US Opening Call from Alpari UK on 24 September 2014
Weak German survey points to the need for stimulus
• Coalition attack on IS important to draw together common interests
• German IFO survey falls to lowest level since April 2013
• Death cross in the Russell 2000 points to potential weakness.
US markets are expected to open flat, as the selloff that has personified the first half of this week is finally looking to ease somewhat. The risk-off sentiment driven by US and Arabic raids in Syria are easing somewhat and a moderate response to yet further poor figures out of Germany point to a market which may be oversold. However, with many in the markets pointing to a death cross in the Small cap Russell 2000, many are wondering whether the technical are pointing towards further losses to come. US futures are pointing towards a mixed open, with the S&P500 and Nasdaq looking flat, whilst the DJIA is expected to open +2 points.
Yesterdays news that the US has launched attacks upon Islamic State targets in Syria did not come as much of a surprise. However, with the involvement of five Arabic states, this marked the first time in 23 years that the US has been joined by any Arab allies in any such military operation. The threat is certainly known, yet the extent of the coalition that has been put together by John Kerry was yet to be exposed. Today the UK woke up to an announcement from David Cameron that the UK is also not in a position to stand by without taking a military presence in this affair too. However, probably the most important element of the attacks so far is the involvement of Saudi Arabia, which is a Sunni muslim Kindom with traditional values. The purpose of Kerry requiring the Iraq government to forge a new coalition which represents both Sunni, Shiite and Kurdish interests is to reflect the fact that this is not a war against Sunni muslims, but instead the warped ideology of the Islamic State itself. Thus with Saudi Arabia becoming part of this coalition, there is a feeling that it adds credence to the idea of a coalition of not only nations and religions, but also a coalition of Kurds, Sunni and Shiite forces which is absolutely key. From a market standpoint, the interest really extends to how long and to what extent such a conflict is likely to last for. The Pentagon’s decision to cite a timeline in years shows that no one expects this to be a quick fix and as such there has been worries as reflected in lower equity prices and higher gold prices.
The European session has been dominated once more by disappointing figures out of Germany, following the close shave which saw the crucial German manufacturing PMI fall to 50.3. Today it was the turn of the German IFO business climate survey, which fell to the lowest level since April 2013 (104.7) and represented a fifth consecutive fall in this measure. This negative outlook is likely to be largely affected by Russian sanctions and has led to IFO commenting that the “Germany economy is no longer running smoothly”. Ultimately today’s release adds yet more pressure upon both the ECB and German government to act in tandem. Mario Draghi is no doubt moving closer towards a potential shift to implement QE with each measure that fails to generate growth of inflation and output. However, there is also a case to answer for the Angela Merkel who must surely start looking to release the fiscal handbrake and start spending to generate greater growth for the greater good of the Eurozone as a whole. With a report by Allianz highlighting that the low ECB rates tend to redistribute wealth from Germany to the periphery, it is surely only a matter of time until internal action is sought as the priority rather than relying upon Draghi et al.
The technical analysts amongst us have been watching the Russell 2000 carefully this week, as a ‘death cross’ has appeared for the first time since Q3 2011. Now this move of the 50 day simple moving average (SMA) below the 200 SMA can be seen by many as a strong sign of weakness in the markets. Furthermore, with the Russell 2000 often seen as a leading indicator of what is going to happen down the line in the major US indices, this is certainly something people are thinking could signal worry for the likes of the S&P500. However, the trend is your friend and with a long term primary uptrend still in play, there would be more indicators needed to gain any confidence of a major sell-off in the markets.
The US session is looking somewhat quiet with the new home sales data representing the only major data point to watch out for. Monday’s poor existing home sales release showed a potential weakness in the market over August and as such I am cautious about some of the bullish estimates in the markets. Also be on the lookout for the speech from Fed FOMC member Loretta Mester who is due to discuss monetary policy and her economic outlook in Cleveland later today.
Weak German survey points to the need for stimulus
• Coalition attack on IS important to draw together common interests
• German IFO survey falls to lowest level since April 2013
• Death cross in the Russell 2000 points to potential weakness.
US markets are expected to open flat, as the selloff that has personified the first half of this week is finally looking to ease somewhat. The risk-off sentiment driven by US and Arabic raids in Syria are easing somewhat and a moderate response to yet further poor figures out of Germany point to a market which may be oversold. However, with many in the markets pointing to a death cross in the Small cap Russell 2000, many are wondering whether the technical are pointing towards further losses to come. US futures are pointing towards a mixed open, with the S&P500 and Nasdaq looking flat, whilst the DJIA is expected to open +2 points.
Yesterdays news that the US has launched attacks upon Islamic State targets in Syria did not come as much of a surprise. However, with the involvement of five Arabic states, this marked the first time in 23 years that the US has been joined by any Arab allies in any such military operation. The threat is certainly known, yet the extent of the coalition that has been put together by John Kerry was yet to be exposed. Today the UK woke up to an announcement from David Cameron that the UK is also not in a position to stand by without taking a military presence in this affair too. However, probably the most important element of the attacks so far is the involvement of Saudi Arabia, which is a Sunni muslim Kindom with traditional values. The purpose of Kerry requiring the Iraq government to forge a new coalition which represents both Sunni, Shiite and Kurdish interests is to reflect the fact that this is not a war against Sunni muslims, but instead the warped ideology of the Islamic State itself. Thus with Saudi Arabia becoming part of this coalition, there is a feeling that it adds credence to the idea of a coalition of not only nations and religions, but also a coalition of Kurds, Sunni and Shiite forces which is absolutely key. From a market standpoint, the interest really extends to how long and to what extent such a conflict is likely to last for. The Pentagon’s decision to cite a timeline in years shows that no one expects this to be a quick fix and as such there has been worries as reflected in lower equity prices and higher gold prices.
The European session has been dominated once more by disappointing figures out of Germany, following the close shave which saw the crucial German manufacturing PMI fall to 50.3. Today it was the turn of the German IFO business climate survey, which fell to the lowest level since April 2013 (104.7) and represented a fifth consecutive fall in this measure. This negative outlook is likely to be largely affected by Russian sanctions and has led to IFO commenting that the “Germany economy is no longer running smoothly”. Ultimately today’s release adds yet more pressure upon both the ECB and German government to act in tandem. Mario Draghi is no doubt moving closer towards a potential shift to implement QE with each measure that fails to generate growth of inflation and output. However, there is also a case to answer for the Angela Merkel who must surely start looking to release the fiscal handbrake and start spending to generate greater growth for the greater good of the Eurozone as a whole. With a report by Allianz highlighting that the low ECB rates tend to redistribute wealth from Germany to the periphery, it is surely only a matter of time until internal action is sought as the priority rather than relying upon Draghi et al.
The technical analysts amongst us have been watching the Russell 2000 carefully this week, as a ‘death cross’ has appeared for the first time since Q3 2011. Now this move of the 50 day simple moving average (SMA) below the 200 SMA can be seen by many as a strong sign of weakness in the markets. Furthermore, with the Russell 2000 often seen as a leading indicator of what is going to happen down the line in the major US indices, this is certainly something people are thinking could signal worry for the likes of the S&P500. However, the trend is your friend and with a long term primary uptrend still in play, there would be more indicators needed to gain any confidence of a major sell-off in the markets.
The US session is looking somewhat quiet with the new home sales data representing the only major data point to watch out for. Monday’s poor existing home sales release showed a potential weakness in the market over August and as such I am cautious about some of the bullish estimates in the markets. Also be on the lookout for the speech from Fed FOMC member Loretta Mester who is due to discuss monetary policy and her economic outlook in Cleveland later today.
