Forex research

[Alpari UK]

UK Opening Call from Alpari UK on 28 August 2014

Eurozone back in focus with further weakness expected

• Eurozone weakness provides backdrop of the day
• Confidence surveys expected to bring further downside
• Inflation readings arrive ahead of tomorrow’s big release

A somewhat hesitant start to the day expected, following what was a largely flat US session. European markets have been looking towards today as the major driver of market direction, with a whole raft of economic indicators set to bring the Eurozone back into focus once again. With the S&P500 having reached the key 2000 milestone, it is somewhat of a reality check for many and the potential overextended nature of equity markets is cause for a degree of hesitancy if only for the short term. That being said, with a whole raft of economic indicators out of the Eurozone and US today, we could yet see the next leg higher in today’s session. European markets are expected to open marginally lower, with the FTSE100 -2, CAC -5 and DAX -11 points.

The story for the Eurozone is becoming particularly worrying, where almost every indicator coming out of the region painting a picture of yet more weakness. The most important figure for Mario Draghi is the CPI measure of inflation, which whilst languishing at 0.4%, provides significant room for further action from the ECB. However, unlike the monetary measures undertaken by the likes of the US, UK and Japan, the outcomes of ECB action so far has been somewhat muted. Thus there is a feeling that whilst we have seen substantial measures in place from Draghi as a means to bring growth and inflation higher, this could not yet be enough given the size of the problem at hand. One such problem comes in the form of Russian sanctions, some imposed out of choice and others in the form of retaliation. Whatever the validity of such measures, the decision to go ahead with those steps was either very brave or very misguided. Given the downturn we are currently seeing in Eurozone figures, it is clearly going to be a tough year, with many of those sanctions yet to hit the GDP figures which are already seeing flat lining or negative growth.

It is due to this worrying backdrop that many of this morning’s economic releases out of the Eurozone are likely to move in one direction, and that is down. The sentiment within the single currency is certainly not one of it’s strongest points and thus when we see the consumer, business and services confidence figures, I fully expect to see significant falls in all three. However, the most important release out of Europe is likely to come in the form of the German jobs report which provides us with yet another look at how the biggest economy in Europe is faring. In recent months the deterioration in Germany has been fairly shocking, with many expecting to always see this as the shining light leading the way out of any crisis. On this occasion, it is Germany which is suffering more than most, as personified perfectly by the recent fall in GDP to -0.2% at a time when the Eurozone and French figures both posted a flat figure of 0%. However, this needs to be rectified and quickly, with the weaker peripheral countries looking to Germany for leadership at such a time. Ultimately, the jobs market is possibly the most important barometer of whether action needs to be taken or not as the impact upon the electorate will always be priority to ensure any party stays in power. Thus any uptick in unemployment is likely to bring about increased pressure from the Bundesbank for further steps to be taken at the ECB.

The final figures coming out of the Eurozone are Spanish and German CPI readings, which precede tomorrows headline Eurozone figure. Inflation is no doubt one of the most important figures to be watching at the moment, yet with the introduction of a whole raft of measures at the ECB back in June, it has taken some of the pressure off for the time being. However, with no uptick seen as a result, the pressure is beginning to build once more to prove that the ECB is taking the right steps to raise inflation. The forecast for tomorrows Eurozone inflation figure is a potential fall to 0.1% from and already measly 0.4%. This would put major pressure upon Draghi and thus today’s inflation readings are absolutely key in laying the groundwork for tomorrows number. With German CPI expected to fall to 0% and the Spanish figure expected at -0.2%, it is clear that time is running out for Draghi’s measures to take effect.

Read the full report at Alpari News Room​

 

[Alpari UK]

US Opening Call from Alpari UK on 28 August 2014

European data weighs on sentiment ahead of US open

A disappointing morning of European data appears to be weighing on investor sentiment ahead of the open on Wall Street. European stocks are trading deep in negative territory early in the session, while US indices are also expected to open lower, with the S&P seen down 8 points, the Dow down 65 points and the Nasdaq down 14 points.

Things seem to be going from bad to worse for the eurozone and as it stands, we’re seeing no signs that this is going to change. If it isn’t slowing growth in Germany, it’s record unemployment in France or growing deflation in the periphery. There are a lot of things to be worried about at the moment and it appears, very few things to be optimistic about. I’m not convinced the ECBs monetary stimulus package will be enough to make much of a difference, but at the same time, I wouldn’t bet on them turning to quantitative easing, which could help, at least not any time soon.

The eurozone confidence surveys that followed the worrying inflation figures didn’t suggest things were going to improve this year. We saw a decline across the board, with everything from consumers and businesses to the services and industrial sectors suffering from falling confidence in August. Given how fragile confidence already is in the eurozone, this makes the task of avoiding another recession very difficult for the leaders there.

It’s a very different story in the US, where the economic recovery is looking very strong. The only problem that exists here, and the only thing standing in front of the first rate hike from the Fed, is the delay in productivity and wage improvements. The first revision to second quarter GDP is expected to confirm growth at 4% on an annualised basis, following the weather driven slump in the first quarter. The country should be on for more than 2% growth this year which is far from great but good enough under the circumstances.

Also being released today is the weekly jobless claims number, which is expected to remain around the 300,000 level, and pending home sales numbers for July, which are expected to show growth of 0.5% in July.

 

[Alpari UK]

UK Opening Call from Alpari UK on 29 August 2014

Ukrainian fears return as further sanctions considered

• Russian troops in Ukraine spark yet further geo-political fears
• Japanese data points to a second month of weakness
• Eurozone inflation set to dominate the European session.

A return to the geo-politically driven risk off sentiment overnight has seen a weak US session within which the S&P500 closed below 2000, and this was carried forward through to a weak Asian session overnight. On this occasion it is Ukraine which is back on the agenda, with Russian nationals confirmed to be fighting within the military ranks, prompting a backlash in rhetoric from both Ukrainian and Western powers. To some extent this is expected to also impact the European indices negatively, however, with key figures such as Eurozone CPI and unemployment due to be released this morning, there are already plenty of market drivers to look out for today. As such, the European markets are looking to open somewhat mixed, with the FTSE100 -1, CAC +5 and DAX +20 points.

Yesterday’s announcement from pro-Russian rebel leader Alexander Zakharchenko that there are some 3-4,000 Russian nationals fighting against the Ukrainian army came as somewhat of a surprise. Not so much for it’s content, but more for how candid he is about something which I am sure Mr Putin would have liked to keep quiet. It has not taken long for this to escalate and the subsequent announcement from Ukraine that they have been invaded by Russia is likely to sever any chance of a diplomatic solution for the time being. That being said, any diplomatic resolution to this crisis always seemed somewhat unlikely given that much of this situation seems to have been manufactured by the Kremlin and as such Putin is most probably happy at how everything is going. The latest revelations have brought about increased pressure upon Obama to address the situation once more, yet his decision to rule out a military intervention are highly unsurprising, especially when he is beginning to move towards increased engagement with ISIS in Iraq and Syria (despite what he says). Thus it is back to that trust sanctions list where both Obama and Merkel have agreed something needs to be done for this latest misdemeanour. However, with the Eurozone struggling to grow and the expectations that Russian sanctions will push GDP deep into negative growth in Q3, I cannot see how Merkel would be too enamoured by the prospect. We may find out the answer to whether such steps will be taken over the weekend, when a meeting of European leaders takes place on Saturday in the familiar surroundings of Brussels. The big question is whether this meeting is going to lay the groundwork for yet further economic sanctions which would almost certainly not be welcomed by the markets.

Overnight, the focus has really been upon Japan, with a veritable feast of economic indicators providing yet another glimpse of the economy at a time where markets want to know if there is enough juice in the system for the BoJ to reach their targets, along with the question of whether the sales tax continues to drag the economy down following it’s introduction in April. From the standpoint of Shinzo Abe, this release was not particularly what he would have been hoping for, with both inflation and unemployment both disappointing which leads us to the question of whether an increase in the rate of asset purchases is necessary later this year. Inflation being the key target, fell back from 3.6% to 3.4% which when removing the effects of the sales tax means that it stands at 1.3%; some 0.7% short of the 2% target. This represents the second consecutive fall in CPI and thus the question has to be asked as to what needs to be done to push it higher once more. From an employment standpoint, we saw further weakness with the unemployment rate rising from 3.7% to 3.8%, which again follows a rise in the June figure too. The one encouraging figure of note came in the form of the retail sales number, which saw its first year on year growth since the introduction of the sales tax back in April. At 0.5%, this figure essentially represents the light at the end of the tunnel and thus the government will now gain some confidence that the impact upon the economy of such a move would generally take hold for around three months. With another discussion provisionally pencilled in for December as to whether there should be another tax rate hike, today’s figure is going to be key in such a discussion.

Finally, looking ahead the European markets are braced for a particularly noteworthy morning of inflation and unemployment data. The unemployment picture is somewhat of the lesser figures on this occasion, where markets have almost come to expect weakness especially given the impact that Russian sanctions are going to have upon business going forward. However, it is the CPI figure which is most interesting, as Mario Draghi hopes that we will finally see some sort of impact from the measures introduced earlier this year. So far, there have been little positive impact upon inflation, with last month’s figure falling back to 0.4%. However, with market estimates looking for a figure of 0.3%, things could be about to get even worse. Last week’s Jackson Hole speech from Draghi portrayed a more dovish ECB who would be willing to act in a decisive manner should there be the need. Well another fall today could be yet another straw on that camel’s back; perhaps not enough to break it but certainly an additional strain. The ECB are set to reconvene again next week and thus there is a quick turnaround between today’s CPI release and a reaction from the ECB. Perhaps it would not be enough to force the introduction of asset purchases, however it could also be enough to generate a more open and willing response with regards to whether the ECB are actively seeing it as a likely option.

 

[Alpari UK]

US Opening Call from Alpari UK on 29 August 2014

Attention turns to US inflation, income and spending

• Further BoJ stimulus more likely;
• Core eurozone inflation rises as stimulus takes effect;
• US inflation, income and spending in focus as we near the end of the week.

Another busy day of economic releases has provided the catalyst for further gains in equity markets on Friday, as Japanese data opens the door another notch to more quantitative easing, while the eurozone inflation reading would appear to suggest that the deflation threat is not as serious as previously thought.

Another round of stimulus from the Bank of Japan has widely been expected ever since the central bank announced its initial program of quantitative and qualitative easing in April 2013. Only in recent months have people seriously started to question whether another round of stimulus would be necessary as the country appeared to be nearing its 2% inflation target – once you remove the 2% that is attributed to the sales tax hike – and was coping better than anticipated with the sales tax hike.

The data released overnight would suggest things aren’t as rosy as initially thought as industrial production fell well short of expectations, unemployment unexpectedly rose and inflation fell to 3.4%, giving an effective rate of 1.4% once the 2% attributed to the sales tax hike is removed. This is still well below the 2% target, which may prompt discussions within the BoJ about whether more needs to be done. I don’t expect anything to happen in the next couple of months as they’ll probably want to see further evidence that inflation has hit a ceiling around the 1.4% level, but we could see something later this year.

This has also been a key talking point in the eurozone, where the ECB, like its Japanese counterpart, is currently battling with very low inflation and in some areas, even deflation. This is a slippery slope, as Japan knows all too well, and until now the ECB has played a very dangerous game in allowing it to happen in an attempt to allow the countries to regain competitiveness.

That said, the inflation figures for August would suggest the stimulus package announced by the ECB a few months ago is having an impact. While the overall inflation reading was 0.3% for the month, core inflation was 0.9% which suggests the inflation problem is abating and the only thing driving the main CPI reading lower is temporary volatile factors such as fuel prices. Given the number of stimulus measures announced by the ECB a few months ago, it’s difficult to know what exactly is helping lift the inflation number but I imagine the more than eight cent drop in the euro against the dollar, from $1.40 to below $1.32, is contributing.

Staying on the topic of inflation, we’ll get some important data from the US shortly before the open in the form of the core personal consumption expenditure price index. This is the Fed’s preferred measure of inflation and currently lies at 1.6%, which allows the central bank to remain accommodative for now, but if this number starts to climb as the economic recovery goes from strength to strength, pressure will grow on the Fed to pay attention to the other aspect of its dual mandate, price stability, and raise rates.

We’ll also get some income and spending figures, which is something the Fed is closely monitoring at the moment, as well as the UoM consumer sentiment reading. With all this data to come, we could be in for a fairly volatile end to the week.

Ahead of the US open, the S&P is seen 4 points higher, the Dow 29 points higher and the Nasdaq 10 points higher.

 

[Alpari UK]

Weekly Market Preview from Alpari UK on 1 September 2014

The week ahead is looking incredible busy for central banks, with policy decisions expected from the BoE, ECB, BoJ and RBA. We also have a number of speeches scheduled for members of the Federal Reserve ahead of the week long blackout period that precedes its own rate decision.

If that’s not enough the US jobs report will be released on Friday and this is an event that more often than not promises plenty of market volatility. The Fed may claim that a rate hike is not around the corner, but a lot of the economic data would suggest otherwise and dissenters are beginning to appear out of the woodwork. Another strong jobs report, potentially showing improvements in wage growth, would make the argument against a rate hike increasingly difficult.

Finally we have lots of tier one economic releases this week, with particular attention being paid to PMI readings from the US, UK, eurozone and China. Asia probably offers the most in terms of major events this week and will likely be a big driver behind opening market levels in Europe for much of the week.


US

The first week of the month is quite often the busiest in terms of major economic announcements for the US and as always, the majority of these are due towards the end of the week. The week actually starts with a bank holiday on Monday, making for a very quiet day of trading for the rest of us. The US is a major player in the markets so when these bank holiday’s come around, trading volumes tend to be severely depressed.

Fortunately things will pick up as the week goes on, starting with the release of the ISM manufacturing PMI on Tuesday. The key event on Wednesday will be the release of the Beige Book, which provides information on the economic conditions in each of the regions that the Federal Reserve operates. While this can give an idea of how each Fed member views the state of the economy which will then impact their voting, the Beige Book is only one of three produced. The Green Book and Blue Book are not made public and are believed to have a greater impact on the monetary policy decisions, making the Beige Book quite limited in how useful it actually is. It is generally viewed as useful for informational purposes but the actual market reaction to it tends to be minimal or even non-existent.

As we near the next FOMC decision in a couple of weeks, the number of scheduled Fed speeches tends to increase and that is certainly true this week. Fed members are prohibited from speaking in public during the blackout period that starts one week before the start of the meeting, making this the last opportunity we have to hear their views before the next decision. While many may not see this as hugely important this month as a rate hike is extremely unlikely, I would beg to differ. Should we get more dissenting voices at the next meeting, following Charles Plossers decision to do so last month, it could force people to bring forward their rate hike expectations from the middle of next year and that would undoubtedly have an impact on the markets. Taking comments from these speeches on board may allow people to anticipate such an outcome.

Without a doubt, the biggest event in the US this week will be the release of the US jobs report on Friday. The report includes the unemployment rate in August, as well as the number of jobs added (non-farm payrolls or NFP) and earnings data for the same month. We’ve seen plenty of evidence that the labour market is recovering in recent months which, in a way, takes away some of the importance of the unemployment and NFP figures, although they still have a significant market impact. The one that shouldn’t be overlooked related to earnings as this is one of the biggest concerns among policy makers right now. Should we see is significant improvement here in the coming months, along with productivity levels, the tone of the Fed could well become much more hawkish and the first rate hike would surely come earlier than the middle of next year.



UK

There isn’t a too much data coming from the UK this week, with the PMI readings for the manufacturing, construction and services sectors being the only notable releases. All of these are important readings for the UK economy regarding the sustainability of the recovery. As it stands, we’re seeing no concerning signs that the recovery is slowing or will slow in the foreseeable future, but that doesn’t mean we should get complacent. All three figures have edged a little lower from the highs they were at earlier this year but that was to be expected. It’s very difficult to sustain them at those levels for an extended period of time. As long as they stay well away from the 50 level that separates growth from contraction, there’ll be nothing to worry about.

The Bank of England decision on Thursday could potentially be the major event of the week of all the regions, although I highly doubt this will be the case. The two votes in favour of a rate hike last month has put everyone on red alert that the first rise in interest rates in more than seven years could be just around the corner. I still think it’s too early but of all the major central banks, I expect the BoE to be the ones that pull the trigger first. In all likeliness, this will be a non-event and people will turn their attentions to the release of the minutes in a couple of weeks, when the details of the meeting, including the latest vote, will be made public.



Eurozone

The story is pretty much the same in the eurozone, where the PMI readings dominate the early part of the week, while the ECB decision and press conference takes centre stage on Thursday. The eurozone recovery story has been a million miles from that of the UK, with the area at serious risk of falling into recession this year. The region ground to a halt in the second quarter but this could be revised lower in the coming months leaving the prospect of recession in the current quarter. This wouldn’t be surprising as the picture has worsened if anything in the first two months of it. The PMI readings are expected to add further weight to these expectations, with confidence seen falling again in August in both Spain and Italy. It seems those flickering signs of the light at the end of the tunnel earlier this year was just an illusion and this recovery still has a long way to go.

The ECB rate decision is unlikely to have any impact whatsoever on the markets this month for two reasons. Firstly, the stimulus package announced a few months ago needs time to find its way to the real economy and the results seen. Secondly, while inflation fell to 0.3% in August, core inflation, which strips out temporary volatile impact of things like fuel prices, rose to 0.9% in a sign that the benefits of the stimulus package are starting to be seen. What exactly has caused this is difficult to know, but I imagine the weaker currency since the announcement of the stimulus package is playing a part. The press conference after is likely to be the key event here as market volatility can increase dramatically as traders attempt to read between the lines of what Mario Draghi says and get ahead of the pack.

Asia & Oceania

This is likely to be the busiest region of the lot this week with some big numbers coming from China and the Bank of Japan announcing its latest policy decision on Thursday. For traders in Europe and the US, this means that early market sentiment is likely to be largely driven by the events in Asia and so its worth getting up to speed with this first thing. Chinese data tends to have the biggest potential to influence pre-markets in Europe and the US, simply because it’s the world’s second largest economy, and likely to be the largest in the coming years, and therefore the country’s economic performance has the potential to impact all others. The FTSE tends to be very responsive to Chinese data due to its huge exposure to the country with its large proportion of mining and industrial stocks.

This week it’s the HSBC and official PMI readings that we should be closely tracking. Both readings tell us slightly different things which is why the numbers can often be quite different. The HSBC reading focuses more of the privately run small and medium sized firms while the official reading is impacted more by the large state-owned firms. Many people believe that the HSBC readings give the most reliable readings as they are less likely to be tampered with in an attempt to paper over any cracks appearing in the economy. It’s also believe that the large state-owned enterprises would be the first to benefit from government stimulus and only once it’s filtered through to the smaller firms would it suggest that it is benefiting the wider economy.

The BoJ monetary policy decision and press conference are likely to get a lot more attention in the coming months now that people are talking about a second program of quantitative easing (QE) again. In recent months, the idea of another QE program had started to fade as the economy appeared to be dealing well with the sales tax hike and inflation was edging towards the BoJs 2% target (CPI is currently at 3.4% but 2% of this is attributed to the sales tax hike so is largely ignored). However, recent data has suggested otherwise with unemployment rising, some major economic indicators showing some weakness and inflation falling lower.

While I don’t expect the BoJ to announce any additional stimulus at the next couple of meetings as it will probably want further evidence that progress has slowed, we may get hints at it in the statement and press conference that could make waves in the markets. As a result, this could be a big event this week and in the months ahead.

Finally, we have a number of pieces of economic data being released in Australia, including building approvals, retail sales and trade balance, as well as the latest rate statement from the Reserve Bank of Australia. The latter is likely to be something of a non-event as the RBA has previously stated its intentions to leave policy unchanged for some time as the economy is performing better and no rate cuts are needed. In fact, the next rate change is more likely to be a hike, although I don’t expect that to come any time soon.

 

[Alpari UK]

UK Opening Call from Alpari UK - 2 Spetember 2014

After a quite start to the week due to the Labor day holiday in the US traders will look to get going as what is a heavy week for economic data starts to gear up. Of course we cannot forget the geopolitical tensions that are plaguing certain regions, as Ukraine looks to act to push Russian forces out of Ukraine, and Shia and Kurdish forces push back Islamic State fighters in northern Iraq. Over the weekend Ukrainian president Mr Poroshenko met with EU leaders in Brussels in order to thrash out the terms of a ceasefire that would see Russian forces move out of Ukraine and the boarder close. The alternative to this discussed were yet more sanctions placed from Europe on to Russia. However when it comes to the sanctions it seems that Russia holds all the cards. Europe is too worried that any retaliatory sanctions could hit the region’s economy, an economy, as we know is already fighting to keep its head above water. This is one of the reasons European leaders are talking to Latin American leaders about implementing their own sanctions. A move that would hit Russia just as hard and ease the burden on the Eurozone economy. One thing is for sure, if the Kremlin continues to support the rebels, the greater the fear from Ukraine and the whole of the west that Russia will launch a full scale invasion of the Ukrainian territories.

We say that the economic calendar starts to gear up today, however Tuesday’s session is still one of the quiter sessions of the week. With US markets back after the long weekend we can can expect to see volume pick up. Something that will be a huge relief to currency traders. The data started overnight after the RBA released their interest rate decisions and as expected left rates on hold at 2.5%. The Australian central bank also stated that they didn’t expect a change in monetary policy for a sustained period of time due to improvements in the labour markets. Sound like a familiar theme? Of course in the UK and US we have had a familiar tone for a long while however the difference being that the Australian economy always managed to hold its self together with the central bank rate remaining manageble. Later this morning we get the second round of PMI readings from the UK and after a weaker manufacturing reading yesterday today’s construction reading is also expected to fall. We are expecting a fall from 62.4 to 61.4 but this still remains better than yesterdays manufacturing reading of 52.5. All eyes will of course be on the largest part of the UK economy when services PMI is released tomorrow.

As the week moves on the data gets heavier and of course culminates in the non farm payroll number on Friday. However before that we get the BoE and ECB rate decision on Thursday, and while the BoE may be looking fairly quiet the ECB could be looking at yet more in the way of moves. The measures introduced a few months back have clearly yielded no results with core CPI for the region still stubbournly low. Despite not yet knowing the full impact of the targeted LTRO’s Mario Draghi has been under pressure to start a round of asset purchasing as an extra measure. Although we may not see a full QE plan this week expectations are that Mr Draghi and the ECB will show a willingness to continue with stimulus measure but cutting rates yet again. A move to cut rates but such a minimal amount may be just a token one, and a stop gap before QE but will show that as Mr Draghi has always said, the ECB are ready to take any steps necessary.

Ahead of the open we expect to see the FTSE open higher by 10 points while the German DAX opens higher by 22 points.

 

[Alpari UK]

US Opening Call from Alpari UK - 2 Spetember 2014

Positive start seen in the US following the long weekend

Traders in the US return to their desk on Tuesday following the long bank holiday weekend, but it may be another 24 hours before things really start to pick up in the markets, with the second half of the week offering a whole lot more for in terms of major economic events.

The start of the week was understandably slow, given the significant drop in participation that can usually be associated with a US bank holiday. While this should certainly improve today, there still isn’t a huge amount to look at that is likely to cause much of a stir in the markets, especially in a week that offers rate decisions from the Bank of England and the ECB on Thursday, and the US jobs report on Friday.

During these weeks, traders tend to tread with a little more caution because the kind of moves that we can expect later in the week make people a little more nervous. What may add to this restraint is the fact that US indices are currently trading around record levels, which in itself has had a tendency to suck some of the bullishness out of traders as of late.

That’s not to say we won’t see any action in the markets as there’s still some important data being released. Already this morning, we’ve seen some good figures from both the UK and Spain, which appears to have provided a small boost to the markets. The UK construction PMI rose to an seven month high of 64 in August, while Spanish unemployment rose by far less than expected, which I guess is a small win, even though the employment situation in the country is still dreadful.

We’ll get some more insight into the US manufacturing sector today, with the final official manufacturing PMI and the ISM PMI being released. These numbers have been very impressive recently and have given plenty of reason for optimism, with the preliminary reading of the official PMI hitting an all-time high and the ISM number coming very close. Should we see this again today, it would be further evidence the US economy is recovering very well.

Ahead of the open, the S&P is seen 4 points higher, the Dow 34 points higher and the Nasdaq 12 points higher.

 

[Alpari UK]

UK Opening Call from Alpari UK on 3 September 2014

European futures edge higher ahead of PMI readings

• Encouraging data overnight driving Europe higher in pre-markets;
• Chinese services PMI jumps to 17-month high in August;
• Japanese services PMI improves as country bounces back from sales tax hike;
• Australian growth exceeds expectations;
• PMI readings and retail sales in focus this morning.

A strong Asian session overnight is helping to drive investor sentiment ahead of the European open on Wednesday. A strong batch of data from China, Japan and Australia has put traders in a positive mood as we enter the business end of the week.

It has understandably been quite a slow start to the week. We've had the bank holiday in the US on Monday, which always acts as massive drag on trading volumes and leaves the markets lacking much direction. Combine this with the fact that we have two major central bank decisions on Thursday and the release of the US jobs report on Friday and investors can be forgiven for being a little careful.

Fortunately there has been a number of economic releases from Europe for traders to get their teeth into in the early stages of the week so it hasn't been too slow a start. Overnight it was the data from China, Japan and Australia that has provided some direction for the European session, driving up indices in the pre-markets.

The most notable of these was probably the Chinese HSBC services PMI, which rose to a 17-month high of 54.1 in August. Given that the sector narrowly avoided contraction the month before, it's no surprise that this provided such a boost. Especially when it comes from a sector that is going to be of extreme importance for the Chinese economy in the years to come as it transitions from an export led economy to a consumer driven one.

The Japanese services PMI wasn't quite as impressive, but a move from 50.4 to 50.8 cannot be sniffed at as we look for further evidence that the economy is coping well following the sales tax hike in April. The last of these hikes sent the country into recession, so if a repeat can be avoided this time around, it will be a small victory for Abenomics. Finally, data confirmed that the Australian economy grew by 0.5% in the second quarter, slightly beating expectations, and wrapping up a solid session of economic data.

Attention is likely to remain on economic data today, with services PMI readings due from the eurozone and the UK. We're expecting another strong figure from the latter, which has produced mixed results from its PMI reading so far this week, giving little indication of what we can expect today. Eurozone PMI readings are likely to disappoint again as the region continues to struggle to drag itself out of the multi-year slump it's been stuck in, despite a large stimulus program from the ECB. The effects of this may take a little longer to kick in though and may come though in the data in the coming months. We'll also get retail sales figures for the eurozone later on this morning.

Ahead of the European open, the FTSE is expected to open 13 points higher, the CAC 4 points higher and the DAX 2 points higher.

 

[Alpari UK]

US Opening Call from Alpari UK on 3 September 2014

Markets rally on reports of ceasefire in eastern Ukraine

• Ceasefire reports lift investor sentiment;
• European indices rally on prospect of sanctions withdrawal;
• Chinese PMI readings point to broad based improvement in the services sector.

Reports of a ceasefire in eastern Ukraine has been welcomed with open arms by the markets, following months of growing tensions between Russia and the West that has resulted in painful economic sanctions being applied by both sides.

Understandably it’s Russian and Ukrainian stocks that are getting the biggest benefit this morning, while many other European indices are also posting significant gains in response to the truce between the two countries. We can’t forget that the effects of the crisis have been felt in many countries beyond those directly involved. Germany has been one of the hardest hit because of its strong trade ties to Russia, while other fragile economies in the eurozone have also suffered.

The crisis has been touted as one of the reasons behind the slowdown in the eurozone in recent months, chipping away at what little growth was being observed in the region and significantly hitting what had previously been growing confidence in the recovery. Once sanctions begin to be lifted, maybe we can start to see a return to the scenario we had earlier this year, when Germany was driving the recovery and confidence surverys were pointing to improving futures conditions in the rest of the region. Of course, we must be realistic in our expectations here given the fragility in the region and the efforts still being made to get its house in order. The trouble is, at best the eurozone recovery has been set back by six months or so, but at worst, confidence could take time to return meaning the setback may have been even greater.

Even if this is true, these geopolitical tensions have weighed heavily on many economies and the risk associated with them has hit investor sentiment. While risks are still out there, with the Islamic State remaining a threat in Iraq and Syria, compared to the situation we were facing a few months ago, the situation has greatly improved. I guess now we’ll find out for sure exactly how much all of this truly impacted the markets and how much was in fact simply down to investors fearing that first rate hike from the Federal Reserve and the Bank of England. With US indices near all-time highs, we should have to wait that long to find out.

The day had already got off to a bright start in Asia, where a batch of data from China, Japan and Australia suggested things are looking better there than we previously though. Of course, as always, there were downsides to the numbers as well as positives, but the overall tone was certainly good. The Chinese HSBC manufacturing PMI for August, for example, rose to 54.1, a 17-month high, and the improvement was broad based which is always a positive sign. However, downside risk still persists in the property sector in China and are likely to continue for the rest of the year.

The rest of the data seen this morning has been mixed, and to an extent expected. Eurozone PMI readings continued to deteriorate, which is something we have pretty much become accustomed to, while in the UK, we saw a move back above 60 for the first time this year in yet another sign that the economy is going from strength to strength. With only factory orders due from the US today, attention today is likely to remain on the Ukraine and Russia, where people are waiting for confirmation from the Kremlin that a ceasefire has been agreed.

The S&P is currently seen opening 7 points higher, the Dow 70 points higher and the Nasdaq 14 points higher.

 

[Alpari UK]

Daily Market Update - 3 September 2014 - Alpari UK



Overnight Chinese PMI boosts markets - 00:22
Australian GDP and RBA speech point to hawkish outlook - 01:23
UK services PMI brings expectations of a strong Q3 GDP reading - 02:54
Eurozone services PMI readings continue to disappoint - 04:18
A look ahead to the ECB and BoE releases - 05:52

 

[Alpari UK]

UK Opening Call from Alpari UK on 4 September 2014

ECB set to dominate as Draghi takes the stand

• Hopes of Ukrainian ceasefire fade
• Australian exports grow for first time in 6 months
• ECB the focus of the day, as Draghi divides market opinions

Financial markets are bracing themselves for possibly the most volatile two days of the month, with central banks and US jobs becoming the main driver of market movement. This shift of emphasis from largely geo-political to economic data was perfectly personified by the overnight Asian session, which opened high and closed low as hope of a Ukrainian ceasefire soon turned to the fear of uncertainty around the ECB. This indecision is expected to hold through to the European session, where the FTSE100 is expected to open -1, CAC -6 and DAX -6 points.

Yesterday’s announcement from the Ukrainian Prime Minister stated that Ukraine and Russia had agreed a ceasefire was greeted with widespread glee on the markets as people envisaged the halting to tensions in the region and a delay to any further sanctions from Europe. However, true to form Putin dismissed this stating that instead he had provided a list of demands which must be met for a ceasefire (including Ukrainian troops moving out of their own sovereign territory). Ultimately the whole scenario seems unlikely and much as we have seen throughout this conflict, Putin has yet again made a futile attempt to appear as if he wants to find a peaceful resolution to this conflict. As long as Ukrainian forces are fighting Russian army personnel under the guise of separatist-rebels, it is clear that Putin doesn’t take the idea of peace within the region seriously.

Overnight we saw a glimmer of strength out of the Australian economy, as it posted the first monthly growth in exports following five months of either stagnant or declining data. Given the huge dependence of the Australian economy upon the export of commodities, this is a huge boon and comes at a timely moment given that China has also been providing hugely encouraging economic figures. Coming at a time where the economy is largely in limbo, with the Aussie dollar seem as being too high, growth too low and an RBA which is stuck between an interest rate cut which is impossible with the housing market in bubble territory and a hike which would be to the detriment of a fragile recovery. However, with measures to realign the economy towards domestic consumption starting to kick in, along with the good old fashioned mining industry starting to gain traction, Q4 could be the time when Australia really starts to kick on.

Today’s emphasis will almost certainly be focused upon the ECB, who along with the BoE release their latest monetary policy decision. However, unlike the BoE there is actually some possibility of action from the ECB following consistently poor economic readings and inflation figures. With Eurozone CPI currently standing at 0.3%, there is every chance that Mario Draghi would become afraid of potential deflation and bite the bullet once more. However, I do not think this is likely to happen for a number of reasons. Firstly, the 0.3% headline CPI reading was also accompanied by a core reading which actually rose to 0.9%, pointing to a significant impact from the likes of energy prices in the 0.3% figure. Of course, Mario Draghi can do little about energy prices through monetary policy, bar attempting to depreciate the value of the euro. Plus with Russian energy expected to be less widely encouraged there is a possibility that energy prices could rise on their own later this year. Furthermore, there is the business of a whole raft of measures introduced by Draghi just three months ago. The true impact of those TLTRO’s are yet to kick in and thus he will most likely leave policy unchanged to give them another bite at the cherry. That being said, there are a number of pressures pushing Draghi to act and following his surprisingly dovish speech at Jackson Hole, there is clearly a softening of stance. The main driver of economic worry within the Eurozone is centred around Russia, with currently withstanding sanctions soon to be eclipsed by further measures as the EU appears to be on the cusp of further action following Angela Merkel’s comments that the limited and short term economic disadvantages would be outweighed by the value of punishing a country which seeks to shift borders and attack a European nation. The French decision to suspend delivery of a state-of-the-art Mistral warship to Russia is a prime example of this and France will subsequently be looking to places such as the UK services sector to soon follow suit.

Ultimately should we see any shift in plicy from Mario Darghi, it seems unlikely that we would see the fully blown QE that many hope for. A reduction across the main rates is possible, with some citing a potential reduction in deposit rate to -0.2%. However, these rates have shown to have little impact in the past and I believe their use has clearly had diminishing returns. Thus it could be the case that Draghi chooses to embark on a policy of purchasing asset-backed-securities from major banks, with JP Morgan estimating that the ECB will buy up to €40 billion worth of the highest credit rating possible. Ultimately, this will be yet another test of Draghi’s willingness to do “whatever it takes” to ensure economic stability and prosperity in the Eurozone.

 

[Alpari UK]

US Opening Call from Alpari UK on 4 September 2014

Markets creep lower ahead of BoE and ECB decisions

• Attention on central bank decisions and US data;
• ECB press conference the key event today;
• BoE expected to leave monetary policy unchanged;
• ADP, ISM and jobless claims the focus in the US.

We have a big day ahead of us, with the Bank of England and the European Central Bank announcing their latest policy decisions and the President of the latter conducting his usual press conference that is always guaranteed to shake things up in the markets. On top of this we have plenty of economic data from the US, so there’s plenty to focus on as we near the end of the week.

The ECB will likely take centre stage today, not necessarily because of the policy decision itself but because of the press conference that follows 45 minutes after. In all likelihood, the ECB will not announce any change in policy having only announced a large stimulus package in June. These things need time to filter through to the real economy and start to produce quantifiable results and a minor slowdown in the eurozone economy in recent months is not going to be enough to pursued policy makers that it’s right to provide more stimulus. Especially not when core inflation has risen to 0.9%, which eases any pressure there would otherwise be on the central bank.

As is quite often the case, it’s the press conference that has the real potential to shake things up in the markets. Mario Draghi likes to portray himself as a very dovish President that’s willing to stimulate whenever it is necessary and quite often, despite all of the scepticism, investors just lap it all up. In reality, we should take anything he says that isn’t new, which is the majority of it, with a pinch of salt, but history would suggest that won’t happen.

The BoE decision is unlikely to cause much of a stir this month, but it is certainly one to watch going forward. Last month was the first time since July 2011 that we haven’t had a unanimous vote against a rate hike, which has put investors on red alert that the end of record low interest rates is nigh. I don’t expect the first rate hike to come this month, or this year for that matter, and because the BoE doesn’t release a statement or carry out a press conference, that makes today’s decision a bit of a non-event. The real interest comes in two weeks when the minutes are released and we see if any more members favoured a rate hike.

Finally today we have an abundance of economic data being released from the US. The ones that stand out for me are the ADP non-farm employment figure, weekly jobless claims and the ISM manufacturing PMI. The ADP number is intended to be an estimate of Friday’s official non-farm payrolls number but in reality it’s quite inaccurate and is instead used to gauge whether the number will fall well short of expectations or easily beat. That is when we get a reaction in the markets.

Weekly jobless claims are always a focal point for investors as they provide weekly updates about the health of the US labour market and another solid report is expected, with the number seen around 300,000. Finally we have the ISM non-manufacturing PMI which should provide insight into the health of the services sector in the US, which accounts for more than two thirds of US GDP. The number is seen pulling back slightly to 57.5 but this is still comfortably in growth territory and a strong number so something in this region will be seen as a good number.

The S&P is currently seen opening 2 points higher, the Dow 18 points higher and the Nasdaq 2 points higher.

Read the full report at Alpari News Room​

 

[Alpari UK]

Daily Market Update - Pre-ECB 4 September 2014 - Alpari UK



Market Analyst Craig Erlam looks ahead to the Bank of England and European Central Bank decisions that are due today.

 

[Alpari UK]

Reaction to ECB rate decision and press conference

Mario Draghi has hit the markets with yet another unexpected change in monetary policy today, as the ECB cut interest rates by 10 basis points across the board. That puts the main refinancing rate at 0.05%, with the already negative deposit rate was brought even lower to -0.2%. However, this was not it all as the ECB also chose to embark upon the purchase of asset backed securities to non-financial corporations along with covered bonds. For many, this is seen as a precursor to a potential quantitative easing (QE) down the line and provides an extensive increase to the ECB balance sheet. Thus whilst QE may have not been decided upon today, the actions of the ECB are in essence a QE-Lite of sorts. This willingness to potentially push the boat out further was discussed within the governing council, with Mario Draghi being more open than ever about the fact that there are certain members of the ECB who wanted to see a broad asset purchase programme introduced.

Ultimately, today’s decision was driven by a backdrop of weakening inflation and growth which were both reflected by the further lowering of expectations in the coming years. That being said, it was not surprising to see the introduction of an ABS programme once interest rate cuts were announced earlier today. The rumours had been rife coming into the announcement that ABS had been discussed in depth within the meeting and given the previous inability of interest rates alone to drag the rate of inflation and growth higher, it was always likely that when the ECB acts, it would do so on more than one front.

However, this announcement did take the markets by surprise, as was clearly reflected across the range of assets. The 100 pip fall in EURUSD within 20 minutes of the interest rate cuts was indicative of a market realigning to a largely unexpected move by the ECB. However, this makes today’s move potentially appropriate in that it provides a substantial impact to the market and when taking into account the emerging impact of Draghi’s previous measures such as TLTRO’s, it is arguably appropriate to move earlier rather than later to shift the path of growth and inflation.

Ultimately, with the growth of geo-political threats, primarily driven by further sanctions in Russia, growth is almost certain to be on a downward trajectory and as such, it is right to front run such a move and attempt to prop up the economic recovery in the Eurozone. The introduction of ABS provides yet another indication that the ECB is moving towards quantitative easing and the clear willingness of certain members within the governing council to push for such a measure means the expansion of the ECB balance sheet could just be beginning.

 

[Alpari UK]

US Opening Call from Alpari UK on 5 September 2014

Post ECB profit-taking seen ahead of US jobs report

As far as investors are concerned, the surprise ECB rate cut yesterday is a thing of the past and the only thing that matters now is the jobs report. At least, that what the markets would suggest given the profit taking we appear to be seeing this morning ahead of the US data. There’s certainly a little caution being taken in the markets which isn’t unusual with such important data being released.

The biggest question today is what aspect of the jobs report should we be paying closest attention to, both in terms of the Fed and the markets, although ideally both of these would be aligned. However, in recent months we’ve seen the Fed become more concerned with wage growth and slack in the economy, more so than unemployment, but investors remain obsessed with changes in the unemployment rate and the non-farm payrolls numbers.

There’s no doubt that these numbers are still very important and should we see a rise in the unemployment rate and big declines in job creation, I’m sure the Fed would tailor their policy decisions accordingly. But we’re not seeing either of these and the unemployment rate is nearing the level that the Fed considers full employment, between 5.2% and 5.5%. Yet, the Fed remains dovish in its language and the first rate hike is expected in the middle of next year.

With that in mind, the markets should be more responsive to measures of productivity and wage growth rather than unemployment, as these are likely to be the areas that would encourage the Fed to bring the first rate hike forward. High inflation would also do this but we’re still some way from that at the moment. I can only imagine that it’s only a matter of time until investors start to react more to these measures.

That could potentially come today, if we see an improvement in hourly earnings and weekly hours worked to the point that the Fed can become convinced that we are returning to pre-crisis conditions. That said, there are other things that the Fed is looking at that we won’t get information on today, such as the number of people seeking full-time work but working part-time, among others. Maybe investors are waiting for the Fed to drop “considerable amount of time” from its statements, in a sign that they’re becoming less dovish, before they respond more to these areas of the jobs report.

The S&P is currently seen opening 6 points lower, the Dow 41 points lower and the Nasdaq 7 points lower.

 

[Alpari UK]

Daily Market Update - 5 September 2014 - Alpari UK

 

[Alpari UK]

Weekly market preview from Alpari UK – 8 September 2014

A relatively quiet week ahead from an economic standpoint following the busiest week of the month just gone. This means for the most part, we will be stuck with continuous geo-political developments as a driver of fundamental trading. Despite this, there are a number of key events to be watching out for nonetheless. In the US, the release of retails sales data provides us with an idea of consumer behaviour which is crucial to helping the economy to extend the gains in growth seen so far this year. Meanwhile, the UK it will be Mark Carney who steals the show, with the inflation report hearings likely to be the most important of the two speeches he has to make this week. In the eurozone, German trade figures are likely to be watched closely given the downturn seen in the past month or so.

In Asia, a packed week sees Chinese trade figures dominate whilst the BoJ minutes will most likely take precedence in Japan. Finally, Australian markets will be looking towards Thursday’s jobs data release as the main event of note.




From a geo-political standpoint, the threats remain centred around Iraq and Ukraine. It is fast becoming evident that the threat of ISIS is going to be something which will be faced militarily at some point. The announcement that the UK could yet become involved in a military campaign alongside the US points to what was always likely to happen. The growth and expansion of the group has highlighted that whilst this issue will last for a substantial period of time, it is likely that the powers that be will want to act sooner rather than later. Meanwhile in Ukraine, the continued involvement of Russia within a war which has followed the annexation of Crimea means that international forces headed up by NATO are going to have to take an increasingly tough stance. For the most part this will most likely come in the form of yet more sanctions and this has subsequent economic repercussions for both Russia and Europe alike.



US

A quiet week ahead means there are few particularly notable economic releases to look out for. The two major events I will be keeping out for are both on Friday, when the retail sales and consumer sentiment figures are released.

The retail sales figures are always absolutely key for an economy such as the US given the substantial domestic consumer base and demand for goods and services. The well known statistic that 70% of US GDP figure is made up of consumer spending puts this release into some sort of perspective. Thus the ability to generate strong retail sales will be crucial in pushing growth higher for Q3. However, with the past four figures disappointing somewhat, its worth watching out for this figure to see if the tables can be turned.

Later on Friday, the release of the UoM consumer sentiment figure provides a more qualitative outlook of the consumer base in the US. Typically such surveys will provide a good indication of where future retail sales figures are going to move and thus this is a leading indicator of consumer behaviour in September. As such, it is not surprising to hear that this survey, much like the retail sales figures, has disappointed on the past four occasions. With markets pointing towards a higher figure of 83.2, could this survey be set up to fall short yet again?



UK

Another quiet week in sight for the UK economy, where the major events are likely to come from Bank of England engagements, most specifically the inflation report hearing on Wednesday. This comes off the back of the report itself which took place back in mid August, where we saw Mark Carney underlining that whilst there has been a reduction in slack within the economy, the BoE also lowered wage growth expectations. The main takeaway from that meeting was that there is a great degree of uncertainty within the MPC and that is likely to be one of the major points that will be hammered home on Wednesday. The inability of Mark Carney to provide an adequate timeline for interest rate hikes along with a constantly changing sentiment means that the markets have been seeing significant volatility in recent months. Therefore, I expect to see the Treasury Select Committee push Carney into providing something more concrete in relation to future monetary policy. Apart from this meeting, Carney is also due to speak in Liverpool earlier in the week (Tuesday). This is less likely to really move the markets given that he will be able to have it all his own way, unlike the inflation report hearing later in the week. However, given his constantly changing emphasis, it will be worth following this event.



Eurozone

A similar story in the eurozone this week, where a lack of events means that we will be looking at some lesser followed items for volatility. The only main one I am really going to be looking out for is the German trade data which is due to be released on Monday. Unfortunately, the German economy has become one of the main drags on eurozone growth in recent months, which represents a complete role reversal after years of German export driven expansion which has helped prop up a weak eurozone. With Russian sanctions yet to fully impact the German economy and heightened measures likely, the likeliness is that we are going to see a substantial weakening of exports and subsequently growth throughout the remainder of 2014. Thus keep an eye on the import and export figures, along with the headline trade balance figure to gauge whether we are going to see further substantial weakness within Germany and subsequently, the eurozone.



Asia & Oceania

Finally we move onto an area of the world which is looking forward to a somewhat busy week, with China releasing inflation and trade figures, whilst the Japanese focus will be largely upon BoJ minutes which are due on Tuesday. The Chinese trade balance figures on Monday are going to be absolutely key as a barometer of exactly where the Asian powerhouse is within it’s recovery process following a second slowdown in as many years. With all the major data points indicating that there has been a significant pickup in both manufacturing and non-manufacturing activity, I would expect to see this reflected in the trade data. That being said, markets are looking for exports to fall back to around 8% following a strong figure of 14.5% last month, where imports are expected to move the opposite way in posting a positive figure of 1.7% after a negative figure of -1.6%.

Also be on the lookout for the Chinese CPI inflation reading which is due out on Thursday. It is worth stressing that currently, the CPI figure is in a very comfortable position between the 2-3% that is hoped for in the region. However, with the figure falling back somewhat in recent months, there is a feeling that CPI is moving towards a place where stimulus from the PBOC would almost be encouraged. Thus should we see further downside, I believe this would be conducive to greater growth in the long term for China who have been very open to embark upon both fiscal and monetary stimulus in the past year despite saying otherwise.

In Japan, the release of the BoJ minutes will be the main event to watch out for this week. In recent times, the BoJ have been somewhat reliant upon consumer datapoints as we are all watching to see if the sales tax hike that was undertaken by Shinzo Abe was going to make a lasting effect upon spending. However, with recent signs showing that the economy is moving back towards normality, I do not expect too much from the BoJ. That being said, there is a clear worry that the 2% inflation target is looking somewhat unattainable in the near future and thus the question remains as to whether they are chasing that figure or whether the current levels are satisfactory. Thus be on the lookout for any signs that they are still looking for more or whether the BoJ members feel that current growth of prices and output are good enough.

Finally, in Australia the focus will be upon the release of jobs data in the early hours of Thursday. With data really picking up recently in terms of spending, growth and trade, you would be forgiven for the thinking everything is going well in the region. However, the jobs readings last month showed the exact opposite, with unemployment rising to 6.4% from 6.0% and the employment change moving back into negative territory. Unfortunately this rise in unemployment is part of a wider and longstanding trend, which has seen the rate rise from 4.9% in mid 2012 to last months figure of 6.4%. Markets are looking for a figure of 6.3% this month which would offer some respite. However, with the trend so clear, there are no signs to say that the long term trend is about to reverse over the next few months. That being said, given the size of last months jump, it would be surprising to see another move higher this month and thus I believe we could see unemployment come in flat or marginally lower this month.

 

[Alpari UK]

UK Opening Call from Alpari UK on 8 September 2014

Mixed start for Europe as UK rocked by latest YouGov poll

• Osborne panics as polls swing in favour of independence vote for the first time;
• Ceasefire under threat as shelling heard in two cities in eastern Ukraine;
• Chinese trade surplus not as good as the headline figure would suggest;
• Quiet day expected as economic calendar looks a little bare.

The week has got off to a bit of a mixed start on Monday, as shelling in eastern Ukraine threatens the recently agreed ceasefire between Kiev and the pro-Russian separatists, growing support for Scottish independence prompts a last ditch effort to swing the vote back in the favour of the better together campaign, while data released overnight fails to provide much market direction.

One of the biggest drivers for the UK in the coming weeks is likely to be the referendum on Scottish independence. The voting for this was always likely to be close but only recently have polls started showing us just how close it’s going to be and a YouGov poll released on Sunday put supporters of independence in the lead for the first time. Of those who are intending to vote and know who they currently want to vote for, 51 percent said they would vote for independence while 49 percent said they would vote against it.

The problem we now face is that it’s not exactly clear what Scottish independence would mean for the economy of the UK. The uncertainty this creates at a time when people have been more focused on the strong economic recovery is far from ideal, especially ahead of the elections next year. What may concern people is UK Chancellor George Osborne’s last-ditch efforts to vote against independence by offering more autonomy on tax, spending and welfare if they remain a part of the UK. This just stinks of desperation and suggests that the UK stands to lose more from a Scottish secession than it would like to admit. This uncertainty is unlikely to help UK markets or the pound ahead of the vote on 18 September.

Less than 48 hours after a ceasefire was agreed in eastern Ukraine, shelling in two cities has threatened to reignite a conflict that many had hoped was nearing its conclusion. As long as these flare-ups continue to happen, relations between the west and Russia are likely to continue to be strained and instead of talking about lifting sanctions which could help the economies of all involved, it’s likely that more will be imposed.

European markets have received little direction from Asia overnight, despite some important economic data being released in both China and Japan. The Chinese trade surplus grew to $49.83 billion in August, which on the face of it looks encouraging, but unfortunately a closer look at the numbers make the headline figure a little less impressive. Exports rose by 9.4% during the month, which was ahead of expectations but down on the month before, while imports actually fell by 2.4%, which is likely to have been largely responsible for the growing surplus. On the bright side, imports of crude oil in August were up 17.5% compared to last year and 6% from July in a sign that the economy is doing better than some give it credit for. People had previously pointed to lower demand for oil in China as a sign that the pace of growth was slowing.

Monday, like the majority of the week, is looking pretty quiet in terms of economic data. The only release worth mentioning is the Eurozone sentix investor confidence reading for September, which is expected to fall to 2 from 2.7 as people become more concerned about slowing growth in the region and the effects the Ukraine crisis could have on it going forward. Even this is likely to have minimal market impact though so the start of the week could in fact be a fairly quiet one.

The FTSE is currently seen opening 8 points lower, the CAC 7 points higher and the DAX 38 points higher.

 

[Alpari UK]

US Opening Call from Alpari UK on 8 September 2014

US futures lower on Ukraine flare up and Scottish vote

• Scottish vote on independence looking far closer than hoped;
• Osborne makes last-ditch effort to sway the vote in favour of “no” campaign;
• Chinese trade balance figures not as great as headline number suggests;
• Geopolitical events likely to drive sentiment during US session.

The Scottish referendum has been the major talking point at the start of the week after a YouGov poll over the weekend showed the balance tip slightly in favour of the yes vote for the first time. With just 10 days to go until the vote, this has clearly rattled investors who until now didn’t appear to be too concerned about the outcome. Of course, the voting was always expected to be close but I think people assumed that the lack of guarantees on key issues such as currency would be enough to stop the “yes” campaign getting over the line.

Regardless of the poll results, I still don’t expect the majority to vote in favour of independence. The poll showed 51% in favour and 49% against and didn’t include those who were undecided. I believe the lack of certainty over the key issues works far more in the favour of the better together campaign when it comes to the undecided voters. That said, it is very understandable that market participants are taking a more cautious approach to the referendum, especially when even more uncertainty exists in relation to what happens if the Scottish do opt for independence. There’s still a lot of questions that need to be answered and no one wants to offer any.

George Osborne’s last-ditch attempts to bargain with those Scots supporting independence is unlikely to fill people with any more confidence. Until now, the Conservatives have played it pretty cool when it comes to the vote, which would suggest the UK doesn’t stand to lose much if independence is granted. This late attempt at bargaining from Osborne would suggest otherwise which may worry people that the recovery could be tarnished just before the election next year.

The markets didn’t get much direction from Asia overnight, despite some important economic data being released in both China and Japan. The Chinese trade balance figure looked very good initially as the surplus hit record highs but it didn’t take much drilling into the numbers to see that all is not as great as it first appeared. While exports were better than expected, the fall in imports appears to have had a greater impact on the overall trade balance and this is not what we want to see.

The US session is looking very quiet today with no economic data due to be released. This means the major drivers for US markets are likely to be developments around geopolitical events, with the newly agreed ceasefire in eastern Ukraine already coming under threat after shelling was reported in two cities.

The S&P is currently seen opening 1 point lower, the Dow 24 points lower and the Nasdaq 4 points lower.

 

[Alpari UK]

Daily Market Update - 8 September 2014 - Alpari UK



00:30 - Scottish Yes vote looking more likely after recent poll
02:26 - EU sanctions on Russia point to further downside
04:05 - Obama set to outline plans for Islamic State conflict on Wednesday
05:59 - Chinese trade balance mixed as exports impress
06:20 - German exports also strong, showing fears of Russia driven downturn less likely

Research analyst Joshua Mahony discusses the ongoing geopolitical issues that are impacting the markets. These include the Scottish referendum, EU sanctions on Russia and a reaction from the US to ongoing IS expansion. Joshua also discusses the release of trade figures out of both China and Germany today.