Forex research

Commercial Content Analysts
600

[B]Europe to open higher on improved Chinese trade data[/B]

Today’s UK opening call provides an update on:

• Chinese trade data improves in July;
• BoJ appears in no hurry to loosen monetary policy further;
• Australian unemployment remains at 5.7%;
• Pull back in US indices continues on expectations of September tapering.

Strong trade figures from China provided a significant boost to Asian indices over night, and look to be having a similar impact on European futures as well, with indices currently expected to open in positive territory.

Both imports and exports were much better than both the previous month, when both surprisingly fell, and the forecasted figures. Imports were up 10.9% in July, following a drop of 0.7% in June, while exports rose 5.1% following a 3.1% decline. While these figures are encouraging, I remain very sceptical about the trade data coming out of China.

China may be committed to cracking down on activities which distort the export figures, such as disguising credit inflows as legitimate exports, but this is going to take some time to stamp out. Also, there’s been suggestions for quite a while now that Chinese data may be manipulated to appear far better than it actually is, which hardly makes it reliable.

The Japanese yen continued to rally following the release of the Bank of Japan interest rate decision and statement. The lack of additional easing from the BoJ is what’s responsible for a lot of the yen strength recently, with the markets clearly having withdrawal symptoms from the lack of new QE activity recently and craving more.

The statement from the BoJ was not very dovish at all, which suggests the central bank is very unlikely to announce any additional easing before the end of the year. The BoJ pointed out again that the economy is continuing to recover moderately, while insisting that inflation is likely to continue to rise.

Data out of Australia was relatively mixed, with the unemployment rate remaining at 5.7%, despite expectations of a 0.1% increase. However, both full-time and part-time employment fell in July, which is going to be a concern. The Reserve Bank of Australia cut interest rates for an eighth time in two years earlier this week in a bid to halt the recent decline in the economy. However, many including myself, still expect another rate cut later this year, as the economy continues to suffer following the end of the mining boom, which the country became far too reliant on in recent years.

US indices continued to retreat over night, with investors taking advantage of the lack of news and data to provide some relief to the rally that has seen the S&P and Dow hit record highs on numerous times this year. People are continuously calling for some form of healthy retracement in US equities at the moment following the aggressive move higher this year and I think that’s all we’re seeing.

The move lower is being aided by investors trying to predict when the Fed will start scaling back its asset purchases. The consensus on this changes more than the UK weather, with investors now leaning towards a September taper despite the disappointing jobs report last week. This is why it’s so important to keep tabs on what the FOMC members say on a day to day basis because even the opinions of non-voting members are moving the markets at the moment.

Ahead of the open we expect to see the FTSE up 9 points, the CAC up 19 point and the DAX up 32 points.

[U][B]Read the full report at Alpari News Room[/B][/U]

601

0:09 Chinese trade balance data
1:30 Australian unemployment figures
2:35 BoJ rate decision
3:22 US weekly jobless claims

602

[B]US futures point to higher open ahead of jobless claims[/B]

Today’s US opening call provides an update on:

[ul]
[li]US futures track Asia and Europe higher;
[/li][li]Chinese trade data provides early boost;
[/li][li]Rio Tinto warns against significant Chinese recovery this year;
[/li][li]Weekly jobless claims in focus this before the opening bell.
[/li][/ul]

US futures are pointing to a higher open on Thursday, tracking gains made in Asia over night and so far in Europe this morning.

The main reason for the bright start in Europe has been the significant improvement in the Chinese trade data in July. While the headline figure showed a narrowing of the trade surplus, the breakdown of the data was more encouraging. Exports rose by 5.1% in July, following a 3.1% decline a month earlier, while imports jumped an impressive 10.9% after falling 0.7% previously.

There are two things to take away from this. Firstly, China’s exports may not be performing quite as badly as first feared, and secondly demand within China for external goods remains strong and is on the rise, which is essential if we’re going to see a successful shift to a more consumer led economy.

While the data is encouraging, it is worth taking it with a pinch of salt, given the amount of concerns raised over Chinese data this year, particularly in relation to exports. There are apparently efforts being made to stop exporters disguising capital inflows as genuine exports, but this is likely to take some time to fully stamp out. There are also concerns over whether other parts of the official Chinese figures are being manipulated to convey an economy performing better than it actually is. This must also be taken into consideration.

One company that isn’t overly confident about a Chinese recovery later this year is Rio Tinto. While the company does not expect a hard landing, it did give a pretty gloomy outlook for the Chinese economy which, along with low commodity prices, it expects to weigh on profits in the second half of the year.

It’s been a quiet start to the European session so far, with little driving things aside from the Chinese data. Things may pick up a little as the day goes on, with US weekly jobless claims being released before the opening bell. Last week’s number came in well below market expectations at 326,000, the lowest since 2008. Today’s figure isn’t expected to be quite so low, at 336,000, although this would still be very low for the summer months. Really, anything below 350,000 will be seen as a good number here.

Ahead of the open we expect to see the S&P up 4 points, the Dow up 44 points and the NASDAQ up 12 points.

[U][B]Read the full report at Alpari News Room[/B][/U]

603

[B]Chinese data suggests the recovery is underway[/B]

Today’s UK opening call provides an update on:

• Europe boosted by US and Chinese data;
• Chinese inflation remains low at 2.7%;
• Retail sales in China strong, despite miss.

European indices are expected to open higher this morning, as encouraging US and Chinese data continues to give investors hope that the global recovery will take off in the second half of the year.

The idea that the global recovery will take off may be a little ambitious, if not completely unrealistic, however we are seeing some encouraging signs here and there that the recovery is just around the corner. The only concern right now is whether it is sustainable and the honest answer there would have to be, probably not. It remains extremely fragile and there is many things that could derail it with unbelievable ease.

That said, the best thing right now is to focus on the positives, while remaining extremely vigilant to any potential dangers along the way. And there’s plenty to be positive about. Using recent examples, the weekly jobless claims have remained extremely low this year, averaging below 350,000, as businesses in the US retain more and more staff on the belief that despite being slow and at time frustrating, the recovery is underway. We had another great figure yesterday, which brought the four week average down to a five year low, which helped boost equity markets in the US, as well as Asia over night and now European futures this morning.

While I remain sceptical about the official figures out of China, there are some encouraging signs there. While the country remains committed to the transition from its over-reliance on exports and huge investment to a consumer led model, the recent commitment by ruling party to keep growth above 7% appears to be having a positive impact.

Yesterday’s trade balance figures showed a massive surge in imports, while exports also rose by more than 5% after a drop last month. This morning, it’s the inflation data that’s provided a boost, remaining at 2.7% despite expectations of an increase to 2.8%. Attempts to slowly deflate the housing bubble in China is thought to be partly responsible for this. The rise in house prices in China is slowing, which is affecting demand for items such as furniture.

The retail sales figure for July, despite falling short of expectations, should also be viewed as another positive point. The fact that we’re seeing growth of 13.2% on the retail side is what is needed in order to pick up some of the slack from the lower demand for Chinese exports, due to the recession in the eurozone and slowing growth in other countries.

Industrial production rose by 9.7% in July, which is the biggest jump in the figure since February, in a sign that the targeted investment by the government, in response to the slowing growth this year, is already having a positive impact. Urban investment, which will probably pick up again in the second half of the year, was also slightly higher than expected at 20.1%.

The rest of the day is looking quieter on the data front, while earnings season is also coming to a close with no major companies reporting earnings today. The season has been a little mixed with more than 70% of S&P 500 companies beating earnings expectations, although the size of the beats has been smaller than usual. This suggests that either these cost cutting measures are not picking up the slack from the lower revenues as well as they have in recent years, or expectations are rising which would not necessarily be a bad thing when the Federal Reserve is looking to wrap up its asset purchase program.

Ahead of the open we expect to see the FTSE up 22 points, the CAC up 14 point and the DAX up 21 points.

[U][B]Read the full report at Alpari News Room[/B][/U]

605

0:09 Mixed Chinese data release over night
1:32 CHART – EURUSD analysis
3:10 CHART – AUDUSD analysis

606

[B]FTSE leads the way after strong Chinese data[/B]

Today’s US opening call provides an update on:

[ul]
[li]FTSE leads the gains in Europe;
[/li][li]Chinese CPI remains at 2.7%;
[/li][li]Miners lead the way on strong industrial production figure;
[/li][li]Retail sales encouraging, despite falling short of expectations.
[/li][/ul]

It’s been a relatively quiet start to the European session on Friday, after the Chinese data released over night failed to drive markets one way or another.

While we didn’t get the reaction to the data that we saw yesterday, following the trade balance figure, I’d say the data out of China over night was actually quite positive. This explains why the FTSE is one fifth of a percentage point higher, while most other European indices and US futures are slightly in the red, given its larger exposure to China.

The data was obviously not overwhelming, but there were certainly some positive points in there. The CPI figure remained at 2.7% last month, despite expectations of a rise to 2.8%, which is still well below the inflation target of 3.5%. That doesn’t mean though that we’re going to see attempts by the PBOC to spur inflation, they’ve made it perfectly clear that they’re reluctant to reduce interest rates in an attempt to reduce the size of the shadow banking industry which could cause a lot of damage down the line.

The encouraging aspect of the inflation figure was the reason why it didn’t rise. The attempts by the government to slowly deflate the property bubble appear to be working, with the rise in house prices now slowing. What this means is less is being spent on furniture and other household goods, which contributed to the lower inflation figure. While this won’t have an immediate positive impact on the country, it is essential for its longer term health.

The reaction in the markets was probably more in relation to the industrial production figure, which rose 9.7% year on year against expectations of 9%. The heavy weighting of the mining firms in the FTSE, which are currently up more than 2%, is what’s pushing the index higher this morning. Many other areas of the index, like those of other European indices, are lower on the day.

While the retail sales figure was below market expectations, I still think it’s a good solid number. A 13.2% increase compared to a year earlier should help to pick up some of the slack in the economy from the fall in exports, with the global economy still quite weak. The rest of the slack, to ensure the country’s growth remains above 7%, will now have to come from target investment from the government.

Ahead of the open we expect to see the S&P down 6 points, the Dow down 51 points and the NASDAQ down 9 points.

[U][B]Read the full report at Alpari News Room[/B][/U]

607

[B]Questions raised over sales tax as Japanese growth cools[/B]

Today’s UK opening call provides an update on:

• Second quarter Japanese growth falls short of expectations;
• Chinese stocks boosted by speculation over targeted fiscal stimulus;
• US retail sales and inflation watched closely this week;
• UK also in focus, with retail sales, inflation data and BoE minutes being released.

It’s been a mixed start to the week in Asia, with Chinese stocks rising on speculation of targeted fiscal stimulus, while Japanese stocks took a hit following the release of softer than expected growth figures.

The Japanese economy grew by 0.6% in the second quarter, or 2.6% on an annualised basis, which is well below market expectations of 0.9% and 3.6%, respectively. While we’re still clearly seeing big improvements in the data this year, the fact that we’ve seen such a big miss in the figure this morning is likely to raise a couple of questions.

The first is whether the government should still go ahead with the planned sales tax hike. While this is necessary to show that government is serious about getting its finances in order, with debt currently well above 200% of GDP, it could discourage consumers from hitting the shops. This is essential if we’re going to see an end to the two decades of deflation in the country.

The second is whether the monetary policy from the BoJ is accommodative enough to help hit such ambitious growth and inflation targets. We may not see too much pressure on the BoJ to do more quite yet, but these may be early signs that the central bank need to do more. This could lead to rising expectations in the coming months that the BoJ will announce additional stimulus measures.

Things are looking a little more positive in China, following speculation that the government is providing stimulus to certain cities and provinces in order to support the economy. While few believed it would anyway, this would prove that the government isn’t willing to go cold turkey on the country and will instead just be more sensible about how it offers support to the economy.

We could be looking at a relatively quiet start to the week in Europe and the US, with the economic calendar looking pretty light on Monday. Over the last month or so it has been the corporate earnings season that has been the biggest driver in the markets, but with this now winding to a close, attention is going to be back on the data, with investors once again trying to guess when the Fed will begin scaling back its asset purchases.

Retail sales data, released tomorrow, could prove useful with this, given that consumer spending contributes so much to US GDP. An sustainable improvement in these figures can only increase the chances that the Fed will begin to taper. The inflation figure, released Thursday, will also be key, given that the Fed has vowed to remain accommodative as long as inflation remains below 2.5%. With this expected to rise to 2% in July, people may start to fear that interest rate hikes are not as far away as first thought.

Also this week, there’ll be some focus on the UK, with inflation figures being released tomorrow and the minutes from the this month’s Bank of England meeting on Wednesday, along with the unemployment rate. While unemployment won’t be too much of a focus yet, with it being significantly above the 7% target, the CPI figure and the minutes will be. Inflation is already quite high, so any rise here could jeopardise the banks forward guidance at this very early stage.

Ahead of the open we expect to see the FTSE up 21 points, the CAC up 8 point and the DAX up 22 points.

[U][B]Read the full report at Alpari News Room[/B][/U]

608

0:10 Quiet day as markets point to the downside
0:22 Japan GDP disappoints
1:56 China lends to banks to undermine previous comments
3:31 Looking ahead to the key events for the coming days

609

An interesting week for the markets, following last week’s forward guidance provision from Mark Carney and unexpected strength out of China. Subsequently, the underlying topics continue to be the Fed tapering talk, eurozone recovery, Chinese strength and now the UK unemployment outlook.

Following Carney’s announcement, it is the CPI (Tuesday) and unemployment rate (Wednesday) which will take precedence for the UK this week. Meanwhile, the eurozone is likely to focus upon the provision of key GDP data out of France, Germany and the eurozone as a whole. In the US, a largely quiet week will be dominated by the three speeches from Fed voting member James Bullard where markets will be looking out for any further hints as to when the asset purchase tapering will begin. Finally, in Asia, a very quiet week is likely to be dominated by the provision of the preliminary GDP figure for Japan on Monday morning.

[B]UK[/B]

The recent announcement from BoE governor Mark Carney that the provision of long term low interest rates will be tied to the existence of above 7% unemployment rate comes into focus immediately, with the release of this figure on Wednesday. However, is it notable that this provision was also accompanied by the requirement that the forward expectation of CPI is below 2.5%. Subsequently the release of the CPI measure of inflation on Tuesday will also be followed closely this week. Also on the agenda are retail sales figures along with the minutes and votes from the last monetary policy committee.

The first important release of the week comes in the form of the UK CPI measure of inflation, released on Tuesday. Traditionally important owing to the price stability mandate provided by the BoE, this measure will be watched even closer given Carney’s indication that forward guidance would only be valid under conditions where sub 2.5% inflation is expected 18-24 months ahead. Given the forward expectation element, it becomes increasingly vague rather than stating the requirement of a specified current level. That being said, should CPI continue to rise, it would somewhat stop forward guidance in it’s tracks before it had begun. Subsequently a reduction in the CPI is necessary for low rates going forward and the median market forecast of 2.8% would be welcome in facilitating forward guidance.

The second part of Carney’s announcement was in relation to the dominant threshold, which too the Fed’s lead in utilising the headline unemployment rate as a proxy for economic health. The target level of 7% was provided as a point at which the BoE would reassess the provision of 0.5% interest rates. Subsequently it is this measure which will be expected to bring about significant volatility going forward where a reduction will be expected to be sterling positive, while a rise would likely be sterling negative. This figure is released on Wednesday morning, where market expectation is for the rate to remain at 7.8% for the fourth consecutive month.

Also on Wednesday morning, the BoE release minutes from the last MPC meeting, including the votes for both the interest rate and asset purchase decision. Markets expect little change, with both voting 9-0 against any amendments to either monetary policies. This does seem to be a given owing to the focus upon the inflation report which occurred shortly after this meeting, thus the only potential for market volatility will be associated with something unexpected in the minutes.

Finally, on Thursday, the release of the retail sales figures will provide a clear overview of consumer activity in July. Last month’s figure of 0.2% is expected to rise to 0.7%, which would be positive, yet unlikely to result in any significant market movement. Keep your eyes peeled for any sizable difference between expectations and the actual figure for a reaction in the markets.

[B]Americas[/B]

A quiet week for the US economy in terms of economic events, where the focus will be upon retail sales data on Tuesday, numerous speeches from Fed’s James Bullard and two notable manufacturing surveys. On Tuesday, the retail sales figure looks set to dominate, with market expectations pointing towards a moderate reduction from 0.4% to 0.3%. In a similar manner to the UK release, markets will be looking for a significant miss or beat to bring about a notable reaction.

Later in the week, the Fed comes back to the fore, when voting member James Bullard addresses the monetary policy outlook in three speeches taking place over Wednesday and Thursday. Given his role as a voting member of the FOMC, the markets will typically take note of anything notable that is said. On the whole, we have heard alot regarding the Fed’s potential tapering of QE and thus it is worth looking out for anything new regarding time-frames, quantity or type of assets being trimmed. Any previous change of tone from the Fed have generally been filtered through other members prior to Bernanke actually announcing anything officially. Thus it is speeches like this which could provide key clues to central bank thinking.

Finally, on Thursday, the release of the empire state manufacturing index and Philly fed manufacturing index provide a significant overview of the key sector. The empire state figure is typically seen as less influential, however it is also a leading indicator given it references the current month. This month, forecasts are for a moderate rise from 9.5 to 10.2, which would represent the highest level in around 15 months.

Meanwhile, the Philly fed survey is expected to show the opposite, falling from 19.8 to 15.6 in July. What markets are typically looking for is a clear picture from both these indicators and thus a strong out-performance or under-performance in both figures would be likely to gain a sense of direction for the day.

[B]Eurozone[/B]

A notable week for the eurozone economy, where proceedings are dominated by the release of preliminary Q2 GDP figures for Germany, France and the eurozone. The increasing strength of the single currency region has been exhibited recently through better than expected PMI figures, along with the Italian GDP figure. Subsequently, the core growth figures from the two main constituent economies followed by the eurozone as a whole has the ability to provide a further boost this week.

Estimates are for a push into growth for France, with a median of 0.1% being predicted after the previous figure of -0.2%. Meanwhile the German figure is expected to rise from 0.1% to 0.6%, which would represent the highest rate of growth in nine months. Finally, market estimates point towards the eurozone growing for the first time in seven months, with a 0.4 rise from 0.2% to 0.2% being touted.

Overall, we want to see a consistent picture across all three GDP releases, and if all goes to plan Wednesday could be a highly significant day for the eurozone after the troubles seen throughout this crisis.

The other important release in the eurozone will come in the form of the German ZEW economic sentiment figure, released on Tuesday. Given the importance of the German economy in driving the single currency forward, it is this survey which is more commonly watched than the eurozone measure. Market expectation is for a positive reading of 40.3 from last month’s 36.3. It is worth noting that this figure has disappointed regularly, with four of the last five readings coming in below estimates. Thus this figure can bring volatility simply by surprising the markets.

[B]Asia & Oceania[/B]

A very quiet week for Asia and the Oceania region, where the only major event to look out for comes in the form of the Japanese preliminary GDP release on Monday morning. The importance of this figure is clear given the policies undertaken by Shinzo Abe and the BoJ to grow and reinflate their economy over the last year. Whilst Japan has managed to attain reasonable growth levels back in Q1 2012, this was shortlived and the ability to maintain and grow upon the 1% seen in Q1 allows for greater expectations going forward. The forecasts point towards a 0.9% rise, which would be notable for this very reason, despite representing a reduction from the previous quarter.

[U][B]Read the full report at Alpari News Room[/B][/U]

610

[B]BoE forward guidance puts focus on UK inflation data[/B]

Today’s UK opening call provides an update on:

• Nikkei rallies on reports of a cut in Japanese corporation tax;
• BoE forward guidance puts focus on UK inflation data;
• Eurozone sentiment surveys to improve further ahead of GDP release;
• US retail sales to provide crucial insight into consumer.

The Nikkei led the gains in Asia over night, following reports that Prime Minister, Shinzo Abe, is planning to announce a cut in corporation tax if he goes ahead with the consumption tax hike that has received a lot of criticism in recent months, despite being necessary in order for Japan to deal with its debts. The fear is that the increase in the tax could damage consumer confidence, which despite the recent improvement, is very fragile. If consumers stop spending again, it will be very difficult to achieve the 2% inflation target.

However, this doesn’t appear to be too major a concern to investors as long as it’s accompanied by a cut in corporation tax, which could in theory encourage hiring, wage increases and investment. As we saw yesterday, private investment actually fell 0.1% in the last quarter, which contributed to the lower than expected growth figure of 0.6%. Any efforts to boost this are clearly going to be welcomed in the markets.

The minutes from the Bank of Japan meeting last month contained no surprises. The small downward revision to growth and inflation expectations may have sparked a debate on whether more would need to be done to achieve 2% inflation in two years and support the economy, but that did not happen, with the members instead voting unanimously to leave monetary policy unchanged.

The effectiveness of Mark Carney’s forward guidance will be tested for the first time this morning, when July’s CPI figure is released. It’s safe to say the markets weren’t blown away with the Bank of England’s forward guidance last week, given the number of caveats that accompanied it, one of which being that inflation expectations two years down the line must be at or below 2.5%.

These expectations are very subjective and in fact, the BoE itself has previously found it very difficult to provide accurate forecasts. Unless they start releasing renewed inflation expectations on a more regular basis, potentially along with the CPI figure, it’s going to be very difficult for the markets to determine how the individual figures impact the BoEs forecasts.

It’s not like over in the US, where inflation has been well below target for a long period of time, meaning the risk of a significant spike in the figure is low. Inflation in the UK has been volatile for a long time now and there’s no guarantee, in fact it’s quite unlikely, that expectations will remain below 2.5% for the three years that Carney believes it will take for unemployment to return to 7%. As a result, we could see much bigger reactions to inflation figures in the UK than we’ve seen over the last 12 months in the US.

Also this morning we have the ZEW economic sentiment figures being released for Germany and the eurozone. The data out of the eurozone has been much better over the last few months, which has led many to believe the area actually climbed out of recession in the second quarter, much earlier than had previously been expected. We’ll see if this was the case tomorrow, when the GDP figures for the eurozone are released.

The ZEW figures are expected to improve once again in August, with the eurozone figure seen jumping to 37.4, the highest since February, and the German figures seen rising to a five month high of 40.

Later on we have retail sales data out of the US for July, which should always be followed closely, given that consumer spending contributes around two thirds to total output. The retail sales figure gives great insight into how the consumer is coping with the rising mortgage rates, higher fuel costs and low wage rises. The payroll tax hike at the start of the year should also be felt more now, given the additional squeeze of higher fuel and mortgage costs, which had previously cushioned the blow somewhat.

Ahead of the open we expect to see the FTSE up 16 points, the CAC up 11 point and the DAX up 21 points.

[U][B]Read the full report at Alpari News Room[/B][/U]

611

[B]US futures higher ahead of retail sales[/B]

Today’s US opening call provides an update on:

[ul]
[li]Retail sales to provide insight into US consumers;
[/li][li]Fed member Lockhart to speak on health of US economy;
[/li][li]More strong eurozone data ahead of GDP figures;
[/li][li]UK inflation falls in line with expectations.
[/li][/ul]

US futures are pointing to a higher open on Tuesday, ahead of the release of some important retail sales figures for July.

Retail sales figures are viewed by many analysts as a preferential reading of economic health for the US, due to the contribution of consumer spending to the GDP figure. Basically, if consumers don’t feel secure in their jobs or are feeling the pinch financially, they tend to spend less and the economy struggles to grow.

As a result, retail sales can be seen to be a measure of both financial health of consumers, as well as confidence in the economy going forward. Especially at times of high unemployment, low wage growth, poor economic growth, higher taxes and rising fuel costs, like we’re seeing at the moment.

Today we’re expecting an increase of 0.3% in the broader figure, with core retail sales jumping to 0.4%. Traders tend to react more to the latter, due to the volatility in car sales, which isn’t included in it. If we see a poor figure today, it will only make it more difficult for the Fed to justify tapering in September as it would suggest the health of the consumer is not enough to support a sustainable recovery on its own.

On that note, we’ll hear from Federal Reserve Bank of Atlanta President, Dennis Lockhart, later on today when he speaks on the US economy and the strength of the dollar. While Lockhart is not currently on the FOMC, he will have insight into what the other members are thinking and could provide clues as to when the Fed is likely to begin tapering.

It’s been a bright start to the day so far in Europe, with more data suggesting the recovery in the eurozone is finally underway. Of course, any recovery is going to be extremely fragile, but compared to the last couple of years, it’s very encouraging.

The surveys have been improving significantly every month in the second quarter and that looks to be continuing into the third. Today’s ZEW economic sentiment figures for the eurozone and Germany continued the trend, coming out well above expectations at 44 and 42, respectively. Of course, the improvement in the surveys will be pointless if it doesn’t translate into better economic data, which we are expecting it to tomorrow, when the GDP figures are released. Expectations are currently for the eurozone to climb out of a year-long recession in the second quarter.

Over in the UK, the focus has been on the release of the inflation figure, which fell to 2.8% in July. There’s going to be a lot more attention paid to this figures now that new Bank of England Governor, Mark Carney, has set an inflation threshold for forward guidance to remain in place. The threshold actually refers to inflation expectations two years down the line, which is very subjective, however the official figure should give some insight into where the BoE see’s inflation going. Based on today’s figure, it looks like inflation remains well anchored and there’s little threat in the short term of interest rates being reviewed.

Ahead of the open we expect to see the S&P up 6 points, the Dow up 63 points and the NASDAQ up 12 points.

[U][B]Read the full report at Alpari News Room[/B][/U]

612

Craig Erlam looks at the weeks 3 biggest events hitting the FX market this week.

613

James Hughes discusses today’s UK CPI reading and looks at how the market has reacted to US retails sales reading.

614

[B]GDP figures to extend positive run for the eurozone[/B]

Today’s UK opening call provides an update on:
• Not enough data to justify tapering in September according to Fed’s Lockhart;
• Eurozone expected to climb out of year-long recession in Q2;
• Forward guidance clarity sought from BoE minutes;
• Fed’s Bullard to provide further tapering insight.

European indices are expected to open slightly higher on Wednesday, after a non-voting member of the FOMC suggested that tapering is unlikely to begin in September.

Investors still remain split on when the Fed will begin scaling back its asset purchases, with the majority sitting in either the September or December camps. Dennis Lockhart, President of the Atlanta Fed, claimed last night that the FOMC is unlikely to have enough data to justify tapering in September, which therefore leaves December as the most likely starting point.

While Lockhart is not a voting member of the FOMC, his views are seen as close to the consensus at the Fed, which is why they carry some weight. If we see more signs in the coming weeks that September is a no go for tapering, it could provide the spark that sends US indices back towards those record highs, following a bit of sell-off since the start of the month.

Asian markets lacked any real direction over night, with most indices trading relatively flat. The same can’t be said for the European session this morning, with Lockhart’s comments providing some early direction, followed by back-to-back GDP figures from the eurozone, Bank of England minutes and UK employment data.

The data out of the eurozone over the recent months has been an unexpected surprise. A few months ago, it seemed unlikely that the euro area would move out of recession this year, let alone in the second quarter, as is expected to be confirmed this morning. The eurozone is expected to have recorded marginal growth of 0.2% in the second quarter, which is enough to bring the region out of recession and begin on the road to recovery. Any decent recovery is very unlikely for probably a few years, with the area probably stagnating somewhat in the meantime.

The release of the Bank of England minutes from earlier this month will be monitored closely by the markets this morning. While Governor, Mark Carney, did not announce the central bank’s new forward guidance at the meeting, it is likely that it will have been agreed upon here. The markets were less than impressed with the BoEs attempt at forward guidance last week, due to the amount of caveats it came with that essentially invalidated it entirely. The minutes may provide further clarity on the matter and may put investors concerns at ease. If not, then Carney has a tough job ahead, convincing businesses and consumers that rates will remain low so that they can borrow and spend without the worry of interest rate hikes in the near future.

The unemployment rate, one of the thresholds for the forward guidance, will also be released this morning. Carney announced last week that interest rates will only be discussed again when unemployment falls from 7.8% to 7%, which he expects to take three years. The unemployment rate is expected to remain at 7.8% today, while the number of people claiming unemployment benefits is expected to fall by 15,000.

The US session later on may be a little quieter, with the economic calendar looking a little light. One thing worth keeping an eye on will be a speech from FOMC voting member, James Bullard, in Kentucky. Following Lockhart’s comments last night, Bullard is likely to receive a number of questions about his expectations ahead of the September meeting. While Bullard is a well known dove, any suggestion that what Lockhart said is correct could prompt further rallies in US equities later, while the dollar would probably come under pressure.

Ahead of the open we expect to see the FTSE up 2 points, the CAC up 9 point and the DAX up 16 points.

[U][B]Read the full report at Alpari News Room[/B][/U]

615

[B]Eurozone out of recession, markets unimpressed[/B]

Today’s US opening call provides an update on:

[ul]
[li]Strong German and French growth drags eurozone out of recession;
[/li][li]BoE vote on forward guidance not unanimous;
[/li][li]UK jobless claims fall for ninth month but unemployment remains at 7.8%;
[/li][li]Fed’s Bullard to speak in Kentucky.
[/li][/ul]

We’ve seen a very bizarre reaction to the eurozone GDP figures in the markets this morning, with investors selling in response to better than expected figures.

The day got off to a great start, with France climbing out of recession in style. The country recorded 0.5% growth in the second quarter, smashing expectations of 0.1% growth, and well above first quarter growth of -0.2%. Germany kept things going, recording 0.7% growth in the second quarter, ahead of expectations of 0.6%.

Given that these are the two largest economies in the eurozone, it was almost inevitable that the eurozone GDP figure would beat expectations and confirm that the area climbed out of recession in the second quarter. What wasn’t guaranteed was the reaction to the data, with European indices currently a mixed bag and the euro trading lower on the day. There appears to be little reason for the negative reaction to the figures, but it could just be a simple case of strong data being priced in already following a number of positive data releases.

The Bank of England minutes confirmed something that many had previously suggested, that the vote on forward guidance was not unanimous. One MPC member, Martin Weale, wanted a shorter time horizon for inflation than the 18-24 months that the BoE announced last week.

Had the other members agreed to this, the forward guidance would have been even more useless than it already is, given that inflation is currently already well above the 2.5% upper boundary. Understandably, the markets took this as a hawkish sign, prompting a rally in sterling as sending it higher on the day against the dollar.

On a more upbeat note, the number of people claiming unemployment related benefits in the UK fell for the ninth consecutive month in July. The number of people claiming fell by 29,200, while June’s figure was revised lower to 29,400. This was yet another good sign for the UK, although the unemployment rate remained at 7.8%, where it has been since the start of the year, barring February when it temporarily jumped to 7.9%. This just highlights how big the job of getting unemployment down to 7% is going to be. As people find work, more rejoin the labour force, keeping the rate stubbornly high.

The US session is looking a little quieter on Wednesday, with the economic calendar looking pretty thin. The key event will be a speech from James Bullard, President of St Louis Fed and FOMC voting member, in Kentucky.

Following comments yesterday from Dennis Lockhart, President of the Atlanta Fed, that the Fed is unlikely to begin scaling back its asset purchases in September due to a lack of data that shows the economy can support itself, investors will be looking for confirmation from Bullard that this is the case. That said, Bullard is a known dove, so any confirmation of this should be taken with a pinch of salt.

Ahead of the open we expect to see the S&P down 3 points, the Dow down 25 points and the NASDAQ down 3 points.

[U][B]Read the full report at Alpari News Room[/B][/U]

616

0:10 Eurozone GDP figures impress
1:56 UK jobs data beats expectations
3:09 Fed’s Bullard set to dominate US session

617

[B]Retail sales to show UK recovery continuing into Q3[/B]

Today’s UK opening call provides an update on:

• US falls as rising Treasury yields stoke tapering fears;
• Not enough data to justify September tapering according to Fed’s Bullard;
• UK recovery expected to continue into Q3 with strong retail sales in July;
• US data in focus this afternoon, in particular jobless claims and philly fed.

European indices are expected to open mostly lower on Tuesday, tracking losses made in the US on Wednesday, which also weighed on Asian stocks over night.

The sell-off in the US came after another rise in US Treasury yields, to around 2.71%, on increasing expectations that the Fed will start tapering its asset purchases in September. While I still believe it won’t come until December, at the earliest, I am certainly in the camp that hopes it will happen in September. All these swings in the markets driven by fear of when the Fed will begin tapering is overshadowing the fundamentals once again and preventing the markets from functioning correctly.

The reactions are not even always rational. For example, in the last two days we’ve heard from two members of the Fed and both have agreed that there is not enough data to justify cutting back the asset purchases in September. This appears to have been completely ignored. Now, while people would be forgiven for ignoring these comments from James Bullard, who is a well known dove, Dennis Lockhart, despite being a non-voter, is generally seen over sharing the views of the majority at the Fed, so these comments should carry some weight.

Instead though, the markets appear to have reacted to comments from Bullard, in which he claimed the Fed should hold press conferences after all its meetings, including October. He believes not having press conferences after certain meetings leaves only a select number of dates when the Fed can make the key decision, which just reaffirmed the markets view that tapering will begin in September or December. However, in calling for a press conference in October, Bullard has essentially suggested that the Fed could be forced to act too early, in September, rather than wait and extra month for more data. This is probably clutching at straws, but that’s what the markets have been reduced to nowadays as everyone attempts to predict when the Fed will act. All comments are over-analysed and the message is different depending on who’s reading it and what they want to believe.

The economic calendar is looking very light this morning, with UK retail sales for July the only release. The recovery looks likely to continue into the third quarter, with retail sales for July seen rising 2.5%, while core retail sales, the measure many in the markets pay more attention to as it strips out the more volatile items including fuel prices, are seen rising 2.7%. Given that consumer spending makes up around two thirds of the economy, this figure is seen as a hugely important measure of economic health.

After this, the focus will switch to the US, with a number of pieces of important economic data due to be released. First up we have the July CPI figure, weekly jobless claims and empire state manufacturing index all being released at 1.30pm UK time. Many people will be closely watching the CPI figure for signs that inflation is closing in on 2.5%, the point at which the Fed will revisit interest rates, however they probably shouldn’t pay too much attention to the figure.

Obviously if we see a significant spike in the figure, we should sit up and take note. However, the personal consumption expenditure figure, released earlier this month showing a rise of only 1.3%, is the preferred measure of inflation for the Fed. Therefore, while the CPI is important, while the PCE figure remains so low, any rise is likely to only have a limited impact.

The figures we should be paying attentions to are the other two, the weekly jobless claims and the philly fed manufacturing index, which will be released at 3pm UK time. That is according to a recent study by Goldman Sachs, who believe they are important growth indicators that don’t necessarily get the recognition that they should, with investors paying more attention to non-farm payrolls and advanced GDP readings. Whether you agree with this or not, it is important to make note of this because if Goldman Sachs believe it to be true, many are likely to agree and the ones that don’t will probably react as if they do, purely out of respect for the size and influence of the bank.

Ahead of the open we expect to see the FTSE down 21 points, the CAC down 5 point and the DAX down 6 points.

[U][B]Read the full report at Alpari News Room[/B][/U]

618

[B]US futures lower ahead of key data releases[/B]

Today’s US opening call provides an update on:

[ul]
[li]Plenty of US economic data due to be released;
[/li][li]Goldman Sachs highlights jobless claims and Philly Fed manufacturing index;
[/li][li]CPI figure important, but Fed prefers PCE as measure of inflation;
[/li][li]UK retail sales smash expectations pushing sterling through key resistance.
[/li][/ul]

European indices are trading mostly lower on Thursday, and US futures are pointing to a similar open ahead of some big economic releases.

There are a number of pieces of economic data due out of the US today, including the CPI, empire state manufacturing and industrial production figures for July. However, a recent report from Goldman Sachs suggests the releases we should pay most attention to are the weekly jobless claims and Philly Fed manufacturing index.

These figures, Goldman Sachs believes, are important growth indicators that don’t have as big an impact on the markets as they should. Whether or not people agree with this, Goldman Sachs is a big presence in the markets and people should therefore keep an eye on them. It will be interesting to see if we a bigger reaction to these figures now following the release of the report.

Another figure that tends to attract a lot of attention is the CPI figure, which is expected to show inflation rising to 2% in July. With 2.5% inflation being the threshold at which the Fed will consider raising interest rates, this is likely to start having a bigger impact on the markets soon, especially if it comes out above expectations.

That said, the Fed is known to prefer personal consumption expenditure as a measure of inflation, and this is currently at 1.3%, based on data released earlier this month. As a result, even once the CPI figure reaches 2.5%, it’s unlikely to prompt a rate hike, with deflation currently looking a bigger threat.

The European session has actually been largely positive so far, although you wouldn’t think so looking at the markets. While it’s been relatively quiet on the eurozone front, the retail sales data out of the UK smashed expectations, rising 3% in July compared to a year earlier.

The data had minimal impact on the FTSE, but sterling rallied strongly on the data, breaking through a key level against the dollar before running into resistance around 1.56. The UK data just keeps getting better at the moment and is showing no signs of changing. At this rate, a year that started with talk of a triple dip recession could end with far better growth figures than even the most optimistic forecasts.

Ahead of the open we expect to see the S&P down 6 points, the Dow down 48 points and the NASDAQ down 21 points.

[U][B]Read the full report at Alpari News Room[/B][/U]

619

0:09 Fed member James Bullard comments on tapering
1:44 UK recovery gathers pace in July
2:48 Three pieces of data to watch today

620

[B]Eurozone inflation and US consumers in focus on Friday[/B]

Today’s UK opening call provides an update on:

• US stocks fall on better weekly jobless claims
• Markets spooked by pessimistic outlook from Wallmart;
• Eurozone CPI to remain low, although no further stimulus expected;
• US consumer sentiment and housing data may disappoint.

European futures are trading relatively flat on Friday, largely ignoring the sizable losses in the US indices over night on increasing expectations that the Fed will start tapering in September.

US weekly jobless claims fell to a six year low last week, which despite being a positive thing for the economy, was instead viewed as another sign of improving labour market conditions that will probably convince the Fed to begin tapering next month. The figure prompted more selling in US Treasuries which pushed the yield up to 2.8%, from 2.71% earlier in the session.

We’re seeing some more unusual activity in the markets at the moment, similar to what we saw a few months ago when investors were viewing anything as a signal to buy into the rally. Now we’re seeing the opposite, with investors apparently seeking shorting opportunities ahead of the expected Fed decision in September. Investors are therefore being very selective about what they pay attention to, rather than looking at the bigger picture.

For example, Wallmart became the latest retailer to disappoint on sales yesterday, while offering a gloomier outlook than analysts had expected. A lack of consumer demand was the main reason for the drop in sales, which is a bad sign for an economy the relies on consumer spending to drive around two thirds of its growth.

If consumers aren’t spending due to higher mortgage rates, fuel costs and the payroll tax. This should encourage the Fed to maintain its asset purchases for now, however markets ignored this and the losses in Wallmarts shares just contributed to the overall losses in the US indices.

It’s looking like a quiet start to the European session on Friday, with a final reading of the eurozone CPI figure the only notable economic release this morning. Eurozone inflation has been a big talking point over the course of this year, with many calling on the ECB to do more to stimulate the economy, either with more aggressive rate cuts or more ambitious forward guidance.

So far we’ve seen neither, with the central bank instead opting to cut the refi rate by only 25 basis points, leave the deposit rate unchanged at 0% and offer completely useless forward guidance that offered no thresholds whatsoever. Instead it suggested rates would remain low for at least 12 months, which under the circumstances was already assumed.

The final CPI reading for July is expected to remain unchanged from the original figure that was released at the end of last month. The core CPI is expected at 1.1%, which suggests the ECB has plenty of room to manoeuvre when it comes to providing some form of monetary stimulus to the euro area.

Things should pick up a little during the US session later, with a few more key pieces of economic data being released. The obvious release to look out for is the preliminary UoM consumer sentiment figure, given how much consumer spending contributes to US GDP.

As it stands, a figure around 85.5 is expected, although I believe this could be a little high. Consumers are likely to be feeling the pinch at the moment, with higher fuel prices combining with higher mortgage rates to leave consumers watching the pennies. The earnings report from Wallmart yesterday highlights this, so I’ll be very surprised if we don’t see a disappointing figure here today.

Higher mortgage rates off the back of Fed tapering expectations are not just going to have an impact on spending, but also the housing market.

Previously, those potential buyers who were on the fence about whether it was time to buy or not may have been convinced by the prospect of lower rates, but that is no longer the case. We’ve already seen it having a negative impact on housing data over the last month and I expect the same today, in the housing starts and building permits figures.

Ahead of the open we expect to see the FTSE down 13 points, the CAC up 3 point and the DAX down 6 points.

[U][B]Read the full report at Alpari News Room[/B][/U]