Forex Research

[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.

Read the full report at Alpari News Room​

 

[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

https://www.youtube.com/watch?v=97z3OgmQvaQ

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.

Read the full report at Alpari News Room​

 

[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.

Read the full report at Alpari News Room​

 

[Alpari UK]

Daily Market Update - 5 September 2014 - Alpari UK

https://www.youtube.com/watch?v=0ja4zjWA8Nw

 

[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.

Read the full report at Alpari News Room​

 

[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.

Read the full report at Alpari News Room​

 

[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.

Read the full report at Alpari News Room​

 

[Alpari UK]

Daily Market Update - 8 September 2014 - Alpari UK

https://www.youtube.com/watch?v=sRV9DvzPtyg

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.