouldn’t overlook corporate earnings season in all of this. Earnings season doesn’t just impact the stocks and sectors involved, it has an impact on sentiment as a whole so the performance during the season should be monitored to determine risk appetite.

 

[Alpari UK]

UK Opening Call from Alpari UK on 18 July 2014

Geopolitical fears ignite as traders run for a safe haven

• Malaysian airlines crash sparks geopolitical fears
• Israeli ground offensive in Gaza heightens sell-off
• BoJ governor Kuroda indicates an increasingly hawkish stance
• Jens Weidmann speech to dominate as Eurozone and Germany fears persist

What was supposed to be a day where financial markets unwound following a week of high volatility economic announcements has in fact seen markets become embroiled in multiple geopolitical stories. The downing of Malaysian Airlines flight MH17 has been accompanied by a ground assault operation throughout Gaza by the Israeli armed forces, sending investors running for the nearest safe haven. Within European markets, the brunt of this was felt yesterday, yet we continue to see a risk off sentiment dominating markets in the futures markets. European indices are expected to open lower, with the FTSE100 -28, CAC -30 and DAX -60 points.

Yesterday’s crash involving a Malaysian airlines plane over Ukrainian airspace saw all 295 people on board killed in what seems to be a further escalation of the separatist conflict within the country. The blame appears to lay at the door of the pro-Russian rebels whom having recently been equipped with high-tech Russian weaponry, have been shooting planes out the sky for fun. This time they got it wrong, downing a commercial airline, causing not only a humanitarian catastrophe, but also a geopolitical nightmare. As is generally the case with any major geopolitical threat, the markets headed for the nearest perceived safe haven, seeing gold, oil and the VIX all spike higher. Conversely, any perceived riskier assets saw a sharp retreat, with the S&P 500 and Dow seeing their biggest one-day fall since April 10 and May 15 respectively. Ultimately, this issue is a clear firelight to what is already a tinderbox in Ukraine, with the Ukrainian leader now justified to go into those rebel held regions with much more vigour despite Putin’s accusation that the military push from the government was at fault for this crash. Backed by the western world, I fully expect to see further pressure on pro-Russian rebels as Ukraine seeks to take back it’s sovereign land once more. Given the likely ongoing emergence of negative pressure surrounding the Russian’s decision to arm these rebels with such weaponry, it will be interesting to see if Putin steps back from his involvement somewhat, thus leaving the rebels more isolated to fight their cause. Otherwise, with the likes of Holland, Malaysia and Australia suffering the most in this conflict, there is sure to be further sanctions and actions taken against the Russians at a time when their popularity hits a new low. From a market standpoint, we are likely to see people come back out of their bunkers and start buying back into the markets in the near future. Throughout the last year everyone has been buying into the dips and yesterday’s crash just provides yet another one in what is more a humanitarian disaster than a financial one.

Geopolitical fears ramped up yet further yesterday, with the announcement that Israel had begun a ground offensive within Gaza following 10 days of aerial bombardment. The ongoing narrative behind this conflict has been one of Israel seeking to destroy Hamas owned weaponry as they seek to put an end to the constant missiles being sent from Gaza to Israel. However, with civilian casualties being the only outcome that has been seen globally, it is clear that Israel are doing themselves no favours from a PR standpoint. Thus yesterday’s move can be seen in two lights, with many deploring such an attack on another sovereign land as a tragedy which would be breaking global conventions. Yet it is also an opportunity for the Israeli forces to take out key military targets without the same risk to civilian lives and for that I believe this move could be something that may spare lives rather than take them. The big question is for how long is this offensive going to last and to what extent they are successful in finding and destroying Hamas weaponry. Hamas has shown itself to be unwilling to negotiate as shown by their disregard for any ceasefire, and thus it is more than likely that we will simply see more rockets fire upon completion of the Israeli air offensive. Ultimately, there is likely to be conflict within the region for some time yet and whilst the financial market’s response will likely be short-lived, the humanitarian and sectarian impact will last a lot longer.

Moving on to more standard affairs, the release of Japanese monetary policy minutes overnight provided markets with an opportunity to gauge yet again whether the BoJ will move to heighten the rate of asset purchases in response to a weakening in the region following the sales tax in April. What the minutes did provide us with was a vague timeline for asset purchases, given the commitment to keep QE in place until the 2% inflation target was reached. However, this was always likely to be the case and thus markets turned their attention to a speech from BoJ governor Kuroda in Tokyo. In his speech, Kuroda seemed significantly more hawkish than usual, seeing current conditions as being satisfactory. Kuroda’s regarded the current value of the yen as no longer excessively strong, whilst also seeming confident that the economy was well on its way to reaching the 2% inflation target. Given the likeliness that either the further depreciation of the yen or a boost to inflation was going to be the catalyst for another rise in the rate of asset purchases, this has come as a shock to the markets, with the Nikkei tumbling throughout the Asian session. As such, it now seems likely that Japan could remain steady with its monetary policy for some time, which is likely to unravel some of those yen shorts backed by those expecting further easing from the BoJ.

Finally, the European session also sees Bundesbank President Jens Weidmann speak, at a time when the Eurozone is facing a critical deflationary threat and the German economy is showing signs of weakening across the board. The imposition of TLTRO’s, negative deposit rates and alike by Mario Draghi took the headlines upon announcement, yet markets remain unconvinced with many seeing the imposition of asset purchases as a necessary to bring the area back into strong price and GDP growth. However, Weidmann has been somewhat mixed on the matter and as such any leaning towards the creation of a QE programme would likely spark markets into a more bullish mind-set given the German influence upon the ECB. It will also be key to note how Weidmann sees the German economy developing following disappointing ZEW, factory orders, retail sales and unemployment claims figures. For the Eurozone to thrive, a strong Germany is a necessity and thus whilst many within Germany had expected a weaker Q2, this trend cannot last for long and markets will be looking for signs of hope from today’s speech.

 

[Alpari UK]

US Opening Call from Alpari UK on 18 July 2014

US recoup some losses ahead of data

• US futures edge higher as geopolitical risk is priced in;
• Investor complacency raised again after yesterday’s events;
• UoM consumer sentiment and CB leading indicator in focus.

Yesterday’s events in eastern Ukraine and the Gaza strip are weighing on European indices this morning, as investors price in the additional geopolitical risk that comes with both events. US futures are not experiencing the same declines and are actually pointing to a slightly positive open, which just goes to show how short term these shocks to the market are at the moment. There’s always investors out there looking to buy the dips.

You could say that both events were fully priced into US indices on Thursday, given that the markets closed after the Israeli ground offensive was announced. However, the Dow didn’t even shed 1% following both events, which begs the question, how much additional geopolitical risk has actually been factored in? Are investors being too complacent when it comes to these events?

This is difficult to determine and the potential complacency of investors has been raised on a number of occasions this year. What I think is preventing any significant sell-off is the uncertainty around what comes next. It is unlikely that nothing will be done in response to the passenger plane being shot down by, what appears to be, the pro-Russian rebels occupying areas of eastern Ukraine.

One outcome could be an escalation of the crisis, which is not desirable for investors and could result in a greater sell-off. Another outcome could be that something positive comes from this tragedy in that it acts as a wakeup call to all involved and encourages them to come up with a diplomatic solution to the crisis. This would be positive for all involved and for the markets. While this would be the ideal outcome, the fact that we’re hearing all sides blaming each other this morning suggests it’s the least likely of the two outcomes.

In terms of what this means for the markets today, based on what we’ve seen so far, it would appear that all of the uncertainty isn’t weighing too heavily but it is impacting the volatility. This isn’t unusual in times of uncertainty as traders find it much more difficult to predict market direction. Given that it’s the end of the week, I expect this to continue for the rest of the day, unless of course, we see further escalation of either event.

The scarcity of economic data won’t help this, although there are two significant economic releases from the US later, the preliminary UoM consumer sentiment and CB leading indicator readings. We may see some volatility in the markets following these releases, but to an extent, they are likely to be overshadowed by the events in the Ukraine and the Gaza strip.

Ahead of the opening bell, the S&P is expected to open 2 points higher, the Dow 18 points higher and the Nasdaq 8 points higher.

 

[Alpari UK]

Weekly market preview from Alpari UK – 21 July 2014

The events that occurred in eastern Ukraine and the Gaza strip last week are likely to continue to play a major part again in the coming week, with some form of escalation further adding to the uncertainty in the markets, while an attempt to resolve the issues could provide a massive boost to investor sentiment. As always, these matters are never straight forward and therefore I expect some uncertainty to linger whatever happens.

Elsewhere, it’s looking like a fairly busy week, not necessarily in terms of the volume of economic releases and events, but the importance of what is scheduled. The UK and US stand out this week, with minutes from the Bank of England potentially showing more hawkish undertones appearing among policy makers, hinting at earlier rate hike, while the US has a number of big economic releases due for release that could provide a welcome distraction to the events events in Ukraine and Israel.

US

There may not be an abundance of data coming from the US this week, but the majority of the data that is due out is widely viewed as potentially high impact and should therefore be closely followed. The week effectively starts on Tuesday (no data or events on Monday) with the release of the CPI inflation data for June. For quite a while, despite being a tier one release, this has not been viewed by most as an overly important release as inflation has been close to 1% for so long. On top of this, the Fed’s preferred measure of inflation is the core personal consumption expenditure price index and therefore, this number is unlikely to directly influence its decision.

That said, as with many other data releases, it can give an indication of the future path of inflation, as measured by the core PCE, and therefore it should not be overlooked. With the latter closing in on the Fed’s 2% target, traders are likely to pay close attention to the CPI reading for further inflationary signs. The Fed is running out of reasons not to raise interest rates earlier than it clearly wants to and inflation surpassing its target would be another ticked off the list.

Another area of the economy being closely monitored by the Fed is the housing market which Chairwoman Janet Yellen recently described as disappointing. Even a dramatic improvement here is unlikely to make much of a difference to the Fed’s monetary policy decision as it will want to see sustainable strength, but it could be an early sign of things to come making their decision even more difficult later this year. The existing and new home sales data, released this week, may give such an indication, having picked up over the last couple of months, although I wouldn’t get my hopes up too much.

Aside from this, the durable goods orders stands out as a significant release given that this gives a good indication of how people and businesses view the long term health of the economy. If people are buying more of these products, it tends to suggest that they are confident that the economic situation is improving. These numbers can be quite volatile but in general have been improving and another good number is expected for June, with 0.6% growth expected.


UK

The UK doesn’t have much to offer this week in terms of data and events, but what is does have is quite significant and should certainly not be overlooked. It’s difficult to pick the highlight of the week, with Bank of England minutes, retail sales and the preliminary GDP reading for the second quarter being released, but on this occasion I think the minutes have to take it marginally.

I may not be in the camp that thinks the BoE will raise interest rates in the next couple of months, or even before the end of the year for that matter, but that doesn’t mean I don’t think the minutes for the previous meeting will be important. Even if the language used in the minutes suggests certain members are getting a little uncomfortable with the current level of interest rates, without actually dissenting, I would expect the markets to react, particularly sterling which is likely to rally in such an event. This makes the minutes a very important event for a change.

The GDP figure and retail sales releases are, as always, very important releases, but don’t quite carry the weight that the minutes does simply because they’re likely to confirm what we already know, even if this is the success story that is the UK recovery. The UK is expected to have grown by 0.8% in the second quarter, which is pretty much in line with the three quarters that preceded it. As for retail sales, a 0.3% jump in June would not a bad rebound following the 0.5% decline in May and would mean we’ve seen four positive months in five. This is not necessarily enough to point to the type of recovery that forces the BoE to hike rates any time soon but good enough to suggest its sustainable, the perfect mix in most people’s eyes.


Eurozone

Aside from Thursday, which offers plenty in terms of economic data, the rest of the week is looking fairly quiet. The German Ifo business climate figure on Friday could shake things up a little, especially given the decline in German data this year. This is expected to continue on Friday which doesn’t fill us with hope for the eurozone as we head into the summer, given that Germany is the main engine of growth for the region. This could be the first real test of whether the eurozone can in fact cope without a strong Germany. If it can, maybe there’s more to be optimistic about going forward but, unfortunately, I don’t see it at this stage.

Sticking with Germany, we’ll also have the Gfk consumer climate figure for July which is expected to remain at 8.9, following the unexpected spike higher last month. If this number can be maintained, it will be an encouraging sign for Germany which is trying to improve on the consumer side, for example with the introduction of the minimum wage.

As already mentioned, Thursday offers the majority of the economic data for the eurozone, with manufacturing and services PMIs being released for Germany, France and the eurozone. Aside from the German services sector, these numbers have disappointed on quite a few occasions this year so, despite the optimistic forecasts of a small improvement from the June numbers, I’m not overly hopeful. As long as we see numbers roughly in line with estimates though, I think traders will be relieved as it may suggest the decline is slowing.


Asia & Oceania

It’s looking like a very quiet week here, with the only significant releases coming later in the week from China and Japan. Of course, we have some inflation data from Australia and speeches from Reserve Bank of Australia Governor Glenn Stevens and Assistance Governor Guy Debelle earlier in the week, but at a time when the central bank has made it clear that it doesn’t intend to alter its policy stance, these are likely to have only a limited impact. That said, it’s still worth monitoring the speeches on Tuesday, as central bankers can occasionally spring a surprise on investors and send shock waves through the markets.

From Japan we’ll get trade balance data on Thursday, which is expected to show a 39th deficit, with the number in June rising to ¥1.11 trillion. This will be followed on Friday by the inflation data for July. Given the focus from the Bank of Japan on inflation, in fact this was the entire reason behind its asset purchase program, many traders are likely to be following these releases. We can’t get too carried away with them due to the sales tax hike back in April as this will have a significant impact, but we are likely to get a good idea of how much this contributed to the overall number. This could therefore help us determine how likely the BoJ is to announce additional monetary stimulus this year, which based on recent comments, they appear less inclined to do.

Finally, we have the Chinese HSBC manufacturing PMI for July, which is expected to rise to 51.2 following the move back into growth territory in June. This was the first growth figure of the year so far, so an improvement on top of this should be viewed as a sign that the manufacturing sector is on the mend following the slow start to the year. Of course, it is clear that this is probably down to the targeted stimulus efforts from the government and the Peoples Bank of China, but as long as they’re working and not posing any additional risk to future growth, investors are not likely to mind.

Read the full report at Alpari News Room​

 

[Alpari UK]

UK Opening Call from Alpari UK on 21 July 2014

Good Morning all!

Traders will wake up to a yet another trading session that will be dominated by growing geopolitical tensions away from finance as the fallout from the crash of Malaysian Airways flight MH17, and the on-going violence in Gaza is likely to keep investors focussed. The UN has called for an immediate ceasefire in Gaza after the weekend saw the deadliest day of fighting between Israel and Palestinian militants. Discussion with the UN is on-going after Sunday saw 13 Israeli soldiers and over 100 Palestinians killed. US secretary of state John Kerry arrives in Cairo in the next few hours to discuss the crisis with Egyptian leaders.

The pressure on Vladimir Putin is growing by the day, as flight investigators disgracefully remain without full access to the crash site in eastern Ukraine. Mr Putin has been under pressure from Europe and the US to do more to stop the fighting between pro-Russian activists and the Ukrainian military long before the downing of a Malaysian airways flight last week. It now seems that we are moving towards a situation where sanctions from European countries on Russia are almost a certainty. The issue surrounding these potential sanctions is that none of the sides involved in this tension with Moscow can afford the repercussions. Contrary to popular belief Russia are in a very unstable financial position and any hard hitting sanctions that are supported by Germany could have the effect of dragging Russia into recession. Vladimir Putin has in the past threatened that any sanctions from Europe will be met with retaliatory sanctions imposed by themselves. If this were to happen then the already faltering German economy could face a huge problem. It had seemed over the last few months that the US were the only country willing to impose hard hitting sanctions on Russia, but with international outrage growing at Vladimir Putins refusal to act it could well be that sanctions are now almost a certainty as Europe looks to get tough with the Russians.

Elsewhere it seems that European markets will have a fairly quiet start to the week on the economic calendar as German PPI is the only major announcement due out. However as the week moves on we do start to heat up with data out of the US and Eurozone looking to take centre stage. Tuesday’s session sees US CPI released and with Janet Yellen’s hawkish comments last week it could be that investors are looking for any kind of reading that hints at a change in monetary policy. Janet Yellen, said at last weeks questioning that any substantial change in economic readings could well force a rethink on monetary policy and a move to push up interest rates if it was needed.

Thursday sees the busiest day of the week as far as data is concerned with Europe the UK and the US all in focus. However it may well be that more pressing and worrying news out of Gaza and Russia will take centre stage long before then. The one thing financial markets cannot deal with is uncertainty, and with such huge decisions to be made on potentially devastating ge political situations everyone will be hoping for positive outcomes when officials make their decisions. However it very much feels like the situations in both Gaza and Russia are likely to get better before they get worse, and therefore they are likely to dominate the landscape for traders for the foreseeable future.

Ahead of the open we expect to see the FTSE 100 higher by 10 points with the German Dax higher by 8 points.

 

[Alpari UK]

US Opening Call from Alpari UK on 21 July 2014

Geopolitical concerns weigh as earnings come into focus

• Geopolitical concerns continue to weigh on investor sentiment;
• Strong earnings and data may convince traders to buy dips;
• Russell 2000 failing to confirm Dow and S&P, but this is not necessarily a red flag;
• Gold up 0.4% on the day on slight risk averse market stance.

Lingering fears over the conflict in eastern Ukraine and Israel’s ground offensive in the Gaza strip are further weighing on investor sentiment on Monday, with European indices getting the week off to a negative start and those in the US seen doing the same. Ahead of the opening bell, the S&P is seen 4 points lower, the Dow 30 points lower and the Nasdaq 4 points lower.

It’s worth noting here that while these events are undoubtedly having an impact on market sentiment, Friday showed us that investors are willing to look past them if an opportunity to buy the dips presents itself. That could come from good economic data, dovish comments from a central banker or strong earnings.

This could be viewed by many as complacency on behalf of investors but that may not necessarily be the case. While the rising death toll in Gaza is a massive concern, from a purely markets perspective, we’re seeing no signs of this spreading beyond the region at this stage which would explain why we’re not seeing it weigh too heavily on the markets. Meanwhile, in eastern Ukraine, there is much more potential for a greater escalation that could be damaging to many countries. However, as long as leaders continue to worry about the economic impact on their own countries of more severe sanctions on Russia, the odds of a significant escalation looks fairly low.

This leaves us with a situation as we saw at the end of last week in which we see a brief flight to safety immediately following the event, followed by more buying as investors look to take advantage of the cheaper stocks. I expect this to continue in the coming weeks, especially if corporate earnings season goes as well as is expected, giving investors plenty of reason to buy any dips and seek a little more risk. This is likely to be a big driver today, despite only a dozen S&P 500 companies reporting second quarter earnings, with little appearing on the economic calendar to give the markets some direction.

One concern among many investors right now is that the Russell 2000, an index consisting of smaller stocks, is failing to confirm the moves in the Dow and S&P 500. In times of uncertainty, investors tend to favour save haven assets but at other times, like now, when they are reluctant to reduce their stock holding, they instead opt for blue chip stocks as a way to reduce their risk. This can be seen as a sign that the market is not doing as well as the record highs would suggest and acts as a red flag to many that a bigger correction is just around the corner. That said, losses of more than 10%, which we’ve already seen once in the Russell 2000 this year and aren’t far from seeing again, is extremely common in this index, which may suggest that people are reading too much into these moves.

In the commodity space, we’re seeing this small amount of risk aversion favouring Gold this morning, which is currently trading at $1,314.40, up 0.4% on the day. While I find it difficult to be bullish on the yellow metal against a backdrop of an increasingly hawkish Fed and Bank of England, and low inflation, it continues to be supported by the high levels of geopolitical risk and therefore some short term upside is still a strong possibility. July’s highs of $1,345 remain the next hurdle, while from a technical standpoint, $1,368 looks quite a significant barrier, with the descending trend line from August 2013 highs potentially providing significant resistance.

 

[Alpari UK]

UK Opening Call from Alpari UK on 22 July 2014

Good Morning Folks!

Asian markets saw a fairly solid trading session overnight despite losses across the board in Europe and the US on Monday’s trading session. However there is amble opportunity for markets to turn around the poor start to the week as Tuesday is flush with economic and corporate data for traders to get stuck into. We have also seen some developments in the geopolitical situations that have been keeping markets wary, as yesterday saw pro-Russian rebels finally let the bodies of the dead be taken away from the crash site of Malaysian airlines flight MH17, and they also handed over the black box flight recorders to authorities. These are two key break troughs for the international community, who have been heaping the pressure on Vladimir Putin to act to install an immediate ceasefire while investigators carry out their job at the crash site.

There is a fair amount of data for traders to get their teeth into away from the geo political situations today as both the economic and corporate calendar are full with data. The major talking points will come later this afternoon out of the US as CPI inflation figures are released as well as existing home sales readings. While economic data out of the US is always an important event for the markets, it is likely to take on a little more significance in the coming months after Janet Yellen’s comments from last week. The Fed chief told members of congress that monetary policy would remain the same unless the data showed significant signs of improvement, in what was one of her more hawkish appearances since she took over the role as head of the US central bank. The thing that makes this more important is that economic data out of the US has been flying, with unemployment, GDP, PMI’s and retail sales numbers are showing significant signs that the economy could support a higher interest rate. Today’s figures however had been some of the more worrying releases of late. CPI inflation has been one that hasn’t always been steady enough to keep the Fed happy. Recently the number has moved back towards the 2% Fed target and if we get a number as expected at 2.1% today then this will be an extremely positive result for the economy, and could give Janet Yellen more ammunition to push those interest rates higher sooner than people expect. As well as the CPI we are looking at existing home sales. This number is expected to fall from 4.9% in May to 2% in June. The data in the US does not stop there as after the closing bell Apple release there Q3 earnings.

With not much data out of Europe or the UK this morning it may well be corporate earnings that take centre stage today. In the UK we will still be trying to take in the terrible results from supermarket giant Tesco yesterday morning, but will also have the likes of ARM Holdings and Beazley to keep an eye on before we get the public sector net borrowing numbers at 0930. Overall markets will have enough to keep them interested and hopefully away from the worries of the geopolitical tensions between Russia and Western Europe and Gaza and Israel. However any large developments always have the potential to spook markets into a move, no matter how busy elsewhere.

Ahead of the open we expect to see the FTSE open higher by 25 points and the German DAX higher by 29 points.

 

[Alpari UK]

US Opening Call from Alpari UK on 22 July 2014

US futures rally ahead of data and earnings

• Cooperation from rebels doing no harm to investor sentiment;
• EU foreign ministers likely to announce further sanctions;
• Earnings season key as Apple, Microsoft and Coca Cola report;
• US inflation reading the highlight of the economic data releases.

Given how well US stocks have held up over the last couple of days, it’s difficult to claim that investors have been pricing in too much risk when it comes to the conflicts in the Ukraine and Gaza. However, the developments in the former over the last 24 hours have certainly done no harm to investor sentiment, with the returning of the bodies to the Netherlands and the black boxes from the plane to the relevant experts, at least showing some form of cooperation from the rebels and more importantly, Russia.

This is unlikely to prevent further sanctions being imposed on Russia, with foreign ministers from Europe meeting today to discuss exactly what those will be. Many countries in Europe are in a much tougher position than the US when it comes to sanctions, as they themselves stand to lose quite significantly due to the ties they currently have with Russia. With that in mind, I don’t expect any sanctions from Europe to be too severe, with foreign ministers avoiding areas such as the oil and gas industry that could significantly damage the Russian economy but do plenty of harm to the fragile European economies at the same time.

With investors not appearing to be overly concerned with the current situation in the US, focus is likely to remain firmly on earnings season with some big names scheduled to report on the second quarter today. Top of the list is Apple, the largest component of the S&P 500, which is scheduled to report after the close in the US. Alongside this we’ll hear from Microsoft, United Technologies and Coca Cola, to name just a few, which could quite easily have a major baring on sentiment as the day goes on.

Aside from earnings, there’s also plenty of economic data being released, again from the US. The one release that stands out above all others is clearly the CPI inflation reading for June. While this may not be the Fed’s preferred measure of inflation, it could provide insight into the future direction of the personal consumption expenditure price index and therefore when the Fed will first hike rates.

There isn’t a huge amount holding the Fed back now, with growth in the second quarter likely to be confirmed as very strong, job creation growing at a very good rate and unemployment falling rapidly, and not just because of a falling participation rate. Wage growth is a big concern and low inflation is allowing the Fed time to see if this improves before it acts. However, if this rises significantly above its target, it may lose that privilege and be forced into a hike earlier than it wants. The figure is seen remaining at 2.1% today, marginally above the Fed’s 2% inflation target, while the core number is seen exactly in line with it. Any spike could be taken negatively by traders and prompt some selling in equities and Treasuries, while the US dollar would likely benefit.

Ahead of the opening bell, the S&P is seen 3 points higher, the Dow 42 points higher and the Dow 11 points higher.

 

[Alpari UK]

US Opening Call from Alpari UK on 23 July 2014

Earnings in focus as US indices near highs

US indices are expected to open marginally higher on Wednesday as the S&P continues to close in on 2,000 while the Dow is once again very close to new record highs having managed to close above 17,000. Ahead of the opening bell, the S&P is expected to be 2 points higher, the Dow 19 points higher and the Nasdaq 3 points higher.

These gains clearly show that investors are more concerned about economic data and earnings season right now than the conflicts in eastern Ukraine and the Gaza strip. That’s not to say that both of these don’t have the potential to cause further disruptions and weigh further on investor sentiment, it just means that the risk associated with these events is fully priced in and there has been no new significant developments.

With this in mind, corporate earnings are likely to be the biggest driver of markets today, given that the economic calendar is offering very little in terms of significant releases. The only releases coming from the US are MBA mortgage applications for the week ending 18 July and crude oil stocks change for the same period. Mortgage applications can give some important insight into the current state of the housing market in the US at the moment but the market impact tends to be minimal. The crude oil stocks change on the other hand tends to only impact oil prices.

We do have one number being released for the eurozone, the preliminary consumer confidence reading for July. This again doesn’t tend to get much of a reaction from traders, potentially because the number remains in negative territory which suggests consumers remain pessimistic and are therefore less likely to spend. The lesser dependency on the consumer in the eurozone compared to the likes of the US and the UK, may also explain why this carries less weight.

This leaves earnings season as the major driver today, with the likes of AT&T, Boeing and Facebook all reporting on the second quarter. As always, while the earnings results themselves may primarily have an impact on equity markets, and more specifically the specific stocks and sectors, the sentiment surrounding the entirety of earnings season can be a driver of investor sentiment and therefore impact other markets indirectly.

 

[Alpari UK]

UK Opening Call from Alpari UK on 24 July 2014

Earnings in focus as US indices near highs

• European indices lower following mixed sessions in Asia and the US;
• Earnings back in focus as many big names report on the second quarter;
• Eurozone PMI readings seen providing further evidence of 2014 slowdown;
• UK retail sales to show another good month as businesses take some pressure off the consumer.

European indices are expected to open marginally lower following a fairly mixed session in Asia overnight. A strong Chinese HSBC manufacturing PMI reading was offset somewhat by disappointing trade data for Japan, while the US session didn’t exactly provide much direction as the S&P closed at record highs and the Dow finished lower on the day.

Once again today, focus is likely to be firmly on the release of second quarter earnings results and economic data, both of which we have in abundance. On the earnings front, we’ll get results from a number of companies including Unilever, Nokia and Easyjet. As always, the bulk of the impact from these results is likely to be felt in the stocks themselves, as well as the sectors they fall in. Commodity stocks can also heavily impact the commodities that they deal with. That said, sentiment is very important in all markets and earnings season is likely to be a big driver of investor sentiment in the coming weeks so the overall feeling around earnings season should not be ignored.

As well as sentiment, these earnings results are likely to have an impact on central bank decisions even if the results themselves are not something that is discussed too heavily at the meetings. The results can contain important information that provides clues on the sustainability of the recovery at any point, such as consumer spending patterns and business investment. The latter in particular tends to suggest that companies are confident in the long term health of the economy and therefore the business.

In many markets though, such as currency and bond markets, traders do pay more attention to the economic data as it gives a broader update on how an economy is performing at any point. Today, there is a lot of economic data being released, both forward and backward looking and across a number of countries, so I expect to see a rise in market volatility.

PMI readings are generally seen as important economic indicators, particularly at a time of recovery, as they are focused purely on confidence and expected performance in the coming months. That said, the fact that they are surveys and not based on any real numbers means they are not as reliable as hard data, but that does not mean they are not extremely useful. Confidence within a sector doesn’t come from nothing, and it is a very good indicator of how companies see things progressing in the coming months, which is why traders follow these numbers so closely.

This morning, we’ll get manufacturing and services PMI readings from Germany, France and the Eurozone for July. A lot has been said about the slowdown in the Eurozone recently, particularly in Germany which has been the most concerning thing as many don’t believe we can see a strong recovery in the region without its strongest member leading the way. Today’s PMI readings are expected to suggest that the slowdown will continue well into the second half, with the numbers seen either remaining as they were in June or slightly falling. The French numbers are expected to point to another contractionary month in the eurozone’s second largest economy, which is yet another concern for the area, given that people were hoping that this would be the year that we’d start to see some improvement. In many countries are seeing this, unfortunately that doesn’t include those at its core.

Shortly after the PMI releases, we have UK retail sales numbers for June. While these are extremely important readings for the UK, given the importance of the consumer to the economy, they are arguably not as important as they have been for the last 18 months. The reason for this is that until now, we have been witnessing a consumer driven recovery and therefore had consumers taken their foot off the gas, the recovery would have stalled. However, in the last quarter, businesses investment has increased dramatically which has played a much bigger part, taking some of the burden off the consumer. This is far healthier for the economy as consumers could not keep solely supporting the economy when inflation is rising so much faster than wages. Eventually, either the spending would have to slow or debt would have to rise. Fortunately instead, businesses have finally stepped in and are likely to play a much bigger role going forward.

We have more data coming later from the US, with weekly jobless claims, home sales and manufacturing PMI data all being released.

Ahead of the European open, the FTSE is seen 5 points lower, the CAC 3 points lower and the DAX 3 points lower.

 

[Alpari UK]

US Opening Call from Alpari UK on 24 July 2014

Traders turn to US data and earnings after eurozone boost

• World cup and good weather gives PMI readings a boost;
• UK retail sales slip in June but business investment cushions the blow;
• 50 S&P 500 companies due to report on what has so far been a very good third quarter;
• Plenty of data being released for traders to get their teeth stuck into.

US futures are taking the lead from Europe and posting small gains early on Thursday, after a batch of stronger than expected eurozone PMI readings made everyone a little more optimistic about what the second half of the year will bring.

The manufacturing and services PMI readings caught many people off guard, with most expecting to see a further decline in the numbers as we head into the third quarter. We’ve seen no other sign that the economies of the eurozone are improving, not even in Germany which has shown itself to be far more robust than the rest.

That said, you can never ignore the impact that a world cup and good weather can have on an economy. We’ve already seen, for example, that beer sales in Germany exceeded expectations during the world cup and it seems that spending in other areas may have also increased. Given Germany’s success at the world cup, I would be surprised if we didn’t see strong figures across the board for the month of July.

The services sector in France seems to have taken full advantage of these as well, propelling the PMI reading out of contraction territory to 50.4. The manufacturing sector didn’t perform quite as well, falling to 47.6, a third contractionary reading. The only question now is whether all of this is sustainable or not. The world cup is finished now which may take some of the spark out of future readings but as long as the good weather stays, we could see these sectors gather some momentum.

One downside this morning came from the UK, where core retail sales unexpectedly fell by 0.1% in June. This was only just shy of expectations though and the figures compared to the same month last year are still extremely encouraging, with retail sales up 4% and core retail sales up 3.6%. The UK consumer has almost single-handedly driven the recovery over the last year despite low wage growth, which was never going to be sustainable. However, stats have shown that in the second quarter, business investment has risen which has picked up the slack from the drop in consumer spending. With that in mind, we have nothing to worry about just because retail sales are not rising as much as we hoped.

Looking ahead to the US session and earnings season, as well as all the economic data scheduled for release, will be in focus. There’s another 50 S&P 500 companies due to report on the second quarter today, including some big names such as General Motors, Caterpillar and Amazon. Earnings season has been very good so far, especially when compared to the last couple of years. We’re seeing earnings growth driven by larger revenues, less cost cutting and, arguably most significantly, fewer profit warnings. This is a great sign as we head into a very important second half of the year.

On the data front we’ll get new home sales data for June, which is expected to fall back to 0.479 million following the unexpected spike in May, the July manufacturing PMI, which is expected to improve slightly to 57.5, and initial jobless claims.

Ahead of the opening bell, the S&P is seen 2 points higher, the Dow 27 points higher and the Nasdaq 9 points higher.

 

[Alpari UK]

UK Opening Call from Alpari UK on 25 July 2014

European futures lower ahead of key UK and German data

Yesterday was very much a day of mixed data, with Japan getting the day off to a bad start with weaker export figures only for Chinese manufacturing data to offset it. This was followed by better than expected Eurozone PMIs but a bad month of retail sales for the UK, before being wrapped up with strong jobless figures but weak housing and manufacturing data from the US. It’s hardly surprising then that traders were left struggling for direction, with the S&P once again scraping its way to another finish while the Dow recorded marginal losses.

In Europe, indices were comfortably in the green thanks largely to the PMI readings for July which far exceeded expectations. Today we’re expecting to see a slightly weaker start, as indices pare some of yesterday’s gains ahead of some key data releases and another batch of earnings.

On the data front we have the German IFO business climate survey for July. As it stands, analyst expectations are for another decline in the number to 109.4. However, following yesterday’s PMI readings I imagine most analysts will have raised their expectations for this and I think we’re likely to get a comfortable beat here. The only question now is how much more has been priced into the markets.

I think temporary factors such as the world cup win and the good weather will have played into the stronger PMI readings yesterday and could therefore feed into today’s number. It now just remains to be seen whether this can produce a more long term boost to confidence or whether the end of the world cup signalled the end of this brief economic boost.

It’s then over to the UK for the first estimate of second quarter GDP. This is expected to be 0.8% for the quarter and 3.1% compared to a year ago, which is the kind of growth figure many western economies would kill for right now. What’s more encouraging is that it’s likely to have been driven more by business investment and less by consumer spending, which is extremely important if this is going to be sustainable.

Finally, it’s over to the US later where the only data release is durable goods orders for June. This is widely viewed as a very important reading as people only invest in big items, such as machinery in the case of a business or a new car for people, when they’re feeling more confident in the economic outlook and, with respect to the latter, when they feel safe in their job. While these numbers can be volatile, they have been very good for the most of this year and this is expected to continue today, with a 0.5% increase in orders.

Ahead of the European open, the FTSE is seen 13 points lower, the CAC 10 points lower and the DAX 18 points lower.

 

[Alpari UK]

US Opening Call from Alpari UK on 25 July 2014

German Ifo disappoints as UK output surpasses 2008 peak

Having closed at record highs for each of the last two sessions, the S&P 500 is facing a more negative start on Friday, with futures currently showing it falling by 4 points ahead of the open, while the Dow is seen 48 points lower and the Nasdaq 16 points lower.

This comes following a fairly mixed start in Europe, where the German DAX is off around a quarter of a percent following the disappointing release of the Ifo survey for July. Yesterday’s surprisingly strong PMI for July suggested activity and confidence had actually picked up during the month, potentially due to a combination of good weather and a world cup win lifting people’s spirits, but apparently no one told the 7,000 businesses surveyed by Ifo, who saw current and future conditions deteriorating more than had been expected.

Clearly businesses are suffering as a result of the weakening trade ties with Russia, which has had sanctions imposed on it by Europe and the US due to its involvement in the crisis in eastern Ukraine. Russia is a big trading partner of Germany and given the deterioration in business confidence, it’s not surprising that Germany is reluctant to impose more sanctions on Russia that it believes would have an increasingly negative impact on its economy. While this should not theoretically come into the equation, it clearly does and it tells us a lot about what kind of response we can expect from Europe if the situation worsens.

The UK continued its impressive run of growth in the second quarter, with another 0.8% expansion. This growth means that output in the UK has finally surpassed the level reached in the first quarter of 2008 and suggests the country is well on its way to a real recovery. To make matters even better, it would appear that business investment is picking up the slack from a drop in consumer spending, which is not only healthy in terms of the quality of the recovery, it would suggest that productivity may finally improve and finally lead to real wage growth in the not too distant future.

The US session is looking a little quieter today, with the only economic release being durable goods orders for June. These numbers are far more useful that some people give them credit for. Not only do they represent people’s and companies confidence in the economic outlook, as people only tend to make these purchases when the outlook is positive, but it shows people are putting their money where their mouth is. It’s one thing to say you’re confident in the economic outlook, it’s another thing to act on it and this data shows whether or not people and companies are. The numbers have been very good this year, although they can be volatile at times, and we’re expecting another decent figure of 0.5% today.

 

[Alpari UK]

Weekly market preview from Alpari UK on 28 July 2014

Back to a focus on economic factors this week, following a predominantly geopolitical week just gone. Russian sanctions and progression of the Gaza conflict remain an underlying threat to markets, yet much of this seems to now be factored in. From an economic standpoint, the release of the US jobs report means that markets will be on guard for substantial volatility as we progress. In the UK, the manufacturing PMI figure dominates what is a pretty quiet week in stark contrast to the action in the US. The eurozone focus will almost certainly be placed upon the release of the latest CPI figures early on Thursday as Mario Draghi watches on.

In Asia the Chinese manufacturing PMI will be viewed as a potential market booster following strong readings coming out of the region, while Japanese consumption data will shed yet more light on the impact the April sales tax had upon spending.


US

By far and away the busiest nation of all those in view, the US is braced for a handful of market moving releases in the form of the FOMC monetary policy decision, along with GDP and jobs data. This is joined by the pending home sales data, a consumer confidence survey and the manufacturing PMI figure which add up to an all-round interesting week.

On Wednesday, the first of the jobs data is released, with the ADP non-farm payroll figure expected to provide an insight into the potential direction of employment trends in July. On one side, it is well known that as a indicator of Friday’s headline figure, this may not be too reliable. That being said, the two measures have become more consistent in recent months, with the June release coming within 7k of the headline 288k figure. Thus with many people still relying on this as a key gauge of the jobs market health, we have seen substantial volatility in the past. As such, watch out for this figure where any major release wide of expectations could bring some notable price action. Expectations point towards a pullback to 241k from the bumper 281k figure seen last month.

Only 15 minutes after the ADP figure, the release of US advance GDP gives us the first insight into possible growth seen throughout Q2. After a particularly poor weather driven Q1, the markets are expecting to see a marked pick-up in growth in the second quarter of the year. Much like the UK, signs are pointing towards a particularly strong past few months in the US, where employment conditions have picked up to accompany growing business revenues and consumption. The strength of the US shale boom has meant that they are now the world largest exporter of oil and whilst that has been showing in the export figures, we should finally be able to see this strength reflected fully in the growth data again. Market expectations point towards a reversal from -2.9% to 2.9% on the annualised figure.

The third major event to happen on an action packed Wednesday will be the latest decision from the FOMC regarding monetary policy. Now unlike previous occasions, this seems somewhat of a foregone conclusion owing to the fact that the Fed have already notified the markets that the path of tapering is set to end asset purchases in October with a final cut of $15 billion. However, with that knowledge the focus is now upon interest rates and understanding what type of timeline Janet is going to have for the first hike. Previous testimony has pointed towards there being a considerable time. However, with jobs data improving faster than expected, there is the possibility that we could see rates rise earlier than expected. Thus markets will be expecting to see a $10 billion taper and more importantly, traders will be looking out for any timeline for interest rate hikes. That being said, given that this meeting occurs prior Friday’s jobs report, there isn’t too much additional data to go on after the last time we heard from Yellen in Washington. Thus there is a risk that we may hear much of the same.

On Friday, the jobs report is expected to bring about the usual volatility back to the markets. In what has been a particularly slow period in the markets, the US jobs report is one of very few releases which are a reliable source of volatility and price action. With Janet Yellen stalling on providing any sort of concrete guidelines for when interest rates are set to hike, the feeling is that this will be largely determined by how quickly the employment conditions improve. Thus should we see another particularly strong report like last month’s I would expect the markets to start pricing in an earlier rate hike. Expectations point towards a more steady month from an unemployment standpoint, remaining at 6.1%. However, the non-farm payrolls figure is where the volatility is likely to come from, with expectations pointing towards a major fall back to 230k from 288k in June. That being said, in my mind this sets the markets up nicely for a beat and strong reading. The past three months have seen an average reading of 264k and thus there is certainly a good chance of a higher figure than 230k. However, much of the time the initial figure is revised higher at the following month’s announcement and thus even if we did see a lower number, watch out for revisions to the previous month’s reading.

UK

In stark contrast to the US, the UK has a very quiet week from an economic standpoint, looking for the manufacturing PMI to provide some form of interest later in the week. Typically joined by the construction and services figures, this time the releases are split out across separate weeks. The manufacturing sector is certainly not the mainstay that it is in the likes of the US or Germany. However it has been performing particularly well throughout the past year, as manufacturers take advantage of a low interest rate environment. Orders both domestically and particularly internationally have been strong despite the existence of a strong pound. However, markets are expecting to see this reading move lower with the median forecasts coming in at 57.2 from the 57.5 seen last month.

Eurozone

The week also looks a little thin on the ground for the eurozone where the most important release to watch out for will be the CPI figure on Thursday. However, this is released in tandem with the unemployment figure which is expected to raise some interest.

The eurozone CPI measure of inflation is always one of the biggest releases of the month given the fact that Mario Draghi has effectively been forced into an expansive monetary policy off the back of a persistent disinflationary environment. Despite cuts to the headline interest rate, price stability remained elusive and as a result Draghi has implemented a whole raft of measures such as TLTRO’s, the end of sterilisation of bond purchases and negative deposit rates. However, these measures have to start making an impact to inflation, and soon. Otherwise the potential of an asset purchases scheme for the whole eurozone could become very real. At 0.5%, the inflation rate is at the lowest rate since late 2009 and any further fall could be a shock to the system for those at the ECB who expect to see the measure gradually move to the upside in the coming months. I would expect to see strength in the euro should the CPI figure move higher, or conversely a poor figure would likely weaken the euro owing to the expectations of a potential move towards QE at the ECB down the line. Markets are expecting no move in the figure from the current 0.5%.

Eurozone unemployment is a key gauge of exactly how the single currency region is faring following such a protracted downturn. However, signs are pointing towards a gradual strengthening with even the Spanish unemployment rate providing a positive surprise recently. The eurozone figure has been faring better than many expected with the past five figures beating market forecasts. As such, I wouldn’t be surprised to see another beat this month with markets looking for the rate to remain 11.6%. That being said, with pretty much all the other major economies looking at figures closer to 6%, the eurozone clearly still has a long way to go before we can look at it with any confidence in terms of a solid recovery.

Asia & Oceania

The main event of the week within Asia is likely to be the manufacturing PMI figure out of China, following on from some increasingly positive releases out of the region. Meanwhile, the Japanese consumer habits come back into focus this week when the household spending and retail sales figures are released on Tuesday.

Friday’s manufacturing PMI from China is likely to raise substantial global attention given the importance of the Asian powerhouse. Recent strength in both the headline and HSBC manufacturing PMI figures have given greater confidence that the region is starting to pick up and following yet another strong HSBC figure, we expect to see more of the same this week. The headline figure focuses more on the larger and state backed firms, which are expected to fare better than their smaller counterparts. However, it is crucial that they do fare well given the impact any weakness can have upon the economy. Market estimates point towards a rise from 51.0 to 51.4.

Finally, the Japanese consumers come back into focus this week where retail sales and household spending figures seek to provide clarity over the longevity of the after-effects of April’s sales tax. Initial signs have pointed towards a moderate pullback in spending which has led some within Japan to cite a potential second hike which will be discussed in December. Such a move closer to 10% would require solid consumer figures well ahead of December. Looking at the market forecasts, the story looks mixed, with retail sales expected to remain at -0.4% while household spending is expected to trim back from -8% to -3.8%. Generally we are just looking for signs of improvement as we go forward to show that the negative effect of the sales tax is only temporary. Should that be the case, there is a strong case for further tax hikes down the line given the huge debt to GDP ratio that needs to be addressed.

 

[Alpari UK]

UK Opening Call from Alpari UK on 28 July 2014

Europe of to a bright start ahead of huge week for the US

• US to be a major driver in the markets this week;
• Earnings reports from Europe the focus this morning;
• US PMI readings and housing data key this afternoon.

A week that is widely focused on the US is expected to start in much the same way, with no economic releases due from Europe this morning while only a little over a dozen European companies are scheduled to announce earnings. In fact, things don’t really pick up in Europe until Wednesday and even then the releases aren’t exactly game changers.

With that in mind, the US is likely to be the biggest driver of most of the major markets this week. This is particularly true in the second half of the week when we’ll have a barrage of massive economic indicators, almost 100 S&P 500 companies reporting second quarter earnings and an FOMC decision to cap everything off. Do not underestimate how big an impact that final few days of the week could have on the markets. We’ve all been looking for that thing that brings volatility back to the markets, well this could well be it.

With so much to come later this week, we could see a little bit of risk aversion and fence sitting from traders in the early part of the week. Although, with so many companies from the US, UK and Eurozone still releasing earnings, we may not see the kind of paralysis in the markets which we could at other times expect.

There is also a few notable economic releases scheduled for today, including the Markit services and composite PMI readings for July and the pending home sales numbers for June. Given the importance of the services sector in the US, accounting for more than two thirds of total output, changes in the PMI reading are well worth tracking as they give the best indication of whether the improvements seen in the second quarter are likely to carry into the second half of the year. A rise to 61.5 in July would indicate that confidence is high and only improving.

Finally we should forget about the conflicts that are still occurring in the Gaza strip and eastern Ukraine. While these may not have weighed too heavily on the markets recently, this can change rapidly and may well play into the more cautious tone expected in the early part of the week.

Ahead of the European open, the FTSE is seen 12 points higher, the CAC 6 points higher and the DAX 7 points higher.

 

[Alpari UK]

US Opening Call from Alpari UK on 28 July 2014

Caution expected ahead of massive end to the week


• Caution expected ahead of massive end to the week;
• Fed statement Wednesday could determine how investors respond to data;
• Services PMI stands out as key data release today.

It’s been a fairly quiet start to the week, which is hardly surprising given the lack of economic data, or any other news for that matter, to drive market sentiment this morning.

This is also probably not being helped by the fact that the second half of the week is looking a little mental in the US, with almost one hundred S&P 500 companies reporting second quarter earnings, the FOMC announcing its latest policy decision and a large amount of major economic data being released, including the July jobs data.

Quite often, the week of the jobs report can see traders sitting on the fence a little, unsure over what the events will mean for the US recovery and how it will be received by the markets. We are fast approaching the point when I expect strong data to be greeted negatively on fears of an earlier rate hike from the Fed.

That could come as soon as this week if the Fed finally concedes that the economy is in much better shape and that rate hike expectations should be brought forward. If I’m honest, while the statement may contain more hawkish language, the absence of a press conference after this meeting suggests to me that this may be yet another year in which the Fed saves the big announcement for the Jackson Hole symposium next month.

As for today, we have a few important pieces of economic data being released. The services PMI stands out for me as the most important of these given the country’s reliance on the sector. Any indication here that growth is slowing in the sector could spook investors and point to further difficulties to come in the second half of the year. Expectations are for a small improvement which would suggest no such worries exist.

Also being released is the composite PMI which highlights confidence in both the manufacturing and services sectors, and the pending home sales for June. The latter is expected to show an increase of 0.5% from May, which would suggest that this period of lower rates is once again having a positive impact on the housing market. With rates seen rising towards the end of the year, we could well see these numbers slip again, just as we did at the end of 2013.

Ahead of the opening bell on Wall Street, the S&P is expected to open 2 points lower, the Dow 14 points lower and the Nasdaq 4 points lower.

 

[Alpari UK]

UK Opening Call from Alpari UK on 29 July 2014

Europe to open higher as earnings take centre stage

• Hang Seng hits near four year high on improving data;
• Japanese spending figures lift the Nikkei;
• Lack of economic data could mean more choppiness today;
• More earnings to come including GSK, BP and Pfizer.

European futures are pointing to a slightly positive open on Tuesday following a strong Asian session overnight that saw Japan’s Nikkei rally to 4-month highs, China’s Shanghai composite reach seven-month highs and Hong Kong’s Hang Seng hit a near four year high.

The improvement seen in Chinese data over the last couple of months has been a big driver behind Chinese and Hong Kong stocks trading at these high levels. While many people have spent the year doubting whether China can sustain such high levels of growth and hit its 7.5% growth target, the country has undertaken a combination of targeted fiscal and monetary stimulus programs in order to counter the slower first half of the year. If the data is to be believed then this is just what the doctor ordered and the chance of the country not reaching its targets now look very slim. The only hope now is that these efforts to shore up growth in the short term aren’t damaging the long term economic stability in the country, for example by unintentionally assisting the growth of shadow banking.

In Japan, investors are more upbeat following the release of a batch of spending figures that showed the decline in household and consumer spending was not a severe in June as had been expected. Spending in the country is still falling as a result of the sales tax hike back in April, with consumers having upped their spending in anticipation of the hike beforehand and have since been deterred somewhat by the higher prices at a time when wage growth is still low. That said, the decline was not been as bad as feared in July and the numbers overnight showed household spending and retail sales exceeding expectations in a sign that the impact of the sales tax hike may not be quite as extreme as was first feared. It’s worth noting that the numbers for April and May were pretty awful so we’ll need to see more evidence that spending has improved before we get carried away but the July figures are encouraging.

While some of that positive sentiment appears to be filtering through into Europe ahead of the open, futures are only pointing to a marginally better open and another choppy session should be expected. Not only do we have a lot to come in the second half of the week, with lots of earnings reports, an FOMC decision and the jobs report, among other things, there’s a real lack of drivers to come today.

The economic calendar is looking very bare. In fact, the only notable releases are UK mortgage approvals for June and lending data for June and let’s face it, based on yesterday’s market response to the US PMI and housing data, the chance of a significant market impact is slim. This will be followed later by the S&P Case-Shiller home price index and consumer confidence readings for the US.

With such a lack of data being released today, additional focus may be paid to earnings season, with GlaxoSmithKline and BP among the notable companies reporting this morning, while later we’ll get results from Pfizer among others.

Ahead of the European open, the FTSE is expected to open 6 points higher, the CAC 1 point higher and the DAX 19 points higher.