0:21 US stocks pare losses yesterday
0:53 More volatility in Asia over night
1:45 European stocks higher on strong German data
2:19 What to expect later in the session
Forex research: Global markets daily
[B]FTSE to open higher after bank holiday weekend[/B]
Today’s UK opening call provides an update on:
• European markets to open higher on Tuesday;
• Volatility continues in Japan, as yield tug of war continues between BoJ and investors;
• US consumer confidence expected to hit 2013 highs in May;
• Investor sentiment remains fragile following Bernanke’s sucker punch last week.
We’re expecting a brighter start in Europe, with the FTSE, CAC and DAX futures all pointing to a higher open. This comes after the Nikkei posted more than 1% gains over night following a poor start to the week.
We’re continuing to see large amounts of volatility in Asia, particularly Japan, as the tug of war continues between the Bank of Japan, who want to buy huge amounts of debt and drive the yield lower, and investors, who want a larger return to compensate for the rising inflation expected in the next couple of years. So far neither has the upper hand, however we are seeing huge amounts of volatility as a result.
It’s going to be a relatively quiet start to the week again, in terms of economic data, with the calendar yesterday literally empty as the UK and US markets were closed for bank holiday. Both reopen again on Tuesday, however things aren’t likely to pick up much. Consumer confidence surveys for the US are expected to attract some attention this week, starting this afternoon with the release of the CB consumer confidence figure.
This is expected to jump to 2013 highs of 70.7, with consumers remaining upbeat after escaping both the fiscal cliff and the sequester relatively unscathed. This has been helped massively by a drop in energy prices this year which means consumers never did feel the full impact of the increase in the payroll tax in January. With oil prices on the rise again over the past month or so, we could see these consumer confidence numbers hit in the coming months.
Consumers aside, it’s likely to be another quiet day on Tuesday, with sentiment being largely driven by what happened in Asia over night, and any comments from the Federal Reserve about the prospect for monetary tightening in the coming months. Bernanke’s comments last week that we could see asset purchases phased out, starting this summer, dealt a real blow to the rally in the equity markets.
It’s a blow I expect them to recover from in the short term, at least until the Fed announce the first reduction in purchases, whenever that will come. That said, investor sentiment will struggle to recover properly from that one and any continuation of the rally is likely to be accompanied by a lot of caution, with investors now nervous about when the dreaded announcement, or hint, will come.
[B]EURUSD[/B]
The euro has remained bearish this week, after finding strong resistance again on Friday around 1.30, a major resistance level. The pair once again rebounded aggressively off the 50 fib level, highlighting the fact that there are huge amount of sell orders here, while plenty of long traders are clearly using this level to lock in profits. Around this level we also have the middle bollinger band, which the price action also rebounded off, and the 50 and 200-day SMAs. This is also a previous level of support and resistance so it’s going to take a big push to break it. For now though, it looks as though the pair is going to continue to push lower, with the next target being May’s lows around 1.2795, which is also the neckline of the major head and shoulders on the weekly chart. Along the way, the pair should find support around 1.29 and 1.2840.
[B]GBPUSD[/B]
Sterling is continuing to look bearish against the dollar, despite actually trading higher on the day. The pair found resistance yesterday around the 50 fib level on the 4-hour chart, which suggests that for now, at least, the market remains quite bearish. We could also be seeing a head and shoulders forming on the same chart, with the neckline around 1.5075. If this is the case, then the pair should find resistance today around 1.5125, before falling back towards the neckline. A break of the neckline should prompt a move towards 1.50, based on the size of the formation.
[B]USDJPY[/B]
We’re seeing further weakness in the yen this morning, following three consecutive winning sessions against the greenback. The pair found support on Friday, where the middle bollinger band crosses the 50 fib level. Since then, the middle bollinger band has continued to provide support for the pair, which now looks very bullish once again. Yesterday’s doji candle tends to signal a reversal in the trend, which had been bearish until that point. If today’s candle can close around the levels it’s currently trading at, or higher, it would create a morning star on the daily chart, which again is very bullish. On the 4-hour chart, the pair has also broken back above the middle bollinger band which is a bullish signal. If the pair can break above 1.52 now, it should prompt a move back towards last weeks’ highs around 103.72, although it should find further resistance first around 102.20, the 50-period SMA on the 4-hour chart and a previous level of support.
Ahead of the open we expect to see…
[B]US consumer confidence in focus on Tuesday[/B]
Today’s US opening call provides an update on:
[ul]
[li]European stocks track Asian counterparts higher;
[/li][li]Investors beginning to buy the dip in Japanese equities;
[/li][li]French consumer confidence plummets again in May;
[/li][li]US consumer confidence expected to hit 2013 high, although it may be deceiving.
[/li][/ul]
Investor sentiment is on the rise in Europe this morning, with stock indices following in the footsteps of their Asian counterparts over night, which recovered early losses to end the session higher.
A weaker yen helped push the Nikkei into the green over night, after the Japanese index dropped temporarily below 14000 for the first time since 7 May. The gains represent the first positive day in the Nikkei since it fell by 7.3% last Thursday.
Now that the dust is beginning to settle, we could be seeing traders take advantage of the dip in the market to buy on the cheap. Given that the Bank of Japans massive bond buying program is only just getting under way, I think this will be the case.
The improved investor sentiment has carried over into Europe this morning, with little else providing direction. The only economic release in Europe this morning has been the French consumer confidence figure which plummeted even further in May to 79, well below expectations on 85. The figure clearly highlights the dire state of affairs in the country, which recently fell into a triple dip recession.
Later in the US, the focus is going to be on the release of the May consumer confidence figure, which is expected to hit 2013 highs of 71.0. While this may prompt a positive reaction in the markets, I don’t think too many people will be getting carried away with the data, given that consumers are yet to feel the full impact of the increase in the payroll tax, which came into play at the start of the year.
The drop in energy prices this year has helped to cushion the blow so far, which essentially flatters figures such as these. Unfortunately, we can’t rely on these prices to continue to drop and in fact, oil prices are already on the rise again. I expect this to have an impact on consumer sentiment in the months ahead.
Ahead of the open we expect to see…
0:10 Japanese markets volatile after BoJ minutes
1:47 S&P500 expected to open higher
2:05 Markets increasingly fragile after Ben Bernanke comments
2:28 European Commission expected to move towards growth tomorrow
3:26 US consumer confidence figure has potential to push S&P500 to record high
Forex research: Global markets daily
It seen happen euro drop 1.2935 to 1.2868, almost 70++ drop,
[B]German unemployment and inflation data in focus[/B]
Today’s UK opening call provides an update on:
• European equity futures point to a lower open on Wednesday;
• Rally struggling to gather momentum following Bernanke comments last week;
• German unemployment and inflation data watched closely today;
• UK consumer spending expected to pick up in May.
Stock markets are struggling to gather any momentum this week, as European equity futures point to a lower open following quite a strong showing on Tuesday.
The rally in the equity markets appears to have temporarily grinded to a halt, following the comments from Fed Chairman Ben Bernanke last week, when he suggested that the $85 billion of asset purchases could begin to be phased out as early as this summer. There was a chance that investors could have used the pull back as an opportunity to buy the dip, as they have so often recently, however it seems these words of warning from Bernanke has well and truly hit home.
It also goes some way to confirm that the rally to this point has been largely driven by the huge amounts of stimulus being poured into financial markets since late last year. The fact that investors are less inclined to buy the dip suggests they were only doing so under the assumption that the Fed would continue with its asset purchase program, as it is now, until the end of the year. Now that this appears to have gone out of the window, the buy the dip mentality looks to have gone with it.
The economic calendar is looking a little light again on Wednesday, although Germany will attract some attention as May unemployment and inflation figures are released. At 6.9% since September, German unemployment has remained exceptionally low under the circumstances. Especially when compared that of the eurozone as a whole, which currently stands at 12.1%, or countries like Greece and Spain, where unemployment is above one in four.
We are expecting a third consecutive rise in the number of unemployed though, of 5,000, although this is only marginal so is not expected to have any impact on the unemployment rate, which is expected to remain at 6.9%.
After lunch, we then have the release of the CPI figure out of Germany. Following the ECBs decision to cut interest rates last month, and the threat of further monetary loosening in the months to come, any inflation data out of the eurozone is going to be watched closely for further signs of disinflation. Germany’s CPI figure has been well below the 2% target for months now, although we are expected a small increase in May, to 1.3%, the first rise in the figure since January.
While 1.3% is still well below the ECBs inflation target of below, but close to, 2%, this could suggest to the markets that we’re not going to see any further action at the next meeting in June. The fact that the inflation figure is on the rise is likely to convince the ECB to act with caution at the next meeting and leave rates as they are. Especially if we see a similar reaction in the eurozone CPI figure on Friday.
In the UK, the CBI realized sales for May will be released. This is expected to rise to 3, following its surprising drop into negative territory last month. Given the importance of consumer spending to the UK, any surprise here should prompt a reaction in the markets, especially following the poor retail sales data seen in April. Another poor figure here wouldn’t bode well for the second quarter growth figure.
Ahead of the open we expect to see…
[B]Growth revisions and German data weigh on sentiment[/B]
Today’s US opening call provides an update on:
[ul]
[li]Investor confidence fragile after Bernanke comments last week;
[/li][li]Only a matter of time until investors call Bernanke’s bluff;
[/li][li]German unemployment data falls short of expectations;
[/li][li]OECD and IMF revise Chinese and world growth forecasts lower.
[/li][/ul]
Improved investor sentiment following the release of strong US consumer data yesterday has quickly worn off, with European stock indices all trading in the red on Wednesday and US futures pointing to a similar open.
Ben Bernanke’s comments last week, when he hinted at monetary tightening in the next few months, have clearly knocked investor confidence. Over the last few weeks, investors had been buying into any dip in order to grab a bargain, before indices went on to hit new record highs on almost a daily basis.
Now that there’s no guarantee that Bernanke will support the rally in the long term, investors aren’t so keen to buy into something that has no fundamental support. Although, that could have been the intention on Bernanke’s comments last week.
By verbally intervening in the markets, he has essentially prevented equities reaching even more unsustainable levels, at least in the short term. It’s only a matter of time though until investors call his bluff and continue to buy the dips, although they are likely to be a lot more cautious about it now.
Economic data out of the eurozone this morning hasn’t helped sentiment, with German unemployment rising by 21,000 in May, far higher than the 5,000 forecast, and the biggest increase since April 2009. The unemployment rate remained at 6.9% though, which by comparison the eurozone, at 12.1%, and the likes of Greece and Spain, at more than 25%, is not a concern.
Sentiment has also been hit this morning by news of lowered growth revisions from both the IMF and the OECD. The IMF lowered China’s growth forecasts from 8% in 2013 and 8.2% in 2014, to 7.75% in both, while the OECS lowered its global growth forecast from 3.4% to 3.1%, a significant reduction which clearly takes into consideration slower growth expectations in both the US and China.
The revisions hardly come as a surprise though given that the data out of China has been well below par recently, while any positive data has been heavily questioned by analysts for its validity. To be honest, I would be very surprised if we don’t see further revisions from both the IMF and OECD this year. Especially when you consider the fact that Chinese forecasts are still above its government target of 7.5% this year, which is even starting to look a little optimistic.
Ahead of the open we expect to see…
0:10 OECD economic growth forecasts lead markets lower
1:38 IMF cuts Chinese growth forecast
2:09 EC country recommendations expected to bring negative outlook
3:29 Canadian interest rate decision
3:50 US GDP revision
Forex research: Global markets daily
European equities shake off overnight losses in Asia
Today’s UK opening call provides an update on:
• US and Asian stocks fall on global growth concerns;
• Eurozone confidence data expected to improve marginally in May;
• Italy to auction five and 10-year debt this morning;
• Focus in the US on GDP, jobless claims and housing data.
Concerns about global growth, after the OECD and the IMF revised their growth forecasts lower, and central banks’ exit strategies from quantitative easing weighed on equity markets in the US and Asia over night.
On Wednesday, the OECD warned that global economic growth over the next couple of years was going to be much lower than previously thought. They also warned about the potential negative impact, on governments, of central banks exiting from their quantitative easing programs. To make things worse, the IMF downgraded its growth forecasts for China, the country many hoped would help drive the global recovery this year. Investors appear ready to shake all this off though ahead of the equity open in Europe, with index futures currently pointing to a slightly higher open on Thursday.
Confidence in the eurozone has been at a major low over the couple of years, with the constant threat of collapse, deepening recessions and rising unemployment leaving consumers and businesses with very little to be optimistic about. We’ve seen a slight improvement here though since the start of the year, however it’s still well below the levels required for growth to return to the region.
The rate cut from the ECB earlier this month is unlikely to have had an impact on confidence in the eurozone yet, and probably never will. It’s going to take a lot more than a rate cut to improve lending in the eurozone and provide a boost to the economy, especially in the periphery. Until we see the real issues dealt with, neither businesses or consumers are going to feel the benefit. As a result, only a small improvement is expected in the eurozone confidence figures again in May.
Italian yields have fallen significantly since the start of the year, and at the last auction of 10-year debt, fell below 4% for the first time since October 2010. Governments in the periphery have benefited greatly from the huge amounts of liquidity being flooded into the financial markets by central banks. With equity markets at record highs, investors have been searching for higher yields, and with Draghi’s promise last year to do whatever it takes to save the euro significantly reducing the risk of default, they have naturally targeted peripheral bonds. As a result, we could see Italian yields fall again at the auction of five and 10-year this morning, while demand should remain strong.
Spanish first quarter GDP is expected to remain unchanged at 0.5%, when the first revision is released this morning. This leaves the country stuck in a deep recession and likely to stay there for at least the rest of the year, if not throughout most of 2014 as well.
There’s plenty of economic data out of the US on Thursday, starting with the release of the first quarter GDP figure. Market expectations are for growth of 2.5%, on an annualised basis, in the first quarter. I don’t see there being any surprises to the downside here, given the significant improvement seen in the economic data in the first quarter, in everything from housing data to consumer confidence and employment.
We also have the release of the weekly jobless claims this afternoon, which have been consistently below 350,000 for months now. Another figure below this level will be a very positive sign for the labour market in the US, although with the Fed threatening to pull the plug on its QE3 program, not necessarily a good thing for the rally in the equity markets. As a result, we could see a negative reaction to any figure significantly below market expectations of 340,000.
Finally we have pending home sales out of the US. An increase of 1.1% is expected in April, which will represent a rise of 12.6% compared to a year ago.
Ahead of the open we expect to see…
[B]EURUSD[/B]
This pair has turned a little bullish over the last 48 hours, after appearing very bearish over the last month or so. The pair looked destined to re-test the neckline of the head and shoulders, however this may now have all changed after the pair broke above a key resistance level around 1.30. Now that the pair has broken above the 50 fib level, along with the middle bollinger band on the daily chart and the 50 and 200-day SMAs, it seems sensible to assume that the trend has now changed. However, before I turn bullish, I think we need to see the 61.8 fib level broken, especially as this appears to have acted as resistance yesterday. At this stage though, that looks likely, with the 200-day SMA and 50 fib level both appearing to be providing support for the pair. For me, whichever of these breaks first will determine the next move for the pair. That said, if we break above the 61.8 fib level, it doesn’t mean we’ll necessarily see an aggressive move higher, we could see further range trading between 1.30 and 1.32, as we saw throughout April, before the market decides on the next move.
[B]GBPUSD[/B]
Sterling appears to have turned bearish again after finding resistance around the 100-day SMA this morning. The pair has looked quite bearish for a while though, with the rally over the last couple of days only looking like a brief retracement on the overall downtrend. It is finding support this morning around 1.52, which has previously been a support level for the pair, however if we see it break below here, it should prompt a move back towards 1.50, and potentially this years lows of 1.4830. The next level of support should come around 1.5150, a previous level of resistance, followed by 1.5109. The 1.50 level is key though, given that this has been a major level of support for the pair since the middle of March. That said, if the pair continues to push higher, it should find resistance around 1.5280, 50-day SMA, followed by 1.5320, both of which have previously been resistance levels.
[B]USDJPY[/B]
We’re continuing to see weakness in the dollar yen pair, although it appears to be finding strong support around the 50 fib level, just above 100, which in itself is a huge level of support. I will be very surprised to see a break below here, given that it is such a huge level of support. That said, traders don’t appear too desperate to buy at this level either. As a result, the pair could get stuck in a range for a while, before we see the continuation of the uptrend. If we do see continued weakness in the pair today, then I expect it to find support around 100.36, the 50 fib level, followed by 100, where the 200-period SMA on the 4-hour chart crosses that key support level. This is also a major psychological level for the pair. Any move higher should find resistance around 101.30, where the pair has failed to close above on the 4-hour chart since Wednesday.
[B]Markets continue to fall ahead of US consumer confidence figure[/B]
Today’s US opening call provides an update on:
[ul]
[li]Market correction continues as lower European markets point to negative US open
[/li][li]Eurozone unemployment rises again to bring record high
[/li][li]US consumer confidence figure anticipated to rise
[/li][li]Canadian monthly GDP expected to fall ahead of Mark Carney’s exit
[/li][/ul]
The markets have continued to fall today in what has become a hugely volatile period for the global markets, spurred on initially by the 7% loss in the Nikkei over a week ago. Many of our analytical team here at Alpari have been calling for a market correction for some time now, with record highs being reached on the back of increased liquidity and low bond yields as opposed to actual economic strength and growth. The Nikkei225 in particular has been the largest benefactor of the recent rise, increasing over 60% in the past year despite the recent pullback. Whether this is merely a temporary correction in the markets leading to further upside is yet to be seen, however the feeling is now that the markets have changed from using any excuse to rise into one where any negative event is likely to bring about a strong pullback in the indices.
The European markets have begun the day trading lower, with the FTSE100 currently down 75 points, CAC down 50 points and DAX down 80 points. This is in part associated with the Eurozone unemployment data released earlier today, which indicated that the unemployment for the bloc has now reached a record high of 12.2% as expected. On the whole this portrays a region which continues to worsen and is unlikely to improve anytime soon. The release of the OECD growth estimates on Wednesday also included key recommendations of US style quantitative easing measures for the Eurozone which was followed up by a shift in emphasis from austerity and towards growth targeting by the European Commission. Taken as a whole we can expect there to be more structural reforms in the coming period to bring about growth and subsequently lower unemployment, yet this will take some time to bring into effect.
The markets are looking towards the key University of Michigan’s consumer confidence index figure later today, where the markets are expecting a rise from 83.7 to 84.1. This figure has the tendency to bring about fairly significant shifts in the markets as a result and most recently the release has come in better than expected. Earlier in the week we saw the CB consumer sentiment figure come in significantly higher than expected and this could give a strong indication of where this UoM figure may come in. The market expectation of a 0.4 increase could be a little on the cautious side with the last two figure coming in approximately 5.4 and 3.1 higher than forecasted. Subsequently I am looking for a better than expected rise in this figure.
Lastly, we are looking towards Canada for the monthly GDP release which is expected to show a fall from 0.3% to 0.1%. Much has been made of the strength of Canada’s economy with Mark Carney gaining the top BoE job as a response to the handling of the economy. However, we are now looking towards Canada as an area of potential weakness and this release could be one such indicator. Each monthly GDP release has either met or beat expectations in the last five occasions and subsequently a lower than expected figure could be a sign of things to come.
The US markets are expected to…
0:48 Eurozone unemployment hits record highs
1:06 Eurozone inflation rises ahead of ECB meeting
2:02 US consumer confidence eyed this afternoon
Forex research: Global markets daily
[B]Manufacturing PMI’s set to dominate as markets continue lower[/B]
Today’s UK opening call provides an update on:
[ul]
[li]Chinese manufacturing PMI provides boost over weekend
[/li][li]Markets expected to open lower as Nikkei 225 leads the way
[/li][li]Australian retail sales disappoint
[/li][li]Chinese HSBC manufacturing PMI revised downwards bringing doubt to markets
[/li][li]European, UK and US manufacturing PMI releases set to dominate later
[/li][/ul]
The week started early on Saturday as China released the manufacturing PMI figure moments after the close of global forex markets at the end of the US session. Set against an increasingly pessimistic backdrop, the Chinese economy managed to bring a substantial boost to the global economy by beating expectations for the first time in 11 months. An increase from 50.6 to 50.8 may not seem to be a world beater, yet this is hugely important given this crucial indicator was widely forecasted to fall below the 50 mark and subsequently move out of expansion and into contraction.
The global indices have been experiencing an increasingly torrid time of late, with the FTSE100 falling almost 300 points since reaching a 5 ½ year high of 6716. Subsequently, the perceived strength of the Chinese economy is crucial given the over reliance of various developed nations upon the increased levels of economic activity brought about by a vibrant China. The manufacturing sector, being the mainstay of Chinese growth, is consequently one of the most important barometers of on-going economic strength. Thus the unexpected increase in the value of the Chinese manufacturing PMI figure represents a substantial boost to global growth and in particular the Australian and Japanese economies.
However, despite this the markets are expected to open lower this morning, led by the Japanese Nikkei225 index which is currently trading over 3% lower this morning. This follows on from an almost 20% fall from the 5 ½ year high set almost two weeks ago and highlights the volatile nature of the markets at this moment in time. The recent weakness within global equities always looked set to occur from the moment the likes of the S&P500 reached record highs given the weaknesses inherent within most advanced economies currently. However, the increased liquidity derived from substantial monetary loosening measures globally along with a shift away from fixed income investments owing to low bond yields has forced markets higher until the substantial correction we have recently seen.
It is yet to be seen whether this marks the beginning of a more extended downturn or whether we are merely within a temporary retracement where the markets merely overheated momentarily. Either way, it is clear that we have shifted from a position whereby any excuse can be used for markets to rally higher, towards one where markets fall given any available opportunity. The losses experienced within the Australian ASX200 this morning despite the strong Chinese PMI figure show how difficult markets are finding it to gain traction for a move higher.
[B]EURUSD[/B]
A mixed picture for the eurodollar today, where substantial gains were partially undone on Friday, painting a more indecisive scene ahead of trading throughout Monday. However, today’s price action could quite clearly have a significant role to play as the whether the pair look destined to continue in this current period of consolidation and sideways price action or whether we are looking to retest the recent lows towards the latter stages of the week. The daily chart points to a clear descending triangle formation which nears completion and thus I expect this upper descending trend-line to be respected as this also coincides with the 200 day moving average. This coupled with the stochastic and CCI indicators (both showing market to be overbought) point towards a move lower in the coming period with the ascending trend-line (1.279) and Fibonacci retracement (1.2726) providing key targets. That being said, if the price action can break and close above 1.306 today we would be looking at a much more bullish picture for the pair.
Looking at the weekly chart, the picture becomes a little more convoluted, where two features dominate. Firstly, there is a clear head a shoulders formation in existence since September 2012. This would ordinarily point towards a move lower by the height of the head, thus pointing to a move lower than the 2012 low of 1.2 should we break below the key neckline around 1.273. However, it is worth noting that this head and shoulders exists within a wider framework where a strong descending trend-line was broken and this can be highly bearish for a pair. Ultimately I am bearish for the pair given the expectations of increased monetary loosening in the eurozone going forward whilst the US discusses the tapering their current asset purchases.
[B]GBPUSD[/B]
Cable trades higher this morning after Friday erased much of the recent gains in the pair. The break below the ascending trend-line has been bearish for the pair throughout the month of May and today will be key in understanding whether this is likely to provide a return to the 1.484 region over the coming period. The upcoming level around 1.524 is likely to provide significant resistance as has been the case over a number of times in the past. The stochastic and CCI indicators are both at or around overbought and thus the emphasis for the week is bearish for me. However, I am looking for the 1.524 level to hold strong to force this pair lower.
Taking a look at the weekly chart it is clear how important that 1.524 level is historically and any ability to break above this region would be treated as highly bullish for the pair. The stochastic and CCI indicators are both pointing towards a move higher and should they be correct, we could be looking towards a move back into the range the pair traded within over the previous four years.
[B]Strong European PMI figures fail to lift markets[/B]
Today’s US opening call provides an update on:
[ul]
[li]Strong European PMI figures provide boost to the markets
[/li][li]UK manufacturing PMI rises to five month high
[/li][li]European indices remain down as selloff in the market continues
[/li][li]US looking forward towards PMI figure to reverse the slowdown
[/li][/ul]
A strong start for the European markets today as manufacturing PMI figures painted an improved picture across the Spanish, Italian and UK manufacturing sectors. The day is fairly unique for the fact that so many economies are releasing the exact same economic indicator, as China also provided their manufacturing PMI while the US are set to do the same later today. Within Europe, the a strong out-performance provided markets with an increased view that there is significant progress being made towards getting some of the harder hit economies back onto an even keel. In Spain, the expected increase from 44.7 to 45.5 was smashed after a rise to 48.1 brought the index back into sight of the much fabled 50 mark which denotes a sector in expansion rather than the current contraction. Similarly, in Italy the figure rose from from 45.5 to 47.3 despite markets predicting a rise to 46.2. Whilst this is a welcome boost for the markets and in particular the single market, it is worth noting that both countries still have manufacturing sectors in decline and given the mixed fortunes of this measure, there is no reason to predict a continued improvement with any certainty.
In the UK there was a somewhat more impressive manufacturing PMI release, with the sector expanding at an increased pace after the PMI rose from a revised figure of 50.2 to 51.3 despite expectations that it would come in only marginally above the key 50.0 mark. The manufacturing sector is by no means the core driver of growth within the UK given its over-reliance upon the services based industries. However as the country attempts to shift some of its focus away from those core area and diversify its growth base, this figure will no doubt provide great satisfaction to the likes of George Osborne.
Despite the strong results in Europe, the global indices continue to struggle as Japan paved the way to the week’s trading by ending their trading day 3.7% lower concluding an almost 20% sell-off from the 5 year highs set almost two weeks ago. Taking the lead from Japan, the UK and European equities have since failed to gain any significant traction provided by these strong PMI figures, as the FTSE100, CAC and DAX continue to trade lower. Much has been made of this recent pullback after many of the markets reached record or long term highs on the back of very little economic and fundamental strength.
The increasing availability of credit associated with banks having finally fulfilled their capital retention requirements, coupled with increased liquidity provided by the expansion of global central bank asset purchases has driven markets to levels which seem overvalued from a fundamental standpoint. Add to this the shift away from fixed income as associated with the record low bond yields from ‘safe haven’ issuers such as the UK and US and we have the most unstable and artificial stock market rally in history.
The US is largely looking towards the release of the manufacturing PMI figure to provide the same kind of improvement experienced within the US and Europe later today. The ISM release is expected at 10am ET and will be closely followed given the fact that over recent times we have seen significant responses from the market as a result of the sizable spikes seen in what is a fairly volatile figure. The fall from 54.2 to 50.7 has occurred over the last two releases, indicating the steep decline in purchasing managers expectations leading up today’s release. Subsequently there is certainly the potential for high volatility around this figure where any jump below 50 would be taken badly by the markets.
US markets are expected to fare more positively than their European counterparts, with the S&P500 expected to open +4 points and the DJIA +42 points.
0:17 Chinese Manufacturing PMI from Saturday undermined by HSBC revision
1:13 European manufacturing PMI beats expectations but continues to contract
1:45 UK manufacturing expands further, rising above forecasts
2:18 US manufacturing PMI falls into contraction, bringing the markets lower
Forex research: Global markets daily
[B]Markets rise again while the RBA keeps rate unchanged[/B]
Today’s UK opening call provides an update on:
• Markets expected to rise after yesterday’s widespread sell-off
• US PMI fall leads to dollar weakness after almost two week appreciation
• Australian RBA opt to keep rates steady at 2.75% despite on-going slowdown
• UK construction PMI expected to rise after yesterday’s positive manufacturing figure
European indices are expected to open higher today off the back of substantial losses experienced globally in what was a mixed day yesterday. The recent downturn has been seen by some as a retracement in what has proven to be an overall uptrend and subsequently there are widespread expectations of further upside over the coming period. However, it seems evident to those looking at markets from a more fundamental standpoint that this market correction has been due for an extended period of time.
One thing that is clear is that there has been an increasingly close correlation between the value of the dollar and the strength of global equity markets. Subsequently, as the dollar begins to lose value, it brings about an increasing likeliness that the equity markets will rally once more. Yesterday’s fall in the US PMI index may have initially brought about a temporary drop in the value of the likes of the S&P500, however, soon the potential impact this figure is likely to have upon the decision to taper QE led to a recovery and thus confirmation of this mutual relationship.
Yesterday we saw the devaluation of the US dollar across the board, spurred by the release of the disappointing ISM manufacturing PMI figure in the afternoon. This represents the first serious challenge to the strength of the dollar for almost two weeks bringing some of the most beleaguered currencies back into the green. In particular, the likes of the Australian and New Zealand dollars managed to claw back some of the substantial losses sustained over the past two weeks, in a move which brought about a more bullish tone for some of the alternate currencies.
It is the Australian dollar which continues to dominate headlines today, after the Reserve Bank of Australia took the decision to keep interest rates steady at 2.75% in a move which favoured a ‘wait and see’ approach after the reduction from 3% at last month’s meeting. RBA governor Glenn Stevens cited increasingly favourable financial conditions, such as funding availability for sovereign economies, as a core driver of growth going forward for the international economy. That being said, the inflation rate target of 2-3% is currently accommodative for further easing by the RBA with a current rate around 2.2%.
The recent devaluation as driven by last month’s rate reduction did not go unnoticed, however the RBA view the Australian dollar as remaining comparatively high given the decline in export prices experienced over the past year. Given the inflation outlook, coupled with the view that the Australian dollar remains overvalued, I am expecting a high likeliness of a further cut at next month’s meeting should the economic conditions not improve.
Looking forward, the UK construction PMI release looks set to dictate on-going sentiment. Market predictions point to a shift closer towards the widely heralded 50.0 mark having been in contraction for seven months now. However, given the outperformance of the manufacturing PMI figure yesterday, there is a more positive bias placed upon today’s release. Subsequently, there is a clear potential for the figure to rise higher than predictions, with the potential for shift into expansion.
Whilst the construction sector not the core driver of growth within the UK, its importance should not be underestimated due to the strong multiplier effects a vibrant construction industry has upon the rest of the economy. Furthermore, a strong construction industry brings about positive connotations about the easing credit market within the UK. Lastly, the ability for today’s figure to perform better than expected will feed into expectations of a strong services PMI figure tomorrow.
The European markets are expected to open higher, with the FTSE100 +35 points, CAC +13 points and DAX +38 points.
[B]EURUSD[/B]
The strong performance of the euro yesterday brought an increasingly bullish picture to the fore for this pair today after the candle closed marginally higher than the descending trend-line dating back to early February. The dollar weakness seen yesterday allowed this pair to rise, yet a clear respect for the 100 day moving average kept the price action in check. Subsequently, today we are looking at a crucial day of trading whereby our outlook for the pair can be further clarified with either a move higher, thus confirming a breakout from the descending triangle, or a move back into this formation to increase expectations of a return to the lows of 1.278. Taking the stochastic and CCI indicators into account, my bias is for a push lower into the triangle and a continuation of the devaluation in the euro. This is also consistent with the standpoint that the Fed is seeking to taper their stimulus package, whilst the ECB are expected to become increasingly loose with their monetary policy, thus pushing the euro lower.
Meanwhile on the weekly chart, the picture becomes a little more convoluted. The potential head and shoulders formation in existence since September points towards a push lower back down to the previous lows around 1.2 However, this is part of a larger retracement off the back of a descending trend-line breakout which would be bearish for the pair. However, when taking into account the fact that the pair have seen the price action retrace back to the 38.2 Fibonacci, followed by the 50.0 and subsequently returning to the 38.2, it seems like a very structured retracement as a part of a wider downtrend for the pair. That being said, we are currently trading in an uptrend over the last month which seems set to continue given the stochastic and CCI indicators are pointing to the upside. My target is for a return to 1.3149 and a push back to the downside from resistance at the 100 week moving average.
[B]GBPUSD[/B]
Cable trades lower today off the back of significant upside after yesterday’s poor US PMI figure. The pair have subsequently pushed higher, finding resistance at the 61.8 Fibonacci retracement and subsequently closing around the 50.0 retracement at 1.53. This current move seems to be a repeat of the previous trend whereby the losses during December-March were retraced by 50% prior to a further move back to the downside. In this instance, the pair have found resistance at 50% of the previous downturn and I expect to see further losses over the coming period. This is given further credence by the existence of both stochastic and CCI indicators being in overbought territory.
Taking a look at the weekly chart, yesterday’s push to the upside becomes increasingly important as this allowed the pair to break through a historical level of support and resistance around 1.524. The ability of the pair to hold above this level is always going to look bullish for the pair and this is backed up by the upward pointing CCI and stochastic indicators. Ultimately it is a tale of two charts, yet for the time being, I expect to see the price action retest 1.524 to find confirmation of new found support prior to a potential move higher.
[B]USDJPY[/B]
Significant losses in this pair yesterday saw the 100.0 level broken convincingly in a move which is highly bearish for the pair. The ability to close below this level has subsequently brought about a situation whereby a level previously regarded as a key support level can now turn back into resistance as was the case throughout April. Today will subsequently be highly crucial for the longer term outlook for the pair as confirmation of new found resistance would bring about an increasingly bearish picture for the pair while a push back above 100.0 would bring the bulls back to the market.
On the weekly chart, the picture becomes even clearer as to the importance of today’s price action. Currently resting on a confluence of points, where a key level of resistance coincides with the lower boundary of a well respected channel, along with the 100 week moving average. The ability to close below this level this week would be hugely bearish for the pair and thus point towards significant losses for the pair. That being said, it is clear that the BoJ is actively targeting the devaluation of the yen and thus any significant strengthening will likely bring about a further response in terms of monetary loosening.
[B]Strong European releases pave way for potential bull market[/B]
Today’s US opening call provides an update on:
[ul]
[li]Australian interest rate decision remains steady yet provides dovish tones
[/li][li]Spanish unemployment change continues strong week for the eurozone
[/li][li]European indices regain ground in potential turnaround for the markets
[/li][li]UK construction PMI beats expectations to cap off positive morning for European markets
[/li][li]US markets look towards trade balance figure for further export strength
[/li][/ul]
This morning, the Reserve Bank of Australia (RBA) announced their latest interest rate decision off the back of last month’s 25 basis point cut. The ultimate decision to keep the rate steady at 2.75% did not come as a significant surprise for the markets as the RBA took a ‘wait and see’ approach given the lag associated with monetary loosening measures on the whole. However, the markets have since taken much of the rhetoric provided by the central bank as a clue as to both the future interest rate policies along with the perceived strength of the Australian dollar. Governor Glenn Stevens stated that whilst the increasing availability of credit to sovereign nations has brought about a more positive tone to the economic environment, the bank remains open minded to further monetary loosening owing to the perceived overvaluing of the AUD. Despite recognising the benefit of last month’s cut in devaluing the Australian dollar, the fall in export prices mean that further losses would be required to bring the economy back into a more favourable position.
Spanish unemployment provided a key boost to the Eurozone this morning by announcing a highly significant fall in unemployment. Markets had originally factored in a reduction of approximately 50,200 , which would have represented an improvement of 4,100 people. However in a welcome surprise, the number of unemployed fell by 98,300, the largest reduction in 11 months. This comes off the back of yesterday’s positive Spanish and Italian manufacturing PMI figures and helps contribute to a growing feeling that the Eurozone is beginning to gain more traction in its push back towards stability.
The European stock indices have pared some of yesterday’s losses this morning as the positive start to the week has begun to impact upon trader sentiment. The market seems to be moving in highly volatile and prolongued trends recently, with much of the long term highs being wiped out by widespread losses over the past two weeks. However, signs are appearing that we could be entering a period whereby markets begin to gain a more bullish tone and start to head higher. The FTSE100 is currently trading +45 points, CAC +17 points and DAX +41 points.
The UK construction PMI continued to bring about a more positive tone to markets this morning, defying forecasts by pushing back into expansion for the first time since October 2012. Expectations that we were likely to see a rise back towards the all important 50.0 mark seemed to potentially be a little conservative and given yesterday’s out-performance in the manufacturing PMI figure, today’s strong rise to 50.8 seemed increasingly possible. The markets are now focusing upon tomorrows crucial services PMI release to complete a clean sweep for the UK economy ahead of Thursday’s BoE monetary policy decision. The services PMI is always the most important of the sectors given the UK over-reliance upon the likes of insurance, financial and legal services for a substantial proportion of its GDP. However, the ability to move into expansion within some of the alternate sectors is crucial in generating a strong economy which is highly diversified in nature.
Lastly, in the US session we are looking towards the trade balance figure later today as a key indicator of the export strength that has been propping up this indicator over recent times. The increasing value and volume of oil exports within the US has been a key contributor to US GDP and dollar demand in recent times in association with the shale gas revolution. However, the US trade balance is expected to shift further into deficit with market forecasts expecting around USD-41.4 billion deficit. However, it is less about the figure and more about the constituent structure of this figure which is of importance to understanding the strength of weaknesses within the US industry.
US markets are expected to open lower, with the S&P500 -4 points and DJIA -36 points.
James Hughes discusses the RBA rate decision and Wednesday mornings GDP figures and how they affect the Aussie. He also looks ahead to a busy week on the economic calendar and considers how traders will position themselves ahead of Friday’s US jobs report.
Forex research: Global markets daily
[B]Disappointing Australian GDP figure leads markets lower[/B]
Today’s UK opening call provides an update on:
• European markets expected lower, taking a lead from Asian sell-off
• Australian economy back in focus as GDP figure falls short
• European services PMI figures in focus after strong start to week
• US ADP employment figure expected to bring boost to markets
• ISM non-manufacturing PMI figure in focus after Monday’s strong sell-off
The European markets are expected to open lower once again this morning highlighting the substantial volatility evident within the markets currently. The ability of Asian markets to rally has become increasingly crucial in understanding where the European markets will open in a move away from the usual dual linkage between the US and European markets. This three way relationship has been borne out of the fact that Asian sessions have become increasingly hard to ignore given the size and impact the Asian markets now hold. Furthermore, given the substantial returns seen across in the Nikkei 225, there are an increasingly high amount of traders within Europe and the US whom are holding substantial positions in Asian companies and indices.
Australia is once again back in focus this week as the quarterly and annual GDP figures looked set to bring about a renewed sense of clarity after the recent sell-off in the Australian dollar and S&P/ASX200 index. However, it was not pretty for the commodity driven powerhouse, with both measures falling short of estimates and continuing the decline in these core figures which runs back to June 2012. On a quarterly basis, Australian GDP remained the same at 0.6%, despite an expectation of a rise towards the 0.8% mark. However, it was the annualised figure which dissapointed the most, falling from 3.1% to 2.5% despite predictions of a more moderate reduction to 2.7%.
The value of the Australian dollar has been in focus over recent periods whereby a reduction within the headline interest rate by the RBA last month sparked a sell-off. Subsequently the AUD has been brought to a crossroads whereby any further shift lower could break through key support, leading to substantial future losses and the establishment of a new long term bear market for the currency. Today’s news was seen as a potential catalyst for this sell-off, yet should the price action manage to hold strong throughout the day, this could be the sign that there is sufficient strength to see the pair return to stronger levels over the coming weeks.
Eurozone economic health comes back into focus today with the release of services PMI figures from both the Spanish and Italian economies. The relative strength of these two troubled economies will remain questionable regardless of the potential rise in these figures. However, the emphasis within the markets is upon increased expectations of a positive figure following on from Monday’s outperformance within the manufacturing PMI’s.
Similarly in the UK the headline services PMI figure is released this morning, following on from substantial out-performance of both the manufacturing and construction PMI’s on Monday and Tuesday respectively. In an almost carbon copy of last month’s releases, the three interlinked figures have the opportunity to beat expectations by returning a figure above the predicted 53.1. Given the substantial rises in both manufacturing and construction figures earlier in the week it is likely that the services sector can overcome the meager 0.2 increase expected in the markets. The relative importance of the services sector within the UK as a core driver of growth means that this figure will be followed closely by traders and should we see the positive release I expect, it would be likely to feed into trader sentiment going forward.
In the US, the initial unemployment figure of the week is released ahead of Friday’s non-farm payroll figure. Today it is the turn of its ugly sister in the form of the ADP non-farm payroll figure; typically seen to be notable as an indicator of in which direction the headline figure could play out later in the week. Market analysts predict an improved figure of 171k from 119k which would represent the largest rise in employment for three months. Two things to note about this figure are that primarily held in high regard owing to the perceived influence relationship between this and its namesake. However, this is being increasingly disproven as time going on owing to the substantial differential between both these two releases in recent months. Subsequently this release should be viewed based upon its own merits.
Later in the day, the markets are expecting to see an improvement in the ISM non-manufacturing PMI figure from 53.1 to 53.4. The importance of this figure should not be underestimated given the reaction seen in the markets off the back of Monday’s reduced ISM manufacturing PMI release. Subsequently there is substantial focus placed upon this release which is attempting to reverse the downturn in this figure which has fallen 2.9 over the last three months, missing expectations over the past two occasions. Subsequently I am somewhat cautious about this release and have an overly negative bias given prior disappointments along with Monday’s poor figure.
European markets are expected to open lower, with the FTSE100 -30 points, CAC -15, and DAX -33.
[B]EURUSD[/B]
Eurodollar continues to trade higher today in what seems to be a period of somewhat indecisive price action for the pair after yesterday’s spinning top formation. The clear respect of the 100 day moving average provides us with a growing feeling that potentially we have seen the top to this rally and the breakout above the descending trend-line could subsequently be a ‘fake break’, ahead of a push back below 1.3. For this notion to hold I would be looking for the price action to maintain below the moving average today ahead of a move lower in the coming period. The stochastic and CCI are both around overbought and thus point to a potential move lower over the coming days. It is an increasingly volatile week ahead, with the unemployment figures due in the US and thus traders should be wary of holding positions for longer time frames owing to the potential for significant fundamental side shocks.
Taking a look at the weekly chart, we are provided with more of a bullish tone, whereby the current trend to the upside is supported by both the stochastic and CCI indicators. However, there is clear resistance around the 1.315 level which is the confluence of both the 38.2 Fibonacci from the entire 2011/12 downtrend, along with the 100 week moving average. The current head and shoulders formation is somewhat negated by the fact that we are in the middle of a trend-line breakout. However, I believe that this consolidation peaked around the 50.0 Fibonacci level and thus until a candle closes above 1.315, I am bearish for the pair for a move back down to 1.2.
[B]GBPUSD[/B]
Cable has been trading higher this morning off the back of marginal losses in yesterday’s session. This seems to have brought about a new level of support at 1.53 which represents the 50.0 Fibonacci retracement of the recent 2013 downtrend. However, I expect this move lower to be tempered somewhat by the existence of resistance around 1.5378 which is the level whereby the 100 day moving average meets the 61.8 Fibonacci retracement. Both the stochastic and CCI indicators are both overbought and thus I expect to see a pullback in the coming days.
Taking a look at the weekly chart, a more bullish picture emerges, whereby the importance of the current level is evident given the historical support found around 1.524-1.538. The establishment of a higher low back in May provides an increased feeling that we may see the pair subsequently post a higher high, which would be backed by the currently oversold stochastic and CCI indicators. However, we would need to see a convincing move above the current levels to clear resistance before looking for a strong move back up above the 15 week high of 1.56.
[B]USDJPY[/B]
A bearish move for the dollar yen pair yesterday despite seeing some of the previous losses regained. The failure of the pair to close above that all important 100 handle provides increasing evidence that we have now found new resistance which would be crucial for a subsequent move lower. The indicators point to a move higher over the coming days, however I remain bearish below 100 and thus the next substantial level of support is likely to be found around the 23.6 Fibonacci retracement of the entire move higher around 97.5…
James Hughes talks about the Aussie reaction to the GDP figures and looks ahead to a very important week on the economic calendar. He also looks at AUDUSD, EURUSD and GBPUSD charts and talks about this morning’s eurozone services PMI readings.
Forex research: Global markets daily