Forex Research

[Alpari UK]

UK Opening Call from Alpari UK on 14 July 2014

Positive start as European markets seek to make up the losses

• Are we due a wider market correction?
• Mario Draghi faces the European Parliament
• A look ahead

A bullish start to the week is ahead for global markets if the overnight Asian session is anything to go by, with the MSCI Asia Pacific Index rising for the first time in 5 trading days. Last week’s Eurozone fears sparked via the Portuguese banking system appear to have subsided and the we are now faced with a busy week of economic releases that seek to bring about a renewed focus upon economic strength and monetary policy. European futures are pointing towards a positive open, with the FTSE100 +20, CAC +20 and DAX +46 points.

Today represents the lull before the storm, whereby trading is likely to be determined by the underlying sentiment within the markets accompanied by a mix of expectations for the week ahead. The major market correction everyone has been talking about seems to have subsided, for now. Instead giving way to a more calm and steady platform for the week. This by no means that there is no further weakness ahead for some of the major indices, given that each of the corrections seen since late 2013 having lost almost all of the previous gains, each time setting a new higher low yet crucially going on to reach a new higher high. This being the case, as long as price doesn’t fall below 6450 in the FTSE100, then I am not worried about a more drawn out bearish market.

However, the more interesting question is whether we should see more of a drawn out correction. The year 2014 has been characterised by further record and multiyear highs for all the major European and US markets. However, with the economic landscape only just reaching a place where we can truly feel a degree of confidence within the UK and US, this has always felt like a somewhat uneasy occurance. The price of the FTSE100 broke above the pre-crisis highs back in early May 2013, a time when US and UK unemployment stood at 7.5% and 7.8% respectively. Meanwhile UK GDP had just moved out of negative territory and output was expanding at a measly 0.3%. Thus it seems somewhat ironic that at the time when we should probably feel the most confident economically, the questions being asked regarding whether we are finally going to see that major correction which has alluded this bull market thus far. The fact is that we should have corrected a long time ago, yet with record low interest rates and easy money thanks to the likes of the Fed and BoE, the markets have essentially been running on empty for a year in the form of low volumes and volatility. The markets have weathered the start of tapering, a fully blown Eurozone crisis and potential US military involvement in Syria, Ukraine and now Iraq. I cannot see why a scare in the Portuguese banking system is going to be the catalyst to finally bring that major correction we have been calling for since last May. However, with markets behaving in such unconventional ways, who it to say that any final correction is going to make any sense.

Today’s only event of note is going to come later in the day, where ECB governor Mario Draghi faces the European Parliament as they seek to better understand the monetary policy stance he currently holds and exactly what the ECB expects the future to hold for economic prospects. Given that the meeting centres around monetary policy, it is likely that we will see significant questioning around both the measures Draghi recently implemented, along with the one he didn’t. Unfortunately the markets seem somewhat transfixed with the idea of full scale asset purchases within the Eurozone and the Portuguese banking fears seen last week are only going to add to this. The ECB has recently warmed to the idea, yet Mario Draghi has a penchant for talk and it is highly likely that he sees an openly accommodative stance on the matter to reap half the benefits as actually doing it. Thus should he discuss the possibility of a QE programme, I would see him doing so with a view to devaluing the euro and boosting markets. It just does not seem likely in a collection of countries such as the Eurozone where so many differing economies are represented.

The week ahead looks jam packed full of major events to hopefully bring about that volatility everyone craves. One of the main themes will likely be upon Chinese growth, with the GDP release due on Wednesday. The recent uptick in economic indicators points towards the end of the slowdown seen in recent months, yet a Q2 GDP release will give us a much clearer idea of how much their economy has been affected. Meanwhile, Janet Yellen has a busy week ahead as she testifies on the semi-annual monetary policy report in Washington. The markets have been second guessing as to when interest rates are set to rise and we remain within a period of price discovery whereby any perceived change in Yellen’s outlook can dramatically impact the markets. When we finally do see that interest rate hike announced, it is likely to be very small, yet much like the start of tapering, it must be well handled or else it has the potential to bring the markets dramatically lower.

Read the full report at Alpari News Room​

 

[Alpari UK]

US Opening Call from Alpari UK on 14 July 2014

Draghi speech headlines quiet start to the week

• Slow start to the week seen but things will pick up tomorrow;
• Draghi speech the only notable event today;
• US retail sales and Yellen speech to come tomorrow.

This week offers plenty in terms of tier one economic data and some significant events, unfortunately though today is not one of those days. Despite this, the day has got off to a good start, with European indices posting strong gains and US futures pointing to a similarly positive open.

The last week was pretty grim for the markets as investors opted for a more risk averse approach. This meant European stocks continuing their recent slide and those in the US faltering at some big psychological levels. Today’s strong start ahead of a busy week may be a sign that the recent weakness is short-lived and more record highs are in store for the US.

As mentioned earlier, today is looking fairly quiet, with the only notable event to come being ECB President Mario Draghi’s speech on monetary policy in front of the Committee on Economic and Monetary Affairs of the European Parliament. Given that the ECB has only recently announced a large scale monetary stimulus program, this speech is unlikely to offer much in terms of the proximity of future stimulus efforts and what form they’re likely to come in.

Draghi may be questioned heavily on the selection of stimulus measures that the ECB opted for, given that they have come in for quite a lot of criticism by market participants. The consensus view has been that the ECB took the easy way out and many of the measures announced are going to have very little positive impact. I can’t imagine this therefore having much of a market impact, but as always with comments from a major central bank, you cannot write it off.

The first big day for the US comes tomorrow, with retail sales figures being released alongside manufacturing data. More important though is likely to be Fed Chairwoman Janet Yellen’s testimony on the semiannual monetary policy report before the Senate Banking Committee. Until now the Fed has refused to adopt a more hawkish tone despite the significant improvement in economic performance in the second quarter but that can only go on for so long. Eventually I expect Yellen to hint at a first rate hike in the first quarter of next year and when she does, investors may well freak out. That could well bring the end of these daily records being made and be the start of the next correction.

Ahead of the opening bell, the S&P is expected to open 7 points higher, the Dow 68 points higher and the Nasdaq 18 points higher.

Read the full report at Alpari News Room​

 

[Alpari UK]

Daily Market Update - 14 July 2014 - Alpari UK

https://www.youtube.com/watch?v=5Y1f8yciimc

Eurozone industrial production compounds fears - 01:24
Mario Draghi testimony set to dominate later on - 02:41
A look ahead to a Chinese and Fed focused week - 03:51

 

[Alpari UK]

UK Opening Call from Alpari UK on 15 July 2014

Further weakness ahead in Germany as ZEW dominates

• RBA minutes give few surprises
• BoJ also remains steady
• UK CPI unlikely to affect markets in a major way
• ZEW figures expected to highlight ongoing German weakening
• Yellen due to testify in US session

European markets are looking a little undecided ahead of the open as futures point towards a negative open despite another strong session overnight in the Asian markets. The release of a whole plethora of economic and monetary policy announcements today means that price will largely be driven by fundamental releases and thus as we go through the day a lot can change. As we stand, the FTSE100 is expected to open -8, CAC -5 and DAX -10 points.

A somewhat of a non-event overnight saw the Australian monetary policy minutes highlight the period of relative stability that the RBA is seeking for the economy. Given the transition away from a solely export led economy, towards one which is more dependent upon domestic consumption, it makes sense that interest rates remain low to stay accommodative towards investment at home. I expect to see this stance remain for some time now, with economic figures likely to pick up gradually in H2 given the expected resurgent strength of Chinese growth.

A similarly stable outlook from the BoJ too overnight saw their monetary policy remain steady at the current 60-70 trillion yen annual expansion of its monetary base. This comes despite the slowdown we have seen off the back of the sales tax hike back in April and begins to beg the question of whether we are going to see a rise in asset purchases at all. Today’s announcement also saw a moderate downgrade to growth forecasts with Japan GDP for 2014/15 now standing at 1% rather than the 1.1% projected back in April. However, one of the most notable events was the vote to throw out the proposition of making the 2% target a ‘medium-to-long term’ goal. Much has been made of whether Shinzo Abe will be able to reach this target in the near future as set out in his manifesto and the suggestion to push back on the timelines highlights the fact that it is becoming less and less likely to be hit in time. Unfortunately, it could take something like an increase in the rate of asset purchases to push CPI towards target and thus with the BoJ now throwing out the idea of moving the goalposts, it begs the question of how they will hit the target in time.

UK CPI comes back into focus today, with many viewing it as somewhat of a non-event given the current levels. It wasn’t so long ago that CPI stood around 3% and acted as a noose around the neck of Mark Carney when he first came to office. However, with current price inflation at 1.6%, it has hit somewhat of a sweet spot. Given the deflationary fears within the Eurozone, Carney will not want to see this fall too much further, especially at a time when he is considering a tighter monetary policy stance. Thus with forecasts pointing towards a fall to 1.5%, let’s hope it doesn’t fall yet further to begin causing a headache for the BoE.

Also later today, the ZEW economic sentiment surveys are expected to tell a story of shifting fortunes in the Eurozone, where German weakness is highlighted yet again. The German survey has been falling consistently for six months now, pulling back from the December high of 62 to todays expected reading of 28.0. Meanwhile, the Eurozone figure makes for a lot more easy reading, with expectations pointing towards a rise from 58.4 to 62.3. Unfortunately, despite the world cup win, German fortunes remain weak in the economic sphere, with poor factory orders, retail sales and unemployment claims pointing towards a slowdown in the region. Much of this has been expected given the extraordinarily strong Q1 that they seemed to have. However, if there is one thing that the Eurozone does not want it is a weak German economy pulling down growth. As sanctions are increased against Russia, the export figures from Germany are expected to wane further and thus there is no sign that we are out of the woods quite yet. Let’s just hope that the world cup beer sales make up for those unsold cars.

It is also worth noting that today represents the beginning of Janet Yellen’s semi-annual monetary policy testimony in Washington DC. To many this represents a major chance to gauge exactly where the Fed stand in relation to rates and thus we are expecting to see some market moves off the back of this. Given the strong jobs report seen earlier this month, there is a possibility of a more hawkish tone from Yellen. However, she is likely to wish to keep he cards close to her chest and thus it remains to be seen whether we will get anything too juicy out of this session.

Read the full report at Alpari News Room​

 

[Alpari UK]

Daily Market Update - 15 July 2014 - Alpari UK

https://www.youtube.com/watch?v=tHrif_T1H7g

 

[Alpari UK]

UK Opening Call from Alpari UK on 16 July 2014

Strong Chinese GDP fails to impress the markets

• Mixed messages from Janet Yellen in day one of her testimony;
• Strong Chinese data leaves Asian markets somewhat underwhelmed;
• UK jobs report absolutely key after yesterdays CPI reading.

A surprising degree of indecision seems to be creeping into the markets today despite better than expected figures out of China and an ongoing accommodative stance from Janet Yellen yesterday. Asian stocks saw a choppy session which ended without any clear direction and this appears to be creeping into the European mindset where we are expecting a mixed open. The FTSE100 is expected to open flat, CAC +5 and DAX -6 points.

Yesterday saw Janet Yellen take to the stand in what was the first in two days of testimony at the semi annual monetary policy report. Perhaps it was her way or trying to bring the much needed volatility back into the markets, but Yellen seemed to be both dovish and hawkish at different points within her testimony. She warned that should the labour market continue to improve faster than expected, then the rate hike would happen sooner and more rapidly than currently envisioned. However, she also later noted that the labour market remained weak and that an accommodative stance still remains necessary. So no more clarity there then.

In fact, the markets had managed to see some significant volatility yesterday well ahead of Janet Yellen even taking the stand. The release of a shocking spike in UK CPI (the highest jump in 20 months) followed by yet another very poor ZEW figure out of Germany meant that the likes of GBPUSD and EURUSD saw some major moves and subsequent retracements (certainly in the case of the EURUSD).

This volatility was expected to continue overnight, with the release of some absolutely key figures out of China, yet it seems markets do not know exactly how to take them given the mixed response. The release of Chinese growth, industrial production and fixed asset investment all gave us a pleasant surprise, showing that the slowdown within China was largely overstated and gives me greater confidence that within H2, the Asian powerhouse will be able to really kick on. However, we did not see the major market moves that would be expected and this is likely to be down to the fact that growth still remains relatively weak despite the rise from 7.4% to 7.5%. Yes this is the first rise in three quarters for China, but this is also only 0.1% higher than the slowest rate of growth since Q2 2009. It is not necessarily something to make a song and dance about. That being said, industrial production rose significantly more than expected and fixed asset investment also came in to the upside, so things should begin to pick up from here. It just seems that in Asia, they are not quite yet ready to become too enamoured by a single GDP print that is 0.1% higher than a multiyear low.

The UK comes back into focus this morning, when the release of employment figures will bring both the strength of the economic recovery and the timing of monetary policy from the BoE back into focus. Yesterday’s CPI reading of 1.9% provided us with a heightened awareness of exactly why today’s jobs report is so important. On one hand, the rapidly rising inflation rate is something which Mark Carney and co cannot tolerate for very long, and thus where we see a strengthening jobs market, it is safe to say that rates will be rising sooner rather than later. However, with Mark Carney also utilising the ‘spare capacity’ mindset, elements such as real wage growth become more important to such decision. Therefore, unless we start to see average earnings rise rapidly, there is going to be an issue at hand because the BoE will have to decide whether they are comfortable raising rates at a time when real wages are tumbling. Expectations for average earnings point towards a fall from 0.7% to 0.5%, standing in stark contrast to yesterdays spike in CPI. However, both claimant the count and unemployment rate figures are expected to come in steady following a very strong release last month and thus this current predicament is going to pose a problem for those at the MPC unless one of these measures begins to reverse their trend.

Read the full report at Alpari News Room​

 

[Alpari UK]

US Opening Call from Alpari UK on 16 July 2014

Markets bounce back ahead of second Yellen testimony

• Markets bounce back after yesterday’s losses;
• Yellen’s softened tone doesn’t change anything, yet;
• Chinese data boosts investor sentiment;
• UK unemployment falls but wage growth remains a problem;
• Yellen testimony key again today.

Janet Yellen may have spooked investors a little yesterday, with her warning that rates could rise earlier and quicker if economic data improves, but that’s not holding them back on Wednesday following the release of a strong second quarter GDP figure from China.

In reality, Yellen’s comments don’t actually change anything. The Fed’s monetary policy stance has always been data dependent and always will be. However, until now Yellen has refused to even speculate about higher rates, claiming it won’t happen until well after the end of tapering. Yesterday’s acknowledgement that they could rise has been seen as a slight softening in stance by Yellen and a sign that the Fed sees potential for the data to continue to improve to the point that a rate hike will need to be considered.

While this may have spooked investors, it was only ever going to be temporary because it doesn’t change current rate expectations. Today’s Chinese data has been a real boost for investors who have been looking for any reason to buy the dips recently. Given the concerns about Chinese growth earlier this year, it is a big relief to see the country growing at 7.5% in the second quarter, even if this is largely due to the targeted stimulus efforts of the government and central bank. As long as this continues, investors will be happy.

There was mixed news for the UK this morning, who saw its unemployment rate fall to 6.5% in the three months to May, a near five and a half year low, and jobless claims fall 36,300. As has been the trend for a while now, this positive employment report came alongside data showing weakness in wage growth which is likely to delay any decision by the Bank of England to hike interest rates. They will be very reluctant to raise rates at a time when inflation is easily outstripping wage growth, especially given how reliant the economy is on consumer spending.

There’s plenty of data due out of the US today, although the majority of it is lower impact reports, such as PPI inflation and industrial production numbers. The key event will again be Janet Yellens testimony, this time in front of the House Financial Services Committee. This tends to go much the same way as yesterday’s testimony but it’s still worth watching as some of the questions will be different and there may be attempts made to expand on some of yesterday’s hawkish comments.

Ahead of the opening bell, the S&P is expected to open up 5 points, the Dow up 42 points and the Nasdaq up 21 points.

Read the full report at Alpari News Room​

 

[Alpari UK]

Daily Market Update - 16th July 2014 - Alpari UK

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

 

[Alpari UK]

UK Opening Call from Alpari UK on 17 July 2014

Eurozone CPI looks to dominate an otherwise quiet session

• Yellen pulls back from micro commentary
• Time Warner bid shows M&A market continues to boom
• Potential second corporate default brings risk off view to China
• Eurozone CPI expected to dominate European session.

European markets are looking a little downbeat despite a fourth day of growth in Asian stocks. That being said, with yesterday representing one of the strongest days of upside in over four months for the FTSE100, perhaps a move to pare some of those gains was always likely. A light overnight session is looking to give way to a somewhat one-dimensional European outlook with Eurozone CPI providing the single major release ahead of the US open. European markets are expected to open lower, with the FTSE100 -16, CAC -10 and DAX -12 points.

Janet Yellen’s two day testimony in Washington drew to a close yesterday, as she fielded questions from the House financial services committee. This was largely a non-event, with an identical initial statement matched by fairly similar question to that pitched by the Senate. However, it was notable that Yellen took a step back from her initial comments regarding the fact that she sees concern over biotech and social-media company valuations. On this occasion, Yellen stated that the Fed doesn’t necessarily target equity valuations, with valuations seeming to be at historical norms.

However, I am sure Yellen will pay close attention to the ongoing M&A boom which continued apace with the $80 billion takeover bid from 21st Century Fox for Time Warner. The ongoing environment of major M&A activity is a sign of booming balance sheets and economic confidence within the markets. Thus whilst we continue to see major takeover bids such as this, it points to yet further strength within the markets as firms make the most of record low interest rates and growing revenue streams.

In China, signs are pointing towards a possible second corporate default in what is the worlds largest corporate debtload. The default of Chaori back in March rang alarm bells for many in the markets, given Chinese unwillingness to let such a thing happen in the past. However, at that point we asked whether this was going to be the first of many. Thus the announcement that Huatong Road & Bridge Group Co. may be the second to go down the default path is highly notable and brings a more risk off scenario for investors.

The major event of the day comes from the Eurozone, where the latest CPI figure looks set to provide yet another test of Mario Draghi’s monetary policy framework. Weak inflation has been the single most persistant problem for Draghi in 2014, as a threat of deflation has turned even the most ardent hawk into a dove. Markets have been baying for a gutsy response from Draghi and in turn he decided to throw everything but the kitchen sink at the problem, expecting that the likes of negative deposit rates and TLTRO’s will reverse the downward trend in prices. However, this is likely to take some time to significantly affect CPI and as such markets are looking out for a steady figure of 0.5%. By all means, a steady figure is better than another drop in price growth, yet with CPI standing at the lowest level in 4 ½ years, we are beginning to approach a now or never moment where any further decrease could call for drastic measures. Those measures would surely have to come in the form of asset purchases, which remains the one golden card Draghi has yet to play. It does not come without difficulties and as such he would most likely prefer not to resort to such drastic measures. However, as months pass and the expectations grow in response to Draghi’s recent actions, we have to see a shift in CPI or else markets will begin pricing in a high likeliness of asset purchases.

Read the full report at Alpari News Room​

 

[Alpari UK]

US Opening Call from Alpari UK on 17 July 2014

Russian sanctions weigh on risk appetite ahead of US data

• Risk appetite takes a hit on new Russia sanctions;
• Negative impacts likely to be temporary, could reverse today;
• Housing, jobs and manufacturing in focus for the US.

Risk aversion has returned to the markets on Thursday after the US and Europe announced a fresh round of sanctions against Russia in response to its part in the Ukrainian conflict. European indices are trading lower across the board and we’re expecting to see a similar response after the opening bell on Wall Street, with the S&P seen 7 points lower, the Dow 38 points lower and the Nasdaq 14 points lower.

The Ukrainian crisis hasn’t been a big focus for the markets recently, with it having fallen out of the headlines and the risk associated to it having been priced in. However, additional sanctions such as those imposed by the US and those expected by Europe at the end of July, have the potential to escalate the crisis further, not to mention damage the economies of those involved in the sanctions. Germany is the prime example of this given the amount of trade it conducts with Russia.

The pull back in the markets is only likely to be temporary though, given the size of the sell-off that we’ve seen in response to the sanctions. This is hardly a major development, it’s simply a case of a tad more risk being priced in. In fact, we could see these losses reversed as early as today, with plenty of data being released from the US this afternoon.

While Yellen’s testimony over the last couple of days was viewed as slightly hawkish, I don’t believe there was enough in it to prompt the kind of sell on good news scenario that we’ve seen at times in recent years. Yellen highlighted housing as one area that has not really performed well this year so at this stage, a boost in building permit and housing starts would be welcomed, not feared.

The jobless claims numbers have been persistently strong and the same is expected today, with 310,000 new claims expected for last week. Continuing claims are also expected to drop slightly, to 2.575 million, close to the near 6 year lows that it hit recently. We also have the Philly Fed manufacturing index being released today so there’s plenty of data for traders to get their teeth stuck into that could provide that boost to move indices back into positive territory.

We also shouldn’t overlook corporate earnings season in all of this. Earnings season doesn’t just impact the stocks and sectors involved, it has an impact on sentiment as a whole so the performance during the season should be monitored to determine risk appetite.

Read the full report at Alpari News Room​