Forex Research

[Alpari UK]

US Opening Call from Alpari UK on 3 October 2014

US jobs report expected to spark volatility

• Mario Draghi disappoints as ABS takes centre stage
• Hong Kong fears ease
• UK services PMI pulls back
• US jobs report expected to bring volatility.

Global markets are looking in a more positive mindset coming into the crucial US jobs report today, as fears surrounding the Hong Kong protests have subsided somewhat. The release of a poor UK services PMI figure has done little to quell the positivity seen early in the session and instead we await the reaction to the monthly volatility driver that is the nonfarm payrolls. US markets are expected to beat a losing streak that has pretty much lasted the whole week, with the S&P500 expected to open +9, DJIA +70 and Nasdaq +16 points.

Yesterday saw Mario Draghi take the stand, bringing with it the usual anecdotes regarding slack and risks to the downside. However, it was his less than dovish outlook which took many offguard, insisting that the ECB had already done much to help the Eurozone. That being said, with the new ABS programme willing to take on more risky securities, there was some fire in the belly of the ECB and with the purchase of covered bonds set to start this month, at least there is something going into the system. That being said, with no growth, little inflation and poor jobs creation, the movement indication that any QE would be far away if ever didn’t come as a welcome message.

Overnight, the fears surrounding protests across Hong Kong seemed to have calmed down somewhat, with the news that the protestors would be willing to enter discussions with the current chief executive. Threats that the protestors would begin to take control over government buildings should he not leave the post seemed unsubstantiated, with Chinese warnings seemingly heeded. However, with both sides still far from any sort of resolution on a matter which has such clearly defined battle lines, it is difficult to know exactly how a compromise can be reached that will appease both the Chinese and Hong Kongers alike.

Today saw the UK services PMI fall back, erasing over two months of gains in the figure. The September figure of 58.7 came in well below market estimates and points towards a potential easing of this figure towards the back end of this year. 2013 saw significant growth in this survey in the final 5 months of the year and thus there was grounds to hope that this could provide a cyclical boost, however with this figure, it appears that there could be a more muted end to the year. The influence of the services PMI figure is undeniable, with the services sector making up 70% of GDP in the UK. Thus despite the fall today, significant growth remains and is likely to push the UK towards another strong showing for Q3. Ultimately, we have seen the UK services sector grow for 21 consecutive months and this is one main reason behind the strength of the UK economy. As long as we see figures well above the 50 market and closer to 60, there is little to worry about.

Today’s focus is certain to be upon the US jobs report due out later today. The disappointment of last month where a payrolls figure of 142k took everyone by surprise is now behind us and there is a feeling that the economy will return to the circa 200k figure seen in the 4 months preceding last month’s number. The payrolls figure has a tendency to revise higher and this is expected the same, so markets will be on the lookout for both September and August figures. In the past, September has somewhat disappointed, typically posting a figure lower than the year’s average. For this reason I think that a number below 210k is likely. Given Janet Yellen’s insistence that there is slack remaining within the economy, the focus of the release will also be upon factors such as the participation rate, hours worked and average hourly earnings growth.

Read the full report at Alpari News Room​

 

[Alpari UK]

Daily Market Update - 3 October 2014 - Alpari UK

https://www.youtube.com/watch?v=lzJ6-rVZLsg

 

[Alpari UK]

Reaction to US jobs report

The US economy added 248,000 jobs in September, as the markets are coming to grips with a jobs report which was hugely positive in quantity yet somewhat underwhelming in quality. Following the disappointing release last month, where a meagre 142,000 jobs were created, the focus was upon whether we would see both a recovery in September and a subsequent revision to the August number. In fact we saw both, with the third highest job creation in 2014 seen in September (248,000), set against the biggest upward revision of 2014 so far (180,000 up from 142,000). However, it was the often uninspiring unemployment rate which took the markets by surprise, with a tumble down to 5.9% from the 6.1% seen in August.

However, with a strong showing in headline employment numbers, came continued weakness in the actual quality of the labour market, with the participation rate falling to the lowest since February 1978 and average earnings pulling back to 0% growth month on month. This provides somewhat of a beneficial environment for Yellen to operate within and a difficult one for investors to gauge. In part this is due to the fact that whilst part time work remains rampant, earnings growth near enough non-existent and participation in the jobs market continues to wane, the so called ‘slack’ that has been referred to by Janet Yellen is well and truly still a problem. Janet Yellen has resisted calls to establish a specific date for interest rates to rise and today gave her the opportunity to continue doing so. However, as is seen within the UK, it comes to a point where such slack is regarded as a long term trend and thus the FOMC will need to bite the bullet sooner or later.

Read the full report at Alpari News Room​

 

[Alpari UK]

Weekly market preview from Alpari UK on 6 October 2014

Markets are expected to calm down somewhat this week as economic data points ease somewhat. However, there are still a handful of substantial events to note, with central banks likely to be the mainstay of market attention. In the US, there is a noticeable lack of events, where the main focus likely to be upon the FOMC minutes due on Wednesday. Meanwhile, the dominant release of the week in the UK is likely to be on Thursday, when the BoE release their latest monetary policy decision. On the other hand, a very quiet week in the Eurozone means that Mario Draghi’s speech on Thursday will take precedence amid a general lack of major announcements.

In Asia, the BoJ monetary policy release provides markets with a significant event to watch out for, as weakening inflation puts pressure on Kuroda to act. Finally, the Australians have probably the busiest week, where jobs data is preceded by the monetary policy decision at the RBA.

US

The second week of the month is always somewhat of a comedown, as the dust settles following Friday’s jobs report. This is understandable, given that we go from a very busy schedule to one where each region has on average just one main event of note. In the US, that comes in the form of the FOMC minutes, which are due out on Wednesday. Last month’s FOMC meeting brought about a certain air of predictability, where Janet Yellen chose to stay the course despite calls for her to provide a more specific timeline on interest rate hikes. However, Yellen instead stuck with her ‘considerable time’ outlook to rates causing the markets to push back timelines for when exactly they expect to see the first move. However, given that we did see a change in the expectations of the pace of rate hikes, with the Fed ‘dots’ implying that rates would raise at a faster rate than previously expected, there was something for both bulls and bears. The FOMC minutes are useful as a medium to gain greater clarity with regards to the differing views within the committee and for the most part that seems to mean people looking out for any increase in dovish or hawkish sentiment. The implementation of new policies within the Fed are almost always preceded by increased tones from within the committee members and thus by studying speeches and minutes alike, the markets are able to better understand where the Yellen is likely to move in the coming months. For this same reason, the speeches by Kocherlakota (Tuesday), Dudley (Tuesday) and Plosser (Friday) will also be crucial this week.

UK

A similar story in the UK, where the week is somewhat quiet apart from a single major event from the central bank with the BoE monetary policy decision on Thursday. Also like the Fed, the focus at the BoE is firmly centred around when the interest rates are set to rise. Unlike the Fed, Mark Carney has provided an idea of when this is likely to happen, with Spring 2015 looking like the time that we will see the first hike. This takes a lot of the indecision out of the markets and provides a somewhat more informed and predictable framework within which markets can operate. Thus I am not expecting to see too many major surprises at Thursday’s announcement. The bank rate is highly unlikely to move from the current 0.5% and asset purchases are not even a topic right now, so for the most part, we will be looking for any change of tone from the accompanying statement until later in the month when we see the votes and minutes.

Eurozone

Once again, the story within the Eurozone is one of a largely quiet week, with a single central bank event taking the headlines. On this occasion it is a speech from Mario Draghi on Thursday, when he is due to speak at the Brookings Institute in Washington DC. The recent ECB meeting saw a focus upon the new ABS system, which is due to be implemented in Q4. For the most part, this programme is relatively unknown, with many in the markets expecting it to represent a sort of QE-lite. Following the disclosure of many elements of this programme, it will be interesting to see whether Draghi can provide any further background to the scheme and shed light on how it is expected to impact the Eurozone economy. Much has been made of the possibility of a fully blown QE programme in the future and for this reason, markets will be on the lookout for any indication that it either is or isn’t likely going forward. The opposition from Bundesbank President Jens Weidmann to the ABS scheme makes me believe that a QE programme is unlikely and thus it will be interesting to see Draghi’s outlook on such a policy given recent criticism.

Earlier in the week, the German factory orders are released on Monday, with expectations pointing towards yet further downside in data for the industrial powerhouse. The progress of the German economy in recent months has been far from ideal, with negative growth coupled with disappointing manufacturing readings. Thus Monday’s figure is expected to be yet another reminder of the weaknesses in the German economy. That being said, the recent trade balance data pointed towards Eurozone demand holding up in face of weakened demand from the likes of Russia, and as a result it will be interesting to see if this figure reflects that Eurozone and UK demand or else continues the downward trajectory of recent German data.

Asia & Oceania

A quiet week in China means that the focus will largely be upon Japan for major economic data. Much like the US, UK and Eurozone, that focus is upon the central bank, where the BoJ is due to announce their latest monetary policy decision. The expectations within the Japanese region has been fairly constant for the most part of 2014, where the strong response to the April tax hike has meant that there has been less pressure on the BoJ to ease policy further. However, with a recent reduction in CPI it is clear that there is little chance of the BoJ hitting that 2% target in the near future unless something drastic happens. It seems that markets have picked up on this, with the USDJPY pair rallying over recent weeks in anticipation of further weakness. I do not expect to see any change in actual policy on Tuesday, yet the tone from the BoJ is going to be key and should we see any dovish tones emerge it would be likely that the yen would weaken further. With a potential second sales tax hike due for early 2015, the BoJ will need to sustain the economy somehow…

The ongoing protests in Hong Kong are sure to impact markets again this week, with both sides unlikely to back down in the near term. The rejection from protestors of a meeting with the current chief executive of Hong Kong point towards heightened tension and this means we could see yet further downside in the likes of the Hang Seng. Previous weakness has been matched by falls across western indices and thus it will be key to note whether the Asian markets move lower should the protests continue despite a likely recovery in Western markets next week.

Finally, the Australian economy has possibly the most active week ahead, with the release of the latest RBA monetary policy decision and jobs report. The RBA has been stuck in a limbo over recent months, where the weaknesses in the economy means that there is likely to be an element of RBA decision-making that would point towards an willingness to remain accommodative. However, with the Australian housing market threatening stability in much the same as has been seen in London, there is a feeling that the sensible thing is to refrain from lowering rates any further and start moving towards raising rates. Thus for the time being, I do not see any move from the RBA, until either data improves markedly or the housing market cools significantly.

Thursday brings the release of such data, with the jobs report anticipated to bring about yet further bad news where employment is expected to fall whilst the unemployment is forecast to rise. The unemployment rate has been on a long term upwards trajectory, rising from sub 5% levels in 2012 to the 6.1% seen last month. However, this is expected to continue with a rise to 6.2% predicted. Similarly, the employment change figure is forecast to reverse the strong August report, with a fall of -30,000 expected off the back of a strong 121,000 number last month. Ultimately, this feeds into the notion that the RBA is unlikely to move rates anytime soon and thus a poor report would provide any AUD bears with grounds to expect further downside.

Read the full report at Alpari News Room​

 

[Alpari UK]

US Opening Call from Alpari UK on 6 October 2014

US futures higher following two week sell-off

US futures are pointing higher on Monday, tracking the gains made early in the European session, as stocks look to pare some of the losses made over the last couple of weeks.

There’s very little actually driving the markets at the start of the week and in fact, the entire week is looking a little quiet. Given the correction seen over the last couple of weeks, with the S&P falling almost 5% at one stage, this could provide a good opportunity for stocks to erase some of these losses with investors potentially seeing this as a good opportunity to buy the dip.

That is if people do view this as just a correction in the still ongoing uptrend, rather than a the start of the correction in the much longer term uptrend. The closer we get to the first rate hikes from the Fed, the higher the chances are that the start of the correction will happen. Ordinarily, a central bank the size of the ECB could offset this if they were easing at the same time but I’m not sure that they are willing to do the kind of stimulus that the markets would accept, by which I mean quantitative easing.

From a technical standpoint, the selling over the last couple of weeks looks like a temporary correction more so than anything else, but trading this week could confirm whether this is in fact the case. A break back above 2,000 would initially support this view, with a break beyond the 2,019 highs providing confirmation.

As already mentioned, the day ahead is looking very quiet. There is no economic data scheduled to be release or any announcements, leaving people looking forward to the two central bank announcements overnight, from the Bank of Japan and the Reserve Bank of Australia. No change is expected from either of these, although the former could provide further insight into the possibility of further stimulus next year, with many thinking it will inevitably happen.

Ahead of the US open, the S&P is seen 4 points higher, the Dow 41 points higher and the Nasdaq 9 points higher.

Read the full report at Alpari News Room​

 

[Alpari UK]

Daily Market Update - 6 October 2014 - Alpari UK

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

 

[Alpari UK]

UK Opening Call from Alpari UK on 7 October 2014

Focus on UK with data and BoE survey being released

• Mixed start seen with little direction coming from US and Asia;
• RBA and BoJ unchanged but messages are very different;
• Yen rallies on warnings from Japanese PM Abe about yen weakness;
• UK in focus with data and BoE credit conditions survey being released.

European futures are pointing to a mixed start to the trading session on Tuesday, as investors take little direction from the US and Asian sessions overnight and look forward to another fairly quiet day in terms of major economic events.

Things don't really pick up until Wednesday when we'll get the minutes from the September Fed meeting which could provide further insight into the timing of the first rate hike, with markets still pricing it in for the middle of next year despite the fact that the economic data continues to remain strong and support earlier action from the central bank.

The problem with big events like these, as well as the latest Bank of England decision which comes on Thursday, is that they can prompt a little bit of caution from investors as they don't want to get caught out by these central banks which is very easily done. This is especially the case during trading sessions like yesterday when there is no big economic releases or news flow to provide a catalyst for some volatility.

Things should be a little better today, although once again we're getting little direction from the Asian session overnight with Chinese markets closed for a second day. The US session overnight was quite choppy as the lack of data and news flow prompted some early profit taking on the gains made late last week as the major indices approached some important technical levels. Eventually US indices ended the day marginally lower but I don't think there's much we can read into that.

This morning we've had two central bank decisions, with the Reserve Bank of Australia and the Bank of Japan leaving rates unchanged but sending quite different messages. The RBA stressed that while there was not expected to be any change in its stance for some time, the Aussie dollar remains strong, especially when compared with the weakness in commodity prices. Given both the strength in the US dollar recently and its commitment to leave rates unchanged, this doesn't necessarily mean much at this stage although traders will monitor these comments in the coming months to see if the language gets stronger.

The BoJ on the other hand pointed to the weakness in industrial production and highlighted the expected prolonged weakness in inflation at around 1.25%, while one policy maker even suggested making the 2% target a medium to long term goal but was heavily outvoted by eight to one. This would ordinarily suggest that the central bank may look to ease monetary policy further in the coming months but the comments on the damaging impact of the weak yen on small businesses and households from Japanese Prime Minister Shinzo Abe appear to have overshadowed this. We've seen in the past how much influence Abe can have on monetary policy decisions so these comments cannot be overlooked, and they haven't. The yen strengthened against the dollar following these comments.

The focus will predominantly be on the UK for much of the European session, as industrial and manufacturing production figures for August are released. These numbers are expected to bounce back following the previous months slight slowdown, once again reflecting the fact that while not every month is going to be great, the UK economic recovery is both strong and sustainable and any period of weakness is only temporary. These releases will be accompanied by the BoE credit conditions survey which should provide useful insight into bank lending in the previous quarter which can tell us a lot about both the health of the banks themselves and consumer and business appetite for loans, which only grows with confidence in the economic outlook.

Later on we'll also get the NIESR GDP estimate for the three months to September which could act as a preview for the first official release which is due in a couple of weeks. The numbers for the last couple of months haven't been as strong as we've become accustomed to which is to be expected but as long as we get another decent figure, above 0.5%, the markets are likely to be happy enough.

Ahead of the open, the FTSE is expected to open 13 points higher, the CAC 7 points lower and the DAX 10 points lower.

Read the full report at Alpari News Room​

 

[Alpari UK]

Daily Market Update - 7 October 2014 - Alpari UK

https://www.youtube.com/watch?v=VGMp9Ay-XDo

 

[Alpari UK]

US Opening Call from Alpari UK on 7 October 2014

Risk appetite low ahead of UK data and Fed speeches

• Poor German data weighs on sentiment;
• UK data mixed, NIESR GDP estimate up next;
• Fed speeches could provide clues ahead of tomorrow’s minutes.

It’s been a fairly negative start to the trading day in Europe, with industrial production numbers in Germany in particular hitting investor sentiment.

Once again it’s the eurozone that causing the biggest concerns after the latest data from Germany provided further evidence that the economy is struggling to recover from the summer lull. A certain proportion of the blame for the downturn has been put on the Ukrainian crisis and what it did to trade relations between Russia and the eurozone.

However, many people are starting to question just how much this can be blamed for the slowdown and whether it is in fact more to do with the fact that the economy just hasn’t recovered as much as we previously hoped. The eurozone economy is still extremely fragile and the low inflation environment is probably not helping matters. If we do see an improvement later this year I don’t expect it to be overly significant.

The UK figures were a little mixed this morning, with manufacturing production exceeding expectations in August while industrial production slightly missed. The July numbers were revised higher though which put more of a positive spin on things. Next up from the UK we have the NIESR GDP estimate for the three months to September which could provide an accurate forecast of the official third quarter GDP figure that will be released in a couple of weeks. For this reason, traders are likely to watch this very closely.

As far as the US is concerned, it’s looking a little quiet on the economic data side of things. We will hear from two members of the Federal Reserve which could provide some useful insight ahead of the minutes release tomorrow. Until now, aside from having two dissenting voters, the Fed has shown no willingness to change its stance despite the ongoing improvement in the data. It was speculated that they may remove the commitment to keep rates low for a “considerable period of time” after the end of asset purchases (this month) at the last meeting but that never happened. Maybe the minutes will tell us more about whether they intend to do that this month.

Ahead of the opening bell on Wall Street, the S&P is seen 8 points lower, the Dow 66 points lower and the Nasdaq 16 points lower.

Read the full report at Alpari News Room​

 

[Alpari UK]

UK Opening Call from Alpari UK on 8 October 2014

Sell-off continues as IMF downgrades global growth again

• Chinese HSBC services PMI falls back in September;
• IMF growth revisions spark another round of selling;
• Earnings season may give investors reason to be positive;
• FOMC minutes could cause quite a stir later.

It may have been a bad couple of weeks for the stock markets but it's clearly not over yet as another sell-off yesterday brought about the heaviest fall in more than two month in the US. This carried into Asia overnight as Chinese investors returned from their long weekend to see almost three quarters of a percent wiped off the Hang Seng and it now looks to continue into the European session again, with futures currently pointing to a much lower open.

Part of the Chinese sell-off could be attributed to the weakness seen in the HSBC services PMI reading, which fell from 54.1 to 53.5 for September. This is only a small drop but just provides further evidence of the uphill task facing the Chinese in their attempts to manoeuvre towards a consumption driven economy. Given the stimulus efforts announced last month from the PBOC, investors may be willing to overlook this minor weakness and instead wait to see what impact the new stimulus efforts have on the slowing economy.

The catalyst for the global sell-off on this occasion appears to be the IMFs decision to revise down global growth forecasts for this year and next by 0.1% and 0.2%, respectively. This has hardly come as a great shock given the crisis in the Ukraine and the impact it's had on a number of countries, not to mention the overall slowdown in the eurozone and the fact that we recently saw similar revisions from the OECD. What really didn't help was the fairly pessimistic language in the IMF comments, with the organisation using words such as "weak" and "uneven" to describe the current global economic recovery.

That's not to say what they're saying isn't correct because it absolutely is, but the markets appear to be very sensitive at the moment and it doesn't take much to get a reaction. This is effectively just the straw that broke the camels back. It says a lot about how investors perceive the levels that we've been trading at if everyone's fingers are on the trigger and at the first sign of negativity, we get heavy selling.

On the bright side, with earnings season unofficially beginning today, investors may find more reason to be positive again, at least for the next month or so. Wall Street has a tendency to go into earnings seasons with low expectations making it quite easy for companies to have a better than expected quarter. That said, we have seen some improvements on the revenue side of things this year, which could continue into the third quarter. For a long time, investors were focused predominantly on earnings growth, regardless of what was driving it. Now that we're seeing more organic growth, investors may be less willing to accept earnings growth that is still being driven solely by cost cutting efforts.

Today is expected to be very quiet in terms of economic data, particularly in Europe, which means the focus is likely to remain largely on the US. Not only is it the start of earnings season, we also have the release of the FOMC minutes from last month's meeting coming later on this evening, which could cause quite a stir in the markets.

Ahead of the European open, the FTSE is seen 29 points lower, the CAC 25 points lower and the DAX 58 points lower.

Read the full report at Alpari News Room​