Forex Research

[Alpari UK]

Daily Market Update - 9 January 2015 - Alpari UK

https://www.youtube.com/watch?v=6v90Jp6nOQU

 

[Alpari UK]

Weekly market preview from Alpari UK – 12 January 2015

With a big week in the market just gone, trading activity and excitement seems to have built up given the volatility seen as a result of the plummeting oil prices and continued talk of the possible introduction of a QE programme by the ECB later this month. The week ahead looks somewhat more mixed, with real major releases somewhat few and far between. In the US, the release of retail sales provides us with a greater degree of understanding regarding consumer behaviour. Meanwhile in the UK the CPI figure due out on Tuesday is going to be absolutely crucial following the oil induced fall into deflation for the eurozone. On the topic of the eurozone, the European court of justice ruling on Wednesday will bring the validity of the OMT programme back to the fore.

In Asia, the lack of any major releases means that we will be looking towards Australia as the main source of overnight newsflow. The Australian jobs report on Thursday represents the most significant release to watch out for.

US

The US region has by far the most significant events this week, given the somewhat thin week ahead for most countries. That being said, there are few that genuinely provide a significant likeliness of volatility following their release. Of the events to watch out for, the retail sales figure on Wednesday along with Friday’s CPI and consumer sentiment survey releases are the ones I am most keenly following.

The first of these is also possibly the most important, with the retail sales number representing the tangible result of both consumer sentiment and spending behaviour in December. Given that December is such a crucial month for the retail sector, all eyes will be focused on this number, following a strong November reading. The black Friday to cyber Monday trend seen throughout the US means that alot of the Christmas purchases are likely to have been made either in November or at a discounted price. For this reason, there are a number of people who believe we are going to see a weak number this month and the consensus is that there will only be a 0.1% rate of increase compared to the 0.7% figure in November. Given that the US economy is massively driven by consumer spending and behaviour, be aware that spending figures provide a great indication of economic activity in December which will no doubt impact growth figures.

On Friday, the US CPI figure is released, with many now watching closer than ever following the incessant fall in oil prices and the impact that is expected to have upon the inflation rates. In the US, the main measure of price growth is the PCE price index and for this reason, the CPI level is somewhat less crucial than in countries such as the UK and eurozone. However, given that the eurozone saw deflation in December it is going to be crucial to see whether this is going to be a global trend where falling oil prices push all the headline inflation rates lower. Should we see this week’s CPI figure fall lower than the -0.3% seen last month, it could be a cause for concern at the Fed and may indicate softness in the PCE number later this month.

Finally, the release of the University of Michigan consumer sentiment figure brings yet another focus upon the outlook of consumers in the US. Given that so much of the US economic growth can be attributed to domestic spending, a confident consumer base is key to seeing more of the strong GDP figures that have been evident in the US throughout 2014.

UK

A quiet week in the UK, where the biggest release to be watching out for will be Tuesday’s CPI release, following the global impact of falling oil prices. Much like the eurozone, the most important inflation reading in the UK is the CPI figure and in the same way that the ECB is expected to introduce QE as a result of falling inflation levels, the BoE will be watching very closely to see if any further downside in CPI will impact their monetary policy decisions. The likeliness is that should we see that move lower in inflation to any major degree, it will serve to reduce the likeliness of a rate hike in the near future. With that in mind, the yearly figure is expected to pull back from 1% to 0.7% for December. That is likely to be largely driven by oil prices, and given that the eurozone saw a fall from 0.3% to -0.2%, there is reason to believe it could an be even bigger fall. With the target rate of inflation set at 2% for the BoE, any move below 0.7% could bring serious anxiety at the BoE, limiting their ability to tighten monetary policy anytime soon.

Eurozone

Yet another quiet week in prospect in the eurozone, where the only major event of note comes in the form of a hearing at the European court of Justice, where the validity of the OMT programme comes under the spotlight. This follows the decision from the German Federal Constitutional Court to refer a list of questions to the European court regarding whether the consistent with primary EU law. The feeling within Germany is clearly that the ECB has overstepped its mandate and constitutes monetary financing of member states. However, this OMT programme provided a crucial backstop to sovereign debt and thus allowed the eurozone to survive during the height of the crisis. To some extent, the OMT programme is significantly less important than it was when introduced and that takes some of the sensitivity away from the issue. It is also worth bearing in mind that this ruling will largely be seen as advice to the Germans and thus the final decision from the German constitutional court will be more important. Nevertheless, it’s worth watching out for this event despite the fact that I think it will somewhat go under the radar for many.

Asian & Oceania

A distinct lack of market moving events within Asia means that we are looking towards Australia to provide volatility overnight and from that perspective, it is going to be Thursday’s jobs report which is by far the most interesting event of note. Unfortunately the trend for Australian unemployment has been far from impressive, with the 2008 low of 4% leading to a consistent rise towards the 6.3% level seen last month. Expectations point towards the figure remaining steady, but at some point we need to see a turnaround of sorts and that clearly has not been happening. The only beneficial figure which we have been seeing is the employment change figure, which has been positive for the past two readings. On this occasion, the expectation is that this number will pull back somewhat towards around 3.8k from 42.7k.

Read the full report at Alpari News Room​

 

[Alpari UK]

UK Opening Call from Alpari UK - 12 January 2015

Good morning,

The week ahead may not have as much to offer as the one just gone when it comes to hard hitting economic events, but with oil prices already making some significant moves overnight it would take a brave person to bet against these high levels of market volatility continuing.

At times last week investors were starting to feel a little bit more bullish as oil prices began to stabilise around $50 a barrel for Brent crude, giving equities the opportunity to pare some of the losses that have come with the decline in oil prices. However, that was only to last a couple of days with Friday bringing more volatility as oil prices dipped below the psychologically important $50 level and the US released it's widely followed jobs report which was seen as largely positive by the markets.

Brent may have recovered to close back above $50 at the end of the week but with prices opening lower overnight and now trading around $49.30, I think we're going to see plenty more volatility in the coming days as pressure mounts on oil producers to scale back production before prices get dangerously low.

Many people view $40 to be the level at which some producers may start to seriously struggle and be forced into cutting production. While many US shale companies may be hedged against these low prices for now, they're also quite heavily in debt and require prices to be much higher if they're going to be able to maintain the current levels of output. OPEC is effectively banking on this and I don't think we're too far away from that now. Oil may not have bottomed out quite yet but I think some of the bigger players in the markets may start to look at prices being quite cheap and see some good buying opportunities.

While oil is likely to continue to be a major driver in the markets this week, today also marks the unofficial start of US earnings season with Alcoa releasing fourth quarter results this evening. With the likes of JP Morgan, Goldman Sachs and Wells Fargo following this week, any stabilisation in oil prices may shift the focus to company earnings, especially with the week being so quiet on the economic data front.

The FTSE is expected to open 5 points higher, the CAC 11 points higher and the DAX 37 points higher.

Read the full report at Alpari News Room​

 

[Alpari UK]

Daily Market Update - 12 January 2015 - Alpari UK

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

 

[Alpari UK]

UK Opening Call from Alpari UK on 13 January 2015

Oil continues slide despite record Chinese crude imports

• Oil prices tumble again, weighing heavily on the energy sector;
• More reports of ECB QE supporting European stocks despite plans appearing flawed;
• Record Chinese crude imports fail to provide any support for oil;
• UK inflation in focus in quiet day of economic releases.

Another sharp decline in oil prices overnight weighed heavily on US energy stocks, while in Asia a better than expected trade balance update from China helped support stocks in the region.

As is quite often the case at the moment, oil prices are largely dictating play in the financial markets with energy companies acting as a major drag on the markets despite the fact that people are generally in agreement that lower oil prices are actually a net positive for the global economy. Of course, energy companies and countries heavily reliant on oil revenues will not be pleased to see the decline but overall, it's difficult not to see this as a good thing.

With the upside to lower oil prices being overlooked at the moment, I wonder if there's a strong rally in equity markets just around the corner, once oil prices begin to stabilise. I don't think this stabilisation is too far away with $40 widely seen as being a very significant barrier for prices. This should come around the time that consumers really start to see the benefit of the last 6 months slide in prices, with one place in Birmingham already selling petrol below £1 a litre, something we haven't really seen since around October 2007. Once the savings begin to filter through to the public then I expect to see a big upturn in spending in other areas such as retail.

It was interesting to see how little an impact the Chinese trade balance figures had on oil prices overnight, as they continued to tumble despite the world's second largest economy importing a record amount of crude, above 7 million barrels per day. This clearly shows that while global demand may be weaker that it's been in the past, the collapse of oil prices really is largely driven by the supply glut and the demand side just isn't helping matters. Overall the trade figures were encouraging although domestic demand really does remain quite weak, despite efforts being made to boost it, meaning Chinese exports are still hugely important to the country as it attempts to shift towards a more domestically driven economy.

European stocks were very resilient against the slide in oil prices yesterday and ahead of today's open, it looks like we're going to see more of the same. Yesterday's reports that the European Central Bank is drawing up plans for a quantitative easing program based on the contributions of the country to the central bank gave a significant boost to European stocks. As was the case when the US was buying bonds, we tend to see inflated prices in stocks and bonds and this is exactly what investors are preparing for now.

Aside from the additional liquidity that this will throw into the financial system, I don't really see how this will help the eurozone in any way. Countries like Germany will benefit most from the bond buying program as they make the largest contributions but with yields already below 0.5% on 10 year debt, I don't see how this will make much of a difference. If we do see this announced by the ECB when it meets next week, unless it's accompanied by efforts to improve the movement of cash to the areas where its needed most, as well as initiatives to boost demand, I think it's going to get a lot of criticism. The only positive thing would be that unlikely many of their initiatives in the last 12 months, this should succeed in growing the central banks balance sheet, even if the aid is going to the wrong places.

We have another quiet day in store with regards to economic data, with UK inflation figures the only notable readings this morning. While these are worth keeping a close eye on, expectations for the first Bank of England rate hike have been put back so far now - early 2016 in many people's opinions - due to the central banks admission that inflation is likely to fall further, that there's not much to read into today's numbers. Unless we get a much larger than expected decline, that is, which could suggest that the disinflation problem is much greater than the BoE is anticipating.

The FTSE is expected to open 7 points lower, the CAC 4 points lower and the DAX 5 points higher.

Read the full report at Alpari News Room​

 

[Alpari UK]

US Opening Call from Alpari UK on 13 January 2015

Oil falls further but markets rally on ECB stimulus hopes

Oil prices have continued to slide on Tuesday but stocks appear to be building some reliance to the decline, with European indices and US futures both trading comfortably in positive territory.

This is the second day in which oil prices have continued lower while European indices have headed higher. This is undoubtedly being helped by all the speculation surrounding the European Central Bank and the quantitative easing program is has been preparing in time for the next meeting on 22 January. While many people may be in agreement that the package will not address the real issue in the eurozone – especially if rumours yesterday that bond purchases will be based on each country’s contribution are true – it is clear that it will prove stimulative for the markets as it means liquidity being poured into the financial system.

Oil fell to a near six year low today as UAE oil minister Suhail bin Mohammed al Mazroui claimed OPEC will not change its strategy on production meaning the game of chicken between it and the US shale industry will continue for some time yet. Mazroui stressed that OPEC will not be meeting before the next scheduled event in June which effectively cements their position until at least that date. You get the impression that the only way OPEC would be willing to discuss production cuts at this stage is if similar cuts were agreed by the US shale companies. Given the debt levels of these companies and their costs, I would not be surprised if this happened in the coming months.

Until that happens, oil prices could continue to push lower which means inflation in many countries will also continue to head south. The UK is one of those countries that has seen inflation fall rapidly, largely thanks to the fall in oil prices. Prices rose by only 0.5% in December, down from 1% the month before and well below the 2% target set by the Chancellor or the Exchequer George Osborne. The fall below 1% means that BoE Governor Mark Carney is obliged to write a letter to Osborne explaining when the central bank expects inflation to return to target and what will be done to achieve this.

Food prices also contributed to the decline in prices as the price war continues between Britain’s big four supermarkets in an effort to win back market share after bargain retailers took a significant chunk throughout the great recession. While people will be quick to compare the low inflation in the UK to that of the eurozone, which fell into deflation territory last month, the two situations could not be more different and therefore should not be compared.

While the eurozone is seeing broad based deflation, high unemployment and therefore no wage growth, UK unemployment is very low, wages are already starting to rise – which brings with it inflationary pressures – and the areas in which we’re seeing deflation don’t carry the same threat that others would. People worry about deflation because it encourages people to delay purchases in the expectations that prices will fall, leading to a negative spiral of events. This would never be the case with food and oil so in fact, all that’s happening is people’s compulsory costs are being reduced leaving more money to spend elsewhere. This can’t possibly be a bad thing.

This afternoon we once again have very little data being released in the US. JOLTS job openings for November could be of interest but with the lag being so significant, you have to question whether the markets are even paying attention to these. Corporate earnings season got unofficially underway yesterday, with Alcoa announcing fourth quarter results. We have a few more big names reporting this week, including some major banks but even this is looking a little quiet today.

The S&P is expected to open 12 points higher, the Dow 107 points higher and the Nasdaq 30 points higher.

Read the full report at Alpari News Room​

 

[Alpari UK]

Daily Market Update - 13 January 2015 - Alpari UK

https://www.youtube.com/watch?v=HHBBXNoXV9k

 

[Alpari UK]

UK Opening Call from Alpari UK on 14 January 2015

• Europe seen lower as lower oil prices continue to weigh;
• World Bank revises down growth for 2015 and 2016;
• ECJ to give verdict on OMTs, potentially paving the way for QE this month.

The continued decline in oil prices is seen putting further strain on indices ahead of the European open on Wednesday, even as the ECB draws up plans for its widely anticipated bond buying program which is expected to be announced next week.

Quite often, central bank stimulus will trump most other things in the eyes of investors with more market liquidity meaning stocks must go up and bond yields must come down. Or at least, that has been the lessons from the last six years or so. However, it seems in falling oil prices, quantitative easing has met its match with energy companies weighing heavily on any gains being made on QE expectations.

The lower open expected in Europe has not been helped by the World Bank's new global growth forecasts for this year and next, both of which were revised lower. While the bank warned against relying on the US economy to drive global growth, it did highlight the opportunity that lower oil prices represents for oil-importing nations including China and India. Exporters of oil are expected to suffer quite considerably, especially Russia which is also battling against economic sanctions imposed by the West for its involvement in Ukraine, which is why the country is seen contracting by 2.9% this year.

The World Bank also highlighted some potential banana skins for the coming years, although none of these come as any surprise given they are the same things that have been discussed by analysts and economists everywhere. Higher borrowing costs in developing countries as a result of financial market volatility was top of the list, which also included setbacks in global trade if the eurozone or Japan falls into a prolonged period of stagnation or deflation and Chinese debt levels.

The European Court of Justice will this morning announce its decision on the legality of the Outright Monetary Transactions (OMTs) which was introduced as a backstop by the ECB but has never been tapped. The introduction of this as a backstop was a massive turning point for the eurozone and the fact that it was never used suggests it never will be and therefore, with regards to the OMT itself, today's ruling doesn't really matter. Not to mention the fact that it is non-binding and therefore the ECB could still, if it wants to, utilise the facility if it ever wished. However, if the ECJ deemed it to be outside of the ECBs remit, you can only imagine they would accept its decision.

With that in mind, this morning's ruling is being viewed as the red or green light for the ECB to announce a bond buying program which some have claimed, like the OMT, would be illegal. Given that both involve the purchase of government debt in the secondary market, this ruling effectively rules on whether it constitutes government funding or not and therefore falls within or outside of the central bank's remit. Given how much QE has now been priced in, it will be very interesting to see how the markets react to the ruling. If it's bad news for Mario Draghi, we could see some extreme volatility in the markets.

The FTSE is expected to open 84 points lower, the CAC 72 points lower and the DAX 150 points lower.

Read the full report at Alpari News Room​

 

[Alpari UK]

ECJ ruling gets market approval and Draghi given green light on QE

This morning's European Court of Justice ruling may not have been legally binding but it would have given those in Germany that believe the outright monetary transactions (OMTs) and quantitative easing (QE) do not lie within the ECBs remit a strong case if it comes to either be needed, with the latter potentially being announced next week.

Unfortunately for them, the ECJ appears to have ruled in favour of Mario Draghi and the members of the ECB that support both programs. The ECJ Advocate General this morning confirmed that the OMT may be legal although this was dependent on certain conditions being met. In principal, it was ruled that OMTs are in line with the EU treaty as long as there is no direct involvement in financial assistance programs for the member state. In other words, as long as the ECB is purchasing bonds on the secondary market, bond purchases are neither breaking the rules of the treaty or outside of its mandate. It did state though that the ECB must outline the reasons for adopting the unconventional measures, something I'm sure Draghi will be more than happy to do.

The ruling has dealt a massive blow to those that oppose both policies, none more so than Jens Weidmann who, despite his softening stance on QE, has been openly against such programs on the belief that they constitute government funding.

In reality, this ruling makes little difference to the OMT program, for now at least. No country has utilised the OMT program and all are in a much better position now than when it was announced and therefore no one is likely to. The most important thing the OMT program did was provide an important backstop for the eurozone which in turn brought yields on debt significantly lower. It effectively did the job it was designed to do and I don't think the ECB ever expected it to ever be utilised.

The reason why this ruling was so important was because of the implications it could have had for QE, which the ECB is expected to announce next week. Had the ECJ ruled against OMTs, Draghi would have come up against significant opposition as the two programs are very similar. Both involve purchasing government bonds on the secondary market, which some have argued constitutes government funding. With this hurdle now out of the way, Draghi is free to announce a bond buying program without fearing a backlash from those that previously called it illegal and outside of his remit.

Equity markets rallied following the ruling, as investors cheered the removal of another QE hurdle. The only one that remains now is the Greek election a few days later, which is likely to influence next week's announcement. Whether it will delay it for another month is tough to say but the markets would suggest not. Either way, QE now looks inevitable, if not at this meeting then in March. The only question now is how it will be implemented, with the ECB having a far tougher job that its US, UK and Japanese counterparts.

Read the full report at Alpari News Room​

 

[Alpari UK]

Daily Market Update - 14 January 2015 - Alpari UK

https://www.youtube.com/watch?v=ld9PUnj8NNI