Weekly market preview from Alpari UK – 18 August 2014
A mixed week ahead, as markets attempt to focus back on the fundamentals rather than continuous geopolitical fears which have been resurfacing one after another. Whilst this week is certainly not the showstopper that we have seen earlier in the month when the majority of central economic figures are provided, the release of BoE and Fed minutes along with Jackson Hole speeches means that there is a great chance to see significant volatility. Meanwhile, the release of a whole raft of PMI figures out of the eurozone gives a chance to make up for hugely disappointing GDP figures which have brought about the threat of yet another recession.
A somewhat quiet week in Asia means that the main event of note comes on Thursday when the HSBC manufacturing PMI figure is released in China. Meanwhile, the Japanese focus will be aimed towards the trade balance data on Wednesday. Finally, in Australia the release of RBA minutes completes a week that could see a major role in retrospective central bank releases especially given the existence of the Jackson Hole Symposium towards the end of the week.
Also be on the lookout for any progression of the Ukraine story, where ‘humanitarian aid’ from Russia certainly has the potential to flare up the situation once more. Finally, be aware of anything within the Middle East regarding Gaza or Iraq.
US
The US is once again going to be central this week, with the Fed outlook taking central stage for the most part. The release of FOMC minutes on Wednesday has the ability to provide a major move in the markets, yet it is the Jackson Hole Symposium which really can steal the show. This annual meeting brings together central bankers, academics, finance ministers and financiers from around the world to discuss the topics of the day, which on this occasion is titled “Re-Evaluating Labor Market Dynamics.” From a US standpoint, the major keynote speech comes on Thursday when Janet Yellen takes the stand. This meeting has been the stage upon which Janet Yellen’s predecessor sought to announce two separate rounds of bond buying to the markets. However, it remains to be seen if Yellen sees this meeting in quite the same light as Bernanke. The stage is certainly set to do so given Yellen’s unwillingness to provide any stable timeframe for interest rate hikes, instead sticking to the line that they will rise “a considerable time” after asset purchases end. This is certainly a subjective phrase and thus should we hear anything more concrete at this meeting, it has the potential to send the markets wild. Remember that whilst we are hoping to see Yellen announce something earth shattering, there is a high likeliness that in practice we are more likely to have to interpret a more detailed view on the labour market and relate that view upon what it could mean for rates going forward.
Prior to this meeting, the release of minutes from the last FOMC meeting are due on Wednesday, with people looking out for any signs that the tide is changing with regards to when we should see rates rise. There are already some members that feel the “considerable time” has already been used up and thus that the Fed should start moving soon on rates. With that in mind, I will be on the lookout for any members who have moved towards a more hawkish stance which is certainly a process which will happen increasingly over the coming months.
UK
A fairly quiet week ahead in the UK, where the release of retail sales and BoE minutes make up the only economic releases which have any likeliness of moving the markets. This is despite the release of CPI data, which I believe is highly unlikely to provide much volatility given its proximity to the much sought after 2% target.
The release of BoE minutes provide a clearer view of what specific outlooks are within the MPC with regards to a possible rate hike. The inflation report earlier this month provided us with further clarification with this respect, where Mark Carney said that rates would be expected to rise in 2015. This was largely expected, however, it will be interesting to see the views of other members and thus be on the lookout for any members fighting against the tide. The most notable of any such move would be to vote for a rate hike, yet the expectation is that all 9 members will continue to vote against such a move.
Thursday’s retail sales release provides a great insight into the behaviour of consumers within the UK at a time when the economy is booming out of the downturn that has plagued the global economy for the past 6 years. A strong consumer base is absolutely key to growing domestic demand of services in the economy and thus Thursday’s figure is well worth watching out for. Markets are expecting to see the figure pick up to around 0.4% from the 0.1% seen last month. Historically, this figure has the propensity to oscillate around from positive to negative growth throughout the year and thus it would be a good sign to see a second consecutive month of positive growth in this measure.
Eurozone
A somewhat patchy week for the eurozone ahead, where the release of various PMI figures on Thursday will be the only major economic data release of note, with the focus turning to the speech from Mario Draghi at Jackson Hole on Friday. Thursday’s PMI releases provide the major eurozone economies an opportunity to turn things around following the hugely disappointing GDP figures which saw Germany fall into negative growth, where the French and eurozone economies both stagnated with 0% quarter on quarter growth. Unfortunately this comes prior to even really feeling the effects of the Russian sanctions which have been imposed from both sides. With Russia making up a significant proportion of eurozone demand, there is a high likeliness of another poor growth figure in Q3. However, this will likely be reflected ahead of time through poor PMI figures given that they are a leading indicator. Thus look out for any deterioration in this figure to give a better idea of how the sectors are faring in the eurozone. On the face of it, pretty much all of the figures are expected to fall, apart from the French manufacturing figure, yet with that set to remain within contraction, the future looks pretty bleak in the eurozone.
On Friday, ECB President Mario Draghi is set to provide his keynote speech at the Jackson Hole Symposium where markets are hoping for gain further insights into his outlook for employment and monetary policy. With eurozone inflation continuing to flirt with the idea of deflation, the markets have been waiting to see one of two things. Either the recent range of measures imposed by Draghi (TLTRO’s, negative deposit rates and an end to the sterilisation of bond purchases) will kick in, bringing the inflation rate higher to alleviate pressure upon the ECB Otherwise Mario Draghi will have to finally step up to the plate and implement an asset purchase programme. It feels unlikely at the moment and thus the emphasis is likely to be upon improvements in the jobs market and how he expects those new measures to impact the eurozone. However, watch out for any hints that he would be willing to take the further steps if needed and what would be a threshold to do just that.
Asia & Oceania
A somewhat quiet week in Asia, where the main event will come in the form of the HSBC manufacturing PMI figure out of China, alongside a Japanese trade data release earlier in the week. The HSBC manufacturing PMI figure has provided one of the key leading indicators of economic health within the Chinese region, given it’s focus upon smaller firms which will typically feel any downturn most keenly. However, with the worst seemingly over, this figure has really lost it’s edge and thus I don’t expect too much market movement unless we see a major shock. Markets are expecting a figure marginally lower than the 51.7 number last month.
On Wednesday, the Japanese trade balance will provide the latest look at how the economy is faring following the establishment of both a higher sales tax and inflation rate. Logically this would typically make exports more expensive and thus less competitive. However, with the value of the yen significantly devalued in recent years, this has brought Japanese exporters a little more respite. That being said, ever since April’s sales tax hike we have seen a downward trajectory for exports and this is expected to continue apace.
Finally, in Australia a quiet week sees markets focus largely upon the release of minutes from the RBA on Tuesday. Unfortunately this is highly unlikely to bring any sort of market movement, given that the RBA has explicitly said that they plan to make no changes to the interest rate for some time now. Thus whilst it is certainly worth noting that this event is happening and there is a possibility of some market movement, I do not expect much at all.
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