Fundamental Analysis by Alpari

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Alpari: Fundamental Analysis

Gary Ross: 5 Years from Now, Oil Will Cost $100. July 21

The founder of the PIRA Energy Group, Gary Ross, who predicted last year’s sharp fall in oil prices, believes that the price of oil will return to 100 dollars a barrel by 2020. Speaking about the reasons for why the oil prices have changed, Ross highlighted that the oil markets are not as overstocked as it seems. He also noted that the excess supply is not that high, since Saudi Arabia is extracting from open wells without touching new ones.

We agree with this point of view but suggest that the oil quotes will be back to previous levels before 2020. For the moment, oil prices have only a bearish factor: a rise in the Fed’s rates which is seen as unavoidable. As for Iranian oil, the grey market exports have been so high that their official participation on the market gives investors little to fear.

Alexander Razuvaev, Alpari

 

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Alpari: Fundamental Analysis

Fed: Likelihood of Interest Rate Hike in September is 50%. July 21

The president of the Federal Reserve Bank of Saint Louis, James Bullard, yesterday announced that the likelihood of a September interest rate rise is 50%.

Today the Bank of Japan’s minutes from meetings on 18th and 19th June became public. A few of the central bank’s nine representatives said that the line of policy that the bank has taken has possibly seen its influence waning, taking into account, amongst other things, the long-term interest rate hikes.

The Bank of Japan’s leadership often uses low returns on state bonds as proof of how the bank’s policies are helping economic growth and countering inflationary pressures. However, the interest on the ten-year bonds grew to around 0.55% in June in comparison with October 2014’s 0.45% when the regulator increased the amount of asset purchases it was making by 33%. The return on the 10-year bonds is now around 0.43%. In June the Bank of Japan kept its monetary policy unchanged.

The minutes from the Reserve Bank of Australia’s 2nd June meeting were also published today. In them we saw a hint of optimism for future growth with regards to employment. Furthermore, the documents mentioned that the demand for labour from the private sector looks sufficiently strong to combat and lower unemployment. Investment, excluding investments in the mining sector, will probably remain conservative for the meanwhile. Profits are rising and conditions for business are on the whole improving: now being a little better than average.

The RBA also indicated that interest rates will be left at a record low of 2.0% for the meanwhile, whilst incoming economic data will help to make clearer whether the current monetary policy situation is appropriate. At the same time it was noted that the Aussie dollar recently fell to a 6-year low against its US counterpart and that it needs to weaken further against other key currencies.

Tomorrow the RBA’s governor, Glenn Stevens, could make an important announcement about the current state of the Australian economy during a press conference.

According to data published today by the Chinese ministry for trade, in the first half of this year, the country was able to attract 420.52 billion yuan (67.7 billion dollars) of FDI. This is 8.3% higher than the same period a year ago. The June figures for FDI were 89.57 billion yen (14.42 billion dollars): 0.7% higher than last year’s June figures. In May, YOY FDI showed an increase of 7.8% to reach 9.33 billion dollars.

Chinese economic growth has slowed, causing doubts about the country’s attractiveness for investment. In 2014 the amount of FDI in the country rose by 1.7% to 119.60 billion dollars. In 2013 the growth was by 5.26%, making a total of 117.59 billion dollars. In the first half of this year, EU FDI in the country reached 4.08 billion (13.7% more than the previous year). In this time, US FDI in China reached 1.09 billion dollars (37.6% less than the first half of last year). From Japan figures showed a reduction of 16.3% to 2.01 billion dollars. In the first half, of the year non-financial direct investment rose YOY by 29.2% to 56 billion dollars.

Today it became clear that the Chinese Central Bank has injected extra capital into two state-private shared banks to help them support the weakening economy. The People’s Bank of China sent 48 billion dollars to the Chinese Development Bank and stumped up 45 billion for the Export-Import Bank of China. The Chinese ministry of finance also offered 16 billion dollars the Agricultural Development Bank of China; one of the largest private sector state shared banks in the country. In April the State Council of China ruled that the capital base for these three state-private banks should be increased as part of a reformation plan.

Darya Zhelannova, Alpari

 

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Alpari: Fundamental Analysis

RBA Declares Possibility of Further Drop in Interest Rates. July 22

Australian inflation data was made public today. The country’s CPI in Q2 was up 0.7% QOQ and 1.5% YOY. A 0.8% growth in consumer prices was expected QOQ and by 1.7% YOY. The inflation zone which the Reserve Bank of Australia has set is 2-3%.

The governor of the RBA, Glenn Stevens, announced during a press conference today that the interest rates in the country could possibly see a further reduction, but that any further relaxation of monetary policy could have negative consequences for the country’s economy. This is the second time in just a few weeks that Stevens has indicated the possibility of a further drop in rates. The RBA has dropped its rates twice this year since the Australian economy has been experiencing hard times due to the fall in the price of commodities, the end of capital investment in the mining industry and also a slowdown in Chinese economic growth; one of the country’s main trading partners. The Australian dollar finished the Asian session practically unchanged.

The minutes from the Bank of England’s monetary policy committee that were published today show that all nine members voted to keep the base rate of the country the same (at the record minimum of 0.5%) and to keep asset purchasing at 375 billion pounds.

According to the minutes, more and more members of the committee are supporting the idea of lifting rates in the near future. In particular, Ian MacCafferty and Martin Will have been signaling for a number of months now that they could soon start calling for a slight rise in the rates. In a speech, David Miles said that he believes that the arguments for a rise are stronger than they have ever been in his six-year stint on the committee. Miles is due to leave the committee after the next meeting.

After a July meeting, Greece and its international creditors have come to an agreement which has lessened the risk of default for the country, at least in the short term. This could convince those who believe that high rates are beneficial for the UK, due to it leading to risks, caused by economies outside of the country, waning. Nevertheless, it’s unlikely that the decision about the rate rise is likely to be taken before 2016. The Bank of England’s Mark Carney announced earlier that, according to his expectations, the question of whether to start putting rates up will become clearer towards the end of the year. The publication of the Bank of England’s minutes provoked fluctuation on the British pound.

Today the Greek parliament is due to convene and discuss reforms. The ECB will make a decision today on whether to increase the emergency liquidity aid to Greek banks.

The euro/dollar is trading at 1.0931 in expectance of powerful drivers for movement. We may see news on Greece this week and next week the US Fed is due to convene.

Today it’s worth casting a glance at data on US oil reserves from the US ministry for energy. Yesterday’s data from the API showed a rise of 2.3 million barrels.

Darya Zhelannova, Alpari

 

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Alpari: Fundamental Analysis

Today Could See Slight Oil Quote Growth

Tension on the oil market is building: oil quotes are gradually falling. Brent oil this morning was trading at $55.9 per barrel. The price of WTI with September delivery was on offer for $49.2. Perhaps this is because the UN is currently looking over the G6-Iran agreement. After the UN resolution, the text of the agreement will be published. Then talk of sanctions being lifted will really gather pace. Investors are negative; this can be seen by the predominating amount of short positions on the oil market.

An additional negative factor is the growing oil reserves in the US. The Energy Information Agency yesterday confirmed the statistics. Furthermore, next week the Fed will convene and movements on the dollar will depend on the rhetoric coming out of the reserve. Announcements about intentions to raise the interest rates this year will provoke the strengthening of the US dollar, meaning a fall in dollar denominated commodities’ prices.

Today it’s possible we’ll see a slight rise in the quotes: investors will start to fix their profits before the weekend. However, next week we will see the fall in oil quotes continue.

Anna Kokoreva, Alpari

 

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Alpari: Fundamental Analysis

New Zealand Dollar Ignored Drop in Rates

The Reserve Bank of New Zealand today dropped its base rate by 25 basis points to 3.00% In an announcement it was indicated that there is the likelihood of further reductions in the rate. It is expected that the central bank will continue this easing of monetary policy further in order to stimulate inflation and support the economy on the back of a sharp fall in the price of dairy products (the main export product of New Zealand).

According to the governor of the RBNZ, G. Wheeler, although the country’s GDP growth is currently around 2.5% with low rates, activity in the construction sector and high immigration, the perspective for economic growth has weakened in comparison with June forecasts from the central bank. The governor also noted that the New Zealand dollar is significantly down since April and this is helping ease the parameters of their monetary policy. Nevertheless, he ruled out what others have called the unjustifiable and unsustainable position of the NZD, but added that a further drop in the currency’s price is necessary, taking into account the weak prices of commodities.

The New Zealander rose, despite the drop in rates. The tendency of the RBNZ to ease their policy further will limit the growth of the NZD. The currency has dropped to a six-year minimum this month. The NZD/USD is trading up at 0.6680.

According to a representative from the State Administration of Foreign Exchange (SAFE), Wang Chunying, there was no large or sustained outflow of capital from China in the first half of 2015. At the same time, the outflow of capital from the country was certainly linked to the strengthening of the dollar. Chunying also announced that China will withstand the pressure which will come from the expected interest rise in rates in the USA and, as a result, lead to the further strengthening of the dollar. A fall in Chinese currency reserves in Q2 was down to the weakening of the euro.

Today it was published that Japan’s external trade figures are quite weak. Exports rose by 9.5% YOY in June, but there was the expectation of a 10% rise. Imports fell less than expected: by 2.9% YOY. The country has a balance of trade deficit of 69 billion yen, but this was expected to have fallen to 45.8 billion yen. Such weak data for external trade has provoked pessimistic forecasts for GDP values for the second half of this year.

The euro is up on the back of the Greek parliament passing laws in respect to the reforms demanded by its creditors. Even though this doesn’t quite solve or counter a prospective Grexit next year, the euro headed north to 1.0991.

According to other statistics, June retail sales in the UK fell by 0.2% MOM (expected 0.4% growth). YOY these figures showed a growth of 4% and this makes it the 27th month in a row that this figure is up.

Business activity in the UK service sector is key for the country’s economy since any increase in the impulse for growth in the manufacturing industry and construction is difficult. The UK service sector makes up around 80% of the country’s GDP and its importance for the economy grew even further during the country’s route back to economic recovery. Over the medium term, retail sales are nevertheless looking reassuring, since a rise in wages should lead to a growth in consumer consumption and, therefore, expenditure.

The pound/dollar fell to 1.5586 from around 1.5650. The euro/pound was up by 0.5% to a weekly maximum of 0.7055.

Today it’s worth looking at retail figures from Canada and the US, as well as the numbers for initial applications for unemployment benefit in the US. Also, be sure not to give the consumer confidence indicator in the Eurozone a miss.

Darya Zhelannova, Alpari

 

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Alpari: Fundamental Analysis

Eurozone Economies Recovering at Modest Rate

According to data published yesterday, the number of initial applications for unemployment benefit in the US 12-18th July was down by 26,000 and, taking seasonal fluctuations into account, stood at 255,000. This is the lowest value since November 1973. Although the number of initial applications has been down for a large part of the year, the latest fall probably reflects seasonal volatility. In the two weeks that preceded, the number of applicants reached its highest level since April. Data on applicants can be particularly volatile in June when car manufacturers temporarily close their factories for refurbishment.

New Zealand’s trade deficit in June stood at 60 million NZD and the deficit for the year (ending on 30th June) stood at 2.8 billion NZD. It was expected that we’d see a balance of trade surplus in June of around 200 million NZD and a deficit for the year of 2.6 billion. This June deficit value is as a result of a fall in the price of dairy products.

June exports stood at 4.23 billion NZD; up 1.3% YOY, but down 3% MOM. Imports totaled 4.29 billion NZD; up 9% YOY and down 7.6% MOM.

The Chinese preliminary PMI for the manufacturing sector from Caixin (in cooperation with Markit), which is an indicator for manufacturing production in the country, showed a July fall to 48.2. This is the lowest for the past 15 months after falling from June’s 49.4. The manufacturing index for new orders, new export orders and employment creation fell in July.

Weak data on external trade, together with Chinese PMI data down, has led to pressure on the New Zealand dollar: NZD fell to 0.6570 against USD.

The Chinese state council put forward new measures to support the trade sector today due to weak foreign and domestic demand. In an announcement, the intention to support the yuan at a stable level and allow the widening of the value range for the yuan was also made clear. The People’s Bank of China sets daily markers for the yuan and it is currently allowing the currency to trade 2% above or below this marker against the dollar. The state council also announced that it intends to cease trade levies and reduce the amount of bureaucratic hindrances in order to increase the effectiveness of foreign trade. Furthermore, the insurance of export credit and the provision of financial services at more beneficial conditions for small time exporters are planned.

Some Eurozone business activity data for the manufacturing sector was published today. Preliminary data for economic activity in July indicated a slight slowdown. However, the volume of manufactured goods remains up near a four-year maximum; this is all despite the crisis in Greece. The July Markit preliminary PMI for the Eurozone was 53.7 points against June’s 54.2. The market was expecting better from this indicator.

The euro/dollar reacted to the weak Eurozone business activity data with a fall to 1.0940.

Today, the data on the number of drilling rigs in the US from Baker Hughes is worth a look. Oil prices are under pressure because of a lack of signs showing that the supply of oil will fall.

Darya Zhelannova, Alpari

 

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Alpari: Fundamental Analysis

No New Projects for World’s Largest Oil and Gas Groups

According to information from business publications, the world’s largest oil and gas groups have decided not to pursue any new projects to preserve dividend payouts.

This decision from the oil giants is a correct one. They have given preference to shareholder interest and capitalization to investment expenditure. In periods of low oil prices, companies usually lower investment. In 2 or 3 years’ time this will lead to a supply deficit and a rise in prices. Consequently, oil reaching $100 per barrel is something that we can expect by 2018.

It’s worth mentioning that the market is expecting this level to be reached only by 2020. However, it’s not worth sitting and waiting for a resumption of oil prices to their former heights.

Alexander Razuvaev, Alpari

 

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Alpari: Fundamental Analysis

Brent on Wednesday to Cost $52.30-53.50 per Barrel

The fundamental factors to Wednesday’s trading are multiple. The American markets closed yesterday with a decent growth as part of a recoil after two minor sessions. Asset sales on the Chinese stock market are now not looking so scary. The Japanese Nikkei is down slightly.

Oil prices on Wednesday morning are down: a barrel of Brent costs $53.09 (-0.4%). The API published its oil reserve report yesterday: US reserves have fallen by 1.9 million barrels against a 0.9 million forecasted reduction. In the second half of today the world will see what the EIA says on the subject. A drop is also forecasted. Brent on Wednesday will cost $52.30-53.

Euro/dollar trading on the forex market is minimal this morning. The clearer the indication given by the Fed about a rise in interest rates, the stronger the dollar will go.

Anna Bodrova, Alpari

 

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Alpari: Fundamental Analysis

Euro/Dollar Stabilized Near Balance Line. July 29

In Europe the euro/dollar is going for 1.1048, the pound/dollar for 1.5643. No news from Greece and important economic reports from EU countries are keeping the pair close to 1.10. After a fall to 1.1029, the euro/dollar stabilized near the balance line. Fluctuations at the current level are expected until the European session closes.

The pound/dollar hit 1.5648 during European trading and ignored weak retail sales data. The retail sales index dropped from 29 to 21. Information came to light about a rise in demand for the pound due to an M&A deal (merger and acquisition). Therefore the pound didn’t react as it should have to the retail sales data. Even more so because the euro/pound is down. Euro sales in the cross are giving additional support to the pound.

An American company, Lone Star, has agreed to buy a British property company, Quintain Estates and Development, for 700 million GBP (around 1.1 billion USD).

The market is now waiting for the outcome of the FOMC meeting, whereby an announcement will be made. The Fed is expected to leave things as they are and it’s expected that they will announce that the date for putting up the base rate will depend on the data. The current meeting won’t be followed by a press conference and so the reaction from traders this evening could be quite reserved.

At 17:00 the US is publishing data for June incomplete housing sales. The data may or may not have an effect on the market. Thursday will see Q2 US GDP data out. If fluctuation across the key pairs will be weak after the FOMC has convened, then tomorrow they will go wild when the GDP data is out.

Vladislav Antonov, Alpari

 

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Alpari: Fundamental Analysis

US Fed Leaves Base Rate Unchanged

The Fed convening had practically no effect on stock, commodities and currency markets. Since QE stopped and Ben Bernanke left, the Fed’s actions have become boring. Alas, Yellen doesn’t quite have the charisma of her mentor.

Thus, as Wednesday’s outcome of the open market committee showed, unemployment in the States is dropping at a decent rate and this is a signal to put rates up. However, at the same time, inflation growth is slow and way off the 2% target. This factor has slowed the Fed down in the taking of a decision. The regulator will continue to keep an eye on the situation and if any of the macroeconomic statistics change in either direction, they will make changes to their policy.

As such the Federal Reserve’s plans are, as always, a secret to the market. Judging by the lot of it, there won’t be any interest rate hike in September.

The euro/dollar is down but within its fluctuation limits since there was no extraordinary market reaction. The US stock markets fell slightly, but not for long and by the end of the trading session they had returned to growth and won back their losses.

This delay of putting rates up will be good for the price of oil. By what they’re doing, the reserve is hindering a strengthening of the dollar. Any strengthening of the USD will see a fall in oil prices.

Anna Kokoreva, Alpari

 

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Alpari: Fundamental Analysis

Decent US GDP Could Cause a New Wave of Dollar Growth

On Wednesday the euro was down after the FOMC convened and on Thursday it renewed its minimum on the back of German employment data. Unemployment in June rose in the country by 9,000 (forecasted fall of 5,000). The unemployment level remained unchanged at 6.4% with this indicator meeting expectations.

The euro/dollar fell to 1.0941 and then rebounded on CPI and business confidence figures for the Eurozone. The economic confidence index rose from 103.5 to 104.0. The business climate index rose from 0.14 to 0.39. At 14:26 EET, the euro/dollar was trading 1.0961 and the pound/dollar was trading 1.5634.

At 15:30, the US is publishing its GDP data for Q2. This is the key event of the day. It’s expected that the country’s economy has expanded by 2.6% after a Q1 fall of 0.2%. The dollar will rise throughout the market if the data meets expectations. The bigger the value, the stronger the dollar will go.

Vladislav Antonov, Alpari

 

[Alpari]

Alpari: Fundamental Analysis

Euro/Dollar Showing Conservative Growth

Japanese inflation in June remained unchanged at 0.1%, whilst inflation remains far from the 2% target zone set by the Bank of Japan: due to the fall in energy prices for the most part. Although, inflation on the whole does coincide with Japanese central bank expectations, whereby they forecasted that the increase in prices would be close to null until autumn at the earliest. A combination of stagnation of prices, coupled with an expected shrinking of the economy could spark woes of deflation.

June household expenses fell by 2% when taking into account the correction on inflation contrary to the forecasted growth. Unemployment rose to 3.4% in June from May’s 3.3%. The amount of jobs in relation to those searching for work stood still at 1.19.

The June Eurozone CPI values remained unchanged with MOM prices growing at 0.2%. The base inflation rate increased in June from 0.8% to 1% in July. The level of unemployment in the Eurozone rose by 0.1% in July to 11.1%.

The weak data says a lot about how the ECB’s bond purchasing program hasn’t achieved the required effect. It’s possible that the ECB will have to consider the extension of the program up to September 2016. Earlier this week the IMF announced that it expects Eurozone inflation to remain below the ECB’s target zone (just under 2%) until the end of 2020. In this case, the Eurozone financial powers that be really will have to extend their QE program.

The market reaction was quite conservative with the euro/dollar up slightly and trading around 1.0974.

Today it’s worth giving the Canadian May GDP values a glance and also have a look at the consumer confidence index from Michigan and the number of drilling rigs in operation according to data from Baker Hughes.

Darya Zhelannova, Alpari

 

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Alpari: Fundamental Analysis

Oil Prices Correcting After Yesterday’s Fall

Oil prices are correcting upwards after a fall. By market close yesterday, Brent stood at $49.61 per barrel, whilst WTI with September delivery reached $45.29. Brent is trading today around $49.8 per barrel, with WTI at $45.6.

We reckon that the correction won’t be sustained for long since the potential for a further downing of the prices has not yet come to an end: $47 per barrel of Brent is looking a real prospect. The reasons for a fall in prices remain as they were: a slow in Chinese economic growth, a rise in production and a fall in demand.

Tonight the American oil institute will publish its data on oil reserves in the country and tomorrow will see the same data out by the US Energy Information Agency. If reserves are seen to be growing, then a market correction will take place.

The US congress is discussing the Iran nuclear program and each new announcement from the discussion participants sees a market reaction. On the whole the corrections are not in favor of a growth in prices.

Anna Kokoreva, Alpari

 

[Alpari]

Alpari: Fundamental Analysis

Brent to Trade $50.20-50.75 per Barrel with Positive Movements

Oil prices are continuing to show positive corrective movements after a fall on Monday. This morning a barrel of Brent is trading at $50.59 (+1.0%). WTI with September delivery has increased to $46.27 (+1.1%) per barrel.

American oil reserve data was published yesterday and it showed a fall of 2.4 million barrels against an expected 1.6 million barrel fall. This evening will see the same report from the EIA. It’s expected that reserves will increase by 1.494 million barrels. It’s worth having a look at the extraction volumes. For the moment it seems that the divergent information of last week isn’t being confirmed. This is actually good for the commodities market: it leaves room for correction.

From a technical analysis point of view, Brent’s strong support lies at $50, but since it’s already been tested, it’s not worth expecting that it will be able to withstand another bear attack. Pressure on the quotes could strengthen the USD against the euro on the Forex market. The stronger the dollar, the more the pressure will be heaped onto oil prices.
On Wednesday the price of a barrel of Brent will be in a range of $50.20-50.75. Any further growth will need to have real reason behind it.

Anna Bodrova, senior Alpari analyst

 

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Alpari: Fundamental analysis

Brent to Trade $49.30-49.90 per Barrel

The price of oil is up and down as commodity markets are averagely active. Brent is going for $49.79 per barrel (+0.3%). WTI with delivery next month is trading around $49.05 (-0.15%). Yesterday’s Brent minimum was set at $49.02 per barrel and this is a 7 month minimum.

API data for last week came out down. According to the report, commercial reserves of oil in the week ending 31st July are down by 4.4 million barrels and stood at 455.3 million barrels. The forecasts had indicated a much smaller fall.

It’s worth casting your attention on extraction values for which last week saw a rise by 0.55% (+52,000 barrels per day) to 9.465 million. It seems that it was this indicator that prevented a continuation of the rebound of oil prices. The market is very sensitive to potential growth in supply and this is preventing any rise in price.

The technical picture for Brent is indicating a resistance at $49 and if this is broken the road to $45 will open up. Today’s trading is likely to see Brent trading $49.30-49.90 per barrel. The Bank of England is unlikely to surprise investors later today. Tomorrow’s July labor market data from the US is more likely to have an effect.

Anna Bodrova, senior Alpari analyst

 

[Alpari]

Alpari: Fundamental Analysis

Bank of England Intends to Increase Rates in First Half of 2016

The Bank of England convened and decided to keep their monetary policy unchanged. The results of the voting showed an 8-1 against an immediate rise, with Ian McCafferty voting for a rise from 0.5% to 0.75%. The bank gave a hint that a rise to 0.75% will take place in the first half of next year, with it due to be upped to 1% by the end of 2016 and up to 1.5% by the end of 2017. UK GDP will increase by 2.8% in 2015, by 2.6% in 2016 and 2.5% in 2017.

On this news, the pound sunk to 1.5518 against the dollar, and to 0.7025 with the euro.

The governor of the Bank of England, Mark Carney, is due to give a speech which will be interesting from the point of view of assessing the current UK economic situation and the readiness for a hike in the base rate.

According to data published yesterday, the US trade deficit in June rose by 7.1% and, taking into account a correction for seasonal fluctuations, stood at 43.84 billion dollars. It is expected that the deficit will reach 43.5 billion dollars. June imports to the country rose by 1.2%, including imports of cars and food products. Exports were down by 0.1% due to a fall in global demand for goods manufactured in the US.

It’s worth mentioning that the monthly trade data from the US is quite volatile. The trade deficit in the first half of this year has increased 0.6% YOY. Exports fell by 2.9% YOY and imports were down 2.2% YOY for the first half of this year.

The US PMI in the service sector from the ISM showed a July rise to 60.3 against June’s 56.0 (forecasted: 56.1). Furthermore, the labor market data from the ISM indicated an increase from 52.7 from 59.6; something which nullified the ADP’s negative employment creation data in the private sector.

The movements on dollar pairs will increase on Friday when more labor market stats will be out. Weak results will provoke a fall in the dollar against other key currencies.

Labor market data from Australia was also released today. In it, July unemployment was reported to have grown to 6.3% from 6.1% in June. At the same time, the number of employed increased by 38,500 and thus exceeded the 10,200 expectation. Such inconsistencies and reassessments have become much more common of late, something that is a source of damage to trust in the reports. It can’t be that only the seasonal factor can explain such discrepancies on the labor market.

The Australian dollar reacted to the stats quite conservatively. The Aussie/Yankee is trading around 0.7329. The RBA will make a monetary policy announcement tomorrow, giving the market an idea of the bank’s thoughts on the current market situation.

German orders, taking inflation and seasonal fluctuations into account, were up MOM in June by 2.0% (forecasted: 0.2%). This order level is back to that of April 2008. The export volume orders increased 4.8% MOM, supported in part by a fall in the rate of the euro which has upped Eurozone competitiveness. Orders within the country were down 2.0% MOM.

June manufacturing production in the UK was down 0.4% MOM (forecasted: -0.1%). In Q2 a growth from 0.7% to 1% was recorded (as forecasted). According to preliminary data published last week, Q2 saw UK GDP increase by 0.7% after a 0.4% Q1 rise. Later on we’ll hear some July economic growth rate figures.

Today it’s worth looking at the US’ figures on initial unemployment benefit applications.

Darya Zhelannova, Deputy director of Alpari's analytical department

 

[Alpari]

American Market Correction Continues, Investors Making Money on the Fall

The correction on the American stock market is attracting more attention. The Dow Jones Industrial Average, a key market indicator, has fallen by over 200 points over the last four days. This is the first time in the 119 year history of the DJIA that it has fallen so sharply.

There’s nothing surprising about the correction: it’s rather a natural process. The American economy is less in need of stimulative measures. In October of last year, the Federal Reserve ended its quantitative easing program QE3 and a rise in interest rates is expected by autumn. Due to this, the stock market has become more unattractive for investors. Trading participants believe the US markets to be overbought and this belief is confirmed by the outflow of capital from the SPDR S&P 500 ETF Trust. As autumn approaches, a wait and see attitude seems the best option. In September the business season opens and who knows what it’ll bring. The correction this year has come early, stimulating a fall for the Asian markets.

However, in this situation investors can make money using structured products with a high capital protection level. One of our investment ideas proposes a situation where the NASDAQ falls further and leads to a 35% annual return in USD for investors.

Anna Bodrova, Alpari Analyst

 

[Alpari]

Shanghai Stock Market Opened Up on Thursday

The Shanghai Composite index is up by more than 5.9% after losing 23% over the last 5 trading days. Asian currencies, which have shed real value over the last few days, are also winning back lost gains.

The strengthening of Asian indices began after yesterday’s comments from the New York Fed’s William Dudley about how the US Federal Reserve is unlikely to put up its base rate in September. This is one of investors’ favorite things to use to make quotes fluctuate and this is now visible on the stock markets. Trading participants have already calculated that sales in America have already taken $2 trillion off the market.

As far as we can see for the moment, when the market has received a positive impulse, investors will begin to reassess their previous reaction to the current stats and prospective ones. Investor emotions seemed over the top and that is marked by the trading volume. The time for stabilization has come.

At the same time, it’s hardly worth expecting a continued rise throughout world markets. September is on the horizon and it is a difficult month for indices and stocks. The Federal Reserve will have its next meeting on 16-17 September and the result of which will define the medium term trend for the capital markets.

Anna Bodrova, Alpari Analyst

 

[Alpari]

Oil overcomes 48 USD Barrel Mark

Oil prices on Friday grew to a local maximum - $48.45 – during Asian session trading on Friday. This is a nine-day peak. With the handing of the baton to the European session, oil swooped back downwards. Throughout the first half of the day the commodities market was volatile and constantly changing direction. At the moment of writing this review, Brent costs $47.42 (-0.3%). WTI futures with October delivery are going for $42.57 (+0.05%). If Friday closes with quotes up, this week will be the first in eleven that we can say has seen a rise in oil prices.

A resumption of quotes, despite the rally, still doesn’t look very likely since it is based solely on the US Q2 GDP report. Nevertheless, market oil supply still triples that of demand.

Brent will close Friday $46.90-$47.75.

Anna Bodrova, Alpari Analyst

 

[Alpari]

Alpari: Fundamental Analysis

German Production Less Than Expected

Last Friday, the Richmond Fed’s president, Jeffrey Lacker sparked debate in a speech entitled “The Case Against Further Delay.” Lacker admitted that the US economy is no longer in an ideal state and that zero interest base rates aren’t needed to kick start the economy. The Fed member affirmed that it is time to update US monetary policy in line with the progress the economy has managed to make. Simultaneously, he, just as his colleagues are, is awaiting the release of more economic data in September in order to make a definitive decision.

According to the data published on Friday, Non-Farm Payroll employees grew by 173,000 in August, taking seasonal fluctuations into account. June and July’s values were reassessed: upped by another 14,000 and 30,000 respectively on their original values. August unemployment was down to 5.1% from 5.3% last month. It was expected that employment creation would reach 220,000 and that the unemployment level would drop to 5.2%.

Average hourly wages in the US are up 8 cents last month to 25.09 USD. In comparison with the same period last year, wages have risen 2.2%.

It’s worth noting that the latest labor market data will set the tone for the Fed’s next meeting on 16-17th September, where the members will make a decision on whether to lift the US base rate.

The picture is ambiguous: although employment creation has fallen below the average 218,000 indicator for January to June, unemployment is down even further than expected, which is indicating a further fall in underutilization of the labor market. The total number of unemployed fell by 237,000 and the work-able population fell by 41,000, indicating that more unemployed people found work in August. At the same time, the data for hourly wage growth gives a hint of optimism and will be considered as extremely important for the open market by the members of the Fed.

German industrial production in August grew 0.7% MOM (forecasted: 1.0%). It’s true that the July data was reassessed downwards to 0.9% (previously 1.4%). On the whole, the Economic minister of the country believes German industry to be holding on to its positive trajectory.

Today is Labor Day in the US and Canada, so there are no statistics out.

Darya Zhelannova, Deputy director of Alpari's analytical department