Weekly market preview from Alpari UK – 30 June 2014
It’s the first week of the month which can only mean one thing, central bank meetings galore and an abundance of high impact economic data, including of course, the US jobs report. The week will be shortened for those in the US, with 4th July celebrations meaning the markets will only be open from Monday to Thursday. As always, this tends to mean trading volumes on the final day of the week, and to a lesser extent throughout the week, are likely to be reduced.
Over in Europe, all eyes will be on the ECB meeting, which takes place on Thursday. That said, following the central banks decision last month to throw everything but the kitchen sink – with the kitchen sink in this case being quantitative easing – at the disinflation problem, this meeting could invite a little less attention and therefore markets may not be quite as volatile as we saw last month. That is not necessarily a bad thing though, volatility is good, excessive volatility though is arguably as bad as none at all.
The Asian sessions this week will be no quieter. Between the Reserve Bank of Australia decision on Tuesday, Chinese PMI readings and some key Japanese economic data, there’s going to be plenty for traders to get their teeth stuck into.
US
The start of the week is actually looking fairly quiet for the US, especially when compared to Wednesday and Thursday when traders will hardly have a chance to catch their breath. The two economic releases that stand out are the PMI readings, the Chicago PMI on Monday and the manufacturing PMI on Tuesday. The manufacturing PMI has returned near to the levels we were seeing at the end of last year, following the dip in the first quarter, which was largely driven by the woeful weather in many parts of the country. It was at the end of 2013 that many people were very optimistic about the economic picture this year and maybe now that we’re seeing these numbers back at similar levels, that optimism will return. This optimism and confidence in the economy is extremely important which is why these PMI readings are tracked so closely.
Things start to heat up on Wednesday with the private payrolls figure from ADP. The non-farm employment change reading is general viewed as a guide for the official non-farm payrolls figure, which will be released this month on Thursday due to Friday’s bank holiday in the US. Job creation is extremely important in any economy, particularly during a recovery and even more so when that recovery has been disrupted for an entire quarter by horrendous weather conditions that contributed largely to the 2.7% contraction in the first three months of the year. A reading of 206,000 is expected for the ADP reading, which if in line may not tell us too much given that traders tend to use this as a warning that the official number could either significantly miss or beat estimates.
Fed Chairwoman Janet Yellen is scheduled to speak at the International Monetary Fund in Washington DC on Wednesday. This is something that most traders, whether they’re planning to watch it or not, should be aware of and prepared for. Regardless of the event, comments from central bankers can bring a significant amount of volatility in the markets, especially when they are head of the Federal Reserve. Given the hawkish comments from James Bullard last week, Yellen is likely to be asked to clarify the Fed’s position on rates and confirm whether a rate hike at the start of next year is likely. As always, we should expect volatility and the potential for big moves.
This brings us to the final day of the week for many Americans and it promises to be a busy one. The jobs report will, as always take centre stage, with traders focusing primarily on the headline non-farm payrolls number, which is expected to post yet another number north of 200,000. Other aspects of the jobs report are also important though and can overshadow this reading, especially if it’s nearly in line with expectations. These include previous revisions to the non-farm payrolls figure, average hourly earnings and of course, the unemployment rate, which has fallen dramatically in recent months, even as the participation rate has remained fairly constant. We also shouldn’t forget the ISM non-manufacturing PMI, the final US release of the week. The services sector is extremely important to the US and therefore this tells us how optimistic people in the country’s most important sector actually are.
UK
With the Bank of England not meeting until next week, it’s looking like a pretty quiet week in the UK. Of the few pieces of data being released, the PMI readings clearly stand out, particularly the services number given that it is by far the country’s biggest sector. Services make up more than two thirds of total UK output so you can understand that while the manufacturing and construction sectors are important, if the services sector isn’t optimistic, it is a massive cause for concern. Fortunately, while the services PMI is seen pulling back slightly, it is still expected to remain at the high level of 58.1, down from 58.6 in June. The manufacturing and construction PMIs are also expected to ease off slightly, but as with the services number, they remain comfortably in growth territory so are far from being a concern.
Eurozone
This is going to be a very busy and important week for the eurozone, with a wide variety of data being released, from lagging numbers such as flash inflation numbers and retail sales to leading ones such as the manufacturing and services PMIs. On top of this we’ll have the ECB meeting which always promises plenty of market volatility.
The ECB meeting always stands out as the main event of the week and, to an extent it still does despite the action taken last month. The decision from the ECB to announce a whole package of stimulus measures was initially seen as far more stimulative than most had been expecting but it wasn’t long before people started picking holes in it. Clearly now, all anyone is interested in is quantitative easing and we may have to wait a while for that, if we ever actually see it. The ECB is extremely reluctant to try something that has been very successful in the US, UK and Japan, but would be far more complicated for them due to the lack of a single eurozone bond. Purchasing debt from individual would be much more difficult and in driving down yields on some country’s debt, may act as an incentive to ease off the austerity and reforms. This may make Thursday’s meeting a little less interesting but Mario Draghi has a way of getting exciting the markets.
The decision from the ECB to announce that new monetary stimulus package last month has also taken some of the importance away from the CPI reading for a couple of months. Any stimulus is going to take at least a couple of months to have an impact, so even if we see another dip in the inflation figure, it’s unlikely to tempt the ECB into easing further. Add to that the fact that the CPI inflation reading is expected to rise to 0.6% and this is unlikely to have the kind of impact it has in the recent past.
Aside from these, we also have manufacturing and services PMI readings for a number of eurozone countries being released, as well as the latest unemployment rate and retail sales for the eurozone, Spanish unemployment and German factory orders, among others. This is a lot to digest and as a result, I expect a lot of volatility in the euro this week.
Asia & Oceania
All of this in itself would be the makings of a busy week in the financial markets, but it’s not over there. China, Japan and Australia all have plenty to offer themselves, ensuring that the Asian session is likely to be just as lively as the other two.
The Chinese PMI readings quite often tend to have a significant impact no just on sentiment in Asia, but globally, so these are certainly something worth keeping an eye on. Quite often, the European open levels can be largely driven by either a good beat or bad miss on these numbers and that can impact risk appetite throughout the trading day. With China in the process of transitioning away from an investment and export driven model to one more associated with more developed countries, focusing on domestic consumption and building up the middle class, the services sector is becoming increasingly important. For that reason, the HSBC services and official non-manufacturing PMI readings are worth monitoring later on in the week. Both of these are currently in growth territory so don’t appear to pose a massive risk right now.
Manufacturing though remains of massive importance to the Chinese economy so its still the HSBC and official manufacturing PMIs that have the greatest impact. Sentiment around China hasn’t been great recently and many have questioned whether the country can maintain the kind of growth levels it has become accustomed to. The answer to this is probably no but that doesn’t mean they won’t manage the decline. These PMI readings tend to give an indication of expected activity in the sector in the coming months so are valued highly and can prompt quite a significant in the markets.
In Japan this week we have some key pieces of economic data being released, particularly the Tankan manufacturing index which is only released quarterly. It’s difficult to know at this stage what to expect from this. Economic activity picked up massively in the first quarter, largely driven by the increase in spending ahead of the sales tax hike on 1 April. However this did not have as much of an impact on the Tankan manufacturing index in the first quarter, although there was a noticable improvement in the non-manufacturing index. In the same way that activity dramatically increased in the first quarter, it is expected to decrease in the second so while these numbers may be poor, they may be somewhat overlooked as they will be viewed as distorted. To get a real idea of these numbers, the first three or four quarters will need to be averaged out, rather than paying too much attention to each one individually.
It’s looking like a very busy week for Australia, where there is plenty of data being released as well as a monetary policy decision from the Reserve Bank of Australia. Nothing is expected from the latter though as they have made it perfectly clear in recent months that rates are unlikely to change and there’s even been suggestions that the next one could be a hike, although that may not come this year.
The data is probably therefore more important here and the RBA will be looking for further evidence that the economy is improving once again. Between the housing data on Monday and Thursday, retail sales and trade balance figures, we could be looking at a fairly volatile week for the Aussie dollar. We’ll also hear from RBA Governor Glenn Stevens and Assistant Governor Guy Debelle in the days following the rate decision so may get more clarity on when we can expect that first rate hike.
It’s the first week of the month which can only mean one thing, central bank meetings galore and an abundance of high impact economic data, including of course, the US jobs report. The week will be shortened for those in the US, with 4th July celebrations meaning the markets will only be open from Monday to Thursday. As always, this tends to mean trading volumes on the final day of the week, and to a lesser extent throughout the week, are likely to be reduced.
Over in Europe, all eyes will be on the ECB meeting, which takes place on Thursday. That said, following the central banks decision last month to throw everything but the kitchen sink – with the kitchen sink in this case being quantitative easing – at the disinflation problem, this meeting could invite a little less attention and therefore markets may not be quite as volatile as we saw last month. That is not necessarily a bad thing though, volatility is good, excessive volatility though is arguably as bad as none at all.
The Asian sessions this week will be no quieter. Between the Reserve Bank of Australia decision on Tuesday, Chinese PMI readings and some key Japanese economic data, there’s going to be plenty for traders to get their teeth stuck into.
US
The start of the week is actually looking fairly quiet for the US, especially when compared to Wednesday and Thursday when traders will hardly have a chance to catch their breath. The two economic releases that stand out are the PMI readings, the Chicago PMI on Monday and the manufacturing PMI on Tuesday. The manufacturing PMI has returned near to the levels we were seeing at the end of last year, following the dip in the first quarter, which was largely driven by the woeful weather in many parts of the country. It was at the end of 2013 that many people were very optimistic about the economic picture this year and maybe now that we’re seeing these numbers back at similar levels, that optimism will return. This optimism and confidence in the economy is extremely important which is why these PMI readings are tracked so closely.
Things start to heat up on Wednesday with the private payrolls figure from ADP. The non-farm employment change reading is general viewed as a guide for the official non-farm payrolls figure, which will be released this month on Thursday due to Friday’s bank holiday in the US. Job creation is extremely important in any economy, particularly during a recovery and even more so when that recovery has been disrupted for an entire quarter by horrendous weather conditions that contributed largely to the 2.7% contraction in the first three months of the year. A reading of 206,000 is expected for the ADP reading, which if in line may not tell us too much given that traders tend to use this as a warning that the official number could either significantly miss or beat estimates.
Fed Chairwoman Janet Yellen is scheduled to speak at the International Monetary Fund in Washington DC on Wednesday. This is something that most traders, whether they’re planning to watch it or not, should be aware of and prepared for. Regardless of the event, comments from central bankers can bring a significant amount of volatility in the markets, especially when they are head of the Federal Reserve. Given the hawkish comments from James Bullard last week, Yellen is likely to be asked to clarify the Fed’s position on rates and confirm whether a rate hike at the start of next year is likely. As always, we should expect volatility and the potential for big moves.
This brings us to the final day of the week for many Americans and it promises to be a busy one. The jobs report will, as always take centre stage, with traders focusing primarily on the headline non-farm payrolls number, which is expected to post yet another number north of 200,000. Other aspects of the jobs report are also important though and can overshadow this reading, especially if it’s nearly in line with expectations. These include previous revisions to the non-farm payrolls figure, average hourly earnings and of course, the unemployment rate, which has fallen dramatically in recent months, even as the participation rate has remained fairly constant. We also shouldn’t forget the ISM non-manufacturing PMI, the final US release of the week. The services sector is extremely important to the US and therefore this tells us how optimistic people in the country’s most important sector actually are.
UK
With the Bank of England not meeting until next week, it’s looking like a pretty quiet week in the UK. Of the few pieces of data being released, the PMI readings clearly stand out, particularly the services number given that it is by far the country’s biggest sector. Services make up more than two thirds of total UK output so you can understand that while the manufacturing and construction sectors are important, if the services sector isn’t optimistic, it is a massive cause for concern. Fortunately, while the services PMI is seen pulling back slightly, it is still expected to remain at the high level of 58.1, down from 58.6 in June. The manufacturing and construction PMIs are also expected to ease off slightly, but as with the services number, they remain comfortably in growth territory so are far from being a concern.
Eurozone
This is going to be a very busy and important week for the eurozone, with a wide variety of data being released, from lagging numbers such as flash inflation numbers and retail sales to leading ones such as the manufacturing and services PMIs. On top of this we’ll have the ECB meeting which always promises plenty of market volatility.
The ECB meeting always stands out as the main event of the week and, to an extent it still does despite the action taken last month. The decision from the ECB to announce a whole package of stimulus measures was initially seen as far more stimulative than most had been expecting but it wasn’t long before people started picking holes in it. Clearly now, all anyone is interested in is quantitative easing and we may have to wait a while for that, if we ever actually see it. The ECB is extremely reluctant to try something that has been very successful in the US, UK and Japan, but would be far more complicated for them due to the lack of a single eurozone bond. Purchasing debt from individual would be much more difficult and in driving down yields on some country’s debt, may act as an incentive to ease off the austerity and reforms. This may make Thursday’s meeting a little less interesting but Mario Draghi has a way of getting exciting the markets.
The decision from the ECB to announce that new monetary stimulus package last month has also taken some of the importance away from the CPI reading for a couple of months. Any stimulus is going to take at least a couple of months to have an impact, so even if we see another dip in the inflation figure, it’s unlikely to tempt the ECB into easing further. Add to that the fact that the CPI inflation reading is expected to rise to 0.6% and this is unlikely to have the kind of impact it has in the recent past.
Aside from these, we also have manufacturing and services PMI readings for a number of eurozone countries being released, as well as the latest unemployment rate and retail sales for the eurozone, Spanish unemployment and German factory orders, among others. This is a lot to digest and as a result, I expect a lot of volatility in the euro this week.
Asia & Oceania
All of this in itself would be the makings of a busy week in the financial markets, but it’s not over there. China, Japan and Australia all have plenty to offer themselves, ensuring that the Asian session is likely to be just as lively as the other two.
The Chinese PMI readings quite often tend to have a significant impact no just on sentiment in Asia, but globally, so these are certainly something worth keeping an eye on. Quite often, the European open levels can be largely driven by either a good beat or bad miss on these numbers and that can impact risk appetite throughout the trading day. With China in the process of transitioning away from an investment and export driven model to one more associated with more developed countries, focusing on domestic consumption and building up the middle class, the services sector is becoming increasingly important. For that reason, the HSBC services and official non-manufacturing PMI readings are worth monitoring later on in the week. Both of these are currently in growth territory so don’t appear to pose a massive risk right now.
Manufacturing though remains of massive importance to the Chinese economy so its still the HSBC and official manufacturing PMIs that have the greatest impact. Sentiment around China hasn’t been great recently and many have questioned whether the country can maintain the kind of growth levels it has become accustomed to. The answer to this is probably no but that doesn’t mean they won’t manage the decline. These PMI readings tend to give an indication of expected activity in the sector in the coming months so are valued highly and can prompt quite a significant in the markets.
In Japan this week we have some key pieces of economic data being released, particularly the Tankan manufacturing index which is only released quarterly. It’s difficult to know at this stage what to expect from this. Economic activity picked up massively in the first quarter, largely driven by the increase in spending ahead of the sales tax hike on 1 April. However this did not have as much of an impact on the Tankan manufacturing index in the first quarter, although there was a noticable improvement in the non-manufacturing index. In the same way that activity dramatically increased in the first quarter, it is expected to decrease in the second so while these numbers may be poor, they may be somewhat overlooked as they will be viewed as distorted. To get a real idea of these numbers, the first three or four quarters will need to be averaged out, rather than paying too much attention to each one individually.
It’s looking like a very busy week for Australia, where there is plenty of data being released as well as a monetary policy decision from the Reserve Bank of Australia. Nothing is expected from the latter though as they have made it perfectly clear in recent months that rates are unlikely to change and there’s even been suggestions that the next one could be a hike, although that may not come this year.
The data is probably therefore more important here and the RBA will be looking for further evidence that the economy is improving once again. Between the housing data on Monday and Thursday, retail sales and trade balance figures, we could be looking at a fairly volatile week for the Aussie dollar. We’ll also hear from RBA Governor Glenn Stevens and Assistant Governor Guy Debelle in the days following the rate decision so may get more clarity on when we can expect that first rate hike.
Read the full report at Alpari News Room
