Forex Research

[Alpari UK]

Reaction to ECB press conference from Alpari UK on 4 December 2014

It wasn’t the most eventful ECB press conference we’ve ever seen but one thing that did come from it is that the Draghi put appears to be losing its effectiveness. Despite what appeared to be his best efforts at appearing dovish and open to stronger unconventional stimulus efforts, the markets were simply disappointed that the job of fighting deflation had been passed off to next year. We may not have expected QE today but the least we wanted was a strong sign that it is to come and Draghi was very non-committal.

Ordinarily, Draghi’s comments would have probably come across very dovish and sent the euro tumbling. The problem now is the euro has fallen very far and its ability to fall further without QE is being tested. I do think that the ECB will act early next year but despite Draghi’s suggestion that QE is being prepared as an option - as is the case with the other measures - not to mention his claim that the unanimity was not required for it to be taken up, his demeanour today suggested that opposition remains too strong. And it’s quite obvious where that opposition is coming from.

QE aside, it looks likely that the ECB will make every effort (or almost) to increase its balance sheet to €2 trillion next year, especially with inflation and growth being revised significantly lower for this year and the next two. The fact that Germany, Italy and France led the decline in the downward revision to the inflation forecasts is further evidence that the inflation problem has spread to the core and more must be done. A claim Draghi also made a few weeks ago.

All things considered, the markets were not impressed. Despite dropping off early on in the press conference, EURUSD went on to rally more than one cent against the dollar (100 pips) and European stocks took a nose dive to trade deep in negative territory. We’ll now have to wait until January for the ECB to appease investors and until then, we may just see the euro pare some of the massive losses it’s experienced over the last six months.

Read the full report at Alpari News Room​

 

[Alpari UK]

Daily Market Update - 4 December 2014- Alpari UK

https://www.youtube.com/watch?v=AWtID2FwVz8

 

[Alpari UK]

US Opening call from Alpari UK - 5 December 2014

US jobs report set to see the week out with a bang

The European session got off to a bright start on Friday as investors responded to reports that emerged after the close on Thursday that claimed the ECB is preparing a broad based quantitative easing package for January.

These reports have yet to be confirmed and are unlikely to be given that ECB President Mario Draghi yesterday refused to be drawn into questions on when we could see QE, stating that everything depended on the data and appropriate measures would be taken. Needless to say, that doesn’t really tell us much and the reality is that the markets are just reacting on false reports.


With the US jobs report to come today, the ECB is likely to slip to the back of people’s minds as attention turns to the US economy and when we will see the first rate hike since June 2006. The Federal Reserve is the clear front runner to raise interest rates first of the major central banks, with the UK the only other one also close to doing so, but that looks to have been put back to the end of the year.

The jobs report is widely believed to be the most important release on the economic calendar each month, simply because a strong US economy – the world’s largest – is beneficial for everyone. Ordinarily, the aspects of the jobs report that people may most attention to are the unemployment rate and the non-farm payrolls – number of jobs created. However, that is not necessarily the case anymore as neither of these is what’s responsible for the Fed holding back on the first rate hike.

Unemployment is expected to remain at 5.8%, which is near the level that the Fed deems full employment, while 230,000 jobs are expected to have been created in October. Both of these are strong figures and will help buoy the markets but neither of these are going to encourage the Fed to raise rates. The Fed has made it perfectly clear that what concerns them most is wage growth, productivity and slack in the economy. Inflation is also a global concern but wage growth should help the Fed reach its 2% target.

With that in mind, the average hourly earnings number is arguably more important as this could be seen to holding back the economy at the moment. Rising wages could be the final piece of the puzzle as it would suggest that slack is declining and productivity is improving. A few months of above 2% wage growth could convince the Fed that the economy is on a strong sustainable path, paving the way for the first rate hike in the middle of next year.

The other number worth watching is the participation rate, which is expected to remain around 62.8%. This remains a problem as it highlights a lack of faith in the outlook, although a significant proportion of the decline in participation since 2008 can be attributed to an aging population so it’s not necessarily as bad as the headline figure suggests. Any improvement here though will be more than welcome.

The S&P is expected to open 3 points higher, the Dow 28 points higher and the Nasdaq 9 points higher.

Read the full report at Alpari News Room​

 

[Alpari UK]

Reaction to US jobs report from Alpari UK on 4 December 2014

The US economy added 321k jobs in November, as today’s jobs report surprised by posting the highest non-farm payrolls number for almost three years. This represents a massive surprise, with all market estimates pointing towards a significantly lower number, where the median number of 230k actually representing a fall from the 243k last month. For once, we have seen a comprehensively positive release, with the whole range of labour market indicators pointing towards a healthy and vibrant economy coming into the end of the year. With this, we are moving into an increasingly polarised landscape, where continued deterioration in Japan and the Eurozone is contrasted against bullish UK and US economies and that continues to be reflected in the currency markets as the likes of the EURUSD and USDJPY pairs move sharply in favour of the greenback.

Perhaps equally as important from a monetary policy standpoint is the fact that hours worked and hourly earnings both moved higher in November, meaning that the ‘slack’ continues to be eaten up in the jobs market. Thus with earnings now confidently outstripping inflation, real earnings growth appears to finally be something that is here to stay. Now all eyes turn to Janet Yellen and the FOMC, who are likely to be increasingly hawkish after today’s release, with the one thorn in their side coming in the form of continued downside in oil prices. Despite this, expectations of a Fed rise are likely to have been brought forward for many and this has been reflected by the downside seen in the US indices which are selling off. However, for the time being, this is unlikely to really impact equity prices as it is agreed that we will be waiting a long time yet until US rates begin to rise.

Read the full report at Alpari News Room​

 

[Alpari UK]

Daily Market Update - 5 December 2014 - Alpari UK

https://www.youtube.com/watch?v=oLvjiACAZz0

 

[Alpari UK]

Weekly market preview from Alpari UK – 8 December 2014

A mixed week ahead, with markets trying to take in all the data from the week just gone. Given that many of the major economic releases have been seen in that first week of the month, we are looking primarily at second tier announcements for potential volatility in the markets. In the US, the main event will come in the form of the retail sales number, which many expect to be strong given the recent massive jobs report numbers. In the UK, the only event of note comes on Tuesday, with the manufacturing production figure. Meanwhile in the eurozone, the announcement of the latest takeup of the TLTRO programme is going to be key to determining the effectiveness of ECB’s recent monetary policies.

In Asia, the CPI reading out of China will be crucial to as it provides us with an idea of whether the PBOC is likely to enact any further monetary stimulus. On the other hand, the Japanese focus will be upon the final Q3 GDP number amid a very quiet week. Finally, the Australian economy is looking towards a busy week, which culminates in Thursday’s jobs report.


US

The US economy is coming off the back of an absolutely massive jobs report, where the payroll figure of 321,000 represents the highest in almost 3 years. Given that we have seen such a figure in November, coming into the festive month of December, there is a chance we could see this kind of jobs growth continue apace into the new year. This week looks somewhat less exciting from an announcement point of view, with the release of retail sales and consumer sentiment figures the only real events of substance.

Thursday’s retail sales number looks particularly interesting given the recent jobs report because we now see that there wages are rising, hours worked are increasing and hiring is rising faster. This means greater amount of disposable income should be available to consumers who will most likely go out and spent it at the shops, especially with the existence of Black Friday on 28 November. This month-on-month figure tends to be temperamental, yet with estimates pointing towards a positive figure of 0.3% to match last month, I believe we could see a strong number.

On Friday, the release of the preliminary University of Michigan consumer sentiment survey will be interesting for an economy that is so reliant upon the consumer base as a source of demand which subsequently drives growth. The latest figure released last year was the highest in over 7 years and thus there is a clearly positive trend in place which I expect to continue. The market estimates point towards a rise from last month’s figure of 88.8 to somewhere close to 89.1.

UK

A very quiet week ahead for the UK, where the manufacturing production figure is one of very few interesting releases. This figure is interesting predominantly because of the fact that it is a measure of actual output as opposed to simply a view of what the sector is perceived to look like as we get in a PMI figure. The manufacturing sector is the second largest in the UK, after the services sector. Thus it is going to interesting to see if the sector can remain in positive growth, following a strong year which has seen only a single month of contraction. Estimates point towards a fall in the monthly figure from 0.4% to 0.2%, while the year-on-year figure is expected to improve from 2.9% to 3.2%.

Eurozone

A key week for the eurozone for one reason; the release of the figures from the latest tranche of TLTROs. This policy is one of the most crucial arrows to Mario Draghi’s bow in a bid to bring inflation back to something resembling normality. Quite frankly, the steps taken so far by the ECB have been nothing short disastrous, with none appearing to bring any form of growth or inflation upside. Thus despite his best wishes, it appears to be the case that the monetary policy steps taken so far have only had a tangible effect upon the markets and not the real most important targets such as price stability. With that in mind, it came as no surprise to see the TLTRO programme that the ECB pinned their hopes upon had a shockingly poor uptake in September, with banks choosing to only utilise €82.6 billion of the funds despite expectations closer to €150 billion. Thus heads now turn to the December tranche which is hoped will make up for the poor September uptake and prove that banks truly buy into the ECB’s plan to stimulate the single currency region.

Unfortunately I do not expect a massive takeup, because if anything growth prospects have worsened in the eurozone and as such the banks will be hesitant to lend and take on too much risk until we see signs of a strong recovery. It is highly likely that we see an improved figure but anything short of €150 billion would bring question marks over whether this policy really has the ability to make an impact. In terms of monetary policy, the expectation is a weak TLTRO takeup would mean people believe a QE programme could be coming. However, should we see a strong move towards the policy on Thursday, it could mean a buoyant Draghi would be likely to appear at next meeting, safe in the knowledge that he could stoke investment going forward with this measure.



Asia & Oceania

Asian markets will be in focus this week as data from China, Japan and Australia will set the tone for what could be another busy week for global markets. The week will start with Japan with the final revisions for third quarter GDP growth set for release. Previous numbers have shown a contraction but next week’s revision could well show that the contraction was not as deep as first expected. The reason for this is that business investment that was previously estimated to have fallen by 0.2% has actually seen a 3.1% capital increase for Japanese firms. Business investment accounts for around 14% of Japanese GDP. Despite what could be a positive revision it is probably still a long shot to say that the economy did not contract in Q3 but with both Barclays and JP Morgan citing reasons why a contraction may not have happened it wouldn’t be a total surprise to see this revision tick positive. Expectations are that the number will still be a contraction but only of 0.1%.

Asia also sees data from China and Australia this week, the headlines of which are CPI from China and unemployment from Australia. With China still struggling with growth numbers there is a potential of the world’s seconds largest economy falling by the wayside somewhat and falling into the same trap as other major economies. One thing that has saved them has been the slightly higher inflation figures, and with their economy not being reliant on the oil price, the Chinese have managed to sustain a higher inflation rate. This week’s number is expected at 1.6%, a numbers till very much manageable but quite a long way off the central bank target of 3.5%. This gap means there is still a significant amount of legroom for the PBOC to ease further and thus be on the lookout for this figure as a driver of future monetary action.

Australian unemployment is the last number of any note out of Asia next week. Again, expectations are for the rate to remain close to 12 year highs as business still struggle under uncertain economic conditions. The unemployment rate this week will also set the tone for monetary policy over the next 12 months. Commentators in Australian had been calling for raise to start to rise, however the high unemployment has led for the doves to remain fully in control. Back in October the central bank warned that rates would be on hold for an extended period of time and much like the US it will be a situation where the economy will not be able to sustain a change in monetary policy until unemployment at least starts to fall back to sustainable levels.

Read the full report at Alpari News Room​

 

[Alpari UK]

UK Opening Call from Alpari UK on 8 December 2014

Disappointing Asian data weighs ahead of European open

• Chinese trade balance figures disappointing despite deceiving headline figure;
• Japanese GDP revision highlights further weakness in Q3;
• German industrial production and eurozone confidence readings in focus today.

Disappointing data from China and Japan is weighing on European futures ahead of the open on Monday, as concerns about the state of two of the largest Asian economies overshadows Friday’s hugely impressive jobs report from the US.

Further evidence emerged overnight of the divergence being seen in some of the largest global economies, as Chinese trade balance figures and Japanese revised GDP data highlighted the increasingly worrying state of affairs in these two countries. Meanwhile on Friday, the US jobs report displayed strength across the board, from unemployment to jobs creation and wage growth, raising serious questions about the need for the Fed to remain so accommodative.

This is certainly not the case in China or Japan and in fact, the opposite is true with regards to the respective central bank policies, as the People’s Bank of China and Bank of Japan are both likely to loosen policy further in 2015, not tighten it which is what is expected from the Fed.

It is worth pointing out that Chinese trade figures are far from being reliable and to an extent, should be taken with a pinch of salt because they have been seriously called into question many times in the past. Most recently, this has been because of companies apparently using false invoicing practices in an attempt to pass off capital inflows as exports. This has caused massive distortions between the reported Chinese and Hong Kong trade figures between the two countries, calling into question whether the Chinese data can be relied upon at all.

The crackdown on these practices may be responsible for the huge drop in exports in November but it’s very difficult to know for sure as I’m sure weak global demand will also have played a part. The surprise drop in imports has managed to cover up the overall weakness in the trade figures as it means the headline figure shows a strong surplus in November, which can be quite deceiving.

Despite what the headline figure would suggest, this is some very disappointing trade data and provides further evidence of the weakness in the Chinese economy. The decline in imports highlights further weakening domestic demand as well as a slowing housing sector, as well as weakness in commodity prices which in themselves reflect the weaker outlook for the Chinese economy. On the bright side, this does leave the door wide open to central bank stimulus, with the data due out this week likely to further support it.

Japanese GDP figures for the third quarter were revised lower overnight, once again calling into question the effectiveness of Abenomics as the sales tax hike appears to have derailed what economic recovery we were actually seeing in the country. The economy contracted by 1.9% on an annualised basis, falling from -1.6% previously. The third quarter data has really called into question whether domestic demand can pick up as much as Japanese Prime Minister Shinzo Abe had hoped when he laid out his plan to return growth and inflation to the country. Japan is expected to exit recession in the fourth quarter but with an election happening in the meantime, Abe may find that support for Abenomics is waning.

As is going to be the case for large parts of the week, there is very little notable data being released in Europe or the US today. We have German industrial production figures before the European open, followed by the sentix investor confidence reading for the eurozone shortly after but aside from this it’s slim pickings.

The FTSE is expected to open 1 point lower, the CAC 10 points lower and the DAX 3 points lower.

Read the full report at Alpari News Room​

 

[Alpari UK]

US Opening Call from Alpari UK on 8 December 2014

US futures pull back from record highs on quiet data day

• US indices seen pulling back from record highs on Monday;
• Current environment supports further gains;
• Chinese record trade surplus not as good as headline figure suggests.

US futures are pointing to a slightly weaker open on Monday after hitting new record highs on Friday on the back of a strong November jobs report.

The weakness being seen ahead of the first trading day of the week is probably largely bring driven by the disappointing data seen in China and Japan overnight, although I imagine there’s also an element of profit taking following another good week for US stocks. While the rally in the US hasn’t been as strong recently as it was following the October lows, we’re still seeing the dips being bought as investors still see value at these levels.

Despite markets being at record levels, the current environment still supports further moves to the upside. We have a great combination of an ever strengthening US economy – you don’t need to look much further than Friday’s jobs report for evidence of this – and ultra-loose monetary policy from a number of major central banks. It doesn’t even matter than the Fed has ended is asset purchase program as the ECB is growing its balance sheet, the Bank of Japan is currently buying ¥80 trillion of assets per year and the People’s Bank of China is loosening monetary policy and expected to do more in the coming months.

We’ve reached the point where the disappointing Chinese and Japanese figures that were released overnight don’t even really worry markets too much as it means there’s more chance of additional stimulus measures being announced by the central bank. The Chinese trade balance figures at one time would have sent waves through the markets and prompted some panic, but now the reaction is minimal.

Despite exports falling to a seven month low of 4.7% in November, China recorded its largest ever trade surplus thanks to an even greater decline in imports, showing that while the headline figure may tell one story, the details are far more worrying. One problem we have here is that Chinese trade figures always throw up more questions than answers due to the lack of transparency. For example, in recent months, distortions with the reported trade figures between China and Hong Kong have led to suggestions that capital inflows are once again being passed off as exports. With these now being investigated closer, the export number has plummeted suggesting the numbers we’ve been looking at aren’t reliable. Imports on the other hand are struggling due to falling domestic demand, a slowing housing market and falling commodity prices.

The week ahead is looking rather quiet for the US, following a fairly manic one just passed. Today there is no notable economic releases scheduled, although we will hear from Dennis Lockhart who is one of the more dovish members of the Fed, although he currently is not a voting member of the FOMC.

The S&P is expected to open 4 points lower, the Dow 39 points lower and the Nasdaq 11 points lower.

Read the full report at Alpari News Room​

 

[Alpari UK]

Daily Market Update - 8 December 2014 - Alpari UK

https://www.youtube.com/watch?v=beY3XBdwirU

 

[Alpari UK]

UK Opening Call from Alpari UK on 9 December 2014

Fed rumours and Greek instability lead markets lower

• Markets tumble on reports of more hawkish Fed position;
• Greece also threatens market calm as Presidential elections brought forward to this month;
• UK industrial production and GDP in focus today.

European markets look set to get off to another negative start on Tuesday as reports suggest that the Fed is going to withdraw its commitment to low interest rates when it meets next week.

For a long time, the Fed has committed itself to keeping rates close to zero for a “considerable time” after the end of its third quantitative easing program, which was brought to an end in October. That language has effectively reassured investors that Fed driven market turbulence will be kept to a minimum and more importantly, that it will not act too hastily in withdrawing its support for the US economy at a time when the recovery remains fragile.

However, the recovery is no longer as fragile as it once was and in fact, the recent data would suggest the economy is quickly returning to some form of normality, with Friday’s jobs report showing wage growth even picking up again. This would suggest that the Fed has achieved its goals and can therefore look to moving interest rates away from record lows, with many people concerned about the impact such a long period of low interest rates could have going forward.

But regardless of the motivation behind the decision to remove the language from its statement, the markets clearly do not like the prospect of higher rates in the US even though we’re seeing large stimulus programs being adopted by a number of major central banks elsewhere.

Another worry for the markets is Greece, where the Presidential election has been brought forward by two months to December. This could trigger snap elections that, by law, would happen if parliament cannot agree on a 180 person majority – out of the 300 seat chamber – for the Prime Ministers chosen candidate. The ruling coalition currently holds 155 seats in parliament which means it’s going to have to rely on support from some of the smaller parties, one of which will not be far left Syriza party, which has opposed them from day one and are favourites in the polls, if an election is called.

This would be a disaster for the country as it finally nears the end of the bailout, with Syriza wanting to reverse a lot of the work that has been done between Samaras’ government and its lenders which would put the remaining bailout payments and any future deals into jeopardy and risky destroying any confidence that has been built up in the financial markets. The hope is that the Presidential vote will get the 180 votes needed and allow the talks between Greece and its lenders to continue in two months after an extension was agreed yesterday.

One again today, things are looking a little quiet on the economic calendar. There is a slight focus on the UK, with industrial and manufacturing figures due out for October and expected to show monthly increases of 0.2% in both cases, resulting in annual rises of 1.8% and 3.2%, respectively. This will be followed later by the latest NIESR GDP estimate for the three months to the end of November which can provide some insight into the fourth quarter performance ahead of the preliminary release next month.

The FTSE is expected to open 45 points lower, the CAC 21 points lower and the DAX 59 points lower.

Read the full report at Alpari News Room​