Hi Zebrudaya,
Welcome to the forum 
I can’t answer that question for you. While I sympathise, financial regulations prohibit us from directly advising clients on a one to one basis.
However, if you have any other questions, I’ll be happy to help. Join us on our thread in the Broker Aid Section of babypips.
Alex
Alexander Chadwick
Alpari (UK) Representative
[B]UK in the spotlight as NIESR releases Q2 GDP estimate[/B]
Today’s UK opening call provides an update on:
• Europe to open higher as investors focus more on fundamentals;
• Earnings season off to a good start as Alcoa beats earnings forecasts;
• UK manufacturing and industrial production figures released this morning;
• UK Q2 GDP estimate expected to show stronger growth.
European indices are expected to open around half a percentage point higher this morning, as investors continue to focus on the positives surrounding the improving economic situation in the US, rather than what it means for quantitative easing.
A major problem for the Federal Reserve throughout this year has been how it is going to wind up its asset purchase program without causing a crash in the markets and undoing everything it has achieved. However, despite an initial sell-off in equities, which saw indices in the US and Europe fall between 5% and 10%, the markets have reacted relatively well to the news.
In fact, the sell-off, which started mid-May when Bernanke conceded that tapering could begin this summer, could even be seen as a normal correction that many had been predicting since the Dow and S&P first started hitting record highs back in March. Regardless of what caused the correction, normality appears to have returned to the markets, with investors buying on good news and selling on bad. In other words, the Fed appears to have got off lightly, with investors becoming bored with the unusual market behaviour, instead shifting their focus back to the fundamentals.
That should make earnings season all the more interesting, given the tendency in the last few quarters for companies to report average results, which had been dressed up to look far better. Already in the lead up to this earnings season, there’s been a large number of companies that have issues profit warnings for the second quarter, which has led to the bar being lowered even further than it had already been set.
A perfect example of this was Alcoa, who unofficially kicked off earnings season last night. The company reported earnings of $0.07 per share, above expectations of $0.06 per share, but below original forecasts which were altered following a profit warning a few months ago. Revenues at Aloca were also down from a year earlier, another common trend in recent earnings season.
Now that investors are more focused on the fundamentals than they’ve been since the Fed announced its QE3 program last year, it will be interesting to see whether they still view these earnings as positive, or if they begin to demand more, with constant revenue misses being punished. In the last few quarters this hasn’t been a problem, however there’s only so long that any company can report earnings growth based on staff reductions, efficiency savings and low interest rates.
Looking ahead to today and much of the focus will be on the UK, starting with manufacturing and industrial production figures being released this morning. Both are expected to show small month on month increases, which is another positive sign for the UK, given that the manufacturing industry has weighed heavily on growth over the last few years. The trade balance figure remains an issue for the UK, with the deficit expected to creep up to £8.4 billion in May. This is still above the levels seen before the financial crisis began, despite the government’s rebalancing efforts.
Finally we have the NIESR GDP estimate for the UK for the second quarter. The UK has performed better across the board in the second quarter, so I wouldn’t be surprised to see this above 0.6%. Especially after the UK’s growth forecast was revised significantly higher for 2013 by some major banks earlier this week.
Ahead of the open we expect to see the FTSE up 36 points, the CAC up 16 points and the DAX up 47 points.
EUR/JPY Technical Analysis- Prices pulled back from resistance at 130.72, the 38.2% Fibonacci expansion, to challenge the 23.6% levelat 128.51. This barrier is reinforced by a rising trend line at 128.74. A drop beneath that eyes the 14.6% Fib at 127.15. Alternatively, a move above resistance aims for the 50% expansion at 132.50.
[B]Europe higher as Greek payment gets stamp of approval[/B]
Today’s US opening call provides an update on:
[ul]
[li]Greek €3 billion bailout payment get eurozone finance ministers stamp of approval;
[/li][li]Chinese inflation jumps to 2.7% in June;
[/li][li]Mixed data out of the UK ahead of Q2 GDP estimate.
[/li][/ul]
European indices are trading around 1% higher on Tuesday, after eurozone finance ministers agreed to release the next tranche of Greece’s bailout.
The discussions between Greece and its creditors have been far smoother in the lead up to today’s agreement than we have become accustomed to, which may be why investors have responded so well to it. Usually there’s plenty of back and forth between both sides, before Greece eventually backs down and implements an additional round of painful and unpopular cuts in order to avoid bankruptcy.
That isn’t to say that there won’t be trouble down the line, as Greece continues to cut public sector jobs and carry out the agreed reforms, because there probably will. However, it is encouraging to see the process move along much more smoothly than it has in the past. Greece still looks on course to return to growth next year, for the first time since it requested a bailout, although there are concerns that the process of drip feeding the bailout to Greece may delay this.
China’s CPI figure, released over night, had little impact on the markets this morning. Inflation rose to 2.7% in June, a big jump from 2.1% the month before, but still well below the target rate of 3.5%. This is unlikely to convince the People’s Bank of China to tighten monetary policy any time soon, especially given the sharp rise in interbank lending rates in recent months that has already threatened to have a significant impact on growth.
It’s been a mixed start to the day for the UK, with housing data and retail sales figures both looking strong, while manufacturing and industrial production figures were very disappointing. The RICS house price balance figure was the most encouraging this morning, coming out at +21%, meaning more surveyors reporting rising house prices than at any point since January 2010.
The manufacturing and industrial production figures were surprisingly poor, given the improvement seen in the PMIs in recent months. That said, they do show once again that PMIs, while generally being a good indication of future data, are not entirely reliable. The sector does look to have improved in the second quarter, although maybe not as much as we first thought.
Next up we have the second quarter GDP estimate from NIESR. While there are no official analyst forecasts for this release, the general consensus seems to be for growth at around 0.5-0.6% for the second quarter.
Ahead of the open we expect to see the S&P up 7 points, the Dow up 54 points and the NASDAQ up 11 points.
[B]Europe lower on disappointing Chinese trade data[/B]
Today’s UK opening call provides an update on:
• Chinese exports fall 3.1% as government acts against false invoicing;
• Aussie dollar slides on weak Chinese import figures;
• FOMC minutes to be released;
• Fed Chairman Ben Bernanke speaks later.
European indices are expected to open lower this morning, following the release of some disappointing Chinese trade data.
While the overall Chinese trade surplus was slightly better than expected, at 27.1 billion, the breakdown of the data was quite concerning. Chinese exports fell by 3.1% in June, despite expectations of a 4% increase, while imports fell 0.7%, despite expectations of an 8% increase. The collapse in Chinese exports is likely due to a government crackdown on false invoicing by exporters, who were attempting to conceal capital inflows into the country.
It will probably be a few more months still until we see any kind of accurate trade figures out of China, which should then allow for accurate growth forecasts for this year. Given that these false export figures contributed to higher growth in the first quarter, the actual rate of growth in China this year could actually be much smaller than even recent forecasts suggest.
Premier Li Keqiang doesn’t appear to be overly concerned about these lower growth expectations and remains determined to continue with his policy of restructuring and reforms. As a result, any loosening of monetary policy by the People’s Bank of China at this stage in response to the slowing growth looks unlikely.
The Aussie dollar was initially hit quite hard following the release of the data, however it has since recovered to trade at one week highs. The reason for the initial drop off is the surprising fall in imports, particularly raw materials, due to falling internal and external demand for Chinese products. This is not a good sign for Australian going forward, given its reliance on its exports to China, and could convince the Reserve Bank of Australia to cuts interest rates once again in the coming months.
With the economic calendar looking quite empty during the European session, the focus today is going to be on the US, with FOMC minutes from last month being released later and Fed Chairman, Ben Bernanke, due to speak. At a time when everyone is trying to predict when the Fed is going to begin tapering, a lot of attention is going to be paid to anything the FOMC members have to say.
While the minutes will be important in giving us the views of the other policy makers on tapering, the meeting did take place before the release of the jobs report last week. Given the significant beat in the non-farm payrolls figure, at 195,000, and the increase in the participation rate, Bernanke comments on tapering are likely to have a much bigger market impact. Any suggestion that tapering could come as early as September should prompt further dollar buying and potentially a sell-off in equities, who’s prices have clearly been supported by Fed easing this year.
Ahead of the open we expect to see the FTSE down 23 points, the CAC down 9 points and the DAX down 12 points.
[B]Investors turn to Fed minutes and Bernanke for taper hints[/B]
Today’s US opening call provides an update on:
[ul]
[li]Equities lower as Chinese trade figures disappoint;
[/li][li]China potentially heading towards 5% growth this year;
[/li][li]FOMC minutes released later;
[/li][li]Ben Bernanke speaks for first time since Friday’s impressive employment data.
[/li][/ul]
US indices are expected to track their European counterparts lower on Wednesday, following the release of some very disappointing, but not entirely surprising, trade figures.
For months now there’s been a lot of people in the markets that have raised questions about the accuracy of the trade figures out of China, particularly in relation to exports. The improvement in exports is thought to be largely down to exporters creating false invoices in order to conceal the amount of capital inflows coming into the country, due to the capital controls that are currently in place.
With the government now clamping down on these activities by exporters, it was only ever a matter of time until we saw a significant reduction in the export figures. That said, it’s not clear at this stage just how big an impact stripping out these false exports will have. There have been suggestions that it could reduce growth in China this year to as low as 5%, which is not only bad news for commodity countries, like Australia, it also suggests demand from consumer countries is falling rapidly, which isn’t a positive sign in terms of the global recovery.
Looking ahead to the rest of the session, the focus is going to be on the US, in particular, the Federal Reserve. A lot of what has driven market sentiment this year has been what the Fed is doing and how long it’s likely to continue pumping $85 billion into the financial system.
Fed Chairman, Ben Bernanke, suggested after the last meeting of the FOMC in June that the Fed is looking to begin tapering its asset purchases later this year, as long as the economy performs in line with projections. What that means now, is every comment from a Fed policy maker is going to be analysed in depth for clues as to when the Fed will begin tapering.
Later on today, we have the release of the minutes from the FOMC meeting in June, followed shortly after by a speech from Ben Bernanke, when he’s likely to be questioned on what the strong jobs report on Friday means for tapering. The minutes will be useful in hearing the thoughts of FOMC members, however it’s worth noting that this took place before the release of June’s jobs report. Therefore, Bernanke’s comments are likely to be followed much more closely for a more up-to-date view on the situation.
Ahead of the open we expect to see the S&P down 2 points, the Dow down 18 points and the NASDAQ down 5 points.
0:19 - Chinese trade balance points to ongoing weakness
2:36 - Markets look ahead to FOMC minutes and Bernanke’s speech
Forex research: Global markets daily
Europe rallies on dovish Bernanke comments
Today’s UK opening call provides an update on:
• Equities rally on dovish comments from Bernanke;
• BoJ revises down its end of year inflation and growth forecasts;
• Australian unemployment highest since November 2009;
• ECB monthly report and US jobless claims to come today.
European indices are expected to open significantly higher on Thursday, following some rather dovish comments from Fed Chairman, Ben Bernanke, last night.
During a speech in Boston last night, Ben Bernanke appeared to successfully divert market attention away from asset purchases and tapering and back on to interest rates. Mr Bernanke’s insistence that interest rates will not automatically rise when unemployment falls to 6.5% was seen as very dovish in the markets, with the greenback tumbling against the other major currencies, while European and US futures pointed to a significantly higher open for the indices.
The decision by Bernanke to focus more on interest rates last night sent a clear message that days of large scale asset purchases are numbered. The Fed appears more focused on damage limitation for the markets than trying to prolong the purchases for a few more months to avoid spooking investors, hence the reassurances that rates will remain at record lows beyond the point when unemployment hits 6.5%, which was the benchmark set by the Fed last year.
What is encouraging is that the minutes from the FOMC meeting were clearly quite hawkish, in relation to the asset purchases, and yet investors overlooked this, instead focusing on Bernanke’s dovish comments on interest rates. This is clearly the response Bernanke was hoping for last night, following the huge overreaction to his comments back in May and again in June in relation to tapering. With investors now more focused on interest rates, the Fed can go about its business of tapering later this year, potentially as early as September, without fear of a mass exodus from the stock markets, similar to what we saw previously. That is, of course, assuming that the fundamentals continue to improve and support the stock markets during that time.
That may very well depend on how companies perform during the second quarter earnings season, which unofficially got underway on Monday, when Alcoa reported higher than expected earnings. The rest of the week so far has been a little quiet on the earnings front, as we’re used to seeing in the first week, however this should pick up tomorrow when JP Morgan and Wells Fargo kick things off for the banks.
The Bank of Japan meeting over night didn’t produce too many surprises. As expected, the bank left monetary policy unchanged, after only committing to huge amounts of asset purchases back in April. The decision by the bank of Japan to slightly lower its end of year growth and inflation forecasts, each by 0.1%, wasn’t taken too well in the markets, with the yen and Nikkei both falling immediately following the revision, although both have since recovered to trade higher.
The revision from the BoJ clearly highlights the difficult road ahead for the central bank as it attempts to bring inflation back from negative territory to its new 2% target. That said, the early signs have certainly been positive and I think many have been surprised by the positive impact “Abenomics” has had in Japan in such a short period of time.
Over in Australia, things appear to be going from bad to worse, after unemployment was seen rising to 5.7% in June, up from 5.6% a month earlier, which itself was an upward revision from the original 5.5% figure. With Australia being heavily dependent on exports to a slowing Chinese economy, things are likely to get worse down the line, which should open the door to further rate cuts by the Reserve Bank of Australia, despite rates already sitting at record lows. That said, we may have to wait a few months for inflation to ease before the RBA acts, after the CPI figure for July rose to 2.6%, up from 2.3% in June.
Thursday is expected to be a little quieter, ahead of some major earnings tomorrow. The ECB monthly report will be monitored closely, although no surprises are expected. Later on in the US session, the weekly jobless claims will be watched closely, although now that investors appear to have moved on from Fed tapering later this year, we should see more of a normal reaction to the report, with a lower figure being positive for investor sentiment and the dollar.
Ahead of the open we expect to see the FTSE up 114 points, the CAC up 57 points and the DAX up 131 points.
0:18 - FOMC minutes and Bernanke speech
3:02 - BoJ rate decision and forecasts
3:39 - Australian unemployment and inflation data
5:29 - Earnings season to drive sentiment
Forex research: Global markets daily
awesome thanks:)
[B]Markets boosted by Chinese second quarter growth[/B]
Today’s UK opening call provides an update on:
• Chinese second quarter growth slows to 7.5%;
• Consumer spending in China rises for fourth month;
• US retail sales and Citigroup earnings in focus later.
European indices are expected to start the week higher on Monday, after both the S&P and Dow in the US closed at record highs on Friday.
The new record highs seen in the US came as company fundamentals begin to play a much larger part in driving market sentiment. Better than expected earnings from JP Morgan and Wells Fargo got earnings season off to a strong start for financials, an area that is going to be monitored closely this earnings season for signs that economic conditions in the US are improving. Next up, we have earnings from Citigroup on Monday, which are expected to improve significantly from the same quarter a year ago.
The economic data out of China over night was relatively well received in the markets, with the Shanghai Composite and the Hang Seng both pushing higher following the release. Chinese second quarter growth slowed to 7.5%, in line with expectations, which is likely to be met with a mixture of relief and doubt in the markets.
Questions have been raised over the credibility of the official Chinese data since the start of the year, especially in relation to the export figures. Despite the improvement in the accuracy of the data recently - since the government began to crack down on exporters passing off capital inflows as exports - it is still likely that the actual growth in China is much slower than the official data suggests.
Official growth forecasts are therefore expected to be revised lower in the coming months, unless the government commits to another round of spending in order to support the economy during these times of slowing growth. There has been a reluctance to do this so far, with the government instead choosing to focus on restructuring and reforming the world’s second largest economy. However, it may have no choice in the next couple of years if it’s going to avoid a hard landing.
A real positive point in the Chinese data was the retail sales figure, which showed an increase of 13.3% in June, up from 12.9% the month before. The improvement here is going to be essential in the coming years, as China attempts to change course, from an investment driven economy to a consumer driven one.
The focus will now be on the US on Monday, with no economic data due out of Europe. Things will start to pick up on the earnings front this week, starting with Citigroup reporting before the opening bell. In terms of economic data, June’s retail sales figure will be watched closely for signs of improvement, although the recent rise in oil prices may begin to be reflected in this figure, with consumers disposable incomes becoming more squeezed. We also have the release of the Empire State manufacturing index this morning, while voting FOMC member Daniel Tarullo is due to speak in Washington.
Ahead of the open we expect to see the FTSE up 17 points, the CAC up 12 points and the DAX up 27 points.
0:10 - Chinese growth slows to 7.5% in Q2
3:43 - Bank earnings in focus as Citigroup, GS and BoA report
4:15 - US retail sales eyed this afternoon
Forex research: Global markets daily
[B]Bank in focus as earnings season gets into full swing[/B]
Today’s US opening call provides an update on:
[ul]
[li]Europe higher despite slowing Chinese growth;
[/li][li]Chinese retail sales encouraging;
[/li][li]US corporate earnings drive sentiment;
[/li][li]US retail sales in focus on Monday.
[/li][/ul]
Investors in Asia and Europe responded surprising well to the Chinese data released over night, despite the fact that it showed growth slowing once again in the world’s second largest economy.
The reaction to the data really highlights just how pessimistic investors are about China right now. Achieving 7.5% growth in the second quarter, in line with forecasts, is now seen as a positive thing, despite expectations at the beginning of the year among most major banks being that China would grow between 8-8.5% this year.
As the year progresses, growth expectations are likely to fall further, especially if we continue to see a deterioration in export data as the ruling party cracks down on false invoicing. One thing that may support growth is another round of fiscal stimulus, however there is a clear reluctance to do this by the ruling party as they try to focus more on restructuring and reforms.
A 13.3% rise in Chinese retail sales was more encouraging, given China’s new focus on consumer led growth. This is the fourth consecutive month that we’ve seen an increase in growth in retail sales, which suggests that domestic consumption may be able to pick up some of the slack from the falling investment and government spending.
Corporate earnings season gets into full swing this week, with the banks once again taking centre stage. JP Morgan and Wells Fargo got things off to a good start on Friday reporting higher than expected earnings, while revenues also surpassed those from a year ago. Next up we have Citigroup today, followed by Goldman Sachs and Bank of America on Tuesday and Wednesday, respectively.
There are a few items of note on the economic calendar on Monday. US retail sales are going to be key, given how much consumer spending contributes to US growth. It’s going to be interesting in the coming months to see what impact the recent rise in oil prices will have on consumer spending.
Also today, we have the Empire State manufacturing index, which is expected to fall to 5.2 from 7.8. We’ll also hear from voting FOMC member, Daniel Tarullo, who is due to speak in Washington. With the Fed looking to taper its asset purchases later this year, any comments from Fed members, particularly voting members, are going to be monitored very closely and have the potential to cause a big move in the markets.
Ahead of the open we expect to see the S&P flat, the Dow up 1 point and the NASDAQ down 1 point.
[B]Europe flat ahead of earnings and inflation data[/B]
Today’s UK opening call provides an update on:
• Investors already over Fed tapering plans as S&P and Dow close at record highs again;
• Earnings season picks up with Goldman Sachs, Johnson & Johnson and Yahoo reporting;
• Economic calendar won’t be overshadowed by earnings ahead of Bernanke testimony;
• UK and eurozone inflation in focus ahead of next month’s BoE and ECB meetings.
European indices are expected to open slightly higher this morning, after the S&P and Dow in the US closed at record highs for a second consecutive day. These record closes came despite lower than expected retail sales in the US in June, and still high expectations that the Fed will begin tapering in September or December.
There’s two ways we can look at this. Either investors have already accepted the fact that the Fed will begin tapering and have moved on, which suggests they believe the fundamentals justify these record highs, or the disappointing retail sales figure has convinced them that tapering is unlikely now until at least December. The latter would make more sense, however, it’s increasing looking like the former is what’s now driving the markets higher, which is a major concern given the global economic backdrop. If this is the case, we’re surely setting ourselves up for a crash later down the line, whether it be this year or next.
Corporate earnings season is going to play an much bigger part in driving market sentiment in the coming weeks, than it has over the last couple of years. With investors no longer able to rely on the Fed to drive equity markets higher, they have to make do with focusing more on the fundamentals, and nothing gives us a better overview of these than company earnings reports and their expectations for the coming quarters.
As always, it’s been a slow start to the corporate earnings season, however things really got into full swing on Friday, with JP Morgan and Wells Fargo reporting strong second quarter results. Citigroup continued the strong start for the banks yesterday, reporting significantly higher earnings than expected, while revenue was up more than 10% compared to a year ago. Today we have a number of major companies reporting again, although the focus is likely to be on Goldman Sachs, who is due to release earnings before the opening bell.
Ordinarily, earnings season would somewhat overshadow what’s on the economic calendar, however that could not be any less the case this week. With a number of inflation reports due out on Tuesday, and Fed Chairman, Ben Bernanke, due to testify before the House and the Senate on Wednesday and Thursday, respectively, there is going to be plenty of focus on economic releases. Especially following the disappointing retail sales figure yesterday, which led many to downgrade their growth forecasts for the US this year.
It’s not only the US that’s going to be in focus on Tuesday. With both the Bank of England and the ECB coming across more dovish at recent meetings, inflation in both the UK and the eurozone is also extremely important. In the UK, the figure is expected to rise to 3% in June, up from 2.7% in May, and the highest it’s been at since April last year. This may restrict what the BoE can do to stimulate the economy at the next meeting in August, although with the central bank confident that inflation will return to 2% in two years and George Osborne offering them more flexibility earlier this year, the bank’s hands aren’t completely tied.
Inflation in the eurozone is also likely to have risen last month, from 1.4% to 1.6%. However, unlike the BoE and the Fed, the ECBs sole focus is on price stability, which gives it less room to manoeuvre when inflation is on the rise and approaching its target of at, or below, 2%. ECB President, Mario Draghi, tried his old trick of verbally talking down the euro and boosting markets at the meeting this month, with a vague offering of forward guidance. However, if inflation picks up any more than expected, we shouldn’t even expect any more clarity on this at the next meeting.
Ahead of the open we expect to see the FTSE up 2 points, the CAC down 1 point and the DAX up 3 points.
[B]US earnings in focus as attention shifts to fundamentals[/B]
Today’s US opening call provides an update on:
[ul]
[li]UK CPI leaves the door slightly ajar for more easing from BoE;
[/li][li]German ZEW disappoints, but eurozone at highest level since March;
[/li][li]US earnings in focus as attention shifts to fundamentals;
[/li][li]Increase in US inflation expected on higher gas and food prices.
[/li][/ul]
The FTSE is one of the few indices trading in the green on Tuesday, after June’s CPI figure came in below expectations, meaning Mark Carney avoided writing his first inflation letter to Chancellor George Osborne after only two weeks in the job.
Inflation in the UK rose to 2.9% in June, up from 2.7% in May, but still slightly short of the 3% forecast figure. If the inflation figure had risen in line, or above, market expectations, it would have been very difficult for Governor Carney to convince the other policy makers, namely the six that previous Governor Sir Mervyn King failed to win over, to vote in favour of more asset purchases in the coming months.
Carney still has a tough task on his hands, and has actually done a good job in convincing policy makers to sign up to forward guidance, which based on the statement from this month’s meeting is expected in August. The weaker pound that will come with this forward guidance will only provide further upward pressure on the inflation figure in the coming months. That said, a more flexible mandate for the bank of England may still allow for asset purchases in the coming meetings, especially with the CPI coming in below expectations, and inflation expected to fall to 2% in two years.
Most other European indices aren’t faring as well this morning. The release of the German ZEW economic sentiment figure, which came in well below expectations at 36.3, is weighing on sentiment this morning. The small beat in the eurozone equivalent wasn’t enough to counter this drop, although it is still encouraging, having risen to its highest level since March.
Over in the US, there’s going to be a key focus on corporate earnings on Tuesday. JP Morgan, Wells Fargo and Citigroup have got things off to a flying start for the banks, next up is Goldman Sachs, who will report before the opening bell. There’s also a number of other major companies reporting second quarter earnings today, as the season gets into full swing, including Coca-Cola, Johnson & Johnson and Yahoo.
There’s going to be a lot more emphasis on earnings this quarter, now that the Fed is looking to withdraw some of its support. It will be interesting to see if investors give companies an easy ride as they have in recent quarters, by rewarding earnings that come in above very low expectations, while turning a blind eye to the lower revenues.
We also have some economic data out of the US today, starting with the CPI figure for June. US inflation has been extremely low this year, to the point that deflation has become a bigger concern to many than high inflation. As a result, the expected rise in inflation to 1.5% is unlikely to cause much of a stir in the markets as it’s unlikely to have any impact on the Fed’s monetary policy.
Also in the US we have the release of the industrial production figure for June, which is expected to rise by 0.2%, and we’ll hear from FOMC voting member Esther George, who may provide insight into what we can expect when Fed Chairman, Ben Bernanke, testifies before the House and Senate on Wednesday and Thursday, respectively.
Ahead of the open we expect to see the S&P flat, the Dow up 5 points and the NASDAQ flat.
[B]Markets looking for three things from BoE minutes[/B]
Today’s UK opening call provides an update on:
• Three things markets will be looking for in BoE minutes;
• Investors look for tapering clues when Bernanke testifies before House Financial Services Committee;
• One eye remains on corporate earnings, with BoA, eBay, IBM and Intel all reporting.
To kick things off this morning, we have the release of the minutes from the Bank of England meeting earlier this month, Mark Carney’s first as Governor. From the minutes, there’s going to be three particular things that the markets are going to be looking for. Firstly, is how Mark Carney voted and whether he tried to pursued the other policy makers to increase the asset purchase facility, or at the very least offer some forward guidance. We know the latter was discussed and will probably come at the next meeting in August. However, it will be interesting to see just how much Carney pushed for it and how many policy makers were on board with it.
Next, is how the policy makers voted on asset purchases and interest rates. We’re not expecting any surprises on the interest rate vote, which will probably remain unanimously against it. In respect to the asset purchase facility, it’s likely that Miles and Fisher once again voted in favour of another £25 billion. However, it’s going to be interesting here to see if Mark Carney could do what his predecessor failed to, and convince any of the remaining six policy makers to vote for more QE.
Finally, in relation to the forward guidance, which is expected to be announced next month, hopefully with more details than what the ECB offered earlier this month, we will be looking for any clues about what the guidance will be. Will the low rates be tied to a particular date in the future, the unemployment rate, economic growth, or something original that we haven’t come across yet.
This afternoon it will be over to the US, where Fed Chairman, Ben Bernanke, will deliver the semi-annual monetary policy report to the House Financial Services Committee. The testimony will be released at 1.30pm BST, which is when we’ll see the initial reaction in the markets, although the real moves will come roughly an hour and a half later in the Q&A section.
This is when Bernanke is going to be grilled on the success of the Fed’s policy so far, and the policy going forward. Bernanke has come across relatively hawkish, on the Fed’s behalf, on asset purchases recently, stating that tapering will probably begin later this year, while remaining extremely dovish on interest rates. At this stage, I don’t think rising interest rates are a concern, despite last month’s jump in the inflation figure.
The most important thing we’re likely to get out of the testimony on Wednesday is going to be when the Fed is likely to begin tapering, September or December. Also, which assets will be reduced first, will it be mortgage backed securities, the purchases of which have helped the housing market perform well this year, or government bonds, despite the fact that yields have soared since Bernanke hinted at tapering back in May.
Despite the focus on central banks on Wednesday, investors will have one eye on earnings, given the increasing importance of fundamentals in the market. The decision by the Fed to begin tapering later this year means companies are likely to come under more scrutiny from investors, as they can no longer rely on the central bank’s stimulus program to continue to push share prices higher.
While earnings and revenues are obviously going to be important to investors, the company’s expectations going forward is what they really care about. We saw a fine example of this last night, when Yahoo announced higher than expected earnings, while only slightly missing on revenues. However, it was the downward revision to full year earnings and revenue forecast that sent the share price tumbling in after-hours trading.
There are plenty more companies due to report second quarter earnings on Wednesday, including Bank of America before the opening bell. So far, all of the major banks have delivered a strong performance in the second quarter, so the pressure is now on BoA to keep the run going.
Ahead of the open we expect to see the FTSE down 4 points, the CAC down 2 point and the DAX flat.
0:10 - MPC minutes surprise markets as they vote unanimously against further QE
2:51 - Ben Bernanke expected to bring market volatility at monetary policy review
Forex research: Global markets daily
[B]Bernanke testimony next after Carney carnage grips the markets[/B]
Today’s US opening call provides an update on:
[ul]
[li]FTSE tumbles and sterling rallies on unanimous BoE rate and QE decision;
[/li][li]Carney carnage in the markets following the release of the minutes;
[/li][li]Focus now on Bernanke’s testimony in front of House Financial Services Committee;
[/li][li]BoA, eBay, IBM and Intel to report second quarter earnings.
[/li][/ul]
The UK FTSE 100 is trading more than half a percentage point lower on Wednesday, closely followed by its other European counterparts, after the Bank of England appeared to close the door on more asset purchases.
The minutes from Mark Carney’s first meeting as Governor, earlier this month, caught the markets by surprise, with the biggest shock of all coming from the vote on the asset purchase facility. The vote over the last five months has stood at 6-3 to leave it unchanged, however this was expected to fall to 7-2 following the departure of former Governor Sir Mervyn King.
Instead, Carney managed to unite the MPC, who voted 9-0 on both rates and QE, although it was noted that some members claimed further stimulus is warranted. This suggests that Fisher and Miles once again put forward the case for more QE, however the MPC agreed on the 9 – 0 vote in a bid to appear united in Carney’s first meeting. It will now be interesting to see if the vote remains the same in future meetings. Carney probably has a couple of months now, at most, to come up with a viable alternative to asset purchases before the certain members push hard again for more stimulus.
Miles and Fisher may struggle to gather support though, given the improvement in the UK economy in the second quarter. We saw another encouraging sign again today, with the claimant count falling by 21,200 in June, the biggest drop since May 2010 and much higher than was forecast. With the economy improving and inflation close to 3%, it’s going to be difficult to convince any of the other members that more QE is required. At best we’ll get forward guidance on rates in August but I think that’s all for now.
One thing is clear, Carney has certainly made an impact since beginning his role a little over two weeks ago. Carney carnage played havoc with the markets once again today, just as it did following the meeting on 4 July. Sterling rallied almost 100 pips against the greenback within one minutes of the release, before settling at 1.52. The FTSE went from trading 35 points higher on the day to 30 points lower shortly after the release of the minutes.
The focus will now shift to the US, for Fed Chairman, Ben Bernanke’s testimony in front of the House Financial Services Committee. There’s likely to be plenty of volatility in the markets around this speech, especially given that it takes place during the overlap between the European and US session.
I’m not necessarily expecting too many surprises here from Bernanke, just potentially more clarity on the timetable for tapering. Looking at his recent comments, I think it’s pretty clear where the Fed stands on both asset purchases and interest rates. The only thing that’s unclear at the moment is whether it will be September or December when the Fed will begin tapering and how much they will reduce the facility by. Although, as always, traders will interpret Bernanke’s comments in whatever way suits them, so there’s likely to be some big moves in the markets.
Corporate earnings will also be in focus today, with Bank of America the next bank due to report. Also reporting second quarter earnings today, we have eBay, IBM and Intel.
Ahead of the open we expect to see the S&P down 3 points, the Dow down 25 points and the NASDAQ down 2 points.