Forex Research

[Alpari UK]

US Opening Call from Alpari UK on 5 June 2014

Volatility expected as ECB announces latest policy decision

• Volatility expected as ECB announces latest policy decision;
• Markets priced too much in, set up for disappointment;
• BoE decision a non-event;
• Weekly jobless claims to provide further evidence of labour market strength.

The last couple of weeks in the markets has been dull to say the least, volatility has been down and so have trading volumes. This can be largely attributed to the uncertainty surrounding the ECB decision and as a result, I expect this to change dramatically today.

Traders and commentators alike have spent the last month trying to deduce exactly what ECB President Mario Draghi meant last month when he claimed the central bank is “comfortable” taking action in June. Again, this came with the usual caveat being that he wanted to wait for the ECBs new projections before making any rash decisions and if we see nothing from the ECB today, he will fall back on this as the reason for holding off once again.

It baffles me that investors have once again taken the bait from Draghi and I expect them to be disappointed all over again. That said, Draghi is the master of doing nothing while at the same time convincing investors that something big is around the corner. While we may see big disappointment after the decision, I am confident that Draghi will once again talk himself out of it 45 minutes later and people will quickly begin talking about the next meeting as the point at which the ECB will come out firing.

That’s not to say the ECB will do nothing today. I think that would be a huge mistake and not even the ECB is dumb enough to make that after creating all of this hype. I believe we’ll see a token effort to appease the markets in the form of a small refi rate cut, of 15 basis points, potentially partnered with a new initiative to boost lending to small and medium sized businesses, similar to the funding for lending scheme that the Bank of England introduced in the UK. I believe the markets have priced in more, with many suggesting we’ll see negative deposit rates, but I will be very surprised if this happens. The ECB doesn’t exactly have a history of delivering until it absolutely must.

There’s plenty more to focus on today, but none of these will have anywhere near the impact of the ECB decision and press conference on the markets. The Bank of England decision will be a non-event as the central bank is under no pressure to change policy at the moment.

In the US, we have weekly jobless claims data being released, which is seen rising to 310,000 following another very strong figure last week. The labour market is looking much better in the US at the moment and this only provides further evidence of that.

Ahead of the opening bell on Wall Street, the S&P is seen opening unchanged, the Dow 3 points lower and the Nasdaq 2 points lower.

Read the full report at Alpari News Room​

 

[Alpari UK]

Initial Daily Market Update - 5 June 2014 - Alpari UK

https://www.youtube.com/watch?v=v30iR-XndEM

Craig Erlam looks ahead to the ECB rate decision (12.45 GMT) and press conference (13.30 GMT) today and tells what he expects to happen.

 

[Alpari UK]

Reaction to ECB decision and Draghi Press Conference

Draghi comes armed and ready as euro gets pummeled

There’s been a lot of speculation recently about whether Mario Draghi would bring the bazooka to today’s meeting. As it turns out, he rolled up in a tank dressed like Rambo armed with everything from guns to grenade launchers. I don’t think anyone could have anticipated what was coming today, as Draghi and the ECB opted against choosing between the selection of monetary tools available and instead went for them all.

The phrase being thrown around in the lead up to the meeting was “Draghi never disappoints”. While I don’t necessarily agree with this, it’s safe to say he didn’t today. Aside from cutting rates across the board, which includes becoming the first major central bank to try negative deposit rates, the ECB announced ending the sterilisation of bond purchases, a new round of LTRO’s, or TLTRO’s as Draghi put it and the purchase of mortgage backed securities. The only thing we didn’t see today was outright quantitative easing, but Draghi was quick to point out that they’re “not necessarily finished yet”. It wouldn’t be Draghi if he didn’t hang something out in front of us to speculate about for the next six months.

I think it’s safe to say the markets fully approved of the measures announced by Draghi, with European indices moving out of negative territory to trade much higher. The DAX even broke 10,000 for the first time ever on Draghi’s comments. In terms of the currency markets, the ECB got exactly what it was hoping for. The euro collapsed under the weight of all the stimulus measures, breaking below its recent 1.36 support before finding new support at 1.35. To put this in perspective, that’s a five cent drop against the dollar since Draghi first hinted at action a month ago. Moreover, I don’t think the sell-off is over yet. I will be very surprised if 1.34 isn’t reached over the course of the next week.

Read the full report at Alpari News Room​

 

[Alpari UK]

Post ECB Daily Market Update - 5 June 2014 - Alpari UK

https://www.youtube.com/watch?v=Cdlotv1aH3k

 

[Alpari UK]

UK Opening Call from Alpari UK on 6 June 2014

Jobs report hoping to bring yet more volatility following ECB

A day to remember yesterday, where many will look back questioning whether that really happened. The decision from the ECB to unleash a whole arsenal of policy tools took many off guard given the stark contrast between yesterday's meeting and everything that has gone before. Add to this a market which saw EURUSD sell-off 100 pips, only to finish 70 pips in the green and the story deepens even further. What with the events of yesterday, many people would be forgiven for forgetting that today in fact marks the return of the US jobs report, meaning a similar rollercoaster ride of volatility could be just around the corner. Taking a look at the indices, the futures are pointing towards a positive open, with the FTSE100 +19, CAC +18 and the DAX +38 points.

Yesterday's decision to throw everything but the kitchen sink at the markets is one which could be seen as understandable for a number of factors. Firstly, we have a currency which had already devalued significantly and for any further depreciation to occur, Draghi would have to go over and above the expectations of the markets. Secondly, the step of introducing cuts across three of the main rates is actually unlikely to impact inflation in a particularly telling way if introduced in isolation. This is due to the limited impact rate cuts have had upon CPI in the past.

Thus Mario Draghi chose to employ everything is his arsenal apart from the one thing eveyone is crying out for which is quantitative easing. The reasoning behind this is that in order to ever embark upon such a significant step, the ECB would first have exhaust all other options at their disposal. In yesterday's announcement, the ECB has seemingly fired every bullet apart from the golden one and thus it remains to be seen whether any of such measures are likely to be successful or not.

The reaction in the markets reflect the increasingly sceptical response as time passed following the release. Many see the interest rate cuts as being unlikely to incentivise market participants to change their investment decisions given the already very low rates in the past, whilst measures such as the introduction of TLTROs focuses on the non-existent problem of inadequate market liquidity when the real problem lies in finding enough worthwhile people or companies to lend to. Furthermore, the unwillingness to discuss the possibility of QE to any degree in the following press conference left some with the feeling that Draghi has tried to call our bluff by introducing a raft of ineffective policies whilst avoiding the question of whether the most effective weapon in the toolkit is going to be used.

Given the market reaction to the ECB decision, today the markets are calling out for yet another big swing when the department of labour release the May jobs report to much fanfare. The irony of this month's release is that just when the ECB has decided to really become interesting, that is when the jobs data has become somewhat less controversial given the seemingly fixed path of tapering being embarked upon by the Fed. Nevertheless, the market impact by payrolls and unemployment rate have been creating market volatility well before there was any QE or tapering in question.

The non farm payrolls figure being released this afternoon is typically the most volatile and informative release of the jobs report which can also mean it is the main driver of market price action in general. Given the decision by the Fed to embark upon $10 billion of tapering at each meeting, it is worth understanding when this could be called into question. The recent trend of payrolls to post over and above 200k has been key to gauging that the US economy is strong enough to handle such a pullback in liquidity growth. As such, I believe that as long as we see a figure over and above that level, we would continue to see Yellen and co taper. Given the major pullback in the ADP payrolls figure, there is a possibility that we could see a sharp contraction in employment. However, the link between these two figures has been tenuous at best in recent times and thus it may not be the best way to judge future expectations. Forecasters on the other hand have chosen to expect a major fall in this figure too, with estimates pointing towards a fall from 288k to 218k.

In the unemployment rate, estimates are similarly pessimistic, with many pointing towards a rise back to 6.4% in this headline figure. Should we see such a negative jobs report, much of it could likely be attributed to an overshoot in the April figures which saw payrolls spike by 85k and unemployment tumble by 0.4%. As such today could represents a consolidation and normalisation to the previous gentle path that has been seen so far this year.

Finally, the imposition of a more complex forward guidance policy under Janet Yellen which sees yet another reference to 'spare capacity' as employed by the BoE means that there are a number of other elements we should be looking out for in today's jobs report. The factors such as average hours worked, participation rate and number of part time and full time jobs are going to be key to understanding where the FOMC stands on rates going forward and until we see a pick-up in some of these measures, it is unlikely that we are going to see a Fed that is happy to raise rates.

Read the full report at Alpari News Room​

 

[Alpari UK]

US Opening Call from Alpari UK on 6 June 2014

We could be set for another day of high volatility in the markets as the US Department of Labour releases the latest jobs report. While this event may have been a little overshadowed this week by yesterday’s ECB meeting, I still expect it to generate a lot of interest and volatility in the markets. Ordinarily we can expect to see a little caution ahead of the release and that is evident this morning, with European indices and US futures both trading only marginally higher. Ahead of the opening bell on Wall Street, the S&P is seen 1 point higher, the Dow 18 points higher and the Nasdaq 3 points higher.


While it could be argued that the May report is not as important as recent months, a poor showing today would undoubtedly see questions resurface about the strength of the economic recovery. In previous months it was crucial that we saw better figures than what are normally deemed good enough during a recovery because the first quarter of the year was so disappointing. That is not necessarily the case now and as long as more than 200,000 jobs were created in May, I think the markets will accept it.

Following the Fed’s decision to look at a broader range of data as part of their revised forward guidance, other aspects of the jobs report have become increasingly important, while the unemployment rate has become less so. Participation has been a major talking point over the last couple of years, with many pointing to this as being part of the reason for the decline in unemployment. This may have contributed to last month’s 0.4% drop in the unemployment rate and therefore we shouldn’t necessarily be disappointed if that rises this month, as long as participation picks up as well.

Aside from the jobs report, there’s very little else being released today, not that investors need another major event right now to try and make sense of and price into the markets.

Read the full report at Alpari News Room​

 

[Alpari UK]

Daily Market Update - 6 June 2014 - Alpari UK

https://www.youtube.com/watch?v=zqYJ3qvrcf0

Market Analyst Craig Erlam looks ahead to the US jobs report and what he thinks the markets are expecting and what will be viewed as acceptable.

 

[Alpari UK]

Weekly market preview from Alpari UK – 9 June 2014

The last week was an extremely busy one for the markets, with the ECB announcing a number of policy measures designed to bring some life back to the eurozone economy through both boosting support for small businesses and weakening the currency to improve competitiveness of its member states. The jobs report on Friday may have turned out to be something of a non-event but the week as a whole was quite eventful.

This coming week may not look so eventful but there’s still plenty for traders to get their teeth into, be it the Bank of Japan meeting, US retail sales or the unemployment data from the UK. On top of all of this, traders will have to absorb all of the information from last week and decide what this means going forward. All things considered, I expect volatility to be much better than what we’ve become accustomed to as of late, the last few days aside, with the uncertainty having disappeared for now and traders now focusing back on the data for signs that the global economy is headed in the right direction.

US

Compared to the week just gone, the coming days are not going to be the busiest in terms of economic data. That said, with so much data still to absorb from the week just gone, I don’t see that being too much of an issue in terms of market volatility. The key release this week, without doubt, is going to be the retail sales report, which is arguably one of the most important pieces of data each month.

In an economy like the US, where the consumer is so important, retail sales reports provide important insight into how the economy is really performing. While some figures may suggest things are on the up, if the consumers aren’t putting their hands in their pockets, there is something to be concerned about. Fortunately, that is not the case in the US right now, where retail sales have been on the rise for three consecutive months. We’re expecting a fourth consecutive positive number for April on Wednesday, with sales seen rising 0.5%.

Of the other releases due this week, weekly jobless claims stands out as another that people will turn to for further evidence that the recovery is on a solid footing. Aside from the odd blip, these numbers have been very good so far this year, falling close to 300,000 on a number of occasions. We’re expecting a similar result this week, with the number seen falling slightly to 306,000. Aside from being a good sign that companies are letting fewer people go, it also shows that people are finding it easier to leave one job and find another. This is a sign of a much healthier economy than we have seen in recent years.

Finally we have the preliminary University of Michigan consumer sentiment reading, which is seen rising from 81.9 to 83.2 in June. As mentioned earlier, the consumer is extremely important to the US economy so an improvement in the retail sales figure along with a pick up in sentiment for the coming months is just what we need to see if the improvement in the economy is going to be sustained.

UK

It wouldn’t necessarily be accurate to suggest that UK data is slipping under the radar right now, but compared to elsewhere, it’s not viewed as being hugely important. The reason for that is that people are using the data to determine what exactly its central bank will do in response, as this tends to get the biggest response in the markets. As it stands, the Bank of England is unlikely to either loosen or tighten monetary policy any time soon, making UK data of lesser interest to investors as that of the US or, in particular, the eurozone. As long, that is, as the data continues to point to a strong sustainable recovery.

So far there’s been no problems on this front. The UK has recorded strong economic growth, with confidence remaining strong and the consumer becoming increasingly confident that the worst is behind them. That will only continue to be the case as long as unemployment continues to fall, wages start to grow faster than inflation and the BoE remains accommodative. The latter is all but guaranteed as long as inflation doesn’t pick up significantly while. Unemployment has become less of an issue since the BoE broadened the range of things it was looking at when deciding on when to hike rates. The biggest problem stalling the recovery right now is wages. If wages don’t rise above inflation, the sustainability of the recovery will continue to be questioned.

The unemployment rate is expected to improve in April, dropping to 6.7% from 6.8% previously. This would be the lowest rate of unemployment in more than five years, giving both consumers and businesses even more confidence that the worse is behind us. Wages remains a problem and despite the average rising to 1.7% in March, it is expected to fall back to 1.2% in April.

There are a few other key pieces of data being released this week that’s worth watching, including the April manufacturing production figure, which is expected to show 0.4% growth, a fifth consecutive monthly increase. The other is the NIESR GDP estimate for the three months to the end of May. This should provide some useful insight into the figure we can expect for the second quarter. The number has been improving over the last few months and if we can see a similar improvement in the second quarter it would only boost confidence in the recovery.

Eurozone

It’s going to be a very quiet week when it comes to the euro area. There is bank holiday’s in France and Germany on Monday, which will likely lead to lower trading volumes next week. Aside from that, there is very few economic releases scheduled, with the only notable ones being industrial production for France and the eurozone. Even these are unlikely to have much of a market impact.

Asia & Oceania

Of all the regions, this one is looking the most interesting this week. That’s not to say we’re expecting the kind of weeks just seen in Europe, but there’s certainly more potentially market moving releases and events than in any other region. The most notable of these potentially comes from Japan, where the central bank is due to announce its latest monetary policy decision on Friday. While I believe the chances of any change in policy is slim; as we’ve learned from central banks in the past, particularly those in countries that are still trying to get back on a stable footing, we can’t rest on our laurels. The BoJ is very likely to ease again this year and there’s no guarantee that won’t be on Friday. The sales tax hike is likely to have a negative impact on the economy and therefore inflation. There is a chance that the BoJ has already seen enough evidence that confirms this and will decide to act, although as mentioned earlier, I believe this is unlikely.
Aside from this, there is plenty of other data being released from Japan, such as manufacturing data and current account figures for April. The final first quarter GDP reading is due to be released on Monday and is expected to show the figure being revised down slightly to 1.4%. This is only a marginal revision and should therefore not have much of an impact on the markets, but anything more significant could be viewed as concerning.

There’s also a few notable economic releases coming from China this week, such as the inflation reading on Tuesday and industrial production and fixed asset investment on Friday. Chinese inflation is not a huge concern at the moment as it has been below, or at, the People’s Bank of China’s target since the start of the year. This month it is expected to rise to 2.4%, 0.1% below target, which is still not a concern. Only when it moves significantly above this should we be concerned about the PBOC tightening policy and threatening the growth levels we’ve become accustomed to.

Read the full report at Alpari News Room​

 

[Alpari UK]

UK Opening Call from Alpari UK on 9 June 2014

European futures rally on encouraging data from Asia

• European indices seen higher on encouraging Chinese, Japanese and US data;
• Friday’s jobs report provides boost in Asia over night;
• China records highest trade surplus in more than five years;
• Japanese GDP sees unexpected upward revision.

European indices are expected to start the week on a positive note following the release of some encouraging data from China and Japan, while some overspill from Friday’s jobs report in the US isn’t doing any harm to sentiment either. The FTSE is expected to open 21 points higher this morning, while the CAC is seen 16 points higher and the DAX 29 points higher, or around a third of a percentage point in all cases.

The week has got off to a good start, with investors in Asia displaying some relief at Friday’s jobs data in the US. Of course, today is the first opportunity for Asian investors to react to the numbers and as we saw during the final session of last week, there was a little bit of uncertainty ahead of the release. Expectations were arguably a little punchy coming off such a strong month in April, but that never turned out to be the case, in fact, they were almost spot on.

Aside from cheering another encouraging jobs report, investors have also been boosted slightly by trade figures from China. The country reported a trade surplus just short of $36 billion in May, it’s largest surplus since January 2009. This came as exports rose by 7%, up from 0.9% the month before, while imports surprisingly fell by 1.6%. The clear positive here comes from the boost in exports, with the numbers potentially being less impacted by the distortions in the figures at the start of last year. What we may finally be seeing again is real (or as real as it gets for now) export figures for China. Of course the imports component of the data is still a concern which is probably why investors haven’t exactly got carried away with the data.

The release of this morning’s Japanese GDP revision has only given investors more reason to be positive this morning. Having previously expected a slight downward revision to the number, investors were instead treated to an upward revision to 6.7% on an annualised basis. What made this sweeter was that it was driven by capital investment, a sign that the message of Abenomics is getting through to the right people. Now, we can’t get too carried away with this data because it is very likely to be followed by a pretty dreadful second quarter. The key now for Japan, and for the Bank of Japan at the next few meetings, is how the country bounces back. That will determine what the next course of action is, whether it be monetary or fiscal stimulus, or neither.

The European session is shaping up to be a rather quiet one today. A combination of bank holiday’s in France and Germany, and a lack of economic data providing any kind of catalyst, may result in yet another low volume day. That said, traders were given a lot of information last week and we may see a case of this still being fully priced in today. Not to mention, the removal of so much uncertainty following last week’s ECB decision and Friday’s jobs report should help volatility and volume levels over the coming weeks.

Read the full report at Alpari News Room​

 

[Alpari UK]

US Opening Call from Alpari UK on 9 June 2014

US futures unchanged despite encouraging data in Asia

• US futures unchanged despite encouraging data in Asia;
• Chinese headline trade figure not telling the whole story;
• Japan could be facing significant contraction after posting strong growth in Q1;
• US session expected to be quiet with no data scheduled for release.

We’re expecting a relatively flat start to the week in the US, following a bright start in both Asia and Europe. While traders in both of these regions appear to be responding well to Friday’s jobs payrolls, the surge in Chinese exports and the upward revision to Japanese first quarter GDP, those in the US are not so impressed.

Of course, when we’re talking about the jobs report, it could be argued that this was fully priced in on Friday but I’d expect the data from Asia to be having more of an impact. That said, while both the Chinese and Japanese figures did have clear good points, these were somewhat offset by something less positive.

For example, Chinese exports rose by 7% resulting in the highest trade surplus in more than five years. On the face of it this is a big victory in what has been quite a disappointing year. On the other hand, it was around this time last year that the Chinese leadership started to get on top of the false accounting practices in which businesses were disguising capital inflows as genuine exports. With this no longer distorting both last year’s and this year’s figures for the early part of the year, we should now start to see better figures being reported. The other issue was the surprising drop in imports which will cast doubt on attempts to become a country more focus on domestic consumption than investment and exports.

The Japanese figure was another that looked extremely positive, with first quarter GDP rising to 6.7% on an annualised basis. The fact that this was driven by capital investment only makes the headline reading appear more impressive. However, the main reason for this surge in growth was consumers making additional purchases ahead of the sales tax hike on 1 April. Growth should be significantly lower in the second quarter as a result, with some already forecasting a 4% contraction, again on an annualised basis. It’s only once we know the second quarter figure that we can really make a judgement on the situation in Japan and whether Abenomics is really working.

As we’ve seen in Europe, where many countries are enjoying a bank holiday, the US session is expected to be rather quiet today. In fact, there are no significant pieces of data scheduled for release and trading volumes are likely to be quite reduced, largely due to the bank holiday’s in Europe.

Ahead of the opening bell on Wall Street, the S&P is expected to open unchanged, the Dow up 8 points and the Nasdaq up 1 point.

Read the full report at Alpari News Room​